SB-2/A: Optional form for registration of securities to be sold to the public by small business issuers

Published on August 14, 1996



AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1996


REGISTRATION NO. 333-5276-LA

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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MICROVISION, INC.
(Name of small business issuer in its charter)
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WASHINGTON 3679 91-1600822
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)


2203 AIRPORT WAY SOUTH, SUITE 100, SEATTLE, WASHINGTON 98134
(206) 623-7055
(Address and telephone number of Registrant's principal executive offices and
principal place of business)

RICHARD F. RUTKOWSKI
CHIEF EXECUTIVE OFFICER
2203 AIRPORT WAY SOUTH, SUITE 100
SEATTLE, WASHINGTON 98134
(206) 623-7055
(Name, address, and telephone number of agent for service)
------------------------

COPIES TO:

John J. Halle Thomas P. Palmer
Ronald J. Lone William C. Stone
Laurie A. Smiley Tonkon, Torp, Galen,
Stoel Rives LLP Marmaduke & Booth
3600 Union Square 1600 Pioneer Tower
600 University Street 888 SW Fifth Avenue
Seattle, Washington 98101-3197 Portland, Oregon 97204
(206) 624-0900 (503) 221-1440

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Approximate date of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. /X/
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED AUGUST 14, 1996


2,000,000 UNITS

[LOGO]

EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK

Microvision, Inc., a Washington corporation ("Microvision" or the
"Company"), is hereby offering 2,000,000 units (the "Units"), each Unit
consisting of one share of the Company's common stock, no par value (the "Common
Stock"), and one warrant to purchase one share of Common Stock (the "Warrants").
It is currently estimated that the initial offering price will be between $8.00
and $10.00 per Unit (the "Unit Offering Price"). See "Underwriting" for the
factors to be considered in determining the Unit Offering Price. The Common
Stock and Warrants that make up the Units will separate immediately upon
issuance and will trade only as separate securities. Each Warrant initially
entitles the holder thereof to purchase one share of Common Stock at an exercise
price of $ per share (150% of the Unit Offering Price), subject to
certain adjustments. The Warrants are exercisable at any time, unless previously
redeemed, until the fifth anniversary of the effective date of this offering,
subject to certain conditions. The Company may redeem the outstanding Warrants,
in whole or in part, at any time upon at least 30 days prior written notice to
the registered holders thereof, at a price of $.25 per Warrant, provided that
the closing bid price of the Common Stock has been at least 200% of the exercise
price of the Warrants for each of the 20 consecutive trading days immediately
preceding the date of the notice of redemption.

Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants, and there can be no assurance that an active trading
market will develop or be maintained following the offering. The Company has
made application to include the Common Stock and Warrants on the Nasdaq National
Market under the symbols "MVIS" and "MVISW," respectively. See "Risk Factors --
Possible Illiquidity of Trading Market."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 7.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.



UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)

Per Unit............................... $ $ $
Total (3).............................. $ $ $


(1) Excludes a nonaccountable expense allowance payable by the Company to
Paulson Investment Company, Inc. and marion bass securities corporation, the
representatives (the "Representatives") of the several underwriters (the
"Underwriters"), equal to 3% of the aggregate Unit Offering Price. The
Company also has agreed (i) to issue warrants to the Representatives (the
"Representatives' Warrants") to purchase in the aggregate up to 10% of the
number of Units sold to the public, exercisable at $ per Unit (120%
of the Unit Offering Price), and (ii) to register for resale the securities
underlying the Representatives' Warrants. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."

(2) Before deducting expenses of this offering payable by the Company estimated
at $1,065,000 , including the Representatives' nonaccountable expense
allowance.


(3) The Company has granted the Representatives a 45-day option (the
"Overallotment Option") to purchase up to 300,000 Units on the same terms
and conditions as set forth above, solely for the purpose of covering
overallotments, if any. If the Overallotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

------------------------------

The Units offered by this Prospectus are offered by the several Underwriters
subject to prior sale, when and if delivered to and accepted by the
Underwriters, and subject to the right to reject any order in whole or in part
and to certain other conditions. It is expected that delivery of the Units will
be made in New York, New York on or about , 1996.

PAULSON INVESTMENT COMPANY, INC.
MARION BASS SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS , 1996.
[LOGO]



The Company expects that its technology
The Company's objective is to be will permit the use of highly
Microvision's patented display a leading provider of personal miniaturized, lightweight,
technology allows electronically display products in a broad range battery-operated, viewing devices that
generated images to be projected of professional and consumer can be comfortably held or worn as
directly onto the viewer's eye. applications. "headphones for the eyes."


Augmented Vision Systems

AUGMENTED VISION APPLICATIONS SUPERIMPOSE HIGH CONTRAST, MONOCHROMATIC IMAGES OR
INFORMATION ON THE VIEWER'S FIELD OF VISION AS A MEANS OF ENHANCING THE SAFETY,
PRECISION AND SPEED OF THE USER'S PERFORMANCE OF TASKS. FOR EXAMPLE, A
HEAD-MOUNTED DISPLAY COULD SUPERIMPOSE CRITICAL PATIENT INFORMATION IN A
SURGEON'S FIELD OF VISION. VITAL SIGNS, EKG TRACES, REFERENCE MATERIALS, X-RAYS
OR MRI IMAGES COULD BE MONITORED WITHOUT REQUIRING THE SURGEON TO LOOK UP FROM A
PROCEDURE. FOR MILITARY APPLICATIONS, TROOPS COULD BE EQUIPPED WITH EYEGLASSES
THAT DISPLAY HIGH DEFINITION IMAGERY WHICH COULD BE VIEWED DURING THE DAYTIME
WITHOUT BLOCKING NORMAL VISION AND COULD ASSIST IN THREAT DETECTION,
RECONNAISSANCE,
MAINTENANCE AND OTHER ACTIVITIES.

Visual Simulation and Entertainment Displays

MANUFACTURERS OF INTERACTIVE MEDIA PRODUCTS HAVE RECOGNIZED THAT THE VISUAL
EXPERIENCE OFFERED BY SIMULATION IS ENHANCED BY HIGH RESOLUTION,
THREE-DIMENSIONAL DISPLAYS PROJECTED OVER A WIDE FIELD OF VISION. ALTHOUGH
SIMULATED ENVIRONMENTS TRADITIONALLY HAVE BEEN USED AS A TRAINING TOOL FOR
PROFESSIONAL USE, THEY ARE INCREASINGLY POPULAR AS A MEANS OF ENTERTAINMENT,
PARTICULARLY IN COMPUTER GAMES. IN A THREE-DIMENSIONAL VIDEO GAME, FOR EXAMPLE,
AN INEXPENSIVE PAIR OF VIRTUAL RETINAL DISPLAY EYEGLASSES WITH A WIDE FIELD OF
VIEW COULD PROVIDE A HIGHLY IMMERSIVE VISUAL EXPERIENCE.


THE ABOVE RENDERING HAS BEEN PREPARED FOR ILLUSTRATION PURPOSES ONLY TO
DEMONSTRATE PROPOSED PRODUCTS AND POSSIBLE APPLICATIONS FOR THE COMPANY'S
TECHNOLOGY. THIS RENDERING DOES NOT DEPICT AN ACTUAL PRODUCT OR CURRENT
APPLICATIONS. THE COMPANY HAS BUILT ONLY PORTABLE AND TABLE-TOP PROTOTYPES TO
DATE. SEE "BUSINESS -- PROTOTYPES."


------------------------------

THE COMPANY HAS NOT PREVIOUSLY BEEN SUBJECT TO THE REPORTING REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THE COMPANY
INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING FINANCIAL
STATEMENTS AUDITED BY ITS INDEPENDENT ACCOUNTANTS AND QUARTERLY REPORTS
CONTAINING UNAUDITED FINANCIAL INFORMATION FOR EACH OF THE FIRST THREE QUARTERS
OF EACH FISCAL YEAR.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMPANY'S
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY


THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
OVERALLOTMENT OPTION, THE WARRANTS OR THE REPRESENTATIVES' WARRANTS AND REFLECTS
(I) A 1-FOR-3.2 REVERSE SPLIT OF THE CAPITAL STOCK OF THE COMPANY EFFECTED
AUGUST 9, 1996; AND (II) THE CONVERSION OF ALL OUTSTANDING SHARES OF SERIES A
PREFERRED STOCK OF THE COMPANY INTO AN AGGREGATE OF 859,776 SHARES OF COMMON
STOCK UPON THE CLOSING OF THIS OFFERING. SEE "DESCRIPTION OF SECURITIES" AND
"UNDERWRITING."


THE COMPANY


Microvision, Inc. ("Microvision" or the "Company") is developing information
display technologies that allow electronically generated images and information
to be projected directly onto the retina of the viewer's eye. The Company has
developed prototype virtual retinal display ("VRD") devices, including a
portable monochrome version and a table-top, full-color version, and is
currently refining and developing its VRD technology for commercial
applications. The Company expects to commercialize its technology through the
development of products and as a supplier of personal display technology to
original equipment manufacturers ("OEMs"). The Company believes the VRD
technology will be useful in a variety of applications, including portable
communication devices, visual simulation and entertainment displays and devices
that superimpose images on the user's field of vision. The Company expects that
its technology will permit the use of highly miniaturized, lightweight, battery-
operated, viewing devices that can be comfortably held or worn as "headphones
for the eyes."


Information displays are the primary medium through which text and images
generated by computer and other electronic systems are delivered to end-users.
For decades, the cathode ray tube ("CRT") and, more recently, flat panel
displays have been the dominant display devices. In recent years, as the
computer and electronics industries have made substantial advances in
miniaturization, manufacturers have sought lightweight, low-power,
cost-effective displays to facilitate the development of more portable products.
Flat panel technologies have made meaningful advances in these areas, and liquid
crystal flat panel displays are now commonly used for laptop computers and other
electronic products. Both CRT and flat panel technologies, however, pose
difficult engineering and fabrication problems for more highly miniaturized
products, because of inherent constraints in size, weight and power consumption.
In addition, many products that use CRT and flat panel displays often become dim
and difficult to see in outdoor or other settings where the ambient light is
stronger than the light emitted from the screen. As display technologies attempt
to keep pace with miniaturization and other advances in information delivery
systems, the Company believes that CRT and flat panel technologies will
experience increasing difficulty providing the full range of performance
characteristics -- high resolution, bright display, low power consumption --
required for state-of-the-art information systems.

Microvision's VRD is fundamentally different from previously commercialized
display technologies. By scanning a low power beam of colored light to "paint"
rows of pixels directly on the retina of the viewer's eye, the VRD creates a
high resolution, full-motion image without the use of screens or externally
projected images. In certain applications, the image appears in the viewer's
field of vision as if the viewer were only an arm's length away from a high
quality video screen. The VRD also can superimpose an image on the viewer's
field of vision, enabling the viewer to see data or other information projected
by the device in the context of his or her natural surroundings. In each case, a
high resolution, bright image is created.

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 intends to achieve this objective and to generate
revenues through a combination of the following activities: technology licensing
to OEMs of consumer electronics products; provision of engineering services

3
associated with cooperative development arrangements and research contracts; and
the manufacture and sale of high-performance personal display products to
professional users, directly or through joint ventures.


The Company is in discussions with systems and equipment manufacturers in
the defense, wireless communications, computing and commercial and consumer
electronics industries. The Company intends to work with certain of these
manufacturers to develop or co-develop specific products that the Company
believes to be the most commercially viable. Even if the Company is successful
in arranging development or co-development projects, it does not expect
commercial sales of products until at least 1998, and commercial sales may not
occur until substantially later, if at all.


The Company's existing prototypes have demonstrated the technological
feasibility of the VRD and the Company's ability to miniaturize key components.
The Company has completed the development of a mechanical resonant scanner
("MRS"), which the Company believes represents a breakthrough in the
miniaturization of scanning devices. The Company believes that the MRS will
permit high quality image displays using smaller devices produced at lower cost
than is possible with current alternative technology. Additional work is in
progress to achieve full-color capability in miniaturized VRD devices, to expand
the "exit pupil" of the VRD (which defines the range within which the viewer's
eye can move and continue to see the image) and to design products for specific
applications.

The VRD was developed at the University of Washington's Human Interface
Technology Lab (the "HIT Lab") by a team of engineers and technicians under the
direction of Thomas A. Furness, III, a leader in the development of visual
systems. See "Management -- HIT Lab Personnel." In 1993, the Company acquired
the exclusive rights to the VRD technology under a license agreement with the
University of Washington (the "UW License Agreement"). Currently, the
development of the VRD technology is taking place at the HIT Lab pursuant to a
research agreement between the University and the Company (the "Research
Agreement"). See "Business -- UW License Agreement." The University has received
one patent on the VRD technology and has additional patent applications pending,
all of the rights to which have been exclusively licensed to the Company.

The Company was incorporated under the laws of the State of Washington in
May 1993. Its corporate offices are located at 2203 Airport Way South, Suite
100, Seattle, Washington, and its telephone number at that address is (206)
623-7055.

4
THE OFFERING



Securities offered................ 2,000,000 Units, each Unit consisting of one share of
Common Stock and one Warrant to purchase one share of
Common Stock. The Common Stock and Warrants will be
separately transferrable immediately upon issuance.

Common Stock to be outstanding
after this offering.............. 5,461,546 shares (1)

Use of proceeds................... To fund research and product development, including
$1,604,218 to be paid under the License Agreement,
purchase and installation of certain laboratory
equipment and facilities, repayment of up to $750,000 of
the Company's 7% Convertible Subordinated Notes due 1997
(the "7% Notes"), unless converted, and for working
capital. See "Use of Proceeds."

Risk factors...................... Investment in the Units involves a high degree of risk.
See "Risk Factors."

Proposed NASDAQ National Market
symbols.......................... Common Stock ...................................... MVIS
Warrants ......................................... MVISW


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(1) Excludes (i) 1,189,168 shares of Common Stock issuable upon exercise of
stock options and warrants outstanding at July 10, 1996 at an approximate
weighted average exercise price of $5.22 per share; (ii) up to 135,000
shares of Common Stock issuable in connection with conversions or
redemptions of the Company's 7% Notes; (iii) 400,000 shares of Common Stock
issuable upon exercise of the Representatives' Warrants; (iv) 12,000 shares
of Common Stock reserved for issuance to Stoel Rives LLP, as a result of its
receipt of Units as partial payment for legal services rendered to the
Company in connection with this offering (the "Stoel Rives Shares"); and (v)
the cash redemption of the fractional shares resulting from the reverse
stock split approved by the shareholders on August 9, 1996. An additional
825,000 shares of Common Stock are reserved for issuance under the Company's
1996 Stock Option Plan and 1996 Independent Directors Stock Plan (the "1996
Stock Plans"). See "Capitalization" and "Management -- Benefit Plans."


5
SUMMARY FINANCIAL INFORMATION


The following table presents summary historical financial information of the
Company. The financial information as of and for the years ended December 31,
1994 and 1995 has been derived from financial statements audited by Price
Waterhouse LLP, independent accountants. The audited balance sheets at December
31, 1994 and 1995 and the related statements of operations, of cash flows and of
changes in shareholders' equity (deficit) for the two years ended December 31,
1995 and notes thereto (the "Audited Financial Statements") appear elsewhere in
this Prospectus. The report of Price Waterhouse LLP, which also appears herein,
contains an explanatory paragraph relating to the Company's ability to continue
as a going concern. See Note 1 of Notes to the Financial Statements. The
financial information presented as of June 30, 1996, for the six month periods
ended June 30, 1995 and 1996, and for the period cumulative from inception (May
1993) to June 30, 1996, has been derived from unaudited financial statements of
the Company (the "Unaudited Financial Statements," and, together with the
Audited Financial Statements, the "Financial Statements"). In the opinion of
management, the Unaudited Financial Statements have been prepared on the same
basis as the Audited Financial Statements and include all adjustments,
consisting only of normal recurring adjustments, that management of the Company
considers necessary for a fair presentation of the results of operations and
financial position for such periods. The results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
any other interim period or for the full year. This summary financial
information should be read in conjunction with the Financial Statements and
other financial information included elsewhere in this Prospectus.





PERIOD FROM
YEAR ENDED SIX MONTHS ENDED INCEPTION
-------------------------- -------------------- (MAY 1993) TO
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1995 1996 1996
------------ ------------ --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Contract revenue.............................. $ -- $ 29 $ -- $ 27 $ 56
Operating expenses:
Research and development.................... 1,805 1,931 700 692 5,575
Marketing, general and administrative....... 1,046 1,038 408 670 2,970
------------ ------------ --------- --------- -------------
Total expenses.......................... 2,851 2,969 1,108 1,362 8,545
Net loss...................................... $ (2,812) $ (2,944) $ (1,099) $ (1,332) $ (8,439)
Pro forma net loss per share (3)(4)........... $ (0.62) $ (0.24) $ (0.28)
Shares used in pro forma net loss per share
calculations................................. 4,749 4,660 4,839






AS OF DECEMBER 31, AS OF JUNE 30, 1996
---------------------------------------------
-------------------- PRO FORMA
1994 1995 ACTUAL PRO FORMA (1) AS ADJUSTED (2)
--------- --------- ----------- --------------- ---------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 68 $ 99 $ 462 $ 1,170 $ 16,665
Working capital............................................ (30) (376) (251) (251) 15,244
Total assets............................................... 138 179 629 1,379 16,874
Total shareholders' equity (deficit)....................... (10) (365) (144) (144) 15,351



- ------------------------------

(1) Gives effect to the issuance of the 7% Notes. See "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Certain Transactions" and
Note 8 of Notes to the Financial Statements.



(2) Adjusted to reflect the sale of the Units offered hereby, assuming the
receipt of the estimated net proceeds of $15,495,000 and no repayment of the
7% Notes out of the proceeds of the offering. Excludes (i) 1,189,168 shares
of Common Stock issuable upon exercise of stock options and warrants
outstanding at July 10, 1996 at an approximate weighted average exercise
price of $5.22 per share; (ii) up to 135,000 shares of Common Stock issuable
in connection with conversions or redemptions of the Company's 7% Notes;
(iii) 400,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrant; (iv) the Stoel Rives Shares; and (v) the cash
redemption of the fractional shares resulting from the reverse stock split
approved by the shareholders on August 9, 1996. An additional 825,000 shares
of Common Stock are reserved for issuance under the Company's 1996 Stock
Plans. See "Capitalization" and "Management -- Benefit Plans."



(3) Pro forma net loss per share is computed after giving retroactive effect to
the conversion of all shares of Series A Preferred Stock into an equal
number of shares of Common Stock, which will occur upon completion of this
offering.



(4) Supplemental earnings per share reflecting the use of offering proceeds to
repay the 7% Notes is not provided due to the issuance of the 7% Notes
subsequent to June 30, 1996.


6
RISK FACTORS

THE INFORMATION SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "USE OF PROCEEDS" AND "BUSINESS"
AND ELSEWHERE IN THIS PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH
BELOW AND INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS:

MARKET ACCEPTANCE OF NEW TECHNOLOGY. The Company's success will depend on
successful development and commercial acceptance of the VRD technology, a new
technology which permits users to view images and data without the use of a
screen by projecting an image directly onto the retina of the viewer's eye. To
achieve commercial success, this technology and products incorporating this
technology must be accepted by OEMs and end-users, and must meet the
expectations of a continually changing marketplace. There can be no assurance
that the VRD technology will achieve any measure of market acceptance. See
"Business."

EARLY STAGE OF PRODUCT DEVELOPMENT. Although the Company has developed
prototype VRD displays, further research, development and testing is necessary
before any products will be available for commercial sale. There can be no
assurance that the Company will be successful in further refining the VRD
technology to produce marketable products. In addition, delays in the
development of products, or the inability of the Company to procure partners for
the development of products, may delay the introduction of products to the
marketplace. Any such delay would likely have a material adverse effect on the
Company's competitive position, financial condition and results of operations.
See "Business."


DEVELOPMENT STAGE ENTERPRISE; EXPECTATION OF LOSSES; NEGATIVE CASH
FLOWS. The Company was founded in May 1993 and, as a development stage
enterprise, has not yet generated revenues from product sales. The Company does
not expect to generate significant revenues in the near future. As of June 30,
1996, the Company had an accumulated deficit since inception of $8,439,200, and
the Company expects to continue to incur substantial losses and negative cash
flow at least through mid-1998 and possibly thereafter. There can be no
assurance that the Company will become profitable or cash flow positive at any
time in the future. Because the Company has experienced significant losses from
operations, the Company's ability to continue as a going concern is uncertain.
The likelihood of the success of the Company must be considered in light of the
expenses, difficulties, and delays frequently encountered by businesses formed
to pursue development of new technologies. In particular, the Company's
operations to date have focused primarily on research and development of the VRD
technology and prototypes and the Company has only recently begun to develop
marketing capabilities. It is not possible to estimate future operating expenses
and revenues based upon historical performance. Operating results will depend,
in part, on matters over which the Company has no control, including, without
limitation, general economic conditions, technological and other developments in
the electronics, computing, information display and imaging industries, and
competition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."


LOSS OF EXCLUSIVE LICENSE; DEPENDENCE ON THE UNIVERSITY OF WASHINGTON. The
Company's success depends on technology that it has licensed from the University
of Washington. The Company relies on the University of Washington to prepare,
file and prosecute patent applications relating to the VRD technology. In
addition, the University of Washington's HIT Lab currently performs all of the
Company's research and development activities under the terms of the Research
Agreement and the UW License Agreement. The Company does not currently have the
personnel or equipment to carry out research and development of the VRD
technology on its own. If the University of Washington were to violate the terms
of the Research Agreement or the UW License Agreement, the Company's operations
and business prospects could be materially and adversely affected. In addition,
if the Company

7
were to breach certain of the terms of the UW License Agreement, the Company
could lose the exclusivity of its license or, under certain circumstances, all
license rights to the VRD technology. See "Business -- UW License Agreement."


PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY. The Company's ability to
compete effectively in the information display market will depend, in part, on
the ability of the Company and the University of Washington to maintain the
proprietary nature of the VRD technology. The University of Washington has been
awarded one U.S. patent relating to the VRD technology. Patent No. 5467104
issued in November 1995 has 14 claims, including claims directed to the ability
to superimpose images on the user's field of vision. The University also has
received notices of allowance from the U.S. Patent and Trademark Office with
respect to certain claims under a second and a third U.S. patent application. In
addition, the University has filed applications for several additional patents
in the United States and in certain foreign countries. There can be no
assurance, however, as to the degree of protection offered by these patents, or
as to the likelihood that patents will be issued from the pending patent
applications. Moreover, these patents may have limited commercial value or may
lack sufficient breadth to protect adequately the aspects of the Company's
technology to which the patents relate.


There can be no assurance that competitors, in the United States and in
foreign countries, many of which have substantially greater resources than the
Company and have made substantial investments in competing technologies, will
not apply for and obtain patents that will prevent, limit or interfere with the
Company's ability to make and sell its products. The Company is aware of several
patents held by third parties that relate to certain aspects of retinal scanning
devices. There is no assurance that these patents would not be used as a basis
to challenge the validity of the University's patent rights, to limit the scope
of the University's patent rights or to limit the University's ability to obtain
additional or broader patent rights. A successful challenge to the validity of
the University's patents may adversely affect the Company's competitive position
and could limit the Company's ability to commercialize the VRD technology.
Moreover, there can be no assurance that such patent holders or other third
parties will not claim infringement by the Company or by the University with
respect to current and future technology. Because U.S. patent applications are
held and examined in secrecy, it is also possible that presently pending U.S.
applications will eventually issue with claims that will be infringed by the
Company's products or the VRD technology. The defense and prosecution of patent
suits is costly and time-consuming, even if the outcome is favorable. This is
particularly true in foreign countries where the expenses associated with such
proceedings can be prohibitive. An adverse outcome in the defense of a patent
suit could subject the Company to significant liabilities to third parties,
require the Company and others to cease selling products that incorporate VRD
technology or cease licensing the VRD technology, or require disputed rights to
be licensed from third parties. Such licenses may not be available on
satisfactory terms, or at all. Moreover, if claims of infringement are asserted
against future co-development partners or customers of the Company, those
partners or customers may seek indemnification from the Company for damages or
expenses they incur.

The Company also relies on unpatented proprietary technology. Third parties
could develop the same or similar technology or otherwise obtain access to the
Company's proprietary technology. To protect its rights in these areas, the
Company requires all employees and most consultants, advisors and collaborators
to enter into confidentiality and noncompetition agreements. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. To date, the Company has had
no experience in enforcing such confidentiality agreements. In addition, the
University of Washington retains the right to publish information regarding the
VRD technology for academic purposes. See "Business -- Intellectual Property and
Proprietary Rights."

DEPENDENCE ON FUTURE COLLABORATIONS; DEPENDENCE ON THIRD PARTIES. The
Company's strategy for the development, testing, manufacture and
commercialization of the VRD technology and products incorporating the VRD
technology includes entering into cooperative development, joint venture or
licensing arrangements with corporate partners, OEMs, licensors, licensees and
others. There can

8
be no assurance that the Company will be able to negotiate such arrangements on
acceptable terms, if at all, or that such arrangements will be successful in
yielding commercially viable products. If the Company is not able to establish
such arrangements, it would require additional working capital to undertake such
activities at its own expense and would require extensive manufacturing,
marketing and sales expertise that it does not currently possess. In addition,
the Company could encounter significant delays in introducing the VRD technology
into certain markets or find that the development, manufacture or sale of
products incorporating the VRD technology in such markets would not be feasible
without, or would be adversely affected by the absence of, such agreements. To
the extent the Company enters into cooperative development or other joint
venture or licensing arrangements, the revenues received by the Company will
depend upon the efforts of third parties, and there can be no assurance that
such parties will put forth such efforts or that such efforts will be
successful. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Strategy."

COMPETITION AND TECHNOLOGICAL ADVANCES. The information display industry is
highly competitive. In some applications, the Company's products and the VRD
technology will be competing with established manufacturers of miniaturized CRT
and flat panel display devices, most of whom have substantially greater
financial, technical and other resources than the Company. The Company also will
compete with other developers of miniaturized display devices. There can be no
assurance that the Company's competitors will not succeed in developing
information display technologies and products that would render the VRD
technology or the Company's products obsolete. The electronic information
display industry has been characterized by rapid and significant technological
advances. There can be no assurance that the VRD technology or the Company's
proposed products will remain competitive with such advances or that the Company
will have sufficient funds to invest in new technologies or processes. See
"Business -- Competition."

LACK OF MANUFACTURING EXPERIENCE. In order for the Company to be successful
as a product or component manufacturer, its products must be manufactured to
meet high quality standards in commercial quantities at competitive prices. The
Company currently has no capability to manufacture products in commercial
quantities. The Company has only produced prototypes for research, development
and demonstration purposes. Accordingly, the Company must obtain access through
partners or contract manufacturers to manufacturing capacity and processes for
the production of its products in commercial quantities, which will require
extensive lead time. There can be no assurance that the Company will
successfully obtain access to these resources. See "Business -- Strategy."

CAPITAL REQUIREMENTS. The Company believes that the net proceeds of this
offering, combined with cash on hand, will be sufficient to fund its budgeted
capital and operating requirements for at least the next twelve months. Actual
expenses, however, may exceed the amount budgeted therefor and the Company may
require additional capital to fund long-term operations and business
development. The Company's capital requirements will depend on many factors,
including, but not limited to, the rate at which the Company can develop the VRD
technology, its ability to attract partners for product development and
licensing arrangements, and the market acceptance and competitive position of
products that incorporate the VRD technology. There can be no assurance that the
Company will be able to obtain financing, or that, if it is able to obtain
financing, it will be able to do so on satisfactory terms or on a timely basis.
If additional funds are raised through the issuance of equity, convertible debt
or similar securities, shareholders may experience additional dilution and such
securities may have rights or preferences senior to those of the Common Stock.
Moreover, if adequate funds were not available to satisfy the Company's
short-term or long-term capital requirements, the Company would be required to
limit its operations significantly. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

CONTROL BY EXISTING SHAREHOLDERS. Upon the closing of this offering, the
Company's existing shareholders will own approximately 63% of the Company's
outstanding shares of Common Stock. The Company's executive officers, directors
and five-percent shareholders and their affiliates will beneficially own
approximately 8.0% of the Company's outstanding shares of Common Stock. These

9
shareholders, if they were to act as a group, would be able to elect all of the
Company's directors, and otherwise control matters requiring approval by the
shareholders of the Company, including approval of significant corporate
transactions. Such concentration of ownership and the lack of cumulative voting
also may have the effect of delaying or preventing a change in control of the
Company. See "Principal Shareholders."

DEPENDENCE ON KEY PERSONNEL. The Company's success is dependent on certain
key management personnel, including Richard F. Rutkowski and Stephen R. Willey,
the loss of whose services could significantly delay the achievement of the
Company's planned development objectives. Achievement of the Company's business
objectives will require substantial additional expertise in the areas of
technology, finance, manufacturing and marketing. The Company is actively
seeking additional qualified full-time personnel. Competition for qualified
personnel is intense, and the loss of key personnel, or the inability to attract
and retain the additional highly skilled personnel required for the expansion of
the Company's activities, could have a material adverse effect on the Company's
business and results of operations. See "Business -- Employees" and
"Management."

POSSIBILITY OF FUTURE REGULATION. The Company is not aware of any health or
safety regulations applicable to VRD products, other than regulations related to
labeling of devices that emit electro-magnetic radiation. There can be no
assurance, however, that new health and safety regulations will not be
promulgated that might materially and adversely affect the Company's ability to
commercialize the VRD technology. See "Business -- Human Factors and Safety."

POSSIBLE ILLIQUIDITY OF TRADING MARKET. Prior to this offering, there has
been no public market for the Company's Common Stock or Warrants, and there can
be no assurance that an active public market for the Common Stock or Warrants
will develop or be sustained after this offering. The Company has made
application to include the Common Stock and Warrants on the Nasdaq National
Market. If the Company's application is not granted, the Company intends to make
application to include the Common Stock and Warrants on the Nasdaq SmallCap
Market. If the Company's Common Stock and Warrants are accepted for listing on
the Nasdaq National Market, the Company must continue to satisfy certain
maintenance standards. If the Company is unable to maintain the standards for
continued quotation on the Nasdaq National Market, the Common Stock and the
Warrants could be subject to removal from the Nasdaq National Market. Trading,
if any, in the Common Stock and the Warrants would thereafter be conducted in
the over-the-counter market on an electronic bulletin board established for
securities that do not meet the Nasdaq National Market listing requirements or
in what are commonly referred to as the "pink sheets." As a result, an investor
would find it more difficult to dispose of, or to obtain accurate quotations as
to the price of the Company's securities. In addition, depending on several
factors, including the future market price of the Common Stock, the Company's
securities could become subject to the so-called "penny stock" rules that impose
additional sales practice and market making requirements on broker-dealers who
sell or make a market in the Company's securities and diminish the ability of
the Company's shareholders to sell their securities in the secondary market.

POSSIBLE VOLATILITY OF COMMON STOCK PRICE. The Unit Offering Price will be
determined by negotiation between the Company and the Representatives and may
not be indicative of future market prices. Factors to be considered in these
negotiations, in addition to prevailing market conditions, will be the history
and prospects of the industry in which the Company intends to compete, an
assessment of the Company's management, prospects and capital structure, and
such other factors as the Representatives and the Company deem relevant. The
trading price of the Company's Common Stock and Warrants could be subject to
significant fluctuations in response to such factors as, among others,
variations in the Company's anticipated or actual results of operations,
announcements of products utilizing the VRD technology or technological
innovations by the Company or its competitors. Moreover, the stock market has
from time to time experienced extreme price and volume fluctuations which have
particularly affected the market prices for emerging growth companies and which
often have been unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock and

10
Warrants. In the past, following periods of volatility in the market price of a
company's securities, class action lawsuits have been filed against the company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business and results of operations. Any adverse
determination in such litigation also could subject the Company to significant
liabilities.


SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of the
Company's Common Stock in the public market following the offering may adversely
affect, and even the potential for such sales may adversely affect, the market
price of the Company's Common Stock. In addition to the shares of Common Stock
included in the Units offered hereby and the shares of Common Stock issuable
upon exercise of the Warrants included in the Units offered hereby and the Stoel
Rives Shares, an additional 210,000 shares of Common Stock are being registered
under the Registration Statement of which this Prospectus is a part and will be
eligible for resale by the holders of such securities, or securities convertible
into such securities, without restriction under the Securities Act 90 days after
the date of this Prospectus. Commencing approximately 12 months after the date
of this Prospectus, up to 400,000 shares of Common Stock that are issuable upon
exercise of the Representatives' Warrants (including exercise of the warrants
included therein) will be eligible for resale without restriction under the
Securities Act. The remaining 3,386,546 shares of Common Stock outstanding as of
the date of this Prospectus will become eligible for sale at various times
thereafter. Following this offering, the Company intends to file a registration
statement under the Securities Act to register approximately 825,000 shares
reserved for issuance under the Company's 1996 Stock Plans and 724,017 shares
issuable upon exercise of options granted under the Company's prior stock option
plans. See "Management -- Benefit Plans," "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."


REDEMPTION OF WARRANTS. As described in greater detail elsewhere in this
Prospectus, outstanding Warrants are subject to redemption at $0.25 per Warrant
on 30 days written notice provided that the closing bid price of the Common
Stock has been at least 200% of the exercise price of the Warrants for each of
the 20 consecutive trading days immediately preceding the date of the notice of
redemption. In the event the Company exercises the right to redeem the Warrants,
a holder will be forced either to exercise the Warrant or accept the redemption
price. See "Description of Securities -- Warrants."

POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Restated
Articles of Incorporation (the "Articles of Incorporation") give the Company's
Board of Directors the authority to issue, and to fix the rights and preferences
of, shares of the Company's Preferred Stock, which may have the effect of
delaying, deterring or preventing a change in control of the Company without
action by the Company's shareholders. Furthermore, the Articles of Incorporation
provide that the written demand at least 25% of the outstanding shares is
required to call a special meeting of the shareholders. In addition, certain
provisions of Washington law could have the effect of delaying, deterring or
preventing a change in control of the Company. See "Description of Capital Stock
- -- Preferred Stock" and "-- Washington Anti-Takeover Statute."

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS. Purchasers of Units will be able to exercise the Warrants included
therein only if a current prospectus relating to the Common Stock underlying
such Warrants is then in effect, and only if such Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws of the
states in which such holders of the Warrants reside. Although the Company has
undertaken to maintain the effectiveness of a current prospectus covering the
Common Stock underlying the Warrants, there can be no assurance that the Company
will be able to do so. The value of the Warrants may be impaired if a current
prospectus covering the Common Stock issuable upon exercise of the Warrants is
not kept effective, or if such Common Stock is not qualified or exempt from
qualification in the states in which the holders of Warrants reside.

11
The Warrants are separately transferable immediately upon issuance. Although
the Units will not knowingly be sold to purchasers in jurisdictions in which the
Units are not registered or otherwise qualified for sale, purchasers may buy
Warrants in the after market in, or may move to, jurisdictions in which the
shares underlying the Warrants are not so registered or qualified during the
period that the Warrants are exercisable. In this event, the Company would be
unable to issue shares to those persons desiring to exercise their Warrants, and
holders of Warrants would have no choice but to attempt to sell the Warrants in
a jurisdiction where such sale is permissible or allow them to expire
unexercised. See "Description of Securities -- Warrants."

DILUTION. Purchasers of the Common Stock offered hereby will suffer
immediate and substantial dilution in the net tangible book value of the Common
Stock from the Unit Offering Price. Certain events, such as the issuance of
Common Stock pursuant to the exercise of outstanding warrants and stock options,
or upon conversion or redemption of the 7% Notes, could result in additional
dilution. See "Dilution," "Management -- Benefit Plans," "Shares Eligible for
Future Sale" and "Underwriting."

USE OF PROCEEDS

The net proceeds of this offering are estimated to be approximately
$15,495,000 (approximately $17,898,000 if the Overallotment Option is exercised
in full), assuming a Unit Offering Price of $9.00.


The Company intends to use the net proceeds from this offering to fund
research and product development, including $1,604,218 to be paid under the
License Agreement, the purchase and installation of certain laboratory equipment
and facilities, the repayment of up to $750,000 in aggregate principal amount of
its 7% Notes due July 10, 1997, unless converted, and for working capital. The
amounts actually expended for each purpose may vary significantly depending upon
various factors, including the progress of the Company's research and product
development programs, determinations as to the commercial potential of each of
the Company's anticipated products, the Company's ability to attract third
parties to co-fund the research and development of, or to purchase, such
products and the aggregate principal amount of the 7% Notes outstanding after
completion of this offering. Pending such use, the net proceeds will be invested
in short-term, investment grade, interest-bearing securities or interest-bearing
accounts. The net proceeds from the 7% Notes, approximately 707,500, were used
to fund operating expenses, fees and expenses related to this offering and
required to be paid in advance of the offering, and to make a payment of
approximately $320,000 under the Research Agreement. The Company believes that
the net proceeds from this offering, combined with cash on hand, will be
sufficient to fund budgeted capital and operating requirements for at least the
next twelve months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."


DIVIDEND POLICY

The Company has not paid cash dividends since its inception. The Company
currently intends to retain all of its earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future. The
payment of dividends is subject to the discretion of the Company's Board of
Directors.

12
CAPITALIZATION


The following table sets forth the capitalization of the Company as of June
30, 1996; the pro forma capitalization of the Company as of June 30, 1996 giving
effect to (i) the conversion of 866,026 shares of Preferred Stock into equal
shares of Common Stock (ii) the issuance of the 7% Notes in July 1996; and the
pro forma capitalization as adjusted to give effect to the issuance of 2,000,000
Units (at an assumed Unit Offering Price of $9.00 per Unit) and receipt of the
net proceeds therefrom. See Note 8 of Notes to the Financial Statements.




JUNE 30, 1996 (1)
-----------------------------------

PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------


(IN THOUSANDS)

7% Convertible Subordinated Notes due 1997 (current).......................... -- $ 750 $ 750
--------- ----------- -----------
--------- ----------- -----------
Shareholders' equity
Preferred Stock, no par value, 31,250,000 shares authorized, 859,776, none
and none issued and outstanding............................................ $ 3,533 $ -- $ --
Common Stock, no par value, 31,250,000 shares authorized, 2,601,770,
3,461,546 and 5,461,546 shares issued and outstanding...................... 4,794 8,327 23,822
Deferred compensation....................................................... (21) (21) (21)
Subscription receivable..................................................... (10) (10) (10)
Accumulated deficit......................................................... (8,440) (8,440) (8,440)
--------- ----------- -----------
Total shareholders' equity................................................ (144) (144) 15,351
--------- ----------- -----------
Total capitalization........................................................ $ (144) $ (144) $ 15,351
--------- ----------- -----------
--------- ----------- -----------



- ------------------------

(1) Excludes (i) 1,189,168 of Common Stock issuable upon exercise of stock
options and warrants outstanding at July 10, 1996 at an approximate weighted
average exercise price of $5.22 per share; (ii) up to 135,000 shares of
Common Stock issuable in connection with conversions or redemptions of the
7% Notes; (iii) 400,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants; (iv) the Stoel Rives Shares; and (v) the cash
redemption of the fractional shares resulting from the reverse stock split
approved by the shareholders on August 9, 1996. An additional 825,000 shares
of Common Stock are reserved for issuance under the Company's 1996 Stock
Plans. See "Management -- Benefit Plans."


13
DILUTION


The pro forma net tangible book value of the Company, prior to any
adjustments, as of June 30, 1996 was $(144,000), or $(0.04) per share. Pro forma
net tangible book value per share represents the amount of total tangible assets
of the Company reduced by the amount of its total liabilities, divided by the
total number of shares of Common Stock after conversion of preferred stock to
common stock.



Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by new investors who purchase Units
in this offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of this offering. After giving effect to the
sale by the Company of 2,000,000 Units in this offering at an estimated Unit
Offering Price of $9.00 per Unit and the receipt of the estimated proceeds
therefrom (after deduction of estimated underwriting discounts and offering
expenses and attributing no portion of the value of a Unit to a Warrant), the
pro forma net tangible book value of the Company as of June 30, 1996 would have
been approximately $15,351,400, or $2.81 per share. This represents an immediate
increase in pro forma net tangible book value of $2.85 per share to existing
shareholders and an immediate dilution in pro forma net tangible book value of
$6.19 per share to new investors purchasing Units in this offering, as
illustrated in the following table:





Assumed initial public offering price per share............................. $ 9.00
Pro forma net tangible book value per share at June 30, 1996.............. $ (0.04)
Increase per share attributable to new investors.......................... 2.85
Pro forma net tangible book value per share after this offering............. 2.81
Pro forma net tangible book value dilution per share to new investors....... $ 6.19
---------
---------



The following table summarizes, on a pro forma basis as of July 10, 1996 to
reflect the same adjustments described above, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by (i) the existing holders of Common Stock; and (ii) the
new investors in this offering, assuming the sale of 2,000,000 Units by the
Company hereby at a Unit Offering Price of $9.00 per Unit. The calculations are
based upon total consideration given by new and existing shareholders.




SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- ------------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ------------ ---------------- ------------ -----------

Existing shareholders............................. 3,461,546 63% $ 7,777,528 30% $ 2.25
New investors..................................... 2,000,000 37% 18,000,000 70% $ 9.00
------------- --- ---------------- ---
TOTAL......................................... 5,461,546 100% $ 25,777,528 100%
--- ---------------- ---
--- ---------------- ---




The above computations exclude (i) 1,189,168 shares of Common Stock issuable
upon exercise of stock options and warrants outstanding at July 10, 1996 at an
approximate weighted average exercise price of $5.22 per share; (ii) up to
135,000 shares of Common Stock issuable in connection with conversions or
redemptions of the Company's 7% Notes; (iii) 400,000 shares of Common Stock
issuable upon exercise of the Representatives' Warrants; (iv) the Stoel Rives
Shares; and (v) the cash redemption of the fractional shares resulting from the
reverse stock split approved by the shareholders on August 9, 1996. An
additional 825,000 shares of Common Stock are reserved for issuance under the
Company's 1996 Stock Plans. To the extent that any outstanding warrants and
options are exercised, including the Representatives' Warrants, or the 7% Notes
are converted or redeemed, or additional shares are issued, there will be
further dilution to investors in this offering. See "Description of Securities,"
"Certain Transactions," "Management -- Benefit Plans," "Shares Eligible for
Future Sale" and "Underwriting."


14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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. Since its formation, the Company has been in the development stage, with
its principal activities consisting of assembling a qualified technical and
executive management team, working with the HIT Lab in the 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
over the next several years.


The Company expects revenues to be derived from licensing its technology to
OEMs of consumer electronic products; providing engineering services associated
with cooperative development arrangements, including research contracts; and the
manufacturing and sale of high-performance personal display products to certain
professional users, directly or through joint ventures. 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. Revenues from sales of products may not occur until
substantially later, if at all. 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 will
depend on 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. See "Risk Factors."


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 prototypes as well as the design of subsystems and products. The
Company intends that soon after the completion of this offering it will purchase
and install certain laboratory equipment and facilities in support of this work.
The Company also intends to continue to add to its technical and business staff
in pursuit of its technology development and marketing objectives and, in
particular, intends to augment substantially 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 manufacturers.


RESULTS OF OPERATIONS


The Company is in the development stage and has not generated any
significant revenues. As of June 30, 1996, the Company had an accumulated
deficit since inception of $8,439,200. The Company expects continuing and
increasing expenditures in research and development as it focuses its efforts on
further development and refinement of its VRD technology and begins
commercialization efforts for its anticipated future products.



CONTRACT REVENUES. The Company has completed two research agreements with
Fujitsu Research Institute ("FRI"). The FRI agreements provided for the Company
to carry out research with respect to potential applications for the VRD.
Contract revenues were $29,300, $27,200 and $56,500 for the year ended December
31, 1995, the six months ended June 30, 1996 and for the period cumulative from
inception through June 30, 1996, respectively. The Company recently received a
$74,980 purchase order from Lockheed Martin Corp. for a prototype display model
of the VRD for a military trade show in October 1996.



RESEARCH AND DEVELOPMENT EXPENSES. Currently, research and development
expenses consist primarily of payments due under the Research Agreement with the
University of Washington, as well as payroll and related costs of employees and
consultants engaged in development activities, and fees


15

related to patent applications. To date, the Company has expensed all such
costs. See Note 2 of Notes to the Financial Statements. Research and development
expenses during the year ended December 31, 1995, the six months ended June 30,
1996 and the period cumulative from inception through June 30, 1996, were
$1,931,200, $692,100 and $5,574,500, respectively. The Company believes that a
significant level of continuing research and development expenses will be
required to commercialize the VRD technology and to develop products
incorporating VRD technology. Accordingly, the Company anticipates that it will
devote substantial resources to research and development, including hiring
additional personnel, and that these costs will continue to increase in future
periods.



MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses include payroll and related costs for the Company's
administrative and executive personnel, costs related to the Company's marketing
and promotional efforts, office lease expenses and other overhead costs,
including legal and accounting costs and fees of consultants and professionals.
In 1993 and 1994, the Company used consultants extensively to evaluate the
potential for commercialization of the VRD technology and to develop its
business plan. Marketing, general and administrative expenses during the year
ended December 31, 1995, the six months ended June 30, 1996 and the period
cumulative from inception through June 30, 1996, were approximately $1,037,700,
$670,000 and $2,970,300, respectively. The Company expects marketing, general
and administrative expenses to increase substantially in future periods as the
Company invests in marketing activities to promote and launch its VRD technology
and anticipated products and as it increases its number of employees and level
of corporate and administrative activity.


INCOME TAXES. At December 31, 1995, the Company had net operating loss
carry-forwards of approximately $2,812,000 for federal income tax reporting
purposes. The net operating loss carry-forwards will expire beginning in 2005 if
not utilized. In addition, due to changes in ownership, as defined by Section
382 of the Internal Revenue Code of 1986, as amended (the "Code"), resulting
from the sale of common stock, convertible preferred stock and the Common Stock
offered hereby, the annual deductibility of the net operating loss
carry-forwards is limited to approximately $761,000. A further change in
ownership is likely to occur upon completion of this offering, which will result
in further limitations to the annual deductibility of the net operating loss
carry-forwards. A valuation allowance has been recorded against total deferred
tax assets of $2,346,000 because realization is primarily dependent on
generating sufficient taxable income prior to expiration of net operating loss
carry-forwards. See Note 7 of Notes to the Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES


To date, the Company has financed its operations primarily through private
placements of common stock, convertible preferred stock and convertible notes.
As of June 30, 1996, amounts raised in private equity transactions, net of
issuance costs, totaled $6,920,800. Through June 30, 1996, the Company had
incurred an accumulated deficit of $8,439,200, of which $3,529,200 represented
payments made to the University of Washington to fund the research and
development of its VRD technology pursuant to the terms of the Research
Agreement, and $1,146,000 represented non-cash expenses associated with the
issuances of stock, warrants and options. The Company had cash and cash
equivalents of $462,400 at June 30, 1996.



In early July 1996, the Company raised $707,500 in a private placement of
its 7% Notes, net of debt issuance costs. The 7% Notes bear interest at the rate
of 7% per annum, payable semi-annually in arrears on December 15 and June 15,
and will mature on July 10, 1997. The Notes are subordinate to all future senior
indebtedness of the Company. The 7% Notes may be converted or redeemed at the
option of the holder at any time following 90 days after the effective date of a
registration statement with respect to an initial public offering of the
Company's securities with aggregate proceeds to the Company of $5,000,000 (a
"qualifying IPO"). Upon any conversion, the holder of a 7% Note is entitled to
receive 18,000 shares of Common Stock for every $100,000 principal amount so
converted. The 7% Notes are redeemable at par (plus accrued and unpaid
interest), plus 6,000 shares of Common Stock for every $100,000 principal so
redeemed. See "Shares Eligible for Future Sale."


16
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 and arrangements, 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. In order to maintain its exclusive rights
under the UW License Agreement, the Company is obligated to make additional
quarterly research payments through 1997 aggregating $1,604,200 and, thereafter,
to make additional payments in respect of royalties on the VRD. See "Business --
University of Washington License Agreement." If the Company is successful in
establishing OEM 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.
There can be no assurance that the Company will ever be able to generate
revenues or achieve or sustain profitability.


The Company believes that the estimated net proceeds from this offering
together with its existing cash and cash equivalent balances will satisfy its
budgeted capital and operating requirements for at least the next twelve months,
which are estimated to be approximately $5,300,000 based upon the Company's
current operating plan. Actual expenses, however, may exceed the amount budgeted
therefor and the Company may require additional capital earlier to develop its
products, to respond to competitive pressures or to meet unanticipated
development difficulties. The Company's operating plan calls for the purchase
and installation of certain laboratory equipment and facilities, the addition of
technical and business staff, including a chief financial officer and
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 manufacturers. See
"Business." There can be no assurance that additional financing will be
available to the Company or that, if available, it will be available on terms
acceptable to the Company on a timely basis. If adequate funds are not available
to satisfy either short-term or long-term capital requirements, the Company may
be required to limit its operations significantly. The Company's capital
requirements will depend on many factors, including, but not limited to, the
rate at which the Company can, directly or through arrangements with OEMs,
introduce products incorporating the VRD technology and the market acceptance
and competitive position of such products. See "Risk Factors -- Capital
Requirements."


17
BUSINESS

OVERVIEW


Microvision, through an exclusive license and research agreement with the
University of Washington, is developing information display technologies that
allow electronically generated images and information to be projected directly
onto the retina of the viewer's eye. The Company has developed prototype VRD
devices, including a portable monochrome version and a table-top, full-color
version, and is currently refining and developing its VRD for commercial
applications. The Company expects to commercialize its technology through the
development of products and as a supplier of personal display technology to
OEMs. The Company believes the VRD technology will be useful in a variety of
applications, including portable communication devices, visual simulation and
entertainment displays and devices that superimpose images on the user's field
of vision. The Company expects that its technology will permit the use of highly
miniaturized, lightweight, battery-operated viewing devices that can be
comfortably held or worn as "headphones for the eyes."


INDUSTRY BACKGROUND

The ubiquitous nature of personal computing, electronic communication,
television and video products has created a worldwide market for display
technologies. Information displays are the primary medium through which text and
images generated by computer and other electronic systems are delivered to
end-users. While early computer systems were designed and used for tasks that
involved little interaction between the user and the computer, today's graphical
and multimedia information and computing environments require systems that
devote most of their resources to generating and updating visual displays. The
market for display technologies also has been stimulated by the increasing
popularity of portable pagers and cellular phones; interest in simulated
environments and augmented vision systems; and the recognition that better means
of connecting people and machines can improve productivity and enhance the
enjoyment of electronic entertainment and learning experiences.

For decades, the CRT has been the dominant display device. A CRT creates an
image by scanning a beam of electrons across a phosphor- coated screen, causing
the phosphors to emit visible light. The beam is generated by an electron gun
and is passed through a deflection system that scans the beam rapidly left to
right and top to bottom. A magnetic lens focuses the beam into a small glowing
dot on the phosphor screen. It is these rapidly moving spots of light ("pixels")
that "paint" the image on the surface of the viewing screen. The next generation
of imaging technology, flat panel displays, is now in widespread use in portable
computers, calculators, and other personal display devices. The most prevalent
flat panel technology is the liquid crystal display ("LCD"), which can consist
of hundreds of thousands of pixels, each of which is formed by a single
transistor acting on a crystalline material.

In recent years, as the computer and electronics industries have made
substantial advances in miniaturization, manufacturers have sought lightweight,
low power, cost-effective displays to enable the development of more portable
products. Flat panel technologies have made meaningful advances in these areas,
and liquid crystal flat panel displays are now commonly used for laptop
computers and other electronic products. Both CRT and flat panel technologies,
however, pose difficult engineering and fabrication problems for more highly
miniaturized products, because of inherent constraints in size, weight and power
consumption. In addition, many products that use CRT and flat panel displays
often become dim and difficult to see in outdoor or other settings where the
ambient light is stronger than the light emitted from the screen. The Company
believes that as display technologies attempt to keep pace with miniaturization
and other advances in information delivery systems, conventional CRT and flat
panel technologies will experience increasing difficulty providing the full
range of performance characteristics -- high resolution, bright display, low
power consumption -- required for state-of-the-art information systems.

MICROVISION'S RETINAL DISPLAY TECHNOLOGY

The Company's VRD is fundamentally different from previously commercialized
display technologies. The VRD creates an image directly on the retina like a
miniaturized video projector focused on

18
the "projection screen" at the back of the viewer's eye. In certain
applications, the image appears in the viewer's field of vision as if the viewer
were only an arm's length away from a high quality video screen. The VRD
technology also can superimpose an image on the viewer's field of vision,
enabling the viewer to see data or other information projected by the device in
the context of his or her natural surroundings. In each case, a high resolution,
bright image is created.

By scanning a low-power beam of colored light to "paint" rows of pixels
directly on the retina of the viewer's eye, the VRD technology creates a high
resolution, full-motion image without the use of screens or externally projected
images. The light source acts on the retina in much the same way as other
natural light sources. The VRD is composed of four basic components: (1) drive
electronics; (2) photon sources; (3) horizontal and vertical scanners; and (4)
optics.

VIRTUAL RETINAL DISPLAY SYSTEM

[LOGO]

The drive electronics acquire and process signals from the image or data
source to control and synchronize the color mix, grey-level and placement of
pixels. Color pixels are generated by a modulated light source which varies the
intensity of red, green and blue light to generate a complete palette of colors
and shades. The pixels are then arranged on the retina by a horizontal scanner
that rapidly sweeps the light beam to place the pixels into a row, and a
vertical scanner, which moves the light beam to the next line where another row
of pixels is drawn. Refractive and reflective optical elements direct the light
beam into the viewer's eye, projecting an image through the viewer's pupil onto
the retina.

STRATEGY

The Company's objective is to be a leading provider of personal display and
imaging technology in a broad range of professional and consumer applications.
Key elements of the Company's strategy to achieve this objective are:

CUSTOM DESIGN, MANUFACTURE AND SALE OF HIGH PERFORMANCE PRODUCTS. The
Company anticipates providing high performance products to professional
end-users in markets with lower product volume requirements. The Company expects
that end-users in this category will include professionals in the defense, law
enforcement, industrial process controls and health care industries. As a result
of the potential for professionals in these industries to realize productivity
or performance gains and associated economic benefit from the use of personal
display products, the Company believes that customers in these industries will
be less sensitive to the cost of VRD products than customers in the consumer
electronics markets. The Company also believes that, because the unit volume
requirements for such

19
end-users are generally lower, demand for such products may be more predictable
and the risks associated with production and inventory more easily managed.
Depending upon the circumstances, the Company may manufacture these products,
using standard component suppliers and contract manufacturers as required, or
may seek to form one or more joint ventures to manufacture the products. The
Company expects that early production of specially designed products will
enhance its ability to provide more fully integrated solutions and support for
the development of similar products by manufacturers in high volume consumer
markets.

SUPPLY OF DISPLAY AND IMAGING SOLUTIONS AND LICENSING OF PROPRIETARY
TECHNOLOGY TO OEMS FOR VOLUME MANUFACTURE OF PRODUCTS. The Company believes
that in consumer markets the ability of personal display products to compete
effectively is largely driven by the ability to price aggressively for maximum
market penetration. Significant economies of scale in purchasing, volume
manufacturing and distribution are important factors in driving costs downward
to achieve pricing objectives and profitability. Additionally, certain types of
products, such as pagers or cellular phones, may require the integration of the
VRD with other unrelated electronic technologies. In markets requiring volume
production of personal display products, the Company intends to provide
components, subsystems and systems design technology to OEMs under licensing
agreements. Microvision anticipates realizing both initial license fees from
such arrangements as well as ongoing per unit royalties.

The Company expects such relationships will typically involve a period of
co-development during which engineering and marketing professionals from OEMs
will work with Microvision's technical staff to specify, design and develop a
product appropriate to the targeted market and application. Microvision intends
to charge fees to such OEMs to cover the costs of the engineering effort
allocated to such development projects. The nature of the relationships with
such OEMs may vary from partner to partner depending on the proposed application
for the VRD, the product to be developed, and the OEM's design, manufacturing
and distribution capabilities. The Company believes that by limiting its own
direct manufacturing obligations for consumer products it will reduce the
capital requirements and risks inherent in bringing the VRD to the consumer
market.

The Company believes that it can enhance its competitive position by
reducing the cost and improving the performance of its VRD technology and by
expanding its portfolio of intellectual property rights. A key part of the
Company's technology development strategy includes developing and protecting (i)
concepts relating to the function, design and application of the VRD system;
(ii) component technologies and integration techniques essential to the
commercialization of the VRD and which are expected to reduce the cost and
improve the performance of the system; and (iii) component technologies and
integration techniques that reduce technical requirements and accelerate the
pace of commercial development. The Company is continuing to work with the
University of Washington to develop a portfolio of proprietary and patented
technologies, processes and techniques that relate directly to the functionality
and to the commercial viability of the VRD technology. See "-- Technology
Development" and "-- Intellectual Property and Proprietary Rights."

APPLICATIONS, MARKETS AND PRODUCTS

Microvision has identified a variety of applications for its VRD, including
the following:


HAND-HELD COMMUNICATIONS DEVICES. Manufacturers of wireless and cellular
communications devices have identified a need for products that incorporate
personal display units for viewing fax, electronic mail and graphic images on
highly miniaturized devices. Existing display technologies have been unable to
satisfy this demand fully because of the requirements that such devices be
highly miniaturized, full format, relatively low cost, and offer high resolution
and brightness without requiring high levels of power supply. Microvision
expects that the range of products in this category may include cellular phones
and pagers that project into view electronic mail messages, faxes, or other
images in a bright, sharp display.



VISUAL SIMULATION AND ENTERTAINMENT DISPLAYS. Manufacturers of interactive
media products have recognized that the visual experience offered by simulation
is enhanced by high resolution,


20
three-dimensional displays projected over a wide field of vision. Although
simulated environments traditionally have been used as a training tool for
professional use, they are increasingly popular as a means of entertainment,
particularly in computer games. In a three-dimensional video game, an
inexpensive pair of VRD eyeglasses with a wide field of view could provide a
highly immersive visual experience.


AUGMENTED VISION DISPLAYS. Augmented vision applications superimpose high
contrast, monochromatic (or color) images and information on the viewer's field
of vision as a means of enhancing the safety, precision and speed of the user's
performance of tasks. For example, a head-mounted display could superimpose
critical patient information such as vital signs, EKG traces, reference
materials, X-rays or MRI images in a surgeon's field of vision. For military
applications, troops could be equipped with eyeglasses that display high
definition imagery that could be viewed without blocking normal vision and could
assist in threat detection, reconnaissance and other activities.


Microvision has targeted various market segments for these applications,
including defense and public safety, healthcare, business, industrial and
consumer electronics. The following table identifies product development
opportunities within each of these markets.

[CHART]

Microvision believes certain market segments will be early adopters of the
VRD technology, particularly those industries for which VRD in an early stage of
development can offer significant productivity or performance gains and
associated cost savings. The Company believes that military and industrial users
will place value on the ability of personal VRD devices to superimpose high
contrast images on the user's natural field of vision. Similarly, users of
wireless devices who have a need to receive critical or timely data through
electronic mail, Internet or facsimile transmission are expected to value the
performance characteristics that VRDs are expected to deliver.

21
Microvision is in discussions with systems and equipment manufacturers in
the defense, wireless communications, computing and commercial and consumer
electronics industries. The Company intends to work with certain of these
manufacturers to develop or co-develop specific products which the Company
believes to be the most commercially viable. The Company has identified
specifications for several products which it believes may address the particular
needs of development programs sponsored by the U.S. military and which can be
priced competitively. These products include a high performance, full-color
helmet-mounted display for use in interactive simulations, and a medium priced,
helmet-mounted augmented vision device that superimposes information in a
monochromatic format on the user's natural field of vision and can be worn by
technicians and other military personnel to provide easy access to real-time
data. In addition, the Company expects to develop moderately priced eyeglasses
or goggles that can be fitted for augmented vision display and would be suitable
for a variety of uses. Even if the Company is successful in arranging
development or co-development projects, it does not expect commercial sales of
products until at least 1998, and commercial sales may not occur until
substantially later, if at all.


PROTOTYPES



To date the Company has developed two prototypes to demonstrate the
feasibility of the VRD technology. These prototypes are not incorporated into
specific commercial products or applications, but rather are demonstration
models of the technology. The first prototype developed was a table-top model
that receives output from a personal computer. The prototype generates a full
color picture and is capable of superimposing images over the viewer's natural
field of vision. The second prototype fits into a briefcase and is portable. It
also connects to a personal computer. At present it generates only a
monochromatic image. The portable prototype can be hand-held or mounted to a
stand.


TECHNOLOGY DEVELOPMENT

The Company's existing prototypes have demonstrated the technological
feasibility of the VRD and the Company's ability to miniaturize key components.
Additional work is in progress to achieve full color capability in miniaturized
versions, to expand the exit pupil of the VRD and to design products for
specific applications.

DRIVE ELECTRONICS. The Company has identified four areas where additional
development of the drive electronics is necessary. The first involves further
miniaturization using integrated circuits and advanced packaging techniques. To
date, the Company has identified no technological barriers to the further
miniaturization of the drive electronics. The second area involves refining the
timing and nature of the signals driving the photon source and scanners to
improve display quality. The third and fourth areas of development relate to
achieving and improving compatibility of the drive electronics with existing and
newly emerging video standards. The Company's existing prototypes are compatible
with current video format standards and the output from most personal computers.
In the future, the Company intends to develop the VRD to conform to a range of
interface standards, including emerging standards such as high definition
television. For interfaces with emerging video standards, additional development
of the drive electronics technology may be required.

PHOTON SOURCES. The photon generator is the source of the light beam that
creates the image on the retina. In a full-color VRD, red, green and blue photon
generators will be used, each with its own modulator, to generate a mix yielding
the desired color and brightness. Low- power solid state lasers, laser diodes
and light-emitting diodes ("LEDs") are suitable photon generators for the VRD.
Red, blue and green solid state lasers are currently available, but are useful
only for VRD applications where cost and size are not critical. Miniaturized
visible laser diodes are currently available only in red, although a number of
companies are developing laser diodes in green and blue. Miniaturized LEDs are
less expensive than laser diodes and the Company has developed LEDs that can be
made to respond quickly enough to be effective in the VRD system. Microvision
anticipates using red, blue and green LEDs in certain applications as a
replacement for laser diodes. The Company intends to rely on others to complete
development of the materials and processes necessary to produce blue and green
LEDs

22
and laser diodes. This development is not expected prior to the introduction of
the Company's initial products, and as a result the Company's initial full color
VRD products are likely to use solid state lasers.

SCANNING. A pair of scanners, one horizontal and one vertical, is used to
direct the light beam that creates the image on the retina. In laser printers
and bar code readers, a spinning or oscillating mirror is used to scan a light
beam, but these mechanical scanners are typically too large and too slow for use
in miniaturized display settings. To solve this problem, the Company has
developed the MRS. In operation, the MRS resembles a very small tuning fork with
a mirrored surface. It is tuned to resonate at the exact scanning frequency
needed to generate the display, so that very little power is needed to keep it
oscillating. Directing the light beam at the vibrating mirror causes the light
beam to scan rapidly back and forth horizontally. The second vibrating mirror is
used to direct the horizontal beam vertically. The Company believes that its MRS
may have significant commercial value independent of the VRD.

The continued development of the scanning subsystem of the VRD will involve
improvements in scanning capability to all current standard video formats,
including high definition television, as well as new digital video standards.
Existing designs for scanner and scanner electronics may prove ineffective at
higher resolutions and may need to be replaced with alternative scanning
methods. As a result, achievement of future video standards may necessitate
additional development of both the scanner and the scanner electronics.


OPTICS. For applications where the VRD device is to be worn, it is
desirable to have an exit pupil (the range within which the viewer's eye can
move and continue to see the image) of at least 10 millimeters. The Company has
recently developed an expanded exit pupil of approximately this size and the
University of Washington has filed a U.S. patent application to seek to protect
this feature. Continued design and engineering of this expanded exit pupil is
required to develop commercial applications. The Company's ongoing optics
development is directed at the creation of optical systems that are lightweight
and cost-effective to manufacture.


UNIVERSITY OF WASHINGTON LICENSE AGREEMENT

Microvision's technology was developed at the University of Washington's HIT
Lab by a team of technicians and engineers under the direction of Dr. Furness.
See "Management -- HIT Lab Personnel." In 1993, Microvision secured the
exclusive rights to the VRD technology and associated intellectual property from
the University of Washington pursuant to the UW License Agreement. The scope of
the license covers all possible commercial uses of the VRD, worldwide, including
the right to grant sublicenses. The license expires upon the expiration of the
last of the University's patents. In granting the license, the University
retained limited non-commercial rights with respect to the VRD, including the
right to use the technology for non-commercial research and instructional
purposes and the right to comply with applicable laws regarding the
non-exclusive use of the technology by the United States government. The
University also has the right to consent to Microvision's sublicensing
arrangements and to the prosecution and settlement by Microvision of
infringement disputes.

Microvision may lose the exclusivity of its license if it fails to satisfy
certain requirements with respect to the commercialization of the VRD,
including, without limitation, having the VRD technology or VRD applications
available for commercial use, sale or licensing within two years of the
termination of the Research Agreement, failing to use its best efforts to
commercialize the VRD technology, failing to provide reports to the University
from time to time as provided in the License Agreement or failing to respond to
any infringement action within 90 days of learning of such action. In the event
of the termination of Microvision's exclusivity, Microvision would lose its
rights to grant sublicenses and would no longer have the first right to take
action against any alleged infringement. In addition, each of Microvision and
the University of Washington has the right to terminate the License Agreement in
the event that the other party fails to cure a material breach of the Agreement

23
within 30 days of written notice of the breach. Microvision may terminate the
License Agreement at any time by serving 90 days prior written notice on the
University of Washington. In the event of any termination of the License
Agreement, the license granted to Microvision would terminate.

Under the terms of the UW License Agreement, Microvision agreed to pay a
non-refundable fee of $5,133,500 (the "License Fee") and to issue to the
University and to the inventors of the VRD technology, including Dr. Furness,
shares of Microvision's Common Stock. In addition, the University of Washington
is entitled to receive certain ongoing royalties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." If Microvision were to terminate the UW License Agreement,
it believes that further payments of the License Fee would not be required and,
accordingly, has not booked the balance of payments due as an accrued expense.
However, the language of the UW License Agreement is unclear on this point and a
contrary interpretation suggests that the Company may be obligated to pay any
remaining balance of the license fee. In any event, the Company considers the
exclusive license to be an essential element of its business plan and fully
intends to pay the balance of the License Fee, most probably through continued
payments under the Research Agreement.


At the same time it entered into the License Agreement, Microvision
contracted with the HIT Lab and the Washington Technology Center, an agency of
the State of Washington created to foster the development of the technology
industry within the state (the "WTC"), to fund the research and development of
the VRD technology pursuant to the Research Agreement. The VRD technology
research undertaken by the HIT Lab is under the direction of Dr. Furness. Any
intellectual property developed by the HIT Lab pursuant to this Agreement is
included in the exclusive license granted to Microvision under the UW License
Agreement. Microvision pays the University $320,844 per quarter for the research
performed by the HIT Lab. To date, Microvision has paid $3,529,282 to the
University of Washington under the Research Agreement. Payments made pursuant to
the Research Agreement are credited against the License Fee. See Note 5 of Notes
to the Financial Statements.



In the event that Microvision defaults in its obligations, including payment
obligations, under the Research Agreement, the University may terminate the
License Agreement. The Research Agreement currently is scheduled to expire in
late 1997, but may be continued by agreement of the parties. In an effort to
match more closely the timing of the Company's funding obligations under the
Research Agreement with the research performed by the HIT Lab, the Company and
the University are currently discussing rescheduling payments under the Research
Agreement and extending the term of the Research Agreement. The HIT Lab and the
Company work together closely, and Stephen R. Willey, the Company's Executive
Vice President and Technical Liaison, acts as liaison between the HIT Lab, WTC
and the Company. In addition, the HIT Lab provides the Company with quarterly
reports on each functional area of the research and development activities it
conducts, such as optics, mechanics, electronics and photonics, and Microvision
employees and personnel at the HIT Lab jointly determine the direction of future
research and development activities.


INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS


The Company's ability to compete effectively in the information display
market will depend, in part, on the ability of the Company and the University of
Washington to maintain the proprietary nature of the VRD technology. The
University of Washington has been awarded one U.S. patent with claims relating
to the function, design, and application of the VRD system. Patent No. 5467104
issued in November 1995 has 14 claims, including claims directed to the ability
to superimpose images on the user's field of vision. The University also has
received notices of allowance from the U.S. Patent and Trademark Office for a
novel scanning device, a key component for effective commercialization of the
VRD system, and for a fiber optic pixel source. A notice of allowance indicates
that the U.S. Patent and Trademark Office has completed its examination of the
application and determined that the application meets the statutory requirements
for patentability. Although a notice of allowance does not in itself afford
patent protection, once a notice of allowance is issued it is expected that a
patent will issue upon completion of the U.S. Patent and Trademark Office
publication formalities. In addition, the


24

University has filed applications for patents in the United States and in
certain foreign countries. The inventions covered by such applications generally
address and accommodate component miniaturization, specific implementation of
various system components and design elements to facilitate mass production.


The Company considers protection of these key enabling technologies and
components to be a fundamental aspect of its strategy to penetrate diverse
markets with unique products. As such, it intends to continue to develop its
portfolio of proprietary and patented technologies, at the system, component,
and process levels. There can be no assurance, however, as to the degree of
protection offered by these patents, or as to the likelihood that patents will
be issued from the pending patent applications. Moreover, these patents may have
limited commercial value or may lack sufficient breadth to protect adequately
the aspects of the Company's technology to which the patents relate.

There also can be no assurance that competitors, in the United States and in
foreign countries, many of which have substantially greater resources than the
Company and have made substantial investments in competing technologies, will
not apply for and obtain patents that will prevent, limit or interfere with the
Company's ability to make and sell its products, or intentionally infringe the
University's patents. The Company is aware of several patents held by third
parties that relate to certain aspects of retinal scanning devices. There is no
assurance that these patents would not be used as a basis to challenge the
validity of the University's patent rights, to limit the scope of the
University's patent rights or to limit the University's ability to obtain
additional or broader patent rights. A successful challenge to the validity of
the Company's patents may adversely affect the Company's competitive position
and could limit the Company's ability to commercialize the VRD technology.
Moreover, there can be no assurance that such patent holders or other third
parties will not claim infringement by the Company or by the University with
respect to current and future technology. Because U.S. patent applications are
held and examined in secrecy, it is also possible that presently pending U.S.
patent applications will eventually issue with claims that will be infringed by
the Company's products or the VRD technology. The defense and prosecution of
patent suits is costly and time-consuming, even if the outcome is favorable.
This is particularly true in foreign countries where the expenses associated
with such proceedings can be prohibitive. An adverse outcome in the defense of a
patent suit could subject the Company to significant liabilities to third
parties, require the Company and others to cease selling products that
incorporate VRD technology or cease licensing the VRD technology, or require
disputed rights to be licensed from third parties. Such licenses may not be
available on satisfactory terms or at all. Moreover, if claims of infringement
are asserted against future co-development partners or customers of the Company,
those partners or customers may seek indemnification from the Company for
damages or expenses they incur.

The Company also relies on unpatented proprietary technology and there can
be no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's proprietary technology.
To protect its rights in these areas, the Company requires all employees and
most consultants, advisors and collaborators to enter into confidentiality and
noncompetition agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. In addition, the University of Washington retains the
right to publish information regarding the VRD technology for academic purposes.
To date, the Company has had no experience in enforcing its confidentiality
agreements.

HUMAN FACTORS AND SAFETY


As part of its research and development activities, the Company conducts
ongoing research as to the cognitive, physiological and ergonomic factors that
must be addressed by products incorporating VRD technologies and the safety of
VRD technology, including such issues as the maximum permissible laser exposure
limits established by American National Standards Institute ("ANSI").
Researchers from the HIT Lab concluded that, assuming use of a VRD device for
eight continuous hours, laser


25
exposure to the retina would be approximately 100,000 times below the maximum
permissible exposure levels established by ANSI. If the horizontal and vertical
scanners were to fail such that the photon output were continuous, a user would
experience laser exposure approximately 1,000 times below the ANSI limits before
the user would likely look away from the VRD or avert his or her eyes. In the
event that the user did not avert his or her eyes from the VRD, the user would
have to remain perfectly still and focus on the VRD for several hours to reach
the ANSI maximum permissible exposure level.

COMPETITION

The information display industry is highly competitive. The Company's
products and the VRD technology will be competing with established manufacturers
of miniaturized CRT and flat panel display devices, most of whom have
substantially greater financial, technical and other resources than the Company.
The Company also will compete with other developers of miniaturized display
devices. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that would render the VRD
technology or the Company's products obsolete and non-competitive.

The electronic information display industry has been characterized by rapid
and significant technological advances. There can be no assurance that the VRD
technology or the Company's proposed products will remain competitive with such
advances or that the Company will have sufficient funds to invest in new
technologies or products or processes. Although the Company believes that its
VRD technology and proposed display products should deliver images of a quality
and resolution substantially better than that of commercially available LCD and
CRT-based display products, there is no assurance that manufacturers of LCDs and
CRTs will not develop further improvements of screen display technology that
would eliminate or diminish the anticipated advantages of the Company's proposed
products.

OTHER TECHNOLOGY INVESTMENT

The Company intends to pursue the acquisition and development of other
imaging and display technologies as opportunities to do so arise.


In March 1994, the Company entered into a second exclusive license agreement
with the University of Washington to commercialize imaging technology unrelated
to the VRD technology. This technology involves the projection of data and
information onto the inside of a dome that is placed over the viewer's head.
This imaging technology is referred to as HALO. The HALO license agreement
requires the Company to pay $200,000 to the University, and to issue 93,750
shares of Common Stock to the University and the inventors of the technology,
upon the achievement of certain milestones, including, among other things, the
receipt by the University of a patent covering the technology. See Note 5 of
Notes to the Financial Statements.


LEGAL PROCEEDINGS


During the period March 1994 through June 1995, warrants to purchase an
aggregate of 343,750 shares of Common Stock at prices ranging from $0.80 to
$6.40 per share were approved by the Company's Board of Directors for issuance
to a then-current director. The director resigned his position in August 1995.
Subsequent to December 31, 1995, the Board of Directors concluded that the grant
of the warrants to the former director had neither been properly authorized
under the Washington Business Corporation Act nor supported by adequate
consideration. The former director disputes the Company's view of the
circumstances surrounding the approval of the Warrants, has engaged counsel with
respect to the matter and has informed the Company that if settlement of the
parties' differences with respect to the warrants is not reached, he intends to
commence legal action seeking damages for breach of contract and a declaration
that the warrants are in full force and effect. Although the Company believes
its position with respect to the warrants is correct, if the former director
were to commence legal action against the Company, there is no assurance that he
would not prevail on some or all of such claims.


26
EMPLOYEES


As of July 10, 1996 Microvision had eight full-time employees. Microvision
is actively seeking additional qualified full-time personnel where appropriate,
and has reached agreements to hire three new employees, including a chief
financial officer and two research engineers, following completion of this
offering. The Company's employees are not subject to any collective bargaining
agreements and management regards its relations with employees to be good. See
"Risk Factors -- Dependence on Key Personnel" and "Management."


FACILITIES

Microvision currently leases approximately 5,600 square feet of combined use
office and laboratory space at 2203 Airport Way South in Seattle, Washington. In
addition, the VRD research facility occupies approximately 1,500 square feet of
laboratory space at the HIT Lab located on the University of Washington campus
in Seattle, Washington. The laboratory space is provided in connection with the
research activities performed by the HIT Lab. See "-- University of Washington
License Agreement." The Company believes that the current facilities are
adequate and anticipates that additional space will be available on reasonable
terms if needed.

27
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:




NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------

Richard F. Rutkowski (1) 40 Chief Executive Officer, President and Director
Stephen R. Willey 42 Executive Vice President, Technical Liaison and
Director
Richard A. Raisig (1) 49 Director
Walter J. Lack (1)(2) 48 Director
Robert A. Ratliffe 40 Director
Jacob Brouwer (2) 70 Director
Richard A. Cowell 49 Director



- ------------------------
(1) Member of the Compensation and Finance Committees

(2) Member of the Audit Committee


RICHARD F. RUTKOWSKI served as Chief Operating Officer of the Company from
December 1994 until September 1995, Chief Executive Officer of the Company since
September 1995, as a director of the Company since August 1995, and was elected
President of the Company in July 1996. Between November 1992 and May 1994, Mr.
Rutkowski served as Executive Vice President of Medialink Technologies
Corporation (formerly Lone Wolf Corporation), a developer of high speed digital
networking technology for multimedia applications in audio-video computing,
consumer electronics and telecommunications. Between February 1990 and April
1995, Mr. Rutkowski was principal of Rutkowski, Erickson, Scott, a consulting
firm. Mr. Rutkowski also serves as a director of Digital Data Networks, Inc., a
developer of wireless communications systems and networked electronic display
media for the transit industry.


STEPHEN R. WILLEY has served as Executive Vice President of the Company
since October 1995 and as a director since June 1995. Mr. Willey also serves as
the Company's technical liaison to the University of Washington's HIT Lab.
Between January 1994 and April 1996, Mr. Willey served as an outside consultant
to the Company through DGI The Development Group, Inc. ("DGI"), a business and
technology consulting firm that Mr. Willey founded in 1982 and CSI Connection
Systems, Inc., also a business and technology consulting firm founded by Mr.
Willey. As principal of DGI, Mr. Willey provided technology consulting services
to CREO Products, Inc., an electro-optics equipment manufacturer, between June
1989 and December 1992. Mr. Willey also co-founded PRO. NET Communications,
Inc., an Internet services company. Mr. Willey has served as a director of PRO.
NET since 1994.

RICHARD A. RAISIG has served as a director of the Company since March 1996
and has agreed to accept the position of Chief Financial Officer of the Company
in September 1996. Mr. Raisig is currently Chief Financial Officer of Videx
Equipment Corporation, a manufacturer and rebuilder of wire line equipment for
the cabling industry. From July 1992 to May 1995, Mr. Raisig was Chief Financial
Officer and Senior Vice President-Finance for Killion Extruders, Inc., a
manufacturer of plastic extrusion equipment. From February 1990 to July 1992,
Mr. Raisig was Managing Director of Crimson Capital Company, an investment
banking firm. Prior to 1990, Mr. Raisig was a Senior Vice President of Dean
Witter Reynolds, Inc. Mr. Raisig is a Certified Public Accountant.

WALTER J. LACK has served as a director of the Company since August 1995.
Mr. Lack is a partner of Engstrom, Lipscomb & Lack, a Los Angeles, California
law firm that he founded in 1974. Mr. Lack has acted as a special arbitrator for
the Superior Court of the State of California since 1976 and for the American
Arbitration Association since 1979. Mr. Lack also serves as a director of HCCH
Insurance Holdings, Inc., a multinational insurance company listed on The New
York Stock Exchange. Mr. Lack has been involved in a number of start-up
companies, both as an investor and as a director.

28
ROBERT A. RATLIFFE joined the Company as a director in July 1996. Mr.
Ratliffe has been Vice President and principal of Eagle River, Inc., an
investment company specializing in the telecommunications and technology
sectors, and Vice President of Communications for Nextel Communications, Inc., a
wireless telecommunications company, since early 1996. Between 1986 and 1996,
Mr. Ratliffe served as Senior Vice President, Communications, for AT&T Wireless
Services, Inc., and its predecessor, McCaw Cellular Communications, Inc., where
he also served as Vice President of External Affairs and as Vice President of
Acquisitions and Development. Prior to joining McCaw Cellular Communications,
Inc., Mr. Ratliffe was a Vice President with Seafirst Bank.

JACOB BROUWER joined the Company as a director in July 1996. Mr. Brouwer is
the Chairman and Chief Executive Officer of Brouwer Claims Canada & Co. Ltd., an
insurance adjusting company that he founded in 1956. Mr. Brouwer has served as a
director for numerous companies, including the Canadian National Railway
Company, The Insurance Corporation of British Columbia, Air B.C., Golden Tulip
Hotels Ltd., and Northwestel Inc. Mr. Brouwer is past President of the British
Columbia Adjusters Association, and former Chairman of the International
Financial Centre of British Columbia. Mr. Brouwer currently serves as a director
of First Interstate Bank of Canada and of Doman Industries, a forest products
company.


RICHARD A. COWELL joined the Company as a director in August 1996. Mr.
Cowell is a Senior Associate at Booz Allen & Hamilton involved in, among other
things, the incorporation of simulation and models into education and training
programs for Department of Defense contractors. Prior to joining Booz Allen in
March of 1996, Mr. Cowell served in the United States Army for 25 years.
Immediately prior to his retirement from the Army, Mr. Cowell served as Director
of the Louisiana Maneuvers Task Force reporting directly to the Chief of Staff,
Army. Mr. Cowell has authored a number of articles relating to the future of the
Army and received awards for his writing and producing of a film entitled
"America's Army" in 1994. Mr. Cowell retired from the Army holding the rank of
Colonel.


Directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been elected and duly qualified.
Pursuant to the 1996 Independent Director Stock Plan, non-employee directors
receive an initial award of 500 shares of Common Stock and an annual award of
Common Stock. See "-- Benefit Plans -- 1996 Independent Director Stock Plan."
Non-employee directors receive no salary for their services and receive no fee
from the Company other than as described above for their participation at Board
meetings. All directors are reimbursed for reasonable travel and other
out-of-pocket expenses incurred in attending meetings of the Board of Directors.

Executive officers are elected by the Board of Directors of the Company at
the first meeting after each annual meeting of shareholders and hold office
until their successors are elected and duly qualified.

SIGNIFICANT EMPLOYEES

TODD R. MCINTYRE joined the Company in January 1996 and currently serves as
Vice President of Business Development and Director of Marketing. Mr. McIntyre
is responsible for establishing relationships for the development of products
incorporating the VRD technology. Over the past eight years, Mr. McIntyre has
held business development and marketing positions with several development stage
companies, including Southern Limited Partnership, a magazine and book
publisher; Sasquatch Publishing Company, Inc., a magazine and book publisher;
SPRY Inc., an Internet software products publisher; and Notable Technologies,
Inc., a wireless telecommunications products manufacturer.

YOJI D. YASKAWA joined the Company in March 1996 as Director of Business
Development for Asia. Between January 1995 and February 1996, Mr. Yaskawa was a
consultant to AZCA, Inc., a management consulting firm, and from August 1989
through July 1994, Mr. Yaskawa was Vice President and

29
Managing Director of Communication Intelligence Corporation ("CIC"), a personal
computer software vendor and operating system provider. Mr. Yaskawa also served
as a director of CIC's Japanese affiliate.

ALEXANDER J. YARMIE joined the Company in March 1996 as Marketing
Manager/Defense and Aerospace, and is responsible for developing and
implementing the Company's military products strategy. From July 1992 to March
1996, Mr. Yarmie was a principal of Janan International, a business consulting
and product representation firm that advised clients in the electronics,
environmental technologies, automotive, aerospace, and computer industries on
business development, sales and marketing strategies. Between August 1988 and
July 1992, Mr. Yarmie was a marketing and sales manager for Sundstrand
Aerospace, an aerospace avionics and electronics company. Mr. Yarmie currently
holds the rank of Major in the U.S. Army reserves, and is a Master Army Aviator
and a former military helicopter instructor.

DAVID MELVILLE has agreed to join the Company as Senior Research Engineer in
September 1996. Mr. Melville currently is employed by the HIT Lab, where he has
been involved in developing the VRD technology, and is the inventor of the MRS.
Prior to joining the HIT Lab in 1994, Mr. Melville spent 12 years in engineering
positions with California State University, Fresno, School of Engineering. Mr.
Melville has over 20 years of experience in electronics design and development.
Mr. Melville holds a B.S. in Physics from California State University, Fresno.

DANIEL C. BERTOLET has agreed to join the Company as Research Engineer in
September 1996. Mr. Bertolet currently is employed by the University of
Washington as a Research Associate. Prior to joining the HIT Lab in November
1994, Mr. Bertolet was a Research Associate with the University of Washington,
Department of Chemical Engineering, and as Senior Processing Engineering with
United Epitaxial Technologies, where he worked on the commercialization of
semiconductor technologies. Mr. Bertolet holds a B.S. in Electrical Engineering
and a Ph.D. in Electrical and Computer Engineering from the University of
Massachusetts.

HIT LAB PERSONNEL

DR. THOMAS A. FURNESS, III has served as Director of the HIT Lab and as a
professor of industrial engineering at the University of Washington since 1989.
Dr. Furness has substantial experience in visual imaging systems, including 18
years as Chief of the Visual Display Systems Branch of the Human Engineering
Division of the U.S. Air Force's Armstrong Aerospace Medical Research
Laboratory. While with the Air Force, Dr. Furness worked extensively on the
Super Cockpit Program to develop and evaluate visual imaging systems designed to
deliver "heads-up" targeting, navigation, threat and other information to
pilots. Dr. Furness holds a B.S. in Electrical Engineering from Duke University
and a Ph.D. in Engineering and Applied Science from the University of
Southampton, England.

RICHARD S. JOHNSTON has more than 16 years of experience in the development
and commercialization of imaging technology and has served as Director of
Engineering at the HIT Lab since 1993. From December 1992 to October 1993, Mr.
Johnston was Vice-President of Engineering for Virtual Vision, Inc., a
manufacturer of consumer and industrial display products. Between March 1989 and
December 1992, Mr. Johnston was Director of Engineering for NeoPath, Inc., a
developer of medical analytical software, and prior to 1989 he served as Chief
Engineer for Delta Graphics, Inc., a producer of image generation systems. Mr.
Johnston also spent six years at The Boeing Company designing electronics and
software for digital signal processing and computer image generation projects.
Mr. Johnston holds B.S. and M.S. degrees in Electrical Engineering from Georgia
Institute of Technology.

30
EXECUTIVE COMPENSATION

The following table sets forth the compensation received for services in all
capacities to the Company for the last three fiscal years by Richard F.
Rutkowski, the Company's Chief Executive Officer and President ("Named
Executive"). No other officer of the Company received annual salary and bonuses
exceeding $100,000 in the fiscal year ended December 31, 1995.



LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------------
NAME AND FISCAL SALARY BONUS OTHER ANNUAL SECURITIES
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($)(1) UNDERLYING OPTIONS
- -------------------------------------------- --------- --------- --------- ------------------- ------------------

Richard F. Rutkowski (2) ................... 1995 92,500 30,000 -- --
Chief Executive Officer 1994 18,750 -- 3,790 311,517
and President 1993 -- -- -- --


- ------------------------
(1) Represents payments in consideration of consulting services rendered to the
Company prior to Mr. Rutkowski's employment with the Company.

(2) Mr. Rutkowski joined the Company as an employee on October 1, 1994. Pursuant
to his Amended and Restated Employment Agreement with the Company, Mr.
Rutkowski was granted options to purchase up to an aggregate of 311,517
shares of Common Stock as partial compensation for calendar years 1995,
1996, and 1997. See "-- Employment Agreements." On December 31, 1995,
options with respect to 115,814 shares of Common Stock had vested. Prior to
his employment with the Company, Mr. Rutkowski served as a consultant to the
Company.


OPTION GRANTS. No stock options or other similar rights were granted by the
Company during 1995 to the Named Executive.



AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES. The following table sets forth information concerning exercise of stock
options during 1995 by the Named Executive and the fiscal year-end value of
unexercised options:



VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS
UNDERLYING UNEXERCISED AT DECEMBER
OPTIONS AT DECEMBER 31, 31,
1995 (#) 1995 ($) (1)
-------------------------- -----------

SHARES ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------------- ----------------------- ------------- ----------- ------------- -----------



Richard F. Rutkowski................. -- -- 115,814 195,703 $ 949,675





NAME UNEXERCISABLE
- ------------------------------------- -------------

Richard F. Rutkowski................. $ 821,953


- ------------------------
(1) Calculated based on an assumed initial offering price of $9.00 per Unit
(attributing no portion of the value of a Unit to a Warrant) less the
exercise price.


EMPLOYMENT AGREEMENTS. Pursuant to his Amended and Restated Employment
Agreement with the Company, Mr. Rutkowski receives an annual base salary of
$120,000, subject to increases as determined by the Board of Directors, and an
annual cash bonus of $20,000. In addition, Mr. Rutkowski received options to
purchase up to an aggregate of 311,517 shares of Common Stock for his service to
the Company during the period 1995 through 1997. These options have five-year
terms and vest quarterly and will immediately vest and become exercisable upon
the occurrence of certain significant business events, including a sale of a
majority of the Company's assets to a third party. Mr. Rutkowski is entitled to
all benefits offered generally to the Company's employees. Upon any termination
by the Company without cause, certain of Mr. Rutkowski's stock options will vest
and Mr. Rutkowski will be entitled to a severance payment. The Amended and
Restated Employment Agreement expires, unless previously terminated, on December
31, 1997.


The Company entered into an employment agreement with Stephen R. Willey, the
Company's Executive Vice President and a director of the Company, effective May
1, 1996. Pursuant to this

31
agreement, Mr. Willey receives an annual base salary of $110,000, adjusted
annually for the cost of living and subject to increases as determined by the
Board of Directors. In addition, Mr. Willey is entitled to receive an annual
cash performance bonus in an amount determined by the Board of Directors, and
has received options to purchase an aggregate of 296,875 shares of Common Stock
for his services during the period 1995 through 1998. Upon any termination by
the Company without cause, certain of Mr. Willey's stock options will vest and
Mr. Willey will be entitled to a severance payment. Mr. Willey's employment
agreement expires, unless previously terminated, on September 30, 1998.

BENEFIT PLANS


1996 STOCK OPTION PLAN. The Company's 1996 Stock Option Plan (the "1996
Plan"), which was adopted by the Company's Board of Directors on July 10, 1996
and approved by the shareholders on August 9, 1996, provides for the grant of
options to acquire a maximum of 750,000 shares of Common Stock, subject to
adjustments in the event of certain changes in the Company's capitalization.
Unless sooner terminated by the Board of Directors, the 1996 Plan will terminate
ten years after its adoption by the Board of Directors of the Company.


The 1996 Plan permits the granting of incentive stock options ("ISOs") and
nonqualified stock options ("NSOs") at the discretion of a plan administrator
(the "Plan Administrator"). The Plan Administrator is comprised of
"disinterested directors" and "outside directors" for purposes of Rule 16b-3
under the Exchange Act and Section 162(m) of the Internal Revenue Code,
respectively. Subject to the terms of the 1996 Plan, the Plan Administrator
determines the terms and conditions of any options granted, including the
exercise price. Eligible optionees include any current or future employee,
officer, or agent of the Company or its subsidiaries. The 1996 Plan provides
that the Plan Administrator must establish an exercise price for ISOs that is
not less than the fair market value of the shares at the date of grant. If ISOs
are granted to persons owning more than 10% of the voting stock of the Company,
however, the 1996 Plan provides that the exercise price must be not less than
110% of the fair market value of the shares at the date of grant and that the
term of the ISOs may not exceed five years. The term of all other options
granted under the 1996 Plan may not exceed ten years. Although the Plan
Administrator determines when options become exercisable, options granted under
the 1996 Plan generally become exercisable at a rate of 33% per year over a
three-year period, so that options are fully vested after three years. Options
are not transferable other than by will or the laws of descent and distribution,
and each option is exercisable during the lifetime of the optionee only by such
optionee. In the event of a merger, consolidation or plan of exchange to which
the Company is a party or a sale of all or substantially all of the Company's
assets, the Board of Directors may elect one of the following alternatives: (i)
outstanding options remain in effect in accordance with their terms; (ii)
outstanding options may be converted into options to purchase stock in the
surviving or acquiring corporation in the transaction; or (iii) outstanding
options may be exercised with a 30-day period prior to the consummation of the
transaction, at which time they will automatically expire, and the Board may
accelerate the time frame for exercise of all options in full. Shares subject to
options granted under the 1996 Plan that have lapsed or terminated may again be
made subject to options granted under the 1996 Plan. Following termination of
employment by the Company other than for cause, resignation, retirement,
disability or death, an option holder has three months within which to exercise
his options before the options will automatically expire.


1996 INDEPENDENT DIRECTOR STOCK PLAN. The 1996 Independent Director Stock
Plan (the "Director Plan") was adopted by the Board of Directors on July 10,
1996, and approved by the shareholders on August 9, 1996. A total of 75,000
shares of Common Stock have been reserved for issuance under the Director Plan.
The Director Plan provides for the grant of shares of Common Stock to non-
employee directors ("Independent Directors") of the Company. The Director Plan
is designed to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the Board of Directors or a
committee thereof. The Director Plan is administered in accordance with Rule
16b-3 adopted under the Exchange Act.


32

Each Independent Director will receive 500 shares of Common Stock upon such
Independent Director's first election or appointment to the Board. Each
Independent Director also will be awarded additional shares (the "Annual Award")
on an annual basis each time he or she is elected to the Board (or, if directors
are elected to serve terms longer than one year, as of the date of each annual
shareholders' meeting during that term). The number of shares awarded in the
Annual Award will be equivalent to the result of $15,000 divided by the fair
market value of a share on the date of the award, rounded to the nearest 100
shares (or a fraction thereof if the Independent Director is elected or
appointed to the Board at any time other than at the annual meeting of
shareholders). If any share awarded under the Director Plan is forfeited, such
share will again be available for purposes of the Director Plan. Unless earlier
suspended or terminated by the Board, the Director Plan will continue in effect
until the earlier of: (i) ten years from the date on which it is adopted by the
Board, and (ii) the date on which all shares available for issuance under the
Director Plan have been issued.


PRIOR PLANS. The Company's 1993 Stock Option Plan, 1994 Combined Incentive
and Nonqualified Stock Option Plan, and 1995 Combined Incentive and Nonqualified
Stock Option Plan (the "Prior Plans"), provided for the award of ISOs to key
employees and the award of NSOs to employees and certain non-employees who have
important relationships with the Company. The Company reserved 228,938, 435,000,
and 1,060,000 authorized but unissued shares for issuance under each of the
1993, 1994, and 1995 plans, respectively, and as of July 10, 1996, options to
purchase an aggregate of 724,017 shares of Common Stock remained outstanding
under the respective plans. The Company does not intend to grant any additional
options to purchase shares of Common Stock under the Prior Plans, and expects to
terminate the Prior Plans effective immediately following the issuance of the
shares of Common Stock subject to the outstanding grants thereunder.

33
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 10, 1996 by (i) each person known by
the Company to own beneficially more than 5% of the Company's outstanding Common
Stock ("Principal Shareholder"); (ii) each of the Company's directors; (iii) the
Named Executive; and (iv) all executive officers and directors of the Company as
a group.



PERCENTAGE OF
COMMON STOCK (2)
--------------------------

AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OFFERING OFFERING
- --------------------------------------------------------------------- ---------------------- ------------ ------------



Richard F. Rutkowski (3) ............................................ 191,077 5.5% 3.5%
c/o Microvision, Inc.
2203 Airport Way South, Suite 100
Seattle, WA 98134
Stephen R. Willey (4) ............................................... 145,104 4.2% 2.7%
c/o Microvision, Inc.
2203 Airport Way South, Suite 100
Seattle, WA 98134
Walter J. Lack (5) .................................................. 120,938 3.5% 2.2%
10100 Santa Monica Blvd., 16th Floor
Los Angeles, CA 90067
Robert A. Ratliffe .................................................. 6,250 * *
2300 Carillon Point
Kirkland, WA 98033
Richard A. Raisig ................................................... 625 * *
515 East 72nd Street, #26J
New York, NY 10021
Jacob Brouwer ....................................................... -- -- --
1200 West Pender Street, Suite 1200
Vancouver, B.C.
VGE 259
Canada
Richard A. Cowell ................................................... -- -- --
c/o Booz, Allen & Hamilton
4301 N. Fairfax Drive, Suite 200
Arlington, VA 22203
All executive officers and directors as a group (7 persons) 463,994 13.4% 8.5%



- ------------------------
* Less than 1% of the outstanding shares of Common Stock.

(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days are treated as outstanding
for determining the amount and percentage of Common Stock owned by such
individual. To the Company's knowledge, each person has sole voting and sole
investment power with respect to the shares shown, subject to community
property laws, where applicable.

(2) Rounded to the nearest 1/10th of one percent, based on 3,461,546 shares of
Common Stock outstanding before this offering and 5,461,546 shares of Common
Stock outstanding after this offering, assuming no exercise of the
Overallotment Option, the Warrants, the Representatives' Warrants, or any
other outstanding options or warrants, assuming no conversions or
redemptions of any of the 7% Notes, and excluding the Stoel Rives Shares.

(3) Includes options to purchase up to 189,203 shares of Common Stock.

(4) Includes options to purchase up to 136,719 shares of Common Stock.

(5) Excludes shares of Common Stock that may be received upon conversion or
redemption of any 7% Notes.

34
CERTAIN TRANSACTIONS

Since inception of the Company, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company
was or is to be a party in which the amount involved exceeds $60,000 and in
which any director or executive officer had or will have a direct or indirect
material interest other than the transactions described below.

SECURITIES ISSUANCES


From November 1995 through June 1996, the Company sold an aggregate of
859,776 shares of the Company's Series A Preferred Stock to 58 entities and
individuals for an aggregate purchase price of $4,127,000 in cash. In February
1996, Walter J. Lack, a director of the Company, purchased 15,625 shares of
Series A Preferred Stock for $75,000 in cash.



In early July 1996, the Company issued $750,000 in aggregate principal
amount of its 7% Notes to six investors raising $750,000 for the Company's
immediate operating requirements. The 7% Notes may be converted or redeemed at
the option of the holder at any time 90 days after the date of this Prospectus.
The 7% Notes bear interest at the rate of 7% per annum, payable semiannually in
arrears on December 15 and June 15, and will mature on July 10, 1997. The 7%
Notes are subordinate to all future senior indebtedness of the Company. The
shares of Common Stock issuable upon any conversion or redemption of the 7%
Notes are being registered for resale pursuant to the Registration Statement of
which this Prospectus is a part. Walter J. Lack, a director of the Company,
purchased $250,000 in principal amount of the 7% Notes.


PROMOTERS' TRANSACTIONS


The Company was founded and promoted by Times Holding Limited; Sisley
Enterprises S.A.; Yokohama Enterprises, Inc.; George Hatch; the Hunter Family
Trust No. 2; Caisey Harlingten; Ronetna Limited; and Dunbrody International,
Ltd. (each individually, a "Promoter" and all, collectively, the "Promoters").
In July 1993, an aggregate of 1,893,750 shares of Common Stock were issued by
the Company to the Promoters for an aggregate purchase price of $212,100. On May
28, 1996, the Company repurchased 859,375 shares of Common Stock from the
Promoters. Consideration for such purchase included the cancellation of
promissory notes from the Promoters in an aggregate principal amount of $66,600
and the reduction in the exercise price of warrants previously granted to them,
which were subsequently exercised, to purchase 96,875 shares of Common Stock
from $0.80 to zero.



Effective January 1, 1994, the Company entered into consulting agreements
with David L. Hunter and Caisey Harlingten, Promoters of the Company. Pursuant
to the agreements, Messrs. Hunter and Harlingten each provided business
development and strategic planning services to the Company, and assisted the
Company with its financing activities and provided general management,
marketing, development and investment assistance to the Company. Messrs. Hunter
and Harlingten were paid $90,018 and $88,000 under their respective agreements,
which terminated in November 1994 and February 1995, respectively.


CONSULTING ARRANGEMENTS


Effective January 1, 1994, the Company entered into a consulting agreement
with Dr. Thomas A. Furness, III, who at the time was chairman of a scientific
advisory board to the Company. Pursuant to the agreement, Dr. Furness provided
strategic planning and technical advice to the Company. Dr. Furness was paid
$55,000 and received warrants to purchase 31,250 shares of Common Stock under
the agreement, which terminated in June 1995. At the time Dr. Furness resigned
from the advisory board, the advisory board of the Company had become inactive.
The Company and Dr. Furness are in discussions with respect to a consulting
agreement that would provide for a continuing level of involvement by Dr.
Furness as a technical advisor to the Company. In consideration for such
services, Dr. Furness has proposed a compensation arrangement that would include
additional equity participation in the Company. The Company is considering Dr.
Furness' proposal.


In December 1993, the Company authorized a consulting agreement with Walter
J. Lack, a director of the Company, pursuant to which Mr. Lack provided business
consulting services to the

35
Company. As compensation for these services, the Company issued Mr. Lack
warrants to purchase 3,125 shares of Common Stock at an exercise price of $3.52
per share. In June 1996, Mr. Lack received 833 shares of common stock upon the
exercise of such warrants. The consulting agreement between the Company and Mr.
Lack terminated on December 31, 1994.


Between December 1993 and October 1995, two entities with which Stephen R.
Willey is affiliated provided strategic planning and technical consulting
services to the Company. As compensation for these services, the Company paid an
aggregate of $137,092 to these entities. The consulting relationship between the
Company and the affiliates terminated in October 1995, at which time Mr. Willey
became an employee of the Company.


36
DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 31,250,000 shares of
Common Stock, no par value per share, and 31,250,000 shares of Preferred Stock,
no par value per share.

UNITS

The Common Stock and the Warrants offered hereby will be sold only in Units.
Each Unit consists of one share of Common Stock and one Warrant. The Common
Stock and Warrants that comprise the Units will separate immediately upon
issuance and will trade only as separate securities.

COMMON STOCK

As of July 10, 1996, there were 2,601,770 shares of Common Stock outstanding
held of record by 120 shareholders. Holders of Common Stock are entitled to one
vote per share on all matters submitted to a vote of shareholders and may not
cumulate votes for the election of directors. Holders of Common Stock also are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor, subject to preferences that
may be applicable to any outstanding Preferred Stock. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. All the outstanding shares of Common Stock are, and all
shares of Common Stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
shareholders, to issue up to 31,250,000 shares of Preferred Stock in one or more
series and to fix the powers, designations, preferences and relative,
participating, optional or other rights thereof, including dividend rights,
conversion rights, voting rights, redemption terms, liquidation preferences,
sinking fund terms and the number of shares constituting any series. The
issuance of Preferred Stock in certain circumstances may have the effect of
delaying, deferring or preventing a change of control of the Company, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, the Common Stock.

Upon the consummation of this offering, the 859,776 shares of Series A
Convertible Preferred Stock outstanding as of July 10, 1996, will be converted
automatically into an equal number of shares of Common Stock. No Preferred Stock
will remain outstanding immediately after this offering. At present, the Company
has no plans to issue any additional shares of Preferred Stock.

WARRANTS


REPRESENTATIVES' WARRANTS. In connection with this offering, the Company
has authorized the issuance of the Representatives' Warrants and has reserved
for issuance and registered for resale 400,000 shares of Common Stock issuable
upon exercise of such warrants (including the Warrants issuable upon exercise of
the Representatives' Warrants). The Representatives' Warrants will entitle the
holders to acquire 200,000 Units at an exercise price of $ per Unit. The
Representatives' Warrants will be exercisable at any time from the first
anniversary of the date of this Prospectus until the fifth anniversary of the
date of this Prospectus. The Company has agreed that during the period between
the first anniversary and fifth anniversary after the date of this Prospectus it
will maintain an effective registration statement with respect to such
securities so as to permit their public resale without restriction. This
obligation could result in substantial future expense to the Company and could
adversely affect the Company's ability to complete future equity or debt
financings. Furthermore, the sale of Common Stock of the Company held by or
issuable to the Representatives or even the potential of such sales, could have
an adverse effect on the market price of the securities offered hereby.


37
UNIT WARRANTS. Each Warrant will entitle the holder to purchase one share
of Common Stock at a price of $ per share, subject to certain
adjustments. The Warrants will, subject to certain conditions, be exercisable at
any time until the fifth anniversary of the date of this Prospectus, unless
earlier redeemed. The outstanding Warrants are redeemable by the Company, at
$.25 per Warrant, upon at least 30 days prior written notice to the registered
holders, if the closing bid price (as defined in the Warrant Agreement described
below) per share of Common Stock for each of the 20 consecutive trading days
immediately preceding the date notice of redemption is given equals or exceeds
200% of the exercise price of a Warrant. If the Company gives notice of its
intention to redeem, a holder would be forced either to exercise his or her
Warrants before the date specified in the redemption notice or accept the
redemption price.


The Warrants will be issued in registered form under a Warrant Agreement
(the "Warrant Agreement") between the Company and American Stock Transfer &
Trust Company, as warrant agent (the "Warrant Agent"). The shares of Common
Stock underlying the Warrants, when issued upon exercise of a Warrant, will be
fully paid and nonassessable, and the Company will pay any transfer tax incurred
as a result of the issuance of Common Stock to the holder upon its exercise.


The Warrants and the Representatives' Warrants contain provisions that
protect the holders against dilution by adjustment of the exercise price. Such
adjustment will occur in the event, among others, that the Company makes certain
distributions to holders of its Common Stock. The Company is not required to
issue fractional shares upon the exercise of a Warrant or Representatives'
Warrants. The holder of a Warrant or Representatives' Warrant will not possess
any rights as a shareholder of the Company until such holder exercises the
Warrant or Representatives' Warrant.

A Warrant may be exercised upon surrender of the Warrant Certificate on or
before the expiration date of the Warrant at the offices of the Warrant Agent,
with the form of "Election To Purchase" on the reverse side of the Warrant
Certificate completed and executed as indicated, accompanied by payment of the
exercise price (by certified or bank check payable to the order of the Company)
for the number of shares with respect to which the Warrant is being exercised.

For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Commission and qualification in effect under
applicable state securities laws (or applicable exemptions from state
qualification requirements) with respect to the issuance of shares or other
securities underlying the Warrants. The Company has agreed to use all
commercially reasonable efforts to cause a registration statement with respect
to such securities to be filed under the Securities Act and to become and remain
effective in anticipation of and prior to the exercise of the Warrants and to
take such other actions under the laws of various states as may be required to
cause the sale of Common Stock (or other securities) upon exercise of Warrants
to be lawful. If a current registration statement is not in effect at the time a
Warrant is exercised, the Company may at its option redeem the Warrant by paying
to the holder cash equal to the difference between the market price of the
Common Stock on the exercise date and the exercise price of the Warrant. The
Company will not be required to honor the exercise of Warrants if, in the
opinion of the Company's Board of Directors upon advice of counsel, the sale of
securities upon exercise would be unlawful.

The foregoing discussion of certain terms and provisions of the Warrants and
Representatives' Warrants is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and Representatives' Warrants, the
form of each of which has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.

For the life of the Warrants and Representatives' Warrants, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Warrants. The Warrant holders may be
expected to exercise their Warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital by an offering of Common Stock
on terms more favorable than those provided for by the Warrants. Further, the
terms on which the Company could obtain additional capital during the life of
the Warrants may be adversely affected.

38
OTHER WARRANTS. As of July 10, 1996, the Company had outstanding warrants
to purchase 217,963 shares of Common Stock. Warrants to purchase 4,063 shares
are immediately exercisable at an exercise price of $4.80 per share and will
expire in 2001. Warrants to purchase 190,463 shares are immediately exercisable
at an exercise price of $6.40 per share and will expire at various times between
2000 and 2001.

STOCK OPTIONS


The Company has reserved 825,000 shares for issuance upon the exercise of
options granted under the 1996 Stock Option Plan and 1996 Independent Director
Stock Plan. As of July 10, 1996, the Company had stock options outstanding to
purchase up to 971,205 shares of Common Stock at exercise prices ranging from
$0.80 to $8.80 per share. These options were granted under the 1996 Stock Option
Plan and the Company's prior Stock Option Plans. As of July 10, 1996, options to
purchase 368,812 shares were exercisable, of which 216,855 will expire on
January 1, 2001. The remaining outstanding options will vest, if at all, through
1999 and will expire during the period between January 1, 2002 and January 1,
2005.


CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion sets forth certain U.S. federal income tax
consequences, under current law, relating to the purchase and ownership of the
Units and the Common Stock and Warrants constituting the Units. The discussion
is a summary and does not purport to deal with all aspects of federal taxation
that may be applicable to an investor, nor does it consider specific facts and
circumstances that may be relevant to a particular investor's tax position.
Certain holders (such as dealers in securities, insurance companies, tax exempt
organizations, and those holding Common Stock or Warrants as part of a straddle
or hedge transaction) may be subject to special rules that are not addressed in
this discussion. This discussion is based on current provisions of the Code and
on administrative and judicial interpretations as of the date hereof, all of
which are subject to change retroactively and prospectively. ALL INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THIS OFFERING, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.


ALLOCATION OF PURCHASE PRICE. Each Unit as a whole will have a tax basis
equal to the cost of the Unit. The measure of income or loss from certain
transactions described below depends upon the tax basis in each of the Warrant
and the Common Stock comprising each Unit. The tax basis for each of the Warrant
and the Common Stock will be determined by allocating the cost of the Unit among
the securities which comprise the Unit in proportion to the relative fair market
values of those elements at the time of acquisition.


U.S. HOLDERS OF COMMON STOCK OR WARRANTS

The following discussion concerns the material U.S. federal income tax
consequences of the ownership and disposition of Common Stock or Warrants
applicable to a U.S. Holder of such Common Stock or Warrants. In general, a
"U.S. Holder" is (i) a citizen or resident of the U.S., (ii) a corporation or
partnership created or organized in the U.S. or under the laws of the U.S. or
any state, or (iii) an estate or trust whose income is includable in gross
income for U.S. federal income tax purposes regardless of its source.

DIVIDENDS. Dividends, if any, paid to a U.S. Holder generally will be
includable in the gross income of such U.S. Holder as ordinary income to the
extent of such U.S. Holder's share of the Company's current or accumulated
earnings and profits. See "Dividend Policy."

SALE OF COMMON STOCK. The sale of Common Stock should generally result in
the recognition of gain or loss to a U.S. Holder thereof in an amount equal to
the difference between the amount realized and such U.S. Holder's tax basis in
the Common Stock. If the Common Stock constitutes a capital asset in the hands
of a U.S. Holder, gain or loss upon the sale of the Common Stock will be
characterized as long-term or short-term capital gain or loss, depending on
whether the Common Stock has been held for more than one year.

39

EXERCISE AND SALE OF WARRANTS. No gain or loss will be recognized by a U.S.
Holder of a Warrant on the purchase of shares of Common Stock for cash pursuant
to an exercise of a Warrant (except that gain will be recognized to the extent
cash is received in lieu of fractional shares). The tax basis of Common Stock
received upon the exercise of a Warrant will equal the sum of the U.S. Holder's
tax basis for the exercised Warrant and the exercise price. The holding period
of the Common Stock acquired upon the exercise of the Warrant will begin on the
date the Warrant is exercised and the Common Stock is purchased (i.e., it does
not include the period during which the Warrant was held).


Gain or loss from the sale or other disposition of a Warrant (or loss in the
event that the Warrant expires unexercised as discussed below), other than
pursuant to a redemption by the Company, will be capital gain or loss to its
U.S. Holder if the Common Stock to which the Warrant relates would have been a
capital asset in the hands of such holder. Such capital gain or loss will be
long-term capital gain or loss if the U.S. Holder has held the Warrant for more
than one year at the time of the sale, disposition or lapse. It is unclear
whether the redemption of a Warrant by the Company would generate ordinary or
capital income or loss.


EXPIRATION OF WARRANTS WITHOUT EXERCISE. If a holder of a Warrant allows it
to expire without exercise, the expiration will be treated as a sale or exchange
of the Warrant on the expiration date. The U.S. Holder will have a taxable loss
equal to the amount of such U.S. Holder's tax basis in the lapsed Warrant. If
the Warrant constitutes a capital asset in the hands of the U.S. Holder, such
taxable loss will be characterized as long-term or short-term capital loss
depending upon whether the Warrant was held for the required long-term holding
period.



BACKUP WITHHOLDING. A shareholder who is a U.S. Holder may be subject to
backup withholding at the rate of 31% in connection with distributions received
with respect to his or her shares, unless the shareholder (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number, certifies
as to no loss of exemption for backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Any amount paid as
backup withholding will be creditable against such shareholder's income tax
liability. The Company will report to the shareholders and the I.R.S. the amount
of any "reportable payments" distributed and the amount of tax withheld, if any,
with respect to the shares.


NON-U.S. HOLDERS OF COMMON STOCK OR WARRANTS

The following discussion concerns the material U.S. federal income and
estate tax consequences of the ownership and disposition of shares of Common
Stock or Warrants applicable to Non-U.S. Holders of such shares of Common Stock
or Warrants. In general, a "Non-U.S. Holder" is any holder other than a U.S.
Holder, as defined in the preceding section.

DIVIDENDS. Dividends, if any, paid to a Non-U.S. Holder generally will be
subject to U.S. withholding tax at a 30% rate (or a lower rate as may be
prescribed by an applicable tax treaty) unless the dividends are effectively
connected with a trade or business of the Non-U.S. Holder within the United
States. See "Dividend Policy." Dividends effectively connected with such a trade
or business will generally not be subject to withholding (if the Non-U.S. Holder
properly files an executed IRS Form 4224 with the payor of the dividend) and
generally will be subject to federal income tax on a net income basis at regular
graduated rates. In the case of a Non-U.S. Holder which is a corporation, such
effectively connected income also may be subject to the branch profits tax
(which is generally imposed on a foreign corporation on the repatriation from
the U.S. of effectively connected earnings and profits). The branch profits tax
may not apply if the recipient is a qualified resident of certain countries with
which the U.S. has an income tax treaty. To determine the applicability of a tax
treaty providing for a lower rate of withholding, dividends paid to an address
in a foreign country are presumed, under the current I.R.S. position, to be paid
to a resident of that country, unless the payor had definite knowledge that such
presumption is not warranted or an applicable tax treaty (or U.S. Treasury
Regulations thereunder) requires some other method for determining a Non-U.S.
Holder's treaty status. The Company must report annually to the I.R.S. and to
each Non-U.S. Holder the

40
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of these information
returns also may be made available under the provisions of a specific treaty or
agreement to the tax authorities in the country in which the Non-U.S. Holder
resides.

SALE OF COMMON STOCK. Generally, a Non-U.S. Holder will not be subject to
federal income tax on any gain realized upon the disposition of such holder's
shares of Common Stock unless (i) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the U.S. (in which case the
branch profits tax may apply); (ii) the Non-U.S. Holder is an individual who
holds the shares of Common Stock as a capital asset and is present in the U.S.
for 183 days or more in the taxable year of the disposition and to whom such
gain is U.S. source; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain former U.S. citizens or
residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of disposition (or such shorter period that such shares were
held) and, subject to certain exceptions, the Non-U.S. Holder held, directly or
indirectly, more than 5% of the Common Stock.


EXERCISE AND SALE OF WARRANTS. Generally, a Non-U.S. Holder who recognizes
capital gain from the sale of a Warrant, other than pursuant to a redemption by
the Company, will not be subject to U.S. federal income tax unless (i) the gain
is effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States (in which case the branch profits tax may
apply); (ii) the Non-U.S. Holder is an individual who is present in the U.S. for
183 days or more in the taxable year of sale and to where the gain is U.S.
Source; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of U.S. law applicable to certain former U.S. citizens or residents; or (iv) the
Company is or has been a "U.S. real property holding corporation" for federal
income tax purposes (which the Company does not believe it is or is likely to
become) at any time during the five-year period ending on the date of sale (or
such shorter period such Warrants were held) and, subject to certain exceptions,
the Non-U.S. Holder held, directly or indirectly more than 5% of the Warrants.



ESTATE TAX. Shares of Common Stock and Warrants owned or treated as owned
by an individual who is not a citizen or resident (as specially defined for U.S.
federal estate tax purposes) of the U.S. at the time of death will be includable
in the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to U.S. federal
estate tax.


BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current U.S. federal
income tax law, backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain required information) and information reporting apply to payments of
dividends (actual and constructive) made to certain non-corporate U.S. persons.
The backup withholding tax and information reporting requirements applicable to
U.S. persons will generally not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the U.S., although dividends paid to
Non-U.S. Holders will be reported and taxed as described above under
"Dividends."

The payment of the proceeds from the disposition of shares of Common Stock
or Warrants through the U.S. office of a broker will be subject to information
reporting and backup withholding unless the holder, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Holder or otherwise
establishes an exemption. Generally, the payment of the proceeds from the
disposition of shares of Common Stock or Warrants to or through a non-U.S.
office of a broker will not be subject to backup withholding and will not be
subject to information reporting. In the case of the payment of proceeds from
the disposition of shares of Common Stock or Warrants through a non-U.S. office
of a broker that is a U.S. person or a "U.S.-related person," existing
regulations require information reporting (but not backup withholding) on the
payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status

41
as a non-U.S. Holder or the broker has documentary evidence in its files that
the owner is a Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S.-related person" is (i) a "controlled foreign
corporation" for U.S. federal income tax purposes or (ii) a foreign person 50%
or more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment (or for such part of
the period that the broker has been in existence) is derived from activities
that are effectively connected with the conduct of a U.S. trade or business.

Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the U.S. Internal Revenue Service. Non-U.S.
Holders should consult their tax advisors regarding the application of these
rules to their particular situations, the availability of an exemption therefrom
and the procedure for obtaining such an exemption, if available.

REGISTRATION RIGHTS


The Company has agreed to register an additional 210,000 shares of Common
Stock pursuant to the Registration Statement of which this Prospectus forms a
part, for sale by certain holders of the Company's Common Stock and the 7% Notes
(the "Selling Shareholders"). Of the additional 210,000 shares of Common Stock
being registered, 135,000 shares are issuable in connection with conversions or
redemptions of the 7% Notes. The 7% Notes may be converted or redeemed, and
shares of Common Stock issuable upon any such conversion or redemption may be
sold, commencing 90 days after the date of this Prospectus. The remaining 75,000
shares of Common Stock are being registered on behalf of certain of the
Promoters of the Company and are subject to lock-up agreements with the
Underwriters pursuant to which the holders of such shares of Common Stock have
agreed not to sell the shares until 90 days after the date of this Prospectus.
The Company will not receive any proceeds from the market sales of the Common
Stock by the Selling Shareholders and the sale of such shares will not be
included in the offering of the Units by the Underwriters. See "Risk Factors --
Shares Eligible for Future Sale."


WASHINGTON ANTI-TAKEOVER STATUTE

Washington's "Significant Business Transactions Statute" (Chapter 23B.19 of
the Washington Business Corporation Act) applies to all Washington corporations
that have a class of voting shares registered pursuant to section 12 or 15 of
the Exchange Act. The Company plans to register the Common Stock under the
Exchange Act as of the effective date of the Registration Statement of which
this Prospectus is a part. Subject to certain exceptions, the Washington statute
prohibits a corporation from entering into any "significant business
transactions" with an "Acquiring Person" (defined generally as a person or
affiliated group that beneficially owns 10% or more of the outstanding voting
securities of a corporation) for a period of five years after such person or
affiliated group becomes an Acquiring Person unless a majority of the target
corporation's directors approves, prior to the acquisition of shares that
establishes the purchaser as an Acquiring Person, the transaction or the share
acquisition. In addition, Chapter 23B.19 prohibits a corporation subject thereto
from entering into a significant business transaction with an Acquiring Person
unless the consideration to be received by the corporation's shareholders in
connection with such transaction satisfies the statute's "fair price"
provisions.

TRANSFER AGENT AND REGISTRAR


The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company.


42
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. No prediction can be made of the effect, if any, that
future market sales of shares of Common Stock or the availability of such shares
for sale will have on the prevailing market price of the Common Stock following
this offering. The Company is unable to estimate the number of such shares that
may be sold in the public market, because such amount will depend on the trading
volume in, and the market price for, the Common Stock, the Warrants and other
factors. Nevertheless, sales of substantial amounts of such shares in the open
market following this offering could adversely affect the prevailing market
price of the Common Stock and the Warrants.


Upon completion of this offering, the Company will have outstanding
5,461,546 shares of Common Stock (assuming no exercise of the Overallotment
Option, the Warrants, the Representatives' Warrants, any other outstanding
options or warrants, and no conversion or redemption of any of the 7% Notes,
issuance of the Stoel Rives Shares or redemption of fractional shares to occur
following the reverse stock split). The 2,000,000 shares of Common Stock that
are included in the Units and sold in this offering (plus up to 300,000 shares
that may be sold as a result of exercise of the Overallotment Option), and the
2,000,000 shares of Common Stock issuable upon exercise of the Warrants (plus up
to 300,000 shares issuable upon the exercise of Warrants subject to the
Overallotment Option) and the Stoel Rives Shares will be freely tradeable
without restriction under the Securities Act immediately upon completion of this
offering. An additional 210,000 shares of Common Stock being registered on
behalf of the Selling Shareholders will be eligible for resale by the Selling
Shareholders without restriction under the Securities Act 90 days after the date
of this Prospectus. However, any shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 under the Securities Act), subject
to certain conditions, will be subject to the resale limitations of Rule 144.


The remaining 3,386,546 shares of Common Stock are "restricted" shares
subject to restrictions upon resale under Rule 144 under the Securities Act (the
"Restricted Shares"). Of this number, 463,994 shares of Common Stock are subject
to an agreement between the Underwriters and certain shareholders not to sell
such shares until 12 months after the date of this Prospectus.

In general under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 54,272 shares immediately after
this offering) or (ii) the average weekly trading volume of the Company's Common
Stock during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission. Sales
pursuant to Rule 144 also are subject to certain requirements relating to manner
of sale, notice and availability of current public information about the
Company. A person who is not deemed to have been an affiliate of the Company at
any time during the three months immediately preceding the sale and whose
Restricted Shares have been fully paid for three years since the later of the
date on which they were acquired from the Company or from an affiliate of the
Company may sell such Restricted Shares under Rule 144(k) without regard to the
limitations and requirements described above.

Commencing approximately 12 months after the date of this Prospectus, up to
400,000 shares of Common Stock that are issuable upon exercise of the
Representatives' Warrants (including exercise of the warrants included therein)
will be eligible for resale without restriction under the Securities Act.
Following this offering, the Company intends to file a registration statement
under the Securities Act to register approximately 825,000 shares reserved for
issuance under the Company's 1996 Stock Plans and 724,017 shares issuable upon
exercise of options granted under the Company's prior stock option plans. See
"Management -- Benefit Plans," "Description of Securities" and "Underwriting."

43
UNDERWRITING

The Underwriters named below, acting through Paulson Investment Company,
Inc. and marion bass securities corporation, as Representatives, have agreed,
severally and not jointly, subject to the terms and conditions contained in an
Underwriting Agreement to be dated the date of this Prospectus, to purchase the
Units offered hereby from the Company in the amounts set forth below:



UNDERWRITER NUMBER OF UNITS
- ----------------------------------------------------------------------------- ---------------

Paulson Investment Company, Inc..............................................
marion bass securities corporation...........................................

---------------
Total.................................................................. 2,000,000
---------------
---------------


The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the Units offered hereby, other than the Units subject to the
Overallotment Option, if any are purchased, subject to certain conditions.

The Representatives have advised the Company that the Underwriters propose
to offer the Units to the public at the Unit Offering Price set forth on the
cover page of this Prospectus and to selected dealers at such price less a
concession within the discretion of the Representatives and that the
Underwriters and such dealers may reallow a concession to other dealers,
including the Underwriters, within the discretion of the Representatives. After
the initial public offering of the Units, the Unit Offering Price, the
concessions to selected dealers and the reallowance to other dealers may be
changed by the Representatives.


The Company has granted the Representatives the Overallotment Option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to a maximum of an additional 300,000 Units on the same terms as the
Units being purchased by the Underwriters from the Company. The Representatives
may exercise the Overallotment Option only to cover overallotments made in
connection with this offering.


The Company has agreed to sell and issue to the Representatives the
Representatives' Warrants. The Representatives' Warrants are exercisable for a
period of four years beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable to purchase up to 200,000 Units at a
price of $ per Unit (120% of the Unit Offering Price). The
Representatives' Warrants are not redeemable by the Company. The
Representatives' Warrants are nontransferable except to one of the Underwriters
or to any individual who is either a partner or an officer of an Underwriter, or
by will or the laws of descent and distribution. The holders of the
Representatives' Warrants will have, in that capacity, no voting, dividend, or
other shareholder rights. Any profit realized by the Representatives on the sale
of the securities issuable upon exercise of the Representatives' Warrants may be
deemed to be additional underwriting compensation.

The securities underlying the Representatives' Warrants are being registered
on the Registration Statement of which this Prospectus is a part. The Company
has agreed to maintain an effective registration statement at its expense with
respect to the issuance of the securities underlying the Representatives'
Warrants (and, if necessary, to allow their public resale without restriction)
at all times during the period in which the Representatives' Warrants are
exercisable.

44
By virtue of holding the Representatives' Warrants, the Representatives have
the opportunity to profit, at a nominal cost, from an increase in the market
price of the Company's securities. Furthermore, the exercise of the
Representatives' Warrants could dilute the interests of the holders of Common
Stock and the existence of the Representatives' Warrants may make it more
difficult for the Company to raise additional equity capital. Although the
Company will obtain additional equity capital upon exercise of the
Representatives' Warrants, it is likely that the Company could then raise
additional capital on more favorable terms than those of the Representatives'
Warrants.


The Representatives also will receive at closing a nonaccountable expense
allowance equal to three percent (3%) of the aggregate initial public offering
price of the Units sold in this offering, reduced by $35,000 previously paid by
the Company as an advance against this allowance.



A person associated with one of the Representatives has entered into a
consulting agreement with the Company pursuant to which the Company has issued
options to such person for the purchase of 31,250 shares of Common Stock at an
exercise price of $6.40 per share. Such options vest monthly through October 1,
1996 and are exercisable for a period of five years from the date of vesting.


The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales of Units offered by this Prospectus to any account
on a discretionary basis.

The Underwriting Agreement provides for reciprocal indemnification and
contribution between the Company and its controlling persons, on the one hand,
and the Underwriters and their respective controlling persons, on the other
hand, against certain liabilities in connection with the Registration Statement
of which this Prospectus is a part, including liabilities under the Securities
Act.


The Company's officers and directors and certain other shareholders have
agreed that for a period of one year after the date of this Prospectus, and the
Promoters have agreed that for a period of 90 days after the date of this
Prospectus, they will not offer, sell, contract to sell, grant any option for
the sale of or otherwise dispose of any securities of the Company (other than
intra-family transfers or transfers to trusts for estate planning purposes),
without the prior written consent of Paulson Investment Company, Inc.


Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. Accordingly, the Unit Offering Price will be
determined by negotiation between the Company and the Representatives. Among the
factors to be considered in determining the Unit Offering Price, in addition to
prevailing market conditions, will be the history and prospects of the industry
in which the Company intends to compete, an assessment of the Company's
management, prospects and capital structure, and such other factors as the
Representatives and the Company deem relevant.

LEGAL MATTERS

Certain legal matters related to this offering will be passed upon for the
Company by Stoel Rives LLP, Seattle, Washington. Certain legal matters related
to this offering will be passed upon for the Underwriters by Tonkon, Torp,
Galen, Marmaduke & Booth, Portland, Oregon. Stoel Rives LLP may receive up to
6,000 Units in partial consideration of services rendered to the Company in
connection with this offering.

EXPERTS

The financial statements of the Company as of December 31, 1994 and 1995 and
for the years then ended and for the period from inception (May 1993) to
December 31, 1995 included in this Prospectus have been so included in reliance
on the report (which contains an explanatory paragraph relating to the Company's
ability to continue as a going concern as described in Note 1 of Notes to the
Financial Statements) of Price Waterhouse LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

45
ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") in Los Angeles, California a Registration Statement on Form SB-2
under the Securities Act with respect to the securities offered hereby. This
Prospectus, filed as part of the Registration Statement, does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the exhibits and schedules thereto, which may
be inspected at the Commission's offices without charge, or copies of which may
be obtained from the Commission upon payment of the prescribed fees. Statements
made in this Prospectus as to the contents of any contract, agreement, or
document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected without charge at the Commission's principal
office at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W.,
Washington, D. C. 20549 and the regional offices of the Commission located at 75
Park Place, 14th Floor, New York, New York 10007 and 500 West Madison Street,
14th Floor, Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates from the public Reference Section of the Commission at Room
1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549.

46
INDEX TO FINANCIAL STATEMENTS




PAGE
-----


Report of Independent Accountants.......................................................................... F-2

Balance Sheet as of December 31, 1994 and 1995 and as of June 30, 1996 (unaudited)......................... F-3

Statement of Operations for the years ended December 31, 1994 and 1995, for the period from inception (May
1993) through December 31, 1995, for the six month periods ended June 30, 1995 and 1996 (unaudited), and
for the period from inception (May 1993) through June 30, 1996 (unaudited)............................... F-4

Statement of Shareholders' Equity (Deficit) for the years ended December 31, 1994 and 1995 and for the six
month period ended June 30, 1996 (unaudited)............................................................. F-5

Statement of Cash Flows for the years ended December 31, 1994 and 1995, for the period from inception (May
1993) through December 31, 1995, for the six month periods ended June 30, 1995 and 1996 (unaudited), and
for the period from inception (May 1993) through June 30, 1996 (unaudited)............................... F-6

Notes to the Financial Statements.......................................................................... F-7



F-1
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of
Microvision, Inc.


In our opinion, the accompanying balance sheet and the related statement of
operations, of shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Microvision, Inc., a
development stage enterprise, at December 31, 1994 and 1995, and the results of
its operations and its cash flows for the years then ended and for the period
from inception (May 1993) to December 31, 1995 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage enterprise which has
experienced significant losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


PRICE WATERHOUSE LLP


Seattle, Washington
July 10, 1996, except as to the reverse stock
split described on Note 8, which is as
of August 9, 1996.


F-2
MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS




PRO FORMA
DECEMBER DECEMBER JUNE 30,
31, 31, JUNE 30, 1996
1994 1995 1996 (NOTE 8)
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)

Current assets
Cash and cash equivalents................... $ 67,700 $ 98,500 $ 462,400 $ 1,169,900
Receivables from former employees........... 50,000 69,400 2,800 2,800
Prepaid expenses............................ -- -- 56,100 98,600
----------- ----------- ----------- -----------
Total current assets...................... 117,700 167,900 521,300 1,271,300
Equipment, net................................ 11,700 9,100 54,800 54,800
Other assets.................................. 8,400 2,000 52,400 52,400
----------- ----------- ----------- -----------
Total assets.............................. $ 137,800 $ 179,000 $ 628,500 $ 1,378,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities
Accounts payable............................ $ 147,500 $ 207,500 $ 409,900 $ 409,900
Accrued compensation and related
liabilities................................ -- 336,400 362,600 362,600
7% Convertible Subordinated Notes due 1997.. -- -- -- 750,000
----------- ----------- ----------- -----------
Total current liabilities................. 147,500 543,900 772,500 1,522,500
Commitments and contingencies (Notes 5 and 6)
Shareholders' (deficit):
Preferred stock, no par value, 31,250,000
shares authorized, none, 499,478, 859,776
(unaudited) and none (Pro forma) issued and
outstanding................................ -- 2,038,900 3,532,800 --
Common stock, no par value, 31,250,000
shares authorized, 3,033,203, 3,098,828,
2,601,770 (unaudited) and 3,461,546 (Pro
forma) shares issued and outstanding....... 4,488,800 4,745,900 4,793,700 8,326,500
Deferred compensation....................... (335,200) (42,800) (21,300) (21,300)
Subscription receivable..................... -- -- (10,000) (10,000)
Deficit accumulated during development
stage...................................... (4,163,300) (7,106,900) (8,439,200) (8,439,200)
----------- ----------- ----------- -----------
Total shareholders' (deficit)............. (9,700) (364,900) (144,000) (144,000)
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity
(deficit)................................ $ 137,800 $ 179,000 $ 628,500 $ 1,378,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------



The accompanying notes are an integral part of these financial statements.

F-3
MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS




INCEPTION
(MAY 1993) INCEPTION
YEAR ENDED YEAR ENDED TO SIX MONTHS SIX MONTHS (MAY 1993)
DECEMBER DECEMBER DECEMBER ENDED ENDED TO
31, 31, 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

Contract revenue............ $ -- $ 29,300 $ 29,300 $ -- $ 27,200 $ 56,500
----------- ----------- ----------- ----------- ----------- -----------
Research and development
expense.................... 1,804,400 1,931,200 4,882,400 700,000 692,100 5,574,500
Marketing, general and
administrative expense..... 1,046,300 1,037,700 2,300,300 407,900 670,000 2,970,300
----------- ----------- ----------- ----------- ----------- -----------
Total expenses............ 2,850,700 2,968,900 7,182,700 1,107,900 1,362,100 8,544,800
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations........ (2,850,700) (2,939,600) (7,153,400) (1,107,900) (1,334,900) (8,488,300)
----------- ----------- ----------- ----------- ----------- -----------
Interest income............. 39,000 31,800 82,300 9,000 5,000 87,300
Interest expense............ -- 35,800 35,800 -- 2,400 38,200
----------- ----------- ----------- ----------- ----------- -----------
Net loss.................... $(2,811,700) $(2,943,600) $(7,106,900) $(1,098,900) $(1,332,300) $(8,439,200)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net loss per share
(unaudited)................ $ (0.62) $ (0.24) $ (0.28)
----------- ----------- -----------
----------- ----------- -----------
Pro forma weighted average
shares and share
equivalents outstanding
(unaudited)................ 4,749,087 4,659,852 4,838,693
----------- ----------- -----------
----------- ----------- -----------



The accompanying notes are an integral part of these financial statements.

F-4
MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)



PREFERRED STOCK COMMON STOCK
-------------------------- ----------------------- DEFERRED SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT COMPENSATION RECEIVABLE
------------- ----------- ---------- ----------- ------------- ------------

Issuance of founders' shares, net...... -- -- 1,893,750 $ 212,100 -- --
Issuance of stock in exchange for
Exclusive License Agreement (at
$3.52/share).......................... -- -- 187,500 660,000 -- --
Issuance of stock for cash (at
$3.52/share), net of costs............ -- -- 937,500 3,077,400 -- --
Net loss for period ended December 31,
1993.................................. -- -- -- -- -- --
------------- ----------- ---------- ----------- ------------- ------------
Balance at December 31, 1993........... -- -- 3,018,750 3,949,500 -- --
Issuance of stock for cash (at
$6.40/share).......................... -- -- 14,453 92,500 -- --
Issuance of warrants and options for
common stock.......................... -- -- -- 446,800 $ (335,200) --
Net loss for year ended December 31,
1994.................................. -- -- -- -- -- --
------------- ----------- ---------- ----------- ------------- ------------
Balance at December 31, 1994........... -- -- 3,033,203 4,488,800 (335,200) --
Issuance of stock upon exercise of
warrants.............................. -- -- 62,500 6,000 -- --
Issuance of stock to Board members for
services.............................. -- -- 3,125 11,000 -- --
Issuance of warrants and options for
common stock.......................... -- -- -- 325,100 -- --
Issuance of preferred stock for cash,
net of costs (at $4.80/share)......... 499,478 $ 2,038,900 -- -- -- --
Amortization of deferred compensation,
net................................... -- -- -- -- 220,150 --
Cancellation of stock options.......... -- -- -- (85,000) 72,250 --
Net loss for year ended December 31,
1995.................................. -- -- -- -- -- --
------------- ----------- ---------- ----------- ------------- ------------
Balance at December 31, 1995........... 499,478 2,038,900 3,098,828 4,745,900 (42,800) --
Issuance of stock to Board members for
services (unaudited).................. -- -- 6,250 30,000 -- --
Issuance of warrants and options for
common stock (unaudited).............. -- -- -- 23,400 -- --
Issuance of preferred stock for cash,
net of costs (at $4.80/share)
(unaudited)........................... 360,298 1,493,900 -- -- -- --
Issuance of common stock for services
(unaudited)........................... -- -- 4,375 21,000 -- --
Issuance of common stock to
shareholders who had originally
purchased common stock at $6.40/share
(unaudited)........................... -- -- 4,817 -- -- --
Exercise of warrants for common stock
(unaudited)........................... -- -- 50,000 40,000 -- $ (10,000)
Cashless exercise of warrants for
common stock (unaudited).............. -- -- 296,875 -- -- --
Cancellation of founder's common stock
(unaudited)........................... -- -- (859,375) (66,600) -- --
Amortization of deferred compensation
(unaudited)........................... -- -- -- -- 21,500 --
Net loss for the six months ended June
30, 1996 (unaudited).................. -- -- -- -- -- --
------------- ----------- ---------- ----------- ------------- ------------
Balance at June 30, 1996 (unaudited)... 859,776 $ 3,532,800 2,601,770 $ 4,793,700 $ (21,300) $ (10,000)
------------- ----------- ---------- ----------- ------------- ------------
------------- ----------- ---------- ----------- ------------- ------------


DEFICIT
ACCUMULATED
DURING SHAREHOLDERS'
DEVELOPMENT EQUITY
STAGE (DEFICIT)
------------ -------------

Issuance of founders' shares, net...... -- $ 212,100
Issuance of stock in exchange for
Exclusive License Agreement (at
$3.52/share).......................... -- 660,000
Issuance of stock for cash (at
$3.52/share), net of costs............ -- 3,077,400
Net loss for period ended December 31,
1993.................................. $(1,351,600) (1,351,600)
------------ -------------
Balance at December 31, 1993........... (1,351,600) 2,597,900
Issuance of stock for cash (at
$6.40/share).......................... -- 92,500
Issuance of warrants and options for
common stock.......................... -- 111,600
Net loss for year ended December 31,
1994.................................. (2,811,700) (2,811,700)
------------ -------------
Balance at December 31, 1994........... (4,163,300) (9,700)
Issuance of stock upon exercise of
warrants.............................. -- 6,000
Issuance of stock to Board members for
services.............................. -- 11,000
Issuance of warrants and options for
common stock.......................... -- 325,100
Issuance of preferred stock for cash,
net of costs (at $4.80/share)......... -- 2,038,900
Amortization of deferred compensation,
net................................... -- 220,150
Cancellation of stock options.......... -- (12,750)
Net loss for year ended December 31,
1995.................................. (2,943,600) (2,943,600)
------------ -------------
Balance at December 31, 1995........... (7,106,900) (364,900)
Issuance of stock to Board members for
services (unaudited).................. -- 30,000
Issuance of warrants and options for
common stock (unaudited).............. -- 23,400
Issuance of preferred stock for cash,
net of costs (at $4.80/share)
(unaudited)........................... -- 1,493,900
Issuance of common stock for services
(unaudited)........................... -- 21,000
Issuance of common stock to
shareholders who had originally
purchased common stock at $6.40/share
(unaudited)........................... -- --
Exercise of warrants for common stock
(unaudited)........................... -- 30,000
Cashless exercise of warrants for
common stock (unaudited).............. -- --
Cancellation of founder's common stock
(unaudited)........................... -- (66,600)
Amortization of deferred compensation
(unaudited)........................... -- 21,500
Net loss for the six months ended June
30, 1996 (unaudited).................. (1,332,300) (1,332,300)
------------ -------------
Balance at June 30, 1996 (unaudited)... $(8,439,200) $ (144,000)
------------ -------------
------------ -------------



The accompanying notes are an integral part of these financial statements.

F-5
MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS




INCEPTION
YEAR ENDED YEAR ENDED (MAY 1993) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995
------------ ------------ ------------- SIX MONTHS SIX MONTHS INCEPTION
ENDED JUNE ENDED JUNE (MAY 1993) TO
30, 1995 30, 1996 JUNE 30, 1996
----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

Cash flows from operating activities:
Net loss............................. $(2,811,700) $(2,943,600) $(7,106,900) $(1,098,900) $(1,332,300) $(8,439,200)
Adjustments to reconcile net loss to
net cash used in operations:
Amortization of deferred
compensation...................... -- 207,400 207,400 1,500 21,500 228,900
Depreciation and write-off of
equipment......................... 33,100 2,600 35,700 -- 5,200 40,900
Non-cash expenses related to
issuance of stock, warrants and
options........................... 111,600 336,100 1,107,700 145,600 74,400 1,182,100
Change in:
Receivables from former employees.. (109,600) 47,200 (69,400) 47,200 (69,400)
Allowance for doubtful accounts.... 66,600 (66,600) -- (66,600) -- --
Prepaid expenses................... -- -- -- -- (56,100) (56,100)
Other assets....................... (2,300) 6,400 (2,000) 8,100 (50,400) (52,400)
Accounts payable................... (39,500) 60,000 207,500 18,500 185,600 393,100
Accrued compensation and related
liabilities....................... -- 336,400 336,400 13,200 26,200 362,600
------------ ------------ ------------- ----------- ----------- -------------
Net cash used in operating
activities...................... (2,751,800) (2,014,100) (5,283,600) (931,400) (1,125,900) (6,409,500)
------------ ------------ ------------- ----------- ----------- -------------
Cash flows from investing activities:
Purchases of equipment............... (30,200) -- (44,800) (4,100) (34,100) (78,900)
------------ ------------ ------------- ----------- ----------- -------------
Net cash used in investing
activities...................... (30,200) -- (44,800) (4,100) (34,100) (78,900)
------------ ------------ ------------- ----------- ----------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common
stock............................... 92,500 6,000 3,388,000 -- 30,000 3,418,000
Net proceeds from issuance of
preferred stock..................... -- 2,038,900 2,038,900 899,200 1,493,900 3,532,800
------------ ------------ ------------- ----------- ----------- -------------
Net cash provided by financing
activities...................... 92,500 2,044,900 5,426,900 899,200 1,523,900 6,950,800
------------ ------------ ------------- ----------- ----------- -------------
Net increase (decrease) in cash and
cash equivalents..................... (2,689,500) 30,800 98,500 (36,300) 363,900 462,400
Cash and cash equivalents at beginning
of period............................ 2,757,200 67,700 -- 67,700 98,500 --
------------ ------------ ------------- ----------- ----------- -------------
Cash and cash equivalents at end of
period............................... $ 67,700 $ 98,500 $ 98,500 $ 31,400 $ 462,400 $ 462,400
------------ ------------ ------------- ----------- ----------- -------------
------------ ------------ ------------- ----------- ----------- -------------
Cash paid for interest................. $ -- $ 35,800 $ 35,800 $ -- $ 2,400 $ 38,200
------------ ------------ ------------- ----------- ----------- -------------
------------ ------------ ------------- ----------- ----------- -------------
Supplemental disclosure of non-cash
transactions
Cancellation of Founders' shares in
exchange for forgiveness of note.... $ 66,600 $ 66,600
----------- -------------
----------- -------------
Capital lease of equipment........... $ 16,800 $ 16,800
----------- -------------
----------- -------------



The accompanying notes are an integral part of these financial statements.

F-6

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS


1. THE COMPANY
Microvision, Inc. (the Company), a Washington corporation, was incorporated
May 31, 1993. The Company was established to develop, manufacture and market
Virtual Retinal Display (VRD) technology, which projects images directly onto
the eye's retina. The Company is working closely with the University of
Washington's Human Interface Technology Lab to develop the VRD for potential
defense, healthcare, business, industrial and consumer applications.


The Company is a development stage enterprise which has incurred significant
net losses since inception. The ability of the Company to continue its
operations is dependent upon its ability to obtain financing, which to date has
been principally from the sale of stock. The Company intends to file a
Registration Statement for an initial public offering (IPO) of units including
common stock and warrants from which it expects to generate net proceeds of
approximately $15,495,000. Management believes proceeds from the IPO together
with proceeds from future corporate partnerships, offerings and/or other
financing sources will enable the Company to continue research and development
activities and develop products pursuant to its long-term growth plan.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less. The Company had no short-term investments at
December 31, 1994 or 1995.


EQUIPMENT


Equipment is stated at cost and depreciated over the estimated useful lives
of the assets (five years) using the straight-line method.

CONTRACT REVENUE

Contract revenue has been recorded on the completed contract method of
revenue recognition.

INCOME TAXES

The Company provides for income taxes under the principles of Statement of
Financial Accounting Standards No. 109 (SFAS 109) which requires that provision
be made for taxes currently due and for the expected future tax effects of
temporary differences between book and tax bases of assets and liabilities.

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

Pro forma net loss per share is computed on the basis of the weighted
average number of shares of common stock outstanding during the period after
giving retroactive adjustment for the conversion of all Series A preferred stock
into an equal number of shares of common stock, which will occur upon completion
of the IPO, and after consideration of the dilutive effect, if any, of stock
options and warrants. Pursuant to the requirements of the Securities and
Exchange Commission, common equivalent shares relating to preferred stock and
convertible debt (using the if-converted method) and stock options (using the
treasury stock method and assuming an initial public offering price of $9.00 per
share) issued subsequent to June 30, 1995 have been included in the computations
for all periods presented. Historical net loss per share is not presented
because such amounts are not deemed meaningful due to the changes in capital
structure that will occur in connection with the IPO.

RESEARCH AND DEVELOPMENT

Research and development costs, net of reimbursements, are expensed as
incurred. Research and development costs will be expensed until the net
realizable value of a related product or technology is assured.

F-7

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS


The Company's financial instruments consist primarily of cash and cash
equivalents, receivables from former employees, accounts payable and accrued
compensation and related liabilities. These financial instruments are stated at
their respective carrying values in the December 31, 1995 financial statements,
which approximates their fair values. The Company places its cash in high credit
quality financial institutions.


USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (FAS 123). This pronouncement requires the Company to elect to
account for stock-based compensation on a fair value based model or an intrinsic
value based model. The intrinsic value based model is currently used by the
Company and is the accounting principle prescribed by Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25). Under
this model, compensation cost is the excess, if any, of the quoted market price
of the stock at the date of grant or other measurement date over the amount an
employee must pay to acquire the stock. The fair value based model prescribed by
FAS 123 would require the Company to value stock-based compensation using an
accepted valuation model. Compensation cost is measured at the grant date based
on the value of the award and is recognized over the service period which is
usually the vesting period. The Company plans to continue to account for
stock-based compensation using APB 25 and is required to implement the
disclosure requirements of FAS 123 during the year ending December 31, 1996.
Implementation will not have a significant impact on the financial statements.

UNAUDITED INTERIM FINANCIAL STATEMENTS


The information presented as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 has not been audited. In the opinion of management, the
unaudited interim financial statements include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the Company's
financial position as of June 30, 1996 and the results of its operations and
cash flows for the six months ended June 30, 1995 and 1996. The interim results
of operations are not necessarily indicative of results which may occur for the
full fiscal year.


F-8

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS




DECEMBER 31,
------------------------
1994 1995
----------- -----------

Receivables from former employees
Receivables................................................................. $ 50,000 $ 2,800
Notes....................................................................... 66,600 66,600
----------- -----------
116,600 69,400
Allowance for doubtful accounts............................................. (66,600) --
----------- -----------
$ 50,000 $ 69,400
----------- -----------
----------- -----------
Equipment, net
Equipment................................................................... $ 12,800 $ 12,800
Accumulated depreciation.................................................... (1,100) (3,700)
----------- -----------
$ 11,700 $ 9,100
----------- -----------
----------- -----------



4. SHAREHOLDERS' EQUITY (DEFICIT)

COMMON STOCK

In July 1993, the Company issued 1,893,750 initial shares of its common
stock to the founders for $212,100, net of issuance costs. Subscribers to the
initial offering received warrants to purchase an additional 1,893,750 shares of
common stock at an exercise price of $.80 per share and warrants to purchase an
additional 946,875 common shares at an exercise price of $2.40 per share. The
warrants are exercisable through July 24, 2003. Warrants for 1,893,750 and
625,000 shares were canceled during 1994 and 1995, respectively.

In September 1993, the Company completed a private placement of common stock
in which 375,000 shares of common stock were issued for $3.52 per share. A
warrant for the purchase of an additional share for $4.80 was issued with each
share of common stock. All of the warrants expired, unexercised, in April 1995.

In October 1993, the Company issued 187,500 shares of common stock valued at
$660,000 to acquire a technology license as described in Note 5.

In November 1993, the Company completed an additional private placement of
common stock in which 562,500 shares of common stock were issued for $3.52 per
share.

In October 1994, the Company completed its third private placement of common
stock in which 14,453 shares of common stock were issued for $6.40 per share.

PREFERRED STOCK


In November 1994, the Company authorized the issuance of 1,875,000 Series A
Preferred Stock per share which has liquidation and dividend preferences over
common stock. Dividends accrue when and if declared by the Board of Directors.
The Series A Preferred Stock is convertible into an equal number of shares of
common stock. As of December 31, 1995, 499,478 shares had been issued,
generating gross proceeds of $2,397,500.


WARRANTS

On December 1, 1993, warrants to purchase 125,000 shares of common stock of
the Company at an exercise price of $3.52 per share were issued to persons who
performed services relating to raising equity capital. These warrants were
exercised subsequent to December 31, 1995.

F-9

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


4. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
During 1993, warrants to purchase a total of 468,750 shares of common stock
were issued in two separate issuances to an investment banker who raised capital
for the Company. The first issuance was of warrants to purchase 156,250 common
shares at an exercise price of $4.00 per share and the second was for warrants
to purchase 312,500 common shares at an exercise price of $4.80 per share.
During 1995, the Company extended the exercise period and reduced the number of
shares associated with the warrants issued such that warrants to purchase
359,375 shares of common stock at an exercise price of $4.80 per share remained
outstanding. Subsequent to December 31, 1995, the exercise period was extended
and the number of common shares associated with these warrants was again
reduced, such that warrants to purchase 125,000 shares at $6.40 per share remain
outstanding and expire in November 1998.

During 1994, two separate issuances of warrants were made to persons who
performed capital raising services. The first issuance was for warrants to
purchase 62,500 shares of common stock of the Company at an exercise price of
$.10 per share. The second issuance was for warrants to purchase 62,500 shares
of common stock of the Company at an exercise price of $3.20 per share with an
expiration date of March 31, 1999. Warrants granted under the first issuance
were exercised during 1995 for proceeds of $6,000. The remaining warrants were
exercised subsequent to December 31, 1995.

In September 1995, the Company granted warrants to purchase 31,250 shares of
common stock at an exercise price of $4.80 per share to a consultant who
performed capital raising services. The warrants were granted at their estimated
fair value as determined by the Company. The warrants vest ratably over one year
and expire five years following the date of issue. Subsequent to December 31,
1995, the exercise price of the warrants was increased to $6.40 per share.

In December 1995, the Company issued warrants to purchase 31,250 shares of
common stock at an exercise price of $4.80 per share to two consultants involved
in research and capital raising activities. The warrants were granted at their
estimated fair value as determined by the Company. The warrants vest ratably
over one year and expire five years following the date of issue. Subsequent to
December 31, 1995, the exercise price of the warrants was increased to $6.40 per
share.

In December 1995, the Company granted a warrant to purchase 1,563 shares of
common stock at an exercise price of $4.80 per share for rent expense to be
incurred in January 1996. These warrants vested in January 1996 and expire five
years from the date of issue.

OPTIONS

During 1993, the Company adopted the 1993 Stock Option Plan which provided
for granting incentive stock options (ISOs) and nonqualified options to
employees, directors, officers, and certain nonemployees of the Company as
determined by the Board of Directors, or its designated committee (Plan
Administrator), for the purchase of up to a total of 228,938 shares of the
Company's authorized but unissued common stock. The date of grant, option price,
vesting period and other terms specific to options granted under such plan were
determined by the Plan Administrator.

During 1994, the Company adopted the 1994 Combined Incentive and
Nonqualified Stock Option Plan which provided for the granting of incentive
stock options to employees, directors, officers, and certain nonemployees of the
Company as determined by the Plan Administrator for the purchase of common
shares not to exceed a total of 435,000 of the Company's authorized but unissued
shares of common stock, subject to adjustment by the Plan Administrator. The
date of grant, option price, vesting terms and other terms specific to options
granted under such plan were determined by the Plan Administrator.

F-10

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


4. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
In 1994, a consultant of the Company was granted warrants to purchase 31,250
shares of common stock at an exercise price of $.80 per share. Research and
development expense of $85,000 related to the fair value of the warrant, as
determined by the Company, was recorded during the year ended December 31, 1994.
During 1995, this consultant became the Executive Vice President of the Company
and these warrants were canceled and replaced with options to purchase 296,875
shares of common stock. The options were recorded at $237,500, the fair value as
determined by the Company, and compensation expense of $225,000 was recorded
during the year ended December 31, 1995. Options for 97,656 shares of common
stock at an exercise price of $.80-$3.20 per share were vested as of December
31, 1995. The remainder vest in quarterly increments beginning January 1, 1996
at exercise prices of $3.20-$7.20 per share. These options expire five years
from their vesting date.

In 1994, the Company granted options to purchase 241,845 shares of common
stock to the Chief Executive Officer of the Company in three separate issuances.
During 1995, the officer's employment agreement was renegotiated and the number
of options were increased. Under the employment agreement, the Company granted
options to purchase a total of 311,517 shares of common stock to the officer in
three separate issuances. The first issuance comprised options for 115,813
shares of common stock at an exercise price of $.80. These options were fully
vested at December 31, 1995. The second and third issuance each comprised
options to purchase 97,852 shares of common stock at a price of $3.20 and $6.40,
respectively, and vest over one year in quarterly increments beginning March 31,
1996 and March 31, 1997, respectively. The options expire five years from the
grant. The options were valued at $346,000 based upon the difference between the
exercise price and fair value of the underlying shares, as determined by the
Company, and compensation expense of $331,000 was recorded during the year ended
December 31, 1995.

In 1994, the Company granted to consultants acting in advisory capacities
options to purchase a total of 12,500 shares of common stock at an exercise
price of $6.40 per share. Compensation expense associated with this grant was
not material. Such options have vested and expire five years from the date of
issue.

In November 1995, the Company issued options to purchase 25,000 shares of
common stock at exercise prices ranging from $4.80 to $7.20 per share to
employees under the employees' compensation agreements. The options were granted
at no less than their estimated fair value as determined by the Company. These
options vest quarterly beginning in 1996 and expire five years from the date of
issue.

Subsequent to December 31, 1995, the Company's Board of Directors adopted
the 1996 Stock Option Plan (the "1996 Plan") and the 1996 Independent Director
Stock Plan (the "Director Plan"). The 1996 Plan provides for granting ISOs and
non qualified options (NSOs) to employees, officers and agents of the Company as
determined by the Plan Administrator, for the purchase of up to 750,000 shares
of the Company's authorized but unissued common stock. The terms and conditions
of any options granted, including the exercise price and vesting period are to
be determined by the Plan Administrator. The Director Plan provides for granting
up to a total of 75,000 shares of common stock to nonemployee directors of the
Company as determined by the Board of Directors or a committee thereof. The
Company expects to terminate the prior plans effective immediately following the
issuance of the shares of common stock subject to the outstanding grants
thereunder.

F-11

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


4. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following summarizes activity with respect to options and warrants
through December 31, 1995:




WARRANTS OPTIONS
-------------------------- ----------------------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------------ ------------ --------- -----------

Granted........................................... 3,809,375 $ .80-4.80 -- --
------------ ------------
Outstanding at December 31, 1993.................. 3,809,375 .80-4.80 -- --
Granted........................................... 187,500 .10-3.52 254,345 $ .80-6.40
Canceled/expired.................................. (1,893,750) .80-2.40 -- --
------------ ------------ --------- -----------
Outstanding at December 31, 1994.................. 2,103,125 .10-4.80 254,345 .80-6.40
Granted........................................... 64,063 4.80-6.40 391,547 .80-7.20
Exercised......................................... (62,500) .10 -- --
Canceled/expired.................................. (1,171,875) .80-4.80 -- --
------------ ------------ --------- -----------
Outstanding at December 31, 1995.................. 932,813 $ .80-6.40 645,892 $ .80-7.20
------------ ------------ --------- -----------
------------ ------------ --------- -----------
Exercisable at December 31, 1995.................. 894,271 $ .80-6.40 213,471 $ .80-3.20
------------ ------------ --------- -----------
------------ ------------ --------- -----------



5. COMMITMENTS AND CONTINGENCIES

In October 1993, the Company concurrently entered into a Research Agreement
and Exclusive License Agreement (License Agreement) with the University of
Washington (UW). The Research Agreement provides for the Company to pay
$5,133,500 to fund agreed-upon VRD research and development activities to be
carried out by UW. The research funding is required to be paid in sixteen
quarterly instalments of $320,800 and is payable at the beginning of each
quarter. Should the Company determine that for any reason it would not be
beneficial to continue funding the Research Agreement, the terms of the Research
Agreement permit the Company to terminate the agreement and discontinue future
payments. Total payments made for the years ended December 31, 1994 and 1995 and
the period from inception to December 31, 1995 are $1,283,400, $1,283,400 and
$2,887,600, respectively.



In an effort to match more closely the timing of the Company's funding
obligations under the Research Agreement with the actual research work performed
by the HIT Lab, the Company and UW are currently discussing rescheduling
payments and extending the term of the Research Agreement. Future commitments
under the Agreement in effect at December 31, 1995 are as follows:




YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------------------------

1996..................................................................................... $ 1,283,400
1997..................................................................................... 962,500
-------------
$ 2,245,900
-------------
-------------


The License Agreement grants the Company the rights to certain intellectual
property including the technology being developed under the Research Agreement
whereby the Company has an exclusive, royalty-bearing license to make, use and
sell or sublicense the licensed technology. In consideration for the license,
the Company agreed to pay a one-time nonrefundable license issue fee of
$5,133,500. Payments under the Research Agreement are credited to the license
fee. In the event the Research Agreement is terminated and the Company elects to
continue the License Agreement, the

F-12

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
remaining license fee becomes due and payable. If Microvision were to terminate
the License Agreement, it believes that further payments would not be required
and, accordingly, has not booked the balance of payments due as an accrued
expense.


Under the Research Agreement, the Company is required to pay certain costs
related to filing and processing of any patents and copyrights it chooses to
support or fund in accordance with the agreement.


During 1993, the Company issued 187,500 shares of common stock with a fair
value of $660,000, as estimated by the Company, to UW and certain affiliates as
additional consideration under the License Agreement. Additionally, the Company
will pay certain ongoing royalties.


In March 1994, the Company entered into an Exclusive License Agreement (HALO
Agreement) with UW. The HALO Agreement grants the Company the right to receive
certain technical information relating to HALO Display technology and an
exclusive right to market the technical information for the purpose of
commercial exploitation to unaffiliated entities. Under the HALO Agreement the
Company paid $25,000 in 1994 to fund research relating to the development of
certain technical information relating to HALO Display technology. In addition
to the initial payment, the Company has committed to pay to UW the following:




Upon filing for first patent............. $75,000 and 31,250 common shares
Upon issuance of the first patent........ $100,000 and 62,500 common shares


In September 1995, the Company reserved 31,250 shares of common stock for
issuance upon exercise of options to be granted to members of the research staff
at UW. During July 1996, these options were granted with an exercise price of
$6.40 per share.


During the period March 1994 through June 1995, warrants to purchase an
aggregate of 343,750 shares of common stock at prices ranging from $0.80 to
$6.40 per share were approved by the Company's Board of Directors for issuance
to a then-current director. The director resigned his position in August 1995.
Subsequent to December 31, 1995, the Board of Directors concluded that the grant
of the warrants to the former director had neither been properly authorized
under the Washington Business Corporation Act nor supported by adequate
consideration. The former director disputes the Company's view of the
circumstances surrounding the approval of the Warrants, has engaged counsel with
respect to the matter and has informed the Company that if settlement of the
parties' differences with respect to the warrants is not reached, he intends to
commence legal action seeking damages for breach of contract and a declaration
that the warrants are in full force and effect. Although the Company believes
its position with respect to the warrants is correct, if the former director
were to commence legal action against the Company, there is no assurance that he
would not prevail on some or all of such claims.


6. LEASE COMMITMENTS

During late 1995 and early 1996, the Company entered into leases for its
current office space and certain equipment under noncancelable capital and
operating leases with initial or remaining terms in excess of one year. Under
the operating lease for office space, the Company may elect to occupy additional
space at greater cost and has the option to make payment in the form of
preferred shares in lieu of paying cash through July 1996.


F-13

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


6. LEASE COMMITMENTS (CONTINUED)
The Company has exercised this option and issued 7,693 preferred shares and
warrants to purchase 1,563 shares of common stock to the landlord. Rent expense
of approximately $36,900 will be recorded for the share issuance and warrants
granted in December 1995. Future minimum rental commitments under capital and
operating leases for years ending December 31 are as follows:



CAPITAL OPERATING
LEASES LEASES
--------- -----------

1996........................................................................... $ 5,600 $ 49,300
1997........................................................................... 5,600 59,600
1998........................................................................... 5,600 59,600
--------- -----------
$ 16,800 $ 168,500
--------- -----------
--------- -----------


7. INCOME TAXES
A current provision for income taxes has not been recorded for the years
ended December 31, 1994 or 1995 or the period inception to date due to taxable
losses incurred during such periods. A valuation allowance has been recorded for
deferred tax assets because realization is primarily dependent on generating
sufficient taxable income prior to expiration of net operating loss
carry-forwards.

At December 31, 1995, the Company had net operating loss carry-forwards of
approximately $2,812,000 for federal income tax reporting purposes. The net
operating losses will expire beginning in 2005 if not previously utilized. In
certain circumstances, as specified in the Internal Revenue Code, a 50% or more
ownership change by certain combinations of the Company's stockholders during
any three-year period would result in limitations on the Company's ability to
utilize its net operating loss carry-forwards. The Company has determined that
such a change occurred during 1995 and the annual utilization of loss
carry-forwards will be limited to approximately $761,000.

Deferred tax assets are summarized as follows:




DECEMBER 31, DECEMBER 31,
1994 1995
-------------- --------------

Net operating loss carry-forward........................................ $ 556,000 $ 956,000
Capitalized research and development.................................... 830,000 1,143,000
Other................................................................... (30,000) 247,000
-------------- --------------
1,356,000 2,346,000
Valuation allowance..................................................... (1,356,000) (2,346,000)
-------------- --------------
Deferred taxes.......................................................... $ -- $ --
-------------- --------------
-------------- --------------



8. SUBSEQUENT EVENTS

The Company intends to file a Registration Statement for an initial public
offering (IPO) of 2,000,000 units, each consisting of one share of common stock
and one warrant to purchase one share of common stock. In anticipation of the
IPO, on July 10, 1996, subject to shareholder approval, the Company's Board of
Directors approved a 1-for-3.2 reverse stock split of the Company's common and
preferred stock. The reverse stock split was approved by the shareholders on
August 9, 1996. All information in these financial statements pertaining to
shares of capital stock and per share amounts have been adjusted to give
retroactive effect to the reverse split. It is anticipated a minor number of
fractional shares will be redeemed in connection with this action. Upon
completion of the IPO, the preferred stock will convert to common stock on a
one-for-one basis. This conversion is reflected in the pro forma balance sheet
as of June 30, 1996.


F-14

MICROVISION, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


8. SUBSEQUENT EVENTS (CONTINUED)

On July 10, 1996, the Company issued 7% Convertible Subordinated Notes in
the amount of $750,000. The Notes bear interest at 7% payable in arrears on
December 15 and June 15 and are due July 10, 1997. The Notes are convertible at
any time following 90 days after the effective date of a public offering of the
Company's common stock generating proceeds of at least $5 million into 18,000
shares of common stock for each $100,000 in outstanding principal amount of
Notes. Additionally, at any time following 90 days after the effective date of
such a public offering and prior to March 15, 1997 the holder may redeem the
unpaid principal amount of Notes plus accrued interest and receive 6,000 shares
of common stock of the Company for each $100,000 in principal redeemed. Debt
issuance costs amounted to $42,500. The effect of the transaction is included in
the pro forma balance sheet as of June 30, 1996.



During the period from January 1, 1996 to August 9, 1996 the Company issued
options and warrants to purchase approximately 350,000 shares of common stock at
exercise prices ranging from $0.80 to $8.80 per share.


F-15

(This page has been left blank intentionally.)

Hand-Held
Communications
Devices

MANUFACTURERS OF
PORTABLE COMMUNICATIONS
DEVICES HAVE IDENTIFIED
A NEED FOR PRODUCTS
THAT INCORPORATE
PERSONAL DISPLAY UNITS
FOR VIEWING FAX,
ELECTRONIC MAIL AND
GRAPHIC IMAGES ON
HIGHLY MINIATURIZED
DEVICES.

MICROVISION EXPECTS THAT THE RANGE OF PRODUCTS IN THE HAND-HELD COMMUNICATIONS
DEVICES CATEGORY MAY INCLUDE CELLULAR PHONES AND PAGERS THAT PROJECT INTO VIEW
DATA OR OTHER INFORMATION IN A BRIGHT, SHARP DISPLAY.


THE ABOVE RENDERINGS HAVE BEEN PREPARED FOR ILLUSTRATION PURPOSES ONLY TO
DEMONSTRATE PROPOSED PRODUCTS AND POSSIBLE APPLICATIONS FOR THE COMPANY'S
TECHNOLOGY. THESE RENDERINGS DO NOT DEPICT ACTUAL PRODUCTS OR CURRENT
APPLICATIONS. THE COMPANY HAS BUILT ONLY PORTABLE AND TABLE-TOP PROTOTYPES TO
DATE. SEE "BUSINESS -- PROTOTYPES."

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN AS CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH
THE OFFERING CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

-------------------

TABLE OF CONTENTS




PAGE
-----

Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 12
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business....................................... 18
Management..................................... 28
Principal Shareholders......................... 34
Certain Transactions........................... 35
Description of Securities...................... 37
Shares Eligible for Future Sale................ 43
Underwriting................................... 44
Legal Matters.................................. 45
Experts........................................ 45
Additional Information......................... 46
Index to Financial Statements.................. F-1



-------------------

UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,000,000 UNITS

[LOGO]

EACH UNIT CONSISTING OF ONE SHARE
OF COMMON STOCK AND ONE WARRANT
TO PURCHASE ONE SHARE OF COMMON STOCK
---------------------

PROSPECTUS

---------------------

PAULSON INVESTMENT
COMPANY, INC.

MARION BASS SECURITIES CORPORATION

, 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article 7 of the Company's Amended and Restated Articles of Incorporation
authorizes the Company to indemnify its directors to the fullest extent
permitted by the Washington Business Corporation through the adoption of Bylaws,
approval of agreements, or by any other manner approved by the Board of
Directors. In accordance therewith, Section 10 of the Company's Amended and
Restated Bylaws ("Bylaws") requires indemnification of present and past
directors, as well as any person who, while a director, also was serving at the
request of the Company as an officer, employee or agent of the Company or as a
director, officer, employee or agent of another entity (an "Indemnitee"), who
was or is made a party or is threatened to be made a party to or is involved in
any threatened, pending, or completed action, suit or proceeding, whether formal
or informal, civil, criminal, administrative or investigative (a "Proceeding"),
by reason of the fact that he or she is or was a director. Section 10 of the
Bylaws also provides that any Indemnitee who was or is made a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the Indemnitee's status as such, will be indemnified and held harmless
by the Company to the fullest extent permitted by applicable law against all
expense actually and reasonably incurred or suffered by such person in
connection therewith if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation. Notwithstanding these indemnification obligations, no
indemnification will be provided to any Indemnitee to the extent that such
indemnification would be prohibited by the Washington Business Corporation Act
or other applicable law as then in effect, nor, except with respect to
proceedings seeking to enforce rights to indemnification, will the Corporation
indemnify any such person seeking indemnification in connection with a
Proceeding initiated by such person except where such Proceeding was authorized
by the Board of Directors.

Section 10 of the Bylaws also provides that expenses incurred in defending
any Proceeding in advance of its final disposition may be advanced by the
Company to the Indemnitee upon receipt of an undertaking by or on behalf of such
person to repay such amount if it is ultimately determined that such person is
not entitled to be indemnified by the Company, except where the Board of
Directors adopts a resolution expressly disapproving such advancement.

Article 10 of the Bylaws also authorizes the Board to indemnify and advance
expenses to officers, employees, and agents of the Company on the same terms and
with the same scope and effect as the provisions thereof with respect to the
indemnification and advancement of expenses of directors.

The Company also has a policy of entering into indemnification agreements
with each member of its Board of Directors. In the agreements, the Company
agrees to hold harmless and indemnify the Director in the event the Director is
successful in the defense of any proceeding to which the Director is or was a
party against reasonable expenses incurred by the Director in connection with
the proceeding. The Company also agrees to indemnify the Director if the
Director acted in good faith and the Director reasonably believed (i) in the
case of conduct in the Director's official capacity with the Company, that the
Director's conduct was in the Company's best interests; (ii) in all other cases,
that the Director's conduct was at least not opposed to the Company's best
interests; and (iii) in the case of any criminal proceeding, the Director had no
reasonable cause to believe the Director's conduct was unlawful.

The Company has agreed to indemnify the Underwriters, and the Underwriters
have agreed to indemnify the Company, against certain liabilities under the
Securities Act.

II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses incurred in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee and the NASD
filing fee.



SEC registration fee............................................. $ 22,478
NASD filing fee.................................................. 2,786
NASDAQ initial fee............................................... 42,212
Blue sky fees and expenses, including legal fees................. 60,000
Other legal fees and expenses.................................... 200,000
Accounting fees and expenses..................................... 100,000
Transfer agent and registrar fee................................. 3,500
Printing expenses................................................ 75,000
Miscellaneous.................................................... 19,024
---------
TOTAL........................................................ $ 525,000
---------
---------


ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Since inception (May 1993), the Company has sold and issued the following
unregistered securities:

1. In July 1993, the Company issued 1,893,750 shares of Common Stock
and warrants to purchase 2,840,625 shares of Common Stock to the founders of
the Company for aggregate cash consideration of $212,100.

2. In September 1993, the Company issued 375,000 shares of Common Stock
and warrants to purchase an equal number of shares of Common Stock to 15
accredited investors for aggregate cash consideration of $1,320,000.

3. In October 1993, the Company issued 187,500 shares of Common Stock
to the University of Washington and certain affiliates thereof as partial
consideration for a technology license.

4. In November 1993, the Company issued 562,500 shares of Common Stock
to 12 accredited investors for aggregate cash consideration of $1,980,000.

5. In October 1994, the Company issued 14,453 shares of Common Stock to
five accredited investors for aggregate cash consideration of $92,499.

6. Between November 1994 and June 1996, the Company issued 853,527
shares of Series A Convertible Preferred Stock to 48 accredited investors
for aggregate cash consideration of approximately $4,096,930.

7. In July 1996, the Company issued $750,000 principal amount of 7%
convertible subordinated notes to six accredited investors.

8. From May 1993 to December 1995, the Company issued to individuals
warrants to purchase an aggregate of 1,126,563 shares of Common Stock at
exercise prices ranging from $0.10 to $4.80 per share, in consideration of
capital raising and other services provided to the Company.

The sales of securities described above were exempt from registration under
the Securities Act by virtue of Section 4(2) thereof as transactions by an
issuer not involving any public offering or in reliance on Rule 506 of
Regulation D promulgated under the Securities Act. The purchasers in each of
these transactions represented their intention to acquire the securities for
investment only and not with a view to the distribution thereof. Appropriate
legends concerning the restricted nature of such securities were affixed to the
certificates issued in such transactions. All purchasers either received
adequate information about the Company or had adequate access, through
employment or other relationships, to such information.

II-2
ITEM 27. EXHIBITS.




1.1 Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation of Microvision, Inc.,
as filed on August 14, 1996, with the Secretary of State of the State of
Washington*
3.2 Amended and Restated Bylaws of Microvision, Inc.*
4.1 Form of specimen certificate for Common Stock
4.2 Form of Warrant for purchase of Common Stock
4.3 Warrant Agreement
4.4 Form of Representatives' Warrant for purchase of Units
4.5 Form of 7% Convertible Subordinated Note due 1997*
5.1 Opinion of Stoel Rives LLP
10.1 Project I Research Agreement between The University of Washington and the Washington
Technology Center and the H. Group, dated June 10, 1993*
10.2 Assignment of License and Other Rights between The University of Washington and the
Washington Technology Center and the H. Group, dated July 25, 1993*
10.3 Project II Research Agreement between The University of Washington and the
Washington Technology Center and Microvision, Inc., dated October 28, 1993 *+
10.4 Exclusive License Agreement between The University of Washington and Microvision,
Inc., dated October 28, 1993 *+
10.5 Amended and Restated Employment Agreement between Microvision, Inc., and Richard F.
Rutkowski, effective October 1, 1994*
10.6 Employment Agreement between Microvision, Inc., and Stephen R. Willey, dated May 1,
1996*
10.7 1993 Stock Option Plan*
10.8 1994 Combined Incentive and Nonqualified Stock Option Plan*
10.9 1995 Combined Incentive and Nonqualified Stock Option Plan*
10.10 1996 Stock Option Plan*
10.11 1996 Independent Director Stock Plan*
10.12 Office Lease Agreement by and between David A. Sabey and Sandra L. Sabey and
Microvision, Inc., dated December 22, 1995, as amended*
10.13 Form of Director Indemnifcation Agreement*
10.14 Exclusive License Agreement between the University of Washington and Microvision,
Inc. dated March 3, 1994
11.1 Computation of Pro Forma Loss Per Share*
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)*



- ------------------------

* Previously filed.



+ Confidential treatment requested.


II-3
ITEM 28. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that it will:

(1) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act as a part of this Registration Statement
as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of Prospectus
as a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and

(iii) include any additional or changed material information on the plan
of distribution.

(4) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.

(5) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

(6) Provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES



In accordance with the requirements of the Securities Act of 1933, as
amended, MICROVISION, INC. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Seattle, Washington on August 9,
1996.



MICROVISION, INC.



By /s/ RICHARD F. RUTKOWSKI

------------------------------------

Richard F. Rutkowski, PRESIDENT



In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated on August 9, 1996.



SIGNATURE TITLE
- --------------------------------------------- ------------------------------

Chief Executive Officer,
/s/ RICHARD F. RUTKOWSKI President, and Director
------------------------------------------- (Principal Executive Officer
Richard F. Rutkowski and Principal Financial and
Accounting Officer)

/s/ STEPHEN R. WILLEY
------------------------------------------- Executive Vice President and
Stephen R. Willey Director

/s/ RICHARD A. RAISIG
------------------------------------------- Director
Richard A. Raisig

/s/ WALTER J. LACK
------------------------------------------- Director
Walter J. Lack

/s/ ROBERT A. RATLIFFE
------------------------------------------- Director
Robert A. Ratliffe

/s/ JACOB BROUWER
------------------------------------------- Director
Jacob Brouwer

------------------------------------------- Director
Richard A. Cowell

*By: /s/ RICHARD F. RUTKOWSKI
--------------------------------------
Richard F. Rutkowski
(Attorney-in-Fact)



II-5
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996

REGISTRATION NO. 333-5276-LA

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------


EXHIBITS
TO
FORM SB-2
AMENDMENT NO. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


---------------------

MICROVISION, INC.
(Name of small business issuer in its charter)


- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1996

REGISTRATION NO. 333-5276-LA

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------

MICROVISION, INC.
(Name of small business issuer in its charter)

------------------------

VOLUME II

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1996

REGISTRATION NO. 333-5276-LA

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

EXHIBITS TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------

MICROVISION, INC.
(Name of small business issuer in its charter)

------------------------

VOLUME III

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT INDEX




1.1 Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation of Microvision, Inc.,
as filed on August 14, 1996, with the Secretary of State of the State of
Washington*
3.2 Amended and Restated Bylaws of Microvision, Inc.*
4.1 Form of specimen certificate for Common Stock
4.2 Form of Warrant for purchase of Common Stock
4.3 Warrant Agreement
4.4 Form of Representatives' Warrant for purchase of Units
4.5 Form of 7% Convertible Subordinated Note due 1997*
5.1 Opinion of Stoel Rives LLP
10.1 Project I Research Agreement between The University of Washington and the Washington
Technology Center and the H. Group, dated June 10, 1993*
10.2 Assignment of License and Other Rights between The University of Washington and the
Washington Technology Center and the H. Group, dated July 25, 1993*
10.3 Project II Research Agreement between The University of Washington and the
Washington Technology Center and Microvision, Inc., dated October 28, 1993 *+
10.4 Exclusive License Agreement between The University of Washington and Microvision,
Inc., dated October 28, 1993 *+
10.5 Amended and Restated Employment Agreement between Microvision, Inc., and Richard F.
Rutkowski, effective October 1, 1994*
10.6 Employment Agreement between Microvision, Inc., and Stephen R. Willey, dated May 1,
1996*
10.7 1993 Stock Option Plan*
10.8 1994 Combined Incentive and Nonqualified Stock Option Plan*
10.9 1995 Combined Incentive and Nonqualified Stock Option Plan*
10.10 1996 Stock Option Plan*
10.11 1996 Independent Director Stock Plan*
10.12 Office Lease Agreement by and between David A. Sabey and Sandra L. Sabey and
Microvision, Inc., dated December 22, 1995, as amended*
10.13 Form of Director Indemnification Agreement*
10.14 Exclusive License Agreement between the University of Washington and Microvision,
Inc. dated March 3, 1994
11.1 Computation of Pro Forma Loss Per Share*
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)*



- ------------------------

* Previously filed.



+ Confidential treatment requested.