-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B5M03f1WrJv5B7D86Ycx5g67W35AdLB/jWjT3PAzZgzCbkJVB1h6ej93g2E1kIAh T4+5hi/IU90TVlXY5yKmtg== /in/edgar/work/0001125282-00-000625/0001125282-00-000625.txt : 20001116 0001125282-00-000625.hdr.sgml : 20001116 ACCESSION NUMBER: 0001125282-00-000625 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMAGIN CORP CENTRAL INDEX KEY: 0001046995 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 880378451 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 001-15751 FILM NUMBER: 769170 BUSINESS ADDRESS: STREET 1: 1580 ROUTE 52 STREET 2: SUITE 2000 V6E 2K3 CITY: HOPEWELL JUNCTION STATE: NY ZIP: 12533 BUSINESS PHONE: 9148921900 MAIL ADDRESS: STREET 1: 1580 ROUTE 52 STREET 2: SUITE 2000 V6E 2K3 CITY: HOPEWELL JUNCITON STATE: NY ZIP: 12533 FORMER COMPANY: FORMER CONFORMED NAME: FASHION DYNAMICS CORP DATE OF NAME CHANGE: 19980805 10QSB/A 1 0001.txt FORM 10QSB/A U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB/A (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2000 [ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to __________________ eMAGIN CORPORATION (Exact name of small business issuer as specified in its charter) Commission file number: 000-24757 NEVADA 88-0378451 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 2070 Route 52 Hopewell Junction, New York 12533 (Address of principal executive offices) (845) 892-1900 (Issuer's telephone number) ------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Not applicable APPLICABLE ONLY TO CORPORATE REGISTRANTS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 14, 2000 the Registrant had 25,069,143 shares of Common Stock outstanding. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X] eMAGIN CORPORATION Form 10-QSB for the Quarter Ended June 30, 2000
Index Page Number PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets at June 30, 2000 (unaudited), (as restated ) and December 31, 1999 (eMagin), and at December 31, 1999 (FED Corporation - Predecessor) 1 Unaudited consolidated Statements of Operations For the Three-Months and Six-Months ended June 30, 2000, (as restated) 2 Unaudited consolidated Statements of Operations For the Periods from January 1, 2000 through March 15, 2000 (as restated), the Three-Months and Six-Months ended June 30, 1999 and for the Period from Inception (January 6, 1992) to March 15, 2000 (as restated) (FED Corporation - Predecessor) (unaudited) 3 Unaudited consolidated Statements of Cash Flows for the Six-Months ended June 30, 2000 (as restated), (eMagin), For the Period from January 1, 2000 through March 15, 2000 (as restated), the Six-Months ended June 30, 1999 and for the Period from Inception (January 6, 1992) to March 15, 2000 (as restated) (FED Corporation - Predecessor) 4 Selected Notes to Unaudited Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 8 PART II OTHER INFORMATION Item 2. Changes in Securities 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor (a development stage corporation) CONSOLIDATED BALANCE SHEETS
- Predecessor eMagin Corporation FED Corporation ------------------ --------------- ASSETS June 30, 2000 December 31, 1999 December 31, 1999 ------------- ----------------- ----------------- (Unaudited) (as restated, see Note 8) CURRENT ASSETS: Cash and cash equivalents $ 14,971,557 -- $ 718,468 Contract receivables 17,266 -- 73,304 Unbilled costs and estimated profits on contracts in progress 1,308,393 -- 221,723 Prepaid expenses and other current assets 349,119 -- 127,658 ------------- ------------- ------------- Total current assets 16,646,335 -- 1,141,153 Equipment and leasehold improvements, net of accumulated depreciation of $186,041, $0, and $3,304,139, respectively 1,377,590 -- 1,214,680 Goodwill, net of accumulated amortization of $8,377,908, $0, and $1,439,000, respectively 77,064,351 -- 2,671,390 Deposits and other assets 10,451 -- 10,451 ------------- ------------- ------------- Total assets $ 95,098,727 $ -- $ 5,037,674 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, accrued expenses and other current liabilities $ 1,242,742 -- $ 2,041,100 Deferred revenue 550,000 -- -- Current portion of long term debt 303,048 -- 268,675 Other short term debt -- -- 2,126,700 ------------- ------------- ------------- Total current liabilities 2,095,790 -- 4,436,475 ------------- ------------- ------------- LONG-TERM DEBT 340,030 -- 541,578 SHAREHOLDERS' EQUITY: Common Stock, par value of $0.001, $0.001 and $0.01 per share, respectively Shares authorized - 76,350,000, 76,350,000, and 40,000,000, respectively Shares issued and outstanding - 25,069,143, 10,800,382 and 4,380,519, respectively 25,069 10,800 43,806 Additional paid-in capital 117,268,103 20,200 47,254,459 Deferred compensation (11,337,723) -- -- Deficit accumulated during the development stage (13,292,542) (31,000) (47,238,644) ------------- ------------- ------------- Total shareholders' equity 92,662,907 -- 59,621 ------------- ------------- ------------- Total liabilities and shareholders' equity $ 95,098,727 $ -- $ 5,037,674 ============= ============= =============
See selected notes to financial statements. eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor (a development stage corporation) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
eMagin Corporation ------------------ Three-Months Six-Months ended ended June 30, 2000 June 30, 2000 ------------------------------- ----------------------------------- (as restated, See Note 8) (as restated, See Note 8) CONTRACT REVENUE: Contract revenue $ 828,394 $ 840,660 ------------------------------- ----------------------------------- Total revenue 828,394 840,660 ------------------------------- ----------------------------------- COSTS AND EXPENSES: Research and development, net of funding under cost sharing arrangements of $644,880 and $1,003,640 respectively 2,616,684 3,239,714 Selling, general and administrative 1,452,030 1,693,687 Amortization of purchased intangibles 7,120,188 8,306,886 Amortization of deferred compensation 834,777 1,089,723 ------------------------------- ----------------------------------- Total costs and expenses, net 12,023,679 14,330,010 ------------------------------- ----------------------------------- INTEREST INCOME, NET 190,899 227,808 ------------------------------- ----------------------------------- Net loss $ (11,004,386) $ (13,261,542) =============================== =================================== Basic net loss per common share $ (0.44) $ (0.69) =============================== =================================== Basic weighted average common shares outstanding 25,068,075 19,190,158 =============================== ===================================
See selected notes to financial statements. eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor (a development stage corporation) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FED Corporation --------------- Period from January 1, 2000 Three-Months Six-Months inception through Ended Ended (January 6, 1992) March 15, 2000 June 30,1999 June 30,1999 to March 15, 2000 --------------- --------------- --------------- ---------------- (as restated, (as restated, See Note 8) See Note 8) CONTRACT REVENUE: Contract revenue $ 568,484 $ 428,597 $ 1,075,640 $ 15,133,837 --------------- --------------- --------------- --------------- Total revenue 568,484 428,597 1,075,640 15,133,837 --------------- --------------- --------------- --------------- COSTS AND EXPENSES: Research and development, net of funding under cost sharing arrangements of $175,000, $439,318, $610,313 and $9,164,792, respectively 2,180,519 2,039,613 5,131,578 38,433,105 Selling, general and administrative 670,655 1,068,504 1,907,958 10,934,793 Depreciation and amortization 325,095 279,629 566,174 5,130,015 Non-cash charges for stock-based compensation 7,778,850 -- -- 9,696,241 --------------- --------------- --------------- --------------- Total costs and expenses, net 10,955,119 3,387,746 7,605,710 64,194,154 --------------- --------------- --------------- --------------- INTEREST (EXPENSE), NET (2,968,414) (50,611) (96,844) (3,371,516) --------------- --------------- --------------- --------------- Net loss $ (13,355,049) $ (3,009,760) $ (6,626,914) $ (52,431,833) =============== =============== =============== =============== Basic net loss per common share (1) $ (3.03) $ (11.69) $ (16.62) Basic weighted average common shares outstanding 4,438,095 859,192 819,683
(1) includes dividend from conversion of prefered stock to common stock recorded in stockholders equity See selected notes to financial statements. eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor (a development stage corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
eMagin Corporation FED Corporation ------------------ ------------------------------------------------- Period from Six-Months January 1, 2000 Six-Months inception ended through Ended (January 6, 1992) June 30, 2000 March 15, 2000 June 30, 1999 to March 15, 2000 ------------- --------------- ------------- ----------------- (as restated, (as restated, (as restated, see Note 8) see Note 8) see Note 8) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(13,261,542) $(13,355,049) $(6,626,914) $(52,431,833) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 8,563,949 325,095 858,157 5,130,015 Gain on Sale of Assets -- -- -- (69,525) Non-cash charge for induced conversion of debt to common stock -- -- -- 1,846,177 Amortization of debt discount -- 2,940,339 -- 2,940,339 Non-cash charges for stock-based compensation 1,089,723 7,778,850 -- 7,778,850 Non-cash charge related to issuance of warrants -- -- -- 203,000 Non-cash charge due to beneficial conversion feature -- -- -- 157,500 Changes in operating assets and liabilities, net of acquisition: Contract receivables 114,697 (58,659) (332,917) (131,963) Unbilled costs and estimated profits on contracts in progress (688,829) (397,841) 3,167,929 (619,564) Prepaid expenses and other current assets (43,403) (178,058) 28,868 (13,408) Accounts payable, accrued expenses and other current liabilities (1,298,397) 488,516 (428,874) 2,599,113 Deferred revenue 550,000 -- -- -- ------------ ------------ ----------- ------------ Net cash used in operating activities (4,973,802) (2,456,807) (3,333,751) (32,611,299) ------------ ------------ ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (443,447) (57,574) (48,444) (3,212,214) Net proceeds from acquistion 995,594 -- -- (547,503) Proceeds from the sale of assets -- -- -- 229,550 ------------ ------------ ----------- ------------ Net cash provided by (used in) investing activities 552,147 (57,574) (48,444) (3,530,167) ------------ ------------ ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from senior notes, net of issuance costs -- -- -- 3,968,959 Proceeds from sales of common stock, net of issuance costs 21,474,915 1,269,378 7,089 4,602,711 Proceeds from sales of preferred stock, net of issuance costs -- -- 2,925,823 23,856,998 Payment of short term debt -- 1,923,300 -- 5,342,460 (Net payments) on proceeds from long term debt and capital leases (2,081,703) (92,748) 612,501 (325,645) ------------ ------------ ----------- ------------ Net cash provided by financing activities 19,393,212 3,099,930 3,545,413 37,445,483 ------------ ------------ ----------- ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 14,971,557 585,549 163,218 1,304,017 CASH AND CASH EQUIVALENTS, beginning of period -- 718,468 1,878,286 -- ------------ ------------ ----------- ------------ CASH AND CASH EQUIVALENTS, end of period $ 14,971,557 $ 1,304,017 $ 2,041,504 $ 1,304,017 ============ ============ =========== ============ SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITES Conversion of Debt into Common Stock $ 3,000,000 ============
See selected notes to financial statements. eMAGIN CORPORATION (Formerly Fashion Dynamics Corp.) and Predecessor Selected Notes to Unaudited Consolidated Financial Statements Note 1 - BASIS OF PRESENTATION The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. The results of operations for the period ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. Prior to its acquisition of FED Corporation (FED) on March 16, 2000 discussed below, Fashion Dynamics Corporation (FDC) had no active business operations. Accordingly, for all financial information required for periods prior to the March 16, 2000 acquisition, FED's historical financial statements have been presented herein as the predecessor entity. Note 2 - NATURE OF BUSINESS Fashion Dynamics Corporation (FDC) was organized January 23, 1996, under the laws of the State of Nevada. FDC had no active business operations other than to acquire an interest in a business. On March 16, 2000, FDC acquired FED (the Merger) (Note 3). The merged company changed its name to eMagin Corporation (the Company or eMagin). Following the Merger, the business conducted by the Company is the business conducted by FED prior to the Merger. eMagin is a developer and manufacturer of optical systems and microdisplays for use in the electronics industry. eMagin's wholly-owned subsidiary, Virtual Vision, develops and markets microdisplay systems and optics technology for commercial, industrial and military applications. The Company continues to be a development stage company, as defined by Statement of Financial Accounting Standards ("SFAS") No. 7, Accounting and Reporting by Development Stage Enterprises", as it continues to devote substantially all of its efforts to establishing a new business, and it has not yet commenced its planned principal operations. Revenues earned by the Company to date are primarily related to research and development type contracts and are not related to the Company's planned principal operations of commercialization of products using organic light emitting diode (OLED) technology. Note 3 - FED ACQUISITION On March 16, 2000 FDC acquired all of the outstanding stock of FED. Under the terms of the agreement, FDC issued approximately 10.5 million shares of its common stock to the FED shareholders to acquire 100% of the outstanding common stock of FED, at an exchange rate of 2 for 1. Additionally, eMagin issued approximately 3.9 million options and warrants to purchase common stock to holders of FED options and warrants at the same relative terms of the options and warrants previously held. The total preliminary purchase price of the transaction was approximately $98.4 million, including $73.4 million of value relating to the shares issued (at a fair value of $7 per share, the value of the simultaneous private placement transaction of similar securities), $20.9 million of value relating to the options and warrants exchanged, $.3 million of acquisition costs and $3.8 million of net liabilities assumed. The transaction was accounted for using the purchase method of accounting. As of June 30, 2000, the preliminary allocation of values to the acquired assets and liabilities, including the allocation of goodwill, have been based on the Company's best estimates of value. The final allocation of the purchase price will be based on appraisals made by an independent appraiser and a comprehensive final evaluation of the fair value of assets acquired and liabilities assumed by FDC. Considering that FED was a development stage entity at the time of the merger, and had been since its inception in 1992, management expects that a portion of the purchase price will be attributable to purchased in-process research and development, and that amount may be significant. In accordance with Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs", as clarified by Financial Accounting Standards Board Interpretation No. 4, amounts assigned to in-process research and development will be charged to expense as part of the allocation of purchase price. In its preliminary allocation of purchase price, the Company allocated approximately $13 million of the purchase price to deferred compensation (representing that portion of the value of options and warrants exchanged which vest in the future as additional services are provided by employees) and recorded goodwill of approximately $85.4 million, which is being amortized over an estimated useful life of three years. For the three and six-month period ended June 30, 2000, eMagin recorded approximately $7.1 and 8.3 million in amortization expense relating to goodwill. Note 4 - REVENUE RECOGNITION The Company has historically earned revenues from certain of its research and development activities under both fixed-price contracts and cost-type contracts, including some cost-plus-fee contracts. Revenues relating to fixed-price contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred (cost-to-cost basis). Revenues on cost-plus-fee contracts include costs incurred plus a portion of estimated fees or profit based on the relationship of costs and the allocation of allowable indirect costs as defined by each contract. As of June 30, 2000, the Company has received advance payments on contracts to be completed of $550,000 under an agreement for certain research and development to be completed with another party. Through June 30, 2000, the Company had not yet commenced its performance of services under this agreement and, accordingly, no revenue has been recognized in the accompanying consolidated financial statements. Note 5 - RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. To date, activities of the Company (and its predecessor) have included the performance of research and development under cooperative agreements with United States Government agencies. Funding from such research and development contracts is recognized as a reduction in operating expenses during the period in which the services are performed and related direct expenses are incurred. Note 6 - NET LOSS PER COMMON SHARE Basic and diluted net loss per common share is computed by using the weighted average number of shares of common stock outstanding during the period, restated for the effect of the Merger upon the number of shares outstanding in the current year, and, for the presentation of net loss per share for the predecessor, a stock split effected during 1999. No common stock equivalents have been included in the computation of weighted average shares outstanding, as their effect would be anti-dilutive. The following provides a reconciliation of information used in calculating the per share amounts for the three and six months ended June 30, 2000 and June 30, 1999.
Three Months Six Months 2000 1999 2000 1999 ---- ---- ---- ---- Loss attributable to common shareholders Net Loss $(11,004,386) $ (3,009,760) $(13,261,542) $ (6,626,914) Effect of induced conversion of Convertible Preferred (7,030,510) (7,030,510) ------------ ------------ ------------ ------------ Loss attributable to common shareholders $(11,004,386) $(10,040,270) $(13,261,542) $(13,657,423) Weighted average shares outstanding 25,068,075 859,192 19,190,158 819,683 ------------ ------------ ------------ ------------ Basic and diluted loss per share $ (0.44) $ (11.69) $ (0.69) $ (16.62) ============ ============ ============ ============
Note 7 - STOCKHOLDERS' EQUITY Prior to the Merger on March 16, 2000, the Company raised approximately $21.5 million through the private placement issuance of approximately 3.5 million shares of common stock. At the time of the Merger, $3 million of bridge loans funded to FED prior to the Merger were also converted into common stock. Additionally, approximately 9.4 million shares of common stock held by FDC's principal shareholders were cancelled at the time of the Merger. Such shares are considered as not outstanding for the entire period presented. Note 8 - RESTATEMENT OF QUARTERLY FINANCIAL INFORMATION Subsequent to the issuance of the Company's financial statements for the quarter ended June 30, 2000, it was determined that certain equity transactions consummated by FED Corporation (the predecessor) prior to the Merger were recorded in the incorrect period. A summary of the effect of the restatement is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ eMagin Corporation FED Corporation - Predecessor - ------------------------------------------------------------------------------------------------------------------------------------ Period From January 1, 2000 Three Months Ended June 30, 2000 Six Months Ended June 30, 2000 to March 15, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ As Previously As Previously As Previously Reported As Restated Reported As Restated Reported As Restated - ------------------------------------------------------------------------------------------------------------------------------------ Net loss $(7,779,756) $(11,004,386) $(19,988,894) $(13,261,542) $(5,745,452) $(13,355,049) - ------------------------------------------------------------------------------------------------------------------------------------ Basic and diluted loss per common share $(0.31) $(0.44) $(1.05) $(0.69) $(1.30) $(1.52) - ------------------------------------------------------------------------------------------------------------------------------------
Note 9 - RECENT ACCOUNTING PRONOUNCEMENTS In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation (FIN) No.44, "Accounting for Certain Transactions Involving stock Compensation - An Interpretation of APB opinion No. 25." FIN 44 clarifies the definition of employees, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequences of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 21, 2000, but certain conclusions in the interpretation cover specific events that occurred after either December 15, 1998, or January 12, 2000. We do not expect that the adoption of FIN 44 will have a material effect on our results of operations or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 expresses the views of the SEC staff in applying generally accepted accounting principles to certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B to defer the effective date of SAB No. 101 until the fourth quarter of fiscal 2000. Management is currently evaluating the impact of adopting this SAB but management does not believe that it will have a material impact on Learn2.com's financial position or results of operations. In June 1998, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities, and is effective for all quarters of all fiscal years beginning after June 15, 2000. The Company does not expect adoption of this statement to have a material impact on its consolidated financial position or results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Subsequent to the issuance of the Company's financial statements for the quarter ended June 30, 2000, it was determined that certain equity transactions consummated by FED Corporation (the predecessor) prior to the Merger were recorded in the incorrect period. The effect of the restatement on the Company's financial statements for the three and six months ended June 30, 2000, and on the financial statements of the predecessor for the period from January 1, 2000 to March 15, 2000, are presented in Note 8 to the unaudited financial statements and have been reflected herein. Statement Regarding Forward-Looking Information This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors. Although we believe that the expectations reflected in the forward-looking statements are reasonable. Such should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this release. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on the forward-looking statements contained in this report. Overview eMagin Corporation (the "Company") is a leading developer of organic light emitting diode ("OLED") microdisplays, and optics systems. We currently provide custom video display headsets, in limited quantities, largely to government customers. We are seeking to transition into commercial distribution of our products and technology as components to OEM system manufacturers for near-eye and headset applications in products such as wearable computers, handheld telecommunication devices, and computer and entertainment headsets. The Company has produced several preliminary prototype versions of the OLED microdisplay, including monochromatic and color display devices. The Company expects to continue funding the development of prototype and demonstration versions of products incorporating OLED microdisplay and optics technology at least through 2001. Future revenues, profits and cash flow and the Company's ability to achieve its strategic objectives will depend on a number of factors including acceptance of the OLED technology by various industries and OEMs, market acceptance of products incorporating OLED technology, and the technical performance of such products. The Company expects to continue to incur significant operating losses until such time that it is selling its products in commercial quantities. THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1999. Prior to the acquisition of FED Corporation, the Company had no operations. Management believes that the comparison of eMagin's financial results to that of the operating entity (FED Corporation) provides the most meaningful comparative information to the reader. Accordingly, the following comparative information effects the operating results of FED Corporation for all periods prior to the Merger and it should be read in conjunction with the consolidated interim financial statements and notes thereto in Part 1 Item 1 of this Quarterly Report. The comparison of financial information below for the period ended June 30, 2000 reflects pro forma results of eMagin for the period January 1, 2000 through June 30, 2000 and its predecessor FED Corporation for the period January 1, 2000 through March 15, 2000, on a combined basis, such that the amounts presented and discussed reflect the full six months of operations for each period. Reference is made to the Company's consolidated financial statements that are included herein, for further detail on the results of eMagin and FED Corporation for their respective periods of ownership. Revenues Revenues for the three and six months ended June 30, 2000 were $0.8 million and $1.4 million, respectively, as compared to $0.4 million and $1.1 million, respectively, for the three and six months ended June 30, 1999. Revenues consist primarily of contracts funded by certain U.S. government programs, and the amount of revenues earned in any period is dependent upon, among other factors, the execution of new government contracts and funding issues, and may not be predictable or consistent from period to period but remain subject to unpredictable government funding issues. Costs and Expenses Research and Development Research and development expenses include salaries, development materials, equipment lease and depreciation expense, electronics, rent, utilities and costs associated with operating the Company's manufacturing facility. The Company and, historically, the predecessor, have received cost sharing awards from certain U.S. government agencies to fund certain research and development. As of June 30, 2000, the remaining costs to be incurred and billed on these three active "cost sharing" contracts totaled $2.3 million. Gross research and development expenses for the three months ended June 30, 2000 were $3.3 million and $6.6 million for the six-months ended June 30, 2000 and for the same periods in 1999, the Company's gross research and development expenses were $2.5 million and $5.7 million, respectively. Of these amounts, the Company received $0.6 million and $1.2 million in cost sharing from the U.S. Government for the three months and six months ended June 30, 2000 and $0.4 million and $0.6 million for the same periods in 1999, respectively. The $0.8 million and $0.9 million increase in gross expenses for the three months and six months ended June 30, 2000 reflects the additional costs associated with personnel costs, equipment leases, depreciation, and material costs resulting from increased research and development activities and equipment additions at the Company's manufacturing facility. Selling, General and Administrative Selling, general and administrative expenses consist principally of salaries and fees for professional services, legal fees incurred in connection with patent filing and related matters, depreciation, as well as other marketing and administrative expenses. Selling, general and administrative expenses, for the three and six months ending June 30, 2000 were $1.5 million and $2.4 million respectively, as compared to $1.1 million and $1.9 million, respectively, for the three and six months ended June 30, 1999. The increase in selling, general and administrative expenses is primarily due to increases in marketing activity, personnel costs, travel and patent filings. Amortization for purchased intangibles Amortization for purchased intangibles expense for the three and six months ending June 30, 2000 were $7.1 million and $8.5 million respectively, as compared to $.2 million and$.4 million for three and six months ended June 30, 1999 respectively. The increase in amortization for purchased intangibles expense is caused by the amortization of the preliminary allocation of the purchase price to goodwill created by the Merger. Non-cash stock-based compensation amortization Non-cash stock-based compensation amortization for the three and six months ending June 30, 2000 were $0.8 million and $8.9 million respectively, as compared to no activity for the three and six months ended June 30, 1999. The activity for the three and six months ending June 30, 2000, reflects the amortization of deferred compensation costs associated with non-cash stock based compensation. Liquidity and Capital Resources Since inception we have financed our operations through private placements of equity securities and through research and development contracts. Net cash used in operating activities was $7.4 million for the six months ended June 30, 2000. Cash used in operating activities resulted primarily from our net loss offset by increases from non-cash charges. Net cash provided by investing activities was $0.5 for the six months ended June 30, 2000. This represented cash acquired net of acquisition cost of $1.0 million, offset by capital expenditures of $0.4. Net cash provided by financing activities was $22.5 for the six months ended June 30, 2000, and consisted primarily of proceeds from the issuance of common stock in a private placement net of issuance costs of $ 21.5 million offset by decreases in short term debt and capital leases. As of June 30, 2000, we had $15.0 million in cash and cash equivalents. Need for Additional Financing During the next 12 months, the Company's foreseeable cash requirements are expected to be met by a combination of existing cash, revenue generated by the Company's sales, and additional equity and debt financing. The Company is currently devoting substantial resources to the development of its products and to the establishment of sales and distribution relationships. Substantial additional capital may be required in the future to fund product development and product launch cycles. Additional financing may not be available, such financing may not be obtainable on terms favorable to the Company or its shareholders. If needed capital is unavailable, the Company's ability to continue in business will be jeopardized. To the extent the Company raises additional capital by issuing equity or securities convertible into equity, ownership dilution to the Company's shareholders will result. PART II--OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds In June 2000, we issued 1,080 shares of our common stock to Ward Parkinsen upon Mr. Parkinsen's exercise of warrants to purchase common shares. We received gross proceeds in the amount of $1,836.00, which proceeds are to be used for general operating capital. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit No. Description - -------------- ---------------------------------------------------------- 27.1 Financial Data Schedule. (b) Reports on Form 8-K. None. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. eMAGIN CORPORATION Dated: November 14, 2000 By: /s/ Andrew P. Savadelis ----------------------------------- Andrew P. Savadelis Executive Vice President, Finance and Chief Financial Officer
EX-27 2 0002.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-2000 JUN-30-2000 14,972 0 17 0 0 349 1,378 0 95,099 0 0 0 0 25 0 95,099 0 841 0 14,330 0 0 0 0 0 0 0 0 0 0 (0.69) (0.69)
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