U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2002
[ ] 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 registrant as specified in its charter)
Commission file number: 000-24757
DELAWARE 56-1764501
(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 May 15, 2002 the Registrant had
30,294,980 shares of Common Stock outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X]
The undersigned registrant hereby amends Item 1 (Consolidated Financial
Statements) of Part I (Financial Information) of its Form 10-Q filed with the
Securities and Exchange Commission on May 15, 2002, for the quarter ended March
31, 2002, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
The following change has been made to the Unaudited Consolidated Statements of
Cash Flows for the three months ended March 31, 2002, and March 21, 2001, and
for the period from inception (January 23, 1996) to March 31, 2002.
For the three months ended March 31, 2002, versus March 31, 2001, discussion of
prepaid expenses and other current assets (Page 5):
Three-months Three-months
ended ended
March 31, 2002 Marcy 31, 2001
Prepaid expenses and other (217,538) (546,863)
current assets
The entire text of Item 1, reflecting the above correction, is set forth in the
pages attached hereto.
2
Item 1 Consolidated Financial Statements
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 2002 December 31, 2001
-------------- -----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,666,010 $738,342
Contract receivables 166,316 485,021
Unbilled costs and estimated profits on contracts in progress 101,320 293,273
Inventory 65,600 90,720
Prepaid expenses and other current assets 631,002 388,344
--------------- -----------------
Total current assets 2,630,248 1,995,700
Equipment and leasehold improvements, net of accumulated
depreciation of $1,234,014 and $1,122,989, respectively 1,140,229 1,166,509
Goodwill and purchased intangibles, net 1,104,823 1,657,238
Other long-term assets 90,141 94,367
--------------- -----------------
Total assets $ 4,965,441 $ 4,913,814
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $4,158,683 $3,731,976
Accrued Payroll 851,708 788,302
Current portion of long-term debt 1,673,528 693,197
Other short-term debt 1,268,709 1,875,000
Advanced payments on contracts to be completed 275,955 289,538
Other current liabilities 356,628 108,805
--------------- -----------------
Total current liabilities 8,585,211 7,486,818
--------------- -----------------
LONG-TERM DEBT 2,337,452 2,305,184
SHAREHOLDERS' EQUITY:
Common Stock, par value $0.001 per share
Shares authorized - 100,000,000
Shares issued and outstanding - 29,012,927 and 25,171,183 29,013 25,171
Additional paid-in capital 119,000,669 114,058,560
Deferred compensation (1,812,838) (2,277,367)
Deficit accumulated during the development stage (123,174,066) (116,684,552)
---------------- -----------------
Total shareholders' equity (5,957,222) (4,878,188)
---------------- -----------------
Total liabilities and shareholders' equity $ 4,965,441 $ 4,913,814
================ =================
See selected notes to financial statements
3
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Period from
Three-Months Three-Months inception
ended ended (January 23, 1996)
March 31, 2002 March 31, 2001 to March 31, 2002
-------------- -------------- --------------------
CONTRACT REVENUE:
Contract revenue $ 14,108 $ 2,030,201 $ 7,577,352
Product sales 143,919 - 985,632
-----------------------------------------------------------
Total revenue 158,027 2,030,201 $ 8,562,984
-----------------------------------------------------------
COSTS AND EXPENSES:
Research and development, net of funding
under cost sharing arrangements of
$26,665, $201,467, $358,760 and $2,910,597, respectively 2,144,766 3,441,105 24,503,875
Amortization of purchased intangibles 552,415 5,851,692 39,371,573
Acquired in-process research and development - - 12,820,000
Write-down of goodwill and purchased intangibles - 32,145,863
Non-cash charge for stock-based compensation 1,336,926 735,978 6,717,757
Selling, general and administrative 1,635,048 1,775,401 14,201,268
----------- ------------ --------------
Total costs and expenses, net 5,669,155 11,804,176 129,760,336
----------- ------------ -------------
Non cash interest expense (936,132) (903,290) (1,839,422)
OTHER (EXPENSE)/ INCOME (42,254) 968,830 (137,292)
----------- ------------ -------------
OTHER (EXPENSE)/ INCOME, net (978,386) 65,540 (1,976,714)
Loss before provision for income taxes (6,489,514) (9,708,435) (123,174,066)
PROVISION FOR INCOME TAXES - - -
------------ ----------- ---------------
Net loss $ (6,489,514) $ (9,708,435) $(123,174,066)
============== =============== ===============
Basic and diluted net loss per common share $ (0.24) $ (0.39)
============= ==============
Basic and diluted weighted average common shares outstanding 26,669,919 25,069,143
============= =============
See selected notes to financial statements.
4
eMAGIN CORPORATION
(a development stage corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three-Months Three-Months
ended ended
March 31, 2002 March 31, 2001
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($6,489,514) ($9,708,435)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 663,440 6,016,929
Write-down of goodwill and purchased intangibles - -
Loss on sale of assets - -
Non-cash charge for stock based compensation 1,336,926 735,978
Non-cash interest related charges 936,132 -
Non-cash charge for services received 307,657 -
Acquired in-process research and development - -
Changes in operating assets and liabilities, net of acquisition:
Contract receivables 318,705 673,980
Unbilled costs and estimated profits on contracts in progress 191,953 (796,010)
Prepaid expenses and other current assets (217,538) (546,863)
Other long-term assets 4,226 -
Advanced payment on contracts to be completed (13,583) -
Accounts payable, accured expenses and accrued payroll 757,605 310,558
-------------------------------------------------
Net cash used in operating activities (2,203,991) (3,313,863)
-------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (84,745) (152,848)
Net proceeds from acquisition - -
-------------------------------------------------
Net cash used in investing activities (84,745) (152,848)
-------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock, net of issuance costs 2,465,517 (93,878)
Proceeds from exercise of stock options and warrants 887 -
Proceeds from short term debt 1,000,000 -
Proceeds from long term debt - -
Payments of long term debt and capital leases (250,000) -
-------------------------------------------------
Net cash provided by financing activities 3,216,404 (93,878)
-------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENT'S 927,668 (3,560,589)
CASH AND CASH EQUIVALENTS, beginning of period 738,342 7,367,257
-------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,666,010 $ 3,806,668
Period from
inception
January 23, 1996
to March 31, 2002
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($123,174,066)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 40,606,422
Write-down of goodwill and purchased intangibles 32,145,863
Loss on sale of assets 97,713
Non-cash charge for stock based compensation 6,717,757
Non-cash interest related charges 2,158,694
Non-cash charge for services received 423,808
Acquired in-process research and development 12,820,000
Changes in operationg assets and liabilities, net of acquisition:
Contract receivables (34,459)
Unbilled costs and estimated profits on contracts in progress 518,244
Prepaid expenses and other current assets (390,780)
Other long-term assets (79,690)
Advanced payment on contracts to be completed 384,760
Accounts payable, accured expenses and accrued payroll 2,741,263
------------------
Net cash used in operating activities (25,064,471)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (1,352,607)
Net proceeds from acquisition 1,239,162
------------------
Net cash used in investing activities (113,445)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock, net of issuance costs 23,746,517
Proceeds from exercise of stock options and warrants 28,496
Proceeds from short term debt 5,875,000
Proceeds from long term debt -
Payments of long term debt and capital leases (2,806,087)
------------------
Net cash provided by financing activities 26,843,926
------------------
NET INCREASE IN CASH AND CASH EQUIVALENT'S 1,666,010
CASH AND CASH EQUIVALENTS, beginning of period -
------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,666,010
==================
See selected notes to financial statements.
5
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 March 31, 2002 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
Corporation ("FED") (the Merger). The merged company changed its name to eMagin
Corporation (the "Company" or eMagin) (Note 3). eMagin is a developer and
manufacturer of optical systems and microdisplays for use in the electronics
industry. eMagin's wholly-owned subsidiary, Virtual Vision Inc., 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. eMagin Corporation is
attempting to transition to becoming an operating company during 2002 with most
of its future revenue to be based in product sales.
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 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 were recorded based upon their fair
values at the date of acquisition.
Goodwill and other intangible assets acquired were previously amortized over
their estimated useful lives of three years. 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
6
development were 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. The Company recognized this
charge during the quarter ended September 30, 2000.
During the quarter ended September 30, 2001, the Company recorded an
amortization and impairment write-down of its goodwill of approximately $38.0
million to reduce the carrying amount of the goodwill to its estimated fair
value. The goodwill impairment charge was included in the unaudited consolidated
statement of operations for the quarter ended September 30, 2001. An explanation
of the impairment write down is detailed in the Management's Discussion and
Analysis of Financial Condition and Results of Operations under Amortization of
Purchased Intangibles.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method and defines criteria for recognition of acquired intangible
assets. Under SFAS No. 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 Company adopted the provisions of
SFAS No. 142 effective January 1, 2002 and is in the process of performing the
required transitional fair value impairment test. Identified intangible assets
not deemed to have indefinite lives continue to be amortized over a three year
life. Accordingly, amortization expense of purchased intangibles of
approximately $550,000 is included in the accompanying unaudited consolidated
statement of operations for the three months ended March 31, 2002.
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 contract. 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 profits 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.
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, 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.
7
Note 7 - DEBT
On January 14, 2002, the Company entered into a $1.0 million bridge loan
arrangement with a private investor (the "Investor") in connection with a
secured note purchase agreement executed by the Company on November 27, 2001.
This transaction increased the total amount of the secured convertible loan
outstanding under this arrangement to $1,625,000, including amounts previously
made available to the Company in connection with the November 27, 2001 secured
note arrangement, net of repayments of $250,000 to certain investors who elected
not to reinvest. The secured convertible notes accrue interest at a rate of
9.00% per annum and mature on August 30, 2002. Terms of the notes also include a
fixed conversion rate of $0.5264 per share. The Company also granted warrants to
purchase 921,161 shares of common stock with an exercise price of $0.5468 per
share to the Investor. Such warrants are exercisable through January 2005.
Certain investors of the November 27, 2002 financing who elected to remain in
the new bridge loan arrangement received reset provisions of the previous
conversion rate and warrant exercise prices to be equivalent to the terms
granted to the new Investor.
The total of the intrinsic value of the warrants issued to the new Investor and
the incremental intrinsic value of the repriced warrants of certain existing
investors of approximately $480,000 has been recorded as original issue
discount, resulting in a reduction in the carrying value of this debt. The
original issue discount will be amortized into interest expense over the period
of the debt. In the event the debt is converted prior to maturity, the remaining
discount will be amortized into interest expense at the conversion date. For the
three months ended March 31, 2002, approximately $120,000 has been amortized and
is included in non-cash interest expense in the accompanying unaudited
consolidated statements of operations.
In addition, based on the terms of the bridge loan arrangement, the conversion
terms of the debt provide for a beneficial conversion feature. The total value
of the beneficial feature of the new debt and the incremental value of the reset
conversion feature of the existing debt of approximately $780,000 was recorded
as non-cash interest expense in the accompanying unaudited consolidated
statements of operations.
Note 8 - STOCKHOLDERS' EQUITY
The authorized common stock of the Company consists of 100,000,000 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 was 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.
Accordingly, the purchase price was allocated to the fair value of assets
acquired and liabilities assumed.
8
In January 2002, the Company negotiated settlement of amounts due to a related
party for services previously rendered via issuance of 192,493 shares of common
stock. As such, the Company recorded the fair value of the shares of
approximately $135,000 in selling, general and administrative expenses in the
accompanying unaudited consolidated statement of operations for the three months
ended March 31, 2002.
On February 27, 2002, the Company completed a private placement of securities
with several institutional and individual investors of 3,617,128 shares of
common stock at a price per share of $0.6913, generating gross proceeds of
approximately $2,500,000, less issuance costs of approximately $35,000. In
connection with the financing arrangement, the Company issued to the investors
warrants to purchase 1,446,852 shares of common stock of the Company at an
exercise price of $0.7542 per share. Also, the Company issued to an institution
warrants to purchase 36,164 shares of common stock in connection with a finder
fee arrangement entered into between the two parties. Such warrants are
exercisable through February 2005.
On March 4, 2002, the Company entered into an equity line of credit agreement
with a private equity fund (the "Fund") whereby the Company has the option, but
not the obligation, to sell shares of common stock to the Fund for a three-year
period at a price per share, as defined. The agreement provides for certain
minimum and maximum monthly amounts up to a maximum of $15 million and, in
certain circumstances, up to $20 million.
In connection with the equity line of credit, the Company issued 30,000 shares
of common stock to the Fund as compensation for certain services rendered in
connection with the closing of the line of credit. As such, the Company recorded
the fair value of the shares of approximately $31,000 in selling, general and
administrative expenses for the three months ended March 31, 2002. Also, the
Company granted warrants to purchase up to 150,000 shares of common stock of the
Company at an exercise price of $0.8731 per share. Such warrants are exercisable
through September 2005. The intrinsic value of said warrants of approximately
$140,000 is included in selling, general and administrative expenses for the
three months ended March 31, 2002.
9
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: June 18, 2002 By: /s/ Edward V. Flynn
-------------------------------------
Edward V. Flynn
Chief Financial Officer, Treasurer