UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

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    0-21221



Microvision, Inc.



|Delaware                                                       | 91-1600822                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

6222 185th Avenue NE
Redmond, Washington      98052

(425) 936-6847

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 reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES    x NO     ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      ̈ Accelerated filer    x Non-accelerated filer     ̈

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934). YES     ̈ NO    x

As of October 17, 2006, 39,635,000 shares of the Company's common stock, $0.001 par value, were outstanding.






|                                                                                                                                                                          | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Part I: Financial Information                                                                                                                                             |     
|Item 1.  Financial Statements:                                                                                                                                            |     
|                                                                                                                                                                          |     
|Consolidated Balance Sheets as of  September 30, 2006 and
December 31, 2005 (unaudited)                                                                                   | 3   
|Consolidated Statements of Operations for the three and nine
months ended September 30, 2006 and 2005 (unaudited)                                                         | 4   
|Consolidated Statements of Comprehensive Loss
for the three and nine months ended September 30, 2006 and 2005 (unaudited)                                                 | 5   
|Consolidated Statements of Mandatorily Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the nine months ended September 30, 2006 (unaudited) | 6   
|Consolidated Statements of Cash Flows for the nine
months ended September 30, 2006 and 2005 (unaudited)                                                                   | 7   
|Notes to Consolidated Financial Statements
(unaudited)                                                                                                                    | 9   
|                                                                                                                                                                          |     
|Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations                                                                            | 18  
|Item 3.  Quantitative and Qualitative Disclosures About Market
Risk                                                                                                       | 26  
|Item 4.  Controls and Procedures                                                                                                                                          | 27  
|                                                                                                                                                                          |     
|Part II: Other Information                                                                                                                                                |     
|Item 1A. Risk Factors                                                                                                                                                     | 28  
|Item 4.  Submission of Matters to a Vote of Security Holders                                                                                                              | 34  
|Item 6.  Exhibits                                                                                                                                                         | 35  
|Signatures                                                                                                                                                                | 36  
|Exhibit Index                                                                                                                                                             | 37  

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Microvision, Inc.

                    Consolidated Balance Sheet

                  (In thousands, except per share data)

                            (Unaudited)

`September 30,   December 31,
                                                                                       2006           2005
                                                                                   -------------  -------------
Assets                                                                                                         
Current assets
   Cash and cash equivalents                                                      $      14,026  $       6,860
   Investment securities, available-for-sale                                                560             --
   Accounts receivable, net of allowances of $177 and $264                                  777          1,380
   Costs and estimated earnings in excess of billings on uncompleted contracts              719          1,204
   Inventory                                                                              1,030            759
   Current restricted investments                                                         3,045          1,856
   Other current assets                                                                   1,556          1,512
                                                                                   -------------  -------------
   Total current assets                                                                  21,713         13,571

Investment in Lumera                                                                         --          3,582
Property and equipment, net                                                               3,964          2,902
Restricted investments                                                                    1,268          1,000
Restricted investment in Lumera                                                              --          2,184
Other assets                                                                                 43            124
                                                                                   -------------  -------------
   Total assets                                                                   $      26,988  $      23,363
                                                                                   =============  =============
                                                                                                               
Liabilities, Mandatorily Redeemable Convertible Preferred Stock and Shareholders' Equity (Deficit)             
Current liabilities
   Accounts payable                                                               $         705  $       2,328
   Accrued liabilities                                                                    3,917          4,513
   Billings in excess of costs and estimated earnings on uncompleted contracts              168             51
   Liability associated with common stock warrants                                          594          3,452
   Current portion of notes payable                                                       4,732          7,896
   Current portion of capital lease obligations                                              46             32
   Current portion of long-term debt                                                         58             22
                                                                                   -------------  -------------
   Total current liabilities                                                             10,220         18,294
Notes payable, net of current portion                                                        --          1,447
Liability associated with embedded derivative feature                                        --          1,368
Capital lease obligations, net of current portion                                           143            105
Long-term debt, net of current portion                                                      474             --
Deferred rent, net of current portion                                                     1,631          1,492
                                                                                   -------------  -------------
   Total liabilities                                                                     12,468         22,706
                                                                                   -------------  -------------
Commitments and contingencies                                                                --             --

Mandatorily redeemable convertible preferred stock, par value $.001; 25,000 shares authorized;
   0 and 5 shares issued and outstanding (liquidation preference of $0 and $5,000)           --          4,166
                                                                                   -------------  -------------
Shareholders' equity (deficit)
   Common stock, par value $.001; 73,000 shares authorized;
      39,635 and 25,138 shares issued and outstanding                                        40             25
   Additional paid-in capital                                                           245,075        212,993
   Deferred compensation                                                                     --            (85)
   Receivables from related parties, net                                                   (792)          (792)
   Accumulated other comprehensive income                                                 1,150             --
   Accumulated deficit                                                                 (230,953)      (215,650)
                                                                                   -------------  -------------
   Total shareholders' equity (deficit)                                                  14,520         (3,509)
                                                                                   -------------  -------------
   Total liabilities, mandatorily redeemable convertible preferred stock
      and shareholders' equity (deficit)                                          $      26,988  $      23,363
                                                                                   =============  =============`

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

---



Microvision, Inc.

                     Consolidated Statement of Operations

                  (In thousands, except per share data)

                            (Unaudited)

`Three Months Ended        Nine Months Ended
                                                                                   September 30,            September 30,
                                                                             ----------------------  ----------------------
                                                                                2006        2005        2006        2005
                                                                             ----------  ----------  ----------  ----------
Contract revenue                                                            $      541  $    2,180  $    3,657  $    9,244
Product revenue                                                                    282       1,150       1,544       2,793
                                                                             ----------  ----------  ----------  ----------
    Total revenue                                                                  823       3,330       5,201      12,037
                                                                             ----------  ----------  ----------  ----------
Cost of contract revenue                                                           343       1,647       2,493       5,143
Cost of product revenue                                                            675       2,117       3,650       5,484
                                                                             ----------  ----------  ----------  ----------
    Total cost of revenue                                                        1,018       3,764       6,143      10,627
                                                                             ----------  ----------  ----------  ----------
Gross margin                                                                      (195)       (434)       (942)      1,410
                                                                             ----------  ----------  ----------  ----------
Research and development expense (inclusive of non-cash compensation expense of
    $97 and $0 for the three months and $306 and $0 for the nine months
    ended September 30)                                                          2,855       1,963       7,316       5,884
Sales, marketing, general and administrative expense (inclusive of non-cash compensation
    expense of $388 and $118 for the three months and $1,161 and $374 for
    the nine months ended September 30)                                          3,652       4,523      13,066      13,830
Gain on disposal of fixed assets                                                    --          --        (198)         --
                                                                             ----------  ----------  ----------  ----------
    Total operating expenses                                                     6,507       6,486      20,184      19,714
                                                                             ----------  ----------  ----------  ----------
Loss from operations                                                            (6,702)     (6,920)    (21,126)    (18,304)
Interest income                                                                    236          61         484         186
Interest expense                                                                (1,346)       (997)     (4,804)     (2,067)
Gain on derivative instruments, net                                                125         611       3,179       1,669
Loss on debt extinguishment                                                         --      (3,313)         --      (3,313)
Other expense                                                                       (5)        (14)        (16)        (17)
                                                                             ----------  ----------  ----------  ----------
Net loss before equity subsidiary transactions                                  (7,692)    (10,572)    (22,283)    (21,846)

Loss on investment in equity subsidiary                                             --        (610)       (290)     (2,488)
Gain on sale of securities of equity subsidiary                                     --          --       7,270       1,570
                                                                             ----------  ----------  ----------  ----------
Net loss                                                                        (7,692)    (11,182)    (15,303)    (22,764)

Less: Stated dividend on mandatorily redeemable convertible preferred stock         --         (62)        (59)       (236)
       Accretion to par value of preferred stock                                    --        (143)       (138)       (534)
       Inducement for conversion of preferred stock                                 --      (1,184)     (3,076)     (1,184)
                                                                             ----------  ----------  ----------  ----------
Net loss available for common shareholders                                  $   (7,692) $  (12,571)    (18,576)    (24,718)
                                                                             ==========  ==========  ==========  ==========

Net loss per share - basic and diluted                                      $    (0.20) $    (0.56) $    (0.60) $    (1.13)
                                                                             ==========  ==========  ==========  ==========

Weighted-average shares outstanding - basic and diluted                         38,437      22,637      30,997      21,875
                                                                             ==========  ==========  ==========  ==========`

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

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Microvision, Inc.

                     Consolidated Statement of Comprehensive Loss

                             (In thousands)

                            (Unaudited)

`Three Months Ended        Nine Months Ended
                                                                                   September 30,            September 30,
                                                                             ----------------------  ----------------------
                                                                                2006        2005        2006        2005
                                                                             ----------  ----------  ----------  ----------
Net loss                                                                    $   (7,692) $  (11,182) $  (15,303) $  (22,764)

Other comprehensive (loss) gain
Unrealized (loss) gain on investment securities, available-for-sale             (2,362)         --       1,150          --
                                                                             ----------  ----------  ----------  ----------
Comprehensive loss                                                          $  (10,054) $  (11,182) $  (14,153) $  (22,764)
                                                                             ==========  ==========  ==========  ==========`

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

---





Microvision, Inc.
       Consolidated Statement of Mandatorily Redeemable Convertible Preferred Stock and Shareholders' Equity (Deficit)
                      (in thousands, except share amounts)

`Mandatorily                                          Shareholders' Equity
                                               redeemable       -------------------------------------------------------------------------------------------------------
                                              convertible                                                         Receivables  Accumulated
                                             preferred stock        Common Stock       Additional                    from         other                    Shareholders'
                                           -------------------- --------------------    Paid-in       Deferred      related    comprehensive Accumulated      Equity
                                            Shares     Amount    Shares    Par Value    Capital     Compensation    parties       income       deficit      (Deficit)
                                           ---------  --------- ---------  ---------  ------------  ------------  -----------  ------------  ------------  ------------
Balance at December 31, 2005                      5      4,166    25,138  $      25  $    212,993  $        (85) $      (792) $         --  $   (215,650) $     (3,509)
Non-cash compensation expense                                         47                    1,368            85                                                  1,453
Sales of common stock and warrants
   (net of issuance cost of $2.5 million)                         11,550         12        24,421                                                               24,433
Conversion of preferred stock                    (5)    (5,000)      786          1         4,999                                                                5,000
Unamortized discount and
   issuance cost on preferred stock                        419                               (419)                                                                (419)
Inducement to preferred shareholders                                                       (2,379)                                                              (2,379)
Issuance of common stock and change in
   warrant value to preferred shareholders                           565          1         1,978                                                                1,979
Beneficial conversion feature of mandatorily
   redeemable convertible preferred stock                  278                               (278)                                                                (278)
Non-cash accretion on mandatorily redeemable
   convertible preferred stock                             137                               (137)                                                                (137)
Issuance of common stock for payment on senior
   exchangeable convertible notes                                  1,466          1         1,965                                                                1,966
Issuance of common stock for payment of interest
   on senior exchangeable convertible notes                           67         --            88                                                                   88
Issuance of common stock on preferred dividend                        16         --            59                                                                   59
Dividend on preferred stock                                                                   (59)                                                                 (59)
Warrants to purchase Lumera common stock                                                      476                                                                  476
Other comprehensive income                                                                                                           1,150                       1,150
Net loss                                                                                                                                         (15,303)      (15,303)
                                           ---------  --------- ---------  ---------  ------------  ------------  -----------  ------------  ------------  ------------
Balance at September 30, 2006                    --  $      --    39,635  $      40  $    245,075  $         --  $      (792) $      1,150  $   (230,953) $     14,520
                                           =========  ========= =========  =========  ============  ============  ===========  ============  ============  ============`

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

---



Microvision, Inc.

                    Consolidated Statement of Cash Flows

                           (In thousands)

                            (Unaudited)

`Nine Months Ended
                                                                                              September 30,
                                                                                        ----------------------
                                                                                           2006        2005
                                                                                        ----------  ----------
Cash flows from operating activities                                                                          
    Net loss                                                                           $  (15,303) $  (22,764)
    Adjustments to reconcile net loss to net cash used in operations:
        Depreciation                                                                          993       1,268
        Gain on disposal of fixed assets                                                     (198)         --
        Non-cash compensation expense                                                       1,467         374
        Non-cash interest expense, net                                                      4,011       1,611
        Gain on derivative instruments                                                     (3,179)     (1,669)
        Loss in equity subsidiary                                                             290       2,488
        Gain on sale of securities of equity subsidiary                                    (7,270)     (1,570)
        Loss on extinguishment of debt                                                         --       3,313
        Non-cash deferred rent                                                               (162)        (21)
        Allowance for estimated contract losses                                                --         (53)
            Change in:
            Accounts receivable                                                               603       3,723
            Costs and estimated earnings in excess of billings on uncompleted contracts       485        (621)
            Inventory                                                                        (271)        849
            Other current assets                                                               57         125
            Other assets                                                                       81         280
            Accounts payable                                                               (1,623)       (824)
            Accrued liabilities                                                            (1,395)       (673)
            Billings in excess of costs and estimated earnings on uncompleted contracts       117      (3,199)
                                                                                        ----------  ----------
            Net cash used in operating activities                                         (21,297)    (17,363)
                                                                                        ----------  ----------
Cash flows from investing activities                                                                          
    Sales of investment securities                                                             --       1,248
    Purchases of investment securities                                                         --      (1,248)
    Sales of restricted investment securities                                               1,100       1,238
    Purchases of restricted investment securities                                            (268)     (2,101)
    Decrease in restricted cash                                                               755          --
    Proceeds on sale of long-term investment - Lumera                                      10,292       2,282
    Proceeds on sale of property and equipment                                                200          --
    Purchases of property and equipment                                                    (1,995)       (414)
                                                                                        ----------  ----------
            Net cash provided by investing activities                                      10,084       1,005
                                                                                        ----------  ----------
Cash flows from financing activities                                                                          
    Principal payments under capital leases                                                   (28)        (35)
    Principal payments under long-term debt                                                   (39)        (57)
    Increase in long-term debt                                                                536          --
    Proceeds from issuance of notes and warrants                                               --      10,575
    Payments on notes payable                                                              (6,533)     (1,000)
    Increase in deferred rent                                                                 577         228
    Payment of embedded derivative feature of preferred stock conversion                   (1,074)         --
    Net proceeds from issuance of common stock and warrants                                24,983       6,967
    Payment of preferred dividend                                                             (43)       (173)
                                                                                        ----------  ----------
            Net cash provided by financing activities                                      18,379      16,505
                                                                                        ----------  ----------
Net increase in cash and cash equivalents                                                   7,166         147
Cash and cash equivalents at beginning of period                                            6,860       1,268
                                                                                        ----------  ----------
Cash and cash equivalents at end of period                                             $   14,026  $    1,415
                                                                                        ==========  ==========
Supplemental disclosure of cash flow information                                                              
    Cash paid for interest                                                             $      649  $      342
                                                                                        ==========  ==========
Supplemental schedule of non-cash investing and financing activities                                          
    Property and equipment acquired under capital leases                               $       80  $      115
                                                                                        ==========  ==========

    Other non-cash additions to property and equipment                                 $       --  $       69
                                                                                        ==========  ==========

    Scheduled payments of convertible debt and interest in common stock                $    1,755  $       --
                                                                                        ==========  ==========

    Conversion of convertible debt into common stock                                   $      344  $       --
                                                                                        ==========  ==========

    Conversion of preferred stock into common stock                                    $    4,417  $    4,117
                                                                                        ==========  ==========

    Inducement for conversion of preferred stock                                       $    3,076  $       --
                                                                                        ==========  ==========

    Deferred compensation - warrants, options and stock grants                         $       --  $      169
                                                                                        ==========  ==========`

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



MICROVISION, INC.
                  Notes to Consolidated Financial Statements
                  September 30, 2006
                  (Unaudited)

1.  MANAGEMENT'S STATEMENT AND PRINCIPLES OF CONSOLIDATION

Management's Statement

The Consolidated Balance Sheet as of September 30, 2006, the Consolidated
Statements of Operations and Comprehensive Loss for the three and nine months
ended September 30, 2006 and 2005, the Consolidated Statement of Cash Flows for
the  nine months ended September 30, 2006 and 2005, and the Consolidated
Statement of Mandatorily Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the nine months ended September 30, 2006 have
been prepared by Microvision, Inc. (the "Company" or
"Microvision") and have not been audited.  In the opinion of
management, all adjustments necessary to state fairly the financial position at
September 30, 2006 and the results of operations and cash flows for all periods
presented have been made and consist of normal recurring adjustments.  Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules of the SEC.  You should read these
condensed financial statements in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2005.  The results of operations for the three
and nine months ended September 30, 2006 are not necessarily indicative of the
operating results that may be attained for the entire fiscal year.

At September 30, 2006, Microvision had $14.6 million in cash and cash
equivalents and investment securities available-for-sale.  In October 2006, the
Company sold 322,000 unpledged shares of Lumera common stock for
$1.9 million.

Principles of Consolidation

Until July 2004, the consolidated financial statements included the accounts
of Microvision, a Delaware corporation, and its majority-owned subsidiary Lumera
Corporation ("Lumera"), a Delaware corporation.  In July 2004,
Microvision's ownership interest in Lumera was reduced to 33% as a result of
Lumera completing an initial public offering of its common stock.  As a result
of the reduction in ownership, Microvision changed to the equity method of
accounting for its investment in Lumera until January 2006.  In January 2006,
Microvision sold 2,550,000 shares of its Lumera common stock for $10.3 million.
Microvision recorded a "Gain on sale of securities of equity
subsidiary" of approximately $7.3 million for the sale.  As a result of the
reduction in ownership, Microvision changed to the cost basis of accounting for
available-for-sale securities for its investment in Lumera in accordance with
Financial Accounting Standards Board No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115").

2.  NET LOSS PER SHARE

Basic net loss per share is calculated on the basis of the weighted-average
number of common shares outstanding during the reporting periods.
Diluted net loss per share is calculated on the basis of the weighted-average
number of common shares outstanding and taking into account the dilutive effect
of all potential common stock equivalents outstanding.  Potentially dilutive
common stock equivalents primarily consist of convertible debt, convertible
preferred stock, warrants and employee stock options.  Diluted net loss per
share for the three and nine months ended September 30, 2006 and 2005 is equal
to basic net loss per share because the effect of all potential common stock
outstanding during the periods, including convertible debt, convertible
preferred stock, options and warrants is anti-dilutive.

The components of basic and diluted net loss per share were as follows (in
thousands, except loss per share data):

`Three Months Ended           Nine Months Ended
                                                                                 September 30,               September 30,
                                                                          --------------------------  --------------------------
                                                                              2006          2005          2006          2005
                                                                          ------------  ------------  ------------  ------------
Numerator:
Net loss available for common shareholders                               $     (7,692) $    (12,571) $    (18,576) $    (24,718)
                                                                          ============  ============  ============  ============
Denominator:
Basic and diluted weighted-average
   common shares outstanding                                             $     38,437  $     22,637  $     30,997  $     21,875
                                                                          ------------  ------------  ------------  ------------
Basic and diluted net loss per share                                     $      (0.20) $      (0.56) $      (0.60) $      (1.13)
                                                                          ============  ============  ============  ============`

As of September 30, 2006 and 2005, the Company excluded the following
convertible securities from diluted 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.

`September 30,
                                        2006         2005
                                    ------------ ------------
Publicly traded warrants             12,363,000           --
Options and private warrants         10,907,000    8,576,000
Notes payable                         1,272,000    1,721,000
Mandatorily redeemable
   convertible preferred stock               --      741,000
                                    ------------ ------------
                                     24,542,000   11,038,000
                                    ============ ============`



3.  INVENTORY

Inventory at September 30, 2006 and December 31, 2005 consisted of the
following:

`September 30,  December 31,
                                                                              2006          2005
                                                                          ------------  ------------                            
Raw materials                                                            $    511,000  $    267,000
Work-in-process                                                                49,000       141,000
Finished goods                                                                470,000       351,000
                                                                          ------------  ------------
                                                                         $  1,030,000  $    759,000
                                                                          ============  ============`



The inventory at September 30, 2006 and December 31, 2005 consisted of raw
materials, work-in-process, and finished goods for Flic.  Inventory is stated at
the lower of cost or market, with cost determined on a weighted-average basis.
Management periodically assesses the need to provide for obsolescence of
inventory and adjusts the carrying value of inventory to its net realizable
value when required.  In addition, Microvision reduces the value of its
inventory to its estimated scrap value when management determines that it is not
probable that the inventory will be consumed through normal production during
the next twelve months.  During the first nine months of 2006 and 2005,
Microvision wrote off a total of $591,000 and $1,598,000, respectively.

During the second quarter of 2006, the Company determined that it would no
longer promote the Nomad product and recorded an expense of $210,000 to reduce
the value of Nomad inventory to zero at June 30, 2006.  In addition, the Company
recorded $100,000 as additional accelerated depreciation expense related to
fixed assets used in Nomad production at June 30, 2006.  Both inventory and
fixed asset balances related to Nomad production were zero as of June 30, 2006.

4.  SEVERANCE ARRANGEMENTS

During the three month periods ended March 31, 2006 and September 30, 2006,
the Company terminated 18 and 6 employees, or 11% and 4% of its workforce,
respectively.  During the nine months ended September 30, 2006, the Company
recorded expense of $728,000 and paid $716,000 in connection with severance
agreements for these employees.

5.  SHARE-BASED COMPENSATION

Stock Option Exchange

Subject to the terms of its tender offer filed in April 2006, on May 17,
2006, the Company exchanged 2.2 million options for 2.2 million new options
affecting 105 employees.  The new options have an exercise price of $2.77.  The
new options vested 25% on the grant date and will vest 25% on each subsequent
annual anniversary.  The tender offer did not result in the acceleration of
vesting of any options.  The new options have the same expiration dates as the
options exchanged.  The Company also adjusted the exercise price of 386,000
options not subject to the tender offer to $2.77 on the same date affecting 19
employees.

The tender offer was accounted for in accordance with FAS 123(R).  The
Company will recognize the $496,000 incremental fair value of the modified
options over the value of the options prior to modification, as determined on
the modification date, as an additional non-cash expense.  The incremental
expense is recognized ratably over the vesting periods of the options, 25% on
the grant date with the remaining 75% straight-line over the remaining vesting
period.  The incremental fair value of the modified options was estimated using
the Black-Scholes option-pricing model with the following assumptions.

`Pre-         Post-
                                                                          modification  modification
                                                                          ------------  ------------                            
Weighted average:
   Exercise price                                                        $       8.84  $       2.77
   Volatility                                                                      73%           65%
   Expected term (years)                                                          6.9           4.2
   Risk free rate                                                                 5.0%          5.0%
   Pre-vest forfeiture rate                                                       5.0%          5.0%`

Share-based Compensation Prior to Adopting Statement of Financial
Accounting Standards No. 123, as revised December 2004 ("FAS 123(R)")
on January 1, 2006

Prior to January 1, 2006, the Company accounted for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25") and related amendments and interpretations including the
Financial Accounting Standards Board Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation("FIN 44"), and
complied with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation("FAS
123").  The Company accounts for equity instruments issued to non-employees
in accordance with the provisions of FAS 123 and Emerging Issues Task Force
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services ("EITF 96-18").

If compensation expense for employee and director options had been determined
using the fair values at the grant dates consistent with the methodology
prescribed under FAS 123 in 2005, the Company's consolidated net loss available
to common shareholders and associated net loss per share would have increased to
the pro forma amounts shown below (in thousands):

`Three Months  Nine Months
                                                                               Ended September 30,
                                                                          --------------------------
                                                                              2005          2005
                                                                          ------------  ------------

Net loss available for common shareholders, as reported                  $    (12,571) $    (24,718)

Add:  Stock-based employee compensation expense included
  in net loss available for common shareholders,
  as reported, net of minority interest                                            44            79

Deduct: Stock-based employee compensation expense determined under
    fair value based method for all awards, net of minority interest             (535)       (1,535)
                                                                          ------------  ------------

Net loss available for common shareholders, pro forma                    $    (13,062) $    (26,174)
                                                                          ============  ============
Net loss per share (basic and diluted):
  As reported                                                            $      (0.56) $      (1.13)
                                                                          ============  ============

  Pro Forma                                                              $      (0.58) $      (1.20)
                                                                          ============  ============

Basic and diluted weighted-average common shares outstanding                   22,637        21,875
                                                                          ============  ============`

Adoption of FAS 123(R)

The Company adopted Statement of Financial Accounting Standards No. 123, as
revised December 2004 ("FAS 123(R)") effective January 1, 2006.  FAS
123(R) requires all employee share-based awards granted after the effective date
to be valued at fair value, and to be expensed over the applicable vesting
period.  In addition, companies must begin recognizing compensation expense
related to any awards that are not fully vested as of the adoption date.
Compensation expense for such unvested employee awards will be measured based on
the fair value of the awards as previously calculated and interperiod
attribution method used in developing the pro forma disclosures in accordance
with the provisions of FAS 123.  The valuation of and accounting for share-based
awards include a number of complex and subjective estimates.  These estimates
include, but are not limited to, the future volatility of our stock price,
future employee stock option exercise behaviors and future employee
terminations.

The Company adopted the Modified Prospective Application ("MPA")
method to account for the transition from Accounting Principles Board Opinion
No. 25 - Accounting for Stock Issued to Employees ("APB 25") and FAS
123 (Proforma) to FAS 123(R).  As prescribed by MPA, the Company will not
restate prior period financial statements.  Under guidance contained in APB 25
and FAS 123 (Proforma), the Company had accounted for award forfeitures as they
occur.  Under FAS 123(R), the Company estimates the forfeiture rate on the grant
date and adjusts the estimate through the vesting date.  The Company has made a
policy decision to change its share-based compensation expense attribution
method for grants made on or after the adoption date using the straight-line
method.  The expense attribution method under Financial Accounting Standards
Board Interpretation No. 28 ("FIN 28") will continue to be applied for
outstanding grants not vested as of the FAS 123(R) adoption date.  Upon adopting
FAS 123(R), the Company reversed $85,000 of unamortized deferred compensation as
of December 31, 2005 against common stock additional paid in capital.

As a result of adopting FAS 123(R), the Company's net income for the nine
months ended September 30, 2006 was $1.5 million lower than had it continued to
account for share-based employee compensation under APB 25.  In addition, basic
and diluted losses per share were lower by $0.05 per share.

The share-based employee compensation cost charged against income was as
shown below (in thousands):

`Three Months Ended           Nine Months Ended
                                                                                 September 30,               September 30,
                                                                          --------------------------  --------------------------
                                                                              2006          2005         2006           2005
                                                                          ------------  ------------  ------------  ------------
Share-based employee compensation cost charged against income            $        471  $        118  $      1,453  $        374
                                                                          ============  ============  ============  ============`

Description of Incentive Plans

The Company currently has two incentive plans ("Incentive Plans") that have
been approved by shareholders.  Both Incentive Plans are administered by the
Board of Directors, or its designated committee ("Plan Administrator"), and
provide for various awards as determined by the Plan Administrator.

In July 2006, the 1996 Stock Option Plan (the "1996 Plan") expired.
In September 2006, Company shareholders approved the 2006 Microvision, Inc.
Incentive Plan which amends, restates and renames the 1996 Plan ("2006
Incentive Plan").  All awards outstanding under the 1996 Plan remain
outstanding under the 2006 Incentive Plan.  The 2006 Incentive Plan retained the
8.0 million share authorization that was under the 1996 Plan and permits granting
non-qualified stock options ("NSOs"), incentive stock options ("ISOs"),
stock appreciation rights, restricted or unrestricted stock, deferred stock, other
share-based awards, or cash awards to employees, officers and certain
non-employees of the Company.  Any award may be a performance-based award.  Awards
granted under the 2006 Incentive Plan have generally been to employees under
non-qualified stock option agreements with the following provisions: exercise
prices greater than or equal to the Company's closing stock price on the date of
grant; vesting periods ranging from three years to four years; expiration 10
years from the date of grant; and optionees who terminate their service after
vesting have a limited time to exercise their options (typically three to twelve
months).  Shares of common stock awarded or issued upon exercise or conversion
of options or other derivatives issued under the Incentive Plan are new shares
previously registered for sale with the SEC.

The Independent Director Stock Option Plan ("Director Option Plan")
has 900,000 shares authorized and permits granting NSOs to independent directors
of the Company.  Under the Director Option Plan, upon initial election or
appointment to the Board of Directors, Directors receive a fully vested option
to purchase 15,000 shares of common stock and a second option to purchase 15,000
shares of common stock.  Upon reelection to the Board, Directors receive a
subsequent option to purchase 15,000 shares of common stock.  The second initial
option grant and any reelection grant vests the earlier of one year from date of
grant or the day before the next regularly scheduled annual shareholder meeting.
Grants awarded under the Director Option Plan generally, have the following
terms: exercise price equal to the Company's closing stock price on the date of
grant; expiration 10 years from the date of grant, and vested grants remain
exercisable until their expiration dates if a director leaves the Board.

Options Valuation Methodology and Assumptions

The Company uses the Black-Scholes option valuation model to determine the
fair value of the options and uses the closing price of its common stock as the
fair market value of its stock on that date.

The Company considers historical stock price volatilities, volatilities of
similar companies and other factors in determining its estimates of future
volatilities.

The Company follows the guidance provided by Staff Accounting Bulletin No.
107 ("SAB 107") for estimating "plain vanilla" option lives.
For other options, the Company uses historical lives, including post-termination
exercise behavior, publications, comparable company estimates, and other factors
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, excluding grants
issued under the Company's tender offer which require an incremental valuation
methodology and are disclosed above, during the periods shown below:

`Three Months Ended     Nine Months Ended
                                                                   September 30,         September 30,
                                                            --------------------  --------------------
                                                              2006       2005       2006       2005
                                                            ---------  ---------  ---------  ---------
Assumptions (weighted average)
Volatility                                                        66%        70%        72%        71%
Expected term (in years)                                         5.3        5.2        6.1        5.1
Risk-free rate                                                   4.8%       4.0%       5.0%       4.0%
Expected dividends                                                --         --         --         --
Pre-vest forfeiture rate                                         5.0%       n/a        5.0%       n/a
Grant date fair value of options granted                   $    0.95  $    3.60  $    2.33  $    3.45`

Options Activity and Positions

The following table summarizes activity and positions with respect to options
for the nine months ended September 30, 2006:

`Weighted
                                                                  Average
                                                      Weighted   Remaining
                                                       Average  Contractual   Aggregate
                                                      Exercise      Term      Intrinsic
Options                                  Shares         Price     (years)       Value
---------------------------------------- -----------  --------- ------------  ----------
Outstanding at December 31, 2005          5,320,000  $   11.09
Granted  *                                4,180,000       3.02
Exercised                                        --         --
Forfeited or expired  *                  (3,788,000)      9.76
                                         -----------
Outstanding as of September 30, 2006      5,712,000  $    6.06          7.1  $       --
                                         ===========  ========= ============  ==========

Vested and expected to vest as of
September 30, 2006                        5,385,000  $    6.23          7.0          --
                                         ===========  ========= ============  ==========

Exercisable as of September 30, 2006      2,585,000  $    9.63          6.2  $       --
                                         ===========  ========= ============  ==========`

* Includes 2.2 million shares exchanged pursuant to stock option exchange
disclosed above

The total intrinsic value of options exercised during the three and nine
months ended September 30, 2005 was zero and $6,000, respectively.

As of September 30, 2006, the Company's unamortized share-based compensation
was $3.7 million.  The Company plans to amortize this share-based compensation
cost over the next 2.3 years.

During the six months ended June 30, 2006, the Board of Directors approved
the immediate vesting of options to purchase 45,000 shares that had been issued
to three independent directors.  The directors subsequently resigned from the
Board of Directors.  The Company determined that the accelerated vesting was a
modification of an award with a service vesting condition.  The total fair value
of each modified option was measured as the value of the original grant plus the
value of the modified grant on its modification date.  On the modification date,
the total value of the modified awards was estimated to be $91,000, of which
$84,000 was previously amortized, and the remaining value of $7,000 was
immediately expensed as compensation cost.

In July 2005, the Company granted options to purchase an aggregate of 300,000
shares of common stock at an exercise price of $5.32 to an executive officer.
The exercise price of the options was less than the fair market value of the
shares on the date of grant.  According to guidance in Accounting Principles
Bulletin No. 25 ("APB 25"), the Company recorded $144,000 of deferred
compensation and amortized $59,000 to compensation expense related to these
options in 2005.  Upon adopting FAS 123(R) on January 1, 2006, the Company
reversed the remaining unamortized deferred compensation of $85,000 to
additional paid-in capital.

In June 2004, the Company granted its independent directors options to
purchase an aggregate of 90,000 shares of common stock at an exercise price of
$8.35.  The exercise price of the options was less than the fair market value of
the shares at the date of grant.  According to guidance in APB 25, the Company
recorded $81,000 of deferred compensation related to these options.  The
deferred compensation was amortized to non-cash compensation expense over the
one-year service period of the grants.  Deferred compensation expense of
$35,000, under APB 25, was recorded in 2005.

6.  LONG-TERM NOTES

Convertible Notes

The following table summarizes the activity related to the Company's
March and December 2005 convertible notes in 2006:

`Embedded    Common
                                                                                            derivative  stock and
                                                                        Notes    Warrants    feature      APIC
                                                                      ---------  ---------  ----------  ---------
Balances at December 31, 2005                                        $   9,343  $   3,452  $    1,368  $   5,721
Principal payments on notes                                             (8,500)        --          --      1,967
Discount accretion for the nine months ended September 30, 2006          3,889         --          --         --
Changes in market value for the nine months ended September 30, 2006        --     (2,858)     (1,368)        --
                                                                      ---------  ---------  ----------  ---------
Balance of notes at September 30, 2006                               $   4,732  $     594  $       --  $   7,688
                                                                      =========  =========  ==========  =========`

As of September 30, 2006, the principal balance outstanding under the
convertible notes is $5.8 million.  The final scheduled principal payments are
due March 15, 2007.

In January 2006, the Company issued 91,000 shares of its common stock in
payment of $300,000 principal on the March 2005 convertible notes.

During 2006, the Company made the following scheduled payments in connection
with its March and December 2005 convertible notes.

- cash payments of $6.5 million in principal and $606,000 in interest, and
- issued 1.4 million shares of its common stock in payment of $1.7
million in principal and $88,000 in interest

Tenant Improvement Loan Agreement

In February 2006, the Company entered into a loan agreement with the lessor
of the Company's corporate headquarters to finance $536,000 in tenant
improvements.  The loan carries a fixed interest rate of 9% per annum, is
repayable over the initial term of the lease, which expires in 2013, and is
secured by a letter of credit.  The balance of the loan, including interest
added to principal, was $532,000 at September 30, 2006.

7. PREFERRED STOCK CONVERSION

On May 3, 2006, the Company entered into an agreement ("Conversion
Agreement") with the holders of its Series A Convertible Preferred Stock to
convert 5,000 shares of Preferred Stock.  As consideration for the conversion,
the Company issued a total of 1,353,066 shares of its common stock, $.001 par
value, of which 565,000 shares were issued as an inducement to convert
("Incentive Shares").  In connection with the conversion, the Company
entered into a Registration Rights Agreement with respect to the Incentive
Shares.  Under the conversion agreement, the Company agreed to pay the
difference, only if positive, of $3.62 minus the 45 day trailing volume weighted
average price as of the 45th trading day after the effective date of the
required registration statement with respect to any of the Incentive Shares that
were sold by the holder during the 45 day period or that were held in an
economically neutral position as of the end of the 45 day period.

The Company determined that the price protection feature of the incentive
shares included an embedded derivative feature as defined by Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133").  The value of the derivative
feature at the conversion was estimated to be $401,000 using the Black-Scholes
option-pricing model with the following assumptions:  expected volatility of
65%; expected dividend yield of 0%; risk free interest rate of 4.9%; and
contractual life of 0.3 years.  The Company recorded the initial value of the
embedded derivative feature as a non-operating expense included in "Gain on
derivative instruments, net."  Due to changes in the Company's stock price,
the value of the derivative feature was adjusted to $729,000 at June 30, 2006
using the Black-Scholes option-pricing model with the following assumptions:
expected volatility of 65%; expected dividend yield of 0%; risk free interest
rate of 4.7%; and contractual life of 0.2 years.  In August 2006, the Company
determined the final value and paid the liability of $1,074,000.  The changes in
the estimated fair value of the derivative feature of $345,000 and $673,000 for
the three and nine months ended September 30, 2006 were included as a non-
operating expense in "Gain on derivative instruments, net."

8.  COMMON STOCK

In June 2006, the Company raised $25.3 million before issuance cost of
$2.5 million through an underwritten public offering of 10.75 million shares of
our common stock and warrants to purchase 12.4 million shares of our common
stock.  The warrants have an exercise price of $2.65 per share, a five year
term, and are not exercisable for one year from the date of issuance.  The
warrants are callable after one year from the date of issuance if the average
closing bid price of our stock is over $5.30 for any 20 consecutive trading
days.

In connection with the offering, the Company issued the underwriter a warrant
to purchase 537,500 shares of Microvision common stock at an exercise price of
$2.76 per share.  The Company also issued the underwriter a warrant to acquire
537,500 warrants, identical to those sold in the offering, at an exercise price
of $0.16 per warrant.  Both warrants will be exercisable for a period of 4 years
beginning on the first anniversary of the date of issuance.

In July 2006, the Company raised an additional $1.7 million through the
issuance of 800,000 shares of Microvision common stock pursuant to MDB Capital
Group, LLC's exercise of its over allotment option in connection with the
underwritten offering described above.

9.  RECEIVABLES FROM RELATED PARTIES

In 2000, the Board of Directors authorized the Company to provide
unsecured lines of credit to each of its then three senior officers.  No loans
have been made under either the Executive Option Exercise Note Plan or the
Executive Loan Plan since July 2002, and the Company does not intend to make any
additional loans under these plans.  Two of the officers left the company in
January 2006.  A total of $2,723,000 was issued and remains outstanding under
the Executive Loan Plan.  There are currently no outstanding loans under the
Executive Option Exercise Note Plan.  The lines of credit carry interest rates
of 5.4% to 6.2%.  The interest on the lines of credit is forgiven each year if
the senior officer is an employee of the Company at December 31 of that year.

The Company established an allowance for doubtful accounts when it determined
that certain of its senior officers may have had insufficient net worth and
short-term earnings potential to repay their outstanding loans.  The balance of
the allowance for doubtful accounts for receivables from senior officers was
$1.9 million at September 30, 2006 and at December 31, 2005.  In accordance with
the terms of the notes, $2.4 million in loans to the two officers who left the
Company will be due in January 2007.  Microvision has no plans to forgive any
portion of the principal of the outstanding receivable balance.

10.  ACCOUNTING FOR LUMERA

Investment Securities, Available-for-sale

In February 2006, Microvision sold 2,550,000 shares of its Lumera common
stock for $10.3 million.  Microvision recorded a "Gain on sale of
securities of equity subsidiary" of approximately $7.3 million.  As a
result of the reduction in ownership, Microvision changed to the cost basis of
accounting for its investment in Lumera in accordance with FAS 115.

As of September 30, 2006, Microvision owns 2.1 million shares of Lumera
common stock, recorded at fair market value, of which 1.8 million are pledged as
collateral for the convertible notes.  The shares of common stock pledged as
collateral are recorded as "Current restricted investments" and the
unrestricted balance is recorded at "Investment securities, available-for-
sale".

The cost, net unrealized gain and estimated fair market value of the shares
of Lumera common stock, both available-for-sale and currently restricted, as of
September 30, 2006, are shown below:

`Net      Estimated
                                                Unrealized     Fair
                                       Cost        Gain       Value
                                     ---------  ----------  ----------             
Lumera common stock                 $   2,455  $    1,150  $    3,605
                                     =========  ==========  ==========`

In October 2006, the Company sold 322,000 unpledged shares of Lumera common
stock for $1.9 milion.

Warrant

In connection with the change in accounting method in February 2006, the
Company recorded $476,000 in "Other current assets" for the fair value
of a warrant previously received to purchase 170,500 shares of Lumera common
stock.  On the transaction date, the warrant was valued using the Black-Scholes
option-pricing model with the following assumptions:  expected volatility of
83%; expected dividend yield of 0%; risk free interest rate of 4.6%; and
contractual life of 5.1 years.

At September 30, 2006, the warrant was revalued using the Black-Scholes
option-pricing model with the following assumptions; expected volatility of 83%;
expected dividend yield of 0%; risk free interest rate of 4.6%; and contractual
life of 4.5 years.  The fair value of the warrant decreased to $101,000 and the
change in value of $124,000 was recorded as a non-operating loss and is included
in "Gain on derivative instruments, net" in the consolidated statement
of operations.

11.  REPORTING SEGMENTS

Operating segments are defined as components of an enterprise for which
separate financial information is available and evaluated regularly by the chief
operating decision-maker, or decision-making group, in deciding how to allocate
resources and in assessing performance.  Microvision has two reportable
segments: the contract revenue derived from the development of custom prototypes
and products, and the product revenue derived from sales of Microvision
products.  Our chief operating decision-making group evaluates performance based
on financial information presented on a consolidated basis accompanied by
information about revenues and gross margins by segments.  Both segments share
in research and development and marketing, selling and administrative costs that
are not allocated to the segments.  Except for fixed assets associated with
production, the Company's assets are not allocated to the segments.  Therefore,
segment information is presented only for revenue and cost of revenue.

12.  SUBSEQUENT EVENT

In October 2006, the Company sold 322,000 unpledged shares
of Lumera common stock for $1.9 million.  Microvision expects to
record an estimated gain of $1.5 million in "Gain on sale of securities of
equity subsidiary" in the fourth quarter of 2006.

13.  RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards
Board (''FASB'') issued FASB Statement No. 155, "Accounting for Certain
Hybrid Instruments"("FAS 155").This standard amends
the guidance in FASB Statements No. 133, "Accounting for Derivative
Instruments and Hedging Activities".  FAS 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis, and clarifies
other issues regarding accounting for derivative instruments.  FAS 155 is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006.  The
Company is currently assessing the guidance in FAS 155 and the potential impacts
it may have on the Company in relation to any future security issuances.

In July 2006, FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
109" ("FIN 48").  FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes.  FIN 48
also prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.  The new FASB standard also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition.  The provisions of FIN 48 are to be
applied to all tax positions upon initial adoption of the standard.  FIN 48 is
effective for fiscal years beginning after December 15, 2006.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The information set forth in this report in Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
and Item 3, "Quantitative and Qualitative Disclosure about Market
Risk," includes "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
that section.  Such statements may include, but are not limited to, projections
of revenues, income or loss, capital expenditures, plans for product development
and cooperative arrangements, future operations, financing needs or plans of
Microvision, as well as assumptions relating to the foregoing.  The words
"anticipate," "believe," "estimate,"
"expect," "goal," "may," "plan,"
"project," "will," and similar expressions identify forward-
looking statements, which speak only as of the date the statement was made.
Factors that could cause actual results to differ materially from those
projected in the our forward-looking statements include the following: our
ability to obtain financing; success of executive transition; market acceptance
of our technologies and products; 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; the ability to achieve
key technical milestones in key products; and other risk factors identified in
our Annual Report on Form 10-K for the year ended December 31, 2005, as amended,
and as updated in our Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 2006 and below under the caption "Item 1A - Risk
Factors."

Overview

We design and market scanned beam display and image capture products.  We are
developing a modular integrated photonics module that we expect to be a common
integrated subsystem in future display products.  The integrated photonics
module consists of a MEMS scanner, electronics to drive the MEMS scanner, a
light source module, and electronics to drive the video input and output, system
controller and buffer memory component.  We believe that the modular integrated
photonics module could be readily modified to meet OEM product requirements for
different display product configurations.  These product configurations may
require modification of the integrated photonics module for a specific OEM
product.  The Automotive Head-Up Display, Pico Projector and Color Eyewear are
potential products we are planning to develop based on the integrated photonics
module.  In addition, we currently sell laser bar code scanners that feature
proprietary technology and we are developing image capture products that use our
scanned beam display and other proprietary technology.

Automotive Head-Up Display

We are continuing to improve upon our prototype head-up displays for
automotive manufacturers and Tier 1 suppliers to automotive companies.  Our
prototypes demonstrate that scanned beam display technology can be used in a
head-up display that projects a day-light or night-time readable image onto the
windscreen of an automobile to provide the vehicle operator with a variety of
information related to the car's operation.  We believe that our technology
provides three distinct advantages over competing technologies for head-up
display applications:

- Form Factor - Our prototype display is less than half the size of current
competitive offerings.  Total package size is a primary consideration in the
design of an instrument panel for an automobile.

- Contrast Ratio - Our prototype has a contrast ratio an order of magnitude
higher than current competitive offerings.  The high contrast ratio allows the
driver to see the display in bright daylight and see through the display at
night.

- Installation Cost - Our prototype can be electronically optimized to the
unique curvature of a particular automobile's windshield.  The current
competitive offerings must be manually adjusted during installation to match the
varying curvature tolerances of different windshields.

In September 2006, we entered into an agreement with a Tier 1 automotive
supplier to develop a commercial scanned beam head-up display.  We plan to work
with the Tier 1 supplier and automobile manufacturers to integrate our head-up
display into an automotive instrument panel.

The current competitive products are based on liquid crystal display or
vacuum fluorescent display technology and these are more mature than scanned
beam display technology.

Pico Projector

During 2005, we developed a prototype micro projector.  We are targeting
embedding this micro projector into a hand held device that can project full-
color images from a portable media source or mobile computer onto a surface
chosen by the user.  Several large consumer electronics companies are developing
micro projectors based on very small display panel technologies. Our goal is to
enter into an agreement that would result in the development, manufacture and
distribution of a pico projector based on our planned integrated photonic
module.  We believe our scanned beam display technology will provide a smaller
form factor than small projectors based on competing display technologies.

We believe that the pico projector will compete with other projection display
technologies as well as traditional flat panel direct view displays.

Full-Color Eyewear

We believe that the integrated photonic module we are developing can be
customized to enable displays that more closely resemble eyewear than other
technologies allow.  We are evaluating the market and technical risk associated
with three distinct color eyewear solutions.

- Highly mobile "glance-able" display: In this configuration, the
user could glance down occasionally at a worn display.  This device would be
suitable for light business use such as mobile web surfing and reading e-mail.
We believe that high resolution, high contrast, and small package size could be
important differentiators between our scanned beam display solution and
competing solutions.

- Look-around or see-through display:  In this configuration, the user could
view a full screen display in see- through or occluded mode.  This configuration
would be suitable for light business use and viewing longer pieces of streaming
video for entertainment or business applications.

- Fully-occluded immersive display:  In this configuration, the user could
view a very wide screen high resolution 2D and 3D video stream.  This
configuration would be suitable for interactive gaming applications and
simulators.

In any of these configurations, we believe that high resolution, small
package size, lower power consumption, and lower cost could be important
differentiators between our scanned beam display solution and competing
solutions.  We plan to evaluate potential designs for one or more of these
potential configurations during 2006.

We believe that our color eyewear product will compete primarily with LCD,
LCoS, and OLED based solutions.

Flic

We sell the Flic laser bar code scanner, a hand held laser bar code scanner
and the Flic Cordless Scanner, a Bluetooth version of the Flic Scanner.  Flic
scanners feature a proprietary design that provides for lower power consumption
and total operating cost than many other bar code scanners currently available.
We expect the sales volume for Flic scanners will grow as more companies release
products which bundle application software with the Flic.

The bar code scanning industry is highly competitive.  Flic scanners compete
with existing laser wand and CCD/CMOS imager scanners produced by established
bar code scanner companies.  Flic scanners compete on the basis of price, form
factor, and performance.  The bar code industry is dominated by Symbol
Technologies, which sells products that directly compete with the Flic and Flic
Cordless scanner products.

Image Capture

We are using our scanned beam and other proprietary technology to develop
products that capture images and other information.  Such products include bar
code readers and miniature high-resolution "laser cameras".  In
December 2004, we entered into an agreement with Ethicon Endo-Surgery Inc., a
subsidiary of Johnson & Johnson, to integrate our scanned beam technology
into certain medical products for human medical applications.  We have delivered
prototype units that Ethicon will use for product evaluation and market
analysis.

Competition

The consumer display and automotive head-up-display markets are highly competitive.
Our competitors in these markets have substantially greater financial, technical and
other resources than us and may develop further improvements to screen display
technology that could reduce or eliminate the anticipated advantages of our
proposed products.

Results of Operations

Contract revenue.

`% of                  % of
                                                contract              contract
                                       2006      revenue     2005      revenue   $ change  % change
                                     ---------  ---------  ---------  ---------  --------- ---------
Three months ended September 30                                                                     
Government revenue                  $     271       50.1  $   1,596       73.2  $  (1,325)    (83.0)
Commercial revenue                        270       49.9        584       26.8       (314)    (53.8)
                                     ---------             ---------             ---------
Total contract revenue              $     541             $   2,180             $  (1,639)    (75.2)
                                     =========             =========             =========          
Nine months ended September 30                                                                      
Government revenue                  $   2,281       62.4  $   3,548       38.4  $  (1,267)    (35.7)
Commercial revenue                      1,376       37.6      5,696       61.6     (4,320)    (75.8)
                                     ---------             ---------             ---------
Total contract revenue              $   3,657             $   9,244             $  (5,587)    (60.4)
                                     =========             =========             =========`

We earn contract revenue from performance on development contracts with the
United States government and commercial customers.

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.  Contract
revenue was lower during the three and nine months ended September 30, 2006 than
the same periods in 2005, due to lower beginning commercial contract backlog,
the later timing of completing government contract negotiations, and the
allocation of resources to internally funded development projects.

During the first nine months of 2005, we earned $4.9 million from work
performed on the Ethicon contract compared to $764,000 during the first nine
months of 2006.  We delivered the prototype devices as required under the
contract during the second quarter of 2006.  Ethicon has seventeen months to
conduct market evaluations before it decides to continue development.  We do not
anticipate earning additional material revenue from Ethicon in 2006.

In September 2006, we entered into a $5.95 million contract with General
Dynamics C4 Systems to supply full-color, daylight readable, see-through helmet-
mounted displays as part of the U.S. Army's Mounted Warrior HMD Improvement
Program.  General Dynamics holds prime contracts with the U.S. Army for other
Warrior programs including Land Warrior, Air Warrior and Future Force Warrior
Advanced Technology Demonstration.  The contract specifies the development and
delivery of ten full-color display units for evaluation.

In September 2006, we also entered into an agreement with a global Tier 1
automotive supplier.  Under the agreement, we will work with the Tier 1 supplier
to design and produce a series of advanced automotive head-up display samples.
The Tier 1 supplier, working in collaboration with us, is expected to use the
samples to demonstrate the performance of our laser based scanned beam display
technology and to refine commercial product requirements of automotive head-up
displays.

As long as most of our revenue is earned from performance on development
contracts, we believe there may be a high degree of variability in revenue from
quarter to quarter.

Our backlog of development contracts at September 30, 2006 was $6.8 million
compared to $4.6 million at September 30, 2005.  Of our current development
contract backlog, $5.3 million is scheduled for completion during the
next twelve months.  The remaining $1.5 million is scheduled for
completion over the subsequent five months through February 2008.

Product revenue.

`% of                  % of
                                                 product               product
                                       2006      revenue     2005      revenue   $ change  % change
                                     ---------  ---------  ---------  ---------  --------- ---------
Three months ended September 30                                                                     
Flic revenue                        $     190       67.4  $     368       32.0  $    (178)    (48.4)
Nomad revenue                              92       32.6        782       68.0       (690)    (88.2)
                                     ---------             ---------             ---------
Total product revenue               $     282             $   1,150             $    (868)    (75.5)
                                     =========             =========             =========          
Nine months ended September 30                                                                      
Flic revenue                        $   1,374       89.0  $   1,133       40.6  $     241      21.3
Nomad revenue                             170       11.0      1,660       59.4     (1,490)    (89.8)
                                     ---------             ---------             ---------
Total product revenue               $   1,544             $   2,793             $  (1,249)    (44.7)
                                     =========             =========             =========`

We have earned product revenue from sales of Nomad and Flic.  The Nomad has
not gained the commercial acceptance we had planned when it was introduced.  In
June 2006, we decided not to continue to promote the Nomad product.

Our quarterly revenue may vary substantially due to the timing of product
orders from customers, production constraints and raw material availability.

The backlog of product orders at September 30, 2006 was approximately
$98,000, compared to $276,000 at September 30, 2005, all of which is scheduled
for delivery during the next twelve months.

Cost of contract revenue.

`% of                  % of
                                                contract              contract
                                       2006      revenue     2005      revenue   $ change  % change
                                     ---------  ---------  ---------  ---------  --------- ---------
Three months ended September 30     $     343       63.4  $   1,647       75.6  $  (1,304)    (79.2)
Nine months ended September 30          2,493       68.2      5,143       55.6     (2,650)    (51.5)`

Cost of contract revenue includes both the direct and allocated indirect
costs of performing on development contracts.  Direct costs include labor,
materials and other costs incurred directly in 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 both by the level of direct
costs incurred on development contracts and by the level of indirect costs
incurred in operating and building our technical capabilities and capacity.  The
cost of contract revenue can fluctuate substantially from period to period
depending on the level of both the direct costs incurred in the performance of
projects and the level of indirect costs incurred.

Our research and development department works on both contract revenue
projects and internally funded development projects.  We allocate the research
and development department overhead to cost of contract revenue and research and
development expense based on the proportion of direct labor cost incurred in
cost of contract revenue and research and development, respectively.  As a
result of the lower direct labor cost in cost of contract revenue for both the
three and nine months ended September 30, 2006, approximately 83% and 50%,
respectively, less overhead was allocated to cost of contract revenue than in
the same periods in 2005.

We expect that cost of contract revenue on an absolute dollar basis may
increase in the future.  This increase will likely result from additional
development contract work that we expect to perform.  The cost of revenue as a
percentage of revenue can fluctuate significantly from period to period,
depending on the contract cost mix and the levels of direct and indirect costs
incurred.  However, over longer periods of time we expect modest fluctuations in
the cost of contract revenue, as a percentage of contract revenue.

Cost of product revenue.

Cost of product revenue includes both the direct and allocated indirect costs
of manufacturing Nomads and Flics sold to customers.  Direct costs include
labor, materials and other costs incurred directly in the manufacture of Flic
and Nomad.  Indirect costs include labor and other costs associated with
operating our manufacturing capabilities and capacity.

Our overhead, which includes the costs of procuring, inspecting and storing
material, facility and depreciation costs, is allocated
to inventory, cost of product revenue, cost of contract revenue, and research
and development expense based on the proportion of direct material purchased for
the respective activity.  During the three and nine months ending September 30,
2006, we expensed approximately $276,000 and $1,114,000, respectively, of
manufacturing overhead associated with production capacity in excess of
production requirements.

Cost of product revenue for the three and nine months ended September 30,
2006 includes the write-off of a total of $139,000 and $591,000 of inventory,
respectively, compared to $207,000 and $1,598,000 for the three and nine months
ended September 30, 2005.  The write-offs were due to changes in product design,
our decision not to promote the Nomad product, and customer demand that caused
components and accessories to become obsolete or slow-moving.  We value our
inventory at the lower of cost or market and reduce the value of our inventory
to its estimated scrap value when we determine that we will probably not sell
the inventory during the next 12 months.

In June 2006, we decided not to continue to promote the Nomad product and
recorded an expense of $210,000 to reduce the value of Nomad inventory to zero.
In addition, we recorded $100,000 in depreciation expense to fully depreciate
the fixed assets used in Nomad production.

We expect that cost of product revenue on an absolute dollar basis will
increase in the future.  This increase will likely result from expected sales of
commercial products.  The cost of product revenue as a percentage of product
revenue can fluctuate significantly from period to period, depending on the
product mix, the level of overhead expense and the volume of direct materials
purchased.

Research and development expense.

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $   2,855  $   1,963  $     892       45.4
Nine months ended September 30          7,316      5,884      1,432       24.3`

Research and development expense consists of:

- Compensation related costs of employees and contractors engaged in internal
research and product development activities,
- Laboratory operations, outsourced development and processing work, and
- Other operating expenses.

As part of our turnaround strategy announced in February 2006, we established
a target of reducing total overhead cost by approximately 20%, excluding the
impact of adopting FAS123(R) and severance costs.

The following table eliminates the impacts of adopting FAS 123(R) and
severance costs on research and development expense.

`Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                     --------------------  --------------------
                                       2006       2005       2006       2005                        
                                     ---------  ---------  ---------  ---------
Research and development
   expense, as reported             $   2,855  $   1,963  $   7,316  $   5,884
FAS 123(R) options expense                (97)        --       (306)        --
Severance                                  --         --       (283)        --
                                     ---------  ---------  ---------  ---------
Research and development
   expense, as adjusted             $   2,758  $   1,963  $   6,727  $   5,884
                                     =========  =========  =========  =========`

For the three and nine months ended September 30, 2006 $1.3 million and
$2.6 million, respectively, less research and development cost was allocated
to cost of contract revenue than during the same periods in 2005.
We directed more of our research and development work to internally funded
projects such as the integrated photonics module than during the same period
last year.  We allocate 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 customers.

As part of our ongoing efforts to reduce cost, we have reduced research
and development overhead costs such as contracted services, facilities and
equipment related expenses.

We believe that a substantial level of continuing research and development
expense will be required to develop additional commercial products using the
scanned beam display technology.  Accordingly, Microvision anticipates its level
of research and development spending will continue to be substantial.

Sales, marketing, general and administrative expense.

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $   3,652  $   4,523  $    (871)     (19.3)
Nine months ended September 30         13,066     13,830       (764)      (5.5)`

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.

Sales, marketing, general and administrative expenses were relatively
constant for the periods shown.  The  non-cash compensation cost arising from
adopting FAS 123(R) and severance costs, which did not occur in 2005, were
offset by decreases in sales and marketing program costs and corporate overhead
costs from 2005.  In addition, we are implementing further cost reductions as a
result of our decision to discontinue Nomad.

As part of our turnaround strategy announced in February 2006, we established
a target of reducing sales, marketing, general and administrative
expense by approximately 25% in 2006, excluding the impact of adopting FAS123(R) and
severance costs. The following table eliminates the impacts of adopting FAS
123(R) and severance costs on sales, marketing, general and administrative
expense.

`Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                     --------------------  --------------------
                                       2006       2005       2006       2005                        
                                     ---------  ---------  ---------  ---------
Sales, marketing, general and
   admininistrative, as reported    $   3,652  $   4,523  $  13,066  $  13,830
FAS 123(R) options expense               (374)        --     (1,147)        --
Severance                                 (81)        --       (445)        --
                                     ---------  ---------  ---------  ---------
Sales, marketing, general and
   admininistrative, as adjusted    $   3,197  $   4,523  $  11,474  $  13,830
                                     =========  =========  =========  =========`



Interest expense.

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $   1,346  $     997  $     349       35.0
Nine months ended September 30          4,804      2,067      2,737      132.4`

The increase in interest expense relates to the amortization of the discount
recorded on the March 2005 and December 2005 convertible notes (together the
"Notes") for the value attributed to the embedded derivative feature
of the Notes and associated warrants, as well as the stated interest on the
Notes.  We expect interest expense will be substantially higher for the rest of
2006 as a result of these transactions.

Gain on derivative instruments, net and Inducement for conversion of
preferred stock.

Gain on derivative instruments, net:

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $     125  $     611  $    (486)     (79.5)
Nine months ended September 30          3,179      1,669      1,510       90.5`

Inducement for conversion of preferred stock:

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $      --  $  (1,184) $   1,184     (100.0)
Nine months ended September 30         (3,076)    (1,184)    (1,892)     159.8`

In connection with the issuance of our Notes, we concluded that the note
holders' right to convert all or a portion of the Notes into our common stock is
an embedded derivative instrument as defined by FAS 133, Accounting for
Derivative Instruments and Hedging Activities.  We determine the value of
the derivative features at each balance sheet date using the Black-Scholes
option-pricing model.  At September 30, 2006, we used the following assumptions:
expected volatilities of 65%; expected dividend yields of 0%; risk free interest
rates ranging from 4.9% to 5.0%; and contractual lives of 2.5 to 5.5 months.
The contractual lives are the same as the principal repayment dates when valuing
the derivative features.  Due to changes in our stock price and the short
remaining lives, the aggregate fair value of the embedded derivative instruments
decreased to zero at September 30, 2006.  The change in value of $53,000 and
$1,368,000 for the three and nine months ended September 30, 2006, respectively,
was recorded as a non-operating gain and is included in "Gain on derivative
instruments, net" in the consolidated statement of operations.

We issued warrants to purchase 2,302,000 shares of common stock in connection
with the issuance of the Notes.  The warrants met the definition of derivative
instruments that must be accounted for as liabilities under the provisions of
Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock,because we cannot engage in certain corporate transactions affecting
the common stock unless we make a cash payment to the holders of the warrants.
We record changes in the fair values of the warrants in the statement of
operations each period.  We valued the warrants at September 30, 2006 using the
Black-Scholes option-pricing model with the following assumptions:  expected
volatilities ranging from 63% to 66%; expected dividend yields of 0%; risk free
interest rates ranging from 4.6% to 4.7%; and contractual lives ranging from 1.8
years to 4.2 years.  The change in value of the warrants of $541,000 and
$2,859,000 for the three and nine months ended September 30, 2006, respectively,
was recorded as a non-operating gain and is included in "Gain on derivative
instruments, net" in the consolidated statement of operations.

In May 2006, we entered into an agreement with the holders of our Series A
Convertible Preferred Stock to convert 5,000 shares of preferred stock to common
stock.  As consideration for the conversion, we issued a total of 1,353,066
shares of our common stock, of which 565,000 incentive shares were issued as an
inducement to convert.  The value of the inducement shares was recorded as
"Inducement for conversion of preferred stock" in the consolidated
statement of operations.  In connection with the conversion, we agreed to
register the incentive shares and to provide price protection on the incentive
shares.  We agreed to pay the difference, only if positive, of $3.62 minus the
45 day trailing volume weighted-average price as of the 45th trading day after
the effective date of the required registration statement with respect to any of
the incentive shares that were sold during the 45 day period or that were held
in an economically neutral position as of the end of the 45 day period.

We determined the price protection feature of the incentive shares included
an embedded derivative feature as defined by FAS 133.  The value of the
derivative feature at conversion was estimated to be $401,000 using the Black-Scholes
option-pricing model with the following assumptions:  expected
volatility of 65%; expected dividend yield of 0%; risk free interest rate of
4.9%; and contractual life of 0.3 years.  We recorded the initial value of the
embedded derivative feature as a non-operating expense included in
"Inducement for conversion of preferred stock" in the consolidated
statement of operations.  The value of the derivative feature fluctuated with
the value of our common stock and, to a lesser extent, with changes in valuation
variables.  Due to changes in our stock price, we adjusted the value of the
derivative feature to $729,000 at June 30, 2006 using the Black-Scholes
option-pricing model with the following assumptions:  expected volatility of 65%;
expected dividend yield of 0%; risk free interest rate of 4.7%; and contractual
life of 0.2 years.  In August 2006, we determined the final value and
paid the liability of $1,074,000.  The changes in the estimated fair value of
the derivative feature of $345,000 and $673,000 for the three and nine months
ended September 30, 2006 were included as a non-operating expense in "Gain
on derivative instruments, net."

Loss on investment in equity subsidiary and Gain on sale of
securities of equity subsidiary

Loss on investment inequity subsidiary:

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $      --  $     610  $    (610)    (100.0)
Nine months ended September 30            290      2,488     (2,198)     (88.3)`



Gain on sale of securities of equity subsidiary:

`2006       2005     $ change   % change
                                     ---------  ---------  ---------  ---------                     
Three months ended September 30     $      --  $      --  $      --         n/a
Nine months ended September 30          7,270      1,570      5,700      363.1`

In February 2006, we sold 2.6 million shares of our Lumera common stock for
$10.3 million.  We recorded a "Gain on sale of securities of equity
subsidiary" of approximately $7.3 million.  As a result of the reduction in
ownership, we changed to the cost basis of accounting for our investment in
Lumera in accordance with FAS 115.  We recorded our proportionate share of
Lumera losses prior to the sale in February 2006.  We recorded a charge of
$290,000 for our proportion of Lumera net loss for the period preceding the sale
and change in accounting method.

In connection with the change in accounting method, we recorded $476,000 in
"Other current assets" for the fair value of warrants previously received to
purchase 170,500 shares of Lumera common stock.  On the transaction date, the
warrants were valued using the Black-Scholes option-pricing model with the
following assumptions:  expected volatility of 83%; expected dividend yield of
0%; risk free interest rate of 4.55%; and contractual life of 5.1 years.
Changes in the fair value of the warrants are recorded in the statement of
operations each period.  As of September 30, 2006, the warrants were valued
using the Black-Scholes option-pricing model with the following assumptions:
expected volatilities of 83%; expected dividend yields of 0%; risk free interest
rates of 4.60%; and contractual lives of 4.5 years.  As of September 30, 2006,
the fair value of the warrants decreased to $101,000 and the change in value of
$124,000 was recorded as a non-operating loss and is included in "Gain on
derivative instruments, net" in the consolidated statement of
operations.

Liquidity and Capital Resources

We have funded our operations to date primarily through the sale of common
stock, convertible preferred stock, convertible debt, warrants and, to a lesser
extent, from development contract revenues and product sales.  We believe that
our current cash and cash equivalents and investment securities, available-for-sale
balance as of September 30, 2006, totaling $14.6 million, will satisfy our
budgeted cash requirements through April 2007.  The budgeted cash requirements
reflect our intention to make the remaining payments on our convertible notes
in cash.  Microvision plans to raise additional cash
to continue to fund its operating plan past that time.  There can
be no assurance that additional financing will be available to Microvision or that,
if available, it will be available on terms acceptable to Microvision on a timely
basis.  If adequate funds are not available to satisfy either short-term or long-
term capital requirements, Microvision will be required to limit its operations
substantially.  This limitation of operations may include reductions in staff,
operating costs and capital expenditures.  We own approximately 1.8
million shares of Lumera common stock which are pledged as collateral for the
convertible notes.  The final payments on the notes are due March 15, 2007.
After we repay the notes in full, the pledged shares are released to us
and become eligible for sale.
Based on the October 27, 2006 closing price of $6.27, the pledged Lumera shares
have a market value of approximately $11.0 million.  The market price
of Lumera's common stock is subject to fluctuations based on Lumera's financial
performance, published accomplishments and overall market conditions.  During
the 90 calendar day period ended October 27, 2006, Lumera common stock has
traded between $1.45 and $8.44.

Cash used in operating activities totaled $21.3 million during the nine
months ended September 30, 2006, compared to $17.4 million during the same
period in 2005.  In both periods, cash used in operating activities for both
periods resulted primarily from the loss from operations.

Cash provided by investing activities totaled $10.1 million during the nine
months ended September 30, 2006, compared to $1.0 million during the same period
of 2005.

In February 2006, we sold 2.6 million shares of our Lumera common stock
for $10.3 million.  We recorded a "Gain on sale of securities of equity
subsidiary" of $7.3 million.  As a result of the reduction in
ownership, we changed to the cost basis of accounting for our investment in
Lumera in accordance with FAS 115.  As of September 30, 2006, we had 322,000
shares of Lumera stock that were not pledged as security for our Notes that were
included in "Investment securities, available-for-sale".  In October
2006, we sold all of these unpledged shares of our Lumera common stock for
$1.9 million.

In addition, we used cash of $2.0 million for capital expenditures during the
nine months ended September 30, 2006, compared to $414,000 during the same
period in 2005.  Capital expenditures include leasehold improvements to leased
office space and computer hardware and software, laboratory equipment and
furniture and fixtures to support operations.  The increase is due to
expenditures for leasehold improvements to our new facility.

Cash provided by financing activities totaled $18.4 million during the nine
months ended September 30, 2006, compared to cash provided by financing
activities of $16.5 million during the same period in 2005.

In June 2006, we raised $25.3 million before issuance cost of $2.5 million
through an underwritten public offering of 10.75 million shares of our common
stock and warrants to purchase 12.4 million shares of common stock.  The
warrants have an exercise price of $2.65 per share, a five year term, and are
not exercisable for one year from the date of issuance.  We can call the
warrants after one year from the date of issuance if the average closing bid
price of our stock is over $5.30 for any 20 consecutive trading days.

In connection with the offering, we issued the underwriter a warrant to
purchase 537,500 shares of Microvision common stock at an exercise price of
$2.76 per share.  We also issued the underwriter a warrant to acquire 537,500
warrants, identical to those sold in the offering, at an exercise price of $0.16
per warrant.  Both warrants will be exercisable for a period of 4 years
beginning on the first anniversary of the date of issuance.

In July 2006, we raised an additional $1.7 million though the issuance of
800,000 shares of our common stock pursuant to MDB Capital Group LLC's exercise
of its over allotment option in connection with the underwritten offering
described above.

During 2006, the Company made the following scheduled payments in conection with
its March and December 2005 convertible notes:

- cash payments of $6.5 million in principal and $606,000 in interest, and
- issued 1.4 million shares of its common stock in payment of $1.7
million in principal and $88,000 in interest.

In August 2006, we paid $1,074,000 in connection with our May 2006
conversion agreement with the holders of our Series A Convertible
Preferred Stock.

Future operating expenditures and capital requirements will depend on
numerous factors, including the following:

- The progress of research and development programs,
- The progress in commercialization activities and arrangements,
- The cost of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights,
- Competing technological and market developments, and
- Our ability to establish cooperative development, joint venture and
licensing arrangements.



ITEM 3.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Substantially all of our cash equivalents and investment securities have
variable interest rates and, as such, the fair values of the principal of these instruments
are not affected by changes in market interest rates.  Due to the generally short-term
maturities of these investment securities, we believe that the market risk
arising from its holdings of these financial instruments is not material.

Our investment policy restricts investments to ensure principal preservation
and liquidity.  We invest cash that we expect to use within approximately sixty
days primarily in U.S. Treasury-backed instruments.  We invest cash in excess of
this time period in high quality investment securities.
The investment securities portfolio is limited to U.S. government
and U.S. government agency debt securities and other high-grade securities
generally with maturities of three years or less.

Cash and cash equivalents were $14.0 million as of September 30, 2006.

As of September 30, 2006, we owned 2.1 million shares of Lumera common stock,
of which 1.8 million are pledged as collateral for our Notes.  In October 2006, we
sold the 322,000 unpledged shares for $1.9 million.  Based on the October
27, 2006 closing price of $6.27, the pledged Lumera shares have a market value
of approximately $11.0 million.  The final payments on the notes are due March
15, 2007.  After we repay the notes in full, the pledged shares are released to us
and become eligible for sale.  The market price of Lumera's common stock is subject to
fluctuations based on Lumera's financial performance, published accomplishments
and overall market conditions.  During the 90 calendar day period ended
October 27, 2006, Lumera common stock has traded between $1.45 and $8.44.

Presently, all of our development contract payments are denominated in U.S.
dollars and, consequently, we believe we have no material foreign currency
exchange rate risk.  However, in the future we may enter into development
contracts or product sales in foreign currencies that may subject us to foreign
exchange rate risk.

ITEM 4.	CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this report and, based on this evaluation, our principal executive officer and
principal financial officer have concluded that these disclosure controls and
procedures are effective.  There were no changes in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

PART II

OTHER INFORMATION

ITEM 1A - RISK FACTORS

Risk Factors Relating to the Microvision Business

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.

- As of September 30, 2006, we had an accumulated deficit of $231.0 million.
- We incurred consolidated net losses of $154.3 million from inception through
2003, $33.2 million in 2004, $28.2 million in 2005, and consolidated net loss of
$15.3 million in the nine months ended September 30, 2006.

The likelihood of our success must be considered in light of the expenses,
difficulties and delays frequently encountered by companies formed to develop
and market new technologies.  In particular, our operations to date have focused
primarily on research and development of the scanned beam technology 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
contracts or that we will be able to obtain substantial customer orders for our
products.  In light of these factors, we expect to continue to incur substantial
losses and negative cash flow at least through 2007 and likely thereafter.  We
cannot be certain that we will achieve positive cash flow at any time in the
future.

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 and budgeted cash requirements, we expect
our cash to fund operations through April of 2007.  We will require additional
capital in the future to fund our operations, including to:

- Further develop the scanned beam technology,
- Develop and protect our intellectual property rights, and
- Fund long-term marketing and business development opportunities.

We own 1.8 million shares of Lumera common stock which are
pledged as collateral for the convertible notes.  The final payments on the
notes are due March 15, 2007.  After we repay the notes in full, the pledged shares
are released to us and become eligible for sale.  Based on the October 27, 2006
closing price of $6.27, the pledged Lumera shares have a market value of approximately
$11.0 million.  The market price of Lumera's common stock is subject to fluctuations
based on Lumera's financial performance, published accomplishments and overall
market conditions.  During the 90 calendar day period ended October 27, 2006,
Lumera common stock has traded between $1.45 and $8.44.
We may be deemed to be an affiliate of Lumera.  Under Rule 144 of the
Securities Act, an affiliate is entitled to sell within any three-month period a
number of shares of Lumera common stock that does not exceed the greater of 1%
of the then outstanding shares of Lumera common stock or the average weekly
trading volume of Lumera common stock on the NASDAQ Global Market during the
four calendar weeks preceding the filing of a notice of the sale on Form 144.
The immediate sale of Lumera stock in the public market could have a negative
impact on the Lumera stock price.

Our capital requirements will depend on many factors, including, but not
limited to, the rate at which we can, directly or through arrangements with
original equipment manufacturers, introduce products incorporating the scanned
beam and image capture technologies and the market acceptance and competitive
position of such products.  If revenues are less than we anticipate, if the
level and mix of revenues vary from anticipated amounts and allocations or if
expenses exceed the amounts budgeted, we may require additional capital earlier
than expected to further the development of our technologies, for expenses
associated with product development, and to respond to competitive pressures or
to meet unanticipated development difficulties.  In addition, our operating plan
provides for the development of strategic relationships with systems and
equipment manufacturers that may require additional investments by us.

Our Certificate of Incorporation currently authorizes the issuance of
73.0 million shares of common stock and 25.0 million shares of preferred stock.
We have 39.6 million shares of common stock issued and outstanding and
26.2 million shares of common stock reserved for future issuance under our
outstanding options, warrants and convertible securities, which leaves
7.2 million shares of common stock available for financing, issuances
under our incentive plans and other purposes.  The number of shares
available for future use under our Certificate of Incorporation may limit our
ability to raise additional capital.  An increase in the number of authorized
shares would require board approval as well as approval by holders of a majority
of our outstanding shares of common stock at a shareholders' meeting.

In addition, additional financing may not be available to us or, if
available, may not be available on terms acceptable to us 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
current shareholders' shares.  If adequate funds are not available to satisfy
either short-term or long-term capital requirements, we may be required to limit
our operations substantially.  This limitation of operations may include
reductions in staff and operating costs as well as reductions in capital
expenditures and investment in research and development.  We intend to
seek shareholder approval of an amendment to our Certificate of Incorporation
to increase the number of authorized shares of common stock but we may not
be successful in obtaining the needed approvals.

The value of our investment in Lumera may decrease.

Lumera's stock price is subject to fluctuation and may decrease, lowering the
value of our investment.  We own approximately 10% of Lumera's common stock.
Since we hold a large percentage of Lumera's common stock, if an active market
does not develop or is not sustained, it may be difficult for us to sell our
shares of Lumera's common stock at an attractive price or at all.  The
likelihood of Lumera's success, and the value of the common stock we hold, must
be considered in light of the risks frequently encountered by early stage
companies, especially those formed to develop and market new technologies.
These risks include Lumera's potential inability to establish product sales and
marketing capabilities to establish and maintain markets for their potential
products; and to continue to develop and upgrade their technologies to keep pace
with changes in technology and the growth of markets using polymer materials.
If Lumera is unsuccessful in meeting these challenges, its stock price, and the
value of our investment, could decrease.

Our convertible notes may adversely impact our common stockholders or
limit our ability to obtain additional financing.

In March 2005 and December 2005, we issued convertible notes.  Among other
provisions, these notes include material limitations on our ability to incur
additional debt or incur liens while the convertible notes are outstanding.
These limitations could materially adversely affect our ability to raise funds
we expect to need in 2007.

We cannot be certain that the scanned beam technology or products
incorporating this technology will achieve market acceptance.  If the scanned
beam technology does not achieve market acceptance, our revenues may not
grow.

Our success will depend in part on customer acceptance of the scanned beam
technology.  The scanned beam technology may not be accepted by manufacturers
who use display technologies in their products, by systems integrators who
incorporate our products into their products or by end users of these products.
To be accepted, the scanned beam technology must meet the expectations of our
potential customers in the defense, industrial, medical and consumer markets.
If our technology fails to achieve market acceptance, we may not be able to
continue to develop the scanned beam technology.

It may become more difficult to sell our stock in the public market.

Our common stock is listed for quotation on The NASDAQ Global Market.  To
keep 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, our common stock could be delisted from The NASDAQ Global Market.  If
our common stock were delisted, we likely would seek to list the 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
for our common stock.  If our common stock were not listed on the Capital
Market or an exchange, trading of our common stock would be conducted in the
over-the-counter 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 over-the-counter 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 such other market or exchange would subject our securities 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.  In addition, when the market price of our common stock is
less than $5.00 per share, we become subject to penny stock rules even if our
common stock is still listed on The NASDAQ Global Market.  While the penny stock
rules should not affect the quotation of our common stock on The NASDAQ Global
Market, these rules may further limit the market liquidity of our common stock
and the ability of investors to sell our common stock in the secondary market.
During the first and second quarter of 2003, the third quarter of 2004, the
second quarter and fourth quarter of 2005, and the first three quarters of 2006,
the market price of our stock traded below $5.00 per share.  On October 27, 2006
the closing price of our stock was $2.08.

Our lack of the financial and technical resources relative to our
competitors may limit our revenues, potential profits, overall market share or
value.

Our current products and potential future products 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 us.  Because of their greater resources, our
competitors may develop products or technologies that are 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 industry has been characterized by rapidly changing
technology, accelerated product obsolescence and continuously evolving industry
standards.  Our success will depend upon our ability to further develop the
scanned beam technology 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 because of:

- delays in product development,
- lack of market acceptance for our products, or
- lack of funds to invest in product development and marketing.

The occurrence of any of the above factors could result in decreased
revenues, market share and value.

We could face lawsuits related to our use of the scanned beam 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 and products, reduce our revenues and increase our
operating expenses.

We are aware of several patents held by third parties that relate to certain
aspects of scanned beam displays and image capture 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 the scanned
beam technology and other technologies 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 the scanned beam
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 cost, to
require others and us to cease selling products that incorporate scanned beam
technology, to cease licensing scanned beam technology or to 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 damages or expenses they
incur.

Our planned future products are dependent on advances in technology by
other companies.

We rely on and will continue to rely on technologies, such as light sources
and optical components that are developed and produced by other companies.  The
commercial success of certain of our planned future products will depend in part
on advances in these and other technologies by other companies.  Due to the
current business environment, many companies that are developing new
technologies are reducing expenditures on research and development.  This may
delay the development and commercialization of components we would use to
manufacture certain of our planned future products.

Our products may be subject to future health and safety regulations that
could increase our development and production costs.

Products incorporating scanned beam display technology could become subject
to new health and safety regulations that would reduce our ability to
commercialize the scanned beam display technology.  Compliance with any such new
regulations would likely increase our cost to develop and produce products using
the scanned beam display technology and adversely affect our financial
results.

If we cannot manufacture products at competitive prices, our financial
results will be adversely affected.

To date, we have produced limited quantities of our Flic products and
demonstration units for research, development and demonstration purposes.  The
cost per unit for these units currently exceeds the level at which we could
expect to profitably sell these products.  If we cannot lower our cost of
production, we may face increased demands on our financial resources, possibly
requiring additional equity and/or debt financing to sustain our business
operations.

Our future growth will suffer if we do not achieve sufficient market
acceptance of our products to compete effectively.

Our success depends, in part, on our ability to gain acceptance of our
current and future products by a large number of customers.  Achieving
market-based acceptance for our products will require marketing efforts and the
expenditure of financial and other resources to create product awareness and
demand by potential customers.  We may be unable to offer products consistently
or at all that compete effectively with products of others on the basis of price
or performance.  Failure to achieve broad acceptance of our products by
potential customers and to effectively compete would have a material adverse
effect on our operating results.

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 a contract manufacturer in Asia to manufacture our Flic
product, and we plan to continue using foreign manufacturers to manufacture some
of our other products where appropriate.  These international operations are
subject to inherent risks, which may adversely affect us, including:

- political and economic instability;
- high levels of inflation, historically the case in a number of countries in
Asia;
- burdens and costs of compliance with a variety of foreign laws;
- foreign taxes; and
- changes in tariff rates or other trade and monetary policies.

If we experience delays or failures in developing commercially viable
products, we may have lower revenues.

In September 2002, we introduced our Flic product.  In addition, we have
developed demonstration units incorporating the scanned beam technology.
However, we must undertake additional research, development and testing before
we are able to develop additional products for commercial sale.  Product
development delays by us or our potential product development partners, or the
inability to enter into relationships with these partners, may delay or prevent
us from introducing products for commercial sale.

If we cannot supply products in commercial quantities, we will not achieve
commercial success.

We are developing our capability to manufacture products in commercial
quantities.  Our success depends in part on our ability to provide our
components and future products in commercial quantities at competitive prices.
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.  We cannot be certain
that we will successfully obtain access to sufficient manufacturing resources.
Future manufacturing limitations of our suppliers could result in a limitation
on the number of products incorporating our technology that we are able to
produce.

If our licensors and we are unable to obtain effective intellectual
property protection for our products and technology, we may be unable to compete
with other companies.

Intellectual property protection for our products 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 and the ability of the
University of Washington and our other licensors to maintain the proprietary
nature of the scanned beam display and other key technologies by securing valid
and enforceable patents and effectively maintaining unpatented technology as
trade secrets.  We try to protect our proprietary 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 and the patent position of the University of Washington and other
licensors involve 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 are 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
or license from others 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 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 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
materially harmed.

We could be exposed 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 may be subject to product liability claims if any of our product
applications are alleged to be defective or cause harmful effects.  For example,
because our scanned beam displays are designed to 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.  Product liability claims or other claims related to our
products, 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.

We rely heavily on a limited number of development contracts with the U.S.
government, which are subject to immediate termination by the government for
convenience at any time, and the termination of one or more of these contracts
could have a material adverse impact on our operations.

During the first nine months of 2006 and the full year of 2005, 44% and 35%,
respectively, of our revenue was derived from performance on a limited number of
development contracts with the U.S. government.  Therefore, any significant
disruption or deterioration of our relationship with the U.S. government would
significantly reduce our revenues.  Our government programs must compete with
programs managed by other contractors for limited amounts and uncertain levels
of funding.  The total amount and levels of funding are susceptible to
significant fluctuations on a year-to-year basis.  Our competitors continuously
engage in efforts to expand their business relationships with the government and
are likely to continue these efforts in the future.  Our contracts with the
government are subject to immediate termination by the government for
convenience at any time.  The government may choose to use contractors with
competing display technologies or it may decide to discontinue any of our
programs altogether.  In addition, those development contracts that we do obtain
require ongoing compliance with applicable government regulations.  Termination
of our development contracts, a shift in government spending to other programs
in which we are not involved, a reduction in government spending generally, or
our failure to meet applicable government regulations could have severe
consequences for our results of operations.

Our products have long sales cycles, which make it difficult to plan our
expenses and forecast our revenues.

Our products have lengthy sales cycles that involve numerous steps including
determination of a product application, exploring the technical feasibility of a
proposed product, evaluating the costs of manufacturing a product and
manufacturing or contracting out the manufacturing of the product.  Our long
sales cycle, which can last several years, makes it difficult to predict the
quarter in which sales will occur.  Delays in sales could cause significant
variability in our revenues and operating results for any particular quarterly
period.

Our development contracts may not lead to products that will be
profitable.

Our developmental contracts, including without limitation those discussed in
this document are exploratory in nature and are intended to develop new types of
products for new applications.  These efforts may prove unsuccessful and these
relationships may not result in the development of products that will be
profitable.

Our revenues are highly sensitive to developments in the defense
industry.

Our revenues to date have been derived principally from product development
research relating to defense applications of the scanned beam display
technology.  We believe that development programs and sales of potential
products in this market will represent a significant portion of our future
revenues.  Developments that adversely affect the defense sector, including
delays in government funding and a general economic downturn, could cause our
revenues to decline substantially.

Our Virtual Retinal Display technology depends on our licenses from the
University of Washington.  If we lose our rights under the licenses, our
operations would be adversely affected.

We have acquired the exclusive rights to the Virtual Retinal Display under a
license from the University of Washington.  The license expires upon expiration
of the last of the University of Washington's patents that relate to this
technology, which we currently anticipate will not occur until after 2011.  We
could lose our exclusivity under the license if we fail to respond to an
infringement action or fail to use our best efforts to commercialize the
licensed technology.  In addition, the University of Washington may terminate
the license upon our breach and has the right to consent to all sublicense
arrangements.  If we were to lose our rights under the license, or if the
University of Washington were to refuse to consent to future sublicenses, we
would lose a competitive advantage in the market, and may even lose the ability
to commercialize our products completely.  Either of these results could
substantially decrease our revenues.

We are dependent on third parties in order to develop, manufacture, sell
and market our products.

Our strategy for commercializing the scanned beam technology and products
incorporating the scanned beam technology includes entering into cooperative
development, manufacturing, sales and marketing arrangements with corporate
partners, original equipment manufacturers and other third parties.  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 the scanned beam technology or
find that the development, manufacture or sale of products incorporating the
scanned beam technology would not be feasible.  To the extent that we enter into
cooperative development, sales and marketing or other joint venture
arrangements, our revenues will depend upon the performance of third parties.
We cannot be certain that any such arrangements will be successful.

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 reduce our revenues and adversely affect our
business.

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.

Our revenues to date have been generated primarily from a limited number of
development contracts with U.S. government entities and commercial partners.
Our quarterly operating results may vary significantly based on:

- reductions or delays in funding of development programs involving new
information display technologies by the U.S. government or our current or
prospective commercial partners;
- changes in evaluations and recommendations by any securities analysts
following our stock or our industry generally;
- announcements by other companies in our industry;
- changes in business or regulatory conditions;
- announcements or implementation by our competitors of technological
innovations or new products;
- the status of particular development programs and the timing of performance
under specific development agreements;
- economic and stock market conditions; or
- 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.

If we fail to manage expansion effectively, our revenue and expenses could
be adversely affected.

Our ability to successfully offer products and implement our business plan in
a rapidly evolving market requires an effective planning and management process.
We have significantly expanded the scope of our operations.  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.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's Annual Shareholder's Meeting was held on September 21, 2006.
The following proposals were introduced and voted on:

Proposal No. 1 - Election of Directors

|Name              | Votes For  | Votes Against
|----------------- | ---------- | -------------
|Alexander Tokman  | 33,884,633 | 386,657      
|Richard A. Cowell | 33,649,988 | 621,302      
|Slade Gorton      | 33,567,164 | 704,126      
|Mark Onetto       | 33,730,017 | 541,273      
|Jeanette Horan    | 33,869,031 | 402,259      
|Brian Turner      | 33,868,683 | 402,607      

Proposal No. 2 - Amend, Restate, and Rename 1996 Stock Option Plan

|For       | Against   | Abstain
|--------- | --------- | -------
|6,556,335 | 4,676,819 | 294,991

Proposal No. 3 - Ratification of the Selection of Independent Registered
Public Accounting Firm

|For        | Against | Abstain
|---------- | ------- | -------
|33,933,229 | 249,356 | 88,704 

ITEM 6.	Exhibits

|31.1 | Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002      
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 | Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 Of the
Sarbanes-Oxley Act of 2002      
|32.1 | Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|32.2 | Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements 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.

| | MICROVISION, INC.
| | -----------------

|Date:  November 3, 2006 | BY: | /s/  Alexander Y. Tokman                             
|----------------------- | --- | -----------------------------------------------------
|                        |     | Alexander Y. Tokman                                  
|                        |     | Chief Executive Officer
(Principal Executive Officer)



|Date:  November 3, 2006 | BY: | /s/  Jeff Wilson                                     
|----------------------- | --- | -----------------------------------------------------
|                        |     | Jeff Wilson                                          
|                        |     | Chief Financial Officer
(Principal Financial Officer)

---





EXHIBIT INDEX



The following documents are filed.

|Exhibit Number | Description                                                                                                                                                                     
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1           | Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002      
|31.2           | Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 Of the
Sarbanes-Oxley Act of 2002      
|32.1           | Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
|32.2           | Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

---