2017 Annual Report
and
Proxy Statement for 2018 Annual Meeting of Shareholders
Certain statements contained in this annual report, including, but not limited to, those relating to
projections of revenues, income or loss, capital expenditures, plans for product development and
cooperative arrangements, technology development by third parties, future operations, financing needs or
plans of MicroVision, Inc. and those using words such as “anticipate,” “could,” “would,” “believe,”
“estimate,” “expect,” “goal,” “may,” “plan,” “project,” “will,” “convinced,” are forward-looking
statements that involve a number of risks and uncertainties. Factors that could cause actual results to
differ materially from those projected in forward-looking statements include the following: our ability to
raise additional capital when needed; market acceptance of our technologies and products, and for
products incorporating our technologies; the failure of our commercial partners to perform as expected
under our agreements; our ability to identify parties interested in paying any amounts or amounts we
deem desirable for the purchase or license of intellectual property assets; our or our customers’ failure to
perform under open purchase orders; our financial and technical resources relative to those of our
competitors; our ability to keep up with rapid technological change; government regulation of our
technologies; our ability to enforce our intellectual property rights and protect our proprietary
technologies; the ability to obtain additional contract awards and to develop partnership opportunities; the
timing of commercial product launches and delays in product development; the ability to achieve key
technical milestones in key products; dependence on third parties to develop, manufacture, sell and
market our products; potential product liability claims; and other risk factors identified from time to time in
our SEC reports, including our most recent Annual Report on Form 10-K filed with the SEC. Except as
expressly required by federal securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events, changes in
circumstances or any other reason.
Dear Fellow MicroVision Stockholders,
After six months as CEO, I want to share with you some of my initial observations as we embark on our path
for the future. We started 2017 with high expectations by winning a $6.7 million contract for a small form
factor display engine with an Asian smartphone manufacturer and securing a $24 million contract for a laser
beam scanning (LBS) system with a Tier 1 technology company. While we made considerable progress on
both contracts, our full-year revenue fell short of our expectations. Our Asian-based smartphone customer
struggled in the market place, leaving products we have produced for them unconsumed. This experience has
helped cement the change in our Go-to Market strategy.
Historically, we may have tried to market products based on their technical merits. Every customer, supplier,
investor and employee that I speak with all agree that our technology is amazing; however, what we have
learned is that technology in and of itself is not enough to be successful. We need to clearly unlock value for
our customers to enable our technology to be widely deployed. To achieve this goal, we have made two
fundamental changes:
• Focused our Go-to-Market strategy on Tier 1 market makers that we believe can generate the
volume required to support our supply chain and help drive reductions in the costs of our products;
and
• Refined our product strategy to incorporate machine learning into our sensor products.
We see the need and advantages to our customers resulting from our incorporation of Machine Learning
capability to our “sensing” products, in essence making them “perceptive.” We believe this will make it easier
for our customers to integrate these solutions into their products, providing them with a faster
time-to-market and a more natural end user experience. We are convinced that our Display, Interactive
Display and Consumer LiDAR products can provide Artificial Intelligence (AI) platforms with Input/Output
capabilities unavailable today. By enabling users to interact through voice, image, gesture and spatial
awareness, we believe it will be easier for them to interact with an AI platform, making it easier for the user
to transact.
We remain committed to five verticals that we feel can unlock value for our customers: Augmented and
Mixed Reality, Display only, Interactive Display, Consumer LiDAR (3-D sensing), and Automotive LiDAR. The
markets we are targeting are growing at an exceptional rate. We believe our technology and the underlying
ability to deliver it has never been better. I am convinced, coupling these elements with a very customer
focused, value driven concentration of effort will result in us increasing shareholder value.
I am excited about the opportunities in front of us and want to thank you – our fellow MicroVision
Stockholders and our customers, suppliers and employees – for your support as we work to transform
MicroVision from an R&D company into a profitable solutions company.
Sincerely,
Perry M. Mulligan
Chief Executive Officer
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Notice of Annual Meeting
of Shareholders
and
Proxy Statement
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MICROVISION, INC.
NOTICE OF 2018 ANNUAL MEETING
June 5, 2018
Dear MicroVision Shareholder:
The Annual Meeting of Shareholders of MicroVision, Inc. (the “Company”) will be held at Courtyard Marriott Bellevue/
Redmond, 14615 NE 29th Place, Bellevue, WA 98007 on June 5, 2018 at 9:00 a.m. for the following purposes:
1.
2.
3.
4.
5.
6.
To elect the seven director nominees named in the accompanying proxy statement to serve until the next annual
meeting;
To approve an amendment to the 2013 MicroVision, Inc. Incentive Plan;
To approve an amendment to the Company’s Certificate of Incorporation to increase the number of authorized
shares of common stock;
To ratify the selection of Moss Adams LLP as the Company’s independent registered public accounting firm for the
current fiscal year;
To hold a non-binding advisory vote on the compensation of the Company’s named executive officers; and
To conduct any other business that may properly come before the meeting and any adjournment or postponement of
the meeting.
Details of the business to be conducted at the meeting are more fully described in the accompanying Proxy Statement.
Please read it carefully before casting your vote.
If you were a shareholder of record on April 11, 2018 (the “Record Date”), you will be entitled to vote on the above
matters. A list of shareholders as of the Record Date will be available for shareholder inspection at the headquarters of the
Company, 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052, during ordinary business hours, from May 21,
2018 to the date of the Annual Meeting. The list also will be available for inspection at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, your vote is very important.
Important!
After reading the Proxy Statement, you are encouraged to vote by (1) toll-free telephone call, (2) the Internet or
(3) completing, signing and dating the printable proxy card and returning it as soon as possible. If you are voting by telephone
or the Internet, please follow the instructions on the proxy card. You may revoke your proxy at any time before it is voted by
following the instructions provided below.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be
Held on June 5, 2018. The proxy materials and the annual report to shareholders for the fiscal year ended
December 31, 2017 are available at http://www.microvision.com/investors/proxy.html.
If you need assistance voting your shares, please call Investor Relations at (425) 882-6629.
The Board of Directors recommends a vote FOR the election of the seven nominees for director named in this proxy
statement, a vote FOR approval of the proposed amendment to the 2013 MicroVision, Inc. Incentive Plan, a
vote FOR approval of the proposed amendment to the Company’s Certificate of Incorporation to increase the number of
authorized shares of common stock, a vote FOR ratification of the selection of Moss Adams LLP as the Company’s
independent registered public accounting firm and a vote FOR the approval, on an advisory basis, of the compensation of the
Company’s named executive officers, as such information is disclosed in this Proxy Statement under the heading Executive
Compensation (commonly referred to as “say-on-pay”).
At the Annual Meeting, you will have an opportunity to ask questions about the Company and its operations. You may
attend the Annual Meeting and vote your shares in person, even if you previously voted by telephone or the Internet or
returned your proxy card. Your proxy (including a proxy granted by telephone or the Internet) may be revoked by sending in
another signed proxy card with a later date, sending a letter revoking your proxy to the Company’s Secretary in Redmond,
Washington, voting again by telephone or Internet, or attending the Annual Meeting and voting in person.
We look forward to seeing you. Thank you for your ongoing support of and interest in MicroVision, Inc.
Sincerely,
David J. Westgor
Secretary
April 20, 2018
Redmond, Washington
MICROVISION, INC.
6244 185th Avenue NE, Suite 100
Redmond, Washington 98052
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
June 5, 2018
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TABLE OF CONTENTS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal One—Election Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Meetings and Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Communication with the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal Two—Amendment to the 2013 MicroVision Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal Three—Amendment to the Company’s Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . .
Proposal Four—Ratification of the Selection of Independent Registered Public Accounting Firm . . . . .
Proposal Five—Advisory Vote on Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table for 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards During 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Year End 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested During 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Compensation for 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INFORMATION ABOUT MICROVISION COMMON STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INFORMATION ABOUT SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Householding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting by Telephone or the Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: Why did you send me this Notice of Internet Availability of Proxy Materials?
A: We sent you the Notice of Internet Availability of Proxy Materials because the Board of Directors of the
Company (the “Board of Directors” or the “Board”) is soliciting your proxy to vote at the 2018 Annual
Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held at the Courtyard
Marriott Bellevue/Redmond, 14615 NE 29th Place, Bellevue, WA 98007 on June 5, 2018, at 9:00 a.m.
This Proxy Statement summarizes the information regarding the matters to be voted upon at the Annual
Meeting. You do not need to attend the Annual Meeting, however, to vote your shares. You may simply
vote your shares by telephone or over the Internet in accordance with the instructions contained on the proxy
card. You may also print, complete, sign, and return the proxy card to the address in the instructions.
On April 11, 2018 (the “Record Date”) there were 78,613,343 shares of common stock of the Company
outstanding. If you owned shares of our common stock at the close of business on the Record Date, you are
entitled to one vote for each share of common stock you owned as of that date. We made this Proxy
Statement available on or about April 20, 2018 to all shareholders entitled to vote their shares at the Annual
Meeting.
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Q: How many votes do I have?
A: You have one vote for each share of common stock that you owned on the Record Date. The proxy card will
indicate the number of shares.
Q: How do I vote by proxy?
A:
If you properly cast your vote by either voting your proxy by telephone or via the Internet or executing and
returning the proxy card, and your vote is not subsequently revoked by you, your vote will be voted in
accordance with your instructions. If you sign the proxy card but do not make specific choices, your proxy
will vote your shares as recommended by the Board as follows:
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“FOR” the election of each of the nominees for director named in this proxy statement;
“FOR” approval of the proposed amendment to the 2013 MicroVision, Inc. Incentive Plan;
“FOR” approval of the proposed amendment to the Company’s Certificate of Incorporation to increase
the number of authorized shares of common stock;
“FOR” ratification of the selection of Moss Adams LLP as the Company’s independent registered
public accounting firm; and
“FOR” the approval, on an advisory basis, of the compensation of the Company’s named executive
officers, as such information is disclosed in this Proxy Statement under the heading Executive
Compensation (commonly referred to as “say-on-pay”).
If any other matter is presented, your proxy will vote in accordance with his or her best judgment. At
the time we printed this Proxy Statement, we knew of no matters that needed to be acted on at the
Annual Meeting other than those discussed in this Proxy Statement.
Q: May my broker vote for me?
A: Under the rules of the Financial Industry Regulatory Authority, if your broker holds your shares in its
“street” name, the broker may vote your shares on routine matters even if it does not receive instructions
from you. At the Annual Meeting your broker may, without instructions from you, vote on Proposal 3 and
Proposal 4, but not on any of the other proposals.
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Q: What are abstentions and broker non-votes?
A: An abstention represents the action by a shareholder to refrain from voting “for” or “against” a proposal.
“Broker non-votes” represent votes that could have been cast on a particular matter by a broker, as a
shareholder of record, but that were not cast because the broker (i) lacked discretionary voting authority on
the matter and did not receive voting instructions from the beneficial owner of the shares or (ii) had
discretionary voting authority but nevertheless refrained from voting on the matter.
Q: May I revoke my proxy?
A: Yes. You may change your mind after you send in your proxy card or vote your shares by telephone or via
the Internet by following these procedures. To revoke your proxy:
• Vote again by telephone or Internet;
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Send in another signed proxy card with a later date;
Send a letter revoking your proxy to MicroVision’s Secretary at the Company’s offices in Redmond,
Washington; or
• Attend the Annual Meeting and vote in person.
Q: How do I vote in person?
A:
If you plan to attend the Annual Meeting and vote in person, we will give you a ballot when you arrive. If
your shares are held in a brokerage account or by another nominee, the Notice of Internet Availability of
Proxy Materials is being forwarded to you. Follow the instructions on the Notice of Internet Availability of
Proxy Materials in order to vote your shares by proxy or in person. Alternatively, you may contact the
person in whose name your shares are registered or brokerage if shares are held in street name and obtain a
proxy from that person or brokerage and bring it to the Annual Meeting.
Q: What is the quorum requirement for the meeting?
A: The quorum requirement for holding the meeting and transacting business is one-third of the outstanding
shares entitled to be voted. The shares may be present in person or represented by proxy at the meeting.
Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of
a quorum.
Q: What vote is required to approve the election of directors (Proposal 1)?
A: The seven nominees for director who receive the most votes at the 2018 Annual Meeting will be elected. So,
if you do not vote for a nominee, or you “withhold authority to vote” for a nominee, your vote will not count
either “for” or “against” the nominee. Abstentions and broker non-votes will have no effect on the outcome
of voting for directors.
Q: What vote is required to approve the proposed amendment to the 2013 MicroVision, Inc. Incentive
Plan (Proposal 2)?
A: The affirmative vote of a majority of the votes properly cast on the proposal at the 2018 Annual Meeting is
required to approve the amendment to the 2013 MicroVision, Inc. Incentive Plan. Abstentions and broker
non-votes will not be counted “for” or “against” the proposal and will have no effect on the outcome of the
vote.
Q: What vote is required to approve the proposed amendment to the Company’s Certificate of
Incorporation (Proposal 3)?
A: Approval of the amendment to the Company’s Certificate of Incorporation requires the affirmative vote of a
majority of the outstanding shares of the Company’s common stock. As a result, abstentions and broker
non-votes will have the same effect as a vote against the proposal.
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Q: What vote is required to ratify the selection of Moss Adams LLP as the Company’s independent
registered public accounting firm (Proposal 4)?
A: The affirmative vote of a majority of the votes properly cast on the proposal at the 2018 Annual Meeting is
required to ratify the appointment of Moss Adams LLP as the Company’s independent registered public
accounting firm. Abstentions and broker non-votes will have no effect on the outcome of the vote.
Q: What vote is required to approve the vote on the compensation of the Company’s named executive
officers (Proposal 5)?
A: For Proposal 5, you may vote “FOR”, “AGAINST”, or “ABSTAIN”. Because Proposal 5 is an advisory
vote, there is technically no minimum vote requirement for that Proposal. Abstentions and broker non-votes
will have no effect on the outcome of the vote.
Q:
Is voting confidential?
A: We keep all the proxies and ballots private as a matter of practice.
Q: Who pays the costs of soliciting these proxies?
A: The Company will pay all the costs of soliciting these proxies. In addition to the solicitation of proxies by
mail, our officers, employees or proxy solicitor also may solicit proxies by telephone, fax or other electronic
means of communication, or in person. The Company has retained Saratoga Proxy Consulting, LLC at a fee
estimated to be approximately $8,000, plus reasonable out-of-pocket expenses, to assist in the solicitation of
proxies. The Company will also reimburse banks, brokers, nominees, fiduciaries and solicitors, including
Saratoga, for the expenses they incur in forwarding the proxy materials to you.
Q: Who should I call if I have any questions?
A:
If you have any questions about the Annual Meeting, voting or your ownership of MicroVision common
stock, please call us at (425) 882-6629 or send an e-mail to ir@microvision.com.
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DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal One—Election of Directors
The Board oversees the Company’s business affairs and monitors the performance of management. In
accordance with corporate governance principles, the Board does not directly involve itself in day-to-day
operations of the Company. The directors keep themselves informed through discussions with the Chief
Executive Officer, other key executives, and the Company’s principal advisers by reading the reports and other
materials that the Company sends them regularly and by participating in Board and committee meetings. The
Company’s directors hold office until their successors have been elected and duly qualified unless the director
resigns or by reason of death or other cause is unable to serve. Until any vacancy is filled, the Board will consist
of the members who are elected at the Annual Meeting. Proxies cannot be voted for a greater number of persons
than the number of nominees named.
If any nominee is unable to stand for election, the shares represented by all valid proxies will be voted for
the election of such substitute nominee as the Board may recommend. All of the nominees are currently directors
of the Company. The Company is not aware that any nominee is or will be unable to stand for election.
Proxies received from shareholders, unless directed otherwise, will be voted FOR the election of the
nominees listed below.
THE BOARD RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES NAMED BELOW AS
DIRECTORS OF THE COMPANY.
We seek individuals to serve as directors with established strong professional reputations, sophistication and
experience in strategic planning, leadership, business management, innovation and in substantive areas that affect
our business such as: technology development; sourcing, manufacturing and operations; financing; finance and
accounting; business operations; government contracts; intellectual property strategy and licensing; legal and
regulatory; and sales and marketing. We believe that each of our current directors possesses the professional and
personal qualifications necessary for Board service and have highlighted particularly noteworthy attributes for
each director in the individual biographies below.
Set forth below are the name, position held and age of each of the nominees for director of the Company.
The principal occupation and recent employment history of each nominee is described below, and the number of
shares of common stock beneficially owned by each nominee as of April 11, 2018 is set forth on page 31 of this
Proxy Statement.
Name
Age
Position
Robert P. Carlile (1) (2)* . . . . . . . . . . . . . . . .
Yalon Farhi
. . . . . . . . . . . . . . . . . . . . . . . . . .
Slade Gorton (1) (3)* . . . . . . . . . . . . . . . . . . .
Perry M. Mulligan . . . . . . . . . . . . . . . . . . . . .
Bernee D.L. Strom (1) (2)* . . . . . . . . . . . . . .
Brian Turner (2) (3)* . . . . . . . . . . . . . . . . . . .
Thomas M. Walker (3)* . . . . . . . . . . . . . . . . .
62 Director
56 Director
90 Director
60 Director and Chief Executive Officer
70 Director
58 Chairman of the Board and Lead Independent Director
53 Director
Independent Director
*
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
Perry M. Mulligan has served as a director of the Company since January 2010 and Chief Executive Officer
of the Company since November 2017. Mr. Mulligan has over 30 years of experience in operations and supply
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chain management. Mr. Mulligan was formerly Senior Vice President of Operations for Emulex Corporation
where he oversaw Emulex operations, including supplier management, test engineering, logistics, IT and
facilities from July 2013 to June 2015. Mr. Mulligan served as Senior Vice President, Operations for QLogic
from October 2007 to June 2013, where he was responsible for all aspects of the manufacturing and delivery of
products to the customer in addition to overall supply chain design and manufacturing strategy. Prior to QLogic,
Mr. Mulligan was at Solectron from May 2004 to September 2007, where he held the position of Senior Vice
President Supply Chain Management and Chief Procurement Officer and was responsible for establishing the
overall materials and supply chain strategy. Mr. Mulligan brings extensive experience and knowledge in
developing and setting up worldwide manufacturing and sourcing operations and overall supply chain strategy.
Mr. Mulligan has an MBA from the University of Western Ontario.
Robert P. Carlile, a retired partner at KPMG LLP, joined the Company’s board in February 2017. In his
39-year career in public accounting at KPMG and Arthur Andersen, Mr. Carlile served as the lead audit partner
on numerous public company engagements operating across different industries including technology, retail,
transportation, bio-science, and manufacturing. He worked directly with boards of directors and audit committees
of these companies on audits of financial statements and internal controls, registration statements and assistance
with mergers, acquisitions and dispositions. In addition to his experience as a lead audit partner Mr. Carlile held
a variety of operating leadership positions at KPMG and Arthur Andersen in the Pacific Northwest. In these roles
he was responsible for establishing market strategy, fostering community relationships and accomplishing
operating results. Mr. Carlile brings expertise to the board in the areas of auditing, accounting and financial
reporting, internal controls and corporate governance.
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Yalon Farhi joined the Company’s board in September 2016. Since 1998, Mr. Farhi, a Colonel in the Israeli
Defense Forces (reserves), has served as a motivational lecturer and educator at Bnei-David Institutions, a
pre-army and post-army educational program in Israel. From 1998 to January 2016, Mr. Farhi worked as an
administrative manager for El-Ami, a non-governmental organization in Israel. Mr. Farhi also serves on the
board of directors of DarioHealth Corp., a provider of digital health services and dynaCERT, Inc. a Canadian
company that provides carbon reduction technology for internal combustion engines. In addition, for the past
thirty years, Mr. Farhi has been the owner of a private gardening and land development services company based
in Israel. Mr. Farhi received a degree in Education Studies and holds a Teaching Certificate from the Moreshet
Yaacov College in Jerusalem. Mr. Farhi brings expertise to the board in international business.
Slade Gorton has served as a director of the Company since September 2003. Mr. Gorton is Of Counsel at
the law firm of K&L Gates, LLP. Prior to joining the firm, he represented Washington State in the United States
Senate for 18 years. Mr. Gorton began his political career in 1958 as a Washington State Representative and went
on to serve as State House Majority Leader. Mr. Gorton served as Attorney General of Washington from 1969-
1981, and during that time, he argued 14 cases before the United States Supreme Court. After leaving the Senate,
Mr. Gorton served as a Commissioner on the National Commission on Terrorist Attacks Upon the United States
(“9-11 Commission”); as a member of the National War Powers Commission and is Co-Chairman of the
National Transportation Policy Project. Mr. Gorton also served in the U.S. Army, U.S. Air Force, and the U.S.
Air Force Reserves. Mr. Gorton is a former Director of Clearwire, Inc. From his positions as an attorney, in
business and government, and prior history as a director of the Company, Mr. Gorton brings expertise in legal
matters, corporate governance, general leadership and the Company’s business and technology evolvement.
Bernee D.L. Strom has served as a director of the Company since October 2017. Ms. Strom has over 25
years of experience in executive management, marked by advisory roles and board memberships at Polaroid
Corporation, Hughes Electronics/DirecTV, Benchmark Electronics and other public and privately held
companies. Since April 2015, Ms. Strom has served as a Senior Advisor to Seattle-based investment bank
Cascadia Capital and SkyLIFE Technologies. From 2008 to 2014 Ms. Strom was Chairman and CEO of
WebTuner Corp., continuing as Chairman until 2015. Ms. Strom has also served as Chairman and CEO of Strom
Group, an investment, management consulting, and business advisory firm focused on high technology
companies. Prior to that, Ms. Strom founded or ran Gemstar/TV Guide International (now part of TIVO),
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Priceline.com, and USA Digital Radio (now HD Radio). Further, she was a founding partner of Revitalization
Partners, a Seattle-based business advisory firm. Ms. Strom was named one of the leading business women of the
State of Washington with its Lead Where You Land award and is the recipient of many other awards and
recognition for her mentorship, entrepreneurship and leadership in both commercial and civic organizations.
Brian Turner has served as a director of the Company since July 2006 and currently serves as Chairman of
the Board and Lead Independent Director. Mr. Turner was the Chief Financial Officer of Coinstar Inc. from 2003
until June 2009. Prior to Coinstar, from 2001 to 2003, he served as Senior Vice President of Operations, Chief
Financial Officer and Treasurer of Real Networks, Inc., a digital media and technology company. Prior to Real
Networks, from 1999 to 2001, Mr. Turner was employed by BSquare Corp., a software company, where he
initially served as Senior Vice President of Operations, Chief Financial Officer and Secretary, before being
promoted to President and Chief Operating Officer. From 1995 to 1999, Mr. Turner was Chief Financial Officer
and Vice President of Administration of Radisys Corp., an embedded software company. Mr. Turner’s
experience also includes 13 years at PricewaterhouseCoopers LLP where he held several positions including
Director, Corporate Finance. Mr. Turner sits on various private company boards as well as on the board of Cray,
Inc., a public company. Mr. Turner also served on Synergy Material Fund (“SMF”) from 2012 to 2015 where he
was Lead Director and on the Audit and Compensation Committee. SMF was a registered Investment Company.
Mr. Turner brings financing expertise and knowledge of operational finance and accounting to the Board.
Thomas M. Walker has served as a director of the Company since November 2013. Mr. Walker served as
Executive Vice President of the Company from December 2012 through November 2013. Mr. Walker served as
Vice President, General Counsel and Secretary of the Company from May 2002 to December 2012. Prior to
joining MicroVision, Mr. Walker served as Senior Vice President, General Counsel and Secretary of Advanced
Radio Telecom Corp., a publicly held telecommunications company where he managed domestic and
international legal affairs from April 1996 to April 2002. Prior to that, Mr. Walker advised publicly and privately
held businesses while practicing in the Los Angeles offices of the law firms of Pillsbury Winthrop and Buchalter
Nemer Fields and Younger. Mr. Walker holds a B.A. from Claremont McKenna College and a J.D. from the
University of Oregon. Mr. Walker has an in depth knowledge of the Company’s business from his time spent as
an executive of the Company and also brings an understanding of corporate governance and relevant legal topics
to the Board.
Board Meetings and Committees
Our Board of Directors met seven times during 2017. All directors attended at least 75% of the meetings of
the Board and meetings of the Board committees on which they served. We have adopted a policy that each of
our directors be requested to attend our Annual Meeting each year. All directors attended our annual meeting in
2017.
Independence Determination
No director will be deemed to be independent unless the Board affirmatively determines that the director has
no material relationship with the Company, directly or as an officer, share owner, or partner of an organization
that has a relationship with the Company. The Board observes all criteria for independence set forth in the
NASDAQ listing standards and other governing laws and regulations.
In its annual review of director independence, the Board considers all commercial, banking, consulting,
legal, accounting, charitable, or other business relationships any director may have with us. As a result of its
annual review, the Board has determined that all of the directors, with the exception of Mr. Mulligan and
Mr. Farhi, are independent (the “Independent Directors”). The Independent Directors are identified by an asterisk
in the table above.
The NASDAQ listing standards have both objective tests and a subjective test for determining who is an
“independent director.” The objective tests state, for example, that a director is not considered independent if he
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or she is our employee or is a partner in or executive officer of an entity to which we made, or from which we
received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s
consolidated gross revenue for that year. The subjective test states that an independent director must be a person
who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. None of the non-employee directors were disqualified
from “independent” status under the objective tests. In assessing independence under the subjective test, the
Board took into account the standards in the objective tests, and reviewed and discussed additional information
provided by the directors and us with regard to each director’s business and personal activities as they may relate
to us and our management. Based on all of the foregoing, as required by NASDAQ rules, the Board made a
subjective determination as to each Independent Director that no relationship exists which, in the opinion of the
Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a
director. The Board has not established categorical standards or guidelines to make these subjective
determinations, but considers all relevant facts and circumstances.
In addition to the Board-level standards for director independence, the directors who serve on the Audit
Committee each satisfy standards established by the Securities and Exchange Commission (the “SEC”) providing
that to qualify as “independent” for purposes of membership on that Committee, members of audit committees
may not accept, directly or indirectly any consulting, advisory, or other compensatory fee from us other than their
director compensation.
Board’s Role in Risk Oversight
It is management’s responsibility to manage risk and bring to the Board’s attention risks that are material to
the Company. The Board has oversight responsibility of the processes established to report and monitor systems
for the most significant risks applicable to the Company. The Board administers its risk oversight role directly
and through its committee structure and the committees’ regular reports to the Board at Board meetings. The
Board reviews strategic, financial and execution risks and exposures associated with the annual plan and multi-
year plans, major litigation and other matters that may present material risk to our operations, plans, prospects or
reputation; acquisitions and divestitures and senior management succession planning.
Board Expertise and Diversity
The Nominating Committee seeks to have a Board that represents diversity as to experience, gender, race
and ethnicity, but does not have a formal policy with respect to diversity. We seek a Board that reflects a range of
talents, ages, skills, viewpoints, professional experience, educational background and expertise to provide sound
and prudent guidance with respect to our operations and interests. All of our directors are financially literate, and
three members of our Audit Committee are audit committee financial experts.
Board Leadership Structure
Our Board annually elects a Chairman of the Board. The Board has chosen to separate the roles of Chairman
and Chief Executive Officer. Mr. Turner currently serves as Chairman and Lead Independent Director. In this
role, among other duties, Mr. Turner meets with our Chief Executive Officer and with senior officers as
necessary, schedules and presides at meetings of the Board, including meetings of the Independent Directors,
serves as a liaison between the Board and our management, approves meeting schedules and agendas, and
undertakes other responsibilities designated by the Board. The Board believes that the separate roles of
Mr. Mulligan as Chief Executive Officer and Mr. Turner as Chairman and Lead Independent Director currently
well serve the interests of us and our shareholders. Mr. Mulligan can devote his attention to leading the Company
and focus on our business strategy. The Board believes that Mr. Turner provides an appropriate level of
independence in the Company’s leadership through his review and approval of meeting agendas and his
leadership of the Board.
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Committees
The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating
Committee. The Board of Directors has adopted a written charter for each of the Audit Committee,
Compensation Committee and Nominating Committee. The full text of each charter is available on our website
located at www.microvision.com.
The Audit Committee
The Board has an Audit Committee which assists the Board by monitoring and overseeing: (1) our
accounting and financial reporting processes and the audits of our financial statements, (2) the integrity of our
financial statements, (3) our compliance with legal and regulatory requirements, and (4) the performance of our
internal finance and accounting personnel and our independent auditors. The Audit Committee conducts
discussions related to our earnings announcements and periodic filings, as well as numerous other informal
meetings and communications among the Chair, various Audit Committee members, the independent auditors
and/or members of our management. Robert P. Carlile, Bernee D.L. Strom and Brian Turner currently serve on
the Audit Committee, with Mr. Carlile serving as Chairman. The Audit Committee met four times during 2017.
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Among other matters, the Audit Committee monitors the activities and performance of our external auditors,
including the audit scope, external audit fees, auditor independence matters and the extent to which the
independent auditor may be retained to perform non-audit services. The Audit Committee and the Board of
Directors have ultimate authority and responsibility to select, evaluate and, when appropriate, replace our
independent auditor. The Audit Committee also reviews the results of the external audit work with regard to the
adequacy and appropriateness of our financial accounting and internal controls. Management and independent
auditor presentations to and discussions with the Audit Committee also cover various topics and events that may
have significant financial impact or are the subject of discussions between management and the independent
auditor. In addition, the Audit Committee generally oversees our internal financial controls and financial
disclosure procedures.
The “audit committee financial experts” designated by the Board are Robert P. Carlile, Bernee D.L. Strom
and Brian Turner, each an independent director. Mr. Carlile has thirty-nine years of experience in various roles in
Public Accounting at KPMG and Arthur Andersen. Ms. Strom has over 25 years of executive management
experience, marked by advisory roles and board memberships on both publicly and privately held
companies. Mr. Turner has thirteen years of experience as a chief financial officer of four public companies and
has thirteen years of experience in various roles at PricewaterhouseCoopers LLP, including Director, Corporate
Finance.
The Compensation Committee
The Compensation Committee makes decisions on behalf of, and recommendations to, the Board regarding
salaries, incentives and other forms of compensation for directors, officers, and other key employees, and
administers policies relating to compensation and benefits. The Compensation Committee also serves as the Plan
Administrator for our stock option plans pursuant to authority delegated by the Board. Slade Gorton, Bernee D.L.
Strom, and Robert P. Carlile currently serve as members of the Compensation Committee, with Ms. Strom
serving as chairperson. The Compensation Committee met four times during 2017.
The Nominating Committee
The Nominating Committee counsels the Board of Directors with respect to Board and committee structure
and membership. In fulfilling its duties, the Nominating Committee, among other things, will:
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establish criteria for nomination to the Board and its committees, taking into account the composition
of the Board as a whole;
identify, review, and recommend director candidates for the Board;
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recommend directors for election at the annual meeting of shareholders and to fill new or vacant
positions;
establish policies with respect to the process by which our shareholders may recommend candidates to
the Nominating Committee for consideration for nomination as a director;
assess and monitor, with Board involvement, the performance of the Board; and
recommend directors for membership on Board Committees.
Thomas Walker, Slade Gorton and Brian Turner currently serve as members of the Nominating Committee,
with Mr. Turner serving as Chairman. The Nominating Committee met once during 2017.
The Nominating Committee will consider recommendations for directorships submitted by shareholders, or
groups of shareholders, that have beneficially owned at least 5% of our outstanding shares of common stock for
at least one year prior to the date the nominating shareholder submits a candidate for nomination as a director. A
nominating shareholder or group of nominating shareholders may submit only one candidate for consideration.
Shareholders who wish the Nominating Committee to consider their recommendations for nominees for the
position of director should submit their request in writing no later than the 120th calendar day before the
anniversary of the date of the prior year’s annual meeting proxy statement was released to shareholders. Such
written requests should be submitted to the Nominating Committee care of the Corporate Secretary, MicroVision,
Inc., 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052, and must contain the following
information:
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• The name, address, and number of shares of common stock beneficially owned by the nominating
shareholder and each participant in a nominating shareholder group (including the name and address of
all beneficial owners of more than 5% of the equity interests of a nominating shareholder or participant
in a nominating shareholder group);
• A representation that the nominating shareholder, or nominating shareholder group, has been the
beneficial owner of more than 5% of our outstanding shares of common stock for at least one year and
will continue to beneficially own at least 5% of our outstanding shares of common stock through the
date of the annual meeting;
• A description of all relationships, arrangements, or understandings between or among the nominating
shareholder (or any participant in a nominating shareholder group) and the candidate or any other
person or entity regarding the candidate, including the name of such person or entity;
• All information regarding the candidate that we would be required to disclose in a proxy statement
filed pursuant to the rules and regulations of the SEC with respect to a meeting at which the candidate
would stand for election;
• Confirmation that the candidate is independent, with respect to the Company, under the independence
requirements established by us, the SEC, and NASDAQ listing requirements, or, if the candidate is not
independent with respect to the Company under all such criteria, a description of the reasons why the
candidate is not independent;
• The consent of the candidate to be named as a nominee and to serve as a member of the Board if
nominated and elected;
• A representation signed by the candidate that if elected he or she will: (1) represent all shareholders of
the Company in accordance with applicable laws, and our certificate of incorporation, by-laws, and
other policies; (2) comply with all rules, policies, or requirements generally applicable to
non-employee directors; and (3) upon request, complete and sign customary Directors and Officers
Questionnaires.
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In its assessment of each potential candidate, the Nominating Committee will review the nominee’s
judgment, experience, independence, understanding of our or other related industries and such other factors the
Nominating Committee determines are pertinent in light of the current needs of the Board. The Nominating
Committee will also take into account the ability of a director to devote the time and effort necessary to fulfill his
or her responsibilities.
Nominees may be suggested by directors, members of management, and, as described above, by
shareholders. In identifying and considering candidates for nomination to the Board, the Nominating Committee
considers, in addition to the requirements set out in the Nominating Committee charter, quality of experience, our
needs and the range of talent and experience represented on the Board.
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Shareholder Communication with the Board of Directors
We have adopted written procedures establishing a process by which our shareholders can communicate
with the Board of Directors regarding various topics related to the Company. A shareholder desiring to
communicate with the Board, or any individual director, should send his or her written message to the Board of
Directors (or the applicable director or directors) care of the Corporate Secretary, MicroVision, Inc., 6244 185th
Avenue NE, Suite 100, Redmond, Washington 98052. Each submission will be forwarded, without editing or
alteration, by the Secretary of the Company to the Board, or the applicable director or directors, on or prior to the
next scheduled meeting of the Board. The Board will determine the method by which such submission will be
reviewed and considered. The Board may also request the submitting shareholder to furnish additional
information it may reasonably require or deem necessary to sufficiently review and consider the submission of
such shareholder.
Compensation Committee Interlocks and Insider Participation
All members of the Compensation Committee during 2017 were independent directors, and none of them
were our employees or former employees, at the time they served on the Compensation Committee.
Mr. Mulligan served on the Compensation Committee in 2017 but stepped down from the Compensation
Committee at the time he assumed the role of Chief Executive Officer of the Company. During 2017, none of our
executive officers served on the compensation committee (or equivalent), or the board of directors, of any other
entity whose executive officer(s) served on the Compensation Committee or Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors, executive
officers, and greater-than 10% shareholders file reports with the SEC relating to their initial beneficial ownership
of our securities and any subsequent changes. They must also provide us with copies of the reports.
Based solely on a review of the copies of such forms in our possession, and on written representations from
reporting persons, we believe that all of these reporting persons complied with their filing requirements during
2017.
Code of Ethics
We have adopted a code of ethics applicable to all of our executive officers, known as the Code of Ethics for
MicroVision Executives. We have also adopted a code of conduct applicable to our directors, officers, and
employees, known as the Code of Conduct. The Code of Ethics for MicroVision Executives and the Code of
Conduct are available on our website. In the event that we amend or waive any of the provisions of the Code of
Ethics for MicroVision Executives we intend to disclose the same on our website at www.microvision.com.
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Proposal Two—Amendment of the 2013 MicroVision, Inc. Incentive Plan
The Board of Directors has authorized an amendment to the 2013 MicroVision, Inc. Incentive Plan (as
amended, the “Incentive Plan”), subject to shareholder approval. The amendment will increase the number of
shares of common stock reserved for issuance upon exercise of options granted under the Incentive Plan by
1,500,000 to a total of 10,800,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOREGOING AMENDMENT
OF THE 2013 MICROVISION, INC. INCENTIVE PLAN.
Summary of the Incentive Plan
The Incentive Plan amended, restated and renamed our 2006 Incentive Plan. The Incentive Plan was
originally adopted by the Board in 2013 and approved by the shareholders in June of 2013. The Incentive Plan
will terminate on the tenth anniversary of the date of approval by the shareholders, unless earlier terminated by
the Board. If the proposed amendment to the Incentive Plan is approved, a maximum of 10,800,000 shares of
common stock may be delivered in satisfaction of awards made under the Incentive Plan. The maximum number
of shares of common stock for which stock options may be granted to any person in any calendar year and the
maximum number of shares of common stock subject to stock appreciation rights, or “SARs,” granted to any
person in any calendar year will each be 250,000. The maximum benefit that will be paid to any person under
other awards in any calendar year will be, to the extent paid in shares, 250,000 shares, and, to the extent paid in
cash, $3,000,000. In the event of a stock dividend, stock split or other change in our capital structure, the
Administrator will make appropriate adjustments to the limits described above and will also make appropriate
adjustments to the number and kind of shares of stock or securities subject to awards, any exercise prices relating
to awards and any other provisions of awards affected by the change. The Administrator may also make similar
adjustments to take into account other distributions to stockholders or any other event, if the Administrator
determines that adjustments are appropriate to avoid distortion in the operation of the Incentive Plan and to
preserve the value of awards.
Administration. The Board of Directors administers the Incentive Plan. The term “Administrator” is used in
this Proxy Statement to refer to the person (the Board and its delegates) charged with administering the Incentive
Plan. The Administrator has full authority to determine who will receive awards and to determine the types of
awards to be granted as well as the amounts, terms, and conditions of any awards. Awards may be in the form of
options, SARs, restricted or unrestricted stock, deferred stock, other stock-based awards, or cash awards, and any
such award may be a performance-based award. The Administrator has the right to determine any questions that
may arise regarding the interpretation and application of the provisions of the Incentive Plan and to make,
administer, and interpret such rules and regulations as it deems necessary or advisable. Determinations of the
Administrator made under the Incentive Plan are conclusive and bind all parties.
Eligibility. Participation is limited to employees, non-employee directors, as well as consultants and
advisors who are selected by the Administrator to receive an award. The group of persons from which the
Administrator will select participants consisted of approximately 130 individuals as of March 29, 2018.
Stock Options. The Administrator may, from time to time, award options to any participant subject to the
limitations described above. Stock options give the holder the right to purchase shares of common stock of the
Company within a specified period of time at a specified price. Two types of stock options may be granted under
the Incentive Plan: incentive stock options, or “ISOs”, which are subject to special tax treatment as described
below, and nonstatutory options, or “NSOs.” Eligibility for ISOs is limited to employees of the Company and its
subsidiaries.
The exercise price of an ISO cannot be less than the fair market value of the common stock at the time of
grant. In addition, the expiration date of an ISO cannot be more than ten years after the date of the original grant.
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In the case of NSOs, the exercise price and the expiration date are determined in the discretion of the
Administrator. The Administrator also determines all other terms and conditions related to the exercise of an
option, including the consideration to be paid, if any, for the grant of the option, the time at which options may
be exercised and conditions related to the exercise of options.
Stock Appreciation Rights. The Administrator may grant SARs under the Incentive Plan. An SAR entitles
the holder upon exercise to receive an amount in cash or common stock or a combination thereof (as determined
by the Administrator) computed by reference to appreciation in the value of a share of common stock above a
base amount which may not be less than fair market value on the date of grant.
Stock Awards; Deferred Stock. The Incentive Plan provides for awards of nontransferable shares of
restricted common stock, as well as unrestricted shares of common stock. Awards of restricted stock and
unrestricted stock may be made in exchange for past services or other lawful consideration. Generally, awards of
restricted stock are subject to the requirement that the shares be forfeited or resold to the Company unless
specified conditions are met. Subject to these restrictions, conditions and forfeiture provisions, any recipient of
an award of restricted stock will have all the rights of a stockholder of the Company, including the right to vote
the shares and to receive dividends. Other awards under the Incentive Plan may also be settled with restricted
stock. The Incentive Plan also provides for deferred grants (“deferred stock”) entitling the recipient to receive
shares of common stock in the future on such conditions as the Administrator may specify. Any stock award or
award of deferred stock resulting in a deferral of compensation subject to Section 409A of the Code will be
construed to the maximum extent possible consistent with the requirements of Section 409A of the Code.
Performance Awards. The Administrator may also make awards subject to the satisfaction of specified
performance criteria. Performance awards may consist of common stock or cash or a combination of the two. The
performance criteria used in connection with a particular performance award will be determined by the
Administrator. The Administrator will determine whether the performance targets or goals that have been chosen
for a particular performance award have been met.
General Provisions Applicable to All Awards. Neither ISOs nor, except as the Administrator otherwise
expressly provides, other awards may be transferred other than by will or by the laws of descent and distribution.
During a recipient’s lifetime, an ISO and, except as the Administrator may provide, other non-transferable
awards requiring exercise may be exercised only by the recipient. Shares delivered under the Incentive Plan may
consist of either authorized but unissued or treasury shares. The number of shares delivered upon exercise of a
stock option is determined net of any shares transferred by the optionee to the Company (including through the
holding back of shares that would otherwise have been deliverable upon exercise) in payment of the exercise
price or tax withholding.
Mergers and Similar Transactions. In the event of a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of substantially all of the Company’s stock by a
person or entity or by a group of persons or entities acting together, or in the event of a sale of substantially all of
the Company’s assets or a dissolution or liquidation of the Company, the following rules will apply except as
otherwise provided in an Award:
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If the transaction is one in which there is an acquiring or surviving entity, the Administrator may
provide for the assumption of some or all outstanding awards or for the grant of new awards in
substitution therefor by the acquiror or survivor.
If the transaction is one in which holders of common stock will receive a payment (whether cash,
non-cash or a combination), the Administrator may provide for a “cash-out”, with respect to some or
all awards, equal in the case of each affected award to the excess, if any, of (A) the fair market value of
one share of common stock times the number of shares of common stock subject to the award, over
(B) the aggregate exercise or purchase price, if any, under the award (in the case of an SAR, the
aggregate base price above which appreciation is measured), in each case on such payment terms and
other terms, and subject to such conditions, as the Administrator determines.
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If there is no assumption or substitution of any award requiring exercise, each such outstanding award
will become fully exercisable prior to the completion of the transaction on a basis that gives the holder
of the award a reasonable opportunity to exercise the award and participate in the transaction as a
stockholder.
• Each award, other than outstanding shares of restricted stock, unless assumed will terminate upon
consummation of the transaction.
• Any share of common stock delivered pursuant to the “cash-out” or acceleration of an award, as
described above, may, in the discretion of the Administrator, contain such restrictions, if any, as the
Administrator deems appropriate to reflect any performance or other vesting conditions to which the
award was subject. In the case of restricted stock, the Administrator may require that any amounts
delivered, exchanged or otherwise paid in respect of such stock in connection with the transaction be
placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate
to carry out the intent of the Incentive Plan.
Amendment. The Administrator may at any time or times amend the Incentive Plan or any outstanding
Award for any purpose which may at the time be permitted by law, and may at any time terminate the Incentive
Plan as to any future grants of awards. The Administrator may not, however, alter the terms of an Award so as to
affect adversely the Participant’s rights under the Award without the Participant’s consent, unless the
Administrator expressly reserved the right to do so at the time of the Award.
Federal Income Tax Consequences
The following discussion summarizes certain federal income tax consequences of the grant and exercise of
stock options under the Incentive Plan under the law as in effect on the date of this Proxy Statement. The
summary does not purport to cover federal employment tax or other federal tax consequences that may be
associated with stock options or federal tax consequences associated with other awards under the Incentive Plan,
nor does it cover state, local or non-U.S. taxes.
ISOs. In general, an optionee realizes no taxable income for regular income tax purposes upon the grant or
exercise of an ISO. However, the exercise of an ISO may result in an alternative minimum tax liability to the
optionee. With certain exceptions, a disposition of shares purchased under an ISO within two years from the date
of grant or within one year after exercise (a “disqualifying disposition”) produces ordinary income to the
optionee equal to the value of the shares at the time of exercise less the exercise price. A corresponding
deduction is available to the Company. Any additional gain recognized in the disqualifying disposition is treated
as a capital gain for which the Company is not entitled to a deduction. In general, if the disqualifying disposition
is an arm’s length sale at less than the fair market value of the shares at time of exercise, the optionee’s ordinary
income, and the Company’s corresponding deduction, are limited to the excess, if any, of the amount realized on
the sale over the amount paid by the optionee for the stock. If the optionee does not dispose of the shares until
after the expiration of these one- and two-year holding periods, any gain or loss recognized upon a subsequent
sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction.
NSOs. In general, in the case of a NSO, the optionee has no taxable income at the time of grant but realizes
income in connection with exercise of the option in an amount equal to the excess (at the time of exercise) of the
fair market value of the shares acquired upon exercise over the exercise price; a corresponding deduction is
available to the Company; and upon a subsequent sale or exchange of the shares, any recognized gain or loss
after the date of exercise is treated as a capital gain or loss for which the Company is not entitled to a deduction.
In general, an ISO that is exercised by the optionee more than three months after termination of employment
is treated as an NSO. ISOs are also treated as NSOs to the extent they first become exercisable by an individual
in any calendar year for shares having a fair market value (determined as of the date of grant) in excess of
$100,000.
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The Administrator may award stock options that are exercisable for restricted stock. Under Section 83 of the
Code, an optionee who exercises an NSO for restricted stock will generally have income only when the stock
vests. The income will equal the fair market value of the stock at that time less the exercise price. However, the
optionee may make a so-called “83(b) election” in connection with the exercise to recognize taxable income at
that time. Assuming no other applicable limitations, the amount and timing of the deduction available to the
Company will correspond to the income recognized by the optionee. If an ISO is exercised for restricted stock, a
timely 83(b) election will have the effect, in general, of fixing the amount taken into account for alternative
minimum tax purposes at the excess of the fair market value of the shares at time of exercise over the exercise
price. However, for regular income tax purposes the ordinary income and corresponding Company deduction
associated with a disqualifying disposition of stock acquired upon exercise of an ISO, where the stock was
restricted at time of exercise but vested prior to the disposition, would be determined by reference to the fair
market value of the shares on the date of vesting whether or not the optionee made an 83(b) election.
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Under the so-called “golden parachute” provisions of the Code, the accelerated vesting of awards in
connection with a change in control of the Company may be required to be valued and taken into account in
determining whether a participant has received compensatory payments, contingent on the change in control, in
excess of certain limits. If these limits are exceeded, a substantial portion of amounts payable to the participant,
including the payment consisting of accelerated vesting of awards, may be subject to an additional 20% federal
tax and may be nondeductible to the Company.
Under Section 162(m) of the Code, remuneration in excess of $1 million is generally nondeductible if paid
to any “covered employee” of a publicly held corporation (generally the corporation’s chief executive officer and
its next three most highly compensated executive officers, excluding the chief financial officer, in the year that
the compensation is paid).
Stock options awarded under the Incentive Plan are intended to be exempt from the rules of Section 409A of
the Code and guidance issued thereunder and will be administered accordingly. However, neither the Company
nor the Administrator, nor any person affiliated with or acting on behalf of the Company or the Administrator,
will be liable to any participant or to the estate or beneficiary of any participant by reason of any acceleration of
income, or any additional tax or interest penalties, resulting from the failure of an award to satisfy the
requirements of Section 409A of the Code.
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Proposal Three—Amendment to the Company’s Certificate of Incorporation
The Board of Directors has authorized an amendment to the Company’s Amended and Restated Certificate
of Incorporation (the “Certificate of Incorporation”), subject to shareholder approval. The amendment will
increase the authorized number of shares of the Company’s common stock by 50,000,000 to a total of
150,000,000 shares.
The Company’s Certificate of Incorporation currently permits the Company to issue up to an aggregate of
125,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock and 25,000,000 shares of
preferred stock. On February 6, 2018, the Company’s Board of Directors unanimously approved an amendment
to the Company’s Certificate of Incorporation to permit the Company to issue up to an aggregate of 175,000,000
shares of capital stock, consisting of 150,000,000 shares of common stock and 25,000,000 shares of preferred
stock. The text of the proposed amendment is set forth below.
As of April 11, 2018, there were approximately 78,613,343 shares of the Company’s common stock issued
and outstanding and approximately 7,137,620 shares of common stock reserved for future issuance under the
Company’s outstanding options, warrants and convertible securities. Thus, approximately 2,220,772 authorized
shares of common stock currently remain available for issuance.
The Board of Directors would like to increase the number of authorized shares of common stock to provide
the Company with flexibility to issue shares of common stock for general corporate purposes, which could
include, among other uses, financings, strategic partnering arrangements, equity incentive plans, acquisitions of
assets or businesses, stock splits or stock dividends. The availability of additional authorized shares of common
stock would allow the Company to accomplish these goals, and other business and financial objectives, in the
future without stockholder approval, except as may be required in particular cases by the Company’s charter
documents, applicable law or the rules of any stock exchange or other system on which the Company’s securities
may then be listed.
The Board of Directors believes it would be in the best interests of the Company and its stockholders to
have shares of common stock available for any of these purposes if needed. Although the Company expects to
require raising additional capital to fund its operations past the third quarter of 2018, which may involve the
issuance of common stock, it currently has no transaction pending and does not have plans currently for
authorizing any other issuance of common stock other than pursuant to the Incentive Plan discussed in proposal 2
above.
Approving the amendment to increase the authorized number of shares of the Company’s common stock
will not result in any dilution to current stockholders unless and until the Company issues such shares in the
future. The Board of Directors selected the size of the increase to provide the company with sufficient authorized
shares for use in any needed financing transactions, as well as to provide it the ability to take advantage of other
opportunities that may be available to it that would require the use of shares of common stock without the cost
and time that would be needed to seek further amendments to its Certificate of Incorporation.
If this proposal is not approved, the Company will be severely limited in its ability to engage in various
transactions involving issuances of common stock, such as financings, strategic partnering arrangements, equity
incentive plans and acquisitions of assets or businesses. We will require additional capital to fund our operations
and to implement our business plan. If we do not obtain additional capital, we may be required to curtail our
operations substantially.
In addition to the more traditional uses described above, the Company could issue shares of its stock as a
defense against efforts to obtain control of the Company. The Board of Directors does not intend or view the
increase in authorized shares of stock as an anti-takeover measure, nor is the Company aware of any proposed or
contemplated transaction of this type.
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If this proposal is approved, the newly authorized shares of common stock would have the same rights as the
presently authorized shares, including the right to cast one vote per share of common stock. Although the
authorization of additional shares would not, in itself, have any effect on the rights of any holder of the
Company’s common stock, the future issuance of additional shares of common stock (other than a stock split or
dividend) would have the effect of diluting the voting rights and could have the effect of diluting earnings per
share and book value per share of existing stockholders.
If approved, the first paragraph of Article IV of the Company’s Certificate of Incorporation will be amended
to read in its entirety as follows:
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“The total number of shares of capital stock which this corporation shall have the authority to issue is one
hundred seventy five million shares (175,000,000), consisting of (i) one hundred fifty million shares
(150,000,000) of common stock, $.001 par value (“Common Stock”) and (ii) twenty five million
(25,000,000) shares of preferred stock, $.001 par value (“Preferred Stock”).”
Approval of this amendment to the Certificate of Incorporation requires approval by a majority of the
outstanding shares of common stock. As a result, abstention and broker non-votes will have the same effect as a
vote against the proposal. Holders of shares of the Company’s common stock do not have appraisal rights under
Delaware law or under the governing documents of the Company in connection with this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOREGOING AMENDMENT
TO THE COMPANY’S CERTIFICATE OF INCORPORATION.
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Proposal Four—Ratification of the Selection of Independent Registered Public Accounting Firm
The Audit Committee of the Board has selected Moss Adams LLP as the Company’s independent registered
public accounting firm for the current fiscal year, subject to ratification by the Company’s stockholders at the
Annual Meeting. The Company has been advised by Moss Adams LLP that it is a registered public accounting
firm with the Public Company Accounting Oversight Board (the “PCAOB”) and complies with the auditing,
quality control, and independence standards and rules of the PCAOB and the SEC. A representative of Moss
Adams LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make a
statement if he or she so desires.
Although stockholder ratification of the selection of Moss Adams LLP as the Company’s independent
registered public accounting firm is not required, the Board is nevertheless submitting the selection of Moss
Adams LLP to the stockholders for ratification. Unless contrary instructions are given, shares represented by
proxies solicited by the Board will be voted for the ratification of the selection of Moss Adams LLP as the
independent registered public accounting firm of the Company for the year ending December 31, 2018. Should
the selection of Moss Adams LLP not be ratified by the stockholders, the Audit Committee will reconsider the
matter. Even in the event the selection of Moss Adams LLP is ratified, the Audit Committee, in its discretion,
may direct the appointment of a different independent registered public accounting firm at any time during the
year if it determines that such a change is in the best interests of the Company and its stockholders.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE
SELECTION OF MOSS ADAMS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
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Proposal Five—Advisory Vote on Executive Compensation
The Executive Compensation section beginning on page 19 of this Proxy Statement shows 2017
compensation information for our named executive officers.
The Board is asking shareholders to cast a non-binding, advisory vote FOR the approval of the
compensation paid to the Company’s named executive officers, as disclosed in the Executive Compensation
section.
Our executive compensation program embodies a pay-for-performance philosophy that is intended to
support the Company’s business strategy and align the interests of our executives with our shareholders.
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For these reasons, the Board is asking shareholders to support this proposal. Although the vote we are
asking you to cast is non-binding, the Compensation Committee and the Board value the views of our
shareholders and will consider the outcome of the vote when determining future compensation arrangements for
our named executive officers. The Company is providing a vote on this proposal pursuant to Section 14A of the
Exchange Act and has determined that it will hold advisory votes on executive compensation each year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN
ADVISORY BASIS, OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE
OFFICERS.
OTHER BUSINESS
The Company knows of no other matters to be voted on at the Annual Meeting or any adjournment or
postponement of the meeting. If, however, other matters are presented for a vote at the meeting, the proxy
holders (the individuals designated on the proxy card) will vote your shares according to their judgment on those
matters.
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Compensation Discussion and Analysis
Executive Compensation Objectives
EXECUTIVE COMPENSATION
The Company’s executive compensation program is designed to attract, retain, motivate and recognize high
performance executive officers. The Compensation Committee is responsible for and oversees the Company’s
compensation program. The Company’s philosophy is to provide compensation programs that incentivize and
reward both the short and long-term performance of the executive officers relative to the Company’s
performance. Thus, the Compensation Committee utilizes compensation components that measure overall
Company performance, including performance against the Company’s annual strategic operating plan. In
addition, the Compensation Committee seeks to align the interests of the Company’s executive officers with its
shareholders.
Executive Compensation Components
Overview. The principal elements of the Company’s compensation are base salary, incentive bonus awards,
and equity awards. The Company’s executive compensation policy recognizes that stock price is only one
measure of performance, and given industry business conditions and the long-term strategic direction and goals
of the Company, it may not necessarily be the best current measure of executive performance. Thus, the
Compensation Committee considers the median level of compensation of its peer group and the achievement of
the Company’s business objectives when determining executive compensation.
Base Salary. Base salaries for the named executive officers are primarily based on the position, taking into
account competitive market compensation paid by other companies in the Company’s peer group for similar
positions. Recommendations from management regarding each named executive officer’s base salary based on
management’s evaluation of the executive officer’s performance are also taken into account.
As with total executive compensation, the Compensation Committee believes that executive base salaries
should generally target the median base salary of the Company’s peer group. Each named executive officer’s
base salary is also determined by reviewing the other components of the executive officer’s compensation to
ensure that the total compensation is in line with the Compensation Committee’s overall compensation
philosophy.
Salaries for 2017 were based on the compensation objectives mentioned above and, in the case of Messrs.
Tokman and Mulligan, their employment agreements. Base salary rates in 2017 for Messrs. Tokman, Mulligan,
Holt, Zimmerman, Westgor and Sharma were $375,000, $350,000, $255,905, $227,990, $232,032 and $240,000,
respectively. Mr. Tokman resigned as Chief Executive Officer and Director of the Company on November 13,
2017 but continued serving as President through December 31, 2017 and, in that capacity, continued to earn the
same base salary. Mr. Mulligan was appointed as Chief Executive Officer, in addition to his role as a Director of
the Company, effective November 13, 2017.
Incentive Bonus. The Compensation Committee believes that a portion of an executive officer’s total
compensation, an incentive bonus, should be based on the Company’s performance. The Compensation
Committee believes that structuring a significant portion of each executive officer’s annual cash compensation as
an incentive bonus, and the contingent nature of that compensation, induces an executive officer to execute on
both the short and long-term goals of the Company. It has structured the executive compensation program to
reflect this philosophy by creating an incentive bonus framework that translates Company financial and
operational performance into incentive bonuses.
Each of the named executive officers is eligible for an annual incentive bonus. The amount of the bonus
depends generally on the level of Company performance, with a target set as a percentage of base salary. The
Compensation Committee approves the target bonus percentages and the actual bonus awards for all executive
officers. Target bonus percentages are set to be approximately at the median of the Company’s peer group.
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In 2017, the Compensation Committee approved 65% as a target bonus award (as a percentage of base
salary) for Mr. Tokman, 65% as a target bonus for Mr. Mulligan, and 40% as a target bonus for each of the other
named executive officers. The amount of the bonus actually awarded to executives is determined solely in the
discretion of the Compensation Committee for all executive officers. Based on its review of management’s
evaluation of the Company’s performance in 2017, the Compensation Committee, using its discretionary
authority, determined that each named executive officer employed by the Company should receive approximately
70% of his target incentive bonus. Bonuses awarded in 2017 to Messrs. Mulligan, Holt, Zimmerman, Westgor
and Sharma were $25,000, $72,500, $65,000, $67,000 and $70,000, respectively. Mr. Mulligan’s bonus was
prorated for 2017. Mr. Tokman will receive an amount equal to $196,000 pursuant to the Letter Agreement
described below, which represents his target bonus amount for 2017.
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Equity Awards. The Compensation Committee believes that equity participation is a key component of the
Company’s executive compensation program. Equity awards are designed to attract and retain executive officers
and to motivate them to enhance shareholder value by aligning the financial interests of executive officers with
those of shareholders. Each year the Compensation Committee reviews the size and composition of the equity
grants to ensure that they are aligned with the Company’s compensation philosophy of compensating executives
at the median of the Company’s peer group. Similar to base salary, a review of equity award levels is conducted
to ensure that a named executive officer’s equity compensation comports with the Compensation Committee’s
overall philosophy and objectives and is competitive with the Company’s peer group.
The Compensation Committee’s practice is to make annual equity awards as part of its overall philosophy of
performance-based compensation. Restricted stock units and stock options are awarded by the Compensation
Committee to executive officers based on a philosophy of providing equity incentives at the median of the
Company’s peer group.
In 2017, Messrs. Tokman, Mulligan, Holt, Zimmerman, Westgor and Sharma were awarded options to
purchase 150,000, 125,000, 65,000, 65,000, 65,000 and 130,000 shares of the Company’s common stock,
respectively.
Tax Deductibility of Compensation
Limitations on the deductibility of compensation may occur under Section 162(m) of the Internal Revenue
Code of 1986, which generally limits a public company’s tax deduction for compensation paid to its named
executive officers to $1 million in any year. The Compensation Committee takes into consideration various
factors, which may from time to time may include tax deductibility, in making executive compensation decisions
and may, from time to time, approve and authorize compensation that is not fully tax deductible.
Processes and Procedures
Role of the Compensation Committee and the Chief Executive Officer in the Compensation Process. The
Chief Executive Officer, with the assistance and support of the human resources department and other members
of management, provides recommendations regarding the compensation of the executive officers, including
himself. The Compensation Committee considers these recommendations and consults with the Chief Executive
Officer and other members of management as to his recommendations for the executive officers. The
Compensation Committee considers the Chief Executive Officer’s recommendations, together with the
Compensation Committee’s philosophy, objectives and market data in approving these recommendations.
Role of Compensation Consultants in the Compensation Process. The Compensation Committee’s charter
provides the Compensation Committee with the authority to retain a compensation consulting firm in its discretion.
Role of Say-on-Pay Advisory Votes in the Compensation Process. The Compensation Committee and the
Board value the views of our shareholders and consider the outcome of “say-on-pay” votes when determining
future compensation arrangements for our named executive officers. “Say-on-pay” votes are non-binding,
advisory votes on the compensation of our named executive officers.
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Compensation Committee Report
The Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis with
management. Based on the review and discussions, the Compensation Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities
and Exchange Commission.
Compensation Committee
Slade Gorton
Bernee D.L. Strom (Chairperson)
Robert P. Carlile
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Summary Compensation Table for 2017
We refer to each person who served as Chief Executive Officer of the Company in 2017, the Company’s
Chief Financial Officer, and the Company’s three other executive officers as of December 31, 2017 collectively
as “named executive officers.” This table shows certain information about the compensation we paid each of the
Company’s named executive officers.
Name and Principal Position
Alexander Y. Tokman(1)(2) . . . . . . . . . . . . . .
Former President, Chief Executive Officer
and Director
Perry M. Mulligan(1)(3) . . . . . . . . . . . . . . . . .
Chief Executive Officer and Director
Stephen P. Holt . . . . . . . . . . . . . . . . . . . . . . . .
Chief Financial Officer
Dale E. Zimmerman . . . . . . . . . . . . . . . . . . . .
Vice President, Research and Development
David J. Westgor . . . . . . . . . . . . . . . . . . . . . . .
Vice President, General Counsel and
Secretary
Sumit Sharma(4) . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Engineering & Operations
Fiscal
Year
2017
2016
2015
2018
2017
2018
2017
2016
2015
2018
2017
2016
2015
2018
2017
2016
2015
2018
2017
Salary
$403,053
364,443
362,360
—
93,728
—
230,186
221,459
214,942
—
226,123
220,798
216,583
—
227,194
217,745
210,250
—
213,333
Bonus
(5)
Stock
Awards
(6)
Option
Awards
(6)
All Other
Compensation
(7)(8)
$165,822
177,666
140,528
$ — $147,719
232,227
444,209
10,934
—
25,000
—
72,500
62,770
65,295
50,676
65,000
62,583
65,700
41,840
67,000
61,718
64,200
49,200
70,000
60,600
—
215,750
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114,119
—
64,012
58,057
111,052
—
64,012
58,057
111,052
—
64,012
58,057
111,052
—
128,023
$ 9,087
7,622
3,464
—
75,672
—
6,215
7,399
2,336
—
—
—
—
—
6,954
5,549
2,026
—
5,143
Total
$725,681
792,892
950,561
25,000
499,269
72,500
363,183
352,210
379,006
65,000
352,718
344,555
369,475
67,000
359,878
345,551
372,528
70,000
407,099
(1) Effective November 13, 2017, Mr. Tokman resigned as Chief Executive Officer and Director of
MicroVision, Inc. and Mr. Mulligan was appointed as Chief Executive Officer, in addition to his role as
Director of the Company. Mr. Tokman served as President through the end of 2017 to assist with the
transition. Compensation for Mr. Mulligan is reported for fiscal 2017, the year in which he became Chief
Executive Officer of the Company.
(2)
In 2016 Mr. Tokman elected to receive restricted stock awards in lieu of an increase in base salary.
(3) Mr. Mulligan’s compensation includes the following payments to him in his capacity as Director prior to his
appointment as Chief Executive Officer: salary, $46,000 (representing director fees earned or paid in cash);
stock awards, $19,500.
(4) Compensation for Mr. Sharma is reported for fiscal 2017, the year in which he became an executive officer
of the Company.
(5) Bonuses payable in year presented, earned in prior year.
(6) Reflects the fair value of stock and option awards on the grant date in accordance with FASB ASC
Topic 718.
(7) Perquisites and other personal benefits are valued on an aggregate incremental cost basis. All figures shown
below represent the direct dollar cost incurred in providing these perquisites and other personal benefits to
the named executive officers.
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(8) The table below shows all other amounts under All Other Compensation for fiscal 2015, 2016 and 2017:
Name and Principal Position
Perquisites
and
Personal
Benefits
Employer
contribution
to 401(k)
account (9)
Fiscal
Year
Separation
payments (10)
Relocation
payments (11)
Alexander Y. Tokman . . . . . . . . . . . . . . . . . . . . . . . 2017
2016
2015
Former President, Chief Executive Officer and
Director
Perry M. Mulligan . . . . . . . . . . . . . . . . . . . . . . . . . . 2017
Chief Executive Officer and Director
Stephen P. Holt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017
2016
2015
Chief Financial Officer
Dale E. Zimmerman . . . . . . . . . . . . . . . . . . . . . . . . 2017
2016
2015
Vice President, Research and Development
David J. Westgor . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017
2016
2015
Vice President, General Counsel and Secretary
Sumit Sharma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017
Vice President, Engineering and Operations
$—
—
—
—
—
—
—
—
—
—
—
—
—
—
$9,087
7,622
3,464
—
6,215
7,399
2,336
—
—
—
6,954
5,549
2,026
5,143
$828,737
—
—
—
—
—
—
—
—
—
—
—
—
—
$ —
—
—
75,672
—
—
—
—
—
—
—
—
—
—
(9) This column represents the amount of matching contributions made to our qualified 401(k) retirement plan
for each of our named executive officers. In June 2015, the Company began making contributions to our
qualified 401(k) retirement plan for all employees.
(10) This column represents the amounts paid to or accrued for Mr. Tokman pursuant to the Letter Agreement
described below.
(11) This column represents the reimbursement of Mr. Mulligan’s relocation expenses in connection with his
employment as Chief Executive Officer pursuant to his Employment Agreement described below.
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Grants of Plan-Based Awards During 2017
The following table shows grants of plan based awards to our named executive officers in 2017:
Name
Grant Date
2/8/2017
Alexander Y. Tokman . . .
Perry M. Mulligan . . . . . . 11/13/2017
2/8/2017
Stephen P. Holt . . . . . . . .
2/8/2017
Dale E. Zimmerman . . . .
2/8/2017
David J. Westgor . . . . . . .
2/8/2017
Sumit Sharma . . . . . . . . .
Estimated Possible
Payments Under
Non-Equity
Incentive
Plan Awards
Target
All Other
Stock Awards:
Number of
Shares of
Stock or Units
All Other
Option Awards:
Number of
Securities
Underlying Options
Exercise or
Base Price of
Option Awards
(1)
Grant Date
Fair Value of
Stock and
Option Awards
(2)
$ —
31,023
92,074
90,449
90,878
85,333
—
135,000
—
—
—
—
150,000
125,000
65,000
65,000
65,000
130,000
$1.67
1.57
1.67
1.67
1.67
1.67
$147,719
329,869
64,012
64,012
64,012
128,023
(1) All option awards were granted with an exercise price equal to the closing price of our common stock on the
NASDAQ Global Market on the date of grant.
(2) Reflects the fair value of option and stock awards on the date of grant in accordance with FASB ASC
Topic 718.
Outstanding Equity Awards at Year-End 2017
The following table shows outstanding equity awards for our named executive officers as of December 31,
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2017:
Name
Alexander Y. Tokman . . . . . . . . . . .
Perry M. Mulligan . . . . . . . . . . . . . .
Option
Exercise
Price
Option
Expiration
Date
$17.84 12/31/2018
17.84 12/31/2018
14.88 12/31/2018
14.88 12/31/2018
27.28 12/31/2018
27.28 12/31/2018
1.80 12/31/2018
2.28 12/31/2018
2.28 12/31/2018
1.76 12/31/2018
3.26 12/31/2018
1.89 12/31/2018
1.67 12/31/2018
7/30/2020
22.64
7/30/2020
22.64
6/9/2021
9.20
3.08
6/7/2022
1.57 11/13/2027
Number of
Shares of Stock
That Have Not
Vested
Market Value
of Shares of
Stock That
Have Not
Vested (7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,000
125,000
$ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16,300
203,750
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
(3)
(1)
(3)
(1)
(3)
(4)
(2)
(2)
(1)
(1)
(1)
(1)
(3)(6)
(5)(6)
(5)(6)
(5)(6)
(1)
18,509
8,594
16,714
8,750
13,928
5,878
80,000
2,807
225,000
150,000
100,000
50,000
37,500
1,875
1,875
1,875
15,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
125,000
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Stephen P. Holt
. . . . . . . . . . . . . . . .
Dale E. Zimmerman . . . . . . . . . . . . .
David J. Westgor . . . . . . . . . . . . . . .
Sumit Sharma . . . . . . . . . . . . . . . . . .
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Option
Exercise
Price
Option
Expiration
Date
Number of
Shares of Stock
That Have Not
Vested
Market Value
of Shares of
Stock That
Have Not
Vested (7)
(1)
(2)
(1)
(1)
(1)
(1)
(1)
(4)
(2)
(1)
(1)
(1)
(1)
(1)
(3)
(3)
(1)
(1)
(3)
(1)
(4)
(2)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
40,000
40,000
37,500
25,000
12,500
16,250
3,750
40,000
65,000
37,500
25,000
12,500
16,250
1,888
625
1,750
2,805
1,876
1,032
1,467
15,000
15,000
37,500
25,000
12,500
16,250
10,000
12,500
32,500
—
—
12,500
25,000
37,500
48,750
—
—
—
12,500
25,000
37,500
48,750
—
—
—
—
—
—
—
—
—
12,500
25,000
37,500
48,750
10,000
37,500
97,500
2.20
2.28
1.76
3.26
1.89
1.67
7.62
1.80
2.28
1.76
3.26
1.89
1.67
17.84
17.84
14.88
14.88
27.28
27.28
10.40
1.80
2.28
1.76
3.26
1.89
1.67
3.16
1.89
1.67
5/7/2023
8/8/2023
6/3/2024
6/2/2025
6/1/2026
2/8/2027
8/4/2021
8/3/2022
8/8/2023
6/3/2024
6/2/2025
6/1/2026
2/8/2027
3/25/2018
3/25/2018
4/23/2019
4/23/2019
4/26/2020
4/26/2020
4/6/2021
8/3/2022
8/8/2023
6/3/2024
6/2/2025
6/1/2026
2/8/2027
10/7/2025
6/1/2026
2/8/2027
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) The indicated option vests 25% on each anniversary of the grant date.
(2) The indicated option vests 33% on each anniversary of the grant date.
(3) The indicated options vested 100% on the date of grant.
(4) The indicated options vested 34% on 8/15/2012, 33% on 8/15/2013 and 33% on 8/15/2014.
(5) The indicated option vests on the earlier of the day prior to the date of the Company’s annual meeting of
shareholders next following the date of grant, or one year from the date of grant.
(6) The indicated option was awarded to Mr. Mulligan as a member of the Board of Directors.
(7) The market value of shares of stock that have not vested is based on a price per share of $1.63, the closing
sale price of the Company’s common stock as of December 29, 2017 as reported by NASDAQ.
Option Exercises and Stock Vested During 2017
None of our named executive officers exercised stock options, and no shares were acquired upon vesting of
stock awards held by our named executive officers, during 2017.
Potential Payments upon Termination or Change in Control
All of our named executive officers, except for Mr. Tokman (who is no longer employed by the Company)
and Mr. Mulligan, are employed at will and do not have employment agreements. Mr. Mulligan’s employment
agreement is summarized below. Under the 2013 Incentive Plan, 100% of each of the named executive officers’
options which have not been exercised will become fully vested and immediately exercisable upon a change of
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control of the Company that does not result in an assumption, substitution or pay off of such award by the
acquiring company. In addition, 100% of each named executive officer’s restricted stock units will become fully
vested upon a change of control at the Company.
The following table sets forth aggregate estimated payment obligations to each of our named executive
officers assuming a termination without cause, or a change in control, occurred on December 31, 2017:
Name
Alexander Y. Tokman(3) . . . . . .
Perry M. Mulligan . . . . . . . . . . .
Stephen P. Holt
. . . . . . . . . . . . .
Dale E. Zimmerman . . . . . . . . .
David J. Westgor . . . . . . . . . . . .
Sumit Sharma . . . . . . . . . . . . . .
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Payments Due in Connection
with a Termination of
Employment without Cause or
for Good Reason
Payments Due in Connection
with a Change of Control and
Termination of
Employment without Cause
or for Good Reason (1)
Payments Due in Connection
with Change in Control (2)
$ —
569,547
14,284
24,343
29,748
10,000
$ —
74,160
454,278
417,755
430,819
425,226
$ —
15,000
—
—
—
—
(1) We included the estimated intrinsic value of accelerating any award of stock options or awards that are
accelerated upon a change in control. In the case of a change in control, we assumed that all such awards
would be cashed out at closing using the closing price of our common stock on the NASDAQ Global
Market on December 29, 2017, which was $1.63 per share. See the section titled “Outstanding Equity
Awards at Fiscal Year-End 2017” for information regarding unvested equity awards.
(2) See “Severance and Employment Agreements—Change of Control Severance Plan.”
(3) Mr. Tokman is no longer employed by the Company and therefore is not entitled to the payments described
in this section.
Severance and Employment Agreements
Mr. Mulligan’s Employment Agreement
Payment upon Termination. Under Mr. Mulligan’s employment agreement with the Company dated
November 21, 2017, as amended, if he dies, becomes disabled, retires, terminates his employment other than for
“good reason” or is terminated by us for “cause,” he will be provided his earned but unpaid base salary, earned
but unused vacation time, any bonus compensation for the prior year which is unpaid on the date of termination
to the extent bonuses are paid to other officers, 12 months of certain group and medical benefits for Mr.
Mulligan’s family and any business expenses which have not yet been reimbursed by us. If we terminate him
“other than for cause,” or if he terminates his employment for “good reason,” he will receive, in addition to the
amounts listed in the foregoing sentence, his base salary for 18 months following the date of his termination, plus
an amount equal to his target bonus for the year prior to the termination, and we will continue to pay certain
group medical and dental expenses in that 12-month period.
We do not accelerate the vesting of equity incentives for our executive officers in the event of a termination
of employment. In the event of a change in control of the Company, all unvested stock options vest upon the
change in control if the change in control does not result in an assumption, substitution or pay off of such award
by the acquiring company, and the Compensation Committee has the discretion to remove the vesting restrictions
on all unvested restricted shares.
In determining whether a termination occurred with or without “cause,” “cause” is deemed to exist under
Mr. Mulligan’s employment agreement when there is a repeated willful failure to perform or gross negligence in
the performance of his duties; fraud, embezzlement or other dishonesty with respect to us; a breach of his
obligations of confidentiality, non-competition, or non-solicitation against us; or commission of a felony or other
crime involving moral turpitude.
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In determining whether Mr. Mulligan has “good reason” to terminate his employment, “good reason” is
deemed to exist when: we have failed to continue him in a certain position; there is a material diminution in the
nature and scope of his responsibilities; there is a material failure of us to provide him with base salary and benefits,
excluding an inadvertent failure which is cured within a certain time period; or his office is relocated more than
thirty-five miles from the then-current location of our principal offices without his consent. Mr. Mulligan may only
terminate his employment for good reason if he (a) gives notice to us within ninety (90) days of the initial
occurrence of the event or condition constituting good reason, setting forth in reasonable detail the nature of such
good reason; (b) we fail to cure within thirty (30) days following such notice; and (c) Mr. Mulligan terminates his
employment within thirty (30) days following the end of the thirty (30)-day cure period (if we fail to cure).
Payment upon a Change in Control. In the event of a change of control and the termination of Mr. Mulligan’s
employment “other than for cause” by us within two years following a change of control, we must pay Mr. Mulligan
an amount equal to one year of base salary plus a payment equal to his target bonus. The foregoing amount will be paid
in a single lump sum. We must also pay the full cost of Mr. Mulligan’s continued participation in our group health and
dental plans for two years or, if less, for so long as he remains entitled to continue such participation under applicable
law. In addition, 100% of his equity-based or equity-linked awards which have not been exercised and have not
expired or been surrendered or cancelled, will become exercisable in accordance with the applicable award agreement.
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Our obligation to pay the severance amounts mentioned in this “Payments upon a Termination or Change in
Control” section is subject to Mr. Mulligan signing an employee release. Also, Mr. Mulligan must comply with
certain confidential information and assignment of intellectual property obligations. Further, Mr. Mulligan is
subject to a non-compete and non-solicit obligation for 12 months following his termination.
Mr. Tokman’s Letter Agreement
On November 14, 2017, the Company and Mr. Tokman entered into a Letter Agreement regarding the terms
of Mr. Tokman’s separation. Pursuant to the Letter Agreement, Mr. Tokman ceased to serve in the role of Chief
Executive Officer on November 13, 2017 but continued to serve in the role of President until December 31, 2017
(the “Separation Date”), after which time Mr. Tokman ceased to be employed by the Company. The Letter
Agreement provides that for a period of 18 months following the Separation Date Mr. Tokman will make himself
available to assist as needed with transition matters. Mr. Tokman received his salary through the Separation Date
as well as pay for any vacation days earned but not yet used as of the Separation Date. In consideration for
Mr. Tokman’s execution of a general release and waiver of claims, Mr. Tokman will also receive (a) a monthly
amount equal to $31,250, which represents Mr. Tokman’s monthly base salary at his final base rate of pay for a
period of 18 months following the Separation Date, payable in the form of salary continuation in accordance with
the Company’s customary pay practices, and (b) an amount equal to $196,000, which represents Mr. Tokman’s
target bonus amount for performance year 2017, payable on a pro rata basis over the same period. The Company
also accelerated the vesting and exercisability of 37,500 shares of the Company’s common stock subject to the
stock option award granted to Mr. Tokman on February 8, 2017. Mr. Tokman continues to be subject to the
non-compete and non-solicit obligations specified in his employment agreement with the Company.
Change of Control Severance Plan
In November 2011, the Company adopted a Change of Control Severance Plan (the “Severance Plan”).
Under the Severance Plan, a “change of control” is defined as the occurrence of any of the following events:
(i) the acquisition by any person or group of more than 50% of the then outstanding securities of the Company
entitled to vote generally in the election of directors; (ii) individuals who constitute the board of directors cease
for any reason to constitute at least a majority of the board, provided, however, that any individual becoming a
director whose election, or nomination for election, by the Company’s shareholders, was approved by a vote of at
least a majority of the incumbent directors are considered as though such individual were a member of the
incumbent board; (iii) certain reorganizations, recapitalizations, mergers or consolidations; (iv) the sale, transfer
or other disposition of all or substantially all of the assets of the Company; or (v) approval by the shareholders of
the Company of a complete liquidation or dissolution of the Company.
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In the event that a “designated participant,” including Stephen Holt, Sumit Sharma, David J. Westgor and
Dale Zimmerman is terminated on, or during the two-year period following, a change of control, for any reason
other than by the Company for cause (or, in the case of a participant other than a designated participant, any
termination of the participant’s employment, on or during the eighteen-month period following a change of
control, by the Company other than for cause or by the participant for good reason), the Company will pay the
participant an amount equal to one year of base salary at the rate in effect at the date of termination or, if higher,
on the date of the change of control, plus a payment equal to the target bonus for which the participant is eligible,
which amount shall be payable within ten business days following the later of the effective date of the release of
claims described below or the date it is received by the Company. If, however, the timing associated with the
execution, revocation and effectiveness of the release of claims would otherwise allow the payment described
above to be made in either of two taxable years, such payment will not be made prior to the first day of the
second taxable year. The Company will also pay the full cost of the participant’s continued participation in the
Company’s group health and dental plans for one year or, if less, for so long as the participant remains entitled to
continue such participation under applicable law. In addition, all options held by the participant which are not
exercisable, and which have not been exercised and have not expired or been surrendered or cancelled, will
become initially exercisable upon termination and will otherwise be and remain exercisable in accordance with
their terms, and all other equity-based compensation awards granted to the participant, including, restricted stock
and restricted stock units, will become vested and become free of restrictions.
Payment under the Plan is contingent upon the participant executing and delivering to the Company a
release from all claims in any way resulting from, arising out of or connected with such participant’s employment
with the Company.
Pay Ratio
Following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total
compensation of Perry Mulligan, our Chief Executive Officer compared to the median of the annual total
compensation of our other employees.
We determined our median employee based on base salary (annualized in the case of full- and part-time
employees who joined the Company during 2017) of each of our 107 employees (excluding Mr. Mulligan) as of
December 1, 2017.
The annual total compensation of our median employee (other than Mr. Mulligan) for 2017 was $155,348.
As disclosed in the Summary Compensation Table above, Mr. Mulligan joined the Company on
November 13, 2017 and was Chief Executive Officer on December 1, 2017. His total compensation for 2017,
including an annualized base salary and initial grant of shares and options and relocation allowance, was
$755,541.
Based on the foregoing, our estimate of the ratio of the annual total compensation of the Chief Executive
Officer to the median of the annual total compensation of all other employees was 4.9 to 1. Given the different
methods that other public companies may use to determine an estimated pay ratio, the estimated ratio reported
above should not be used as a basis for comparison between companies.
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Director Compensation for 2017
The following table provides information concerning our non-employee directors during the year ended
December 31, 2017. Mr. Tokman was not paid additional compensation for his service as Director and his
compensation is fully reflected in the other tables contained in this Proxy Statement. Mr. Mulligan’s
compensation for his services as Director for 2017 and as Chief Executive Officer beginning on November 13,
2017 is fully reflected in the other tables contained in this Proxy Statement.
Name
Fees Earned or
Paid in Cash
Stock Awards
(1)(4)
Option Awards
(2)(4)
Robert P. Carlile(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard A. Cowell(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yalon Farhi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slade Gorton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanette Horan(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bernee D.L. Strom(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian Turner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas M. Walker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$68,000
12,000
36,500
47,000
6,000
29,000
59,250
38,250
$19,500
—
19,500
19,500
—
—
19,500
19,500
$29,544
—
—
—
—
44,928
—
—
Total
$117,044
12,000
56,000
66,500
6,000
73,928
78,750
57,750
(1) Reflects the fair value of stock awards granted in 2017 in accordance with FASB ASC Topic 718.
(2) Reflects the fair value of option awards on the grant date in accordance with FASB ASC Topic 718.
(3) On February 8, 2017, Robert P. Carlile was elected to the Board and Jeanette Horan stepped down from the
Board. Richard A. Cowell’s director term expired at the Company’s 2017 annual meeting of shareholders, at
which time he stepped down from the Board. Bernee D.L. Strom was elected to our Board on
October 9, 2017.
(4) The following table shows the number of outstanding shares underlying option and stock awards for each of
our non-employee directors as of December 31, 2017:
Name
Yalon Farhi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert P. Carlile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard A. Cowell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slade Gorton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanette Horan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bernee D.L. Strom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian Turner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas M. Walker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option
Awards
30,000
30,000
22,500
22,500
22,500
30,000
22,500
177,811
Stock
Awards
(5)
10,000
10,000
41,974
51,974
41,974
—
51,974
61,839
(5) 10,000 shares vest on the date that is the earlier of one year from the June 7, 2017 grant date, or the day
before the next scheduled annual meeting of shareholders.
Each non-employee director is granted a non-statutory option to purchase 15,000 shares of common stock
on the date on which he or she is first elected or appointed to the Board. These options are fully vested and
immediately exercisable upon the date of grant. Under the terms of a director compensation plan approved by the
Board, each of our non- employee directors also receives, upon his or her initial appointment or election and
upon each subsequent reelection to the Board, an option to purchase 15,000 shares that vests in full on the earlier
of (i) the day prior to the date of our annual meeting of shareholders next following the date of grant, or (ii) one
year from the date of grant, provided the non-employee director continues to serve as a director on the vesting
date. If a non-employee director ceases to be a director for any reason other than death or disability before his or
her term expires, then any outstanding unvested options issued to such Independent Director will be forfeited.
Options vested as of the date of termination for any reason other than death or disability are exercisable through
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the date of expiration. The exercise price for each option is equal to the closing price of our common stock as
reported on the NASDAQ Global Market on the date of grant. The options generally expire on the tenth
anniversary of the date of grant.
Notwithstanding the terms of the aforementioned director compensation plan, in each of our last five fiscal
years, the Board has approved the issuance of 10,000 shares of the Company’s restricted stock to each of our
non-employee directors upon his or her reelection to the Board, in lieu of the option award described in the
foregoing paragraph.
In addition, each non-employee director generally receives the following cash compensation for his or her
service as a director:
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• A fee of $20,000 that accrues as of the date of appointment or election to the Board, and as of the date
of each subsequent reelection;
• A fee of $3,000 for the Board chair or $2,000 per director for each Board meeting attended by the
director; and
• A fee of $3,000 for the committee chair or $2,000 per committee member for each committee meeting
attended by the director that is held on a day other than a day on which a Board meeting is held.
All directors are reimbursed for reasonable travel and other out-of-pocket expenses incurred in attending
meetings of the Board.
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INFORMATION ABOUT MICROVISION COMMON STOCK OWNERSHIP
Security Ownership of Certain Beneficial Owners and Management
The following table shows as of April 11, 2018, the number of shares of our common stock beneficially
owned by our directors and nominees, the named executive officers, and all directors and executive officers as a
group and each person known by us to own beneficially more than 5% of our outstanding common stock.
Name of Beneficial Owner
Number of
Share (1)
Percent of
Common Stock (2)
Perry M. Mulligan(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexander Y. Tokman(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stephen P. Holt(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sharma, Sumit(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David J. Westgor(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dale E. Zimmerman(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert P. Carlile(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard A. Cowell(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yalon S. Farhi(9)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slade Gorton(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanette Horan(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bernie D. L. Strom(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian Turner(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas M. Walker(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AWM Investment Company, Inc.(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackRock, Inc.(14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All executive officers and directors as a group (14 persons)(15) . . . . . . . . . . . . . . .
112,307
898,401
218,096
67,500
187,180
252,798
40,000
68,811
40,000
171,307
66,786
30,000
99,088
240,650
7,367,231
4,706,522
2,492,924
*
1.1%
*
*
*
*
*
*
*
*
*
*
*
*
9.4%
6.0%
3.1%
Less than 1% of the outstanding shares of common stock.
*
(1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Shares of common stock subject to options or warrants that are
currently exercisable or convertible or may be exercised or converted within sixty days are deemed to be
outstanding and to be beneficially owned by the person holding these options or warrants for the purpose of
computing the number of shares beneficially owned and the percentage of ownership of the person holding
these securities, but are not outstanding for the purpose of computing the percentage ownership of any other
person or entity. Subject to community property laws where applicable, and except as otherwise noted, we
believe that each shareholder named in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned thereby.
(2) Percentage of common stock is based on 78,613,343 shares of common stock outstanding as of April 11, 2018.
Includes 20,625 shares issuable upon exercise of options.
(3)
Includes 717,680 shares issuable upon exercise of options.
(4)
Includes 208,750 shares issuable upon exercise of options.
(5)
Includes 67,500 shares issuable upon exercise of options.
(6)
Includes 170,193 shares issuable upon exercise of options.
(7)
Includes 237,500 shares issuable upon exercise of options.
(8)
(9)
Includes 30,000 shares issuable upon exercise of options.
(10) Includes 24,375 shares issuable upon exercise of options.
(11) Includes 22,500 shares issuable upon exercise of options.
(12) Includes 177,811 shares issuable upon exercise of options.
(13) Based solely on information set forth in a Schedule 13G filed with the SEC on February 13, 2018.
(14) Based solely on information set forth in a Schedule 13G filed with the SEC on February 1, 2018.
(15) Includes 2,492,924 shares issuable upon exercise of options.
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Information as of December 31, 2017, regarding equity compensation plans approved and not approved by
shareholders is summarized in the following table (in thousands, except per share data):
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Plan Category
Equity compensation plans approved by shareholders . . . . . . . . . . . . . . . .
Equity compensation plans not approved by shareholders . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Information
Number of
securities
to be
issued upon
exercise of
outstanding
options,
warrants
and rights
(a)
5,034
—
5,034
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
(b)
$2.94
—
Number of
securities
remaining
available for
further
issuance under
equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
2,185
—
2,185
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Under the Code of Conduct adopted by us, officers, directors and employees must avoid even the
appearance of a conflict of interest. Under the Code of Ethics for MicroVision Executives we have adopted, all of
our executive officers must report any material transaction or relationship that reasonably could be expected to
give rise to a conflict of interest. We also review questionnaires completed by all directors and executive officers
for potential “related-person transactions” between us and related persons. The Board’s Audit Committee is
responsible for review, approval, or ratification of related-person transactions. The Audit Committee determines
whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other
action with respect to the transaction in its discretion.
AUDIT COMMITTEE REPORT
Review of the Company’s Audited Financial Statements
The Audit Committee serves as the representative of the Board for general oversight of the Company’s
financial accounting and reporting, systems of internal control, audit process, and monitoring compliance with
laws and regulations and standards of business conduct. Management has responsibility for preparing the
Company’s financial statements, as well as for the Company’s financial reporting process. Moss Adams LLP,
acting as an independent registered public accounting firm, is responsible for expressing an opinion on the
conformity of the Company’s audited financial statements with generally accepted accounting principles.
The Audit Committee has reviewed and discussed the audited consolidated financial statements of the
Company for the fiscal year ended December 31, 2017 with the Company’s management, and management
represented to the Audit Committee that the Company’s consolidated financial statements were prepared in
conformity with generally accepted accounting principles. The Audit Committee has discussed with Moss Adams
LLP, the Company’s independent auditors for the fiscal year ended December 31, 2017, the matters required to
be discussed by the Public Company Accounting Oversight Board (PCAOB) AS 1301, Communications with
Audit Committees.
The Audit Committee received from Moss Adams LLP the written disclosures required by Rule 3526 of the
PCAOB (Communication with Audit Committee Concerning Independence) and discussed with the firm its
independence. Based on the review and discussions noted above, and subject to the limitations on the role and
responsibilities of the Audit Committee referred to in the Charter of the Audit Committee, the Audit Committee
recommended to the Board that the Company’s audited consolidated financial statements be included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for filing with the SEC.
This report of the Audit Committee shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference.
Audit Committee
Robert P. Carlile , Chairman
Bernee D.L. Strom
Brian Turner
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Accountant Fees and Services
Our independent auditors, Moss Adams LLP, billed the following fees to us for audit and other services for
fiscal year 2017 and fiscal year 2016, respectively:
Audit Fees
The aggregate fees billed for professional services rendered by Moss Adams LLP for the audit of our annual
financial statements and the review of the financial statements included in our Quarterly Reports on Form 10-Q
were $350,946 for 2017 and $352,450 for 2016.
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Audit Related Fees
Audit related fees include the aggregate fees billed for professional services rendered by Moss Adams LLP
in connection with the audit of the Company’s 401(k) plan. Fees for audit related services totaled $14,815 in
2017 and $14,572 in 2016.
Tax Fees
Tax fees include the aggregate fees billed for professional services rendered by Moss Adams LLP in
connection with federal, state and foreign tax compliance and tax advice. Fees for tax services totaled $15,313 in
2017 and $23,061 in 2016.
All Other Fees
Fees for all other services not described above include fees for subscriptions to online accounting research
tools. Fees for these services totaled $2,864 and $2,728 billed by Moss Adams LLP for 2017 and 2016,
respectively.
The Audit Committee has considered whether the provision of services under the heading “All Other Fees”
is compatible with maintaining the accountants’ independence and has determined that it is consistent with such
independence.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee pre-approves all audit services and all permitted non-audit services by the
independent auditors. The Audit Committee has delegated the authority to take such action between meetings to
the Audit Committee chairman, who reports the decisions made to the full Audit Committee at its next scheduled
meeting.
The Audit Committee evaluates whether our use of the independent auditors for permitted non-audit
services is compatible with maintaining the independence of the independent auditors. The Audit Committee’s
policies prohibit us from engaging the independent auditors to provide any services relating to bookkeeping or
other services related to accounting records or financial statements, financial information systems design and
implementation, appraisal or valuation services, fairness opinions or contribution-in-kind reports, actuarial
services, or internal audit outsourcing services unless it is reasonable to conclude that the results of these services
will not be subject to audit procedures. The Audit Committee’s policies completely prohibit us from engaging the
independent auditors to provide any services relating to any management function, expert services not related to
the audit, legal services, broker-dealer, investment adviser, or investment banking services or human resource
consulting.
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INFORMATION ABOUT SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for inclusion in the Company’s Proxy Statement for the
2019 Annual Meeting, our shareholders must adhere to the following procedures as prescribed in Rule 14a-8
under the Exchange Act (“Rule 14a-8”).
Under Rule 14a-8, a shareholder who intends to present a proposal at the 2019 annual meeting of
shareholders and who wishes the proposal to be included in the proxy materials for that meeting must submit the
proposal in writing to us so that it is received by our Corporate Secretary no later than December 21, 2018.
Please refer to Rule 14a-8 for the requirements that apply to these proposals. Any proposals received after this
date will be considered untimely under Rule 14a-8. Written proposals may be mailed in care of our Corporate
Secretary, MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052.
In addition, a shareholder may nominate a director or present any other proposal at the 2019 annual meeting
of shareholders by complying with the requirements set forth in Section 1.11 and Section 1.12 of our bylaws.
You may propose candidates for consideration by the Nominating Committee for nomination as directors by
writing to us. In order to nominate a director for election at next year’s annual meeting of shareholders, you must
comply with the director recommendation procedures described on pages 8, 9 and 10 of this Proxy Statement. To
be timely, a stockholder’s notice must be delivered to or mailed by first class United States mail, postage prepaid,
and received by our Corporate Secretary at MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond,
Washington 98052 not less than 60 calendar days nor more than 90 calendar days prior to the annual meeting of
stockholders. If less than sixty 60 days’ notice or prior public disclosure of the date of the annual meeting is
given or made to our stockholders, then for the notice by the stockholder to be timely it must be received not later
than the close of business on the tenth business day following the date on which the notice of the meeting was
mailed or such public disclosure was made, whichever occurs first.
We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal
that does not comply with these and other applicable requirements. Our bylaws describe the requirements for
submitting proposals at the Annual Meeting. If you wish to obtain a free copy of the Company’s bylaws, please
contact Investor Relations, MicroVision, Inc., 6244 185thAvenue NE, Suite 100, Redmond, Washington 98052.
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ADDITIONAL INFORMATION
Annual Report
The Company’s Annual Report for the fiscal year ended December 31, 2017 was first made available to the
shareholders of the Company with this Proxy Statement on or about April 20, 2018. The Annual Report is not to
be treated as part of the proxy solicitation material or as having been incorporated by reference herein.
Incorporation by Reference
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To the extent that this Proxy Statement is incorporated by reference into any other filing by the Company
under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, the sections
of this Proxy Statement entitled “Compensation Committee Report” and “Audit Committee Report” will not be
deemed incorporated, unless otherwise specifically provided in such filing.
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017,
as filed with the SEC, may be obtained by shareholders without charge by written or oral request to
Investor Relations, MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052,
telephone (425) 882-6629, or may be accessed on the Internet at www.sec.gov.
Householding
Only one copy of the Notice of Internet Availability of Proxy Materials is being delivered to shareholders
residing at the same address, unless such shareholders have notified the Company of their desire to receive
multiple copies. The Company will promptly deliver, upon oral or written request, a separate copy of the Notice
of Internet Availability of Proxy Materials to any shareholder residing at an address to which only one copy was
mailed. Requests for additional copies should be directed to Investor Relations. Shareholders residing at the same
address and currently receiving only one copy of the Notice of Internet Availability of Proxy Materials may
contact Investor Relations to request multiple copies of this Proxy Statement in the future. Shareholders residing
at the same address and currently receiving multiple copies of the Notice of Internet Availability of Proxy
Materials may contact Investor Relations to request that only a single copy of the Notice of Internet Availability
of Proxy Materials be mailed in the future. Contact Investor Relations by phone at (425) 882-6629, by fax at
(425) 867-9992, by mail to Investor Relations, MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond,
Washington 98052, or by e-mail to ir@microvision.com.
Voting by Telephone or the Internet
Provision has been made for you to vote your shares of common stock by telephone or via the Internet. You
may also vote your shares by mail. Please see the proxy card or voting instruction form accompanying this Proxy
Statement for specific instructions on how to cast your vote by any of these methods.
Votes submitted by telephone or via the Internet must be received by 5:00 p.m., Seattle, Washington time,
on June 4, 2018. Submitting your vote by telephone or via the Internet will not affect your right to vote in person
should you decide to attend the Annual Meeting.
The telephone and Internet voting procedures are designed to authenticate shareholders’ identities, to allow
shareholders to give their voting instructions and to confirm that shareholders’ instructions have been recorded
properly. The Company has been advised that the Internet voting procedures that have been made available to
you are consistent with the requirements of applicable law. Shareholders voting via the Internet should
understand that there may be costs associated with electronic access, such as usage charges from Internet access
providers and telephone companies, which must be borne by the shareholder.
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Annual Report
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2017
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-34170
MicroVision, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
91-1600822
(I.R.S. Employer Identification Number)
6244 185th Avenue NE, Suite 100
Redmond, Washington 98052
(Address of Principal Executive Offices, including Zip Code)
(425) 936-6847
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common Stock, $0.001 par value per share
Name of exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:134)(cid:3)No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:134) No (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes (cid:95) No (cid:134)
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Yes (cid:95) No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
(cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer (cid:134)(cid:3)(cid:3) (cid:3)
Non-accelerated filer
(cid:134) (Do not check if a smaller reporting company) Smaller reporting company
Emerging growth company
Accelerated filer
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:95)
(cid:134)
(cid:134)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:134) No (cid:95)
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2017 was
approximately $151.8 million (based upon the closing price of $2.12 per share for the registrant’s common stock as
reported by the NASDAQ Global Market on that date).
The number of shares of the registrant’s common stock outstanding as of February 20, 2018 was 78,613,000.
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MICROVISION, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
Part I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 4A. Executive Officers of the Registrant
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Part III.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Part IV.
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Signatures
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Preliminary Note Regarding Forward-Looking Statements
PART I.
This Annual Report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and is subject to the safe harbor created by those sections. Such statements may include, but are not
limited to, projections of revenues, income or loss, capital expenditures, plans for product development and
cooperative arrangements, technology development by third parties, future operations, financing needs or plans of
MicroVision, Inc. (“we” or “us”), as well as assumptions relating to the foregoing. The words “anticipate,” “could,”
”would,” “believe,” “estimate,” “expect,” “goal,” “may,” “plan,” “project,” “will,” and similar expressions
identify forward-looking statements. Factors that could cause actual results to differ materially from those projected
in our forward-looking statements include risk factors identified below in Item 1A.
ITEM 1. BUSINESS
Overview
MicroVision, Inc. is a pioneer in laser beam scanning (LBS) technology that we market under our brand name PicoP®.
We have developed our proprietary PicoP® scanning technology that can be adopted by our customers to create high-
resolution miniature projection and three-dimensional sensing and image capture solutions. PicoP® scanning
technology is based on our patented expertise in micro-electrical mechanical systems (MEMS), laser diodes, opto-
mechanics, and electronics and how those elements are packaged into a small form factor, low power scanning engine
that can display, interact and sense, depending on the needs of the application. For display, the engine can project a
high-quality image on any surface for use in pico projection and augmented or virtual reality. For sensing, we use
infrared (IR) lasers to capture three-dimensional data in the form of a point cloud. Interactivity uses the 3D sensing
function and the display function to project an image that the user could then interact with as one would a touch screen.
In November 2016, we announced our strategy for 2017 and beyond that includes selling LBS engines to original
design manufacturers (ODMs) and original equipment manufacturers (OEMs). We plan to offer three scanning engines
to support a wide array of applications: a small form factor display engine for consumer products, an interactive
scanning engine for smart Internet of Things (IoT) products, and a light detection and ranging (LiDAR) engine for
consumer electronic applications. We also are developing LiDAR for automotive collision avoidance systems.
In addition to selling modules, we have licensed our patented PicoP® scanning technology to other companies for
incorporation into their scanning engines for projection. We sell our licensees key components needed to produce their
laser scanning engines and/or license our technology in exchange for a royalty fee for each scanning engine they sell.
Companies to whom we license our PicoP® scanning technology are typically ODMs or OEMs who are in the business
of making components or products ready for sale to end users. To date, we have primarily focused on the consumer
electronics market, however, we believe that our LBS technology creates a platform that could support multiple
applications and markets including medical, industrial and automotive.
While we are optimistic about our technology and the potential for future revenues, we have incurred substantial losses
since inception and we expect to incur a significant loss during the fiscal year ending December 31, 2018.
MicroVision, Inc. was founded in 1993 as a Washington corporation and reincorporated in 2003 under the laws of the
State of Delaware. Our headquarters is located at 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052,
and our telephone number is (425) 936-6847.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to
those reports are available free-of-charge from the investor page of our website, accessible at www.microvision.com,
as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange
Commission (SEC). Copies of these filings may also be obtained by visiting the Public Reference Room of the SEC at
100 F Street NE, Washington, D.C. 20549, or by calling the SEC directly at 1-800-SEC-0330 (1-800-732-0330). In
addition, the SEC maintains a website, www.sec.gov, which contains current, quarterly and annual reports, proxy and
information statements and other information regarding issuers that file electronically.
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Technology
Our patented PicoP® scanning technology combines a MEMS scanning mirror, laser diode light sources, electronics,
and optics that are controlled using our proprietary system control algorithms. The bi-directional MEMS scanning
mirror is a key component of our technology platform and is one of our core competencies. We also have patents for
two mirror MEMS solutions. Our most recent MEMS design is a silicon device with a one-millimeter mirror at the
center. This mirror is connected to small flexures that allow it to oscillate vertically and horizontally to generate an
image pixel-by-pixel for use in sensing and display. Scanning engines with our technology can operate in three modes:
display only, display and sensing combined, and sensing only. For applications that include a projected display, our
PicoP® scanning technology creates a brilliant, full color, high-contrast, uniform image over the entire field-of-view
from a small and thin engine with low power consumption. For 3D LiDAR scanning applications, our engine is small
with high resolution, low power and low latency which are features that are important for such applications. We
believe that our proprietary technology offers significant advantages over traditional display and 3D LiDAR sensing
systems. Depending on the specific product application, these advantages may include:
(cid:120) Ability to perform projection and three-dimensional sensing and image capture from a single device;
(cid:120) Leveraging our custom MEMS and application-specific integrated circuits (ASICS) components across
multiple engine types for economies of scale;
Low power requirements to enable battery operated devices and applications;
(cid:120) Focus-free operation;
(cid:120) HD resolution;
(cid:120)
(cid:120) Small and thin engine size;
(cid:120) High contrast ratio with true black;
(cid:120) High-brightness, high-dynamic range, and brightness uniformity;
(cid:120) Rich, saturated color reproduction;
(cid:120) Short throw projection with multi-mode operation for table top and wall mode;
(cid:120)
(cid:120) Real-time interactive capture of moving targets; and
(cid:120) Dynamic, programmable resolution and frame rate 3D scanning.
3D LiDAR sensing as a touch interface or point cloud;
Business Strategy
Our business strategy is to commercialize our PicoP® scanning technology by enabling ODMs and OEMs to produce
end-user products via three go-to-market paths:
(cid:120) Design and sell LBS engines directly to ODMs and OEMs to incorporate inside their products;
(cid:120) License our LBS technology and sell key components to ODMs and OEMs to create their own scanning
engines; and
(cid:120) License LBS technology to ODMs and OEMs who developed their own key components or subsystems.
By providing these options, we permit ODMs and OEMs to integrate and embed our technology across a broad range
of display and 3D LiDAR sensing product applications in the way that best matches their technical capabilities and
timelines for bringing their products to market.
The key elements of our business strategy include the following:
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(cid:120) Develop LBS modules that enable our customers to make products that end users find indispensable;
(cid:120) Continue to improve the performance of our PicoP® scanning technology platform by advancing the key
application attributes such as higher brightness for displays, lower power, smaller size, and greater accuracy
and longer distances for 3D sensing;
(cid:120) Develop machine learning algorithms that allow our 3D LiDAR sensing products to respond faster and more
accurately to users and/or objects in the environment;
(cid:120) Sell LBS engines to ODMs and OEMs;
(cid:120) Provide engineering services to develop LBS engines for ODMs and OEMs who need custom engines;
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(cid:120) Develop supply chain able to supply customers with high quality LBS engines in quantities to support the
consumer electronics market;
(cid:120) Supply key scanning engine components for products being developed by ODMs and OEMs who license our
PicoP® scanning technology and/or license rights to ODMs and OEMs to produce such components;
(cid:120) Partner with other companies that are interested in growing the LBS market to cooperatively promote our
solutions and develop solutions for future products and capabilities where appropriate; and
(cid:120) Maintain a position of LBS leadership with our intellectual property around our PicoP® scanning technology.
Markets for Our Technology
Our PicoP® scanning technology platform strategy is focused on addressing the following market segments:
(cid:120) Pico projection;
(cid:120)
(cid:120)
(cid:120) Augmented/Virtual Reality (AR/VR).
Interactive pico projection;
3D LiDAR sensing for consumer electronics, automotive collision avoidance; and
We see pico projection, interactive pico projection, 3D LiDAR sensing, and AR/VR as the most promising applications
for our technology in the near to mid-term. We have concentrated on pico projection over the past several years and, in
late 2016, we announced plans for other engine solutions for interactive pico projection and 3D LiDAR sensing. We
also believe AR and VR eyewear displays can also benefit from our technology, and we are actively exploring these
opportunities.
In pico projection, our goal is to enable a large screen viewing experience produced by a small projector for mobile
devices such as smartphones, tablets and other consumer electronics products. The scanning display engine can either
be embedded in the mobile device directly or in a small standalone companion product that is paired with the mobile
device wirelessly or via a protocol such as HDMI. These potential products would allow users to watch digital videos,
play games, and display images and other data onto a variety of surfaces, freeing users from the limitations of a small
screen.
We have developed 3D LiDAR sensing capabilities in our LBS engine. This allows the LBS engine to sense what is in
front of it and where that object is in space. If we project an image on a surface and use our 3D LiDAR sensing
capability concurrently, we are able to create an LBS engine where a user can touch the projected image or interact
with the image using gestures and it will react much like a touchscreen. We call this interactive display. We believe
that interactive display can enable a whole new category of smart IoT products.
Additionally, we are working to bring to market 3D LiDAR sensors. The consumer 3D LiDAR sensor we are
developing is a small sensor able to capture information about what is in front of the sensor with high accuracy and
high fidelity. We see applications for this sensor in smart home and smart home security products and in commercial
space management. We are also working on LiDAR modules for automotive collision avoidance systems.
Another application area for our PicoP® scanning technology that we are focused on is eyewear displays, also known
as AR and VR. We have a long history with this application, and we believe the eyewear ecosystem has progressed to
a point where we see future growth opportunities in this market.
Products and Services
In 2017, our revenue was derived from development contracts, from the sale of scanning display engines, and from
license and royalty fees for PicoP® scanning technology.
In April 2017, we signed a contract with a major technology company to develop an LBS display system. Under this
agreement, we would develop a new generation of MEMS, ASICs and related firmware for a high resolution, LBS-
based product that the technology company is planning to produce. We would receive up to $24.0 million, including
$14.0 million in fees for development work that is expected to span through the first quarter of 2019 and an upfront
payment of $10.0 million, which payment has been received. As of December 31, 2017, we have received $4.0
million in fees for development work. The remaining development fees would be paid contingent on completion of
milestones in 2018 and the first quarter of 2019. Upon successful completion of the development program, if the
company decides to manufacture the product with the MicroVision display components, the $10.0 million upfront
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payment would be applied as a discount to future component purchases from us. If the contract is terminated by the
technology company for our failure to meet milestones, the $10.0 million upfront payment is subject to repayment.
In 2017, we introduced a small form factor, high definition display engine for applications where form factor and
flexibility of product design are required. In March 2017, we received a $6.7 million order for our small form
factor display engine from Ragentek Communication Technology Co., Limited (Ragentek), an Asian electronics
device manufacturer. Initial shipments of engines to Ragentek began at the end of June 2017 to embed in its
smartphone product. Ragentek launched their smartphone during the third quarter of 2017. We had planned to
recognize $4.3 million of product revenue during the fourth quarter of 2017 by completing the remainder of the
order. The customer, however, requested a deferment in taking receipt of the remainder of the engines until 2018.
In addition to the small form factor display engine, we also plan to introduce an interactive display engine that
integrates display and 3D LiDAR sensing to allow the user to interact with projected images and a consumer grade
LiDAR engine for consumer electronics (smart home and smart home security) applications.
The key components and technology we offer for inclusion in an LBS engine are our MEMS, ASICs, optics, and
software. Our licensees can purchase none, some, or all of the key components and license the technology we offer
depending on their capability and desire to manufacture them and the terms of the licensing agreement.
Research and Development
We believe our research and development efforts have earned us a leadership position in the field of LBS technology
and applications as applied to consumer electronics, automotive and other markets. Our ability to attract customers and
grow revenue will depend on our ability to maintain our LBS technology leadership, to continually improve
performance, reduce costs, reduce the size of component parts and scanning engines, and to increase the number of
applications and products enabled by our PicoP® scanning technology.
Our research and development team is located in Redmond, Washington and as of December 31, 2017, was comprised
of 81 engineering and technical staff in optics, computer vision, software engineering, electrical engineering, and
MEMS design.
Sales and Marketing
Our sales and marketing approach is account based, business-to-business targeting of ODMs and OEMs. We license
our PicoP® scanning technology and sell components used in the production of scanning engines to our licensees and
sell scanning engines to our customers. Our customers are typically companies that want to buy or build LBS engines
for incorporation into their products. We also engage end product manufacturers and retailers in our target markets to
educate them about product opportunities based on our PicoP® scanning technology.
We currently have sales and business development representatives based in the United States and several parts of Asia,
focused on business development in the Americas, Europe and Asia. Our sales and business development
representatives are supported by a technical sales engineering team that assists customers during the “design win” and
“design in” cycles. The technical sales engineering team operates from Redmond, Washington, Taiwan and Japan.
Our marketing team is located in Redmond, Washington. We engage potential customers directly, participate in trade
shows, maintain a website, and cooperate on co-marketing activities with key partners.
Manufacturing
Our products include scanning engines as well as components that are integral to a scanning engine. Our scanning
engine products are manufactured by a contract manufacturer based on our proprietary design and incorporate our
PicoP® scanning technology and include MEMS and ASICs that are produced to order by semiconductor foundries.
Our manufacturing is not currently subject to seasonal variations as our shipments have been relatively small and are in
the early stages of product introduction. In the future, depending on our customers’ product mix, we may be affected
by seasonal fluctuations which could affect working capital demands.
We provide forecasts that allow our contract manufacturers to stock component parts and other materials and plan
capacity. Our contract manufacturers procure raw materials in volumes consistent with our forecasts, manufacture
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and/or assemble the products and perform tests according to our specifications. Products are either shipped to our
customers or shipped to our Redmond, Washington headquarters to be inventoried as finished goods. We procure
some specific components and either sell them or consign them to our contract manufacturers. We hold some
inventories of these components. Our contract manufacturers procure additional raw materials we do not own until the
finished goods are completed by our contract manufacturer. Title to the products transfers from our contract
manufacturers to us and then to our customers upon shipment from the manufacturer. If raw materials are unused, or
the products are not sold within specified periods of time, we may incur carrying charges or obsolete material charges
for component parts that our contract manufacturers purchased to build products to meet our forecasts or customer
orders.
Many of the raw materials used in our components are standard to the consumer electronics industry. Our MEMS,
MEMS die, and ASICs are currently manufactured to our specifications by separate single-source suppliers.
Human Factors, Ergonomics and Safety
We work with third party independent experts in the field of laser safety to assist in meeting safety specifications. In
addition, we monitor developments in the area of permissible laser exposure limits as established by International
Electrotechnical Commission (IEC) and others. Independent experts have concluded that laser exposure to the eye
resulting from use of LBS devices under normal operating conditions would be below the calculated maximum
permissible exposure level set by the IEC.
Competitive Conditions
The information display and 3D sensing industries are highly competitive. Potential products incorporating our
PicoP® scanning technology, including any LBS engines we develop, will compete with manufacturers of established
technologies, such as flat panel display devices, as well as companies developing new display and 3D LiDAR sensing
technologies. Our competitors include companies such as Texas Instruments, Intel, Syndiant, Velodyne, Bosch,
Quanargy, Innoluce, Opus, Mirrorcle, Maradin, Himax, Pioneer, Sony (LCOS) and others, some of which have much
greater financial, technical and other resources than us. Many of our competitors are currently developing alternative
miniature display and 3D LiDAR sensing technologies. Our competitors may succeed in developing innovative
technologies and products that could render our technology or our proposed products commercially infeasible or
technologically obsolete.
Pico projectors are a class of miniaturized projectors that are generally handheld, battery operated, mobile projectors.
Most of the competing projectors currently on the market are either liquid crystal on silicon (LCOS) panel solutions or
Texas Instruments' DLP™ display technology primarily using light-emitting diode (LED) light sources. Each of these
projection solutions can create images of varying resolution, brightness, image quality, battery life, and ease-of-use.
The information display and 3D sensing industries have been characterized by rapid and significant technological
advances. Our PicoP® scanning technology platform and potential products may not remain competitive with such
advances, and we may not have sufficient funds to invest in new technologies, products or processes. Although we
believe our technology platform and proposed products could deliver images of a substantially higher quality and
resolution from a smaller form factor device than those of commercially available LCOS and DLP based display
products, manufacturers of competing technologies may develop further improvements to screen display technology
that could reduce or eliminate the anticipated advantages of our proposed products.
3D sensing is a new market for us and we believe we are developing products that will have cost and performance
benefits over what competitors may offer. However, manufacturers of competing technologies may develop further
improvements to size of their modules, performance for mid-range LiDAR and lower costs that could reduce or
eliminate the anticipated advantages of our proposed products.
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Intellectual Property and Proprietary Rights
We create intellectual property from three sources: internal research and development activities, technology
acquisitions, and performance on development contracts. The inventions covered by our patent applications generally
relate to systems controls in our PicoP® scanning technology, component miniaturization, power reduction, feature
enhancements, specific implementation of various system components, and design elements to facilitate mass
production. Protecting these key-enabling technologies and components is a fundamental aspect of our strategy to
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penetrate diverse markets with unique products. As such, we intend to continue to develop our portfolio of proprietary
and patented LBS technologies at the system, component, and process levels.
We believe our extensive patent portfolio is the largest, broadest, and earliest filed LBS technology portfolio and
includes applications such as augmented reality, range finding, portable media devices, image capture, and projection
applications. We have over 500 issued patents, pending patents and licensed patents worldwide.
Since our inception in 1993, we have acquired, either under license agreements or portfolio purchases, patents that
grant us exclusive rights to various LBS technologies. From time to time some of these patents may expire, or we may
decide to terminate a license agreement for a variety of reasons to better utilize resources expended to maintain
intellectual property.
Our ability to compete effectively in the information display and 3D sensing markets may depend, in part, on our
ability and the ability of our licensors to maintain the proprietary nature of these technologies.
We also rely on unpatented proprietary technology. To protect our rights in these areas, we require all employees, and
where appropriate, contractors, consultants, advisors and collaborators, to enter into confidentiality and non-compete
agreements. There can be no assurance, however, that these agreements will provide meaningful protection for our
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.
We have registered the name “PicoP®” and “MicroVision®” with the United States Patent and Trademark Office.
Employees
As of February 20, 2018, we had 113 full-time employees. None of our employees are represented by a labor union.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with the other information set forth in this report,
which could materially affect our business, financial condition and future results. The risks described below are not
the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition and operating results.
Risk Factors Related to Our Business and Industry
We have a history of operating losses and expect to incur significant losses in the future.
We have had substantial losses since our inception. We cannot assure you that we will ever become or remain
profitable.
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(cid:120) As of December 31, 2017, we had an accumulated deficit of $524.1 million.
(cid:120) We incurred consolidated net losses of $468.8 million from inception through 2014, $14.5 million in
2015, $16.5 million in 2016, and $24.2 million in 2017.
The likelihood of our success must be considered in light of the expenses, difficulties and delays frequently
encountered by companies formed to develop and commercialize new technologies. In particular, our operations to
date have focused primarily on research and development of our PicoP® scanning technology platform and
development of demonstration units. We are unable to accurately estimate future revenues and operating expenses
based upon historical performance.
We cannot be certain that we will succeed in obtaining additional development revenue or commercializing our
technology or products. In light of these factors, we expect to continue to incur significant losses and negative cash
flow at least through 2018 and likely thereafter. We cannot be certain that we will achieve positive cash flow at any
time in the future.
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We will require additional capital to fund our operations and to implement our business plan. If we do not
obtain additional capital, we may be required to curtail our operations substantially. Raising additional capital
may dilute the value of current shareholders' shares.
Based on our current operating plan that includes expected proceeds from a development contract signed in April 2017
with a major technology company, we anticipate that we have sufficient cash and cash equivalents to fund our
operations into the third quarter of 2018. Our receipt of proceeds under our April 2017 development contract is subject
to our completion of certain milestones, and we can provide no assurance that such milestones will be completed. We
will require additional capital to fund our operating plan past that time. We plan to obtain additional capital through
the issuance of equity or debt securities, product sales and/or licensing activities.
We are introducing new technology and products into an emerging market which creates significant uncertainty about
our ability to accurately project revenue, costs and cash flows. Our capital requirements will depend on many factors,
including, but not limited to, the commercial success of our LBS engines, the rate at which ODMs and OEMs introduce
products incorporating our PicoP® scanning technology and the market acceptance and competitive position of such
products. If revenues are less than we anticipate, if we fail to meet milestones for future payments or have to repay
amounts already received under our April 2017 development contract, if the mix of revenues and the associated
margins varies from anticipated amounts or if expenses exceed the amounts budgeted, we may require additional
capital earlier than expected to fund our operations. In addition, our operating plan provides for the development of
strategic relationships with suppliers of components, products and systems, and equipment manufacturers that may
require additional investments by us.
Additional capital may not be available to us or, if available, may not be available on terms acceptable to us or on a
timely basis. Raising additional capital may involve issuing securities with rights and preferences that are senior to our
common stock and may dilute the value of our current shareholders' shares. If adequate capital resources are not
available on a timely basis, we may consider limiting our operations substantially and we may be unable to continue as
a going concern. This limitation of operations could include reducing investments in our production capacities or
research and development projects, staff, operating costs, and capital expenditures which could jeopardize our ability to
achieve our business goals or satisfy our customer requirements.
Qualifying a new or alternative contract manufacturer or foundry for our products could cause us to experience
delays that result in lost revenues and damaged customer relationships.
We rely on single or limited-source suppliers to manufacture our products. Establishing a relationship with a new or
alternative contract manufacturer(s) or foundry is a time-consuming process, as our unique technology may require
significant manufacturing process adaptation to achieve full manufacturing capacity. Accordingly, we may be unable
to establish a relationship with new or alternative contract manufacturers in the short-term, or at all, at prices or on
other terms that are acceptable to us.
Changes in our supply chain may result in increased cost and delay and may subject us to risks and uncertainties
regarding, but not limited to, product warranty, product liability and quality control standards. The loss of any single
or limited-source supplier, the failure of any of these suppliers to perform as expected or the disruption in the supply
chain of components from these suppliers could cause significant delays in product deliveries, which may result in lost
revenues and damaged customer relationships. To the extent that we are not able to establish a relationship with a new
or alternative contract manufacturer(s) or foundry in a timely manner, we may be unable to meet contract or production
milestones, which could have a material adverse effect on our financial condition, results of operations and cash flows.
Our success will depend, in part, on our ability to secure significant third party manufacturing resources.
Our success will depend, in part, on our ability to provide our components and future products in commercial quantities
at competitive prices and on schedule. Accordingly, we will be required to obtain access, through business partners or
contract manufacturers, to manufacturing capacity and processes for the commercial production of our expected future
products.
Our foreign contract manufacturers could experience severe financial difficulties or other disruptions in their business,
and such continued supply could be significantly reduced or terminated. In addition, we cannot be certain that we will
successfully obtain access to needed manufacturing resources concurrent with a significant increase in our planned
production levels. Future manufacturing limitations of our suppliers could constrain the number of products that we
are able to develop and produce.
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We are dependent on third parties in order to develop, manufacture, sell and market products incorporating
our PicoP® scanning technology, scanning engines, and the scanning engine components.
Our business strategy for commercializing our technology in products incorporating PicoP® scanning technology
includes entering into development, manufacturing, sales and marketing arrangements with ODMs, OEMs and other
third parties. These arrangements reduce our level of control over production and distribution and may subject us to
risks and uncertainties regarding, but not limited to, product warranty, product liability and quality control standards.
We cannot be certain that we will be able to negotiate arrangements on acceptable terms, if at all, or that these
arrangements will be successful in yielding commercially viable products. If we cannot establish these arrangements,
we would require additional capital to undertake such activities on our own and would require extensive
manufacturing, sales and marketing expertise that we do not currently possess and that may be difficult to obtain.
In addition, we could encounter significant delays in introducing our PicoP® scanning technology or find that the
development, manufacture or sale of products incorporating our technology would not be feasible. To the extent that
we enter into development, manufacturing, sales and marketing or other arrangements, our revenues will depend upon
the performance of third parties. We cannot be certain that any such arrangements will be successful.
We cannot be certain that our technology platform or products incorporating our PicoP® scanning technology
will achieve market acceptance. If our technology platform or products incorporating our technology do not
achieve market acceptance, our revenues may not grow.
Our success will depend in part on customer acceptance of our PicoP® scanning technology. Our technology may not
be accepted by manufacturers who use display and 3D sensing technologies in their products, by systems integrators,
ODMs, and OEMs who incorporate the scanning engine components into their products or by end users of these
products. To be accepted, our PicoP® scanning technology must meet the expectations of our current and potential
customers in the consumer electronics, automotive, and other markets. If our technology platform or products
incorporating our PicoP® scanning technology do not achieve market acceptance, we may not be able to continue to
develop our technology.
Future products incorporating our PicoP® scanning technology and scanning engines are dependent on
advances in technology by other companies.
Our PicoP® scanning technology will continue to rely on technologies, such as laser diode light sources and other
components that are developed and produced by other companies. The commercial success of certain future products
incorporating our PicoP® scanning technology will depend, in part, on advances in these and other technologies by
other companies. We may, from time to time, contract with and support companies developing key technologies in
order to accelerate the development of them for our or our customers' specific uses. There are no guarantees that such
activities will result in useful technologies or products that will be profitable.
We are dependent on a small number of customers for our revenue. Our quarterly performance may vary
substantially and this variance, as well as general market conditions, may cause our stock price to fluctuate
greatly and potentially expose us to litigation.
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In 2017, one commercial customer accounted for $5.8 million in revenue, representing 53% of our total revenue, a
second commercial customer accounted for $2.3 million in revenue, representing 21% of our total revenue, and a third
commercial customer accounted for $1.6 million in revenue, representing 14% of our total revenue. In 2016, one
commercial customer accounted for $13.5 million in revenue, representing 91% of our total revenue. In 2015, the same
commercial customer accounted for $9.0 million in revenue, representing 98% of our total revenue. Our customers
take time to obtain, and the loss of a significant customer could negatively affect our revenue. Our quarterly operating
results may vary significantly based upon:
(cid:120) Market acceptance of products incorporating our PicoP® scanning technology;
(cid:120) Changes in evaluations and recommendations by any securities analysts following our stock or our
industry generally;
(cid:120) Announcements by other companies in our industry;
(cid:120) Changes in business or regulatory conditions;
(cid:120) Announcements or implementation by our competitors of technological innovations or new products;
(cid:120) The status of particular development programs and the timing of performance under specific development
agreements;
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(cid:120) Economic and stock market conditions; or
(cid:120) Other factors unrelated to our company or industry.
In one or more future quarters, our results of operations may fall below the expectations of securities analysts and
investors and the trading price of our common stock may decline as a consequence. In addition, following periods of
volatility in the market price of a company's securities, shareholders often have instituted securities class action
litigation against that company.
If we become involved in a class action suit, it could divert the attention of management and, if adversely determined,
could require us to pay substantial damages.
We or our customers may fail to perform under open orders or agreements, which could adversely affect our
operating results and cash flows.
Our backlog under open orders and agreements totaled $13.6 million as of December 31, 2017. We or our customers
may be unable to meet the performance requirements and obligations under open orders or agreements, including
performance specifications, milestones or delivery dates, required by such purchase orders or agreements.
Furthermore, our customers may be unable or unwilling to perform their obligations thereunder on a timely basis, or at
all if, among other reasons, our products and technologies do not achieve market acceptance, our customers' products
and technologies do not achieve market acceptance or our customers otherwise fail to achieve their operating goals. To
the extent we are unable to perform under such purchase orders or agreements or to the extent customers are unable or
unwilling to perform, our operating results and cash flows could be adversely affected.
It may become more difficult to sell our stock in the public market or maintain our listing on the NASDAQ
Global Market.
Our common stock is listed on The NASDAQ Global Market. To maintain our listing on this market, we must meet
NASDAQ's listing maintenance standards. If we are unable to continue to meet NASDAQ's listing maintenance
standards for any reason, our common stock could be delisted from The NASDAQ Global Market. If our common
stock were delisted, we likely would seek to list our common stock on The NASDAQ Capital Market, the American
Stock Exchange or on a regional stock exchange. Listing on such other market or exchange could reduce the liquidity
of our common stock. If our common stock were not listed on The NASDAQ Capital Market or an exchange, trading
of our common stock would be conducted in the Over-the-Counter (OTC) market on an electronic bulletin board
established for unlisted securities or directly through market makers in our common stock. If our common stock were
to trade in the OTC market, an investor would find it more difficult to dispose of, or to obtain accurate quotations for
the price of, the common stock.
A delisting from The NASDAQ Global Market and failure to obtain listing on another market or exchange would
subject our common stock to so-called penny stock rules that impose additional sales practice and market-making
requirements on broker-dealers who sell or make a market in such securities. Consequently, removal from The
NASDAQ Global Market and failure to obtain listing on another market or exchange could affect the ability or
willingness of broker-dealers to sell or make a market in our common stock and the ability of purchasers of our
common stock to sell their securities in the secondary market.
On February 20, 2018, the closing price of our common stock was $1.23 per share.
Our lack of financial and technical resources relative to our competitors may limit our revenues, potential
profits, overall market share or value.
Our products and potential products incorporating our PicoP® scanning technology will compete with established
manufacturers of existing products and companies developing new technologies. Many of our competitors have
substantially greater financial, technical and other resources than we have. Because of their greater resources, our
competitors may develop products or technologies that may be superior to our own. The introduction of superior
competing products or technologies could result in reduced revenues, lower margins or loss of market share, any of
which could reduce the value of our business.
We may not be able to keep up with rapid technological change and our financial results may suffer.
The information display and 3D sensing industries have been characterized by rapidly changing technology,
accelerated product obsolescence and continuously evolving industry standards. Our success will depend upon our
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ability to further develop our PicoP® scanning technology platform and to cost effectively introduce new products and
features in a timely manner to meet evolving customer requirements and compete with competitors' product advances.
We may not succeed in these efforts due to:
(cid:120) Delays in product development;
(cid:120) Lack of market acceptance for our technology or products incorporating our PicoP® scanning
technology; or
(cid:120) Lack of funds to invest in product research, development and marketing.
The occurrence of any of the above factors could result in decreased revenues, market share and value of our business.
We could face lawsuits related to our use of PicoP® scanning technology or other technologies. Defending these
suits would be costly and time-consuming. An adverse outcome, in any such matter, could limit our ability to
commercialize our technology or products incorporating our PicoP® scanning technology, reduce our revenues
and increase our operating expenses.
We are aware of several patents held by third parties that relate to certain aspects of light scanning displays and 3D
sensing products. These patents could be used as a basis to challenge the validity, limit the scope or limit our ability to
obtain additional or broader patent rights of our patents or patents we have licensed. A successful challenge to the
validity of our patents or patents we have licensed could limit our ability to commercialize our technology or products
incorporating our PicoP® scanning technology and, consequently, materially reduce our revenues. Moreover, we
cannot be certain that patent holders or other third parties will not claim infringement by us 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 be issued with claims that will be infringed by our products or our
technology.
The defense and prosecution of a patent suit would be costly and time-consuming, even if the outcome were ultimately
favorable to us. An adverse outcome in the defense of a patent suit could subject us to significant costs, require others
and us to cease selling products incorporating our technology, require us to cease licensing our technology or require
disputed rights to be licensed from third parties. Such licenses, if available, would increase our operating expenses.
Moreover, if claims of infringement are asserted against our future co-development partners or customers, those
partners or customers may seek indemnification from us for any damages or expenses they incur.
If we fail to manage expansion effectively, our revenue and expenses could be adversely affected.
Our ability to successfully offer products incorporating PicoP® scanning technology and implement our business plan
in a rapidly evolving market requires an effective planning and management process. The growth in business and
relationships with customers and other third parties has placed, and will continue to place, a significant strain on our
management systems and resources. We will need to continue to improve our financial and managerial controls,
reporting systems and procedures, and will need to continue to train and manage our work force.
If we fail to adequately reduce and control our manufacturing, supply chain and operating costs, our business,
financial condition, and operating results could be adversely affected.
We incur significant costs related to procuring components and increasing our production capabilities to manufacture
our products. We may experience delays, cost overruns or other unexpected costs associated with an increase in
production. If we are unsuccessful in our efforts to reduce and control our manufacturing, supply chain and operating
costs and keep costs aligned with the levels of revenues we generate, our business and financial condition could suffer.
Our technology and products incorporating our PicoP® scanning technology may be subject to future
environmental, health and safety regulations that could increase our development and production costs.
Our technology and products incorporating our PicoP® scanning technology could become subject to future
environmental, health and safety regulations or amendments that could negatively impact our ability to commercialize
our technology and products incorporating our PicoP® scanning technology. Compliance with any such new
regulations would likely increase the cost to develop and produce products incorporating our PicoP® scanning
technology, and violations may result in fines, penalties or suspension of production. If we become subject to any
environmental, health, or safety laws or regulations that require us to cease or significantly change our operations to
comply, our business, financial condition and operating results could be adversely affected.
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Our operating results may be adversely impacted by worldwide political and economic uncertainties and
specific conditions in the markets we address.
In the recent past, general worldwide economic conditions have experienced a downturn due to slower economic
activity, concerns about inflation, increased energy costs, decreased consumer confidence, reduced corporate profits
and capital spending, and adverse business conditions. Any continuation or worsening of the current global economic
and financial conditions could materially adversely affect: (i) our ability to raise, or the cost of, needed capital, (ii)
demand for our current and future products, and (iii) our ability to commercialize products. We cannot predict the
timing, strength, or duration of any economic slowdown or subsequent economic recovery, worldwide, regionally or in
the display industry.
Because we plan to continue using foreign contract manufacturers, our operating results could be harmed by
economic, political, regulatory and other factors in foreign countries.
We currently use foreign contract manufacturers and plan to continue to use foreign contract manufacturers to
manufacture current and future products, where appropriate. These international operations are subject to inherent
risks, which may adversely affect us, including, but not limited to:
(cid:120) Political and economic instability;
(cid:120) High levels of inflation, historically the case in a number of countries in Asia;
(cid:120) Burdens and costs of compliance with a variety of foreign laws, regulations and sanctions;
(cid:120) Foreign taxes and duties;
(cid:120) Changes in tariff rates or other trade, tax or monetary policies; and
(cid:120) Changes or volatility in currency exchange rates and interest rates.
Our contract manufacturers' facilities could be damaged or disrupted by a natural disaster or labor strike,
either of which would materially affect our financial position, results of operations and cash flows.
A major catastrophe, such as an earthquake, monsoon, flood or other natural disaster, labor strike, or work stoppage at
our contract manufacturers' facilities, our suppliers, or our customers, could result in a prolonged interruption of our
business. A disruption resulting from any one of these events could cause significant delays in product shipments and
the loss of sales and customers, which could have a material adverse effect on our financial condition, results of
operations, and cash flows.
If we are unable to obtain effective intellectual property protection for our products, processes and technology,
we may be unable to compete with other companies.
Intellectual property protection for our products, processes and technology is important and uncertain. If we do not
obtain effective intellectual property protection for our products, processes and technology, we may be subject to
increased competition. Our commercial success will depend, in part, on our ability, to maintain the proprietary nature
of our PicoP® scanning technology and other key technologies by securing valid and enforceable patents and
effectively maintaining unpatented technology as trade secrets.
We protect our proprietary PicoP® scanning technology by seeking to obtain United States and foreign patents in our
name, or licenses to third party patents, related to proprietary technology, inventions, and improvements that may be
important to the development of our business. However, our patent position involves complex legal and factual
questions. The standards that the United States Patent and Trademark Office and its foreign counterparts use to grant
patents are not always applied predictably or uniformly and can change.
Additionally, the scope of patents is subject to interpretation by courts and their validity can be subject to challenges
and defenses, including challenges and defenses based on the existence of prior art. Consequently, we cannot be
certain as to the extent to which we will be able to obtain patents for our new products and technology or the extent to
which the patents that we already own, protect our products and technology. Reduction in scope of protection or
invalidation of our licensed or owned patents, or our inability to obtain new patents, may enable other companies to
develop products that compete directly with ours on the basis of the same or similar technology.
We also rely on the law of trade secrets to protect unpatented know-how and technology to maintain our competitive
position. We try to protect this know-how and technology by limiting access to the trade secrets to those of our
employees, contractors and partners, with a need-to-know such information and by entering into confidentiality
agreements with parties that have access to it, such as our employees, consultants and business partners. Any of these
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parties could breach the agreements and disclose our trade secrets or confidential information, or our competitors might
learn of the information in some other way. If any trade secret not protected by a patent were to be disclosed to or
independently developed by a competitor, our competitive position could be negatively affected.
We could be subject to significant product liability claims that could be time-consuming and costly, divert
management attention and adversely affect our ability to obtain and maintain insurance coverage.
We could be subject to product liability claims if any of the product applications are alleged to be defective or cause
harmful effects. For example, because some of the scanning engines incorporating our PicoP® scanning technology
could scan a low power beam of colored light into the user's eye, the testing, manufacture, marketing and sale of these
products involve an inherent risk that product liability claims will be asserted against us.
Additionally, any misuse of our technology or products incorporating our PicoP® scanning technology by end users or
third parties that obtain access to our technology, could result in negative publicity and could harm our brand and
reputation. Product liability claims or other claims related to our products or our technology, regardless of their
outcome, could require us to spend significant time and money in litigation, divert management time and attention,
require us to pay significant damages, harm our reputation or hinder acceptance of our products. Any successful
product liability claim may prevent us from obtaining adequate product liability insurance in the future on
commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost
or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our
products and our PicoP® scanning technology.
Our contracts and collaborative research and development agreements have long sales cycles, which makes it
difficult to plan our expenses and forecast our revenues.
Our contracts and collaborative research and development agreements have long sales cycles that involve numerous
steps including determining the product application, exploring the technical feasibility of a proposed product,
evaluating the costs of manufacturing a product or qualifying a new or alternative contract manufacturer for
production. Our long sales cycle, which can last several years, makes it difficult to predict the quarter in which
revenue recognition will occur. Delays in entering into contracts and collaborative research and development
agreements could cause significant variability in our revenues and operating results for any particular period.
Our contracts and collaborative research and development agreements may not lead to any product or any
products that will be profitable.
Our contracts and collaborative research and development agreements, including without limitation, those discussed in
this document, are exploratory in nature and are intended to develop new types of products for new applications. Our
efforts may prove unsuccessful and these relationships may not result in the development of any product or any
products that will be profitable.
Our operations could be adversely impacted by information technology system failures, network disruptions, or
cyber security breaches.
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We rely on information technology systems to process, transmit, store, and protect electronic data between our
employees, our customers and our suppliers. Our systems are vulnerable to damage or interruptions due to events
beyond our control, including, but are not limited to, natural disasters, power loss, telecommunications failures,
computer viruses, hacking, or other cyber security issues. Our system redundancy may be inadequate and our disaster
recovery planning may be ineffective or insufficient to account for all eventualities. Additionally, we maintain
insurance coverage to address certain aspects of cyber risks. Such insurance coverage may be insufficient to cover all
losses or all claims that may arise, should such an event occur.
Loss of any of our key personnel could have a negative effect on the operation of our business.
Our success depends on our executive officers and other key personnel and on the ability to attract and retain qualified
new personnel. Achievement of our business objectives will require substantial additional expertise in the areas of
sales and marketing, research and product development and manufacturing. Competition for qualified personnel in
these fields is intense, and the inability to attract and retain additional highly skilled personnel, or the loss of key
personnel, could hinder our ability to compete effectively in the LBS markets and adversely affect our business strategy
execution and results of operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
In July 2017, we entered into a 65 month facility lease amendment on 31,142 square feet of combined use office,
laboratory and manufacturing space at our headquarters facility in Redmond, Washington. The lease commenced in
October 2017 and includes 7,225 square feet expansion space on our existing premise of 23,917 square feet. The lease
agreement includes extension and rent escalation provisions over the term of the lease.
ITEM 3. LEGAL PROCEEDINGS
On March 31, 2014, Asia Optical Co., Inc., a supplier pursuant to an agreement entered into in 2008, filed a complaint
for arbitration with the American Arbitration Association claiming that we ordered products from them and failed to
take delivery of and pay for such products. The relief sought in the complaint is $3.6 million plus attorneys' fees,
interest and arbitration costs. We contest the claim and are defending against it. An adverse outcome of these
proceedings could materially and adversely affect our financial condition. At this stage, we cannot predict the
likelihood of an unfavorable outcome or the range of potential loss.
We are also subject to various claims and pending or threatened lawsuits in the normal course of business. We are not
currently party to any other legal proceedings that we believe are reasonably possible to have a material adverse effect
on our financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers are appointed by our Board of Directors and hold office until their successors are elected and duly
qualified. The following persons serve as executive officers of MicroVision, Inc.:
Perry M. Mulligan, age 60, has served as a director of the Company since January 2010 and Chief Executive Officer of
the Company since November 2017. Mr. Mulligan has over 30 years of experience in operations and supply chain
management. Mr. Mulligan was formerly Senior Vice President of Operations for Emulex Corporation where he
oversaw Emulex operations, including IT, facilities, supplier management, test engineering and logistics from July
2013 to June 2015. Mr. Mulligan served as Senior Vice President, Operations for QLogic from October 2007 to June
2013, where he was responsible for all aspects of the manufacturing and delivery of products to the customer in
addition to overall supply chain design and manufacturing strategy. Prior to QLogic, Mr. Mulligan was at Solectron
from May 2004 to September 2007, where he held the position of Senior Vice President Supply Chain Management
and Chief Procurement Officer and was responsible for establishing the overall materials and supply chain strategy.
Mr. Mulligan brings extensive experience and knowledge in developing and setting up worldwide manufacturing and
sourcing operations and overall supply chain strategy. Mr. Mulligan has an MBA from the University of Western
Ontario.
Stephen P. Holt, age 55, joined MicroVision in April 2013 as Chief Financial Officer. Prior to MicroVision, from May
2007 to May 2012, he served as Chief Financial Officer of PixelOptics, where he played a lead role in bringing the
company’s first electronic focusing eyewear product to market. At this venture capital-backed start-up, Mr. Holt raised
capital and negotiated strategic partner agreements to license technology in addition to implementing policies and
procedures to create an infrastructure capable of supporting rapid growth while maintaining a strong internal control
environment. From March 2006 to April 2007, he was the Chief Financial Officer of Interstate Distributors, a trucking
and transportation services company. From December 2003 to March 2006, he was the Chief Financial Officer of a
group of companies consisting of Activelight, Boxlight, Cinelight and Projector Wholesale Supply. These companies
were value-added resellers and distributors of audio-visual and projection equipment. Mr. Holt, a Certified
Management Accountant, holds a B.S. from California State University, Chico and an M.B.A. from Santa Clara
University.
Sumit Sharma, age 44, was appointed Vice President of Product Engineering and Operations in February 2017, after
serving as Vice President and Senior Director of Operations since September 2015. Prior to MicroVision, from April
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2015 to September 2015, he was a Product Development and Operations consultant at BlueMadison Consulting. From
November 2013 to March 2015, he was the Senior Director, Advanced Manufacturing Operations and Technology
Development at Jawbone. From March 2011 to October 2013, he was the Head of Manufacturing Operations for
project GLASS at Google. Mr. Sharma has extensive experience in optics, wearable technology, product development
and qualification for automotive industry. Mr. Sharma also has deep experience in global operations and developing
strategic partnerships. A patent holder, Mr. Sharma received his baccalaureate degree in engineering from New Jersey
Institute of Technology.
David J. Westgor, age 64, was appointed Vice President, General Counsel and Secretary in November 2013, after
serving as General Counsel since December 2012 and Deputy General Counsel since June 2007. Before joining
MicroVision, Mr. Westgor was Senior Counsel at Medtronic Physio-Control, where he had primary responsibility for
the legal affairs of its medical and informatics business units. Mr. Westgor graduated from Loyola Law School and
practiced in the Los Angeles office of Pillsbury Winthrop. He moved to the Seattle area to become in-house counsel at
Advanced Radio Telecom, a broadband telecommunications company. Mr. Westgor holds a B.A. from St. Olaf
College and an M.F.A. degree from the Art Institute of Chicago.
Dale E. Zimmerman, age 58, has served as Vice President of Research and Development since June 2012 and as
Director of Systems Engineering from June 2011 to May 2012. Prior to MicroVision, from February 2006 to
December 2008, he served as Vice President of Product Strategy of Silicon Image, a company specializing in high
speed serial interface solutions for HDTV, PC and storage products. From 1996 to 2006, he served as General
Manager of DLP TV for Texas Instruments, where he played an important role in launching the first conference room
projectors, home theater projectors, and HDTVs. His teams have received many awards, including three Emmys and
CES Innovation Best of Show. He holds both a B.S. and an M.S. degree in electrical and electronics engineering from
Massachusetts Institute of Technology (MIT) and a second M.S. in electrical engineering from Stanford University.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading publicly on August 27, 1996. Our common stock trades on The NASDAQ Global
Market under the ticker symbol “MVIS.” We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all future earnings to fund the operations of our business and do not anticipate
paying dividends on the common stock in the foreseeable future.
As of February 20, 2018, there were approximately 114 holders of record of 78,613,000 shares of common stock
outstanding. As many of our shares of common stock are held by brokerages and institutions on behalf of
shareholders, we are unable to estimate the total number of beneficial holders of our common stock represented by
these record holders.
The high and low sales prices of our common stock for each full quarterly period in the last two fiscal years and year to
date as reported by The NASDAQ Global Market are as follows:
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Quarter Ended
2016
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016
2017
March 31, 2017
June 30, 2017
September 30, 2017
December 31, 2017
January 1, 2018 to February 20, 2018
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Common Stock
HIGH
LOW
$
$
$
$
$
3.08
2.21
2.07
1.85
2.75
2.94
3.25
2.88
1.85
1.65
1.64
1.30
0.89
1.15
1.74
2.00
1.36
1.09
ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data as of and for the five years ended December 31, 2017 is set forth below. It
should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this
Annual Report on Form 10-K.
(In thousands, except per share data)
Statement of Operations Data
Year Ended December 31,
2017
2016
2015
2014
2013
Revenue
$
10,891
$
14,761
$
9,188
$
3,485
$
5,852
Net loss available for common shareholders
Basic and diluted net loss per share
Weighted-average shares outstanding basic and diluted
(24,243)
(0.33)
72,786
(16,472)
(0.32)
51,958
(14,542)
(0.31)
46,540
(18,120)
(0.44)
41,599
(13,178)
(0.47)
28,025
Balance Sheet Data
Cash and cash equivalents
Working capital (deficit)
Total assets
Long-term liabilities
Total shareholders' equity (deficit)
$
16,966
$
15,139
$
7,888
$
8,349
$
5,375
3,074
29,697
4,758
4,866
10,104
20,106
5,388
7,474
3,371
14,042
6,491
(153)
5,040
11,945
488
6,872
(3,878)
8,447
481
(1,696)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Our business strategy is to commercialize our PicoP® scanning technology by enabling ODMs and OEMs to produce
end-user products via three go-to-market paths:
1. Design and sell LBS engines directly to ODMs and OEMs to incorporate inside their products;
2. License our LBS technology and sell key components to ODMs and OEMs to create their own scanning
engines; and
3. License LBS technology to ODMs and OEMs who developed their own key components.
In 2017, 60% of our revenue was generated from development contracts, 21% of our revenue was generated from
product sales, 9% was generated from a prorated portion of the $8.0 million upfront payment we received under a 2015
license agreement with Sony for our PicoP® scanning technology, 5% was generated from performance on contracts
for prototype units, and 5% was generated from ongoing per unit royalties. In 2017, one commercial customer
accounted for $5.8 million in revenue, representing 53% of our total revenue, a second commercial customer accounted
for $2.3 million in revenue, representing 21% of our total revenue, and a third commercial customer accounted for $1.6
million in revenue, representing 14% of our total revenue.
In 2016, 87% of our revenue was generated from product sales, less than 1% was generated from performance on
contracts for prototype units, 7% was generated from a prorated portion of the $8.0 million upfront payment, and 5%
was generated from ongoing per unit royalties. Sony Corporation (Sony) accounted for 91% of our total revenue in
2016.
In 2015, 70% of our revenue was generated from product sales, 17% was generated from performance on support
services contracts, 10% was generated from a prorated portion of the $8.0 million upfront payment, and 3% was
generated from ongoing per unit royalties. Sony accounted for 98% of our total revenue in 2015.
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We have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending
December 31, 2018. We have funded operations to date primarily through the sale of common stock, convertible
preferred stock, warrants, the issuance of convertible debt and, to a lesser extent, from development contract revenues,
product sales and licensing activities. There can be no assurance that additional capital will be available or that, if
available, it will be available on terms acceptable to us on a timely basis. We cannot be certain that we will succeed in
commercializing our technology or products. These factors raise substantial doubt regarding our ability to continue as
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a going concern. These financial statements were prepared assuming we will continue as a going concern and do not
include any adjustments that might be necessary should we be unable to continue as a going concern.
Key accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make estimates and judgments that
materially affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. We evaluate our estimates on a continuous basis. We base our estimates on historical data, terms of existing
contracts, our evaluation of trends in the information display and 3D sensing industries, information provided by our
current and prospective customers and strategic partners, information available from other outside sources and on
various other assumptions we believe to be reasonable under the circumstances. The results form the basis for making
judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
We believe the following key accounting policies require significant judgments and estimates used in the preparation of
our consolidated financial statements.
Revenue recognition
We recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and there are
no uncertainties regarding customer acceptance, (iii) fees are fixed or determinable, and (iv) collection is reasonably
assured.
We generate revenue from many sources and activities. We enter into arrangements that can include various
combinations of product sales, services, and licensing activities. For multiple-element arrangements, we use a
hierarchy to determine the contract consideration to be used for allocating revenue to deliverables: (i) vendor-specific
objective evidence of fair value (VSOE), (ii) third party evidence of selling price (TPE), and (iii) best estimate of
selling price. To date, our revenue sources can be classified as: product revenue, royalty revenue, contract revenue, or
development revenue.
Product revenue
Our product sales generally include acceptance provisions. We recognize product revenue upon acceptance of the
product by the customer or expiration of the contractual acceptance period, after which there are no rights of return.
No estimates are made for product returns because revenue is recognized upon expiration of the contractual acceptance
period.
Royalty revenue
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We recognize revenue on upfront license fees over the expected time frame that we provide services or have ongoing
obligations under the agreement. Ongoing per unit royalties are recognized when reported by our customer to us on a
quarterly basis. Currently, we recognize revenue for ongoing per unit royalties one quarter in arrears when reported by
our customer, representing when such amounts are fixed and determinable, and all other revenue recognition criteria
are met.
Contract revenue
Our contract revenue in a particular period is dependent upon when we enter into a contract, the value of the contracts
we have entered into, and the availability of technical resources to perform work on the contracts.
We recognize contract revenue related to the sale of prototype units and evaluation kits upon acceptance of the
deliverables by the customer or expiration of the contractual acceptance period, after which there are no rights of
return.
We recognize contract revenue on long-term, cost plus fixed fee, and fixed price contracts using the percentage-of-
completion method. Under the percentage-of-completion method, revenue is recognized as work progresses on the
contract. The percentage-of-completion method relies on estimates of total expected contract revenue and costs. At
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the end of each period, we estimate the labor, material and other costs required to complete the contract using data
provided by our technical team, project managers, vendors, outside consultants and others and compare these to costs
incurred to date.
Recognized revenues are subject to amendments for actual costs incurred. Amendments to revenue and costs to
complete estimates are recognized in the period in which the facts become known. In the future, amendments to
estimates could significantly impact recognized revenue in any one reporting period. If we are unable to estimate costs
on a contract, revenue is recognized using the completed-contract method. Under the completed-contract method,
revenue and contract costs are deferred and both are recognized when all deliverables are completed.
License agreements
In March 2015, we signed a license agreement as part of a multiple-element arrangement with Sony for our PicoP®
scanning technology. The license agreement granted Sony a non-exclusive license to manufacture and sell scanning
engines that use our PicoP® scanning technology.
For multiple-element arrangements, we use a hierarchy to determine the contract consideration to be used for allocating
revenue to deliverables: (i) vendor-specific objective evidence of fair value (VSOE), (ii) third party evidence of selling
price (TPE) and (iii) best estimate of selling price. Because VSOE and TPE do not exist for the March 2015
agreement, we have allocated the contract consideration based on our best estimate.
Under the terms of this multiple-element arrangement, we received an $8.0 million upfront payment in March 2015 and
we will receive a per unit royalty for each display module sold by Sony containing our PicoP® scanning technology.
We recognize revenue on the initial $8.0 million payment on a straight-line basis within royalty revenues on the
statement of operations, over a period of eight years which is the expected time frame that we will provide services
under the agreement. Ongoing per unit royalties are reported by Sony to us on a quarterly basis. Currently, we
recognize revenue for ongoing per unit royalties one quarter in arrears when reported by Sony, representing when such
amounts are fixed and determinable, and all other revenue recognition criteria are met. Products delivered under
multiple-element arrangements will be recognized upon acceptance of the deliverables by the customer or the
expiration of the contractual acceptance period, after which there are no rights of return.
Intangible assets
Our intangible assets consist exclusively of purchased patents. The patents are amortized using the straight-line
method over their estimated period of benefit, ranging from one to seventeen years. We evaluate the recoverability of
intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of
useful lives or that indicate the asset may be impaired. We compare the projected undiscounted net cash flows
associated with the related intangible assets or group of assets over their remaining lives against their respective
carrying amounts. Measurement of an impairment loss for our intangible assets is based on the difference between the
fair value of the asset and its carrying value.
Inventory valuation
Inventory is computed using the first-in, first-out (FIFO) method and is stated at the lower of cost and net realizable
value. We make judgments and estimates to value our inventory and make adjustments to its carrying value. We
review several factors in determining the market value of our inventory including: evaluating the replacement cost of
the raw materials, the net realizable value of the finished goods, and the likelihood of obsolescence. If we do not
achieve our targeted sales prices, if market conditions for our components or products were to decline, or if we do not
achieve our sales forecast, additional reductions in the carrying value of the inventory would be required.
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Warranty
We provide a warranty on scanning engines and components incorporating our PicoP® scanning technology, and we
accrue warranty reserves at the time revenue is recognized. Warranty reserves include management’s best estimate of
the projected costs to repair or to replace any items under warranty based upon the actual units of revenue recognized
in the period. We review our reserves each period to ensure that our accruals are adequate in meeting expected future
warranty obligations, and we will adjust our estimates as needed. These estimates are inherently uncertain and changes
to our historical or projected experience may cause material changes to our warranty reserves in the future.
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Share-based compensation
We issue share-based compensation to employees in the form of stock options and restricted stock units (RSUs). We
account for the share-based awards by recognizing the fair value of share-based compensation expense on a straight-
line basis over the service period of the award, net of estimated forfeitures. The fair value of stock options is estimated
on the grant date using the Black-Scholes option pricing model. The fair value of RSUs is determined by the closing
price of our common stock on the grant date. Changes in estimated inputs or using other option valuation methods may
result in materially different option values and share-based compensation expense.
Income taxes
Significant judgment is required in evaluating our tax position and in determining our provision for income taxes, our
deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We record a
valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. Based on our
history of losses since inception, the available objective evidence creates sufficient uncertainty regarding the
realizability of the deferred tax assets. Our actual tax exposure may differ from our estimates and any such differences
may impact income our tax expense in the period in which such determination is made.
The key accounting policies described above are not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally
accepted accounting principles, with no need for us to apply judgment or make estimates. There are also areas in
which our judgment in selecting any available alternative would not produce a materially different result to our
consolidated financial statements. Additional information about our accounting policies, and other disclosures required
by generally accepted accounting principles, are set forth in the notes to our consolidated financial statements.
Inflation has not had a material impact on our revenues or income from continuing operations over the three most
recent fiscal years.
Results of Operations
YEAR ENDED DECEMBER 31, 2017 COMPARED TO YEAR ENDED DECEMBER 31, 2016.
Product revenue
(In thousands)
Product revenue
% of
total
revenue
% of
total
revenue
2016
2017
$ change % change
$
2,300
21.1
$
12,849
87.0
$
(10,549)
(82.1)
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Product revenue is revenue from sales of our products which are LBS engines, MEMS and ASICs. Our product sales
generally include acceptance provisions. We recognize product revenue upon acceptance of the product by the
customer or the expiration of the contractual acceptance period, after which there are no rights of return.
During the fourth quarter of 2016, we completed delivery of all outstanding orders from Sony for key components to be
integrated into display modules it manufactures and sells. Product revenue was lower during the year ended December
31, 2017, compared to the same period in 2016, due to no component sales and is partially offset by the initial
shipments of our engines.
In March 2017, we received a $6.7 million order for small form factor display engines from Ragentek. The backlog of
product orders at December 31, 2017 was approximately $4.3 million compared to zero at December 31, 2016. The
product backlog is scheduled for delivery during the next twelve months.
In April 2017, we signed a contract with a major technology company to develop an LBS display system. The backlog
of product orders at December 31, 2017 does not include any portion of the upfront payment from the April 2017
contract.
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Royalty revenue
(In thousands)
Royalty revenue
% of
total
revenue
% of
total
revenue
2016
2017
$ change % change
$
1,568
14.4
$
1,803
12.2
$
(235)
(13.0)
Royalty revenue is revenue under license agreements to our PicoP® scanning technology. We recognize revenue on
upfront license fees over the expected time frame that we provide services or have ongoing obligations under the
agreement. Ongoing per unit royalties are reported by Sony and are recognized as revenue in the period in which the
data becomes available to us. Royalty revenue was lower during the year ended December 31, 2017, compared to the
same period in 2016, due to lower sales by licensees.
During the year ended December 31, 2017, we recognized $569,000 from ongoing per unit royalties, and $999,000
from a prorated portion of the $8.0 million upfront payment. During the year ended December 31, 2016, we
recognized $801,000 from ongoing per unit royalties, and $1.0 million from a prorated portion of the $8.0 million
upfront payment. At December 31, 2017, remaining unrecognized upfront license fees are included in current and
long-term deferred revenues, amounting to $999,000 and $4.2 million, respectively. Refer to Note 2 of our condensed
consolidated financial statements for the expected future impact of updated FASB accounting guidance.
Contract revenue
(In thousands)
Contract revenue
% of
total
revenue
% of
total
revenue
2016
2017
$ change % change
$
7,023
64.5
$
109
0.8
$
6,914
6,343.1
Contract revenue includes revenue from performance on development contracts and the sale of prototype units and
evaluation kits based on our PicoP® scanning engine. Our contract revenue in a particular period is dependent upon
when we enter into a contract, the value of the contracts we have entered into, and the availability of technical
resources to perform work on the contracts. We recognize contract revenue on long-term, cost plus fixed fee, and fixed
price contracts using the percentage-of-completion method. If we are unable to estimate costs on a contract, revenue is
recognized using the completed-contract method. Under the completed-contract method, revenue and contract costs are
deferred and both are recognized when all deliverables are completed.
In April 2017, we signed a contract with a major technology company to develop an LBS display system. Under the
terms of this agreement, we may receive $14.0 million in fees for development work contingent on completion of
milestones. As of December 31, 2017, we have received $4.0 million in fees for development work. We are
recognizing revenue on the $14.0 million in development fees under the percentage-of-completion method of
accounting. During the year ended December 31, 2017, we have recognized $4.7 million of contract revenue from
development fees on this agreement.
The increase in contract revenue during the year ended December 31, 2017 compared to same period in 2016 was
attributed to increased contract activity. Our contract backlog, including orders for prototype units and evaluation kits,
at December 31, 2017 and 2016 was approximately $9.3 million and $942,000, respectively. The April 2017
development contract represents $9.3 million of the contract backlog and is scheduled for completion during the first
quarter of 2019. Refer to Note 2 of our condensed consolidated financial statements for the expected future impact of
updated FASB accounting guidance.
Cost of product revenue
(In thousands)
Cost of product revenue
% of
product
revenue
% of
product
revenue
2016
2017
$ change % change
$
4,359
189.5
$
10,320
80.3
$
(5,961)
(57.8)
Cost of product revenue includes the direct and allocated indirect costs of products sold to customers. Direct costs
include labor, materials, reserves for estimated warranty expenses, and other costs incurred directly, or charged to us by
our contract manufacturers, in the manufacture of these products. Indirect costs include labor, manufacturing overhead,
and other costs associated with operating our manufacturing capabilities and capacity. Manufacturing overhead
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includes the costs of procuring, inspecting and storing material, facility and other costs, and is allocated to cost of
product revenue based on the proportion of indirect labor which supported production activities.
Cost of product revenue can fluctuate significantly from period to period, depending on the product mix and volume,
the level of manufacturing overhead expense and the volume of direct material purchased. Cost of product revenue was
lower during the year ended December 31, 2017, compared to 2016, due to lower sales.
During the year ended December 31, 2017, we expensed approximately $538,000 of manufacturing overhead
associated with production capacity in excess of production requirements, compared to $1.1 million in 2016.
Additionally, during the year ended December 31, 2017, we recorded a provision for scrap of $1.0 million compared to
$187,000 in 2016.
Cost of contract revenue
(In thousands)
Cost of contract revenue
% of
contract
revenue
% of
contract
revenue
2016
2017
$ change % change
$
5,517
78.6
$
54
49.5
$
5,463
10,116.7
Cost of contract revenue includes both the direct and allocated indirect costs of performing on contracts and producing
prototype units and evaluation kits. Direct costs include labor, materials and other costs incurred directly in producing
prototype units and evaluation kits or performing on a contract. Indirect costs include labor and other costs associated
with operating our research and development department and building our technical capabilities and capacity. Cost of
contract revenue is determined by the level of direct and indirect costs incurred, which can fluctuate substantially from
period to period.
The increase in cost of contract revenue for the year ended December 31, 2017, compared to 2016, was primarily
attributed to direct and indirect costs incurred related to the April 2017 development contract.
Research and development expense
(In thousands)
Research and development expense
2017
2016
$ change % change
$
15,096
$
12,134
$
2,962
24.4
Research and development expense consists of compensation related costs of employees and contractors engaged in
internal research and product development activities, direct material to support development programs, laboratory
operations, outsourced development and processing work, and other operating expenses. We assign our research and
development resources based on the business opportunity of the available projects, the skill mix of the resources
available and the contractual commitments we have made to our customers. We believe that a substantial level of
continuing research and development expense will be required to further develop our scanning technology.
The increase in research and development expense during the year ended December 31, 2017, compared to 2016, was
attributable to higher costs related to subcontractors, direct materials and increased headcount and personnel-related
compensation and benefits expenses related to our LBS engine development.
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Sales, marketing, general and administrative expense
(In thousands)
Sales, marketing, general and administrative expense
2017
2016
$ change % change
$
10,156
$
8,743
$
1,413
16.2
Sales, marketing, general and administrative expense includes compensation and support costs for marketing, sales,
management and administrative staff, and for other general and administrative costs, including legal and accounting
services, consultants and other operating expenses.
The increase in sales, marketing, general and administrative expense during the year ended December 31, 2017,
compared to 2016, was primarily due to separation costs associated with the departure of our former chief executive
officer, and to a lesser extent increased professional fees and business development costs.
24
Gain on sale of previously reserved inventory
(In thousands)
Gain on sale of previously reserved inventory
2017
2016
$ change % change
$
$
-
(32)
$
32
(100.0)
Gain on sale of previously reserved inventory includes the sales of excess component inventory for discontinued
products that was fully reserved in prior periods. The activity during the year ended December 31, 2016 was primarily
the sale of previously reserved excess component inventory.
YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015.
Product revenue
(In thousands)
Product revenue
% of
total
revenue
% of
total
revenue
2015
2016
$ change % change
$
12,849
87.0
$
6,452
70.2
$
6,397
99.1
Product revenue was higher during the year ended December 31, 2016, compared to the same period in 2015, due to
higher product sales to Sony as part of continued shipments of orders we received during 2015 and 2014 totaling $14.6
million and $3.8 million, respectively, for key components to be integrated into display modules it manufactures and
sells. During 2016, we completed delivery of all outstanding orders from Sony and the backlog of product orders at
December 31, 2016 was zero compared to $11.0 million at December 31, 2015.
Royalty revenue
(In thousands)
Royalty revenue
% of
total
revenue
% of
total
revenue
2015
2016
$ change % change
$
1,803
12.2
$
1,165
12.7
$
638
54.8
Royalty revenue was higher during the year ended December 31, 2016, compared to the same period in 2015, as a
result of higher royalty payments we received from Sony for display modules it sold.
During the year ended December 31, 2016, we recognized $801,000 from ongoing per unit royalties, and $1.0 million
from a prorated portion of the $8.0 million upfront payment. During the year ended December 31, 2015, we
recognized $316,000 from ongoing per unit royalties, and $849,000 from a prorated portion of the $8.0 million upfront
payment. At December 31, 2016, remaining unrecognized upfront license fees are included in current and long-term
deferred revenues, amounting to $999,000 and $5.1 million, respectively. At December 31, 2015, unrecognized
upfront license fees are included in current and long-term deferred revenues, amounting to $1.0 million and $6.1
million, respectively.
Contract revenue
(In thousands)
Contract revenue
% of
total
revenue
% of
total
revenue
2015
2016
$ change % change
$
109
0.8
$
1,571
17.1
$
(1,462)
(93.1)
In June 2015, we recognized the full contract value of $1.5 million in revenue having completed all deliverables and
obligations under an agreement to provide support services to Sony for the production readiness, initial production and
market launch for display modules incorporating our PicoP® scanning technology.
The contract backlog, including orders for prototype units and evaluation kits, at December 31, 2016 was $942,000
compared to $45,000 at December 31, 2015.
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Cost of product revenue
(In thousands)
Cost of product revenue
% of
product
revenue
% of
product
revenue
2015
2016
$ change % change
$
10,320
80.3
$
6,384
98.9
$
3,936
61.7
Cost of product revenue as a percentage of net product revenue decreased during the year ended December 31, 2016,
compared to 2015, driven primarily by a significant increase in product deliveries to Sony.
During the year ended December 31, 2016, we expensed approximately $1.1 million of manufacturing overhead
associated with production capacity in excess of production requirements, compared to $873,000 in 2015.
Additionally, during the year ended December 31, 2016, we recorded a provision for scrap of $187,000 compared to
$287,000 in 2015.
Cost of contract revenue
(In thousands)
Cost of contract revenue
% of
contract
revenue
% of
contract
revenue
2015
2016
$ change % change
$
54
49.5
$
796
50.7
$
(742)
(93.2)
The decrease in cost of contract revenue for the year ended December 31, 2016, compared to 2015, was primarily
attributed to reduced contract activity compared to the prior year.
Research and development expense
(In thousands)
Research and development expense
2016
2015
$ change % change
$
12,134
$
8,680
$
3,454
39.8
The increase in research and development expense during the year ended December 31, 2016, compared to 2015, was
attributable to the allocation of resources to internal research and development activities that were previously
designated to a commercial contract in prior periods in addition to higher costs related to subcontractors and increased
personnel-related compensation and benefits expenses.
Sales, marketing, general and administrative expense
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Sales, marketing, general and administrative expense
2016
2015
$ change % change
$
8,743
$
7,879
$
864
11.0
The increase in sales, marketing, general and administrative expense during the year ended December 31, 2016,
compared to 2015, was primarily due to increased personnel-related compensation and benefits expenses, professional
fees and business development costs.
Gain on sale of previously reserved inventory
(In thousands)
Gain on sale of previously reserved inventory
2016
2015
$ change % change
$
(32)
$
(1)
$
(31)
3,100.0
Gain on sale of previously reserved inventory includes the sales of excess component inventory for discontinued
products that was fully reserved in prior periods. The activity during the years ended December 31, 2016 and 2015 was
primarily the sale of previously reserved excess component inventory.
Income taxes
No provision for income taxes has been recorded because we have experienced net losses from inception through
December 31, 2017. At December 31, 2017, we had net operating loss carryforwards of approximately $391.5 million
26
for federal income tax reporting purposes. In addition, we have research and development tax credits of $7.4 million.
The net operating loss carryforwards and research and development credits available to offset future taxable income, if
any, will expire in varying amounts from 2018 to 2037, if not previously used.
In certain circumstances, as specified in the Internal Revenue Code, a 50% or more ownership change by certain
combinations of our shareholders during any three year period would result in a limitation on our ability to use a
portion of our net operating loss carryforwards.
We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. We did not have any
unrecognized tax benefits at December 31, 2017 or at December 31, 2016.
Liquidity and Capital Resources
We have incurred significant losses since inception. We have funded operations to date primarily through the sale of
common stock, convertible preferred stock, warrants, the issuance of convertible debt and, to a lesser extent, from
development contract revenues, product sales, and licensing activities. At December 31, 2017, we had $17.0 million in
cash and cash equivalents.
Based on our current operating plan that includes expected proceeds from a development contract signed in April 2017
with a major technology company, we anticipate that we have sufficient cash and cash equivalents to fund our
operations into the third quarter of 2018. Our receipt of proceeds under our April 2017 development contract is subject
to our completion of certain milestones, and we can provide no assurance that such milestones will be completed. We
will require additional capital to fund our operating plan past that time. We plan to obtain additional capital through the
issuance of equity or debt securities, product sales and/or licensing activities. There can be no assurance that additional
capital will be available to us or, if available, will be available on terms acceptable to us or on a timely basis. If
adequate capital resources are not available on a timely basis, we intend to consider limiting our operations
substantially. This limitation of operations could include reducing investments in our production capacities, research
and development projects, staff, operating costs, and capital expenditures.
These factors raise substantial doubt regarding our ability to continue as a going concern. Our consolidated financial
statements have been prepared assuming we will continue as a going concern and do not include any adjustments that
might be necessary should we be unable to continue as a going concern.
Operating activities
Cash used in operating activities totaled $15.5 million during 2017, compared to $14.8 million in 2016, and $5.8
million in 2015. Cash used in operating activities resulted primarily from cash used to fund our net loss, after adjusting
for non-cash charges such as share-based compensation, depreciation and amortization charges and changes in
operating assets and liabilities. The change in cash flows from operating activities in 2017 was primarily attributable to
the higher net loss from operations and an increase in inventory to support our growth strategy selling LBS engines.
For the year ended December 31, 2017, this was offset by the $10.0 million upfront payment we received from the
April 2017 development contract. The change in cash flows from operating activities in 2015 primarily reflects an $8.0
million upfront payment we received under the terms of the license agreement with Sony Corporation for our PicoP®
scanning technology.
Investing activities
Cash used in investing activities totaled $3.0 million in 2017, compared to $891,000 in 2016, and $1.1 million in 2015.
Purchases of property and equipment totaled $3.1 million in 2017, compared to $895,000 in 2016, and $1.1 million in
2015. We received proceeds totaling $59,000 from the sale of property and equipment during 2017, compared to sales
proceeds of $4,000 in 2016. There was no activity in the sale of property and equipment during 2015.
Financing activities
Cash provided by financing activities totaled $20.3 million in 2017, compared to $23.0 million in 2016, and $6.5
million in 2015. Principal payments under capital leases and long-term debt was zero in 2017, $15,000 in 2016, and
zero in 2015.
The following is a list of our financing activities during 2017, 2016, and 2015.
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(cid:120)
In August 2017, we raised approximately $11.5 million before issuance costs of approximately $1.1 million
through an underwritten public offering of 5.5 million shares of our common stock.
In August 2017, we raised approximately $3.2 million before issuance costs of approximately $26,000
through a private placement of 1.5 million shares of our common stock.
(cid:120)
(cid:120) During the second quarter of 2017, we received $906,000 from the exercise of warrants to purchase 460,000
shares of common stock, which warrants were issued in connection with earlier financing transactions.
In May 2017, we entered into an ATM agreement with IFS Securities (DBA Brinson Patrick). During the
second quarter of 2017, we received gross proceeds of $3.7 million before issuance costs of approximately
$125,000 from the sale of approximately 1.7 million shares of our common stock. The agreement was
terminated in June 2017 at our election without penalty.
(cid:120) During the second quarter of 2017, we received proceeds of $2.2 million from the sale of 1.2 million shares of
our common stock as part of the Common Stock Purchase agreement we entered into with Lincoln Park in
September 2016. Under the terms of the agreement, in September 2016, Lincoln Park made an initial purchase
of $2.0 million in shares of common stock at a purchase price of $1.50 per share. The agreement was
terminated in August 2017 at our election without penalty.
In December 2016, we raised approximately $2.1 million before issuance costs of approximately $18,000
through a registered direct offering of 2.0 million shares of our common stock.
In December 2016, we raised approximately $13.0 million before issuance costs of approximately $1.2 million
through an underwritten public offering of approximately 12.1 million shares of our common stock.
(cid:120)
(cid:120)
(cid:120) During the year ended December 31, 2016, we received gross proceeds of $845,000 before issuance cost of
approximately $24,000 from the sale of approximately 498,000 shares of our common stock as part of an
ATM agreement we entered into with Meyers Associates, L.P. in May 2015. We received total gross proceeds
of $3.1 million before issuance costs of approximately $109,000 from the sale of 1.2 million shares of our
common stock during 2015 and 2016. There were no sales under this agreement in 2017. The agreement was
terminated in May 2017 in accordance with its terms without penalty.
In March 2016, we raised approximately $6.9 million before issuance costs of approximately $650,000
through an underwritten public offering of approximately 4.1 million shares of our common stock.
(cid:120) During the year ended December 31, 2015, we received approximately $3.3 million from the exercise of
(cid:120)
warrants to purchase 1.5 million shares of our common stock, which warrants were issued in connection with
earlier financing transactions.
(cid:120) During the three months ended March 31, 2015, we received gross proceeds of $1.0 million as part of an ATM
agreement we entered into with Meyers Associates, L.P. in June 2014. We have completed sales under this
agreement, having received total proceeds of approximately $4.5 million before issuance costs of
approximately $206,000 from the sale of 2.0 million shares of our common stock.
Our capital requirements will depend on many factors, including, but not limited to, the rate at which ODMs and OEMs
introduce products incorporating our PicoP® scanning technology and the market acceptance and competitive position
of such products. Our ability to raise capital will depend on numerous factors, including the following:
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(cid:120) Market acceptance of products incorporating our PicoP® scanning technology;
(cid:120) Changes in evaluations and recommendations by any securities analysts following our stock or our industry
generally;
(cid:120) Announcements by other companies in our industry;
(cid:120) Changes in business or regulatory conditions;
(cid:120) Announcements or implementation by our competitors of technological innovations or new products;
(cid:120) The status of particular development programs and the timing of performance under specific development
agreements;
(cid:120) Economic and stock market conditions;
(cid:120) The cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property
rights;
(cid:120) Our ability to establish cooperative development, joint venture and licensing arrangements; or
(cid:120) Other factors unrelated to our company or industry.
If we are successful in establishing ODM or OEM co-development and joint venture arrangements, we expect our
partners to fund certain non-recurring engineering costs for technology development and/or for product development.
Nevertheless, we expect our capital requirements to remain high as we expand our activities and operations with the
objective of commercializing our PicoP® scanning technology.
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Contractual obligations
The following table lists our contractual obligations as of December 31, 2017 (in thousands):
Payments Due By Period
3-5 years
> 5 years
1-3 years
Contractual Obligations
Open purchase obligations *
Minimum payments under operating leases
Minimum payments under long-term liabilities
Minimum payments under research, royalty and
licensing agreements
< 1 year
4,833
625
32
12
5,502
$
$
$
$
-
1,318
53
24
1,395
$
$
-
1,372
-
24
1,396
$
$
Total
4,833
3,490
85
$
-
175
-
24
199
†
$
84
8,492
* Open purchase obligations represent commitments to purchase inventory, materials, capital equipment, maintenance
agreements and other goods used in the normal operation of our business.
+ License and royalty obligations continue through the lives of the underlying patents, which is currently through at least
2024.
Recent accounting pronouncements
See Note 2, “Summary of significant accounting policies,” in the Notes to the consolidated financial statements found
in Part II, Item 8 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Market Liquidity Risks
As of December 31, 2017, all of our cash and cash equivalents have variable interest rates. Therefore, we believe our
exposure to market and interest rate risks is not material.
Our investment policy generally directs that the investment managers should select investments to achieve the
following goals: principal preservation, adequate liquidity, and return. As of December 31, 2017, our cash and cash
equivalents are comprised of short-term highly rated money market savings accounts. The values of cash and cash
equivalents as of December 31, 2017, are as follows (in thousands):
Cash and cash equivalents
Less than one year
Amount
Percent
$
$
16,966
-
16,966
100 %
-
100 %
Foreign Exchange Rate Risk
Our major contract and collaborative research and development agreements, product sales, and licensing activity
payments are currently made in U.S. dollars. However, in the future we may enter into contracts or collaborative
research and development agreements in foreign currencies that may subject us to foreign exchange rate risk. We have
entered into purchase orders and supply agreements in foreign currencies in the past and may enter into such
arrangements, from time to time, in the future. We believe our exposure to currency fluctuations related to these
arrangements is not material. We may enter into foreign currency hedges to offset material exposure to currency
fluctuations when we can adequately determine the timing and amounts of the exposure.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2017,
2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
31
32
33
34
35
36
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
MicroVision, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MicroVision, Inc. (the “Company”) as of
December 31, 2017 and 2016, the related consolidated statements of operations, shareholders’ equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as of
December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 23, 2018, expressed an unqualified opinion on the
Company’s internal control over financial reporting.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has an accumulated deficit 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 consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
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February 23, 2018
We have served as the Company’s auditor since 2012.
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MicroVision, Inc.
Consolidated Balance Sheets
(In thousands)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net of allowances of $26 and $26, respectively
Costs and estimated earnings in excess of billings on uncompleted contracts
Inventory
Other current assets
Total current assets
$
Property and equipment, net
Restricted cash
Intangible assets, net
Other assets
Total assets
Liabilities and shareholders' equity (deficit)
Current liabilities
Accounts payable
Accrued liabilities
Deferred revenue
Billings on uncompleted contracts in excess of related costs
Other current liabilities
Total current liabilities
Deferred revenue, net of current portion
Deferred rent, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
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Shareholders' equity (deficit)
Preferred stock, par value $0.001; 25,000 shares authorized; zero and
zero shares issued and outstanding, respectively
Common stock, par value $0.001; 100,000 shares authorized;
78,597 and 68,093 shares issued and outstanding at December 31,
2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Total shareholders' equity (deficit)
Total liabilities and shareholders' equity (deficit)
$
$
$
December 31,
2017
2016
$
$
$
16,966
15
680
4,541
945
23,147
3,251
435
602
2,262
29,697
3,063
5,864
999
5
10,142
20,073
4,151
302
305
24,831
15,139
245
125
1,233
606
17,348
1,537
435
718
68
20,106
2,195
3,704
999
168
178
7,244
5,150
185
53
12,632
-
-
79
528,873
(524,086)
4,866
29,697
$
68
507,249
(499,843)
7,474
20,106
The accompanying notes are an integral part of these consolidated financial statements.
32
MicroVision, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended December 31,
2016
2017
2015
Product revenue
Royalty revenue
Contract revenue
Total revenue
Cost of product revenue
Cost of contract revenue
Total cost of revenue
Gross profit
Research and development expense
Sales, marketing, general and administrative expense
Gain on sale of previously reserved inventory
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Net loss per share - basic and diluted
$
$
$
2,300
1,568
7,023
10,891
4,359
5,517
9,876
1,015
15,096
10,156
-
25,252
(24,237)
(6)
(24,243)
(0.33)
$
$
$
12,849
1,803
109
14,761
10,320
54
10,374
4,387
12,134
8,743
(32)
20,845
(16,458)
(14)
(16,472)
(0.32)
$
$
$
6,452
1,165
1,571
9,188
6,384
796
7,180
2,008
8,680
7,879
(1)
16,558
(14,550)
8
(14,542)
(0.31)
Weighted-average shares outstanding - basic and diluted
72,786
51,958
46,540
The accompanying notes are an integral part of these consolidated financial statements.
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MicroVision, Inc.
Consolidated Statements of Shareholders’ Equity (Deficit)
(In thousands)
Balance at January 1, 2015
Share-based compensation expense
Exercise of warrants and options
Sales of common stock and warrants
Net loss
Balance at December 31, 2015
Share-based compensation expense
Exercise of options
Sales of common stock and warrants
Net loss
Balance at December 31, 2016
Share-based compensation expense
Exercise of warrants and options
Sales of common stock
Net loss
Balance at December 31, 2017
Common Stock
Shares
Par value
Additional
paid-in
capital
Accumulated
deficit
Total
shareholders'
equity (deficit)
44,758
86
1,510
1,069
-
47,423
87
4
20,579
-
68,093
92
506
9,906
-
78,597
$
$
45
-
1
1
-
47
-
-
21
-
68
-
-
11
-
79
$ 475,656
1,011
3,299
3,205
-
483,171
1,223
7
22,848
-
507,249
1,288
991
19,345
-
$ 528,873
$
$
(468,829)
-
-
-
(14,542)
(483,371)
-
-
-
(16,472)
(499,843)
-
-
-
(24,243)
(524,086)
$
$
6,872
1,011
3,300
3,206
(14,542)
(153)
1,223
7
22,869
(16,472)
7,474
1,288
991
19,356
(24,243)
4,866
The accompanying notes are an integral part of these consolidated financial statements.
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MicroVision, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2016
2015
2017
$
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operations:
Depreciation
Amortization of intangible assets
Non-cash share-based compensation expense
Inventory write-downs
Other non-cash adjustments
Change in:
Accounts receivable
Costs and estimated earnings in excess of billings on uncompleted contracts
Inventory
Other current and non-current assets
Accounts payable
Accrued liabilities
Deferred revenue
Billings on uncompleted contracts in excess of related costs
Other current liabilities
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities
Proceeds on sale of property and equipment
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Principal payments under capital leases and long-term debt
Net proceeds from issuance of common stock and warrants
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental schedule of non-cash investing and financing activities
Non-cash additions to property and equipment
Issuance of common stock for commitment fee
$
$
$
(24,243)
$
(16,472)
$
(14,542)
1,141
116
1,288
1,004
(42)
230
(555)
(4,312)
(2,533)
1,147
2,226
(999)
(163)
9,964
252
(15,479)
59
(3,100)
(3,041)
-
20,347
20,347
1,827
15,139
16,966
165
-
$
$
$
1,120
127
1,223
187
27
1,442
(125)
(558)
(18)
(174)
245
(2,122)
168
56
53
(14,821)
4
(895)
(891)
(15)
22,978
22,963
7,251
7,888
15,139
351
721
$
$
$
429
128
1,007
287
(62)
(1,018)
-
(1,033)
(147)
493
572
8,271
(230)
18
-
(5,827)
-
(1,140)
(1,140)
-
6,506
6,506
(461)
8,349
7,888
165
-
The accompanying notes are an integral part of these consolidated financial statements.
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MicroVision, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 2017
1. THE COMPANY AND LIQUIDITY
MicroVision, Inc. is a pioneer in LBS technology that we market under our brand name PicoP®. We have developed
our proprietary PicoP® scanning technology that can be adopted by our customers to create high-resolution miniature
projection and three-dimensional sensing and image capture solutions. PicoP® scanning technology is based on our
patented expertise in MEMS, laser diodes, opto-mechanics, and electronics and how those elements are packaged into a
small form factor, lower power scanning engine that can display, interact and sense, depending on the needs of the
application. For display, the engine can project a high-quality image on any surface (pico projection), or a retina (AR).
For sensing, we use IR lasers to capture three-dimensional data in the form of a point cloud. Interactivity uses the 3D
sensing function and the display function to simultaneously project an image that the user can then interact with as one
would a touch screen.
We have incurred significant losses since inception and expect to incur a significant loss during the fiscal year ending
December 31, 2018. We have funded operations to date primarily through the sale of common stock, convertible
preferred stock, warrants, the issuance of convertible debt and, to a lesser extent, from development contract revenues,
product sales and licensing activities. At December 31, 2017, we had $17.0 million in cash and cash equivalents.
Based on our current operating plan that includes expected proceeds from a development contract signed in April 2017
with a major technology company, we anticipate that we have sufficient cash and cash equivalents to fund our
operations into the third quarter of 2018. We will require additional capital to fund our operating plan past that time.
We plan to obtain additional capital through the issuance of equity or debt securities, product sales and/or licensing
activities. There can be no assurance that additional capital will be available or that, if available, it will be available on
terms acceptable to us on a timely basis. If adequate capital resources are not available on a timely basis, we intend to
consider limiting our operations substantially. This limitation of operations could include reducing our planned
investment in our production capabilities or research and development projects, staff, operating costs, and capital
expenditures.
We are introducing new technology and products into an emerging market which creates significant uncertainty about
our ability to accurately project revenue, costs and cash flows. Our capital requirements will depend on many factors,
including, but not limited to, the commercial success of our laser beam scanning (LBS) engines, the rate at which
original design manufacturers (ODMs) or original equipment manufacturers (OEMs) introduce products incorporating
our PicoP® scanning technology and the market acceptance and competitive position of such products. If revenues are
less than we anticipate, if we fail to meet milestones for future payments or have to repay amounts already received
under our April 2017 development contract (refer to Note 3), if the mix of revenues and the associated margins vary
from anticipated amounts or if expenses exceed the amounts budgeted, we may require additional capital earlier than
expected to fund our operations. In addition, our operating plan provides for the development of strategic relationships
with suppliers of components and systems and equipment manufacturers that may require additional investments by us.
These factors raise substantial doubt regarding our ability to continue as a going concern. These financial statements
were prepared assuming we will continue as a going concern and do not include any adjustments that might be
necessary should we be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United
States requires us 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 our estimates. We have identified
the following areas where estimates and assumptions have been made in preparing the financial statements: revenue
recognition, inventory valuation, valuation of share-based payments, intangibles impairment assessment, depreciable
lives assessment and related disclosure of contingent assets and liabilities.
Cash and cash equivalents and fair value of financial instruments
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Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, the authoritative guidance establishes a three level fair value inputs hierarchy, and
requires an entity to maximize the use of observable valuation inputs and minimize the use of unobservable inputs. We
use market data, assumptions and risks we believe market participants would use in measuring the fair value of the
asset or liability, including the risks inherent in the inputs and the valuation techniques.
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities. The carrying value of our financial instruments approximates fair value due to their short maturities.
Our cash equivalents are comprised of short-term highly rated money market savings accounts.
Intangible assets
Our intangible assets consist exclusively of purchased patents. The patents are amortized using the straight-line
method over their estimated period of benefit, ranging from one to seventeen years. Intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Recoverability of these assets is measured by comparison of their carrying values to the projected undiscounted net
cash flows associated with the related intangible assets or group of assets over their remaining lives. Measurement of
an impairment loss for our intangible assets is based on the difference between the fair value of the asset and its
carrying value.
Inventory
Inventory consists of raw materials and finished goods assemblies. Inventory is computed using the first-in, first-out
(FIFO) method and is stated at the lower of cost and net realizable value. Management periodically assesses the need
to account for obsolescence of inventory and adjusts the carrying value of inventory to its net realizable value when
required. Inventory that will not be consumed through the normal course of business during the next twelve months is
classified as “other assets” on the balance sheet.
Property and equipment
Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets (two to five years)
using the straight-line method. As our production needs change, we periodically assess the remaining estimated useful
life of our production equipment. If necessary, we adjust the depreciation on our production equipment to reflect the
remaining estimated useful life. Leasehold improvements are depreciated over the shorter of estimated useful lives or
the lease term. Costs for repairs and maintenance are charged to expense as incurred and expenditures for major
improvements are capitalized at cost. Gains or losses on the disposition of assets are reflected in the income statements
at the time of disposal.
Restricted cash
As of December 31, 2017 and 2016, restricted cash was in money market savings accounts and serve as collateral for
$435,000 in irrevocable letters of credit. The restricted cash balance includes a letter of credit which is outstanding in
connection with a lease agreement for our corporate headquarters building in Redmond, Washington. The balance is
required over the term of the lease, which expires in March 2023.
Revenue recognition
We recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and there are
no uncertainties regarding customer acceptance, (iii) fees are fixed or determinable, and (iv) collection is reasonably
assured.
We generate revenue from many sources and activities. We enter into arrangements that can include various
combinations of product sales, services, and licensing activities. For multiple-element arrangements, we use a
hierarchy to determine the contract consideration to be used for allocating revenue to deliverables: (i) vendor-specific
objective evidence of fair value (VSOE), (ii) third party evidence of selling price (TPE), and (iii) best estimate of
selling price. To date, our sources can be classified as: product revenue, royalty revenue, contract revenue, or
development revenue.
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Product revenue
Product revenue is revenue from our sales of our products, which are LBS engines, MEMS, and ASICs. Our product
sales generally include acceptance provisions. We recognize product revenue upon acceptance of the product by the
customer or the expiration of the contractual acceptance period, after which there are no rights of return. Our product
revenue, from period to period, may vary substantially due to the timing of product orders from customers, product
shipments, production constraints and availability of components and raw materials.
Fulfillment and delivery of the backlog is dependent upon the successful supply chain development and delivery of
required components to us. From time to time, raw materials and manufacturing delays and components received that
do not meet quality standards have resulted in delivery delays to our customers.
Refer to Recent Accounting Pronouncements later in this Note for the expected future impact of updated FASB
accounting guidance.
Royalty revenue
Royalty revenue is revenue under license agreements to our PicoP® scanning technology. We recognize revenue on
upfront license fees over the expected time frame that we provide services or have ongoing obligations under the
agreement. Ongoing per unit royalties are recognized when reported by our customer to us on a quarterly basis.
Currently, we recognize revenue for ongoing per unit royalties one quarter in arrears when reported by our customer,
representing when such amounts are fixed and determinable, and all other revenue recognition criteria are met.
Refer to Recent Accounting Pronouncements later in this Note for the expected future impact of updated FASB
accounting guidance.
Contract revenue
Contract revenue includes revenue from support service contracts and the sale of prototype units and evaluation kits
based on our PicoP® scanning engine. Our contract revenue in a particular period is dependent upon when we enter
into a contract, the value of the contracts we have entered into, and the availability of technical resources to perform
work on the contracts. We recognize contract revenue related to the sale of prototype units and evaluation kits upon
acceptance of the deliverables by the customer or expiration of the contractual acceptance period, after which there are
no rights of return.
We recognize contract revenue on long-term, cost plus fixed fee, and fixed price contracts using the percentage-of-
completion method. Under the percentage-of-completion method, revenue is recognized as work progresses on the
contract. The percentage-of-completion method relies on estimates of total expected contract revenue and costs. At
the end of each period, we estimate the labor, material and other costs required to complete the contract using data
provided by our technical team, project managers, vendors, outside consultants, and others and compare these to costs
incurred to date.
Recognized revenues are subject to amendments for actual costs incurred. Amendments to revenue and costs to
complete estimates are recognized in the period in which the facts become known. In the future, amendments to
estimates could significantly impact recognized revenue in any one reporting period. If we are unable to estimate costs
on a contract, revenue is recognized using the completed-contract method. Under the completed-contract method,
revenue and contract costs are deferred and both are recognized when all deliverables are completed.
Refer to Recent Accounting Pronouncements later in this Note for the expected future impact of updated FASB
accounting guidance.
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Cost of product revenue
Cost of product revenue includes the direct and allocated indirect costs of products sold to customers. Direct costs
include labor, materials, reserves for estimated warranty expenses, and other costs incurred directly, or charged to us by
our contract manufacturers in the manufacture of these products. Indirect costs include labor, manufacturing overhead,
and other costs associated with operating our manufacturing capabilities and capacity. Manufacturing overhead
includes the costs of procuring, inspecting and storing material, facility and other costs, and is allocated to cost of
product revenue based on the proportion of indirect labor which supported production activities. The cost of product
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revenue can fluctuate significantly from period to period, depending on the product mix and volume, the level of
manufacturing overhead expense and the volume of direct material purchased.
Cost of contract revenue
Cost of contract revenue includes both the direct and allocated indirect costs of performing on contracts and producing
prototype units and evaluation kits based on our PicoP® scanning engine. Direct costs include labor, materials and
other costs incurred directly in producing prototype units and evaluation kits or performing on a contract. Indirect
costs include labor and other costs associated with operating our research and development department and building
our technical capabilities and capacity. Cost of contract revenue is determined by the level of direct and indirect costs
incurred, which can fluctuate substantially from period to period.
Our overhead, which includes the costs of procuring, inspecting and storing material, and facility and depreciation
costs, is allocated to inventory, cost of product revenue, cost of contract revenue, and research and development
expense based on the level of effort supporting production or research and development activity.
Concentration of credit risk and major customers and suppliers
Concentration of credit risk
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash equivalents and
accounts receivable. We typically do not require collateral from our customers. As of December 31, 2017, our cash
and cash equivalents are comprised of short-term highly rated money market savings accounts.
Concentration of major customers and suppliers
In 2017, one commercial customer accounted for $5.8 million in revenue, representing 53% of our total revenue, a
second commercial customer accounted for $2.3 million in revenue, representing 21% of our total revenue, and a third
commercial customer accounted for $1.6 million in revenue, representing 14% of our total revenue. In 2016, one
commercial customer accounted for $13.5 million in revenue, representing 91% of our total revenue. In 2015, the same
commercial customer accounted for $9.0 million in revenue, representing 98% of our total revenue.
In 2016, one commercial customer accounted for $182,000, or 74% of our net accounts receivable balance, and a
second commercial customer accounted for $54,000, or 22% of our net accounts receivable balance.
A significant concentration of our components and the products we sell are currently manufactured and obtained from
single or limited-source suppliers, which are primarily located in foreign countries. The loss of any single or limited-
source supplier, the failure of any of these suppliers to perform as expected, or the disruption in the supply chain of
components from these suppliers could subject us to risks and uncertainties regarding, but not limited to, increased cost
of sales, possible loss of revenues, or significant delays in product deliveries, any of which could adversely affect our
financial condition and operating results.
Income taxes
Deferred tax assets and liabilities are recorded for differences between the financial statement and tax bases of the
assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable for the period increased or decreased by the change in deferred tax
assets and liabilities during the period.
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Net loss per share
Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the
periods. Net loss per share, assuming dilution, is calculated using the weighted-average number of common shares
outstanding and the dilutive effect of all potentially dilutive securities, including common stock equivalents and
convertible securities. Net loss per share, assuming dilution, is equal to basic net loss per share because the effect of
dilutive securities outstanding during the periods, including options and warrants computed using the treasury stock
method, is anti-dilutive.
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The components of basic and diluted net loss per share were as follows (in thousands, except loss per share data):
Numerator:
Net loss available for common shareholders
Denominator:
Weighted-average common shares outstanding
Net loss per share - basic and diluted
$
$
Year Ended December 31,
2016
(16,472)
$
$
2017
(24,243)
2015
(14,542)
72,786
51,958
46,540
(0.33)
$
(0.32)
$
(0.31)
During each of the years ended December 31, 2017, 2016 and 2015, we excluded the following securities from net loss
per share as the effect of including them would have been anti-dilutive. The shares shown represent the number of
shares of common stock which would be issued upon conversion in the respective years shown below (in thousands):
Options outstanding and warrants exercisable
Nonvested restricted stock units
Research and development
Year Ended December 31,
2016
2015
2017
7,007
185
7,192
7,764
60
7,824
8,185
60
8,245
Research and development expense consists of compensation related costs of employees and contractors engaged in
internal research and product development activities, direct material to support development programs, laboratory
operations, outsourced development and processing work, and other operating expenses. We assign our research and
development resources based on the business opportunity of the available projects, the skill mix of the resources
available and the contractual commitments we have made to our customers. Research and development costs are
expensed as incurred. We believe that a substantial level of continuing research and development expense will be
required to further develop our technology.
Share-based compensation
We issue share-based compensation to employees in the form of stock options and restricted stock units (RSUs). We
account for the share-based awards by recognizing the fair value of share-based compensation expense on a straight-
line basis over the service period of the award, net of estimated forfeitures. The fair value of stock options is estimated
on the grant date using the Black-Scholes option pricing model. The fair value of RSUs is determined by the closing
price of our common stock on the grant date. Changes in estimated inputs or using other option valuation methods may
result in materially different option values and share-based compensation expense.
The following table summarizes the amount of share-based compensation expense by line item on the Statement of
Operations (in thousands):
Year Ended December 31,
2016
2015
2017
Cost of product revenue
Research and development expense
Sales, marketing, general and administrative expense
$
$
39
546
703
1,288
$
$
37
350
836
1,223
$
$
19
282
706
1,007
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Reclassifications
Certain reclassifications have been made to prior year financial statements to conform to classifications used in the
current year. These reclassifications had no impact on net loss, shareholders' equity or cash flows, as previously
reported.
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Recent accounting pronouncements
In May 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-09, Compensation - Stock
Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the
terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.
The new standard is effective for annual reporting periods, including interim periods within those annual periods,
beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of ASU 2017-09 to
have a material impact on our consolidated financial statements and related disclosures because we do not anticipate
any changes to our share-based payment plans.
In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-18
(ASU 2016-18), Restricted Cash. The standard requires restricted cash and cash equivalents to be included with cash
and cash equivalents on the statement of cash flows. The new standard is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The new guidance shall
be applied using a retrospective approach. As of December 31, 2017 and 2016, we have $435,000 of restricted cash,
and as such we do not expect the implementation of this standard to have a material effect on our financial statements.
In August 2016, the FASB issued Accounting Standards Update 2016-15 (ASU 2016-15), Statement of Cash Flows
(Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The objective of ASU 2016-15 is to eliminate
the diversity in practice related to the classification of certain receipts and payments in the statement of cash flows, by
adding or clarifying guidance on eight specific cash flow issues. For public business entities, ASU 2016-15 is effective
for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The
amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in
which case, prospective application is permitted. We do not expect the implementation of this standard to have a
material effect on our financial statements.
In February 2016, the FASB issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842). ASU
2016-02 requires lessees to recognize a right-of-use asset and lease liability in the balance sheet for all leases, including
operating leases, with terms of more than twelve months. Recognition, measurement and presentation of expenses and
cash flows from a lease by a lessee have not significantly changed from previous guidance. The amendments also
require qualitative disclosures along with specific quantitative disclosures. The new guidance will be effective for
fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.
The amendments must be applied on a modified retrospective basis. We anticipate the adoption of this standard will
have a material impact on our financial statements. While we are continuing to assess all the potential impacts of the
standard, we currently believe the most significant impact relates to our accounting for our office lease. Under the new
guidance, the net present value of the obligation for our office lease will appear on the balance sheet. Currently, it is
classified as an operating lease and payments are expensed in the period incurred.
In May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with
Customers, an updated standard on revenue recognition. The core principle of the new standard is for companies to
recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to
which the company expects to be entitled in exchange for those goods or services. The new standard also will result in
enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed
comprehensively, and improve guidance for multiple-element arrangements. We have chosen to implement ASU
2014-09 as of January 1, 2018 using the full retrospective approach, meaning we will restate each prior reporting
period presented. We have performed a review of our revenue generated from significant product and service contracts
with customers subject to ASU 2014-09, and we expect the implementation of this standard to have a material impact
on our financial statements.
While we are continuing to assess all potential impacts of this standard, in adopting ASU 2014-09, we expect the
following significant changes to our financial statements:
i.
Timing of revenue recognition under the PicoP® scanning technology license agreement we signed with Sony
in March 2015. Under current guidance, we have been recognizing the upfront license fee payment of $8.0 million on
a straight-line basis over a period of eight years. Under the new guidance, the entire $8.0 million upfront license fee
payment would have been recognized in the first quarter of 2015. The result of this change in timing will result in a
decrease of $7.2 million in our beginning 2016 accumulated deficit balance and a reduction in our short-term deferred
revenue balance of $1.0 million and long-term deferred revenue balance of $6.1 million. Royalty revenue for each of
the years ended December 31, 2016 and 2017 will be reduced by approximately $1.0 million.
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Timing of revenue recognition on product sales. Currently, we recognize revenue after expiration of the
ii.
contractual acceptance period. Under the new guidance, we will recognize revenue when control of the product
transfers to the buyer, which may occur before the expiration of the contractual acceptance period. The result of this
change is a net decrease in our beginning 2016 accumulated deficit of $527,000, as well as a shift in revenue and cost
recognition to earlier quarters in 2016 and 2017.
Timing of revenue recognition on contract sales. Under ASU 2014-09, we will allocate the transaction price
iii.
of a contract with a customer to the various performance obligations in a contract based on their relative standalone
selling price. Our methodologies for estimating the standalone selling price of various performance obligations will be
generally consistent with our previous methodologies used to establish VSOE of fair value on multiple element
arrangements. In our analysis of development contracts, only one contract resulted in a change in the timing of revenue
recognition based on the allocation of standalone selling prices. There is not a material change to the timing of revenue
recognition on the $24.0 million April 2017 contract.
Presentation of accounts receivable, contract assets, and contract liabilities (deferred revenue). Under ASU
iv.
2014-09, our rights to consideration are presented separately depending on whether those rights are conditional or
unconditional. We will present our unconditional rights to consideration as “accounts receivable” in our Consolidated
Balance Sheet. In contrast, separate “contract assets” will represent rights to consideration that are subject to a
condition other than the passage of time, and will be comprised primarily of costs and estimated profits in excess of
billings on uncompleted contracts and estimated accrued sales-based royalty revenue. Contract costs in excess of
billing will be included in the “Costs and estimated earnings in excess of billings on uncompleted contracts” line of our
Consolidated Balance Sheet, and sales-based royalties will be included in “Other current assets”. This does not
represent a change in presentation for contract fulfillment costs; however, for sales-based royalty revenue, this revenue
was previously not recognized until quarterly royalty reporting had been received from Sony. Under ASU 2014-09,
once quarterly royalty reporting has been received, the related contract assets will be transferred to accounts receivable.
3. LONG-TERM CONTRACTS
In April 2017, we signed a contract with a major technology company to develop an LBS display system. Under this
agreement, we would develop a new generation of MEMS, ASICs and related firmware for a high resolution, LBS-
based product that the technology company is planning to produce. We would receive up to $24.0 million, including
$14.0 million in fees for development work that is expected to span through the first quarter of 2019 and an upfront
payment of $10.0 million, which payment has been received. As of December 31, 2017, we have received $4.0 million
in fees for development work. The remaining development fees would be paid contingent on completion of milestones
in 2018 and the first quarter of 2019. Upon successful completion of the development program, if the company decides
to manufacture the product with the MicroVision display components, the $10.0 million upfront payment would be
applied as a discount to future component purchases from us. If the contract is terminated by the technology company
for our failure to meet milestones, the $10.0 million upfront payment is subject to repayment.
In March 2015, we signed a license agreement with Sony for our PicoP® scanning technology. The license agreement
granted Sony a non-exclusive license to our technology to incorporate into display modules it manufactures and sells
for up to eight years. As part of the agreement, we received an $8.0 million upfront license fee in March 2015, and we
will receive ongoing per unit royalties for each display module it sells.
The following table summarizes the costs incurred on our revenue contracts (in thousands):
December 31,
Costs and estimated earnings incurred on uncompleted contracts
Billings on uncompleted contracts
2017
4,680
(4,005)
675
$
$
Included in consolidated balance sheets under the following captions:
Costs and estimated earnings incurred on uncompleted contracts
Billings on uncompleted contracts in excess of related costs
$
$
680
(5)
675
2016
193
(236)
(43)
125
(168)
(43)
$
$
$
$
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4. INVENTORY
Inventory consists of the following (in thousands):
Raw materials
Finished goods
December 31,
2017
53
4,488
4,541
$
$
2016
999
234
1,233
$
$
As of December 31, 2017, $2.2 million of materials that are not expected to be consumed during the next twelve
months are classified as “other assets” on the balance sheet.
We recorded inventory write-downs of $1.0 million in 2017, $187,000 in 2016, and $287,000 in 2015.
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following (in thousands):
Bonuses
Adverse purchase commitments
Payroll and payroll taxes
Compensated absences
Warranty
Relocation
Deferred rent credit
Separation agreement
Prepayments from customers
Other
December 31,
2017
2016
$
$
1,143
500
631
436
153
90
37
359
1,738
777
5,864
$
$
1,350
500
398
393
316
204
158
-
-
385
3,704
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
Production equipment
Leasehold improvements
Computer hardware and software/lab equipment
Office furniture and equipment
Less: Accumulated depreciation
December 31,
2017
6,573
601
5,515
1,304
13,993
(10,742)
3,251
$
$
$
$
2016
4,580
494
4,968
1,096
11,138
(9,601)
1,537
Depreciation expense was $1.1 million in 2017, $1.1 million in 2016, and $429,000 in 2015. In the fourth quarter of
2016, we recorded additional depreciation expense of $297,000, as a result of a change in the estimated useful life of
production equipment to be replaced in connection with our current business strategy to sell LBS engines directly to
ODMs and OEMs.
Capital leases are collateralized by the related assets financed and by security deposits held by the lessors under the
lease agreements. The cost and accumulated depreciation of equipment under capital leases was $704,000 in each of
the years ended December 31, 2017 and 2016.
7. INTANGIBLE ASSETS
Our intangible assets consist exclusively of technology-based purchased patents. The gross value of our intangible
assets was $1.6 million in each of the years ended December 31, 2017 and 2016. Amortization expense was $116,000
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in 2017, $127,000 in 2016, and $128,000 in 2015. In 2017, 2016, and 2015 there were no impairments recorded and
none of our patents were abandoned in prosecution. The following table outlines our estimated future amortization
expense related to intangible assets held at December 31, 2017 (in thousands):
Years Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Amount
115
115
98
80
71
123
602
$
$
8. COMMON STOCK
In August 2017, we raised approximately $11.5 million before issuance costs of approximately $1.1 million through an
underwritten public offering of 5.5 million shares of our common stock.
In August 2017, we raised approximately $3.2 million before issuance costs of approximately $26,000 through a
private placement of 1.5 million shares of our common stock.
During the second quarter of 2017, we received $906,000 from the exercise of warrants to purchase 460,000 shares of
common stock, which warrants were issued in connection with earlier financing transactions.
In May 2017, we entered into an ATM agreement with IFS Securities (DBA Brinson Patrick). During the second
quarter of 2017, we received gross proceeds of $3.7 million before issuance costs of approximately $125,000 from the
sale of approximately 1.7 million shares of our common stock. The agreement was terminated in June 2017 at our
election without penalty.
During the second quarter of 2017, we received proceeds of $2.2 million from the sale of 1.2 million shares of our
common stock as part of the Common Stock Purchase agreement we entered into with Lincoln Park in September
2016. Under the terms of the agreement, in September 2016, Lincoln Park made an initial purchase of $2.0 million in
shares of common stock at a purchase price of $1.50 per share. The agreement was terminated in August 2017 at our
election without penalty.
In December 2016, we raised approximately $2.1 million before issuance costs of approximately $18,000 through a
registered direct offering of 2.0 million shares of our common stock.
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In December 2016, we raised approximately $13.0 million before issuance costs of approximately $1.2 million through
an underwritten public offering of approximately 12.1 million shares of our common stock.
In March 2016, we raised approximately $6.9 million before issuance costs of approximately $650,000 through an
underwritten public offering of approximately 4.1 million shares of our common stock.
In May 2015, we entered into an ATM agreement with Meyers Associates, L.P. Under the terms of the agreement, we
may, from time to time, at our discretion, offer and sell shares of our common stock having an aggregate value of up to
$6.0 million. As of December 31, 2016, we have received gross proceeds of approximately $3.1 million before
issuance costs of approximately $109,000 from the sale of 1.2 million shares of our common stock. There were no
sales under this agreement in 2017. The agreement was terminated in May 2017 in accordance with its terms without
penalty.
During the year ended December 31, 2015, we received approximately $3.3 million from the exercise of warrants to
purchase 1.5 million shares of our common stock, which warrants were issued in connection with earlier financing
transactions.
During the three months ended March 31, 2015, we received gross proceeds of approximately $1.0 million as part of an
ATM agreement we entered into with Meyers Associates, L.P. in June 2014. We have completed sales under this
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agreement, having received total proceeds of approximately $4.5 million before issuance costs of approximately
$206,000 from the sale of 2.0 million shares of our common stock.
9. WARRANTS
During the second quarter of 2017, we received $906,000 from the exercise of warrants to purchase 460,000 shares of
common stock, which warrants were issued in connection with earlier financing transactions.
The outstanding warrants to purchase 2.0 million shares of our common stock that we sold in our March 2014 offering
have an exercise price of $2.47 per share and expire on the fifth anniversary of the date of issuance.
The following table summarizes activity with respect to our common stock warrants for the periods shown below (in
thousands):
Outstanding at January 1, 2015
Granted:
Exercise price less than intrinsic value
Exercise price greater than intrinsic value
Exercised
Canceled/expired
Outstanding at December 31, 2015
Granted:
Exercise price less than intrinsic value
Exercise price greater than intrinsic value
Exercised
Canceled/expired
Outstanding at December 31, 2016
Granted:
Exercise price less than intrinsic value
Exercise price greater than intrinsic value
Exercised
Canceled/expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Warrants to
purchase
common
shares
Weighted-
average
exercise
price
6,526
$
3.08
-
-
(1,487)
-
5,039
-
-
-
(1,278)
3,761
-
-
(460)
(1,328)
1,973
1,973
$
$
-
-
2.19
-
3.34
-
-
-
6.24
2.23
-
-
1.97
1.97
2.47
2.47
There were no common stock warrants issued in 2017, 2016 or 2015.
The following table summarizes information about our common stock warrants outstanding and exercisable at
December 31, 2017 (in thousands):
Range of
exercise prices
$1.92 - $3.07
Outstanding at
December 31,
2017
1,973
1,973
Warrants outstanding
Weighted-average
remaining
Warrants exercisable
Exercisable at
contractual term Weighted-average December 31, Weighted-average
(in years)
exercise price
2017
exercise price
1.21
$
2.47
$
1,973
1,973
2.47
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10. SHARE-BASED COMPENSATION
We use the straight-line attribution method to allocate the fair value of share-based compensation awards over the
requisite service period for each award. The valuation of and accounting for share-based awards includes a number of
complex and subjective estimates. These estimates include, but are not limited to, the future volatility of our stock
price, future stock option exercise behaviors, estimated employee turnover, and award forfeiture rates.
Description of Incentive Plans
We currently have two share-based incentive plans: the 2013 Incentive Plan; and the legacy Independent Director
Stock Option Plan under which we no longer issue awards.
The 2013 Incentive Plan has 9.3 million shares authorized, of which 2.2 million shares were available for awards as of
December 31, 2017. In June 2008, we determined not to issue additional options from the Independent Director Stock
Option Plan. There were 9,000 shares relating thereto issued and outstanding as of December 31, 2017.
Options Valuation Methodology and Assumptions
We use the Black-Scholes option valuation model to determine the fair value of options granted and use the closing
price of our common stock as the fair market value of our stock on that date.
We consider historical stock price volatilities, volatilities of similar companies and other factors in determining
estimates of future volatilities.
We use historical lives, including post-termination exercise behavior, as the basis for estimating expected lives.
Risk-free rates are based on the U.S. Treasury Yield Curve, as published by the U.S. Treasury.
The following table summarizes the weighted-average valuation assumptions and weighted-average grant date fair
value of options granted during the periods shown below:
Assumptions (weighted-average)
Volatility
Expected term (in years)
Risk-free rate
Expected dividends
Pre-vest forfeiture rate
Grant date fair value of options granted
Year Ended December 31,
2016
2015
2017
79%
4.0
1.6%
0.0%
8.5%
1.03
$
84%
4.0
1.2%
0.0%
8.5%
1.12
$
98%
4.0
1.3%
0.0%
8.5%
2.20
$
Options Activity and Positions
The following table summarizes activity and positions with respect to options for the periods shown below (in
thousands):
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Options
Outstanding as of January 1, 2015
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2015
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2016
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2017
Shares
2,427
849
(23)
(107)
3,146
1,167
(3)
(307)
4,003
1,724
(46)
(647)
5,034
Weighted-average
remaining
contractual
term (in years)
7.4
-
-
-
7.3
-
-
-
7.3
-
-
-
6.6
$
Weighted-average
exercise price
6.72
3.23
1.88
13.98
5.56
1.83
1.77
12.58
3.94
1.76
1.87
6.09
2.94
$
Vested and expected to vest as of December 31, 2017
Exercisable as of December 31, 2017
4,729
2,555
$
$
3.00
3.90
6.4
4.5
Aggregate
intrinsic
value
18,700
-
-
-
1,613
-
-
-
4
-
-
-
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25
$
$
$
$
The intrinsic value of options exercised during the year ended December 31, 2017 was $40,000 compared to $3,000 in
2016 and $29,000 in 2015.
The total grant date fair value of options vested during the years ended December 31, 2017, 2016 and 2015 was $1.0
million, $998,000, and $591,000, respectively. As of December 31, 2017, our unrecognized share-based compensation
was $2.3 million related to options, which we plan to amortize over the next 2.7 years.
As of December 31, 2017, our unrecognized share-based compensation related to the RSUs was $244,000, which we
plan to amortize over the next 3.1 years.
11. COMMITMENTS AND CONTINGENCIES
Litigation
On March 31, 2014, Asia Optical Co., Inc., a supplier pursuant to an agreement entered into in 2008, filed a complaint
for arbitration with the American Arbitration Association, claiming that we ordered products from them and failed to
take delivery of and pay for such products. The relief sought in the complaint is $3.6 million plus attorneys' fees,
interest and arbitration costs. We contest the claim and are defending against it. An adverse outcome of these
proceedings could materially and adversely affect our financial condition. At this stage, we cannot predict the
likelihood of an unfavorable outcome or the range of potential loss.
We are also subject to various claims and pending or threatened lawsuits in the normal course of business. We are not
currently party to any legal proceedings that management believes are reasonably possible to have a material adverse
effect on our financial position, results of operations or cash flows.
Purchase commitments
At December 31, 2017, we have $4.8 million in open purchase obligations that represent commitments to purchase
inventory, materials, capital equipment, and other goods used in the normal operation of our business.
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Lease commitments
We lease our office space and certain equipment under operating leases with initial or remaining terms in excess of one
year. Future minimum rental commitments under operating leases for years ending December 31, are as follows (in
thousands):
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Years Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Operating
leases
625
652
666
676
696
175
3,490
$
$
Net rent expense was $531,000 in 2017, $483,000 in 2016, and $465,000 in 2015.
Adverse purchase commitments
We have periodically entered into noncancelable purchase contracts in order to ensure the availability of materials to
support production of our products. We continuously assess our outstanding commitments and recognize a loss on
purchase commitments, when required, if such commitments are in excess of our product needs or the costs are not
expected to be recoverable. As of December 31, 2017, we have $500,000 accrued for commitments to purchase
materials for the discontinued SHOWWXTM pico projector that were in excess of estimated future proceeds from sales
of that product.
12. INCOME TAXES
A provision for income taxes has not been recorded for 2017, 2016 and 2015, due to the valuation allowances placed
against the net operating losses and deferred tax assets arising during such periods. A valuation allowance has been
recorded for all deferred tax assets. Based on our history of losses since inception, the available objective evidence
creates sufficient uncertainty regarding the realizability of the deferred tax assets.
At December 31, 2017, we have net operating loss carryforwards of approximately $391.5 million for federal income
tax reporting purposes. In addition, we have research and development tax credits of $7.4 million. The net operating
loss carryforwards and research and development credits available to offset future taxable income, if any, will expire in
varying amounts from 2018 to 2037, if not previously used.
On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act, or the Tax Act, was signed in to
law. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, requires
taxpayers to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred
and creates new taxes on certain foreign sourced earnings. On December 31, 2017, we did not have any foreign
subsidiaries and the international aspects of the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax Act, we remeasured certain deferred tax assets and
liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. As a result, we
recorded a decrease in net deferred tax assets of $64.3 million with a corresponding net adjustment to deferred income
tax expense of $64.3 million. These adjustments were fully offset by a decrease in the valuation allowance for the year
ended December 31, 2017. We have completed and recorded the adjustments necessary under Staff Accounting
Bulletin No. 118 related to the Tax Act.
In certain circumstances, as specified in the Internal Revenue Code, a 50% or more ownership change by certain
combinations of our shareholders during any three year period would result in limitations on our ability to use a portion
of our net operating loss carryforwards.
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Deferred tax assets are summarized as follows (in thousands):
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Deferred tax assets
Reserves
Net operating loss carryforwards
R&D credit carryforwards
Depreciation/amortization deferred
Deferred revenue
Other
Net deferred taxes before valuation allowance
Less: Valuation allowance
Deferred tax assets
December 31,
2017
1,561
82,210
7,435
13,005
1,081
5,944
111,236
(111,236)
-
$
$
2016
2,351
126,335
6,998
20,024
2,091
9,045
166,844
(166,844)
-
$
$
Certain net operating losses arise from the deductibility for tax purposes of compensation under nonqualified stock
options equal to the difference between the fair value of the stock on the date of exercise and the exercise price of the
options. For financial reporting purposes, the tax effect of this deduction, when recognized, is accounted for as a credit
to shareholders' equity.
We did not have any unrecognized tax benefits at December 31, 2017 or 2016.
We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years
ended December 31, 2017, 2016, and 2015, we did not recognize any interest or penalties.
We file income tax returns in the U.S. federal jurisdiction and various states. Due to our operating loss and credit
carryforwards, the U.S. federal statute of limitations remains open for 1998 and onward.
13. RETIREMENT SAVINGS PLAN
We have a retirement savings plan that qualifies under Internal Revenue Code Section 401(k). The plan covers all
qualified employees. Contributions to the plan are made at the discretion of our Board of Directors. During the years
ended December 31, 2017, 2016, and 2015 we contributed $278,000, $214,000, and $108,000 to the plan, respectively.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following table summarizes our unaudited quarterly financial information for the periods shown below (in
thousands, except per share data):
Revenue
Gross profit
Net loss
Net loss per share, basic and diluted
Revenue
Gross profit
Net loss
Net loss per share, basic and diluted
$
$
$
$
December 31,
2,560
10
(7,861)
(0.10)
December 31,
2,905
505
(5,370)
(0.09)
Fiscal Year 2017
$
September 30,
6,086
243
(5,241)
(0.07)
June 30,
March 31,
$
1,453
508
(5,494)
(0.08)
792
254
(5,647)
(0.08)
Fiscal Year 2016
$
September 30,
4,000
1,207
(4,070)
(0.08)
June 30,
March 31,
$
4,155
1,563
(3,476)
(0.07)
3,701
1,112
(3,553)
(0.07)
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters during
our fiscal years ended December 31, 2017, 2016 and 2015.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer (CEO) and the Chief Financial
Officer (CFO) evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e)) under the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”), prior to the filing of this Form 10-K. Based upon that
evaluation, our CEO and CFO concluded that, as of December 31, 2017, our disclosure controls and procedures were
effective.
(b) Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework
in Internal Control — Integrated Framework (2013), our management concluded that our internal control over
financial reporting was effective as of December 31, 2017.
(c) Limitations on the Effectiveness of Controls. Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Moss
Adams LLP, an independent registered public accounting firm, as stated in its report, which is included herein.
(d) Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial
reporting during the quarter ended December 31, 2017 which has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
MicroVision, Inc.
Opinion on Internal Control over Financial Reporting
We have audited MicroVision, Inc.’s (the “Company”) internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all
material respects, effective control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of MicroVision, Inc. as of December 31, 2017 and 2016, the
related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes and schedule (collectively referred to as the
“consolidated financial statements”) and our report dated February 23, 2018, expressed an unqualified opinion on those
consolidated financial statements and included an explanatory paragraph relating to going concern uncertainty.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting included in Item 9A. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Moss Adams LLP
Seattle, Washington
February 23, 2018
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ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers
PART III.
Information regarding executive officers is included in Part I of this Annual Report on Form 10-K in Item 4A.
Directors
We seek individuals to serve as directors with established strong professional reputations, sophistication and
experience in strategic planning, leadership, business management, innovation and in substantive areas that affect our
business such as: technology development; sourcing, manufacturing and operations; financing; finance and accounting;
business operations; government contracts; intellectual property strategy and licensing; legal and regulatory; and sales
and marketing. We believe that each of our current directors possesses the professional and personal qualifications
necessary for Board service and have highlighted particularly noteworthy attributes for each director in the individual
biographies below.
Set forth below are the name, position held and age of each of the directors of the Company. The principal
occupation and recent employment history of each director is described below.
Name
Robert P. Carlile (1)(2)*
Yalon Farhi
Slade Gorton (1) (3)*
Perry M. Mulligan
Bernee D.L. Strom (1)(2)*
Brian Turner (2) (3)*
Thomas M. Walker (3)*
Age
62
56
90
60
70
58
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Position
Director
Director
Director
Director and Chief Executive Officer
Director
Chairman of the Board and Lead Independent Director
Director
Independent Director
*
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
Perry M. Mulligan has served as a director of the Company since January 2010 and Chief Executive Officer of
the Company since November 2017. Mr. Mulligan has over 30 years of experience in operations and supply chain
management. Mr. Mulligan was formerly Senior Vice President of Operations for Emulex Corporation where he
oversaw Emulex operations, including IT, facilities, supplier management, test engineering and logistics from July
2013 to June 2015. Mr. Mulligan served as Senior Vice President, Operations for QLogic from October 2007 to June
2013, where he was responsible for all aspects of the manufacturing and delivery of products to the customer in
addition to overall supply chain design and manufacturing strategy. Prior to QLogic, Mr. Mulligan was at Solectron
from May 2004 to September 2007, where he held the position of Senior Vice President Supply Chain Management
and Chief Procurement Officer and was responsible for establishing the overall materials and supply chain strategy.
Mr. Mulligan brings extensive experience and knowledge in developing and setting up worldwide manufacturing and
sourcing operations and overall supply chain strategy. Mr. Mulligan has an MBA from the University of Western
Ontario.
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Robert P. Carlile, a retired partner at KPMG LLP, joined the Company’s board in February 2017. In his 39-
year career in public accounting at KPMG and Arthur Andersen, Mr. Carlile served as the lead audit partner on
numerous public company engagements operating across different industries including technology, retail,
transportation, bio-science, and manufacturing. He worked directly with boards of directors and audit committees of
these companies on audits of financial statements and internal controls, registration statements and assistance with
mergers, acquisitions and dispositions. In addition to his experience as a lead audit partner Mr. Carlile held a variety of
operating leadership positions at KPMG and Arthur Andersen in the Pacific Northwest. In these roles he was
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responsible for establishing market strategy, fostering community relationships and accomplishing operating results.
Mr. Carlile brings expertise to the board in the areas of auditing, accounting and financial reporting, internal controls
and corporate governance.
Yalon Farhi joined the Company’s board in September 2016. Since 1998, Mr. Farhi, a Colonel in the Israeli
Defense Forces (reserves), has served as a motivational lecturer and educator at Bnei-David Institutions, a pre-army
and post-army educational program in Israel. From 1998 to January 2016, Mr. Farhi worked as an administrative
manager for El-Ami, a non-governmental organization in Israel. Mr. Farhi also serves on the board of directors of
DarioHealth Corp., a provider of digital health services. In addition, for the past thirty years, Mr. Farhi has been the
owner of a private gardening and land development services company based in Israel. Mr. Farhi received a degree in
Education Studies and holds a Teaching Certificate from the Moreshet Yaacov College in Jerusalem. Mr. Farhi brings
expertise to the board in international business.
Slade Gorton has served as a director of the Company since September 2003. Mr. Gorton is Of Counsel at the
law firm of K&L Gates, LLP. Prior to joining the firm, he represented Washington State in the United States Senate for
18 years. Mr. Gorton began his political career in 1958 as a Washington State Representative and went on to serve as
State House Majority Leader. Mr. Gorton served as Attorney General of Washington from 1969-1981, and during that
time, he argued 14 cases before the United States Supreme Court. After leaving the Senate, Mr. Gorton served as a
Commissioner on the National Commission on Terrorist Attacks Upon the United States (“9-11 Commission”); as a
member of the National War Powers Commission and is Co-Chairman of the National Transportation Policy Project.
Mr. Gorton also served in the U.S. Army, U.S. Air Force, and the U.S. Air Force Reserves. Mr. Gorton is a former
Director of Clearwire, Inc. From his positions as an attorney, in business and government, and prior history as a
director of the Company, Mr. Gorton brings expertise in legal matters, corporate governance, general leadership and
the Company’s business and technology evolvement.
Bernee D.L. Strom has served as a director of the Company since October 2017. Ms. Strom has over 25 years of
experience in executive management, marked by advisory roles and board memberships at Polaroid Corporation,
Hughes Electronics/DirecTV, Benchmark Electronics and other public and privately held companies. Since April 2015,
Ms. Strom has served as a Senior Advisor to Seattle-based investment bank Cascadia Capital and SkyLIFE
Technologies. From 2008 to 2014 Ms. Strom was Chairman and CEO of WebTuner Corp., continuing as Chairman
until 2015. Ms. Strom has also served as Chairman and CEO of Strom Group, an investment, management consulting,
and business advisory firm focused on high technology companies. Prior to that, Ms. Strom founded or ran
Gemstar/TV Guide International (now part of TIVO), Priceline.com, and USA Digital Radio (now HD Radio). Further,
she was a founding partner of Revitalization Partners, a Seattle-based business advisory firm. Ms. Strom was named
one of the leading business women of the State of Washington with its Lead Where You Land award and is the
recipient of many other awards and recognition for her mentorship, entrepreneurship and leadership in both commercial
and civic organizations.
Brian Turner has served as a director of the Company since July 2006 and currently serves as Chairman of the
Board and Lead Independent Director. Mr. Turner was the Chief Financial Officer of Coinstar Inc. from 2003 until
June 2009. Prior to Coinstar, from 2001 to 2003, he served as Senior Vice President of Operations, Chief Financial
Officer and Treasurer of Real Networks, Inc., a digital media and technology company. Prior to Real Networks, from
1999 to 2001, Mr. Turner was employed by BSquare Corp., a software company, where he initially served as Senior
Vice President of Operations, Chief Financial Officer and Secretary, before being promoted to President and Chief
Operating Officer. From 1995 to 1999, Mr. Turner was Chief Financial Officer and Vice President of Administration of
Radisys Corp., an embedded software company. Mr. Turner’s experience also includes 13 years at
PricewaterhouseCoopers LLP where he held several positions including Director, Corporate Finance. Mr. Turner sits
on various private company boards as well as on the board of Cray, Inc., a public company. Mr. Turner brings
financing expertise and knowledge of operational finance and accounting to the Board.
Thomas M. Walker has served as a director of the Company since November 2013. Mr. Walker served as
Executive Vice President of the Company from December 2012 through November 2013. Mr. Walker served as Vice
President, General Counsel and Secretary of the Company from May 2002 to December 2012. Prior to joining
MicroVision, Mr. Walker served as Senior Vice President, General Counsel and Secretary of Advanced Radio Telecom
Corp., a publicly held telecommunications company where he managed domestic and international legal affairs from
April 1996 to April 2002. Prior to that, Mr. Walker advised publicly and privately held businesses while practicing in
the Los Angeles offices of the law firms of Pillsbury Winthrop and Buchalter Nemer Fields and Younger. Mr. Walker
holds a B.A. from Claremont McKenna College and a J.D. from the University of Oregon. Mr. Walker has an in depth
knowledge of the Company’s business from his time spent as an executive of the Company and also brings an
understanding of corporate governance and relevant legal topics to the Board.
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Board Meetings and Committees
Our Board of Directors met seven times during 2017. All directors attended at least 75% of the meetings of the
Board and meetings of the Board committees on which they served. We have adopted a policy that each of our
directors be requested to attend our Annual Meeting each year. All directors attended our annual meeting in 2017.
Independence Determination
No director will be deemed to be independent unless the Board affirmatively determines that the director has no
material relationship with the Company, directly or as an officer, share owner, or partner of an organization that has a
relationship with the Company. The Board observes all criteria for independence set forth in the NASDAQ listing
standards and other governing laws and regulations.
In its annual review of director independence, the Board considers all commercial, banking, consulting, legal,
accounting, charitable, or other business relationships any director may have with us. As a result of its annual review,
the Board has determined that all of the directors, with the exception of Mr. Mulligan and Mr. Farhi, are independent
(the “Independent Directors”). The Independent Directors are identified by an asterisk in the table above.
The NASDAQ listing standards have both objective tests and a subjective test for determining who is an
“independent director.” The objective tests state, for example, that a director is not considered independent if he or she
is our employee or is a partner in or executive officer of an entity to which we made, or from which we received,
payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross
revenue for that year. The subjective test states that an independent director must be a person who lacks a relationship
that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. None of the non-employee directors were disqualified from “independent” status under
the objective tests. In assessing independence under the subjective test, the Board took into account the standards in the
objective tests, and reviewed and discussed additional information provided by the directors and us with regard to each
director’s business and personal activities as they may relate to us and our management. Based on all of the foregoing,
as required by NASDAQ rules, the Board made a subjective determination as to each Independent Director that no
relationship exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make
these subjective determinations, but considers all relevant facts and circumstances.
In addition to the Board-level standards for director independence, the directors who serve on the Audit
Committee each satisfy standards established by the SEC providing that to qualify as “independent” for purposes of
membership on that Committee, members of audit committees may not accept, directly or indirectly any consulting,
advisory, or other compensatory fee from us other than their director compensation.
Board’s Role in Risk Oversight
It is management’s responsibility to manage risk and bring to the Board’s attention risks that are material to the
Company. The Board has oversight responsibility of the processes established to report and monitor systems for the
most significant risks applicable to the Company. The Board administers its risk oversight role directly and through its
committee structure and the committees’ regular reports to the Board at Board meetings. The Board reviews strategic,
financial and execution risks and exposures associated with the annual plan and multi-year plans, major litigation and
other matters that may present material risk to our operations, plans, prospects or reputation; acquisitions and
divestitures and senior management succession planning.
Board Expertise and Diversity
The Nominating Committee seeks to have a Board that represents diversity as to experience, gender, race and
ethnicity, but does not have a formal policy with respect to diversity. We seek a Board that reflects a range of talents,
ages, skills, viewpoints, professional experience, educational background and expertise to provide sound and prudent
guidance with respect to our operations and interests. All of our directors are financially literate, and three members of
our Audit Committee are audit committee financial experts.
Board Leadership Structure
Our Board annually elects a Chairman of the Board. The Board has chosen to separate the roles of Chairman and
Chief Executive Officer. Mr. Turner currently serves as Chairman and Lead Independent Director. In this role, among
other duties, Mr. Turner meets with our Chief Executive Officer and with senior officers as necessary, schedules and
presides at meetings of the Board, including meetings of the Independent Directors, serves as a liaison between the
Board and our management, approves meeting schedules and agendas, and undertakes other responsibilities designated
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by the Board. The Board believes that the separate roles of Mr. Mulligan as Chief Executive Officer and Mr. Turner as
Chairman and Lead Independent Director currently well serve the interests of us and our shareholders. Mr. Mulligan
can devote his attention to leading the Company and focus on our business strategy. The Board believes that
Mr. Turner provides an appropriate level of independence in the Company’s leadership through his review and
approval of meeting agendas and his leadership of the Board.
Committees
The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating Committee. The
Board of Directors has adopted a written charter for each of the Audit Committee, Compensation Committee and
Nominating Committee. The full text of each charter is available on our website located at www.microvision.com.
The Audit Committee
The Board has an Audit Committee which assists the Board by monitoring and overseeing: (1) our accounting
and financial reporting processes and the audits of our financial statements, (2) the integrity of our financial statements,
(3) our compliance with legal and regulatory requirements, and (4) the performance of our internal finance and
accounting personnel and our independent auditors. The Audit Committee conducts discussions related to our earnings
announcements and periodic filings, as well as numerous other informal meetings and communications among the
Chair, various Audit Committee members, the independent auditors and/or members of our management. Robert P.
Carlile, Bernee D.L. Strom and Brian Turner currently serve on the Audit Committee, with Mr. Carlile serving as
Chairman. The Audit Committee met four times during 2017.
Among other matters, the Audit Committee monitors the activities and performance of our external auditors,
including the audit scope, external audit fees, auditor independence matters and the extent to which the independent
auditor may be retained to perform non-audit services. The Audit Committee and the Board of Directors have ultimate
authority and responsibility to select, evaluate and, when appropriate, replace our independent auditor. The Audit
Committee also reviews the results of the external audit work with regard to the adequacy and appropriateness of our
financial accounting and internal controls. Management and independent auditor presentations to and discussions with
the Audit Committee also cover various topics and events that may have significant financial impact or are the subject
of discussions between management and the independent auditor. In addition, the Audit Committee generally oversees
our internal financial controls and financial disclosure procedures.
The “audit committee financial experts” designated by the Board are Bernee D.L. Strom, Robert P. Carlile and
Brian Turner, each an independent director. Ms. Strom has over 25 years of executive management experience, marked
by advisory roles and board memberships on both publicly and privately held companies. Mr. Carlile has thirty-nine
years of experience in various roles in Public Accounting at KPMG and Arthur Andersen. Mr. Turner has eight years
of experience as a chief financial officer of three public companies and has thirteen years of experience in various roles
at PricewaterhouseCoopers LLP, including Director, Corporate Finance. Mr. Turner has been actively involved in and
has supervised the preparation of financial statements that present a breadth and complexity of issues comparable to
accounting issues raised by our financial statements.
The Compensation Committee
The Compensation Committee makes decisions on behalf of, and recommendations to, the Board regarding
salaries, incentives and other forms of compensation for directors, officers, and other key employees, and administers
policies relating to compensation and benefits. The Compensation Committee also serves as the Plan Administrator for
our stock option plans pursuant to authority delegated by the Board. Slade Gorton, Bernee D.L. Strom, and Robert P.
Carlile currently serve as members of the Compensation Committee, with Ms. Strom serving as chairperson. The
Compensation Committee met four times during 2017.
The Nominating Committee
The Nominating Committee counsels the Board of Directors with respect to Board and committee structure and
membership. In fulfilling its duties, the Nominating Committee, among other things, will:
• establish criteria for nomination to the Board and its committees, taking into account the composition of the
Board as a whole;
• identify, review, and recommend director candidates for the Board;
• recommend directors for election at the annual meeting of shareholders and to fill new or vacant positions;
• establish policies with respect to the process by which our shareholders may recommend candidates to the
Nominating Committee for consideration for nomination as a director;
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• assess and monitor, with Board involvement, the performance of the Board; and
• recommend directors for membership on Board Committees.
Thomas Walker, Slade Gorton and Brian Turner currently serve as members of the Nominating Committee, with
Mr. Turner serving as Chairman. The Nominating Committee met once during 2017.
The Nominating Committee will consider recommendations for directorships submitted by shareholders, or
groups of shareholders, that have beneficially owned at least 5% of our outstanding shares of common stock for at least
one year prior to the date the nominating shareholder submits a candidate for nomination as a director. A nominating
shareholder or group of nominating shareholders may submit only one candidate for consideration. Shareholders who
wish the Nominating Committee to consider their recommendations for nominees for the position of director should
submit their request in writing no later than the 120th calendar day before the anniversary of the date of the prior year’s
annual meeting proxy statement was released to shareholders. Such written requests should be submitted to the
Nominating Committee care of the Corporate Secretary, MicroVision, Inc., 6244 185th Avenue NE, Suite 100,
Redmond, Washington 98052, and must contain the following information:
• The name, address, and number of shares of common stock beneficially owned by the nominating shareholder
and each participant in a nominating shareholder group (including the name and address of all beneficial
owners of more than 5% of the equity interests of a nominating shareholder or participant in a nominating
shareholder group);
• A representation that the nominating shareholder, or nominating shareholder group, has been the beneficial
owner of more than 5% of our outstanding shares of common stock for at least one year and will continue to
beneficially own at least 5% of our outstanding shares of common stock through the date of the annual
meeting;
• A description of all relationships, arrangements, or understandings between or among the nominating
shareholder (or any participant in a nominating shareholder group) and the candidate or any other person or
entity regarding the candidate, including the name of such person or entity;
• All information regarding the candidate that we would be required to disclose in a proxy statement filed
pursuant to the rules and regulations of the SEC with respect to a meeting at which the candidate would stand
for election;
• Confirmation that the candidate is independent, with respect to the Company, under the independence
requirements established by us, the SEC, and NASDAQ listing requirements, or, if the candidate is not
independent with respect to the Company under all such criteria, a description of the reasons why the
candidate is not independent;
• The consent of the candidate to be named as a nominee and to serve as a member of the Board if nominated
and elected;
• A representation signed by the candidate that if elected he or she will: (1) represent all shareholders of the
Company in accordance with applicable laws, and our certificate of incorporation, by-laws, and other
policies; (2) comply with all rules, policies, or requirements generally applicable to non-employee directors;
and (3) upon request, complete and sign customary Directors and Officers Questionnaires.
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In its assessment of each potential candidate, the Nominating Committee will review the nominee’s judgment,
experience, independence, understanding of our or other related industries and such other factors the Nominating
Committee determines are pertinent in light of the current needs of the Board. The Nominating Committee will also
take into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities.
Nominees may be suggested by directors, members of management, and, as described above, by shareholders. In
identifying and considering candidates for nomination to the Board, the Nominating Committee considers, in addition
to the requirements set out in the Nominating Committee charter, quality of experience, our needs and the range of
talent and experience represented on the Board.
Shareholder Communication with the Board of Directors
We have adopted written procedures establishing a process by which our shareholders can communicate with the
Board of Directors regarding various topics related to the Company. A shareholder desiring to communicate with the
Board, or any individual director, should send his or her written message to the Board of Directors (or the applicable
director or directors) care of the Corporate Secretary, MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond,
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Washington 98052. Each submission will be forwarded, without editing or alteration, by the Secretary of the Company
to the Board, or the applicable director or directors, on or prior to the next scheduled meeting of the Board. The Board
will determine the method by which such submission will be reviewed and considered. The Board may also request the
submitting shareholder to furnish additional information it may reasonably require or deem necessary to sufficiently
review and consider the submission of such shareholder.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors, executive officers,
and greater-than 10% shareholders file reports with the SEC relating to their initial beneficial ownership of our
securities and any subsequent changes. They must also provide us with copies of the reports.
Based solely on a review of the copies of such forms in our possession, and on written representations from
reporting persons, we believe that all of these reporting persons complied with their filing requirements during 2017.
Code of Ethics
We have adopted a code of ethics applicable to all of our executive officers, known as the Code of Ethics for
MicroVision Executives. We have also adopted a code of conduct applicable to our directors, officers, and employees,
known as the Code of Conduct. The Code of Ethics for MicroVision Executives and the Code of Conduct are available
on our website. In the event that we amend or waive any of the provisions of the Code of Ethics for MicroVision
Executives we intend to disclose the same on our website at www.microvision.com.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Compensation Objectives
The Company’s executive compensation program is designed to attract, retain, motivate and recognize high-
performance executive officers. The Compensation Committee is responsible for and oversees the Company’s
compensation program. The Company’s philosophy is to provide compensation programs that incentivize and reward
both the short- and long-term performance of the executive officers relative to the Company’s performance. Thus, the
Compensation Committee utilizes compensation components that measure overall Company performance, including
performance against the Company’s annual strategic operating plan. In addition, the Compensation Committee seeks to
align the interests of the Company’s executive officers with its shareholders.
Executive Compensation Components
Overview. The principal elements of the Company’s compensation are base salary, incentive bonus awards, and
equity awards. The Company’s executive compensation policy recognizes that stock price is only one measure of
performance, and given industry business conditions and the long-term strategic direction and goals of the Company, it
may not necessarily be the best current measure of executive performance. Thus, the Compensation Committee
considers the median level of compensation of its peer group and the achievement of the Company’s business
objectives when determining executive compensation.
Base Salary. Base salaries for the named executive officers are primarily based on the position, taking into
account competitive market compensation paid by other companies in the Company’s peer group for similar positions.
Recommendations from management regarding each named executive officer’s base salary based on management’s
evaluation of the executive officer’s performance are also taken into account.
As with total executive compensation, the Compensation Committee believes that executive base salaries should
generally target the median base salary of the Company’s peer group. Each named executive officer’s base salary is
also determined by reviewing the other components of the executive officer’s compensation to ensure that the total
compensation is in line with the Compensation Committee’s overall compensation philosophy.
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Salaries for 2017 were based on the compensation objectives mentioned above and, in the case of
Messrs. Tokman and Mulligan, their employment agreements. Base salary rates in 2017 for Messrs. Tokman, Mulligan,
Holt, Zimmerman, Westgor and Sharma were $375,000, $350,000, $255,905, $227,990, $232,032 and $240,000,
respectively. Mr. Tokman resigned as Chief Executive Officer and Director of the Company on November 13, 2017 but
continued serving as President through December 31, 2017 and, in that capacity, continued to earn the same base
salary. Mr. Mulligan was appointed as Chief Executive Officer, in addition to his role as a Director of the Company,
effective November 13, 2017.
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Incentive Bonus. The Compensation Committee believes that a portion of an executive officer’s total
compensation, an incentive bonus, should be based on the Company’s performance. The Compensation Committee
believes that structuring a significant portion of each executive officer’s annual cash compensation as an incentive
bonus, and the contingent nature of that compensation, induces an executive officer to execute on both the short- and
long-term goals of the Company. It has structured the executive compensation program to reflect this philosophy by
creating an incentive bonus framework that translates Company financial and operational performance into incentive
bonuses.
Each of the named executive officers is eligible for an annual incentive bonus. The amount of the bonus depends
generally on the level of Company performance, with a target set as a percentage of base salary. The Compensation
Committee approves the target bonus percentages and the actual bonus awards for all executive officers. Target bonus
percentages are set to be approximately at the median of the Company’s peer group.
In 2017, the Compensation Committee approved 65% as a target bonus award (as a percentage of base salary) for
Mr. Tokman, 65% as a target bonus for Mr. Mulligan, and 40% as a target bonus for each of the other named executive
officers. The amount of the bonus actually awarded to executives is determined solely in the discretion of the
Compensation Committee for all executive officers. Based on its review of management’s evaluation of the Company’s
performance in 2017, the Compensation Committee, using its discretionary authority, determined that each named
executive officer employed by the Company should receive approximately 70% of his target incentive bonus. Bonuses
awarded in 2017 to Messrs. Mulligan, Holt, Zimmerman, Westgor and Sharma were $25,000, $72,500, $65,000,
$67,000 and $70,000, respectively. Mr. Mulligan’s bonus was prorated for 2017. Mr. Tokman will receive an amount
equal to $196,000 pursuant to the Letter Agreement described below, which represents his target bonus amount for
2017.
Equity Awards. The Compensation Committee believes that equity participation is a key component of the
Company’s executive compensation program. Equity awards are designed to attract and retain executive officers and to
motivate them to enhance shareholder value by aligning the financial interests of executive officers with those of
shareholders. Each year the Compensation Committee reviews the size and composition of the equity grants to ensure
that they are aligned with the Company’s philosophy of compensating executives at the median of the Company’s peer
group. Similar to base salary, a review of equity award levels is conducted to ensure that a named executive officer’s
equity compensation comports with the Compensation Committee’s overall philosophy and objectives and is
competitive with the Company’s peer group.
The Compensation Committee’s practice is to make annual equity awards as part of its overall philosophy of
performance-based compensation. Restricted stock units and stock options are awarded by the Compensation
Committee to executive officers based on a philosophy of providing equity incentives at the median of the Company’s
peer group.
In 2017, Messrs. Tokman, Mulligan, Holt, Zimmerman, Westgor and Sharma were awarded options to purchase
150,000, 125,000, 65,000, 65,000, 65,000 and 130,000 shares of the Company’s common stock, respectively.
Tax Deductibility of Compensation
Limitations on the deductibility of compensation may occur under Section 162(m) of the Internal Revenue Code
of 1986, which generally limits a public company’s tax deduction for compensation paid to its named executive
officers to $1 million in any year. The Compensation Committee takes into consideration various factors, which may
from time to time may include tax deductibility, in making executive compensation decisions and may, from time to
time, approve and authorize compensation that is not fully tax deductible.
Processes and Procedures
Role of the Compensation Committee and the Chief Executive Officer in the Compensation Process. The Chief
Executive Officer, with the assistance and support of the human resources department and other members of
management, provides recommendations regarding the compensation of the executive officers, including himself. The
Compensation Committee considers these recommendations and consults with the Chief Executive Officer and other
members of management as to his recommendations for the executive officers. The Compensation Committee
considers the Chief Executive Officer’s recommendations, together with the Compensation Committee’s philosophy,
objectives and market data in approving these recommendations.
Role of Compensation Consultants in the Compensation Process. The Compensation Committee’s charter
provides the Compensation Committee with the authority to retain a compensation consulting firm in its discretion.
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Role of Say-on-Pay Advisory Votes in the Compensation Process. The Compensation Committee and the Board
value the views of our shareholders and consider the outcome of “say-on-pay” votes when determining future
compensation arrangements for our named executive officers. “Say-on-pay” votes are non-binding, advisory votes on
the compensation of our named executive officers.
Compensation Committee Report
The Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis with
management. Based on the review and discussions, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for filing with the Securities
and Exchange Commission.
Compensation Committee
Slade Gorton
Bernee D.L. Strom (Chairperson)
Robert P. Carlile
Summary Compensation Table for 2017
We refer to each person who served as Chief Executive Officer of the Company in 2017, the Company’s Chief
Financial Officer, and the Company’s four other executive officers as of December 31, 2017 collectively as “named
executive officers.” This table shows certain information about the compensation we paid each of the Company’s
named executive officers.
Name and Principal Position
Alexander Y. Tokman (1)(2)
Former President, Chief Executive Officer and Director
Perry M. Mulligan (1)(3)
Chief Executive Officer and Director
Stephen P. Holt
Chief Financial Officer
Dale E. Zimmerman
Vice President, Research and Development
David J. Westgor
Vice President, General Counsel and Secretary
Sumit Sharma(4)
Vice President, Engineering & Operations
Fiscal
Year
2017 $
2016
2015
2018
2017
2018
2017
2016
2015
2018
2017
2016
2015
2018
2017
2016
2015
2018
2017
Stock
Option
Compensation
All Other
Salary
Bonus (5)
Awards (6)
Awards (6)
(7)(8)
$
403,053
364,443
362,360
-
93,728
-
230,186
221,459
214,942
-
226,123
220,798
216,583
-
227,194
217,745
210,250
-
213,333
165,822
177,666
140,528
25,000
-
72,500
62,770
65,295
50,676
65,000
62,583
65,700
41,840
67,000
61,718
64,200
49,200
70,000
60,600
$
$
-
10,934
-
-
215,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
147,719
232,227
444,209
-
114,119
-
64,012
58,057
111,052
-
64,012
58,057
111,052
-
64,012
58,057
111,052
-
128,023
$
9,087
7,622
3,464
-
75,672
-
6,215
7,399
2,336
-
-
-
-
-
6,954
5,549
2,026
-
5,143
Total
725,681
792,892
950,561
25,000
499,269
72,500
363,183
352,210
379,006
65,000
352,718
344,555
369,475
67,000
359,878
345,551
372,528
70,000
407,099
(1) Effective November 13, 2017, Mr. Tokman resigned as Chief Executive Officer and Director of MicroVision, Inc.
and Mr. Mulligan was appointed as Chief Executive Officer, in addition to his role as Director of the Company.
Mr. Tokman served as President through the end of 2017 to assist with the transition. Compensation for Mr.
Mulligan is reported for fiscal 2017, the year in which he became Chief Executive Officer of the Company.
(2) In 2016 Mr. Tokman elected to receive restricted stock awards in lieu of an increase in base salary.
(3) Mr. Mulligan’s compensation includes the following payments to him in his capacity as Director prior to his
appointment as Chief Executive Officer: salary, $46,000 (representing director fees earned or paid in cash); stock
awards, $19,500.
(4) Compensation for Mr. Sharma is reported for fiscal 2017, the year in which he became an executive officer of the
Company.
(5) Bonuses payable in year presented, earned in prior year.
(6) Reflects the fair value of stock and option awards on the grant date in accordance with FASB ASC Topic 718.
(7) Perquisites and other personal benefits are valued on an aggregate incremental cost basis. All figures shown below
in footnote 7 represent the direct dollar cost incurred in providing these perquisites and other personal benefits to
the named executive officers.
(8) The table below shows all other amounts under All Other Compensation for fiscal 2015, 2016 and 2017:
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Name and Principal Position
Alexander Y. Tokman
Former President, Chief Executive Officer and Director
Perry M. Mulligan
President, Chief Executive Officer and Director
Stephen P. Holt
Chief Financial Officer
Dale E. Zimmerman
Vice President, Research and Development
David J. Westgor
Vice President, General Counsel and Secretary
Sumit Sharma
Fiscal
Year
2017 $
2016
2015
2017
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
Perquisites
and
Personal
Benefits
Employer
contribution
to 401(k)
account (9)
$
---
---
---
---
---
---
---
---
---
---
---
---
---
---
9,087
7,622
3,464
---
6,215
7,399
2,336
---
---
---
6,954
5,549
2,026
5,143
Separation
payments (10)
Relocation
payments (11)
$
$
828,737
---
---
---
---
---
---
75,672
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
(9) This column represents the amount of matching contributions made to our qualified 401(k) retirement plan for
each of our named executive officers. In June 2015, the Company began making contributions to our qualified
401(k) retirement plan for all employees.
(10) This column represents the amounts paid to or accrued for Mr. Tokman pursuant to the Letter Agreement
described below.
(11) This column represents the reimbursement of Mr. Mulligan’s relocation expenses in connection with his
employment as Chief Executive Officer pursuant to his Employment Agreement described below.
Grants of Plan-Based Awards During 2017
The following table shows grants of plan based awards to our named executive officers in 2017:
Estimated Possible
Payments Under
Non-Equity
Incentive
Plan Awards
Target
All Other
All Other
Stock Awards: Option Awards:
Number of
Shares of
Stock or
Units
Number of
Securities
Underlying
Options
Exercise or
Base Price of
Option
Awards (1)
Grant Date
Fair Value of
Stock and
Option Awards (2)
-
31,023
92,074
90,449
90,878
85,333
---
135,000
---
---
---
---
$
150,000
125,000
65,000
65,000
65,000
130,000
$
1.67
1.57
1.67
1.67
1.67
1.67
147,719
329,869
64,012
64,012
64,012
128,023
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Name
Grant Date
Alexander Y. Tokman
Perry M. Mulligan
Stephen P. Holt
Dale E. Zimmerman
David J. Westgor
Sumit Sharma
2/8/2017 $
11/13/2017
2/8/2017
2/8/2017
2/8/2017
2/8/2017
(1) All option awards were granted with an exercise price equal to the closing price of our common stock on the
NASDAQ Global Market on the date of grant.
(2) Reflects the fair value of option and stock awards on the date of grant in accordance with FASB ASC Topic 718.
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Outstanding Equity Awards at Year-End 2017
The following table shows outstanding equity awards for our named executive officers as of December 31, 2017:
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Option
Exercise
Price
Option
Expiration
Date
Number of
Shares of Stock
That Have Not
Vested
Market Value
of Shares of
Stock That
Have Not
Vested (7)
Name
Stephen P. Holt
Perry M. Mulligan
Alexander Y. Tokman (1)
(3)
(1)
(3)
(1)
(3)
(4)
(2)
(2)
(1)
(1)
(1)
(1)
(3) (6)
(5) (6)
(5) (6)
(5) (6)
(1)
(1)
(2)
(1)
(1)
(1)
(1)
Dale E. Zimmerman (1)
(4)
(2)
(1)
(1)
(1)
(1)
(1)
(3)
(3)
(1)
(1)
(3)
(1)
(4)
(2)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
David J. Westgor
Sumit Sharma
18,509
8,594
16,714
8,750
13,928
5,878
80,000
2,807
225,000
150,000
100,000
50,000
37,500
1,875
1,875
1,875
15,000
---
40,000
40,000
37,500
25,000
12,500
16,250
3,750
40,000
65,000
37,500
25,000
12,500
16,250
1,888
625
1,750
2,805
1,876
1,032
1,467
15,000
15,000
37,500
25,000
12,500
16,250
10,000
12,500
32,500
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
12/31/2018
7/30/2020
7/30/2020
6/9/2021
6/7/2022
11/13/2027
5/7/2023
8/8/2023
6/3/2024
6/2/2025
6/1/2026
2/8/2027
8/4/2021
8/3/2022
8/8/2023
6/3/2024
6/2/2025
6/1/2026
2/8/2027
3/25/2018
3/25/2018
4/23/2019
4/23/2019
4/26/2020
4/26/2020
4/6/2021
8/3/2022
8/8/2023
6/3/2024
6/2/2025
6/1/2026
2/8/2027
10/7/2025
6/1/2026
2/8/2027
17.84
17.84
14.88
14.88
27.28
27.28
1.80
2.28
2.28
1.76
3.26
1.89
1.67
22.64
22.64
9.20
3.08
1.57
2.20
2.28
1.76
3.26
1.89
1.67
7.62
1.80
2.28
1.76
3.26
1.89
1.67
17.84
17.84
14.88
14.88
27.28
27.28
10.40
1.80
2.28
1.76
3.26
1.89
1.67
3.16
1.89
1.67
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
125,000
---
---
12,500
25,000
37,500
48,750
---
---
---
12,500
25,000
37,500
48,750
---
---
---
---
---
---
---
---
---
12,500
25,000
37,500
48,750
10,000
37,500
97,500
$
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$
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
10,000
125,000
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
16,300
203,750
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
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(1) The indicated option vests 25% on each anniversary of the grant date.
(2) The indicated option vests 33% on each anniversary of the grant date.
(3) The indicated options vested 100% on the date of grant.
(4) The indicated options vested 34% on 8/15/2012, 33% on 8/15/2013 and 33% on 8/15/2014.
(5) The indicated option vests on the earlier of the day prior to the date of the Company's annual meeting of
shareholders next following the date of grant, or one year from the date of grant.
(6) The indicated option was awarded to Mr. Mulligan as a member of the Board of Directors.
(7) The market value of shares of stock that have not vested is based on a price per share of $1.63, the closing sale
price of the Company’s common stock as of December 29, 2017 as reported by NASDAQ.
Option Exercises and Stock Vested During 2017
None of our named executive officers exercised stock options, and no shares were acquired upon vesting of stock
awards held by our named executive officers, during 2017.
Potential Payments upon Termination or Change in Control
All of our named executive officers, except for Mr. Tokman (who is no longer employed by the Company) and
Mr. Mulligan, are employed at will and do not have employment agreements. Mr. Mulligan’s employment agreement is
summarized below. Under the 2013 Incentive Plan, 100% of each of the named executive officers’ options which have
not been exercised will become fully vested and immediately exercisable upon a change of control of the Company that
does not result in an assumption, substitution or pay off of such award by the acquiring company. In addition, 100% of
each named executive officer’s restricted stock units will become fully vested upon a change of control at the
Company.
The following table sets forth aggregate estimated payment obligations to each of our named executive officers
assuming a termination without cause, or a change in control, occurred on December 31, 2017:
Payments Due in Connection
with a Termination of
Payments Due in Connection
with a Change of Control and
Termination of
Employment without Cause or Employment without Cause or Payments Due in Connection
with Change in Control (2)
for Good Reason (1)
for Good Reason
$
---
569,547
14,284
24,343
29,748
10,000
$
---
74,160
454,278
417,755
430,819
425,226
---
15,000
---
---
---
---
Name
Alexander Y. Tokman(3) $
Perry M. Mulligan
Stephen P. Holt
Dale E. Zimmerman
David J. Westgor
Sumit Sharma
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(1) We included the estimated intrinsic value of accelerating any award of stock options or awards that are accelerated
upon a change in control. In the case of a change in control, we assumed that all such awards would be cashed out
at closing using the closing price of our common stock on the NASDAQ Global Market on December 29, 2017,
which was $1.63 per share. See the section titled “Outstanding Equity Awards at Fiscal Year-End 2017” for
information regarding unvested equity awards.
(2) See “Severance and Employment Agreements—Change of Control Severance Plan.”
(3) Mr. Tokman is no longer employed by the Company and therefore is not entitled to the payments described in this
section.
Severance and Employment Agreements
Mr. Mulligan’s Employment Agreement
Payment upon Termination. Under Mr. Mulligan’s employment agreement with the Company dated November
21, 2017, as amended, if he dies, becomes disabled, retires, terminates his employment other than for “good reason” or
is terminated by us for “cause,” he will be provided his earned but unpaid base salary, earned but unused vacation time,
any bonus compensation for the prior year which is unpaid on the date of termination to the extent bonuses are paid to
other officers, 12 months of certain group and medical benefits for Mr. Mulligan’s family and any business expenses
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which have not yet been reimbursed by us. If we terminate him “other than for cause,” or if he terminates his
employment for “good reason,” he will receive, in addition to the amounts listed in the foregoing sentence, his base
salary for 18 months following the date of his termination, plus an amount equal to his target bonus for the year prior to
the termination, and we will continue to pay certain group medical and dental expenses in that 12-month period. We do
not accelerate the vesting of equity incentives for our executive officers in the event of a termination of employment. In
the event of a change in control of the Company, all unvested stock options vest upon the change in control if the
change in control does not result in an assumption, substitution or pay off of such award by the acquiring company, and
the Compensation Committee has the discretion to remove the vesting restrictions on all unvested restricted shares.
In determining whether a termination occurred with or without “cause,” “cause” is deemed to exist under
Mr. Mulligan’s employment agreement when there is a repeated willful failure to perform or gross negligence in the
performance of his duties; fraud, embezzlement or other dishonesty with respect to us; a breach of his obligations of
confidentiality, non-competition, or non-solicitation against us; or commission of a felony or other crime involving
moral turpitude.
In determining whether Mr. Mulligan has “good reason” to terminate his employment, “good reason” is deemed
to exist when: we have failed to continue him in a certain position; there is a material diminution in the nature and
scope of his responsibilities; there is a material failure of us to provide him with base salary and benefits, excluding an
inadvertent failure which is cured within a certain time period; or his office is relocated more than thirty-five miles
from the then-current location of our principal offices without his consent. Mr. Mulligan may only terminate his
employment for good reason if he (a) gives notice to us within ninety (90) days of the initial occurrence of the event or
condition constituting good reason, setting forth in reasonable detail the nature of such good reason; (b) we fail to cure
within thirty (30) days following such notice; and (c) Mr. Mulligan terminates his employment within thirty (30) days
following the end of the thirty (30)-day cure period (if we fail to cure).
Payment upon a Change in Control. In the event of a change of control and the termination of Mr. Mulligan’s
employment “other than for cause” by us within two years following a change of control, we must pay Mr. Mulligan an
amount equal to one year of base salary plus a payment equal to his target bonus. The foregoing amount will be paid in
a single lump sum. We must also pay the full cost of Mr. Mulligan’s continued participation in our group health and
dental plans for two years or, if less, for so long as he remains entitled to continue such participation under applicable
law. In addition, 100% of his equity-based or equity-linked awards which have not been exercised and have not expired
or been surrendered or cancelled, will become exercisable in accordance with the applicable award agreement.
Our obligation to pay the severance amounts mentioned in this “Payments upon a Termination or Change in
Control” section is subject to Mr. Mulligan signing an employee release. Also, Mr. Mulligan must comply with certain
confidential information and assignment of intellectual property obligations. Further, Mr. Mulligan is subject to a non-
compete and non-solicit obligation for 12 months following his termination.
Mr. Tokman’s Letter Agreement
On November 14, 2017, the Company and Mr. Tokman entered into a Letter Agreement regarding the terms
of Mr. Tokman’s separation. Pursuant to the Letter Agreement, Mr. Tokman ceased to serve in the role of Chief
Executive Officer on November 13, 2017 but continued to serve in the role of President until December 31, 2017 (the
“Separation Date”), after which time Mr. Tokman ceased to be employed by the Company. The Letter Agreement
provides that for a period of 18 months following the Separation Date Mr. Tokman will make himself available to
assist as needed with transition matters. Mr. Tokman received his salary through the Separation Date as well as pay for
any vacation days earned but not yet used as of the Separation Date. In consideration for Mr. Tokman’s execution of a
general release and waiver of claims, Mr. Tokman will also receive (a) a monthly amount equal to $31,250, which
represents Mr. Tokman’s monthly base salary at his final base rate of pay for a period of 18 months following the
Separation Date, payable in the form of salary continuation in accordance with the Company’s customary pay
practices, and (b) an amount equal to $196,000, which represents Mr. Tokman’s target bonus amount for performance
year 2017, payable on a pro rata basis over the same period. The Company also accelerated the vesting and
exercisability of 37,500 shares of the Company’s common stock subject to the stock option award granted to Mr.
Tokman on February 8, 2017. Mr. Tokman continues to be subject to the non-compete and non-solicit obligations
specified in his employment agreement with the Company.
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Change of Control Severance Plan
In November 2011, the Company adopted a Change of Control Severance Plan (the “Severance Plan”). Under the
Severance Plan, a “change of control” is defined as the occurrence of any of the following events: (i) the acquisition by
any person or group of more than 50% of the then outstanding securities of the Company entitled to vote generally in
the election of directors; (ii) individuals who constitute the board of directors cease for any reason to constitute at least
63
a majority of the board, provided, however, that any individual becoming a director whose election, or nomination for
election, by the Company’s shareholders, was approved by a vote of at least a majority of the incumbent directors are
considered as though such individual were a member of the incumbent board; (iii) certain reorganizations,
recapitalizations, mergers or consolidations; (iv) the sale, transfer or other disposition of all or substantially all of the
assets of the Company; or (v) approval by the shareholders of the Company of a complete liquidation or dissolution of
the Company.
In the event that a “designated participant,” including Stephen Holt, Sumit Sharma, David J. Westgor and Dale
Zimmerman is terminated on, or during the two-year period following, a change of control, for any reason other than
by the Company for cause (or, in the case of a participant other than a designated participant, any termination of the
participant’s employment, on or during the eighteen-month period following a change of control, by the Company
other than for cause or by the participant for good reason), the Company will pay the participant an amount equal to
one year of base salary at the rate in effect at the date of termination or, if higher, on the date of the change of control,
plus a payment equal to the target bonus for which the participant is eligible, which amount shall be payable within ten
business days following the later of the effective date of the release of claims described below or the date it is received
by the Company. If, however, the timing associated with the execution, revocation and effectiveness of the release of
claims would otherwise allow the payment described above to be made in either of two taxable years, such payment
will not be made prior to the first day of the second taxable year. The Company will also pay the full cost of the
participant’s continued participation in the Company’s group health and dental plans for one year or, if less, for so long
as the participant remains entitled to continue such participation under applicable law. In addition, all options held by
the participant which are not exercisable, and which have not been exercised and have not expired or been surrendered
or cancelled, will become initially exercisable upon termination and will otherwise be and remain exercisable in
accordance with their terms, and all other equity-based compensation awards granted to the participant, including,
restricted stock and restricted stock units, will become vested and become free of restrictions.
Payment under the Plan is contingent upon the participant executing and delivering to the Company a release
from all claims in any way resulting from, arising out of or connected with such participant’s employment with the
Company.
Pay Ratio
Following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total
compensation of Perry Mulligan, our Chief Executive Officer compared to the median of the annual total compensation
of our other employees.
We determined our median employee based on base salary (annualized in the case of full- and part-time
employees who joined the Company during 2017) of each of our 107 employees (excluding Mr. Mulligan) as of
December 1, 2017.
The annual total compensation of our median employee (other than Mr. Mulligan) for 2017 was $155,348.
As disclosed in the Summary Compensation Table above, Mr. Mulligan joined the Company on November 13,
2017 and was Chief Executive Officer on December 1, 2017. His total compensation for 2017, including an annualized
base salary and initial grant of shares and options and relocation allowance, was $755,541.
Based on the foregoing, our estimate of the ratio of the annual total compensation of the Chief Executive Officer
to the median of the annual total compensation of all other employees was 4.9 to 1. Given the different methods that
other public companies may use to determine an estimated pay ratio, the estimated ratio reported above should not be
used as a basis for comparison between companies.
Director Compensation for 2017
The following table provides information concerning our non-employee directors during the year ended
December 31, 2017. Mr. Tokman was not paid additional compensation for his service as Director and his
compensation is fully reflected in the other tables contained in this Annual Report on Form 10-K. Mr. Mulligan’s
compensation for his services as Director for 2017 and as Chief Executive Officer beginning on November 13, 2017 is
fully reflected in the other tables contained in this Annual Report on Form 10-K.
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$
Name
Robert P. Carlile (3)
Richard A. Cowell(3)
Yalon Farhi
Slade Gorton
Jeanette Horan(3)
Bernee D.L. Strom(3)
Brian Turner
Thomas M. Walker
Fees Earned or
Paid in Cash
Stock Awards (1)(4)
Option Awards (2)(4)
Total
$
68,000
12,000
36,500
47,000
6,000
29,000
59,250
38,250
$
19,500
---
19,500
19,500
---
---
19,500
19,500
$
29,544
---
-
-
---
44,928
-
-
117,044
12,000
56,000
66,500
6,000
73,928
78,750
57,750
(1) Reflects the fair value of stock awards granted in 2017 in accordance with FASB ASC Topic 718.
(2) Reflects the fair value of option awards on the grant date in accordance with FASB ASC Topic 718.
(3) On February 8, 2017, Robert P. Carlile was elected to the Board and Jeanette Horan stepped down from the Board.
Richard A. Cowell’s director term expired at the Company’s 2017 annual meeting of shareholders, at which time
he stepped down from the Board. Bernee D.L. Strom was elected to our Board on October 9, 2017.
(4) The following table shows the number of outstanding shares underlying option and stock awards for each of our
non-employee directors as of December 31, 2017:
Name
Option Awards
Stock Awards (5)
Yalon Farhi
Robert P. Carlile
Richard A. Cowell
Slade Gorton
Jeanette Horan
Bernee D.L. Strom
Brian Turner
Thomas M. Walker
30,000
30,000
22,500
22,500
22,500
30,000
22,500
177,811
10,000
10,000
41,974
51,974
41,974
---
51,974
61,839
(5) 10,000 shares vest on the date that is the earlier of one year from the June 7, 2017 grant date, or the day before the
next scheduled annual meeting of shareholders.
Each non-employee director is granted a non-statutory option to purchase 15,000 shares of common stock on the
date on which he or she is first elected or appointed to the Board. These options are fully vested and immediately
exercisable upon the date of grant. Under the terms of a director compensation plan approved by the Board, each of our
non-employee directors also receives, upon his or her initial appointment or election and upon each subsequent
reelection to the Board, an option to purchase 15,000 shares that vests in full on the earlier of (i) the day prior to the
date of our annual meeting of shareholders next following the date of grant, or (ii) one year from the date of grant,
provided the non-employee director continues to serve as a director on the vesting date. If a non-employee director
ceases to be a director for any reason other than death or disability before his or her term expires, then any outstanding
unvested options issued to such Independent Director will be forfeited. Options vested as of the date of termination for
any reason other than death or disability are exercisable through the date of expiration. The exercise price for each
option is equal to the closing price of our common stock as reported on the NASDAQ Global Market on the date of
grant. The options generally expire on the tenth anniversary of the date of grant.
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Notwithstanding the terms of the aforementioned director compensation plan, in each of our last five fiscal years,
the Board has approved the issuance of 10,000 shares of the Company’s restricted stock to each of our non-employee
directors upon his or her reelection to the Board, in lieu of the option award described in the foregoing paragraph.
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In addition, each non-employee director generally receives the following cash compensation for his or her service
as a director:
• A fee of $20,000 that accrues as of the date of appointment or election to the Board, and as of the date of each
subsequent reelection;
• A fee of $3,000 for the Board chair or $2,000 per director for each Board meeting attended by the director;
and
• A fee of $3,000 for the committee chair or $2,000 per committee member for each committee meeting
attended by the director that is held on a day other than a day on which a Board meeting is held.
All directors are reimbursed for reasonable travel and other out-of-pocket expenses incurred in attending
meetings of the Board.
Compensation Committee Interlocks and Insider Participation
All members of the Compensation Committee during 2017 were independent directors, and none of them were
our employees or former employees, at the time they served on the Compensation Committee. Mr. Mulligan served on
the Compensation Committee in 2017 but stepped down from the Compensation Committee at the time he assumed the
role of Chief Executive Officer of the Company. During 2017, none of our executive officers served on the
compensation committee (or equivalent), or the board of directors, of any other entity whose executive officer(s) served
on the Compensation Committee or Board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table shows as of February 20, 2018, the number of shares of our common stock beneficially
owned by our directors and nominees, the named executive officers, and all directors and executive officers as a group
and each person known by us to own beneficially more than 5% of our outstanding common stock.
Name of Beneficial Owner
Number of
Share (1)
Percent of
Common Stock (2)
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Perry Mulligan (3)
Alexander Y. Tokman (4)
Stephen P. Holt (5)
Sharma, Sumit (6)
David J. Westgor (7)
Dale E. Zimmerman (8)
Robert P. Carlile (9)
Richard A. Cowell (10)
Yalon S. Farhi (9)
Slade Gorton (11)
Jeanette Horan (10)
Bernie D. L. Strom (12)
Brian Turner (11)
Thomas Walker (13)
AWM Investment Company, Inc. (14)
BlackRock, Inc. (15)
All executive officers and directores as a group (14 persons) (16)
102,307
898,401
180,596
55,000
149,680
215,298
30,000
68,811
30,000
161,307
66,786
15,000
89,088
230,650
7,367,231
4,706,522
2,292,924
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*
1.1%
*
*
*
*
*
*
*
*
*
*
*
*
9.4%
6.0%
2.8%
* Less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Shares of common stock subject to options or warrants that are currently
exercisable or convertible or may be exercised or converted within sixty days are deemed to be outstanding and to be
beneficially owned by the person holding these options or warrants for the purpose of computing the number of shares
beneficially owned and the percentage of ownership of the person holding these securities, but are not outstanding for
the purpose of computing the percentage ownership of any other person or entity. Subject to community property laws
where applicable, and except as otherwise noted, we believe that each shareholder named in this table has sole voting
and investment power with respect to the shares indicated as beneficially owned thereby.
(2) Percentage of common stock is based on 78,613,343 shares of common stock outstanding as of February 20, 2018.
(3) Includes 20,625 shares issuable upon exercise of options.
(4) Includes 717,680 shares issuable upon exercise of options.
(5) Includes 171,250 shares issuable upon exercise of options.
(6) Includes 55,000 shares issuable upon exercise of options.
(7) Includes 132,693 shares issuable upon exercise of options.
(8) Includes 200,000 shares issuable upon exercise of options.
(9) Includes 30,000 shares issuable upon exercise of options.
(10) Includes 24,375 shares issuable upon exercise of options.
(11) Includes 22,500 shares issuable upon exercise of options.
(12) Includes 15,000 shares issuable upon exercise of options.
(13) Includes 177,811 shares issuable upon exercise of options.
(14) Based solely on information set forth in a Schedule 13G filed with the SEC on February 13, 2018.
(15) Based solely on information set forth in a Schedule 13G filed with the SEC on February 1, 2018.
(16) Includes 2,292,924 shares issuable upon exercise of options.
Information as of December 31, 2017, regarding equity compensation plans approved and not approved by
shareholders is summarized in the following table (in thousands, except per share data):
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
$
5,034
-
5,034
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
(b)
2.94
-
Number of securities
remaining available for
further issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
2,185
-
2,185
Plan Category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Under the Code of Conduct adopted by us, officers, directors and employees must avoid even the appearance
of a conflict of interest. Under the Code of Ethics for MicroVision Executives we have adopted, all of our executive
officers must report any material transaction or relationship that reasonably could be expected to give rise to a conflict
of interest. We also review questionnaires completed by all directors and executive officers for potential “related-
person transactions” between us and related persons. The Board’s Audit Committee is responsible for review, approval,
or ratification of related-person transactions. The Audit Committee determines whether the related person has a
material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in
its discretion.
More information regarding the independence of our directors is included in Part III of this Annual Report on Form 10-
K in Item 10.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Accountant Fees and Services
Our independent auditors, Moss Adams LLP, billed the following fees to us for audit and other services for fiscal
year 2017 and fiscal year 2016, respectively:
Audit Fees
The aggregate fees billed for professional services rendered by Moss Adams LLP for the audit of our annual
financial statements and the review of the financial statements included in our Quarterly Reports on Form 10-Q were
$350,946 for 2017 and $352,450 for 2016.
Audit Related Fees
Audit related fees include the aggregate fees billed for professional services rendered by Moss Adams LLP in
connection with the audit of the Company’s 401(k) plan. Fees for audit related services totaled $14,815 in 2017 and
$14,572 in 2016.
Tax Fees
Tax fees include the aggregate fees billed for professional services rendered by Moss Adams LLP in connection
with federal, state and foreign tax compliance and tax advice. Fees for tax services totaled $15,313 in 2017 and
$23,061 in 2016.
All Other Fees
Fees for all other services not described above include fees for subscriptions to online accounting research tools.
Fees for these services totaled $2,864 and $2,728 billed by Moss Adams LLP for 2017 and 2016, respectively.
The Audit Committee has considered whether the provision of services under the heading “All Other Fees” is
compatible with maintaining the accountants’ independence and has determined that it is consistent with such
independence.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee pre-approves all audit services and all permitted non-audit services by the independent
auditors. The Audit Committee has delegated the authority to take such action between meetings to the Audit
Committee chairman, who reports the decisions made to the full Audit Committee at its next scheduled meeting.
The Audit Committee evaluates whether our use of the independent auditors for permitted non-audit services is
compatible with maintaining the independence of the independent auditors. The Audit Committee’s policies prohibit us
from engaging the independent auditors to provide any services relating to bookkeeping or other services related to
accounting records or financial statements, financial information systems design and implementation, appraisal or
valuation services, fairness opinions or contribution-in-kind reports, actuarial services, or internal audit outsourcing
services unless it is reasonable to conclude that the results of these services will not be subject to audit procedures. The
Audit Committee’s policies completely prohibit us from engaging the independent auditors to provide any services
relating to any management function, expert services not related to the audit, legal services, broker-dealer, investment
adviser, or investment banking services or human resource consulting.
Audit Committee Report
Review of the Company’s Audited Financial Statements
The Audit Committee serves as the representative of the Board for general oversight of the Company’s financial
accounting and reporting, systems of internal control, audit process, and monitoring compliance with laws and
regulations and standards of business conduct. Management has responsibility for preparing the Company’s financial
statements, as well as for the Company’s financial reporting process. Moss Adams LLP, acting as an independent
registered public accounting firm, is responsible for expressing an opinion on the conformity of the Company’s audited
financial statements with generally accepted accounting principles.
The Audit Committee has reviewed and discussed the audited consolidated financial statements of the Company
for the fiscal year ended December 31, 2017 with the Company’s management, and management represented to the
Audit Committee that the Company’s consolidated financial statements were prepared in conformity with generally
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accepted accounting principles. The Audit Committee has discussed with Moss Adams LLP, the Company’s
independent auditors for the fiscal year ended December 31, 2017, the matters required to be discussed by the Public
Company Accounting Oversight Board (PCAOB) AS 1301, Communications with Audit Committees.
The Audit Committee received from Moss Adams LLP the written disclosures required by Rule 3526 of the
PCAOB (Communication with Audit Committee Concerning Independence) and discussed with the firm its
independence. Based on the review and discussions noted above, and subject to the limitations on the role and
responsibilities of the Audit Committee referred to in the Charter of the Audit Committee, the Audit Committee
recommended to the Board that the Company’s audited consolidated financial statements be included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for filing with the SEC.
This report of the Audit Committee shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically
incorporates this information by reference.
Audit Committee
Robert P. Carlile, Chairman
Bernee D.L. Strom
Brian Turner
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PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) Documents filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements
(cid:120)
Report of Independent Registered Public Accounting Firm
(cid:120) Consolidated Balance Sheets as of December 31, 2017 and 2016
(cid:120) Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
(cid:120) Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2017, 2016
and 2015
(cid:120) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
(cid:120) Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II
MicroVision, Inc.
Valuation and Qualifying Accounts and Reserves Schedule
(In thousands)
Year Ended December 31,
2015
Allowance for receivables from related parties $
Tax valuation allowance
2016
Allowance for receivables from related parties $
Tax valuation allowance
2017
Allowance for receivables from related parties $
Tax valuation allowance
Additions
Balance at
beginning of
fiscal period
Charges
to costs and
expenses
Charges
to other
accounts Deductions fiscal period
Balance
at end of
400
156,671
370
161,160
-
166,844
$
$
$
-
-
-
-
-
(55,608)
$
$
$
$
$
$
-
4,489
-
5,684
-
-
(30)
-
(370)
-
-
-
$
$
$
370
161,160
-
166,844
-
111,236
All other schedules are omitted because they are not applicable, or because the information required is included in the consolidated
financial statements and notes thereto.
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3. Exhibits
The following exhibits are referenced or included in this Annual Report on Form 10-K.
Exhibit
Number
Description
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Amended and Restated Certificate of Incorporation of MicroVision, Inc., as amended.(4)
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of MicroVision, Inc.(6)
Bylaws of MicroVision, Inc. (7)
Form of Specimen Stock Certificate for Common Stock.(1)
Form of Warrant dated March 18, 2014 issued under the Securities Purchase Agreement dated as of March
13, 2014 by and between MicroVision, Inc. and the investors named therein.(8)
2013 MicroVision, Inc. Incentive Plan, as amended.(9)*
Independent Director Stock Option Plan, as amended.(2)*
Employment Agreement between MicroVision, Inc. and Alexander Y. Tokman dated April 7, 2009.(3)
Third Amendment to Lease Agreement between BRE WA Office Owner, LLC and MicroVision, Inc., dated
July 25, 2017.
Change of Control Severance Plan.(5)
Letter Agreement between MicroVision, Inc. and Alexander Y. Tokman dated November 14, 2017
Employment Agreement between MicroVision, Inc. and Perry Mulligan dated November 21, 2017
Consent of Independent Registered Public Accounting Firm – Moss Adams LLP.
Principal Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Principal Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Principal Executive Officer Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350,
Chapter 63 of Title 18, United States Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
Principal Financial Officer Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350,
Chapter 63 of Title 18, United States Code (18 U.S.C. 1350), as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
*
Incorporated by reference to the Company’s Post-Effective Amendment to Form S-3 Registration Statement,
Registration No. 333-102244.
Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2002.
Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 31, 2009.
Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2009.
Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2011.
Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 17, 2012.
Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 27, 2013.
Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 13, 2014.
Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2017.
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Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b)
of this Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 23, 2018
MicroVision, Inc.
By
/s/ Perry M. Mulligan
Perry M. Mulligan
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the following capacities on February 23, 2018.
Signature
Title
/s/ Perry M. Mulligan
Perry M. Mulligan
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stephen P. Holt
Stephen P. Holt
/s/ Robert P. Carlile
Robert P. Carlile
/s/ Yalon Farhi
Yalon Farhi
/s/ Slade Gorton
Slade Gorton
/s/ Bernee D.L. Strom
Bernie D.L. Strom
/s/ Brian V. Turner
Brian V. Turner
/s/ Thomas M. Walker
Thomas M. Walker
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Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
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Stock Performance Graph
Comparison of 5-Year cumulative total return among MicroVision, Inc., NASDAQ Market Index, and
Peer Group Index
The following graph compares the cumulative total shareholder return on an initial $100 investment in the
Company’s common stock for the five fiscal years ended December 31, 2017, to two indices: The NASDAQ®
Market Index and an index of peer companies selected by the Company (“Peer Group”). The companies in the
Peer Group are eMagin Corporation, Kopin Corporation, and Neonode Inc. The graph and table assume that $100
was invested on December 31, 2012, in the Company’s common stock, the NASDAQ Market Index, and the Peer
Group and that all dividends were reinvested. The past performance of the Company’s common stock is not an
indication of future performance. We cannot assure you that the price of the Company’s common stock will
appreciate at any particular rate or at all in future years.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Microvision Inc., the NASDAQ Composite Index,
and a Peer Group
$300
$250
$200
$150
$100
$50
$0
12/12
12/13
12/14
12/15
12/16
12/17
Microvision Inc.
NASDAQ Composite
Peer Group
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Microvision Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
69.11
141.94
119.27
91.10
162.76
86.07
149.74
174.27
62.89
65.97
188.53
62.30
85.34
244.00
54.16
12/12
12/13
12/14
12/15
12/16
12/17
Corporate Information
Board of Directors
Robert P. Carlile
Retired Partner at KPMG LLP
Yalon Farhi
Business Owner and Security Consultant
Slade Gorton
Of Counsel, K&L Gates, LLP; Former U.S. Senator
Perry M. Mulligan
Chief Executive Officer, MicroVision Inc.
Bernee D. L. Strom Chief Executive Officer and Chairman for Strom Group
Brian Turner
Former Chief Financial Officer, Coinstar, Inc.
Thomas M. Walker
Former Executive Vice President, MicroVision, Inc.
Executive Officers
Perry M. Mulligan
Chief Executive Officer
Stephen P. Holt
Chief Financial Officer
Sumit Sharma
Vice President, Product Engineering and Operations
David J. Westgor
Vice President, General Counsel & Secretary
Dale Zimmerman
Vice President, Research and Development
Transfer Agent
American Stock Transfer and Trust Company LLC
6201 15th Ave., Brooklyn, NY 11219 Shareholder Services P: 800-937-5449
Stock Listing
MicroVision, Inc. common stock is traded on the NASDAQ Stock Market under the
Symbol MVIS
Investor Inquiries MicroVision, Inc.
Attn: Investor Relations, 6244 185th Ave NE, Suite 100, Redmond, WA 98052 P: 425-936-6847
ir@microvision.com
Corporate Counsel
Ropes & Gray LLP
Prudential Tower, 800 Boylston St., Boston, MA 02199-3600
Independent
Accountants
Moss Adams LLP
999 Third Avenue, Seattle, WA 98104-4019
©2018 MicroVision, Inc. All rights reserved. The MicroVision logo, PicoP and SHOWWX are trademarks of MicroVision, Inc. All other trademarks are
the property of their respective owners.
www.microvision.com
MicroVision, Inc. 6244 185th Ave NE, Suite 100 Redmond, WA 98052 USA Tel 425.936.MVIS (6847) Fax 425-867-9992