<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 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 November 14, 2000 the
Registrant had 25,069,143 shares of Common Stock outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X]
<PAGE>
<TABLE>
<CAPTION>
Index Page Number
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999 (eMagin), and at December 31, 1999
(FED Corporation - Predecessor) 1
Unaudited consolidated Statements of Operations For the Three-Months and
Nine-Monthsended September 30, 2000 (unaudited) 2
Unaudited consolidated Statements of Operations For the Periods from January 1,
2000 to March 15, 2000, the Three-Months and Nine-Months ended
September 30, 1999 and for the Period from Inception (January 6, 1992)
to March 15, 2000 (FED Corporation - Predecessor) (unaudited) 3
Unaudited consolidated Statements of Cash Flows for the Nine-Months ended
September 30, 2000 (unaudited) (eMagin), For the Period from
January 1, 2000 to March 15, 2000, the Nine-Months ended
September 30, 1999 and for the Period from Inception (January 6,
1992) to March 15, 2000 (FED Corporation - Predecessor) (unaudited) 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 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
</TABLE>
<PAGE>
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor
(a development stage corporation)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FED Corporation
eMagin Corporation - Predecessor
------------------------------ ---------------
ASSETS September 30, December 31, December 31,
2000 1999 1999
--------------- ------------ ---------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,570,059 - $718,468
Contract receivables 83,056 - 73,304
Unbilled costs and estimated profits on contracts
in progress 1,053,526 - 221,723
Prepaid expenses and other current assets 381,403 - 127,658
---------------- ---------- ----------------
Total current assets 13,088,044 - 1,141,153
Equipment and leasehold improvements, net of accumulated
depreciation of $153,998, $0, and $3,304,139, respectively 1,717,376 - 1,214,680
Goodwill, net of accumulated amortization of $15,081,501, $0,
and $1,439,000, respectively 57,541,630 - 2,671,390
Deposits and other assets 10,451 - 10,451
---------------- ---------- ----------------
Total assets $ 72,357,501 $ - $ 5,037,674
================ ========== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other current liabilities $2,523,284 - $2,041,100
Deferred revenue 160,000 - -
Current portion of long term debt 323,833 - 268,675
Other short term debt - - 2,126,700
---------------- ---------- ----------------
Total current liabilities 3,007,117 - 4,436,475
---------------- ---------- ----------------
LONG-TERM DEBT 14,081 - 541,578
---------------- ---------- ----------------
SHAREHOLDERS' EQUITY:
Common Stock, par value $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 117,044,809 20,200 47,210,655
Deferred compensation (10,404,381) - -
Deficit accumulated during development stage (37,329,194) (31,000) (47,238,644)
---------------- ---------- ----------------
Total shareholders' equity 69,336,303 - 59,621
---------------- ---------- ----------------
Total liabilities and shareholders' equity $ 72,357,501 $ - $ 5,037,674
================ ========== ================
</TABLE>
See selected notes to financial statements.
1
<PAGE>
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor
(a development stage corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
eMagin Corporation
------------------
Three-Months Nine-Months
ended ended
September 30, 2000 September 30, 2000
--------------------------- ------------------------------
<S> <C> <C>
CONTRACT REVENUE:
Contract revenue $ 1,011,763 $ 1,852,423
--------------------------- ------------------------------
Total revenue 1,011,763 1,852,423
--------------------------- ------------------------------
COSTS AND EXPENSES:
Research and development, net of funding
under cost sharing arrangements of
$201,467 and $1,205,107 respectively 2,830,773 6,070,487
Selling, general and administrative 2,054,945 3,748,632
Amortization of purchased intangibles 6,703,593 15,010,479
Non-cash charge for stock-based compensation 710,049 1,799,772
Write-off of Acquired In Process Research and
Development 12,820,000 12,820,000
--------------------------- ------------------------------
Total costs and expenses, net 25,119,360 39,449,370
--------------------------- ------------------------------
OTHER INCOME, net 70,947 298,755
--------------------------- ------------------------------
Net loss $ (24,036,650) $ (37,298,192)
=========================== ==============================
Basic and diluted net loss per common share $ (0.96) $ (1.76)
=========================== ==============================
Basic and diluted weighted average common shares outstanding 25,069,143 21,164,124
=========================== ==============================
</TABLE>
See selected notes to financial statements.
2
<PAGE>
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor
(a development stage corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
FED Corporation
---------------
Period from
January 1, 2000 Three-Months Nine-Months inception
through Ended Ended (January 6, 1992)
March 15, 2000 September 30, 1999 September 30, 1999 to March 15, 2000
---------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
CONTRACT REVENUE:
Contract revenue $ 568,484 $ 185,761 $ 1,261,401 $ 15,133,837
-------------- --------------- --------------- ---------------
Total revenue 568,484 185,761 1,261,401 15,133,837
-------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Research and development, net of funding
under cost sharing arrangements of
$175,000, $255,920, $866,233 and
$9,164,792, respectively 2,180,519 2,529,572 7,661,150 38,433,105
Non-cash stock based compensation 7,778,850
Selling, general and administrative 670,655 949,599 2,857,557 10,934,793
Depreciation and amortization 325,095 238,579 804,753 5,130,015
Non-cash charge for induced conversion
of debt to common stock - - 9,696,241
-------------- --------------- --------------- ---------------
Total costs and expenses, net 10,955,119 3,717,750 11,323,460 64,194,154
-------------- --------------- --------------- ---------------
OTHER (EXPENSE), net (2,968,414) 67,326 (29,518) (3,371,516)
-------------- --------------- --------------- ---------------
Net loss $ (13,355,049) $ (3,464,663) $ (10,091,577) $ (52,431,833)
============== =============== =============== ===============
Basic and diluted net loss per common
share (1) $ (3.03) $ ($0.79) $ ($8.48)
-------------- --------------- ---------------
Basic and diluted weighted average common
shares outstanding 4,438,095 4,380,535 2,019,677
-------------- --------------- ---------------
</TABLE>
See selected notes to financial statements.
3
<PAGE>
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor
(a development stage corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
eMagin Corporation FED Corporation
------------------------------------ ---------------------------------------
Period from
Nine-Months January 1, 2000 Nine-Months inception
ended through Ended (January 6, 1992)
September 30, 2000 March 15, 2000 September 30, 1999 to March 15, 2000
------------------ ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (37,298,192) $ (13,355,049) $ (10,091,577) $ (52,431,833)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 15,333,175 325,095 1,234,635 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 1,799,772 7,778,850 - 7,778,850
Write-off of acquired in process research
& development 12,820,000
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-
Contract receivables 48,907 (58,659) (382,789) (131,963)
Unbilled costs and estimated profits on
contracts in progress (433,962) (397,841) 3,290,731 (619,564)
Prepaid expenses and other current assets (75,687) (178,058) (38,378) (13,408)
Accounts payable, accrued expenses and
other current liabilities (17,856) 488,516 (142,560) 2,599,113
------------------ ---------------- ---------------- -------------------
Net cash used in operating activities (7,823,843) (2,456,807) (6,129,938) (32,611,299)
------------------ ---------------- ---------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (849,739) (57,574) (234,632) (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 145,855 (57,574) (234,632) (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 21,467,638 1,269,378 15,608 4,688,538
Proceeds from sales of preferred stock,
net of issuance costs - - 3,752,446 23,856,998
Payment of short term debt - 1,923,300 2,000,000 5,256,633
(Net payments) on proceeds from long
term debt and capital leases (2,219,591) (92,748) 659,610 (325,645)
------------------ ---------------- ---------------- -------------------
Net cash provided by
financing activities 19,248,047 3,099,930 6,427,664 37,445,483
------------------ ---------------- ---------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,570,059 585,549 63,094 1,304,017
CASH AND CASH EQUIVALENTS, beginning of period - 718,468 1,878,286 -
------------------ ---------------- ---------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $11,570,059 $1,304,017 $1,941,380 $1,304,017
================== ================ ================ ===================
</TABLE>
See selected notes to financial statements.
4
<PAGE>
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 September 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). The merged company changed its name to eMagin Corporation (the Company
or eMagin) (Note 3). FED is a developer and manufacturer of optical systems and
microdisplays for use in the electronics industry. FED's wholly-owned
subsidiary, Virtual Vision, develops and markets microdisplay systems and optics
technology for commercial, industrial and military applications. Following the
Merger, the business conducted by the Company is the business conducted by FED
prior to the Merger.
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 and approximately 3.9 million options and warrants to purchase
common stock to the FED shareholders. 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, $0.3 million of
acquisition costs and $3.8 million of assumed liabilities. The transaction was
accounted for using the purchase method of accounting. Under the purchase method
of accounting, the assets and liabilities were recorded based upon their fair
values at the date of acquisition.
The purchase price was allocated as follows:
Deferred compensation $13,025,000
In process research
and development 12,820,000
Fixed assets 1,215,000
Other intangible
assets 16,805,000
Goodwill 54,635,000
-----------
$98,500,000
Goodwill and other intangible assets acquired are amortized over their estimated
useful lives of three years. The Company recorded approximately $6.7 million and
$15.0 million in amortization expense related to purchased intangible assets for
the three and nine months ended September 30, 2000. 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
<PAGE>
research and development are charged to expense as part of the allocation of
purchase price. Accordingly, the Company recognized a charge of approximately
$12.8 million associated with the write-off of acquired in-process research and
technology which is included in the accompanying statements of operations for
the three and nine months ended September 30, 2000.
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.
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 the net loss 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 nine months ended September
30, 2000 and September 30, 1999.
<TABLE>
<CAPTION>
Three Months Nine Months
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss attributable to common shareholders
Net Loss $(24,036,650) $(3,464,663) $(37,298,192) $(10,091,577)
Effect of induced conversion of Convertible Preferred ( 7,030,510)
------------ ----------- ------------ ------------
Loss attributable to common shareholders $(24,036,650) $(3,464,663) $(37,298,192) $(17,122,087)
Weighted average shares outstanding 25,069,143 4,380,535 21,164,124 2,019,677
Basic and diluted loss per share $ (0.96) $ (0.79) $ (1.76) $ (8.48)
============ =========== ============ ============
</TABLE>
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.
<PAGE>
Note 8 - 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
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 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 handheld telecommunication and internet
devices, wearable computers, 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
<PAGE>
objectives will depend on a number of factors including acceptance of the OLED
technology by various industries and OEMs, market acceptance of products
incorporating the 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 NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO
THREE AND NINE MONTHS ENDED SEPTEMBER 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
September 30, 2000 reflects pro forma results of eMagin for the period January
1, 2000 through September 30, 2000 and its predecessor FED Corporation for the
period January 1, 2000 to March 15, 2000, on a combined basis, such that the
amounts presented and discussed reflect the full nine 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 nine months ended September 30, 2000 were $1.0
million and $2.4 million, respectively, as compared to $0.2 million and $1.3
million, respectively, for the three and nine months ended September 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
remains 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
September 30, 2000, the remaining costs to be incurred and billed on these three
active "cost sharing" contracts totaled $1.4 million. Gross research and
development expenses for the three months ended September 30, 2000 were $3.0
million and $9.7 million for the nine-months ended September 30, 2000. For the
same periods in 1999, the Company's gross research and development expenses were
$2.8 million and $8.5 million, respectively. Of these amounts, the Company
received $0.2 million and $1.2 million in cost sharing from the U.S. Government
for the three months and nine months ended September 30, 2000 and $0.3 million
and $0.9 million for the same periods in 1999, respectively. The $0.2 million
and $1.2 million increase in gross expenses for the three months and nine months
ended September 30, 2000 respectively, 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.
<PAGE>
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, amortization, as well as other marketing and
administrative expenses. Selling, general and administrative expenses, for the
three and nine months ending September 30, 2000 were $2.1 million and $4.4
million respectively, as compared to $1.0 million and $2.9 million,
respectively, for the three and nine months ended September 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 of Purchased Intangibles
Amortization of purchased intangibles expense for the three and nine months
ending September 30, 2000 were $6.7 million and $15.2 million respectively, as
compared to $0.2 million and $0.6 million for the three and nine months ended
September 30, 1999 respectively. The increase in amortization for purchased
intangibles expense is caused by the amortization of goodwill created by the
Merger.
Non-cash for stock-based compensation amortization
Non-cash for stock-based compensation expense for the three and nine months
ending September 30, 2000 were $0.7 million and $9.6 million respectively, as
compared to no activity for the three and nine months ended September 30, 1999.
The activity, for the three and nine months ending September 30, 2000, reflects
the amortization of deferred compensation costs related to the issuance of stock
options at below fair market values in the first quarter of 2000.
Write-Off of Acquired In-Process Research and Development expense
Write-Off of acquired In-Process Research and Development expense of obtained
$12.8 million in the third quarter of 2000 versus no activity for the comparable
period of 1999 reflects the value of the in-process research and development
acquired in the Merger. The Company obtained a third party appraisal in order to
value the assets acquired as part of the Merger and allocate the purchase price
between intangible and tangible assets. Such appraisal identified in-process
research and development of approximately $12.8 million, which was charged to
operations in the quarter ended September 30, 2000.
Liquidity and Capital Resources
Since inception we have financed our operations primarily through private
placements of equity securities and research and development contracts.
Net cash used in operating activities was $(10.3) million for the nine months
ended September 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 $0.1 for the nine months ended
September 30, 2000. This represented cash acquired net of acquisition cost of
$1.0 million, offset by capital expenditures of $0.9.
Net cash provided by financing activities was $22.4 for the nine months ended
September 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 September 30,
2000, we had $11.6 million in cash and cash equivalents.
<PAGE>
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 or 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. No assurance can be given that additional financing will
be available or that, if available, such financing will 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 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.
<PAGE>
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
