<PAGE>
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]
<PAGE>
eMAGIN CORPORATION
Form 10-QSB
for the Quarter Ended June 30, 2000
<TABLE>
<CAPTION>
Index Page Number
<S> <C> <C>
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
</TABLE>
<PAGE>
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor
(a development stage corporation)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- Predecessor
eMagin Corporation FED Corporation
------------------ ---------------
ASSETS June 30, 2000 December 31, 1999 December 31, 1999
------------- ----------------- -----------------
(Unaudited)
(as restated,
see Note 8)
<S> <C> <C>
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
============= ============= =============
</TABLE>
See selected notes to financial statements.
<PAGE>
eMAGIN CORPORATION (Formerly Fashion Dynamics, Inc.) and Predecessor
(a development stage corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
eMagin Corporation
------------------
Three-Months Six-Months
ended ended
June 30, 2000 June 30, 2000
------------------------------- -----------------------------------
(as restated, See Note 8) (as restated, See Note 8)
<S> <C> <C>
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
=============================== ===================================
</TABLE>
See selected notes to financial statements.
<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 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)
<S> <C> <C> <C> <C>
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
</TABLE>
(1) includes dividend from conversion of prefered stock to common stock
recorded in stockholders equity
See selected notes to financial statements.
<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
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)
<S> <C> <C> <C> <C>
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
============
</TABLE>
See selected notes to financial statements.
<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 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.
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Six Months
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
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)
============ ============ ============ ============
</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.
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:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
