U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(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, 2001
[ ] 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, 2001 the Registrant
had 25,085,145 shares of Common Stock outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X]
Index Page Number
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 2001 (unaudited)
and December 31, 2000 1
Unaudited Consolidated Statements of Operations For the Three-Months
ended June 30, 2001 and June 30, 2000 2
Unaudited Consolidated Statements of Operations For the Six-Months
ended June 30, 2001, June 30, 2000 and for the period from
Inception (January 23, 1996) to June 30, 2001 3
Unaudited Consolidated Statements of Cash Flows for the Six-Months
ended June 30, 2001, June 30, 2000 and for the
period from Inception (January 23, 1996) to June 30, 2001 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 12
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 2001 December 31, 2000
--------------- ----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 992,107 $ 7,367,257
Contract receivables 868,346 825,733
Unbilled costs and estimated profits on contracts in progress 674,073 627,347
Prepaid expenses and other current assets 410,800 665,222
--------------- ---------------
Total current assets 2,945,326 9,485,559
Equipment and leasehold improvements, net of accumulated
depreciation of $878,640, and $556,365, respectively 1,278,017 1,268,304
Goodwill and purchased intangibles, net of accumulated
amortization of $32,635,704 and $20,932,320, respectively 39,986,555 51,689,938
Other long-term assets 701,511 105,394
--------------- ---------------
Total assets $ 44,911,409 $ 62,549,195
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,662,979 $ 1,096,771
Accrued payroll and related benefits 1,552,926 1,376,888
Current portion of long-term debt 207,140 313,074
Other current liabilities 248,849 455,812
--------------- ---------------
Total current liabilities 4,671,894 3,242,545
--------------- ---------------
LONG-TERM DEBT 100,062 122,984
SHAREHOLDERS' EQUITY:
Common Stock, par value $0.001 per share
Shares authorized - 76,350,000
Shares issued and outstanding - 25,085,145 and
25,069,143, respectively 25,085 25,069
Additional paid-in capital 116,471,122 116,622,811
Deferred compensation (7,617,746) (9,266,397)
Deficit accumulated during the development stage (68,739,008) (48,197,817)
--------------- ---------------
Total shareholders' equity 40,139,453 59,183,666
--------------- ---------------
Total liabilities and shareholders' equity $ 44,911,409 $ 62,549,195
=============== ===============
See selected notes to unaudited consolidated financial statements
1
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three-Months Three-Months
ended ended
June 30, 2001 June 30, 2000
--------------- ---------------
CONTRACT REVENUE:
Contract revenue $ 1,417,777 $ 828,394
Product revenue 198,228 --
--------------- ---------------
Total revenue 1,616,005 828,394
--------------- ---------------
COSTS AND EXPENSES:
Research and development, net of funding
under cost sharing arrangements of
$244,829, and $644,880, respectively 3,767,491 2,616,684
Amortization of purchased intangibles 5,851,692 7,120,188
Non-cash charge for stock-based compensation 733,476 834,777
Selling, general and administrative 2,061,595 1,452,030
--------------- ---------------
Total costs and expenses, net 12,414,254 12,023,679
--------------- ---------------
OTHER (EXPENSE)/INCOME (34,507) 190,899
--------------- ---------------
Loss before provision for income taxes (10,832,756) (11,004,386)
PROVISION FOR INCOME TAXES -- --
--------------- ---------------
Net loss $ (10,832,756) $ (11,004,386)
=============== ===============
Basic and diluted net loss per common share $ (0.43) $ (0.44)
=============== ===============
Basic and diluted weighted average
common shares outstanding 25,074,418 25,068,075
=============== ===============
See selected notes to unaudited consolidated financial statements.
2
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Period from
Six-Months Six-Months inception
ended ended (January 23, 1996)
June 30, 2001 June 30, 2000 to June 30, 2001
--------------- --------------- ---------------
CONTRACT REVENUE:
Contract revenue $ 3,433,478 $ 840,660 $ 5,991,065
Product revenue 212,728 -- 212,728
--------------- --------------- ---------------
Total revenue 3,646,206 840,660 6,203,793
--------------- --------------- ---------------
COSTS AND EXPENSES:
Research and development, net of funding
under cost sharing arrangements of
$443,025, $1,003,640 and $1,774,417, respectively 7,208,596 3,239,714 16,843,544
Amortization of purchased intangibles 11,703,384 8,306,886 32,635,704
Acquired in-process research and development -- -- 12,820,000
Non-cash charge for stock-based compensation 1,469,454 1,089,723 4,009,282
Selling, general and administrative 3,836,996 1,693,687 9,017,509
--------------- --------------- ---------------
Total costs and expenses, net 24,218,430 14,330,010 75,326,039
--------------- --------------- ---------------
OTHER INCOME 31,033 227,808 383,238
--------------- --------------- ---------------
Loss before provision for income taxes (20,541,191) (13,261,542) (68,739,008)
PROVISION FOR INCOME TAXES -- -- --
--------------- --------------- ---------------
Net loss $ (20,541,191) $ (13,261,542) $ (68,739,008)
=============== =============== ===============
Basic and diluted net loss per common share $ (0.82) $ (0.69)
=============== ===============
Basic and diluted weighted average
common shares outstanding 25,071,795 19,190,158
=============== ===============
See selected notes to unaudited consolidated financial statements
3
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Period from
Six-Months Six-Months inception
ended ended (January 23 1996)
June 30, 2001 June 30, 2000 to June 30, 2001
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (20,541,191) $ (13,261,542) $ (68,739,008)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 12,025,659 8,563,949 33,515,180
Loss on disposal of assets 44,191 -- 141,904
Non-cash charge for stock based compensation 1,469,454 1,089,723 4,009,282
Acquired in-process research and development -- -- 12,820,000
Changes in operationg assets and liabilities, net of acquisition:
Contract receivables (42,613) 114,697 (736,383)
Unbilled costs and estimated profits on contracts in progress (46,726) (688,829) (54,509)
Prepaid expenses and other current assets 254,422 (43,403) (105,084)
Other long-term assets (596,117) -- (691,060)
Accounts payable, accrued expenses and other current
liabilities 1,535,284 (748,397) 1,898,135
--------------- --------------- ---------------
Net cash used in operating activities (5,897,637) (4,973,802) (17,941,543)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (376,180) (443,447) (1,179,213)
Net proceeds from acquisition -- 995,594 1,239,162
--------------- --------------- ---------------
Net cash (used in)/provided by investing activities (376,180) 552,147 59,949
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock, net of issuance costs 27,523 21,474,915 21,308,523
(Net payments on) proceeds from long-term debt and capital leases (128,856) (2,081,703) (2,434,822)
--------------- --------------- ---------------
Net cash (used in)/ provided by financing activities (101,333) 19,393,212 18,873,701
--------------- --------------- ---------------
NET (DECREASE) \ INCREASE IN CASH AND CASH EQUIVALENT'S (6,375,150) 14,971,557 992,107
CASH AND CASH EQUIVALENTS, beginning of period 7,367,257 -- --
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 992,107 $ 14,971,557 $ 992,107
=============== =============== ===============
See selected notes to unaudited consolidated financial statements.
4
eMAGIN CORPORATION
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, 2001 are not necessarily indicative of the results to be
expected for the full year.
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 manufacturing business, and it is just
beginning to commence 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 $98.5 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 will be 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 $5.9 million and
$11.7 million in amortization expense related to purchased intangible assets and
goodwill for the three and six months ended June 30, 2001. In accordance with
SFAS 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. Accordingly, based on the results of an
independent appraisal, the Company recognized a charge of approximately $12.8
million associated with the write-off of acquired in-process research and
technology. This charge was recognized by the Company during the quarter ended
September 30, 2000 and is included in the accompanying unaudited consolidated
statement of operations for the period from inception (January 23, 1996) to June
30, 2001.
Note 4 - REVENUE AND COST RECOGNITION
The Company has historically earned revenues from certain of its research and
development activities under both firm fixed-price contracts and cost-type
contracts, including some cost-plus-fee contracts. Revenues relating to firm
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 incurred to total estimated costs.
Contract costs include all direct material and labor costs and an allocation of
allowable indirect costs as defined by each contract, as periodically adjusted
to reflect revised agreed upon rates. Product revenue is recorded when products
are shipped to customers, at which time, title passes to the customer and the
Company has no remaining future obligations. No right of return is provided to
the customers who have purchased the products, and no returns of such goods have
been received by the Company to date.
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
In accordance with SFAS No. 128, "Earnings Per Share" net loss per common share
amounts ("basic EPS") were computed by dividing net loss by the weighted average
number of common shares outstanding and excluding any potential dilution. Net
loss per common share assuming dilution ("diluted EPS") was computed
by reflecting potential dilution from the exercise of stock options and
warrants. Common equivalent shares have been excluded from the computation of
diluted EPS, as their effect is antidilutive.
Note 7 - STOCKHOLDERS' EQUITY
The authorized common stock of the Company consists of 76,350,000 shares with a
par value of $0.001 per share.
Prior to the Merger on March 16, 2000, net proceeds of approximately $23.3
million were raised through the private placement issuance of approximately 3.5
million shares of 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.
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 FED shareholders and issued approximately 3.9 million options
and warrants in exchange for existing FED options and warrants. The total
purchase price of the transaction was approximately $98.5 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, based on the difference between the fair value and the exercise price
of said equity instruments and $3.8 million of assumed liabilities. The
transaction was accounted for using the purchase method of accounting.
Note 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141,"Business Combinations" ("FAS 141") and No. 142, "Goodwill and other
Intangible Assets" ("FAS 142"). FAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Under FAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives ( but with no maximum life). The amortization provisions of FAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the Company is
required to adopt FAS 142 effective January 1, 2002.
The Company is currently evaluating the effect that adoption of the provisions
of FAS 142 that are effective January 1, 2002 will have on its results of
operations and financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Statement of 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. The products are targeted for 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 and has begun
selling limited quantities of its first commercial OLED microdisplay product.
Initial shipments of the Company's product have been evaluation kits (consisting
of an OLED SVGA+ microdisplay and associated electronics for engineering
evaluation) and follow-on orders, primarily from military contractors. To date,
the primary customers of the Company's evaluation kit have been military
contractors and commercial customers for medical applications as well as
consumer product oriented customers. After an evaluation process of one to three
months, customers are typically expected to order additional microdisplays for
further evaluation and product prototypes. The size and pricing of follow-on
orders will depend upon the customer and end product application and quantity.
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 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 SIX MONTHS ENDED JUNE 30, 2001
COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 2000.
Prior to the acquisition of FED Corporation (the "Predecessor"), the Company had
no operations. Management believes that the comparison of eMagin's financial
results to that of the Predecessor provides the most meaningful comparative
information to the reader. Accordingly, the following comparative information
effects
the operating results of eMagin Corporation for the three and six months ended
June 30, 2001 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 Predecessor for the period January 1, 2000 to 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 unaudited consolidated financial statements that are included
herein, for further detail on the results of eMagin and Predecessor for their
respective periods of ownership.
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
Pro Forma (1)
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
----------------- ----------------- ---------------- ----------------
CONTRACT REVENUE:
Contract revenue $ 1,417,777 $ 828,394 $ 3,433,478 $ 1,409,144
Product revenue 198,228 - 212,728 -
----------------- ----------------- ---------------- ---------------
Total revenue 1,616,005 828,394 3,646,206 1,409,144
----------------- ----------------- ---------------- ---------------
COSTS AND EXPENSES:
Research and development, net of funding
under cost-sharing arrangements of $244,829,
$644,880, $443,025, $1,178,640 respectively $ 3,767,491 $ 2,616,684 $ 7,208,596 $ 5,420,234
Amortization of purchased intangibles 5,851,692 7,120,188 11,703,384 8,479,911
Non-cash charge for stock-based compensation 733,476 834,777 1,469,454 8,868,573
Selling, general and administrative 2,061,595 1,452,030 3,836,996 2,516,411
----------------- ----------------- ---------------- ---------------
Total costs and expenses, net 12,414,254 12,023,679 24,218,430 25,285,129
----------------- ----------------- ---------------- ---------------
OTHER (EXPENSE)/INCOME $ (34,507) $ 190,899 $ 31,033 $ (2,740,606)
----------------- ----------------- ---------------- ---------------
Net Loss $ (10,832,756) $ (11,004,386) $ ( 20,541,191) $ (26,616,591)
================= ================= ================ ================
(1) Represents the Pro Forma results of eMagin Corporation for the six months
ended June 30, 2000 and FED Corporation for the period January 1 to March
15, 2000.
Revenues
Net revenue for the three and six months ended June 30, 2001 were $1.6 million
and $3.6 million, respectively, as compared to $0.8 million and $1.4 million,
respectively, for the three and six months ended June 30, 2000. 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.
In April 2001, the company commenced shipping of its first commercial product,
an SVGA+ microdisplay, primarily in evaluation kits. Evaluation kits are
composed of an OLED microdisplay with associated electronics for customer
evaluation.
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, has received cost sharing awards from certain
U.S. government agencies to fund certain research and development. As of June
30, 2001, the remaining costs to be incurred and billed on active cost sharing
contracts totaled $0.9 million. Gross research and development expenses for the
three and six months ended June 30, 2001 were $4.0 million and $7.7 million
respectively and for the same periods in 2000, the Company's gross research and
development expenses were $3.3 million and $6.6 million, respectively. Of these
amounts, the Company received $0.2 million and $0.4 million in cost sharing from
the U.S. Government for the three months and six months ended June 30, 2001 and
$0.6 million and $1.2 million for the same periods in 2000, respectively. The
$0.7 million and $1.1 million increase in gross expenses for the three months
and six months ended June 30, 2001 reflects additional costs associated with
equipment leases, personnel and material costs resulting from increased research
and development activities and equipment additions at the Company's
manufacturing facility.
Amortization of Purchased Intangibles
Amortization of purchased intangibles expense for the three and six months
ending June 30, 2001 was $5.9 million and $11.7 million respectively as compared
to $7.1 million and $8.5 million, respectively for the three and six months
ended June 30, 2000.
Non-cash charge for stock-based compensation
Non-cash for stock-based compensation expense for the three and six months
ending June 30, 2001 was $0.7 million and $1.5 million respectively, as compared
to $0.8 million and $8.9 million respectively, for the three and six months
ended June 30, 2000. The activity for the three months ending June 30, 2001
reflects amortization of deferred compensation costs related to the value of
unvested options exchanged in the acquisition of FED in the first quarter of
2000. The activity for the six months ended June 30, 2000, on a pro-forma basis,
primarily reflects a one-time charge of $7.8 million related to option and
warrant activity by the Predecessor prior to the Merger.
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 six months ending June 30, 2001 were $2.1 million and $3.8 million
respectively, as compared to $1.5 million and $2.5 million, respectively, for
the three and six months ended June 30, 2000. The increase in selling, general
and administrative expenses is primarily due to increases in personnel costs,
marketing activity, legal and accounting fees.
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 $5.9 million for the six months ended
June 30, 2001. Cash used in operating activities resulted primarily from our net
loss offset by increases from non-cash charges.
Net cash used in investing activities was $0.4 million for the six months ended
June 30, 2001. This represented capital expenditures of $0.4 million.
Net cash used in financing activities was $0.1 million for the six months ended
June 30, 2001, and consisted primarily of cash payments on long-term debt and
capital leases. As of June 30, 2001, we had $1.0 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 or debt financing. The Company is
currently devoting substantial resources to the establishment of sales and
distribution relationships and it's initial product launch cycles. The Company
believes that it will be able to secure financing in the near term and that the
proceeds from such financings, along with its remaining cash resources at June
30, 2001, will be sufficient to fund the Company's operations into the second
quarter of 2002 and beyond. However, there can be no assurance that sufficient
capital will be available, when required, to permit the Company to realize its
plan, or even if such capital is available, that it will be at terms favorable
to the Company. Additionally, there can be no assurance that the Company's
efforts to produce a commercially viable product will be successful, or that the
Company will generate sufficient revenues to provide positive cash flows from
operations. These and other factors raise substantial doubt about the Company's
ability to continue as a going concern. 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. The accompanying
unaudited consolidated financial statements do not include any adjustments that
might result should the Company be unable to continue in existence.
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In June 2001, we issued 16,002 shares of our common stock to Travelers
Insurance Company upon Travelers Insurance Company's exercise of warrants to
purchase common shares. We received gross proceeds in the amount of $27,523.44,
which proceeds are to be used for general operating capital.
Item 6. Exhibits and Reports on Form 8-K
(a) 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: August 14, 2001 By: /s/ Andrew P. Savadelis
-----------------------------------------
Andrew P. Savadelis
Executive Vice President, Finance
and Chief Financial Officer