9. Warrants

12 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Warrants - Note 9

9. Warrants

The warrants issued in September 2013 have an exercise price of $2.444 per share, a five year term, and are exercisable beginning on the date of issuance. Each warrant to purchase a share of common stock may also be exchanged during its term for a number of shares of common stock (but not more than one share of common stock for each warrant so exchanged) with a value determined by a formula if, among other things, our common stock is then trading at a price at or lower than the warrant exercise price per share. Subject to limitations in the warrants, we may require the warrants be exercised for cash if the closing bid price of our stock is over $3.055 for 20 consecutive trading days and the average daily dollar volume over that period is equal to or exceeds $300,000.

The warrants issued in May 2013 have an exercise price of $2.886 per share, a five year term, and are exercisable beginning on the date of issuance. Each warrant to purchase a share of common stock may also be exchanged during its term for a number of shares of common stock (but not more than one share of common stock for each warrant so exchanged) with a value determined by a formula if, among other things, our common stock is then trading at a price at or lower than the warrant exercise price per share. Subject to limitations in the warrants, we may require the warrants be exercised for cash if the closing bid price of our stock is over $3.61 for 20 consecutive trading days and the average daily dollar volume over that period is equal to or exceeds $300,000.

Based on the terms of the warrants we issued in May and September, 2013, we have determined that they should be classified as a liability given that the warrants could result in the issuance of a variable number of shares of common stock based on a conditional exchange provision that is outside of our control at any point when the share price of our common stock is equal to or less than the stated exercise prices of $2.886 and $2.444 per share. At the dates of issuance, and as of December 31, 2013, our common stock was trading at a value less than the stated exercise price. As such, the holders may elect to exchange the warrants for a variable number of shares of common stock as determined by a formula included in the warrants. However, the warrants limit the number of shares that may be issued under this exchange provision to one share of common stock for each warrant exchanged. The maximum number of shares that we could be required to issue is under the terms of the warrants is 4,071,552. As of December 31, 2013, 358,243 shares of common stock have been issued on a one-for-one basis under the warrant exchange provisions of the May and September agreements. As of December 31, 2013, based upon the terms of the then outstanding warrants and the quoted market price of our common stock, if the exchange feature had been exercised, we would have been required to issue 3,713,309 shares of common stock to satisfy the obligation without receiving any additional cash consideration, equal to an estimated fair market value of $4,902,000, which we believe is the best indication of the fair value of the warrant obligation as of December 31, 2013. Changes in the market value of our common stock may decrease the number of shares to be issued under this exchange feature.

At each balance sheet date, we evaluate the fair value of the warrants and any change in value will be recorded as a non-operating gain or loss on the statement of operations. During 2013, we recorded non-operating gains of $1.8 million related to the change in value of the warrants. If and when the exchange feature is exercised by the holder, we will recognize a gain or loss on the exchange based on the fair market value of the common stock issued by us to the holder to satisfy the exchange provision.

Subsequent to year end, the holders of the warrants we issued in May and September 2013 elected to exchange all of such remaining outstanding warrants for common stock under the exchange provision, see Note 15.

The warrants issued in June 2012 were issued with an exercise price of $2.65 per share, a five year term, and are exercisable beginning one year from the date of issuance. The exercise price of the warrants is subject to anti-dilution adjustments. As a result of subsequent financing activities, the exercise price has been reduced to $2.29.

The warrants issued in May 2012 have an exercise price of $2.125 per share, a three year term, and are exercisable 60 days from the date of issuance.

The following summarizes activity with respect to MicroVision common stock warrants during the two years ended December 31, 2013:

	Warrants to		Weighted
	purchase		average
	common		excercise
	shares		price
Outstanding at December 31, 2011	2,287,000	$	14.96
Granted:
Exercise price greater than intrinsic value	3,100,000		2.48
Exercised	-		-
Canceled/expired	(256,000)		17.60
Outstanding at December 31, 2012	5,131,000		7.28
Granted:
Exercise price less than intrinsic value	2,216,000		2.71
Exercise price greater than intrinsic value	1,855,000		2.44
Exercised	(358,000)		1.77
Canceled/expired	(753,000)		28.80
Outstanding at December 31, 2013	8,091,000	$	3.07
Exercisable at December 31, 2013	8,091,000	$	3.07

The following table summarizes information about the weighted-average fair value of MicroVision common stock warrants granted for the periods shown:

		Year Ended December 31,
		2013		2012
Exercise price greater than fair value	$	-	$	0.97

With the exception of common stock warrants that include exchange provisions, we estimate the fair value of our common stock warrants using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2012: dividend yield of zero percent; expected volatility of 100%; risk-free interest rates of 0.52% and expected lives of 4 years.

The following table summarizes information about our common stock warrants outstanding and exercisable at December 31, 2013:

	Warrants outstanding				Warrants exercisable
		Weighted
	Number	average		Weighted	Number		Weighted
	outstanding at	remaining		average	excercisable at		average
	December 31,	contractual		excercise	December 31,		excercise
Range of exercise prices	2013	life (years)		price	2013		price
$2.13	1,000,000	1.39	$	2.13	1,000,000	$	2.13
$2.29	2,100,000	3.47		2.29	2,100,000		2.29
$2.44	1,855,000	4.72		2.44	1,855,000		2.44
$2.89	1,858,000	4.38		2.89	1,858,000		2.89
$6.24	1,278,000	2.88		6.24	1,278,000		6.24
$2.13-$6.24	8,091,000				8,091,000