9. Warrants

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements

Warrants - Note 9

9. Warrants

In March 2014, we raised $13.9 million before issuance costs of approximately $1.0 million through an underwritten offering of 7.2 million shares of our common stock and warrants to purchase 2.1 million shares of our common stock. Each unit was sold to investors for $1.94 and consisted of one share of common stock and one warrant to purchase 0.3 shares of common stock. The warrants have an exercise price of $2.47 per share and expire on the fifth anniversary of the date of issuance.

In combination with our registered direct offerings of common stock in May and September 2013, we issued warrants to purchase common stock. Based on the terms in the conditional exchange provision of the warrants issued, we made the determination to classify the warrants as a liability given that the exchange provision could result in the issuance of a variable number of shares of common stock. At each balance sheet date that the warrants were outstanding, we evaluated the fair value of the warrants and any change in value was recorded as a non- operating gain or loss on the statement of operations. Due to the conditional exchange provision of the warrants, the determination of the fair value of the warrant liability varied depending on our common stock price. If the price of our common stock was less than the exercise price of the warrant, we calculated the fair value of the warrant liability as the fair value of the common stock that would have been required to be issued to settle the exchange provision of the warrant. If the price of our common stock had been greater than the exercise price of the warrant, we would have used a binomial option pricing model to estimate the fair value of the warrant as the exchange provision provided per the agreement would have no longer been available to the holder.

In February 2014, we issued 3,713,309 shares of our common stock under the conditional exchange provision of the warrants. We did not receive additional cash consideration in the exchange transaction. We recorded a loss of $5.0 million during the year ended December 31, 2014 on the exchange, as the fair market value of the common stock issued was greater than the obligation recorded due to the increase in stock price from December 31, 2013 to the date the warrants were exchanged.

The following summarizes activity with respect to MicroVision common stock warrants during the two years ended December 31, 2014:

	Warrants to		Weighted
	purchase		average
	common		exercise
	shares		price
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
Granted:
Exercise price less than intrinsic value	-		-
Exercise price greater than intrinsic value	2,148,000		2.47
Exercised	(3,713,000)		2.67
Canceled/expired	-		-
Outstanding at December 31, 2014	6,526,000	$	3.08
Exercisable at December 31, 2014	6,526,000	$	3.08

With the exception of common stock warrants that included the conditional exchange provision described above, 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 2014: dividend yield of zero percent; expected volatility of 100%; risk-free interest rates of 1.6% and contractual lives of 5 years.

The following table summarizes information about our common stock warrants outstanding and exercisable at December 31, 2014:

	Warrants outstanding				Warrants exercisable
		Weighted
	Number	average		Weighted	Number		Weighted
	outstanding at	remaining		average	exercisable at		average
	December 31,	contractual		exercise	December 31,		exercise
Range of exercise prices	2014	life (years)		price	2014		price
$2.13	1,000,000	0.39	$	2.13	1,000,000	$	2.13
$2.24	2,100,000	2.47		2.24	2,100,000		2.24
$2.47	2,148,000	4.21		2.47	2,148,000		2.47
$6.24	1,278,000	1.88		6.24	1,278,000		6.24
$2.13-$6.24	6,526,000				6,526,000