forms1a.htm
As filed with the Securities and
Exchange Commission on November 12,
2008
Registration
No. 333-144865
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
FORM
S-1/A
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
eMagin
Corporation
(Name of
small business issuer in its charter)
Delaware
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3679
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56-1764501
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(State
or other Jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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Incorporation
or Organization)
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Classification
Code Number)
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Identification
No.)
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10500
N.E. 8 th Street,
Suite 1400,
Bellevue,
WA 98004
(425)-749-3600
(Address
and telephone number of principal executive offices and principal place of
business)
Andrew G.
Sculley, Chief Executive Officer
eMagin
Corporation
10500
N.E. 8 th Street,
Suite 1400,
Bellevue,
WA 98004
(425)-749-3600
(Name,
address and telephone number of agent for service)
Copies
to:
Richard A. Friedman,
Esq.
Sichenzia
Ross Friedman Ference LLP
61 Broadway, 32nd Flr.
New
York, New York 10006
(212)
930-9700
(212)
930-9725 (fax)
APPROXIMATE
DATE OF PROPOSED SALE TO THE PUBLIC:
From time
to time after this Registration Statement becomes effective.
If any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Title of each class
of securities to be
registered
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Amount
to be
registered
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Proposed
maximum
offering
price
per
share
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Proposed
maximum
aggregate
offering
price
(1)
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Amount
of
registration
fee
(2)
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Common
Stock, $0.001 par value per share
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2,450,000
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$
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0.38
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$
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931,000
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$
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36.59
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(1)
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Estimated
solely for purposes of calculating the registration fee in accordance with
Rule 457(c) and Rule 457(g) under the Securities Act of 1933, using the
average of the sale prices as reported on the OTCBB on October 14, 2008
which was $0.38 per share.
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(2)
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The
registrant previously paid a filing fee in the amount of
$113.00.
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
eMagin
Corporation
2,450,000
SHARES OF
COMMON
STOCK
This
prospectus relates to the resale by the selling stockholders of up to 2,450,000
shares of our common stock, consisting of up to (i) 1,000,000 shares issuable
upon the exercise of common stock purchase warrants, (ii) 729,524 shares of
common stock issuable upon conversion of the remaining $250,000 Stillwater Note
(Original Stillwater Note (as described herein) of $500,000 less $250,000
partial Note conversion (as described in iii)) and accrued interest of
$5,333 at a conversion price of $0.35 per share, and (iii) 720,476 shares
of common stock issued (but not registered) to the selling stockholder due
to the selling stockholder’s election to partially convert the Stillwater Note
pursuant to its terms. With respect to the aforementioned subpart (iii) above,
on July, 23 2007, Stillwater elected to convert $252,166.50 of the Stillwater
Note representing $250,000 of the principal amount of the Note due on July
23, 2007 and $2,166.50 of accrued and unpaid interest into shares of common
stock. Stillwater received 720,476 shares of the common stock at the conversion
price of $0.35. The selling stockholders may sell common stock from time to time
in the principal market on which the stock is traded at the prevailing market
price or in negotiated transactions. We will pay the expenses of registering
these shares.
Our
common stock is listed on the Over-The-Counter Bulletin Board under the symbol
“EMAN”. The last reported sales price per share of our common stock as reported
by the Over-The-Counter Bulletin Board on October 14, 2008 was
$0.50.
Investing
in these securities involves significant risks. See “Risk Factors” beginning on
page 10.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
You should read this prospectus carefully before you invest.
The date
of this prospectus
is November ,
2008.
The
information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by eMagin
Corporation with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
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Page
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Prospectus
Summary
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4
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Risk
Factors
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10
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Forward
Looking Statements
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15
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Use
of Proceeds
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15
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Market
For Equity and Related Stockholder Matters
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15
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Selected
Financial Data
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16
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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17
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Business
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25
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Description
of Property
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39
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Legal
Proceedings
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39
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Management
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40
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Executive
Compensation
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43
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Indemnification
for Securities Act Liabilities
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55
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Plan
of Distribution
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55
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Description
of Securities
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57
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Selling
Stockholders
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57
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Transactions
With Related Persons, Promoters and Certain Control
Persons
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62
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Legal
Matters
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65
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Experts
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65
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Available
Information
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65
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Index
to Financial Statements
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66
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The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the “risk factors” section, the
financial statements and the notes to the financial statements.
We
design, develop, manufacture, and market virtual imaging products which utilize
OLEDs, or organic light emitting diodes, OLED-on-silicon microdisplays and
related information technology solutions. We integrate OLED technology with
silicon chips to produce high-resolution microdisplays smaller than one-inch
diagonally which, when viewed through a magnifier, create virtual images that
appear comparable in size to that of a computer monitor or a large-screen
television. Our products enable our original equipment manufacturer, or OEM,
customers to develop and market improved or new electronic products. We believe
that virtual imaging will become an important way for increasingly mobile people
to have quick access to high resolution data, work, and experience new more
immersive forms of communications and entertainment.
Our first
commercial product, the SVGA+ (Super Video Graphics Array of 800x600 picture
elements plus 52 added columns of data) OLED microdisplay was initially offered
for sampling in 2001, and our first SVGA-3D (Super Video Graphics Array plus
built-in stereovision capability) OLED microdisplay was shipped in early 2002.
These products are being applied or considered for near-eye and headset
applications in products such as entertainment and gaming headsets, handheld
Internet and telecommunication appliances, viewfinders, and wearable computers
to be manufactured by OEM customers for military, medical, industrial, and
consumer applications. We market our products globally.
In 2006
we introduced our OLED-XL technology, which provides longer luminance half life
and enhanced efficiency of eMagin's SVGA+ and SVGA-3D product lines. We are in
the process of completing development of 2 additional OLED microdisplays, namely
the SVGA 3DS (SVGA 3D shrink, a smaller format SVGA display with a new cell
architecture with embedded features) and an SXGA (1280 x 1024 picture
elements).
In
January 2005 we announced the world's first personal display system to combine
OLED technology with head-tracking and 3D stereovision, the Z800 3DVisor(tm),
which was first shipped in mid-2005. This product was recognized as a Digital
Living Class of 2005 Innovators, and received the Consumer Electronics
Association’s coveted Consumer Electronics Show (CES) 2006 Best of Innovation
Awards for the entire display category as well as a Design and Innovations Award
for the electronic gaming category. In February 2007 the Z800 3DVisor, as
integrated in Chatten Associates’ head-aimed remote viewer, was recognized as
one of Advanced Imaging's Solutions of the Year.
We
believe that our OLED-on-silicon microdisplays offer a number of advantages over
current liquid crystal microdisplays, including greatly increased system level
power efficiency, less weight and wider viewing angles. Using our active matrix
OLED technology, many computer and video electronic system functions can be
built directly into the OLED-on-silicon microdisplay, resulting in compact
systems with expected lower overall system costs relative to alternative
microdisplay technologies. We have developed our own technology to create high
performance OLED-on-silicon microdisplays and related optical systems and we
have licensed certain fundamental OLED and display technology from Eastman
Kodak.
As the
first to exploit OLED technology for microdisplays, and with the support of our
partners and the development of our intellectual property, we believe that we
enjoy a significant advantage in the commercialization of this display
technology for virtual imaging. We believe we are the only company to sell
full-color active matrix small molecule OLED-on-silicon
microdisplays.
eMagin
Corporation was created through the merger of Fashion Dynamics Corporation
("FDC"), which was organized on January 23, 1996 under the laws of the State of
Nevada and FED Corporation ("FED"), a developer and manufacturer of optical
systems and microdisplays for use in the electronics industry. FDC had no active
business operations other than to acquire an interest in a business. On March
16, 2000, FDC acquired FED. The merged company changed its name to eMagin
Corporation. Following the merger, the business conducted by eMagin is the
business conducted by FED prior to the merger.
Our
website is located at www.emagin.com and
our e-commerce site is www.3dvisor.com. The
contents of our website are not part of this Prospectus.
Common
stock offered by selling stockholders
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Up
to 2,450,000 shares, consisting of the following:
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· 729,524
shares of common stock issuable upon conversion of the remaining
Stillwater Note of $250,000 and accrued interest of $5,333 at a
conversion price of $0.35 per share and 720,476 shares of common stock
issued (but not registered) to Stillwater due to Stillwater's
election to partially convert the Stillwater Note pursuant to its
terms.*
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· up to
1,000,000 shares of common stock issuable upon the exercise of common
stock purchase warrants at an exercise price of $0.48 per
share.
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Common
Stock to be outstanding after the offering
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16,748,363
shares**
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Use
of proceeds
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We
will not receive any proceeds from the sale of the common stock; however
we will receive proceeds from the exercise of our
warrants.
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Over-The-Counter
Bulletin Board Symbol
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EMAN
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* On
July, 23 2007, Stillwater elected to convert $252,166.50 of the Stillwater
Note representing $250,000 of the principal amount of the Note due on
July 23, 2007 and $2,166.50 of accrued and unpaid interest into
shares of common stock. Stillwater received 720,476 shares of the common
stock at the conversion price of $0.35.
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**The
information above regarding the common stock to be outstanding after the
offering is based on 15,018,839 shares of the Company’s common stock
outstanding as of October 14,
2008.
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Recent
Developments
Amendment
of Stillwater Note Purchase Agreement (the “Stillwater Note”) - April
2007
As previously reported in the Form 8-K
dated July 25, 2006, on July 21, 2006, eMagin Corporation (the
“Company”) entered into a Note Purchase Agreement (the “Stillwater Agreement”)
with Stillwater LLC (“Stillwater”) which provides for the purchase and sale of a
6% senior secured convertible note in the principal amount of up to $500,000,
together with a warrant (the “Stillwater Warrant”) to purchase 70% of the number
of shares issuable upon conversion of the Stillwater Note, at the sole
discretion of the Company by delivery of a notice to Stillwater on December 14,
2006. Interest payments from the Stillwater Note are to be made in
cash, unless Stillwater elects to convert any portion of the principal of the
Stillwater Note plus any accrued and unpaid interest for such principal
amount.
As
previously reported in the Form 8-K dated April 13, 2007, by way of amendment to
the Stillwater Agreement, dated March 28, 2007 (the “Amendment”), the Company
and Stillwater agreed to certain amendments to the Stillwater Agreement. Based
upon the provisions of the Stillwater Agreement, Stillwater was bound to
purchase the Stillwater Note and the Stillwater Warrant so long as the
conditions to closing as set forth in the Stillwater Agreement were satisfied by
the Company. However, prior to Stillwater’s obligation to purchase
the Stillwater Note and Stillwater Warrant, the Company received notice from the
American Stock Exchange (“AMEX”) that it was no longer in compliance with their
listing requirements, and the Company was subsequently de-listed in March of
2007. Since compliance with the AMEX listing requirements was a condition of
closing in the Stillwater Agreement, Stillwater was no longer obligated to
purchase the Stillwater Note and Stillwater Warrant. Therefore, among
other things, pursuant to the Amendment, the parties agreed to a new
conversion price for the Stillwater Note of $0.35 per share, a new exercise
price for the Stillwater Warrant of $0.48 per share , a new closing date,
and amended certain closing conditions, including the following: on the closing
date, (i) trading in securities on the New York Stock Exchange, Inc., the AMEX,
Nasdaq, the Nasdaq Capital Market, the Over-The-Counter Bulletin Board, the Pink
Sheets, LLC or any similar organization shall not have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in the State of New York shall not have been declared by either federal or state
authorities, and (iii) the Company has obtained waivers from all the note
holders of the other notes or has executed an additional Allonge with the
majority holders to amend Section 3.2 of the Note and other notes to provide
that the Company maintain cash and cash equivalents balances of at least equal
to $200,000 from April 1, 2007 through and including May 15, 2007 and
that subsequent to May 15, 2007 the Company maintain cash and cash
equivalents balances of at least equal to $600,000.
If all of
the Stillwater Warrants are exercised for cash, the Company would receive
$480,000, which would be used for working capital and other corporate purposes.
There cannot be any assurances that any of the Stillwater Warrants will be
exercised. The closing for the sale of the Stillwater Note and Stillwater
Warrant was completed on April 9, 2007 and the Company issued Stillwater the
Stillwater Note in a 6% Senior Secured Convertible Note in the principal amount
of $500,000 and the Stillwater Warrant to purchase 1,000,000 shares of the
Company’s common stock at an exercise price of $0.48 in accordance with the
terms of the Stillwater Agreement and Amendment. Interest payments from the
Stillwater Note are to be made in cash, unless Stillwater elects to convert any
portion of the principal of the Stillwater Note plus any accrued and unpaid
interest for such principal amount. The principal of the Stillwater
Note was due in installments as follows:
Principal
Amount
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Due
Date*
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$
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250,000
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July
23, 2007**
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$
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250,000
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January
21, 2008
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* If the
due date falls on a non-business day, the payment date will be the next business
day.
**On July, 23 2007, Stillwater
elected to convert $252,166.50 of the Note representing $250,000 of the
principal amount of the Note due on July 23, 2007 and $2,166.50 of accrued
and unpaid interest into shares of common stock. Stillwater received 720,476 shares of the common stock at
the conversion price of $0.35.
This
prospectus covers the resale by Stillwater of the above-referenced common stock
underlying the Stillwater Note and the Stillwater Warrant.
Amendment
Agreements - July 2007
As
previously reported in the Form 8-K of the Company dated as of July 25, 2006,
the Company entered into several Note Purchase Agreements (the “Original
Purchase Agreements”), including the Stillwater Agreement, to sell to certain
qualified institutional buyers and accredited investors $5,990,000 in principal
amount 6% Senior Secured Convertible Notes Due July 21, 2007 and January 21,
2008 (the “Notes”), together with warrants (the “Warrants”) to purchase
1,612,700 shares of the Company’s common stock, par value $0.001 per share at
$3.60 per share.
As previously reported in the Form 8-K
of the Company dated as of July 25, 2007, by way of Amendment Agreements dated
July 23, 2007 (the “Amendment Agreements”) between the Company and each of the
holders of the Notes, including Stillwater (each a “Holder” and collectively, the
“Holders”), the Company agreed to issue each Holder an amended and restated
Note for the outstanding
Notes (the “Amended
Notes”) in the principal amount equal to the principal amount outstanding as of
July 23, 2007 and an amended restated Warrant (the “Amended
Warrants”). The changes to the Amended Notes and Amended
Warrants include the following:
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The
maturity date for the Amended Notes (totaling after conversions an
aggregate of $6,020,000) was extended to December 21,
2008;
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Liquidated
damages of 1% per month related to the Company’s delisting from the
American Stock Exchange will no longer accrue and the deferred interest
balance of approximately $230,000 has been forgiven;
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·
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The
Company no longer has to maintain a minimum cash or cash equivalents
balances of $600,000;
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·
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The
Amended Notes may not be prepaid without the consent of the
Holders;
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As
of July 23, 2007 the interest rate was raised from 6% per annum to 8% per
annum;
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·
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The
Amended Notes are convertible into (i) 8,407,612 shares of the Company’s
common stock. The conversion price for the Amended Notes was
revised from $2.60 to $.75 per share except for the Stillwater Note which
remained $.35 per share for $250,000 of principal (which represents the
remaining portion of the original principal balance of $500,000 after
Stillwater’s partial conversion);
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·
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In
addition to the right to convert the Amended Notes in the Company’s common
stock, up to $3,010,000 of the Amended Notes can be converted into (ii)
3,010 shares of the Company’s newly formed Series A Senior Secured
Convertible Preferred Stock (the “Preferred”) at a stated value of $1,000
per share. The Preferred is convertible into common stock at
$.75 per share, subject to adjustment as provided for in the Certificate
of Designations (discussed below);
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·
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Except
for the Stillwater Warrant whose exercise price was unchanged, the
Amendment Agreements adjusted the exercise price of the Amended Warrants
from $3.60 to $1.03 per share for 1,553,468 shares of common stock and
requires the issuance of Warrants exercisable for an additional 3,831,859
shares of common stock at $1.03 per share with an
expiration date of July 21, 2011;
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·
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The
Amended Notes eliminate the requirement that the Company comply with
certain covenants of management contained in the Notes. Specifically,
among other things, the requirements to defer management compensation and
to maintain a management committee were removed; and
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·
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The
Amended Notes and/or the Preferred are subject to certain anti-dilution
adjustment rights in the event the Company issues shares of its common
stock or securities convertible into its common stock at a price per share
that is less than the Conversion Price, in which case the Conversion Price
shall be adjusted to such lower price. The Amended Warrants are
subject to certain anti-dilution adjustment rights in the event the
Company issues shares of its common stock or securities convertible into
its common stock at a price per share that is less than the Strike Price,
in which case the Strike Price shall be adjusted to the lower of (1) 138%
of the price at which such common stock is issued or issuable and (2) the
exercise price of warrants, issued in such
transaction.
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·
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the
consolidation or merger of the Company or any of its
subsidiaries;
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·
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the
acquisition by a person or group of entities acting in concert of 50% or
more of the combined voting power of the outstanding securities
of the Company; and
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·
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the
occurrence of any transaction or event in which all or substantially all
of the shares of the Company’s common stock is exchanged for converted
into acquired for or constitutes the right to receive consideration which
is not all or substantially all common stock which is listed on a national
securities exchange or approved for quotation on Nasdaq or any similar
United States system of automated dissemination of transaction reporting
securities prices.
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Pursuant
to the Amendment Agreements, the Company filed a Certificate of Designations of
Series A Senior Secured Convertible Preferred Stock (the “Certificate of
Designations”). The Certificate of Designations designates 3,198 shares of the
Company’s preferred stock as Series A Senior Secured Convertible Preferred Stock
(the “Preferred Stock”). Each share of the Preferred Stock has a
stated value of $1,000. The Preferred Stock is entitled to cumulative
dividends which accrue at a rate of 8% per annum, payable on December 21, 2008.
Each share of Preferred Stock has voting rights equal to (1) in any case in
which the Preferred Stock votes together with the Company’s common stock or any
other class or series of stock of the Company, the number of shares of common
stock issuable upon conversion of such shares of Preferred Stock at such time
(determined without regard to the shares of common stock so issuable upon such
conversion in respect of accrued and unpaid dividends on such share of Preferred
Stock) and (2) in any case not covered by the immediately preceding clause one
vote per share of Preferred Stock. The Certificate of Designations
prohibits the Company from entering into a Fundamental Change without consent of
the Holders and contains antidilution adjustments rights that are comparable to
the antidilution adjustments contained in the Amended Notes.
Pursuant
to the Amendment Agreements, the Company was required to file a registration
statement with the Securities and Exchange Commission by August 31, 2007
covering the resale of 100% of the sum of (a) the number of shares issuable upon
conversion of the Amended Notes and Preferred Stock, and (b) the number of
shares issuable upon exercise of the Warrants.
Pursuant
to the Amendment Agreement, the Company and the Collateral Agent, on behalf of
the note holders, executed Amendment No. 1 to the Pledge and Security Agreement;
Amendment No. 1 to Patent and Trademark Security Agreement; and Amendment No. 1
to Lockbox Agreement. The Pledge and Security Agreement, Trademark
Security Agreement and Lockbox Agreement were previously entered into on July
21, 2006 (collectively, the “Ancillary Agreements”). The Ancillary
Agreements were amended to cover obligations that may become payable to holders
of Preferred Stock, to delete certain definitions used in the Ancillary
Agreements and substitute definitions of terms used in the Ancillary
Agreements.
The
summary of amendment terms contained herein does not include all information
included in the Amendment Agreement, the Amended Notes, the Amended Warrants,
the Certificate of Designations or the Ancillary Agreements and, consequently,
is qualified in its entirety by reference to the entire text of the Amendment
Agreements and the forms of the Amended Notes, Amended Warrants, Certificate of
Designations, Amendment No. 1 to Pledge and Security Agreement, Amendment No. 1
to Patent and Trademark Security Agreement and Amendment No. 1 to Lockbox
Agreement.
Securities
Purchase Agreement – April 2008
As
previously reported on a Form 8-K that was filed with the Securities and
Exchange Commission on April 4, 2008, the Company entered into a Securities
Purchase Agreement on April 2, 2008, (the “Purchase Agreement”) pursuant
to which it sold to certain qualified institutional buyers and accredited
investors (the “Investors”) an aggregate of 1,586,539 shares of the Company’s
common stock, par value $0.001 per share (the “Shares”), and warrants to
purchase an additional 793,273 shares of common stock, for an aggregate purchase
price of $1,650,000. The purchase price of the common stock was $1.04 per share
and the strike price of the corresponding warrant was $1.30 per share. The
warrants expire April 2, 2013.
The
Company entered into a Registration Rights Agreement with the Investors to
register the resale of the Shares sold in the offering and the shares of common
stock issuable upon exercise of the warrants. Subject to the terms of
the Registration Rights Agreement, the Company is required to file a
registration statement on Form S-1 with the Securities and Exchange Commission
(the “SEC”) within 45 days of the closing, to use its best efforts to cause the
registration statement to be declared effective under the Securities Act of 1933
(the “Act”) as promptly as possible after the filing thereof, but in no event
later than 90 days after the filing date and no later than 120 days after the
filing date in the event of SEC review of the registration statement. The
Company filed the registration statement within the 45 day period however the
Company was notified that the registration statement was under review by the
SEC. The Company failed to file the amended registration statement by
August 2, 2008 which was the 120th day from the signing of the Purchase
Agreement and therefore the registration statement is not
effective.
As the
registration statement was not effective within the grace periods (“Event
Date”), the Company must pay partial liquidated damages (“damages”) in cash to
each investor equal to 2% of the aggregate purchase price paid by each investor
under the Purchase Agreement on the Event Date and each monthly anniversary of
the Event Date (or on a pro-rata basis for any portion of a month) until the
registration statement is effective. The Company is not liable for
any damages with respect to the warrants or warrant shares. The
maximum damages payable to each investor is 36% of the aggregate purchase
price. If the Company fails to pay the damages to the investors
within 7 days after the date payable, the Company must pay interest at a rate of
15% per annum to each investor which accrues daily from the date payable until
damages are paid in full. The Company estimated $399 thousand to be
the maximum potential damages that the Company may be required to pay the
investors if the registration statement is not effective within three years of
the signing of the agreement. The Company estimated $66 thousand to be a
reasonable estimate of the potential damages that may be due to the investors
based on the anticipated filing date.
The
Company claims an exemption from the registration requirements of the Act for
the private placement of these securities pursuant to Section 4(2) of the Act
and/or Regulation D promulgated thereunder since, among other things, the
transaction did not involve a public offering, the investors were accredited
investors and/or qualified institutional buyers, the investors had access to
information about the company and their investment, the investors took the
securities for investment and not resale, and the Company took appropriate
measures to restrict the transfer of the securities.
Moriah
Capital Loan Agreement and Amendments
As
previously reported on a Form 8-K that was filed with the Securities and
Exchange Commission on August 10, 2007, the Company and Moriah Capital LP
(“Moriah”) entered into a Loan and Security Agreement, dated as of August
7, 2007 (the “Loan and Security Agreement”), which was amended as of January 30,
2008 by Amendment No. 1 and on March 18, 2008 by Amendment No. 2 (collectively,
the “Original Agreement”).
As
previously reported on a Form 8-K that was filed with the Securities and
Exchange Commission on August 26, 2008, the Company and Moriah entered into
Amendment No. 3 to the Loan and Security Agreement dated August 20, 2008 (the
“Amendment No. 3”). Pursuant to Amendment No. 3, the Company issued Moriah an
Amended and Restated Convertible Revolving Loan Note (the “Amended
Note”). The maturity date of the Amended Note has been extended
to August 7, 2009 and the maximum amount that the Company can borrow pursuant to
the Amended Note was increased to $3,000,000. The maturity date of the original
revolving loan note had previously been extended to August 20,
2008.
Pursuant
to Amendment No. 3, the Company issued Moriah a warrant, which terminates on
August 7, 2013, to purchase up to 370,000 shares of the Company’s common stock
at an exercise price of $1.30 per share. In connection with Amendment No. 3, the
Company will pay Moriah $85,000 in fees. As previously reported,
pursuant to Original Agreement, the Company issued Moriah warrants to purchase
up to 1,000,000 shares of the Company’s common stock at an exercise price of
$1.50 per share.
Pursuant
to Amendment No. 3, the Company and Moriah entered into an Amended and
Restated Securities Issuance agreement (the “Amended and Restated Securities
Issuance Agreement”). In connection with a Securities Issuance Agreement, dated
as of August 7, 2007 (the “Original Securities Issuance Agreement”), the Company
issued Moriah 162,500 shares of the Company’s common stock (the “2007
Shares”). Pursuant to the Amended and Restated Securities Issuance
Agreement, Moriah agreed to waive the Company’s obligation to buy back the
2007 Shares with respect to 125,000 of such shares and to defer the Company’s
obligation to buy back 37,500 of such 2007 Shares (collectively, the
“Put Waiver”). Pursuant to the Amended and Restated Securities Agreement, the
Company is issuing Moriah 485,000 shares of its Common Stock (of which 125,000
shares were issued in consideration for the Put Waiver from Moriah and 360,000
shares were issued in lieu of the issuance to Moriah of the Contingent
Issued Shares (as described in the Original Securities Issuance Agreement)).
Additionally, pursuant to the Amended and Restated Securities Issuance
Agreement, the Company has also granted Moriah a put option pursuant to which
Moriah can sell to the Company 162,500 shares of its common stock issued
under the Amended and Restated Securities Agreement for $195,000, pro-rated for
any portion thereof (the “2007 Put Price”). The 2007 Put Option shall
automatically be deemed exercised by Moriah unless Moriah delivers written
notice to the Company at any time between July 1, 2009 and August 1, 2009 that
it does not wish to exercise the 2007 Put Option. The Company also granted
Moriah a second put option pursuant to which Moriah can sell 360,000 of the
shares issued to Moriah pursuant to the Amended and Restated Securities Purchase
Agreement to the Company for $234,000 (the “2008 Put Option”). The
2008 Put Option shall automatically be deemed exercised by Moriah unless Moriah
delivers written notice to the Company at any time between July 1, 2009 and
August 1, 2009 that Moriah does not wish to exercise the 2008 Put option in
whole or in part.
Pursuant
to Amendment No. 3, the Company and Moriah entered into an Amendment to
Registration Rights Agreement (the “Amended Registration Rights
Agreement”). Pursuant to the Amended Registration Rights
Agreement, the Company agreed to use its best efforts to file a registration
statement to register the 485,000 shares of the Company’s common stock
issued pursuant to the Amended and Restated Securities Issuance Agreement and
the shares of common stock issuable upon exercise of the Warrant, provided that
the Company is permitted under applicable securities rules and regulations and
after the certain other registration statements that the Company was obligated
to file on behalf of selling shareholders have been declared
effective.
On August
19, 2008, the Holders of the Amended Notes and the Investors in
the Purchase Agreement consented to the Company’s execution of the Amended
Note, Amendment No. 3, Amended and Restated Securities Issuance Agreement, and
the Amended Registration Rights Agreement. In consideration for the
consent, a total of 144,000 shares of common stock were issued to the Holders
and Investors based on individual participation in the Amended Notes and
Securities Purchase Agreement on September 4, 2008.
The
Company claims an exemption from the registration requirements of the
Securities Act of 1933, amended (the "Act") for the private placement
of the above-referenced securities pursuant to Section 4(2) of the Act
since, among other things, these transactions did not involve a public offering
and the Company took appropriate measures to restrict the transfer of the
securities.
The
foregoing description of Amendment No. 3 to the Loan and Security
Agreement, the Amended and Restated Revolving Loan Note, the Amended and
Restated Securities Issuance Agreement, and the Amendment to the Registration
Rights Agreement does not purport to be complete and is qualified in its
entirety by reference to the entire text of the agreements.
The
following summary consolidated financial data should be read in conjunction with
our consolidated financial statements and related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”. The
statements of operations data for the years ended December 31, 2007, 2006, and
2005 and the balance sheet data at December 31, 2007 and 2006 are derived
from our audited financial statements which are included in our Form 10-K filed
with the Securities and Exchange Commission on April 14, 2008 and included
elsewhere herein. The statements of operations data for the years ended December
31, 2004 and 2003 and the balance sheet data at December 31, 2005, 2004, and
2003 are derived from our audited financial statements which are not included
herein. The statements of operations data for the six months ended June 30, 2008
and 2007 and the balance sheet data at June 30, 2008 and 2007 are derived
from our unaudited condensed consolidated interim financial statements filed
with the Securities and Exchange Commission on August 14, 2008. The historical
results are not necessarily indicative of results to be expected for future
periods. The following information is presented in thousands, except per
share data.
Consolidated
Statements of Operations Data:
|
|
Year
Ended December 31,
|
|
|
Six
Months Ended June 30,
(unaudited)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands, except per share data)
|
|
Revenue
|
|
$ |
17,554 |
|
|
$ |
8,169 |
|
|
$ |
3,745 |
|
|
$ |
3,593 |
|
|
$ |
2,578 |
|
|
$ |
8,284 |
|
|
$ |
7,841 |
|
Cost
of goods sold
|
|
|
12,628 |
|
|
|
11,359 |
|
|
|
10,219 |
|
|
|
5,966 |
|
|
|
5,141 |
|
|
|
5,309 |
|
|
|
6,061 |
|
Gross
profit (loss)
|
|
|
4,926 |
|
|
|
(3,190
|
) |
|
|
(6,474
|
) |
|
|
(2,373
|
) |
|
|
(2,563
|
) |
|
|
2,975 |
|
|
|
1,780 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,949 |
|
|
|
4,406 |
|
|
|
4,020 |
|
|
|
898 |
|
|
|
19 |
|
|
|
1,308 |
|
|
|
1,740 |
|
Selling,
general and administrative
|
|
|
6,591 |
|
|
|
8,860 |
|
|
|
6,316 |
|
|
|
4,428 |
|
|
|
5,712 |
|
|
|
3,504 |
|
|
|
3,764 |
|
Total
operating expenses
|
|
|
9,540 |
|
|
|
13,266 |
|
|
|
10,336 |
|
|
|
5,326 |
|
|
|
5,731 |
|
|
|
4,812 |
|
|
|
5,504 |
|
Loss
from operations
|
|
|
(4,614
|
) |
|
|
(16,456
|
) |
|
|
(16,810
|
) |
|
|
(7,699
|
) |
|
|
(8,294
|
) |
|
|
(1,837
|
) |
|
|
(3,724
|
) |
Other
income (expense), net
|
|
|
(13,874
|
) |
|
|
1,190 |
|
|
|
282 |
|
|
|
(5,012
|
) |
|
|
3,571 |
|
|
|
(959
|
) |
|
|
(941
|
) |
Net
loss
|
|
$ |
(18,488 |
) |
|
|
(15,266
|
) |
|
$ |
(16,528 |
) |
|
$ |
(12,711 |
) |
|
$ |
(4,723 |
) |
|
$ |
(2,796 |
) |
|
$ |
(4,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$ |
(1.59 |
) |
|
|
(1.52
|
) |
|
$ |
(1.94 |
) |
|
$ |
(1.98 |
) |
|
$ |
(1.31 |
) |
|
$ |
(0.
21 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in calculation of loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
11,633 |
|
|
|
10,058 |
|
|
|
8,541 |
|
|
|
6,428 |
|
|
|
3,599 |
|
|
|
13,471 |
|
|
|
10,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet Data:
|
|
December
31,
|
|
June
30,
(unaudited)
|
|
|
2007
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2008
|
|
2007
|
|
|
(In
thousands)
|
|
Cash
and cash equivalents
|
|
$ |
713 |
|
|
|
1,415 |
|
|
$ |
6,727 |
|
|
$ |
13,457 |
|
|
$ |
1,054 |
|
|
$ |
1,038 |
|
|
$ |
690 |
|
Working
(deficit) capital
|
|
|
(4,708
|
) |
|
|
(305
|
) |
|
|
8,868 |
|
|
|
14,925 |
|
|
|
106 |
|
|
|
(4,429
|
) |
|
|
(5,008
|
) |
Total
assets
|
|
|
6,648 |
|
|
|
7,005 |
|
|
|
14,142 |
|
|
|
18,436 |
|
|
|
3,749 |
|
|
|
8,026 |
|
|
|
5,544 |
|
Long-term
obligations
|
|
|
60 |
|
|
|
2,229 |
|
|
|
56 |
|
|
|
22 |
|
|
|
6,161 |
|
|
|
41 |
|
|
|
78 |
|
Total
shareholders’ (deficit) equity
|
|
$ |
(3,975 |
) |
|
|
(1,164
|
) |
|
$ |
10,401 |
|
|
$ |
16,447 |
|
|
$ |
(4,767 |
) |
|
$ |
(3,653 |
) |
|
$ |
(4,169 |
) |
You
should carefully consider the following risk factors and the other information
included herein as well as the information included in other reports and filings
made with the SEC before investing in our common stock. If any of the following
risks actually occurs, our business, financial condition or results of
operations could be harmed. The trading price of our common stock could decline
due to any of these risks, and you may lose part or all of your
investment.
RISKS
RELATED TO OUR FINANCIAL RESULTS
We
have a history of losses since our inception and may incur losses for the
foreseeable future
Our
accumulated losses are $202 million as of June 30, 2008. We have not
yet achieved profitability and we cannot give assurance that we will achieve
profitability within the foreseeable future as we fund operating and capital
expenditures in areas such as market development, sales and marketing,
manufacturing equipment, acquisitions, and research and development. We cannot
assure investors that we will ever achieve or sustain profitability or that our
operating losses will not increase in the future.
We
may not be able to execute our business plan and may not generate cash from
operations.
As we
have reported, our business has experienced and is currently experiencing
revenue growth during the six months ended June 30, 2008. We anticipate that our
cash requirements to fund operating or investing activities over the next twelve
months may be greater than our current cash on hand and borrowing availability
under our revolving credit facility. In the event that cash flow from
operations is less than anticipated and we are unable to secure additional
funding to cover our expenses, in order to preserve cash, we would be required
to reduce expenditures and effect reductions in our corporate infrastructure,
either of which could have a material adverse effect on our ability to continue
our current level of operations. No assurance can be given that additional
financing will be available, or if available, will be on acceptable
terms.
We
may be subject to fines, sanctions, and/or penalties of an indeterminable nature
as a result of potential violations of federal securities laws.
In July
2006, we entered into a Note Purchase Agreement with Stillwater LLC, which
provided for the purchase and sale of a 6% senior secured convertible note in
principal amount of up to $500,000 (the “Stillwater Note”) and a warrant to
purchase 70% percent of the number of shares issuable upon conversion of the
Stillwater Note, at our sole discretion by delivery of a notice to Stillwater on
December 14, 2006. We then filed a registration statement on Form
S-3 up to 41,088,445 shares of common stock issuable upon conversion of our
6% senior secured convertible notes or exercise of warrants, which following the
effectuation by the Company of a one-for-ten reverse stock split on
November 3, 2006, amounted to 4,108,845 shares. In July 2007, we
amended the agreements with Stillwater. Amending the Stillwater
agreements without first withdrawing the Registration Statement on Form S-3 may
be inconsistent with Section 5 of the Securities Act of 1933, as amended, and we
may be subject to fines, sanctions and/or penalties of an indeterminable nature
as a result of potential violations of federal securities laws. If we
are assessed fines and penalties our business will be materially
affected.
The
issuance of shares of common stock in connection with the conversion of the
Notes may have not have been in compliance with certain state and federal
securities laws and any damages that we may have to pay as a result of such
issuance could have a material adverse effect on our revenues, profits, results
of operations, financial condition and future prospects.
Our
independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern, which may hinder our ability
to obtain future financing.
Our
unaudited condensed consolidated financial statements as of June 30, 2008 have
been prepared under the assumption that we will continue as a going concern. Our
independent registered public accounting firm issued a report dated April 9,
2008 in connection with the audit of the 2007 financial statements that included
an explanatory paragraph expressing substantial doubt as to our ability to
continue as a going concern without obtaining additional capital or financing
becoming available. Our ability to continue as a going concern ultimately
depends on our ability to generate a profit which is likely dependent
upon our ability to obtain additional equity or debt financing, attain
further operating efficiencies and, ultimately, to achieve profitable
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
RISKS
RELATED TO MANUFACTURING
The manufacture of OLED-on-silicon is new and
OLED microdisplays have
not been produced in significant quantities.
If we are
unable to produce our products in sufficient quantity, we will be unable to
maintain and attract new customers. In addition, we cannot assure you that once
we commence volume production we will attain yields at high throughput that will
result in profitable gross margins or that we will not experience manufacturing
problems which could result in delays in delivery of orders or product
introductions.
We
are dependent on a single manufacturing line.
We
currently manufacture our products on a single manufacturing line. If we
experience any significant disruption in the operation of our manufacturing
facility or a serious failure of a critical piece of equipment, we may be unable
to supply microdisplays to our customers. For this reason, some OEMs may also be
reluctant to commit a broad line of products to our microdisplays without a
second production facility in place. However, we try to maintain product
inventory to fill the requirements under such circumstances. Interruptions in
our manufacturing could be caused by manufacturing equipment problems, the
introduction of new equipment into the manufacturing process or delays in the
delivery of new manufacturing equipment. Lead-time for delivery of manufacturing
equipment can be extensive. No assurance can be given that we will not lose
potential sales or be unable to meet production orders due to production
interruptions in our manufacturing line. In order to meet the requirements of
certain OEMs for multiple manufacturing sites, we will have to expend capital to
secure additional sites and may not be able to manage multiple sites
successfully.
We
could experience manufacturing interruptions, delays, or inefficiencies if we
are unable to timely and reliably procure components from single-sourced
suppliers.
We
maintain several single-source supplier relationships, either because
alternative sources are not available or because the relationship is
advantageous due to performance, quality, support, delivery, capacity, or price
considerations. If the supply of a critical single-source material or
component is delayed or curtailed, we may not be able to ship the related
product in desired quantities and in a timely manner. Even where
alternative sources of supply are available, qualification of the alternative
suppliers and establishment of reliable supplies could result in delays and a
possible loss of sales, which could harm operating results.
We
expect to depend on semiconductor contract manufacturers to supply our silicon
integrated circuits and other suppliers of key components, materials and
services.
We do not
manufacture the silicon integrated circuits on which we incorporate our OLED
technology. Instead, we expect to provide the design layouts to semiconductor
contract manufacturers who will manufacture the integrated circuits on silicon
wafers. We also expect to depend on suppliers of a variety of other components
and services, including circuit boards, graphic integrated circuits, passive
components, materials and chemicals, and equipment support. Our inability to
obtain sufficient quantities of high quality silicon integrated circuits or
other necessary components, materials or services on a timely basis could result
in manufacturing delays, increased costs and ultimately in reduced or delayed
sales or lost orders which could materially and adversely affect our operating
results.
RISKS
RELATED TO OUR INTELLECTUAL PROPERTY
We
rely on our license agreement with Eastman Kodak for the development of our
products.
We rely
on our license agreement with Eastman Kodak for the development of our products,
and the termination of this license, Eastman Kodak's licensing of its OLED
technology to others for microdisplay applications, or the sublicensing by
Eastman Kodak of our OLED technology to third parties, could have a material
adverse impact on our business.
Our
principal products under development utilize OLED technology that we license
from Eastman Kodak. We rely upon Eastman Kodak to protect and enforce key
patents held by Eastman Kodak, relating to OLED display technology. Eastman
Kodak's patents expire at various times in the future. Our license with Eastman
Kodak could terminate if we fail to perform any material term or covenant under
the license agreement. Since our license from Eastman Kodak is non-exclusive,
Eastman Kodak could also elect to become a competitor itself or to license OLED
technology for microdisplay applications to others who have the potential to
compete with us. The occurrence of any of these events could have a material
adverse impact on our business.
We
may not be successful in protecting our intellectual property and proprietary
rights.
We rely
on a combination of patents, trade secret protection, licensing agreements and
other arrangements to establish and protect our proprietary technologies. If we
fail to successfully enforce our intellectual property rights, our competitive
position could suffer, which could harm our operating results. Patents may not
be issued for our current patent applications, third parties may challenge,
invalidate or circumvent any patent issued to us, unauthorized parties could
obtain and use information that we regard as proprietary despite our efforts to
protect our proprietary rights, rights granted under patents issued to us may
not afford us any competitive advantage, others may independently develop
similar technology or design around our patents, our technology may be available
to licensees of Eastman Kodak, and protection of our intellectual property
rights may be limited in certain foreign countries. On April 30, 2007, the
U.S. Supreme Court, in KSR
International Co. vs. Teleflex, Inc., mandated a more expansive and
flexible approach towards a determination as to whether a patent is obvious and
invalid, which may make it more difficult for patent holders to secure or
maintain existing patents. Any future infringement or other claims or
prosecutions related to our intellectual property could have a material adverse
effect on our business. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. Protection of intellectual property has
historically been a large yearly expense for eMagin. We have not been in a
financial position to properly protect all of our intellectual property, and may
not be in a position to properly protect our position or stay ahead of
competition in new research and the protecting of the resulting intellectual
property.
RISKS
RELATED TO THE MICRODISPLAY INDUSTRY
The
commercial success of the microdisplay industry depends on the widespread market
acceptance of microdisplay systems products.
The
market for microdisplays is emerging. Our success will depend on consumer
acceptance of microdisplays as well as the success of the commercialization of
the microdisplay market. As an OEM supplier, our customer's products must also
be well accepted. At present, it is difficult to assess or predict with any
assurance the potential size, timing and viability of market opportunities for
our technology in this market. The viewfinder microdisplay market sector is well
established with entrenched competitors with whom we must compete.
The
microdisplay systems business is intensely competitive.
We do
business in intensely competitive markets that are characterized by rapid
technological change, changes in market requirements and competition from both
other suppliers and our potential OEM customers. Such markets are typically
characterized by price erosion. This intense competition could result in pricing
pressures, lower sales, reduced margins, and lower market share. Our ability to
compete successfully will depend on a number of factors, both within and outside
our control. We expect these factors to include the following:
·
|
our
success in designing, manufacturing and delivering expected new products,
including those implementing new technologies on a timely
basis;
|
·
|
our
ability to address the needs of our customers and the quality of our
customer services;
|
·
|
the
quality, performance, reliability, features, ease of use and pricing of
our products;
|
·
|
successful
expansion of our manufacturing
capabilities;
|
·
|
our
efficiency of production, and ability to manufacture and ship products on
time;
|
·
|
the
rate at which original equipment manufacturing customers incorporate our
product solutions into their own
products;
|
·
|
the
market acceptance of our customers' products;
and
|
·
|
product
or technology introductions by our
competitors.
|
Our
competitive position could be damaged if one or more potential OEM customers
decide to manufacture their own microdisplays, using OLED or alternate
technologies. In addition, our customers may be reluctant to rely on a
relatively small company such as eMagin for a critical component. We cannot
assure you that we will be able to compete successfully against current and
future competition, and the failure to do so would have a materially adverse
effect upon our business, operating results and financial
condition.
The display industry may be
cyclical.
Our
business strategy is dependent on OEM manufacturers building and selling
products that incorporate our OLED displays as components into those products.
Industry-wide fluctuations and downturns in the demand for flat panel displays
could cause significant harm to our business. The OLED microdisplay sector may
experience overcapacity, if and when all of the facilities presently in the
planning stage come on line, leading to a difficult market in which to sell our
products.
Competing
products may get to market sooner than ours.
Our
competitors are investing substantial resources in the development and
manufacture of microdisplay systems using alternative technologies such as
reflective liquid crystal displays (LCDs), LCD-on-Silicon ("LCOS")
microdisplays, active matrix electroluminescence and scanning image systems, and
transmissive active matrix LCDs. Our competitive position could be damaged if
one or more of our competitors’ products get to the market sooner than our
products. We cannot assure you that our product will get to market ahead of our
competitors or that we will be able to compete successfully against current and
future competition. The failure to do so would have a materially
adverse effect upon our business, operating results and financial
condition.
Our
competitors have many advantages over us.
As the
microdisplay market develops, we expect to experience intense competition from
numerous domestic and foreign companies including well-established corporations
possessing worldwide manufacturing and production facilities, greater name
recognition, larger retail bases and significantly greater financial, technical,
and marketing resources than us, as well as from emerging companies attempting
to obtain a share of the various markets in which our microdisplay products have
the potential to compete. We cannot assure you that we will be able to compete
successfully against current and future competition, and the failure to do so
would have a materially adverse effect upon our business, operating results and
financial condition.
Our
products are subject to lengthy OEM development periods.
We plan
to sell most of our microdisplays to OEMs who will incorporate them into
products they sell. OEMs determine during their product development phase
whether they will incorporate our products. The time elapsed between initial
sampling of our products by OEMs, the custom design of our products to meet
specific OEM product requirements, and the ultimate incorporation of our
products into OEM consumer products is significant often with a duration of
between one and three years. If our products fail to meet our OEM customers'
cost, performance or technical requirements or if unexpected technical
challenges arise in the integration of our products into OEM consumer products,
our operating results could be significantly and adversely affected. Long delays
in achieving customer qualification and incorporation of our products could
adversely affect our business.
Our
products will likely experience rapidly declining unit prices.
In the
markets in which we expect to compete, prices of established products tend to
decline significantly over time. In order to maintain our profit margins over
the long term, we believe that we will need to continuously develop product
enhancements and new technologies that will either slow price declines of our
products or reduce the cost of producing and delivering our products. While we
anticipate many opportunities to reduce production costs over time, there can be
no assurance that these cost reduction plans will be successful, that we will
have the resources to fund the expenditures necessary to implement certain
cost-saving measures, or that our costs can be reduced as quickly as any
reduction in unit prices. We may also attempt to offset the anticipated decrease
in our average selling price by introducing new products, increasing our sales
volumes or adjusting our product mix. If we fail to do so, our results of
operations would be materially and adversely affected.
RISKS
RELATED TO OUR BUSINESS
Our
success depends on attracting and retaining highly skilled and qualified
technical and consulting personnel.
We must
hire highly skilled technical personnel as employees and as independent
contractors in order to develop our products. The competition for skilled
technical employees is intense and we may not be able to retain or recruit such
personnel. We must compete with companies that possess greater financial and
other resources than we do, and that may be more attractive to potential
employees and contractors. To be competitive, we may have to increase the
compensation, bonuses, stock options and other fringe benefits offered to
employees in order to attract and retain such personnel. The costs of attracting
and retaining new personnel may have a materially adverse affect on our business
and our operating results. In addition, difficulties in hiring and retaining
technical personnel could delay the implementation of our business
plan.
Our
success depends in a large part on the continuing service of key
personnel.
Changes
in management could have an adverse effect on our business. We are dependent
upon the active participation of several key management personnel and will also
need to recruit additional management in order to expand according to our
business plan. The failure to attract and retain additional management or
personnel could have a material adverse effect on our operating results and
financial performance.
The
ineffectiveness of our internal control over financial reporting could result in
a loss of investor confidence in our financial reports and have an adverse
effect on our stock price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), and the rules
and regulations promulgated by the SEC to implement Section 404, we are required
to include in our Form 10-K an annual report by our management regarding the
effectiveness of our internal control over financial reporting. The
report includes, among other things, an assessment of the effectiveness of our
internal control over financial reporting as of the end of our fiscal
year. This assessment must include disclosure of any material
weaknesses in our internal control over financial reporting identified by
management.
As of
June 30, 2008, our internal control over financial reporting was ineffective due
to the presence of material weaknesses, as more fully described in Item 9A of
the December 31, 2007 Form 10-K filed with the SEC on April 14,
2008. This could result in a loss of investor confidence in the
accuracy and completeness of our financial reports, which may have an adverse
effect on our stock price.
Our
business depends on new products and technologies.
The
market for our products is characterized by rapid changes in product, design and
manufacturing process technologies. Our success depends to a large extent on our
ability to develop and manufacture new products and technologies to match the
varying requirements of different customers in order to establish a competitive
position and become profitable. Furthermore, we must adopt our products and
processes to technological changes and emerging industry standards and practices
on a cost-effective and timely basis. Our failure to accomplish any of the above
could harm our business and operating results.
We
generally do not have long-term contracts with our customers.
Our
business has primarily operated on the basis of short-term purchase
orders. We are now receiving longer term purchase agreements, such as
those which comprise our approximately $4.6 million backlog as of September 30,
2008, and procurement contracts, but we cannot guarantee that we will continue
to do so. Our current purchase agreements can be cancelled or revised without
penalty, depending on the circumstances. We plan production on the basis of
internally generated forecasts of demand, which makes it difficult to accurately
forecast revenues. If we fail to accurately forecast operating results, our
business may suffer and the value of your investment in eMagin may
decline.
Our
business strategy may fail if we cannot continue to form strategic relationships
with companies that manufacture and use products that could incorporate our
OLED-on-silicon technology.
Our
prospects will be significantly affected by our ability to develop strategic
alliances with OEMs for incorporation of our OLED-on-silicon technology into
their products. While we intend to continue to establish strategic relationships
with manufacturers of electronic consumer products, personal computers,
chipmakers, lens makers, equipment makers, material suppliers and/or systems
assemblers, there is no assurance that we will be able to continue to establish
and maintain strategic relationships on commercially acceptable terms, or that
the alliances we do enter in to will realize their objectives. Failure to do so
would have a material adverse effect on our business.
Our
business depends to some extent on international transactions.
We
purchase needed materials from companies located abroad and may be adversely
affected by political and currency risk, as well as the additional costs of
doing business with foreign entities. Some customers in other countries have
longer receivable periods or warranty periods. In addition, many of the foreign
OEMs that are the most likely long-term purchasers of our microdisplays expose
us to additional political and currency risk. We may find it necessary to locate
manufacturing facilities abroad to be closer to our customers which could expose
us to various risks, including management of a multi-national organization, the
complexities of complying with foreign laws and customs, political instability
and the complexities of taxation in multiple jurisdictions.
Our
business may expose us to product liability claims.
Our
business may expose us to potential product liability claims. Although no such
claims have been brought against us to date, and to our knowledge no such claim
is threatened or likely, we may face liability to product users for damages
resulting from the faulty design or manufacture of our products. While we plan
to maintain product liability insurance coverage, there can be no assurance that
product liability claims will not exceed coverage limits, fall outside the scope
of such coverage, or that such insurance will continue to be available at
commercially reasonable rates, if at all.
Our
business is subject to environmental regulations and possible liability arising
from potential employee claims of exposure to harmful substances used in the
development and manufacture of our products.
We are
subject to various governmental regulations related to toxic, volatile,
experimental and other hazardous chemicals used in our design and manufacturing
process. Our failure to comply with these regulations could result in the
imposition of fines or in the suspension or cessation of our operations.
Compliance with these regulations could require us to acquire costly equipment
or to incur other significant expenses. We develop, evaluate and utilize new
chemical compounds in the manufacture of our products. While we attempt to
ensure that our employees are protected from exposure to hazardous materials, we
cannot assure you that potentially harmful exposure will not occur or that we
will not be liable to employees as a result.
RISKS
RELATED TO OUR STOCK
The
substantial number of shares that are or will be eligible for sale could cause
our common stock price to decline even if eMagin is successful.
Sales of
significant amounts of common stock in the public market, or the perception that
such sales may occur, could materially affect the market price of our common
stock. These sales might also make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. As of October 14, 2008, we have outstanding (i) options to purchase
1,564,223 shares, (ii) warrants to purchase 10,403,772 shares of common stock,
and (iii) notes convertible into 8,330,689 shares of common
stock.
We
have a staggered board of directors and other anti-takeover provisions, which
could inhibit potential investors or delay or prevent a change of control that
may favor you.
Our Board
of Directors is divided into three classes and our Board members are elected for
terms that are staggered. This could discourage the efforts by others to obtain
control of eMagin. Some of the provisions of our certificate of incorporation,
our bylaws and Delaware law could, together or separately, discourage potential
acquisition proposals or delay or prevent a change in control. In particular,
our board of directors is authorized to issue up to 10,000,000 shares of
preferred stock (less any outstanding shares of preferred stock) with rights and
privileges that might be senior to our common stock, without the consent of the
holders of the common stock.
We and
our representatives may from time to time make written or oral statements that
are “forward-looking,” including statements contained in this prospectus and
other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements. In addition,
other written or oral statements which constitute forward-looking statements may
be made by us or on our behalf. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,”
“may,” “should,” variations of such words and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and involve risks, uncertainties, and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in or suggested by such
forward-looking statements. Among the important factors on which such statements
are based are assumptions concerning our ability to obtain additional funding,
our ability to compete against our competitors, our ability to integrate our
acquisitions and our ability to attract and retain key employees.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholders. We will not receive any proceeds
from the sale of shares of common stock in this offering. However, we will
receive the sale price of any common stock we sell to the selling stockholders
upon exercise of the warrants owned by the selling stockholders. We expect to
use the proceeds received from the exercise of the warrants, if any, for general
working capital purposes. We have not declared or paid any dividends and do not
currently expect to do so in the near future.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our
common stock is quoted on the OTC Bulletin Board under the symbol “EMAN.OB.” The
following table sets forth the high and low sales prices as reported by the OTC
Bulletin Board Market for the periods indicated.
|
High
|
|
Low
|
|
Fiscal
2006
|
|
|
|
|
First
Quarter
|
|
$
|
7.10
|
|
|
$
|
4.60
|
|
Second
Quarter
|
|
$
|
5.70
|
|
|
$
|
2.50
|
|
Third
Quarter
|
|
$
|
3.80
|
|
|
$
|
1.80
|
|
Fourth
Quarter
|
|
$
|
2.50
|
|
|
$
|
1.01
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
First
Quarter`
|
|
$
|
1.08
|
|
|
$
|
0.26
|
|
Second
Quarter
|
|
$
|
0.85
|
|
|
$
|
0.42
|
|
Third
Quarter
|
|
$
|
1.64
|
|
|
$
|
0.65
|
|
Fourth
Quarter
|
|
$
|
1.75
|
|
|
$
|
0.85
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.47
|
|
|
$
|
0.88
|
|
Second
Quarter
|
|
$
|
1.05
|
|
|
$
|
0.63
|
|
Third
Quarter
|
|
$
|
0.83
|
|
|
$ |
0.52
|
|
Fourth
Quarter (as of October 14, 2008)
|
|
$
|
0.60
|
|
|
$
|
0.21
|
|
As of
October 14, 2008, there were 511 holders of record of our common stock. Because
brokers and other institutions hold many of the shares on behalf of
shareholders, we are unable to determine the actual number of shareholders
represented by these record holders.
Dividends
We have
never declared or paid cash dividends on our common stock. We currently
anticipate that we will retain all future earnings to fund the operation of our
business and do not anticipate paying dividends on our common stock in the
foreseeable future.
The
following table summarizes our consolidated financial data for the periods
presented. We prepared this information using our consolidated financial
statements for each of the periods presented. The following selected
consolidated financial data should be read in conjunction with our consolidated
financial statements and related notes and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”. The historical results are
not necessarily indicative of results to be expected for future
periods.
Consolidated
Statements of Operations Data:
|
|
Year
Ended December 31,
|
|
|
Six
Months Ended June 30,
(unaudited)
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands, except per share data)
|
|
Revenue
|
|
$ |
17,554 |
|
|
$ |
8,169 |
|
|
$ |
3,745 |
|
|
$ |
3,593 |
|
|
$ |
2,578 |
|
|
$ |
8,284 |
|
|
$ |
7,841 |
|
Cost
of goods sold
|
|
|
12,628 |
|
|
|
11,359 |
|
|
|
10,219 |
|
|
|
5,966 |
|
|
|
5,141 |
|
|
|
5,309 |
|
|
|
6,061 |
|
Gross
profit (loss)
|
|
|
4,926 |
|
|
|
(3,190
|
) |
|
|
(6,474
|
) |
|
|
(2,373
|
) |
|
|
(2,563
|
) |
|
|
2,975 |
|
|
|
1,780 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,949 |
|
|
|
4,406 |
|
|
|
4,020 |
|
|
|
898 |
|
|
|
19 |
|
|
|
1,308 |
|
|
|
1,740 |
|
Selling,
general and administrative
|
|
|
6,591 |
|
|
|
8,860 |
|
|
|
6,316 |
|
|
|
4,428 |
|
|
|
5,712 |
|
|
|
3,504 |
|
|
|
3,764 |
|
Total
operating expenses
|
|
|
9,540 |
|
|
|
13,266 |
|
|
|
10,336 |
|
|
|
5,326 |
|
|
|
5,731 |
|
|
|
4,812 |
|
|
|
5,504 |
|
Loss
from operations
|
|
|
(4,614
|
) |
|
|
(16,456
|
) |
|
|
(16,810
|
) |
|
|
(7,699
|
) |
|
|
(8,294
|
) |
|
|
(1,837
|
) |
|
|
(3,724
|
) |
Other
income (expense), net
|
|
|
(13,874
|
) |
|
|
1,190 |
|
|
|
282 |
|
|
|
(5,012
|
) |
|
|
3,571 |
|
|
|
(959
|
) |
|
|
(941
|
) |
Net
loss
|
|
$ |
(18,488 |
) |
|
|
(15,266
|
) |
|
$ |
(16,528 |
) |
|
$ |
(12,711 |
) |
|
$ |
(4,723 |
) |
|
$ |
(2,796 |
) |
|
$ |
(4,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$ |
(1.59 |
) |
|
|
(1.52
|
) |
|
$ |
(1.94 |
) |
|
$ |
(1.98 |
) |
|
$ |
(1.31 |
) |
|
$ |
(0.
21 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in calculation of loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
11,633 |
|
|
|
10,058 |
|
|
|
8,541 |
|
|
|
6,428 |
|
|
|
3,599 |
|
|
|
13,471 |
|
|
|
10,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet Data:
|
|
December
31,
|
|
June
30,
(unaudited)
|
|
|
2007
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2008
|
|
2007
|
|
|
(In
thousands)
|
|
Cash
and cash equivalents
|
|
$ |
713 |
|
|
|
1,415 |
|
|
$ |
6,727 |
|
|
$ |
13,457 |
|
|
$ |
1,054 |
|
|
$ |
1,038 |
|
|
$ |
690 |
|
Working
(deficit) capital
|
|
|
(4,708
|
) |
|
|
(305
|
) |
|
|
8,868 |
|
|
|
14,925 |
|
|
|
106 |
|
|
|
(4,429
|
) |
|
|
(5,008
|
) |
Total
assets
|
|
|
6,648 |
|
|
|
7,005 |
|
|
|
14,142 |
|
|
|
18,436 |
|
|
|
3,749 |
|
|
|
8,026 |
|
|
|
5,544 |
|
Long-term
obligations
|
|
|
60 |
|
|
|
2,229 |
|
|
|
56 |
|
|
|
22 |
|
|
|
6,161 |
|
|
|
41 |
|
|
|
78 |
|
Total
shareholders’ (deficit) equity
|
|
$ |
(3,975 |
) |
|
|
(1,164
|
) |
|
$ |
10,401 |
|
|
$ |
16,447 |
|
|
$ |
(4,767 |
) |
|
$ |
(3,653 |
) |
|
$ |
(4,169 |
) |
Introduction
The
following discussion should be read in conjunction with the Financial Statements
and Notes thereto. Our fiscal year ends December 31. This document contains
certain forward-looking statements including, among others, anticipated trends
in our financial condition and results of operations and our business strategy.
(See Part I, Item 1A, "Risk Factors "). These forward-looking statements are
based largely on our current expectations and are subject to a number of risks
and uncertainties. Actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include (i) changes in external factors or in our
internal budgeting process which might impact trends in our results of
operations; (ii) unanticipated working capital or other cash requirements; (iii)
changes in our business strategy or an inability to execute our strategy due to
unanticipated changes in the industries in which we operate; and (iv) various
competitive market factors that may prevent us from competing successfully in
the marketplace.
Overview
We design
and manufacture miniature displays, which we refer to as
OLED-on-silicon-microdisplays, and microdisplay modules for virtual imaging,
primarily for incorporation into the products of other manufacturers.
Microdisplays are typically smaller than many postage stamps, but when viewed
through a magnifier they can contain all of the information appearing on a
high-resolution personal computer screen. Our microdisplays use organic light
emitting diodes, or OLEDs, which emit light themselves when a current is passed
through the device. Our technology permits OLEDs to be coated onto silicon chips
to produce high resolution OLED-on-silicon microdisplays.
We
believe that our OLED-on-silicon microdisplays offer a number of advantages in
near to the eye applications over other current microdisplay technologies,
including lower power requirements, less weight, fast video speed without
flicker, and wider viewing angles. In addition, many computer and video
electronic system functions can be built directly into the OLED-on-silicon
microdisplay, resulting in compact systems with lower expected overall system
costs relative to alternate microdisplay technologies.
Since our
inception in 1996 through 2004, we derived the majority of our revenues from
fees paid to us under research and development contracts, primarily with the
U.S. federal government. We have devoted significant resources to the
development and commercial launch of our products. We commenced limited initial
sales of our SVGA+ microdisplay in May 2001 and commenced shipping samples of
our SVGA-3D microdisplay in February 2002. As of September 30, 2008,
we have a backlog of approximately $4.6 million in products ordered for delivery
through December 31, 2009. These products are being applied or considered for
near-eye and headset applications in products such as entertainment and gaming
headsets, handheld Internet and telecommunication appliances, viewfinders, and
wearable computers to be manufactured by original equipment manufacturer (OEM)
customers. We have also shipped a limited number of our Z800 3DVisor personal
display systems. In addition to marketing OLED-on-silicon microdisplays as
components, we also offer microdisplays as an integrated package, which we call
Microviewer that includes a compact lens for viewing the microdisplay and
electronic interfaces to convert the signal from our customer's product into a
viewable image on the microdisplay. We are also developing head-wearable
displays, including our Z800 3DVisor that incorporate our
Microviewer.
We
license our core OLED technology from Eastman Kodak and we have developed our
own technology to create high performance OLED-on-silicon microdisplays and
related optical systems. We believe our technology licensing agreement with
Eastman Kodak, coupled with our own intellectual property portfolio, gives us a
leadership position in OLED and OLED-on-silicon microdisplay technology. We
believe that we are the only company to demonstrate publicly and market
full-color small molecule OLED-on-silicon microdisplays.
Company
History
Historically,
we have been a developmental stage company. As of January 1, 2003, we were no
longer classified as a development stage company. We have transitioned to
manufacturing our product and intend to significantly increase our marketing,
sales, and research and development efforts, and expand our operating
infrastructure. Currently, most of our operating expenses are fixed. If we are
unable to generate significant revenues, our net losses in any given period
could be greater than expected.
Critical
Accounting Policies
The
Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods. Not all of the accounting policies require management to
make difficult, subjective or complex judgments or estimates. However, the
following policies could be deemed to be critical within the SEC
definition.
Revenue
and Cost Recognition
Revenue
on product sales is recognized when persuasive evidence of an arrangement
exists, such as when a purchase order or contract is received from the customer,
the price is fixed, title and risk of loss to the goods has changed and there is
a reasonable assurance of collection of the sales proceeds. We obtain written
purchase authorizations from our customers for a specified amount of product at
a specified price and consider delivery to have occurred at the time of
shipment. We record a reserve for estimated sales returns, which is reflected as
a reduction of revenue at the time of revenue
recognition. Products sold directly to consumers have a fifteen
day right of return. Revenue on consumer products is deferred until
the right of return has expired.
Revenues
from research and development activities 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 from research and development
activities relating to 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. These rates are
subject to audit by the other party.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. These
estimates and assumptions relate to recording net revenue, collectibility of
accounts receivable, useful lives and impairment of tangible and intangible
assets, accruals, income taxes, inventory realization and other factors.
Management has exercised reasonable judgment in deriving these estimates.
Consequently, a change in conditions could affect these estimates.
Fair
Value of Financial Instruments
eMagin’s
cash, cash equivalents, accounts receivable, short-term investments, accounts
payable and debt are stated at cost which approximates fair value due to the
short-term nature of these instruments.
Stock-based
Compensation
eMagin
maintains several stock equity incentive plans. The 2005 Employee
Stock Purchase Plan (the “ESPP”) provides our employees with the opportunity to
purchase common stock through payroll deductions. Employees purchase
stock semi-annually at a price that is 85% of the fair market value at certain
plan-defined dates. As of June 30, 2008, the number of shares of
common stock available for issuance was 300,000. As of June 30, 2008,
the plan had not been implemented.
The 2003
Stock Option Plan (the”2003 Plan”) provides for grants of shares of common stock
and options to purchase shares of common stock to employees, officers, directors
and consultants. Under the 2003 plan, an ISO grant is granted
at the market value of our common stock at the date of the grant and a non-ISO
is granted at a price not to be less than 85% of the market value of the common
stock. These options have a term of up to 10 years and vest over a
schedule determined by the Board of Directors, generally over a five year
period. The amended 2003 Plan provides for an annual increase of 3%
of the diluted shares outstanding on January 1 of each year for a period of 9
years which commenced January 1, 2005.
Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123R,
“Share-Based Payment” (“SFAS 123R”), which requires the Company to recognize
expense related to the fair value of the Company’s share-based compensation
issued to employees and directors. SFAS 123R requires companies to estimate the
fair value of share-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite service periods in
the Company’s consolidated statement of operations. The Company uses the
straight-line method for recognizing compensation expense. An estimate for
forfeitures is included in compensation expense for awards under SFAS
123R.
Results of
Operations
The
following table presents certain financial data as a percentage of total revenue
for the periods indicated. Our historical operating results are not necessarily
indicative of the results for any future period.
|
|
Year
ended December 31,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100
|
% |
|
|
100
|
% |
|
|
100
|
% |
|
|
100
|
% |
|
|
100
|
% |
Cost
of goods sold
|
|
|
72 |
|
|
|
139 |
|
|
|
273 |
|
|
|
64 |
|
|
|
77 |
|
Gross
profit (loss)
|
|
|
28 |
|
|
|
(39 |
) |
|
|
(173 |
) |
|
|
36 |
|
|
|
23 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
17 |
|
|
|
54 |
|
|
|
107 |
|
|
|
16 |
|
|
|
22 |
|
Selling,
general and administrative
|
|
|
38 |
|
|
|
109 |
|
|
|
169 |
|
|
|
42 |
|
|
|
48 |
|
Total operating expenses
|
|
|
55 |
|
|
|
163 |
|
|
|
276 |
|
|
|
58 |
|
|
|
70 |
|
Loss
from operations
|
|
|
(27 |
) |
|
|
(202 |
) |
|
|
(449 |
) |
|
|
(22 |
) |
|
|
(47 |
) |
Other
income (expense), net
|
|
|
(78 |
) |
|
|
15 |
|
|
|
8 |
|
|
|
(12 |
) |
|
|
(12 |
) |
Net
loss
|
|
|
(105 |
)
% |
|
|
(187 |
)
% |
|
|
(441 |
)
% |
|
|
(34 |
)
% |
|
|
(59 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents certain financial data for the periods indicated.
Our historical operating results are not necessarily indicative of the results
for any future period.
|
|
|
Year
ended December 31,
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(In
thousands, except per share data)
|
|
Revenue
|
|
$ |
17,554 |
|
|
$ |
8,169 |
|
|
$ |
3,745 |
|
|
$ |
8,284 |
|
|
$ |
7,841 |
|
Cost
of goods sold
|
|
|
12,628 |
|
|
|
11,359 |
|
|
|
10,219 |
|
|
|
5,309 |
|
|
|
6,061 |
|
Gross
profit (loss)
|
|
|
4,926 |
|
|
|
(3,190
|
) |
|
|
(6,474
|
) |
|
|
2,975 |
|
|
|
1,780 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,949 |
|
|
|
4,406 |
|
|
|
4,020 |
|
|
|
1,308 |
|
|
|
1,740 |
|
Selling,
general and administrative
|
|
|
6,591 |
|
|
|
8,860 |
|
|
|
6,316 |
|
|
|
3,504 |
|
|
|
3,764 |
|
Total operating expenses
|
|
|
9,540 |
|
|
|
13,266 |
|
|
|
10,336 |
|
|
|
4,812 |
|
|
|
5,504 |
|
Loss
from operations
|
|
|
(4,614
|
) |
|
|
(16,456
|
) |
|
|
(16,810
|
) |
|
|
(1,837
|
) |
|
|
(3,724
|
) |
Other
income (expense), net
|
|
|
(13,874
|
) |
|
|
1,190 |
|
|
|
282
|
) |
|
|
(959
|
) |
|
|
(941
|
) |
Net
loss
|
|
$ |
(18,488 |
) |
|
$ |
(15,266 |
) |
|
$ |
(16,528 |
) |
|
$ |
(2,796 |
) |
|
$ |
(4,665 |
) |
Net
loss per share, basic and diluted
|
|
$ |
(1.59 |
) |
|
$ |
(1.52 |
) |
|
$ |
(1.94 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.42 |
) |
Revenues
Revenues
for the three and six months ended June 30, 2008 were approximately $5.6
million and $8.3 million, respectively, as compared to approximately $4.2
million and $7.8 million for the three and six months ended June 30, 2007,
respectively, an increase of approximately 33% and 6%,
respectively. Higher revenue for the three and six month periods was
due to increased availability of finished displays as a result of increased
production volume and improved yields. In addition, an increase in
the number of contracts the Company is currently performing has resulted in
increased contract revenue.
Cost
of Goods Sold
Cost of
goods sold includes direct and indirect costs associated with
production. Cost of goods sold for the three and six months ended June 30,
2008 were approximately $3.0 million and $5.3 million as compared to
approximately $2.9 million and $6.1 million for the three and six months ended
June 30, 2007. There was an increase of $0.1 million for the three
months ended June 30, 2008 as compared to the three months ended June 30, 2007
and there was a decrease of approximately $0.8 million for the six months ended
June 30, 2008 as compared to the six months ended June 30, 2007. The
gross margin for the three and six months ended June 30, 2008 was
approximately $2.6 million and $3.0 million as compared to approximately $1.3
million and $1.8 million for the three and six months ended June 30, 2007. As a
percentage of revenue this translates to a gross margin for the three and six
months ended June 30, 2008 of 46% and 36%, respectively, as compared to 30% and
23%, respectively, for the three and six months ended June 30,
2007. The increase in the gross margin was attributed to fuller
utilization of our fixed production overhead due to higher unit production
volume and improved yields.
Operating
Expenses
Research and
Development. Research and development expenses include salaries,
development materials and other costs specifically allocated to the development
of new microdisplay products, OLED materials and subsystems. Research
and development expenses for the three and six months ended June 30,
2008 were approximately $0.6 million and $1.3 million, respectively, as compared
to $0.9 million and $1.7 million for the three and six months ended June
30, 2007, a decrease of approximately $0.3 million and $0.4 million,
respectively. The decrease was due to the re-deployment of research and
development personnel to production contract services which are included in cost
of goods sold.
Selling, General and
Administrative. Selling, general and administrative
expenses consist principally of salaries, fees for professional services
including legal fees, as well as other marketing and administrative
expenses. Selling, general and administrative expenses for the three
and six months ended June 30, 2008 were approximately $1.7 million and $3.5
million, respectively, as compared to approximately $1.5 million and $3.8
million for the three and six months ended June 30, 2007, an increase of $0.2
million and a decrease of $0.3 million, respectively. The increase of
approximately $0.2 million for the three months ended June 30, 2008 was
primarily related to an increase in the allowance for bad debts and professional
services associated with additional SEC filings and SOX
compliance. The decrease of approximately $0.3 million for the six
months ended June 30, 2008 was primarily related to decreases in personnel costs
and service paid in equity offset by increases in allowance for bad debts
and professional services.
Other Income (Expense), net.
Other income (expense), net consists primarily of interest income earned on
investments, interest expense related to the secured debt, gain from the change
in the derivative liability, and income from the licensing of intangible
assets.
For the
three and six months ended June 30, 2008, interest income was approximately $2
thousand and $4 thousand as compared to approximately $8 thousand and $23
thousand for the three and six months ended June 30, 2007. The
decrease in interest income was primarily a result of lower cash balances
available for investment.
For the
three and six months ended June 30, 2008, interest expense was approximately
$0.6 million and approximately $1.2 million, respectively, as compared to
approximately $1.3 million and approximately $2.2 million, respectively, for the
three and six months ended June 30, 2007. The breakdown of the
interest expense for the three and six month period in 2008 is as
follows: interest expense associated with debt of approximately $164
thousand and $323 thousand, respectively; the amortization of the deferred costs
and waiver fees associated with the debt of approximately $373 thousand and $821
thousand, respectively; and the amortization of the debt discount associated
with the debt of approximately $0 and $25 thousand, respectively. The
breakdown of the interest expense for the three and six month period in 2007 is
as follows: interest expense associated with debt of approximately
$305 and $457 thousand, respectively; the amortization of the deferred costs
associated with the notes payable of approximately $133 thousand and $266
thousand, respectively; and the amortization of the debt discount of
approximately $878 thousand and $1.5 million, respectively.
The gain
from the change in the derivative liability was $0 for the three and six months
ended June 30, 2008 as compared to $182 thousand and $642 thousand,
respectively, for the three and six months ended June 30, 2007.
Other
income, net (excluding interest income), for the three and six months ended June
30, 2008 was approximately $121 thousand and $205, respectively, as
compared to approximately $560 thousand and $567 thousand, respectively, for the
three and six months ended June 30, 2007. Other income primarily consists of
income from the licensing of intangible assets.
Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenues
Revenues
increased by approximately $9.4 million to a total of approximately $17.6
million for the year ended December 31, 2007 from approximately $8.2 million for
the year ended December 31, 2006, representing an increase of 115%. This
increase was primarily due to increased microdisplay sales and increased
availability of finished displays due to manufacturing improvements. Our
contract revenue increased approximately $1.2 million while our product revenue
increased approximately $8.2 million. Average price per unit for microdisplays
was $371 in 2007 and $386 in 2006. Our current expectation is that
revenue will continue to grow in 2008 if we successfully execute our business
plan.
Cost
of Goods Sold
Cost of
goods sold includes direct and indirect costs associated with production of our
products. Cost of goods sold for the years ended December 31, 2007 and 2006 was
approximately $12.6 million and $11.4, respectively, an increase of $1.3
million. The increase included an inventory write-off of
approximately $0.4 million and an increase in our warranty return reserve of
approximately $0.6 million, both related to a non-recurring production issue
that occurred during the fourth quarter of 2007.
The
gross profit was approximately $4.9 million for the year ended December 31, 2007
and the gross loss was approximately ($3.2) million for the year ended December
31, 2006. The gross margin was 28% for the year ended December 31,
2007 as compared to the gross loss of (39%) for the year ended December 31,
2006. The gross margin improvement was attributed to fuller
utilization of our fixed production overhead due to higher unit production
volume.
Research
and development expenses include salaries, development materials and other costs
specifically allocated to the development of new microdisplay products, OLED
materials and subsystems. Research and development expenses for the
year ended December 31, 2007 were approximately $2.9 million as compared to
approximately $4.4 million for the year ended December 31, 2006. The
decrease was due to the re-deployment of research and development personnel to
production contract services which are included in cost of goods
sold.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses consist primarily of salaries and fees for
professional services, legal fees incurred in connection with patent filings,
SEC and related matters, as well as other marketing and administrative
expenses. General and administrative expenses decreased by
approximately $2.3 million to a total of approximately $6.6 million for the year
ended December 31, 2007 from $8.9 million for the year ended December 31, 2006.
The decrease was primarily related to a reduction of marketing, tradeshow and
personnel costs.
Other
(Expense) Income
Other
(expense) income, net consists primarily of interest income earned on
investments, interest expense related to the secured debt, loss from the change
in the derivative liability, loss on the extinguishment of debt and other income
from the licensing of intangible assets.
For the
year ended December 31, 2007, interest expense was approximately $3.1 million as
compared to $1.3 million for the year ended December 31,
2006. Interest expense for 2007 consisted of interest expense
associated with debt of approximately $744 thousand; the amortization of the
deferred costs associated with debt of approximately $418 thousand; and the
amortization of the debt discount associated with the debt of approximately $1.9
million. Interest expense for the year ended December 31, 2006 was
comprised of interest associated with debt of approximately $124 thousand; the
amortization of the deferred costs associated with the notes payable of
approximately $221 thousand; and the amortization of the debt discount
associated with the debt of approximately $956 thousand.
For the
year ended December 31, 2007, the change in the derivative liability was a loss
of approximately $853 thousand as compared to a gain of approximately $2.4
million ended December 31, 2006.
The loss
on extinguishment of debt was $10.7 million for the year ended December 31, 2007
as compared to $0 for the year ended December 31, 2006. See Note 8 to the
financial statements: Debt for additional information.
Other
income for the year ended December 31, 2007 was approximately $815 thousand
which consisted of interest income of approximately $43 million, a gain on the
license of intangible assets of $869 thousand, offset by a write-off of a
miscellaneous receivable of $103 thousand, and other income of $7 thousand as
compared to $91 thousand for the year ended December 31, 2006. See
Note 12 to the December 31, 2007 consolidated financial
statements: Commitments and Contingencies – Royalties for additional
information.
Revenues
Revenues
increased by approximately $4.5 million to a total of approximately $8.2 million
for the year ended December 31, 2006 from approximately $3.7 million for the
year ended December 31, 2005, representing an increase of 118%. This increase
was due to increased microdisplay demand and the broadening of our product
revenue through the sales of the Z800 3D Visor. Our contract revenue increased
approximately $150 thousand while our product revenue increased approximately
$4.3 million. Average price per unit for microdisplays was $386 in 2006 and $372
in 2005.
Cost
of Goods Sold
Cost of
goods sold includes direct and indirect costs associated with production of our
products. Cost of goods sold for the years ended December 31, 2006 and 2005 was
approximately $11.4 million and approximately $10.2, respectively, an increase
of $1.2 million. The gross loss was approximately ($3.2) million and
approximately ($6.5) million, respectively, for the years ended December 31,
2006 and 2005, respectively. The gross loss was (39%) for the year
ended December 31, 2006 as compared to (173%) for the year ended December 31,
2005. The increase in cost of goods sold for the year ended December
31, 2006 was attributed to higher materials usage to support increased
production as well as approximately $343 thousand of stock compensation expense
reflected in accordance with SFAS No. 123R in 2006. The
decrease in gross loss was attributed to fuller utilization of our fixed
production overhead due to higher unit volume.
Research
and Development Expenses
Research
and development expenses included salaries, development materials and other
costs specifically allocated to the development of new microdisplay products,
OLED materials and subsystems. Research and development expenses for
the year ended December 31, 2006 were approximately $4.4 million as compared to
approximately $4.0 million for the year ended December 31, 2005. The
increase was primarily due to the stock-based compensation expense of
approximately $435 thousand in 2006.
Selling, General
and Administrative Expenses
Selling,
general and administrative expenses consist primarily of salaries and fees for
professional services, legal fees incurred in connection with patent filings and
related matters, as well as other marketing and administrative
expenses. General and administrative expenses increased by
approximately $2.9 million to a total of approximately $8.9 million for the year
ended December 31, 2006 from $6.3 million for the year ended December 31, 2005.
The increase in selling, general and administrative expenses was due primarily
to stock-based compensation expense of approximately $2.9 million and an
increase in marketing expenses related to our Z800 3DVisor.
Other Income
(Expense)
Other
income, net consists primarily of interest income earned on investments,
interest expense related to the secured debentures, and gain from the change in
the derivative liability. For the year ended December 31, 2006,
interest income was approximately $91 thousand as compared to approximately $210
thousand for the year ended December 31, 2005. The decrease in
interest income was primarily a result of lower cash balances available for
investment. For the year ended December 31, 2006, interest expense
was approximately $1.3 million as compared to approximately $4 thousand for the
year ended December 31, 2005. The increase in the interest
expense was a result of interest associated with our notes payable of
approximately $124 thousand, the amortization of the deferred costs associated
with the notes payable of approximately $221 thousand, and the amortization of
the debt discount of approximately $956 thousand. For the year ended
December 31, 2006, income from the change in the derivative liability was
approximately $2.4 million as compared to $0 for the year ended December 31,
2005.
As of
June 30, 2008, we had approximately $1.1 million of cash and investments as
compared to $0.8 million as of December 31, 2007. The change in cash
and investments was primarily due to cash provided by financing activities of
$2.6 million offset by cash used for operating activities and investing
activities of $2.3 million.
Sources
and Uses of Cash
|
Year
ended December 31,
|
|
Six
Months Ended
June
30,
|
|
|
2007
|
|
2006
|
|
2005
|
|
2008
|
|
2007
|
|
Cash
flow data:
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$ |
(1,943 |
) |
|
$ |
(10,389 |
) |
|
$ |
(15,713 |
) |
|
$ |
(2,025 |
) |
|
$ |
(1,151 |
) |
Net
cash provided (used) in investing activities
|
|
|
61 |
|
|
|
(257
|
) |
|
|
(1,072
|
) |
|
|
(236
|
) |
|
|
(4
|
) |
Net
cash provided by financing activities
|
|
|
1,180 |
|
|
|
5,334 |
|
|
|
10,055 |
|
|
|
2,586 |
|
|
|
430 |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(702
|
) |
|
|
(5,312
|
) |
|
|
(6,730
|
) |
|
|
325 |
|
|
|
(725
|
) |
Cash
and cash equivalents, beginning of period
|
|
|
1,415 |
|
|
|
6,727 |
|
|
|
13,457 |
|
|
|
713 |
|
|
|
1,415 |
|
Cash
and cash equivalents, end of period
|
|
$ |
713 |
|
|
$ |
1,415 |
|
|
$ |
6,727 |
|
|
$ |
1,038 |
|
|
$ |
690 |
|
Cash
Flows from Operating Activities
Cash flow
used in operating activities during the six months ended June 30, 2008 was
approximately $2.0 million primarily attributable to our net loss of $2.8
million and an increase in accounts receivable of $1.4 million offset by
non-cash expenses of $1.9 million. During the six months ended June 30, 2007,
operating activities used cash of $1.2 million attributable to our net loss of
$4.7 million and primarily offset by non-cash expenses of $2.8
million.
Cash used
in operating activities was $1.9 million in 2007, $10.4 million in 2006 and
$15.7 million in 2005. For the year ended December 31, 2007, net cash
used by operating activities was approximately $1.9 million, primarily
attributable to our $18.5 million net loss offset by the non-cash expense
components of loss on extinguishment of debt of $10.7 million, stock based
compensation of $1.7 million, amortization of discount on notes payable of $1.9
million, and issuance of common stock for services of $1.3 million. For 2006,
net cash used in operating activities was approximately $10.4 million, primarily
attributable to our net loss of approximately $15.3 million. For 2005, net cash
used by operating activities was approximately $15.7 million, primarily
attributable to our net loss of approximately $16.5 million.
Cash
Flows from Investing Activities
Cash used
in investing activities during the six months ended June 30, 2008 was
approximately $236 thousand used for equipment purchases. During the
six months ended June 30, 2007, the cash used in investing activities was $4
thousand used for investment purchases.
Cash
provided by investing activities was $61 thousand in 2007 which was primarily
related to the maturing of investments. Cash used in investing
activities was $257 thousand in 2006 and $1.1 million in 2005 which were
primarily related to capital expenditures.
Cash
Flows from Financing Activities
Cash
provided by financing activities during the six months ended June 30, 2008 was
approximately $2.6 million and was comprised of approximately $1.6 million from
the sale of common stock, $1.7 million from the line of credit, and offset by
payments on debt of $0.7 million. The cash provided by financing
activities during the six months ended June 30, 2007 was approximately $0.4
million primarily consisting of $0.5 million, net, from debt issuance and offset
by payments against debt of approximately $33 thousand.
Cash
provided by financing activities was $1.2 million in 2007, $5.3 million in 2006
and, $10.1 million in 2005. Net cash provided by financing activities for the
year ended December 31, 2007 was comprised primarily of approximately $1.6
million in proceeds from debt issuance and offset by payments on long-term debt
and capitalized lease obligations of approximately $63 thousand and deferred
financing costs of approximately $368 thousand. Net cash provided by financing
activities in 2006 was comprised primarily of approximately $5.4 million in
proceeds from debt issuance and offset by payments on long-term debt and
capitalized lease obligations of approximately $55 thousand. Net cash provided
by financing activities during 2005 consisted primarily of approximately $8.4
million in proceeds from the sale of common stock and approximately $1.6 million
from the exercise of stock options and warrants.
Working
Capital and Capital Expenditure Needs
Our
unaudited condensed consolidated financial statements as of June 30, 2008 have
been prepared under the assumption that we will continue as a going concern. Our
independent registered public accounting firm has issued a report dated April 9,
2008 for the audit of the financial statements included in the Form 10-K for the
year ended December 31, 2007 that included an explanatory paragraph
expressing substantial doubt in our ability to continue as a going concern
without additional capital becoming available. Our ability to continue as a
going concern ultimately is dependent on our ability to generate a profit which
is likely dependent upon our ability to obtain additional equity or debt
financing, attain further operating efficiencies and, ultimately, to achieve
profitable operations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
We
anticipate our business to experience revenue growth during the year
ending December 31, 2008. This trend may result in higher accounts
receivable levels and may require increased production and/or higher inventory
levels. In addition, in December 2008, we will be obligated to repay
approximately $6.0 million to the note holders. If the funds are not
available, we will negotiate with the note holders to defer the payment but no
assurances can be made that they will agree. We anticipate that our cash
requirements to fund these requirements as well as other operating or
investing cash requirements over the next twelve months will be greater than our
current cash on hand. We anticipate that we will still require
additional funds over the next twelve months. We do not currently
have commitments for these funds and no assurance can be given that additional
financing will be available, or if available, will be on acceptable
terms.
The
Company’s ability to obtain additional funding is impacted by its present
indebtedness. The Company’s notes payable have covenants which the
Company currently is in compliance with. The Company has a line of credit with a
maximum of $3.0 million which is secured by accounts receivable and inventory
which effectively eliminates any additional secured indebtedness under the note
covenants. Effective August 9, 2008, the Company’s line of credit was
extended until August 9, 2009. In addition, pursuant to the notes payable
agreement, the Company cannot enter into a consolidation, merger, or acquisition
under certain conditions without consent of the note holders. The
Company may raise additional unsecured debt under the note covenants given
certain restrictions. In addition, the notes payable allow for
additional equity financing.
If we are
unable to obtain sufficient funds during the next twelve months, we will further
reduce the size of our organization and may be forced to reduce and/or curtail
our production and operations, all of which could have a material adverse impact
on our business prospects. The Company is reviewing its cost structures for cost
efficiencies and is taking measures to reduce non-production costs.
In
addition to the foregoing, as previously reported, we have retained CIBC World
Markets Corporation and Larkspur Capital Corporation to assist us in
investigating and evaluating various strategic alternatives, ranging from
investment to acquisition.
Contractual
Obligations
The
following chart describes the outstanding contractual obligations of eMagin as
of June 30, 2008 (in thousands):
|
Payments
due by period
|
|
Total
|
|
1
Year
|
|
2-3
Years
|
|
4-5
Years
|
Operating
lease obligations
|
$1,469
|
|
$1,214
|
|
$ 255
|
|
$—
|
Purchase
obligations (a)
|
1,154
|
|
1,154
|
|
—
|
|
—
|
Other
long-term liabilities (b)
|
6,894
|
|
6,391
|
|
253
|
|
250
|
Total
|
$9,517
|
|
$8,759
|
|
$ 508
|
|
$250
|
|
(a)
The majority of purchase orders outstanding contain no cancellation fees
except for minor re-stocking fees.
|
|
(b)
This amount represents the obligation for Notes and estimated interest,
royalty payments, capitalized software and the New York Urban Development
settlement.
|
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Effect
of Recently Issued Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. In February 2008, the FASB issued
FASB Staff Position No. FSP 157-2, “Effective Date of FASB Statement
No. 157”, which provides a one year deferral of the effective date of SFAS
157 for non-financial assets and non-financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value on a
recurring basis. The Company adopted SFAS 157 as of January 1, 2008, with
the exception of the application of the statement to non-recurring non-financial
assets and non-financial liabilities which it will defer the adoption until
January 1, 2009. The adoption of SFAS 157 did not have a material impact on the
Company’s consolidated results of operations, financial condition or cash
flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — including an amendment of FASB
Statement No. 115,” (“SFAS 159”) which is effective for fiscal years
beginning after November 15, 2007. This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. This statement also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. Unrealized
gains and losses on items for which the fair value option is elected would be
reported in earnings. The Company has adopted SFAS 159 and has elected not to
measure any additional financial instruments and other items at fair value and
therefore the adoption of SFAS 159 did not have a material impact on the
Company’s consolidated results of operations, financial condition or cash
flows.
In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires
entities to provide greater transparency about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations and (c) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations, and cash flows.
SFAS 161 is effective prospectively for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application permitted. The Company is currently evaluating the disclosure
implications of this statement.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, (“SFAS 162”), which identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the
SEC's approval of the Public Company Accounting Oversight Board's amendments to
AU section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is currently evaluating the impact
of SFAS 162, but does not expect the adoption of this pronouncement will have a
material impact on the Company's financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Market Rate Risk. We
are exposed to market risk related to changes in interest rates and foreign
currency exchanges rates.
Interest Rate Risk. We
hold our assets in cash and cash equivalents. We do not hold derivative
financial instruments other than a derivative liability on our balance sheet or
equity securities. We are exposed to interest rate risk on our line of
credit. Annual interest on our line of credit is equal to the greater of the sum
of the prime rate plus 2% or 10%.
Foreign Currency Exchange Rate
Risk. Our
revenue and expenses are denominated in U.S. dollars. We have conducted some
transactions in foreign currencies and expect to continue to do so; we do not
anticipate that foreign exchange gains or losses will be significant. We have
not engaged in foreign currency hedging to date.
Our
international business is subject to risks typical of international activity,
including, but not limited to, differing economic conditions; change in
political climates; differing tax structures; and other regulations and
restrictions. Accordingly, our future results could be impacted by changes in
these or other factors.
BUSINESS
Recent
Developments
Amendment
of Stillwater Note Purchase Agreement (the “Note”) - April 2007
As stated
above, as previously reported in the Form 8-K dated July 25, 2006, on July 21,
2006, eMagin Corporation (the “Company”) entered into a Note Purchase Agreement
(the “Stillwater Agreement”) with Stillwater LLC (“Stillwater”) which provides
for the purchase and sale of a 6% senior secured convertible note in the
principal amount of up to $500,000 (the “Stillwater Note”), together with a
warrant (the “Stillwater Warrant”) to purchase 70% of the number of shares
issuable upon conversion of the Stillwater Note, at the sole discretion of the
Company by delivery of a notice to Stillwater on December 14,
2006. Interest payments from the Stillwater Note are to be made in
cash, unless Stillwater elects to convert any portion of the principal of the
Stillwater Note plus any accrued and unpaid interest for such principal
amount.
As
previously reported in the Form 8-K dated April 13, 2007, by way of amendment to
the Stillwater Agreement, dated March 28, 2007 (the “Amendment”), the Company
and Stillwater agreed to certain amendments to the Stillwater Agreement. Based
upon the provisions of the Stillwater Agreement, Stillwater was bound to
purchase the Stillwater Note and the Stillwater Warrant so long as the
conditions to closing as set forth in the Stillwater Agreement were satisfied by
the Company. However, prior to Stillwater’s obligation to purchase
the Stillwater Note and Stillwater Warrant, the Company received notice from the
American Stock Exchange (“AMEX”) that it was no longer in compliance with their
listing requirements, and the Company was subsequently de-listed in March of
2007. Since compliance with the AMEX listing requirements was a condition of
closing in the Stillwater Agreement, Stillwater was no longer obligated to
purchase the Stillwater Note and Stillwater Warrant. Therefore, among
other things, pursuant to the Amendment, the parties agreed to a new conversion
price for the Stillwater Note of $0.35 per share, a new exercise price for the
Stillwater Warrant of $0.48 per share, a new closing date, and amended certain
closing conditions, including the following: on the closing date, (i) trading in
securities on the New York Stock Exchange, Inc., the AMEX, Nasdaq, the Nasdaq
Capital Market, the Over-The-Counter Bulletin Board, the Pink Sheets, LLC or any
similar organization shall not have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in the State of New York
shall not have been declared by either federal or state authorities, and (iii)
the Company has obtained waivers from all the note holders of the other notes or
has executed an additional Allonge with the majority holders to amend Section
3.2 of the Note and other notes to provide that the Company maintain cash and
cash equivalents balances of at least equal to $200,000 from April 1, 2007
through and including May 15, 2007 and that subsequent to
May 15, 2007 the Company maintain cash and cash equivalents balances
of at least equal to $600,000.
If all of
the Stillwater Warrants are exercised for cash, the Company would receive
$480,000, which would be used for working capital and other corporate purposes.
There cannot be any assurances that any of the Stillwater Warrants will be
exercised. The closing for the sale of the Stillwater Note and Stillwater
Warrant was completed on April 9, 2007 and the Company issued Stillwater the
Stillwater Note in a 6% Senior Secured Convertible Note in the principal amount
of $500,000 and the Stillwater Warrant to purchase 1,000,000 shares of the
Company’s common stock at an exercise price of $0.48 in accordance with the
terms of the Stillwater Agreement and Amendment. Interest payments from the
Stillwater Note are to be made in cash, unless Stillwater elects to convert any
portion of the principal of the Stillwater Note plus any accrued and unpaid
interest for such principal amount. The principal of the Stillwater
Note was due in installments as follows:
Principal
Amount
|
|
Due
Date*
|
$
|
250,000
|
|
July
23, 2007**
|
|
|
|
|
$
|
250,000
|
|
January
21, 2008
|
* If the
due date falls on a non-business day, the payment date will be the next business
day.
**On
July, 23 2007, Stillwater elected to convert $252,166.50 of the
Note representing $250,000 of the principal amount of the Note due on July
23, 2007 and $2,166.50 of accrued and unpaid interest into shares of common
stock. Stillwater will receive 720,476 shares of the common stock at the
conversion price of $0.35.
This
prospectus covers the resale by Stillwater of the above-referenced common stock
underlying the Stillwater Note and the Stillwater Warrant.
Amendment
Agreements - July 2007
As
previously reported in the Form 8-K of the Company dated as of July 25, 2006,
the Company entered into several Note Purchase Agreements (the “Original
Purchase Agreements”), including the Stillwater Agreement, to sell to certain
qualified institutional buyers and accredited investors $5,990,000 in principal
amount 6% Senior Secured Convertible Notes Due July 21, 2007 and January 21,
2008 (the “Notes”), together with warrants (the “Warrants”) to purchase
1,612,700 shares of the Company’s common stock, par value $0.001 per share at
$3.60 per share.
As
previously reported in the Form 8-K of the Company dated as of July 25, 2007, by
way of Amendment Agreements dated July 23, 2007 (the “Amendment Agreements”)
between the Company and each of the holders of the Notes, including Stillwater
(each a “Holder” and collectively, the “Holders”), the Company agreed to issue
each Holder an amended and restated Note for the outstanding Notes (the “Amended
Notes”) in the principal amount equal to the principal amount outstanding as of
July 23, 2007 and an amended restated Warrant (the “Amended
Warrants”). The changes to the Amended Notes and Amended
Warrants include the following:
·
|
The
maturity date for the Amended Notes (totaling after conversions an
aggregate of $6,020,000) was extended to December 21,
2008;
|
·
|
Liquidated
damages of 1% per month related to the Company’s delisting from the
American Stock Exchange will no longer accrue and the deferred interest
balance of approximately $230,000 has been forgiven;
|
·
|
The
Company no longer has to maintain a minimum cash or cash equivalents
balances of $600,000;
|
·
|
The
Amended Notes may not be prepaid without the consent of the
Holders;
|
·
|
As
of July 23, 2007 the interest rate was raised from 6% per annum to 8% per
annum;
|
·
|
The
Amended Notes are convertible into (i) 8,407,612 shares of the Company’s
common stock. The conversion price for the Amended Notes was
revised from $2.60 to $.75 per share except for the Stillwater Note which
remained $.35 per share for $250,000 of principal (which represents the
remaining portion of the original principal balance of $500,000 after
Stillwater’s partial conversion);
|
·
|
In
addition to the right to convert the Amended Notes in the Company’s common
stock, up to $3,010,000 of the Amended Notes can be converted into (ii)
3,010 shares of the Company’s newly formed Series A Senior Secured
Convertible Preferred Stock (the “Preferred”) at a stated value of $1,000
per share. The Preferred is convertible into common stock at
$.75 per share, subject to adjustment as provided for in the Certificate
of Designations (discussed below);
|
·
|
Except
for the Stillwater Warrant whose exercise price was unchanged,, the
Amendment Agreements adjusted the exercise price of the Amended Warrants
from $3.60 to $1.03 per share for 1,553,468 shares of common stock and
requires the issuance of Warrants exercisable for an additional 3,831,859
shares of common stock at $1.03 per share with an
expiration date of July 21, 2011;
|
·
|
The
Amended Notes eliminate the requirement that the Company comply with
certain covenants of management contained in the Notes. Specifically,
among other things, the requirements to defer management compensation and
to maintain a management committee were removed; and
|
·
|
The
Amended Notes and/or the Preferred are subject to certain anti-dilution
adjustment rights in the event the Company issues shares of its common
stock or securities convertible into its common stock at a price per share
that is less than the Conversion Price, in which case the Conversion Price
shall be adjusted to such lower price. The Amended Warrants are
subject to certain anti-dilution adjustment rights in the event the
Company issues shares of its common stock or securities convertible into
its common stock at a price per share that is less than the Strike Price,
in which case the Strike Price shall be adjusted to the lower of (1) 138%
of the price at which such common stock is issued or issuable and (2) the
exercise price of warrants, issued in such
transaction.
|
Pursuant
to the Amended Notes, the Company cannot enter into a transaction that
constitutes a Fundamental Change without the consent of the
Holders. A Fundamental Change includes the following:
·
|
the
consolidation or merger of the Company or any of its
subsidiaries;
|
·
|
the
acquisition by a person or group of entities acting in concert of 50% or
more of the combined voting power of the outstanding securities
of the Company; and
|
·
|
the
occurrence of any transaction or event in which all or substantially all
of the shares of the Company’s common stock is exchanged for converted
into acquired for or constitutes the right to receive consideration which
is not all or substantially all common stock which is listed on a national
securities exchange or approved for quotation on Nasdaq or any similar
United States system of automated dissemination of transaction reporting
securities prices.
|
Pursuant
to the Amendment Agreements, the Company filed a Certificate of Designations of
Series A Senior Secured Convertible Preferred Stock (the “Certificate of
Designations”). The Certificate of Designations designates 3,198 shares of the
Company’s preferred stock as Series A Senior Secured Convertible Preferred Stock
(the “Preferred Stock”). Each share of the Preferred Stock has a
stated value of $1,000. The Preferred Stock is entitled to cumulative
dividends which accrue at a rate of 8% per annum, payable on December 21, 2008.
Each share of Preferred Stock has voting rights equal to (1) in any case in
which the Preferred Stock votes together with the Company’s common stock or any
other class or series of stock of the Company, the number of shares of common
stock issuable upon conversion of such shares of Preferred Stock at such time
(determined without regard to the shares of common stock so issuable upon such
conversion in respect of accrued and unpaid dividends on such share of Preferred
Stock) and (2) in any case not covered by the immediately preceding clause one
vote per share of Preferred Stock. The Certificate of Designations
prohibits the Company from entering into a Fundamental Change without consent of
the Holders and contains antidilution adjustments rights that are comparable to
the antidilution adjustments contained in the Amended Notes.
Pursuant
to the Amendment Agreements, the Company was required to file a registration
statement with the Securities and Exchange Commission by August 31, 2007
covering the resale of 100% of the sum of (a) the number of shares issuable upon
conversion of the Amended Notes and Preferred Stock, and (b) the number of
shares issuable upon exercise of the Warrants.
Pursuant
to the Amendment Agreement, the Company and the Collateral Agent, on behalf of
the note holders, executed Amendment No. 1 to the Pledge and Security Agreement;
Amendment No. 1 to Patent and Trademark Security Agreement; Amendment No. 1 to
Lockbox Agreement. The Pledge and Security Agreement, Trademark
Security Agreement and Lockbox Agreement were previously entered into on July
21, 2006 (collectively, the “Ancillary Agreements”). The Ancillary
Agreements were amended to cover obligations that may become payable to holders
of Preferred Stock, to delete certain definitions used in the Ancillary
Agreements and substitute definitions of terms used in the Ancillary
Agreements.
The
summary of amendment terms contained herein does not include all information
included in the Amendment Agreement, the Amended Notes, the Amended Warrants,
the Certificate of Designations or the Ancillary Agreements and, consequently,
is qualified in its entirety by reference to the entire text of the Amendment
Agreements and the forms of the Amended Notes, Amended Warrants, Certificate of
Designations, Amendment No. 1 to Pledge and Security Agreement, Amendment No. 1
to Patent and Trademark Security Agreement and Amendment No. 1 to Lockbox
Agreement.
Securities
Purchase Agreement – April 2008
As
previously reported on a Form 8-K that was filed with the Securities and
Exchange Commission on April 4, 2008, the Company entered into a Securities
Purchase Agreement on April 2, 2008, (the “Purchase Agreement”) pursuant to
which it sold to certain qualified institutional buyers and accredited investors
(the “Investors”) an aggregate of 1,586,539 shares of the Company’s common
stock, par value $0.001 per share (the “Shares”), and warrants to purchase an
additional 793,273 shares of common stock, for an aggregate purchase price of
$1,650,000. The purchase price of the common stock was $1.04 per share and the
strike price of the corresponding warrant was $1.30 per share. The warrants
expire April 2, 2013.
The
Company entered into a Registration Rights Agreement with the Investors to
register the resale of the Shares sold in the offering and the shares of common
stock issuable upon exercise of the warrants. Subject to the terms of
the Registration Rights Agreement, the Company was required to file a
registration statement on Form S-1 with the Securities and Exchange Commission
(the “SEC”) within 45 days of the closing, to use its best efforts to cause the
registration statement to be declared effective under the Securities Act of 1933
(the “Act”) as promptly as possible after the filing thereof, but in no event
later than 90 days after the filing date and no later than 120 days after the
filing date in the event of SEC review of the registration statement. The
Company filed the registration statement within the 45 day period however the
Company was notified that the registration statement was under review by the
SEC. The Company failed to file the amended registration statement by
August 2, 2008 which was the 120th day from the signing of the Purchase
Agreement and therefore the registration statement is not
effective.
As the
registration statement is not effective within the grace periods (“Event Date”),
the Company must pay partial liquidated damages (“damages”) in cash to each
investor equal to 2% of the aggregate purchase price paid by each investor under
the Purchase Agreement on the Event Date and each monthly anniversary of the
Event Date (or on a pro-rata basis for any portion of a month) until the
registration statement is effective. The Company is not liable for
any damages with respect to the warrants or warrant shares. The
maximum damages payable to each investor is 36% of the aggregate purchase
price. If the Company fails to pay the damages to the investors
within 7 days after the date payable, the Company must pay interest at a rate of
15% per annum to each investor which accrues daily from the date payable until
damages are paid in full. The Company estimated $399 thousand to be
the maximum potential damages that the Company may be required to pay the
investors if the registration statement is not effective within three years of
the signing of the agreement. The Company estimated $66 thousand to be a
reasonable estimate of the potential damages that may be due to the investors
based on the anticipated filing date.
The
Company claims an exemption from the registration requirements of the Act for
the private placement of these securities pursuant to Section 4(2) of the Act
and/or Regulation D promulgated thereunder since, among other things, the
transaction did not involve a public offering, the investors were accredited
investors and/or qualified institutional buyers, the investors had access to
information about the company and their investment, the investors took the
securities for investment and not resale, and the Company took appropriate
measures to restrict the transfer of the securities.
Moriah
Capital Loan Agreement and Amendments
As
previously reported on a Form 8-K that was filed with the Securities and
Exchange Commission on August 10, 2007, the Company and Moriah Capital LP
(“Moriah”) entered into a Loan and Security Agreement, dated as of August
7, 2007 (the “Loan and Security Agreement”), which was amended as of January 30,
2008 by Amendment No. 1 and on March 18, 2008 by Amendment No. 2 (collectively,
the “Original Agreement”).
As
previously reported on a Form 8-K that was filed with the Securities and
Exchange Commission on August 26, 2008, the Company and Moriah entered into
Amendment No. 3 to the Loan and Security Agreement dated August 20, 2008 (the
“Amendment No. 3”). Pursuant to Amendment No. 3, the Company issued Moriah an
Amended and Restated Convertible Revolving Loan Note (the “Amended
Note”). The maturity date of the Amended Note has been extended
to August 7, 2009 and the maximum amount that the Company can borrow pursuant to
the Amended Note was increased to $3,000,000. The maturity date of the original
revolving loan note had previously been extended to August 20,
2008.
Pursuant
to Amendment No. 3, the Company issued Moriah a warrant, which terminates on
August 7, 2013, to purchase up to 370,000 shares of the Company’s common stock
at an exercise price of $1.30 per share. In connection with Amendment No 3, the
Company will pay Moriah $85,000 in fees. As previously reported,
pursuant to Original Agreement, the Company issued Moriah warrants to purchase
up to 1,000,000 shares of the Company’s common stock at an exercise price of
$1.50 per share.
Pursuant
to Amendment No. 3, the Company and Moriah entered into an Amended and
Restated Securities Issuance agreement (the “Amended and Restated Securities
Issuance Agreement”). In connection with a Securities Issuance Agreement, dated
as of August 7, 2007 (the “Original Securities Issuance Agreement”), the Company
issued Moriah 162,500 shares of the Company’s common stock (the “2007
Shares”). Pursuant to the Amended and Restated Securities Issuance
Agreement, Moriah agreed to waive the Company’s obligation to buy back the
2007 Shares with respect to 125,000 of such shares and to defer the Company’s
obligation to buy back 37,500 of such 2007 Shares (collectively, the
“Put Waiver”). Pursuant to the Amended and Restated Securities Agreement, the
Company is issuing Moriah 485,000 shares of its Common Stock (of which 125,000
shares were issued in consideration for the Put Waiver from Moriah and 360,000
shares were issued in lieu of the issuance to Moriah of the Contingent
Issued Shares (as described in the Original Securities Issuance Agreement)).
Additionally, pursuant to the Amended and Restated Securities Issuance
Agreement, the Company has also granted Moriah a put option pursuant to which
Moriah can sell to the Company 162,500 shares of its common stock issued under
the Amended and Restated Securities Agreement for $195,000, pro-rated for any
portion thereof (the “2007 Put Price”). The 2007 Put Option shall automatically
be deemed exercised by Moriah unless Moriah delivers written notice to the
Company at any time between July 1, 2009 and August 1, 2009 that it does not
wish to exercise the 2007 Put Option. The Company also granted Moriah a second
put option pursuant to which Moriah can sell 360,000 of the shares issued to
Moriah pursuant to the Amended and Restated Securities Purchase Agreement to the
Company for $234,000 (the “2008 Put Option”). The 2008 Put Option
shall automatically be deemed exercised by Moriah unless Moriah delivers written
notice to the Company at any time between July 1, 2009 and August 1, 2009 that
Moriah does not wish to exercise the 2008 Put option in whole or in
part.
Pursuant
to Amendment No. 3, the Company and Moriah entered into an Amendment to
Registration Rights Agreement (the “Amended Registration Rights
Agreement”). Pursuant to the Amended Registration Rights
Agreement, the Company agreed to use its best efforts to file a registration
statement to register the 485,000 shares of the Company’s common stock
issued pursuant to the Amended and Restated Securities Issuance Agreement and
the shares of common stock issuable upon exercise of the Warrant, provided that
the Company is permitted under applicable securities rules and regulations and
after the certain other registration statements that the Company was obligated
to file on behalf of selling shareholders have been declared
effective.
On August
19, 2008, the Holders of the Amended Notes and the Investors in
the Purchase Agreement consented to the Company’s execution of the Amended
Note, Amendment No. 3, Amended and Restated Securities Issuance Agreement, and
the Amended Registration Rights Agreement. In consideration for the
consent, a total of 144,000 shares of common stock were issued to the Holders
and Investors based on individual participation in the Amended Notes and
Securities Purchase Agreement on September 4, 2008.
The
Company claims an exemption from the registration requirements of the
Securities Act of 1933, amended (the "Act") for the private placement
of the above-referenced securities pursuant to Section 4(2) of the Act
since, among other things, these transactions did not involve a public offering
and the Company took appropriate measures to restrict the transfer of the
securities.
The
foregoing description of Amendment No. 3 to the Loan and Security
Agreement, the Amended and Restated Revolving Loan Note, the Amended and
Restated Securities Issuance Agreement, and the Amendment to the Registration
Rights Agreement does not purport to be complete and is qualified in its
entirety by reference to the entire text of the agreements.
General
eMagin
Corporation designs, develops, manufactures, and markets virtual imaging
products which utilize OLEDs, or organic light emitting diodes, OLED-on-silicon
microdisplays and related information technology solutions. We integrate OLED
technology with silicon chips to produce high-resolution microdisplays smaller
than one-inch diagonally which, when viewed through a magnifier, create virtual
images that appear comparable in size to that of a computer monitor or a
large-screen television. Our products enable our original equipment
manufacturer, or OEM, customers to develop and market improved or new electronic
products. We believe that virtual imaging will become an important way for
increasingly mobile people to have quick access to high resolution data, work,
and experience new more immersive forms of communications and
entertainment.
Our first
commercial product, the SVGA+ (Super Video Graphics Array of 800x600 picture
elements plus 52 added columns of data) OLED microdisplay was initially offered
for sampling in 2001, and our first SVGA-3D (Super Video Graphics Array plus
built-in stereovision capability) OLED microdisplay was shipped in early 2002.
These products have received award recognition including: SID Display of the
Year and Electronic
Products Magazine Product of the Year.
These products are being applied or considered for near-eye and headset
applications in products such as entertainment and gaming headsets, handheld
Internet and telecommunication appliances, viewfinders, and wearable computers
to be manufactured by OEM customers for military, medical, industrial, and
consumer applications. We market our products globally.
In 2006
we introduced our OLED-XL technology, which provides longer luminance half life
and enhanced efficiency of eMagin's SVGA+ and SVGA-3D product lines. We are in
the process of completing development of 2 additional OLED microdisplays, namely
the SVGA 3DS (SVGA 3D shrink, a smaller format SVGA display with a new cell
architecture with embedded features) and an SXGA (1280 x 1024 picture
elements).
In
January 2005 we announced the world's first personal display system to combine
OLED technology with head-tracking and 3D stereovision, the Z800 3DVisor(tm),
which was first shipped in mid-2005. This product was recognized as a Digital
Living Class of 2005 Innovators, and received the Consumer Electronics
Association’s coveted Consumer Electronics Show (CES) 2006 Best of Innovation
Awards for the entire display category as well as a Design and Innovations Award
for the electronic gaming category. In February 2007 the Z800 3DVisor, as
integrated in Chatten Associates’ head-aimed remote viewer, was recognized as
one of Advanced Imaging's Solutions of the Year.
We
believe that our OLED-on-silicon microdisplays offer a number of advantages over
current liquid crystal microdisplays, including greatly increased system level
power efficiency, less weight and wider viewing angles. Using our active matrix
OLED technology, many computer and video electronic system functions can be
built directly into the OLED-on-silicon microdisplay, resulting in compact
systems with expected lower overall system costs relative to alternative
microdisplay technologies. We have developed our own technology to create high
performance OLED-on-silicon microdisplays and related optical systems and we
have licensed certain fundamental OLED and display technology from Eastman
Kodak.
As the
first to exploit OLED technology for microdisplays, and with the support of our
partners and the development of our intellectual property, we believe that we
enjoy a significant advantage in the commercialization of this display
technology for virtual imaging. We believe we are the only company to sell
full-color active matrix small molecule OLED-on-silicon
microdisplays.
eMagin
Corporation was created through the merger of Fashion Dynamics Corporation
("FDC"), which was organized on January 23, 1996 under the laws of the State of
Nevada and FED Corporation ("FED"), a developer and manufacturer of optical
systems and microdisplays for use in the electronics industry. FDC had no active
business operations other than to acquire an interest in a business. On March
16, 2000, FDC acquired FED. Simultaneous with this merger, we changed our name
to eMagin Corporation. Following the merger, the business conducted by eMagin is
the business conducted by FED prior to the merger.
Our
website is located at www.emagin.com and
our e-commerce site is www.3dvisor.com. We
make available on our website, free of charge, our annual report on Forms 10-K,
our proxy statement, our quarterly reports on Forms 10Q, our current reports on
Form 8K, and all amendments to such reports filed under the Securities and
Exchange Act, earnings press releases, and other business-related press
releases. We also post on our website the charters of our Audit, Compensation,
Governance and Nominating committees, our Codes of Ethics and any amendments of
or waiver to those codes of ethics, and other corporate governance materials
recommended by the Securities and Exchange Commission as they
occur.
A study
by NanoMarkets (February 2007) predicts the overall OLED market will approach
$10.9 billion in 2010 and grow to $15.5 billion by 2014. These markets include
various sizes devices for a range of applications from cell phone size to
viewfinder displays to televisions to lighting. Displays in general are sold as
independent products (such as TV monitors) or as components of other systems
(such as laptop computers). Our products target one segment of the display
industry, the near-eye, personal display, which is viewed through a lens rather
than directly, in comparison to desktop computer screens which are known as
direct view displays. As an off-shoot of our work in microdisplays, we are also
participating in government-funded development studies for OLED-based
lighting.
Personal
displays, that is, near-eye systems based on microdisplays and optics, include
video headsets, camcorders, viewfinders and other portable devices.
Microdisplays are typically of such high resolution that they can be practically
viewed only with magnifying optics. Although microdisplays are typically
physically smaller than a postage stamp, they can provide a magnified viewing
area similar to that of a full-size computer screen. For example, when magnified
through a lens, a high-resolution 0.6-inch diagonal display can appear
comparable to a 19- to 21-inch computer screen at about 2 feet from the viewer
or a 60-inch TV screen at about 6 feet. The wearable display market,
according to DisplaySearch, is expected to grow to at least $153 million in
2010. McLaughlin Consulting, in a report published December 2006, projects that,
with effective marketing, the Personal Viewer market could reach nearly $1
billion in 2010.
We
believe that the most significant driver of the longer term near-eye virtual
imaging microdisplay market is growing consumer demand for mobile access to
larger volumes of information and entertainment in smaller packages. This desire
for mobility has resulted in the development of near-eye microdisplay products
in two general categories: (i) an established market for electronic viewers
incorporated in products such as viewfinders for digital cameras and video
cameras which may potentially also be developed as personal viewers for cell
phones and (ii) an emerging market for headset-application platforms which
include accessories for mobile devices such as notebook and sub-notebook
computers, portable DVD systems, electronic games, and other entertainment, and
wearable computers.
Until
now, near-eye virtual imaging microdisplay technologies have not simultaneously
met all of the requirements for high resolution, full color, low power
consumption, brightness, lifetime, size and cost which are required for
successful commercialization in OEM consumer products. We believe that our new
OLED-on-silicon microdisplay product line meets these requirements better than
alternative products and will help to enable virtual imaging to emerge as an
important display industry segment.
Our
Approach: OLED-on-Silicon Microdisplays and Optics
There are
two basic classes of organic light emitting diode, or OLED, technology, dubbed
single molecule or small molecule (monomer) and polymer. Our microdisplays are
currently based upon active matrix molecular OLED technology, which we call
OLED-on-silicon because we build the displays directly on silicon chips. Our
OLED-on-silicon technology uniquely permits millions of individual low-voltage
light sources to be built on low-cost, silicon computer chips to produce single
color, white or full-color display arrays. OLED-on-silicon microdisplays offer a
number of advantages over current liquid crystal microdisplays, including
increased brightness, lower power requirements, less weight and wider viewing
angles. Using our OLED technology, many computer and video electronic system
functions can be built directly into the silicon chip, under the OLED film,
resulting in very compact, integrated systems with lowered overall system costs
relative to alternative technologies.
We have
developed our own proprietary and patented technology to create high performance
OLED-on-silicon microdisplays and related optical systems, and we license
fundamental OLED technology from Eastman Kodak. (See "Intellectual Property" and
"Strategic Relationships"). We expect that the integration of our
OLED-on-silicon microdisplays into mobile electronic products will result in
lower overall system costs to our OEM customers.
We
believe that our OLED-on-silicon microdisplays will initiate a new generation of
virtual imaging products that could have a profound impact on many industries.
Headsets providing virtual screens surrounding the user in a sphere of data
become a practical reality with our displays and a low cost head tracker.
Because our microdisplays generate and emit light, they have a wider viewing
angle than competing liquid crystal microdisplays, and because they have the
same high brightness at all forward viewing angles, our microdisplays permit a
large field-of-view and superior optical image.
The wider
viewing angle of our display results in the following superior optical
characteristics in comparison with LCDs and other near-eye display
technologies:
·
|
the
user does not need to accurately position the head-wearable display to the
eye;
|
·
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the
image will change minimally with eye movement and appear more natural;
and
|
·
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the
display can be placed further from the eye and not cut off part of the
image.
|
In
addition, our OLED-on-silicon microdisplays offer faster response times and use
much less power than competitive liquid crystal microdisplay systems. Our
subsystem-level power consumption is so low that two SVGA, full color, full
speed motion video computer displays can easily be run in stereovision off the
power from a single USB port on a portable computer. Battery life is extended
and weight is greatly reduced in systems using our products.
Our SVGA+
OLED microdisplay stores all the color and luminance value information at each
of the more than 1.5 million picture elements, or pixels, between refresh cycles
in the display array, eliminating the flicker or color breakup seen by most
other high-resolution microdisplay technologies. Even power efficient frame
rates as low as 30 Hz can usually be used effectively. Power consumption at the
system level is expected to be the lowest of any full-color, full-video SVGA
resolution range, large view microdisplay on the market. The OLED's ability to
emit light at wide angles allows customers to create large field of view
(approx. 40 degrees), wide image capture range images from very compact,
low-cost, one-piece optical systems. The display contains the majority of the
electronics required for connection to the RGB (red, green, blue signal) port of
a portable computer imbedded in its silicon chip backplane, thereby eliminating
many other components required by other display technologies such as
digital-analog converters, application-specific integrated circuits (ASICs),
light sources, multiple optical elements, and other components. We believe that
these features will enable our new class of microdisplay to potentially be the
most compact, highest image quality, and lowest cost solution for high
resolution near-eye applications, once they are in full production.
We have
also developed advanced lens technology which permits our OLED-on-silicon
microdisplays to provide large field of view images that can be viewed for
extended periods with reduced eye-fatigue. Molded plastic prism lenses have been
developed to help our OEM customers obtain better quality, large area virtual
images using our displays at relatively low cost in comparison to alternate
approaches.
Our
Products
Our first
commercial microdisplay products are based on our "SVGA series" OLED
microdisplays. We offer products utilizing both our proprietary “OLED” or
“OLED-XL” technologies, applied to the same integrated circuit base. We offer
our products to OEMs and other large volume buyers as both separate components,
integrated bundles coupled with our own optics, or full systems. We also offer
engineering support to enable customers to quickly integrate our products into
their own product development programs.
(1) OLED
Microdisplay Component Products
SVGA+ OLED
Microdisplay (Super Video Graphics Array of 800x600 plus 52 added columns of
data). Our 0.62 inch diagonal SVGA+ OLED microdisplays have a
resolution of 852x600 triad pixels (1.53 million picture elements). The product
was dubbed "SVGA+" because it has 52 more display columns than a standard SVGA
display, permitting users to run either (1) standard SVGA (800 x 600 pixels) to
interface to the analog output of many portable computers or (2) 852 x 480,
using all the data available from a DVD player in a 16:9 wide screen
entertainment format. The display also has an internal NTSC monochrome video
decoder for low power night vision systems.
SVGA-3D OLED
Microdisplay (Super Video Graphics Array plus built-in stereovision
capability). Our 0.59 inch diagonal SVGA-3D OLED microdisplays
have a resolution of 800x600 triad pixels (1.44 million picture elements). A
built-in circuit provides compatibility with single channel frame sequential
stereoscopic vision without additional external components.
Microdisplays
Under Development. We are developing two additional display
products, a smaller format (SVGA-3DS) version of our SVGA display, which will
have 800 x 600 triad pixels and be 0.44 inch diagonal and a 0.77 inch SXGA OLED
microdisplay with resolution of 1280x 1024 triad pixels. These new products
offer both analog and digital signal inputs in a compact display with greater
power efficiency. With the world’s finest pitch (11.1 microns) and a high level
of integrated functionality, the SVGA-3DS provides a simple path to system
integration in a small format. The SXGA split chip architecture offers
unprecedented power consumption savings for this display format in addition to a
highly flexible system interface configuration.
Lens and Design
Reference Kits.
We offer a WF05 prism optic, with mounting brackets or combined with OLED
microdisplays to form an optic-display module. We provide Design Reference Kits,
which include a microdisplay and associated electronics to help OEMs evaluate
our microdisplay products and to assist their efforts to build and test new
products incorporating our microdisplays.
Integrated
Modules. We provide near-eye virtual imaging modules that incorporate our
OLED-on-silicon microdisplays with our lenses and electronic interfaces for
integration into OEM products. We have shipped customized modules to several
customers, some of which have incorporated our products into their own
commercial products.
(2)
Personal Display Systems (Head-Wearable and Headset Systems)
Our Z800
3DVisors(tm) give users the ability to work with their hands while
simultaneously viewing information or video on the display. The Z800 3DVisor
enables more versatile portable computing, using a 0.59-inch diagonal
microdisplay (SVGA-3D capable of delivering an image that appears comparable to
that of a 19-inch monitor at 22 to 24 inches from the eye, or a 105 inch movie
screen at 12 foot distance. Our systems are currently being used for personal
entertainment, electronic gaming, and military training and simulation, among
other applications. We believe that personal display systems will fill the
increasing demand for instant data accessibility and privacy in mobile
workplaces. We sell the personal display systems to OEM systems and equipment
customers, through distributors, and through our e-commerce website,
www.3dvisor.com.
The
growth potential of our selected target market segments have been investigated
using information gathered from key industry market research firms, including
DisplaySearch, Frost and Sullivan, Fuji-Chimera, International Data Corporation,
Nikkei, SEMI, Stanford Resources-iSuppli and others. Such data was obtained
using published reports and data obtained at industry symposia. We have also
relied substantially on market projections obtained privately from industry
leaders, industry analysts, and current and potential customers.
The
virtual-imaging markets we are targeting include industrial, medical, military,
arcade games, 3-D CAD/Virtual Reality, and wearable computers. Within each of
these market sectors, we believe that our microdisplays, when combined with
compact optic lenses, will become a key component for a number of mobile
electronic products. Applications we are targeting the following:
Head-wearable
displays incorporate microdisplays mounted in or on eyeglasses, goggles, simple
headbands, helmets, or hardhats, and are often referred to as head-mounted
displays (HMDs) or headsets. Head-wearable displays may block out surroundings
for a fully immersive experience, or be designed as "see-through" or
"see-around" to the user's surroundings. They may contain one (monocular) or two
(binocular) displays. Some of the increased current interest is due to
accelerating the timetable to adapt such systems to military applications such
as night vision and fire and rescue applications. These have military,
commercial, and consumer applications.
Military
demand for head-wearable displays is currently being met with microdisplay
technologies that we believe to be inferior to our OLED-on-silicon products. The
new generation of soldiers will be highly mobile, and will often need to carry
highly computerized communications and surveillance equipment. To enable
interaction with the digital battlespace, rugged, yet lightweight and energy
efficient technology is required. Currently available microdisplay technologies
do not meet the requirements for low power, hands-free, day and night-viewable
displays. As a COTS (commercial off the shelf) component, OLED microdisplays
demonstrate performance characteristics important to military and other
demanding commercial and industrial applications including high brightness and
resolution, wide dimming range, wider temperature operating ranges, shock and
vibration resistance and insensitivity to high G-forces. The image does not
suffer from flicker or color breakup in vibrating environments, and the
microdisplay's wide viewing angle allows ease of viewing for long periods of
time. The OLED's very low power consumption reduces battery weight and increases
allowed mission length. Properly implemented, we believe that head-mounted
systems incorporating our microdisplays will increase effectiveness by allowing
hands-free operation and increasing situational awareness with enough brightness
to be used in daylight, yet controllable for nighttime light security. The
OLED's inherent wide temperature range is especially of interest for military
applications because the display can turn on instantly at temperatures far below
freezing and can operate at very high temperatures in desert
conditions.
Our OLED
microdisplays have been selected for a range of defense-security applications,
including a situational awareness HMD for the US Army Land Warrior programs, a
handheld thermal imager for border patrol and training, and simulation virtual
monitors for Quantum 3D. The Land Warrior, a baseline program in the Army's
drive to digitize the battlefield, is an integrated digital system that
incorporates computerized communication, navigation, targeting and protection
systems for use by the twenty-first century infantry soldier. Rockwell Collins,
the principal contractor for the US Army's Land Warrior HMD system, and eMagin
applied their respective expertise in HMD and imaging technology to develop
rugged, yet lightweight and energy efficient products meeting the requirements
of tomorrow's soldier. Our display is also used in Rockwell Collins’
commercially available ProView S035 Monocular HMD. Night Vision Equipment
Corporation's HelmetIR-50(TM), a lightweight, military helmet mounted thermal
imager, which provides hands-free operation and allows viewers to see through
total darkness, battlefield obscurants, and even foliage, is the first
OLED-equipped product to be listed on the US Government's GSA schedule.
Virtually Better Inc. has incorporated our Z800 3DVisor into its “Virtual Iraq”
treatment for post-traumatic stress disorders. In addition, our
displays have been commercialized, or planned to be commercialized, by military
systems integrators including DRS, Elbit, Insight Technologies, Nivisys,
Qioptiq, Saab, Sagem, and Thales, , among others. We cannot assure that
Government projects will remain on schedule, or that they will be fully
implemented. Similar systems are of interest for other military applications as
well as for related operations such as urban security, fire and
rescue.
Commercial,
Industrial, and Medical
We
believe that a wide variety of commercial and industrial markets offer
significant opportunities due to increasing demand for instant data
accessibility in mobile workplaces. Some examples of microdisplay applications
include: immediate access to inventory such as parts, tools and equipment
availability; instant accessibility to maintenance or construction manuals;
routine quality assurance inspection; endoscopic surgery; and real-time viewing
of images and data for a variety of applications. As one potential example, a
user wearing a HMD while using test equipment, such as oscilloscopes, can view
technical data while simultaneously probing printed circuit boards. Commercial
products in these sectors include Sage Technologies, Ltd.'s Helmet Vue (TM)
Thermal Imaging System and Liteye's 500. VRmagic GmbH, a leading developer of
virtual reality simulators, is using our OLED microdisplays in their EYESI(TM)
Virtual Reality Surgical Simulator, which provides real-time simulation of
ophthalmic surgery, high performance biomechanical tissue simulation, precision
tracking, and realistic stereo imaging. Sensics has incorporated our OLED
displays in their immersive SkyVizor (TM) virtual reality headset to serve as
the "eyes" of the Robonaut, a humanoid robot being developed by NASA and
Department of Defense agencies. The Robonaut system can work side by side with
humans, or alone in high-risk situations. Telepresence uses virtual reality
display technology to visually immerse the operator into the robot's workspace,
facilitating operation and interaction with the Robonaut, and potentially
reducing the number of dangerous space walks required of real
astronauts. Another recent example is Saab Avitronics, which has
chosen eMagin microdisplays for its new Multi-Purpose Virtual Image Display
(VID) which comprises high-performance magnifying optics and the OLED, sealed in
an aluminum casing.
Once our
displays are manufactured in high volumes at reduced costs, we believe that our
head-wearable display products may enhance the following consumer
products:
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Entertainment
and gaming video headset systems, which permit individuals to view
television, including HDTV, video CDs, DVDs and video games on virtual
large screens or stereovision in private without disturbing others. We
believe that these new headset game systems can provide a game or
telepresence experience not otherwise practical using conventional direct
view display technology. The advent of video iPods and the rapidly
increasing amount of downloadable content have accelerated the movement
toward portable video technology. At the same time, the desire for larger
screen sizes while retaining the iPod portability has been referenced in
many publications. Virtual imaging uniquely provides a large, high
resolution view in a small portable package, and we believe that our OLED
on silicon technology is a best fit to help open this
market.
|
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Notebook
computers, which can use head-wearable devices to reduce power
requirements as well as expand the apparent screen size and increase
privacy. Current notebook computers do not use microdisplays. Our products
can apply not only to new models of notebook computers, but also as
aftermarket attachments to older notebooks still in use. The display can
be easily used as a second monitor on notebook computers for ease of
editing multiple documents to provide multiple screens or for data privacy
while traveling. It can also be used to provide larger screen capability
for viewing spreadsheets or complex computer aided design (CAD) files. We
expect to market our head-wearable displays to be used as plug-in
peripherals to be compatible with most notebook computers. We believe that
the SVGA-3D microdisplay is well suited for most portable PC headsets. Our
microdisplays can be operated using the USB power source of most portable
computers. This eliminates added power supplies, batteries, and rechargers
and reduces system complexity and
cost.
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Handheld
personal computers, whose small, direct view screens are often
limitations, but which are now capable of running software applications
that would benefit from a larger display. Microdisplays can be built into
handheld computers to display more information content on virtual screens
without forfeiting portability or adding the cost a larger direct view
screen. Microdisplays are not currently used in this market. We believe
that GPS viewers and other novel products are likely to develop as our
displays become more available.
|
The
combination of power efficiency, high resolution, low systems cost, brightness
and compact size offered by our OLED-on-silicon microdisplays has not been made
available to makers and integrators of existing entertainment and gaming video
headset systems, notebook computers and handheld computers. We believe that our
microdisplays have the potential to propel the growth of new products and
applications such as lightweight wearable computer systems.
Our
Strategy
Our
strategy is to establish and maintain a leadership position as a worldwide
supplier of microdisplays and virtual imaging technology solutions for
applications in high growth segments of the electronics industry by capitalizing
on our leadership in both OLED-on-silicon technology and microdisplay lens
technology. We aim to provide microdisplay and complimentary accessories to
enable OEM customers to develop and manufacture new and enhanced electronic
products. Some key elements of our strategy to achieve these objectives includes
the following:
·
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Leverage
our superior technology to establish a leading market position. As the
first to exploit OLED-on-silicon microdisplays, we believe that we enjoy a
significant advantage in bringing this technology to
market.
|
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Optimize
manufacturing efficiencies by outsourcing while protecting proprietary
processes. We outsource certain portions of microdisplay production, such
as chip fabrication, to minimize both our costs and time to market. We
intend to retain the OLED application and OLED sealing processes in-house.
We believe that these areas are where we have a core competency and
manufacturing expertise. We also believe that by keeping these processes
under tight control we can better protect our proprietary technology and
process know-how. This strategy will also enhance our ability to continue
to optimize and customize processes and devices to meet customer needs. By
performing the processes in-house we can continue to directly make
improvements in the processes, which will improve device performance. We
also retain the ability to customize certain aspects such as color
balance, which is known as chromaticity, as well as specialized boards or
interfaces, and to adjust other parameters at the customer's request. In
the area of lenses and head-wearable displays, we intend to focus on
design and development, while working with third parties for the
manufacture and distribution of finished products. We intend to prototype
new optical systems, provide customization of optical systems, and
manufacture limited volumes, but we intend to outsource high volume
manufacturing operations. There are numerous companies that provide these
outsource services.
|
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Build
and maintain strong internal design capabilities. As more circuitry is
added to OLED-on-silicon devices, the cost of the end product using the
display can be decreased; therefore integrated circuit design capability
will become increasingly important to us. To meet these requirements, we
utilize in-house design capabilities supplemented by outsourced design
services. Building and maintaining this capacity will allow us to reduce
engineering costs, accelerate the design process and enhance design
accuracy to respond to our customers' needs as new markets develop. In
addition, we intend to maintain a product design staff capable of rapidly
developing prototype products for our customers and strategic partners.
Contracting third party design support to meet demand and for specialized
design skills will also remain a part of our overall long term strategy.
|
Our
Strategic Relationships
Strategic
relationships have been an important part of our research and development
efforts to date and are an integral part of our plans for commercial product
launch. We have forged strategic relationships with major OEMs and strategic
suppliers. We believe that strategic relationships allow us to better determine
the demands of the marketplace and, as a result, allow us to focus our future
research and development activities to better meet our customer's requirements.
Moreover, we expect to provide microdisplays and Microviewers(TM) to some of
these partners, thereby taking advantage of established distribution channels
for our products.
Eastman
Kodak is a technology partner in OLED development, OLED materials, and a
potential future customer for both specialty market display systems and consumer
market microdisplays. We license Eastman Kodak's OLED and optics technology
portfolio. We have a nonexclusive; perpetual, worldwide license to use Eastman
Kodak patented OLED technology and associated intellectual property in the
development, use, manufacture, import and sale of microdisplays. The license
covers emissive active matrix microdisplays with a diagonal size of less than 2
inches for all OLED display technology previously developed by Kodak. An annual
minimum royalty is paid at the beginning of each calendar year and is fully
creditable against the royalties we are obligated to pay based on net sales
throughout the year. Eastman Kodak and eMagin have engaged in numerous
discussions regarding potential product applications for eMagin's microdisplays
by Eastman Kodak.
We are
working cooperatively with the US Army, US Navy, and with several military
system integrators to further characterize operation of our displays in rugged
military environments. We have a Cooperative Research and Development Agreement
(CRADA) with the US Army Night Vision Electronic Sensors Directorate (NVESD) to
characterize performance of our displays. We are currently partnering with the
University of Michigan to develop advanced display process via a
government-sponsored research program. We intend to continue to establish
additional strategic relationships in the future.
We are a
member of the United States Display Consortium (USDC), a cooperative effort
between industry and government whose charter is to develop an infrastructure to
support North American flat panel display manufacturing. It has more than 100
members, as well as support from the Department of Defense. The USDC’s role is
to provide a common platform for flat panel display manufacturers, developers,
users and the manufacturing equipment and supplier base.
Our
Technology Platforms
OLED-on-Silicon
Technology
Scientists
working at Eastman Kodak invented OLEDs in the early 1980s. OLEDs are thin films
of stable organic materials that emit light of various colors when a voltage is
impressed across them. OLEDs are emissive devices, which mean they create their
own light, as opposed to liquid crystal displays, which require a separate light
source. As a result, OLED devices use less power and can be capable of higher
brightness and fuller color than liquid crystal microdisplays. Because the light
they emit is Lambertian, which means that it appears equally bright from most
forward directions, a moderate movement in the eye does not change the image
brightness or color as it does in existing technologies. OLED films may be
coated on computer chips, permitting millions of individual low-voltage light
sources to be built on silicon integrated circuits to produce single color,
white or full-color display arrays. Many computer and video electronic system
functions can be built directly into a silicon integrated circuit as part of the
OLED display, resulting in an ultra-compact system. We believe these features,
together with the well-established silicon integrated circuit fabrication
technology of the semiconductor industry, make our OLED-on-silicon microdisplays
attractive for numerous applications.
We
believe our technology licensing agreement with Eastman Kodak, coupled with our
own intellectual property portfolio, gives us a leadership position in OLED and
OLED-on-silicon microdisplay technology. Eastman Kodak provides OLED technology
and we provide additional technology advancements that have enabled us to coat
the silicon integrated circuits with OLEDs.
We have
developed numerous and significant enhancements to OLED technology as well as
key silicon circuit designs to effectively incorporate the OLED film on a
silicon integrated circuit. For example, we have developed a unique,
top-emitting structure for our OLED-on-silicon devices that enables OLED
displays to be built on opaque silicon integrated circuits rather than only on
glass. Our OLED devices can emit full visible spectrum light that can be
isolated with color filters to create full color images. Our microdisplay
prototypes have a brightness that can be greater than that of a typical notebook
computer and can have a potential useful life of over 50,000 operating hours, in
certain applications. New materials and device improvements in development offer
future potential for even better performance for brightness, efficiency, and
lifespan. Additionally, we have invested considerable work over several years to
develop unique electronics control and drive designs for OLED-on-silicon
microdisplays.
In
addition to our OLED-on-silicon technology, we have developed compact optic and
lens enhancements which, when coupled with the microdisplay, provide the high
quality large screen appearance that we believe a large proportion of the
marketplace demands.
Advantages
of OLED Technology
We
believe that our OLED-on-silicon technology provides significant advantages over
existing solutions in our targeted microdisplay markets. We believe these key
advantages will include:
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Low
manufacturing cost;
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Low
cost system solutions;
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Wide
angle light emission resulting in large apparent screen
size;
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Low
power consumption for improved battery life and longer system
life;
|
·
|
High
brightness for improved viewing;
|
·
|
High-speed
performance resulting in clear video images;
|
·
|
Wide
operating temperature range; and
|
·
|
Good
environmental stability (vibration and
humidity).
|
Low manufacturing
cost. Many OLED-on-silicon microdisplays can be built on an
8-inch silicon wafer using existing automated OLED and color filter processing
tools. The level of automation used lowers labor costs. Only a minute amount of
OLED material is used in each OLED-on-silicon microdisplay so that material
costs, other than the integrated circuit itself, are small. The number of
displays per silicon wafer may be higher on OLEDs than on liquid crystal
displays, or LCDs, because OLEDs do not require a space-wasting perimeter seal
band. Expensive transparent wafers with CMOS silicon laminated onto quartz are
not required for OLED microdisplays, as standard CMOS chips may be used as
backplanes.
Low cost systems
solutions. In general, an OEM using OLED-on-silicon
microdisplays will not need to purchase and incorporate lighting assemblies,
color converter related Applications Specific Integrated Circuits, or ASICs, or
beam splitter lenses as is the case in liquid crystal microdisplays, which also
require illumination. Many important display-related system functions can be
incorporated into an OLED-on-silicon microdisplay, reducing the size and cost of
the system. Non-polarized light from OLEDs permit lenses for many
OLED-on-silicon applications that are made of a single piece of molded plastic,
which reduces size, weight and assembly cost when compared to the multipiece
lens systems used for liquid crystal microdisplays. System cost relative to
liquid crystal and liquid crystal on silicon, or LCOS, competitive products is
thus reduced. Because our displays are power efficient, they typically require
less power at the system level than other display technologies at a given
display size and brightness.
Wide-angle light
emission simplifies optics for large apparent screen
size. OLEDs emit light at most forward directions from each
pixel. This permits the display to be placed close to the lens in compact
optical systems. It also provides the added benefit of less angular dependence
on the image quality relative to pupil and eye position when showing a large
field of view, unlike reflective LCOS microdisplays. This results in less eye
fatigue and makes it relatively easy to low power consumption for improved
battery life and longer system life. OLEDs emit light rather than transmitting
it, so no power-consuming backlight or front light, as required for liquid
crystal displays, is required. OLEDs can be energy efficient because of their
high efficiency light generation. Furthermore, OLEDs conserve power by powering
only those pixels that are on while liquid crystal on silicon requires light at
all pixels all the time. Most optical systems used for our OLEDs are highly
efficient, permitting over 80% of the light to reach the eye, whereas reflective
technologies such as liquid crystal on silicon require multiple beam splitters
to get light to the display, and then into the optical system. This results in
typically less than 25% light throughput efficiency in reflective microdisplay
systems. Most important, we do not need a power-hungry video frame buffer, as
required in liquid crystal frame-sequential color systems. Battery life can
therefore be extended.
High brightness
for improved viewing. This feature can be of great value to
military applications, where there is a need to see the computer image overlaid
onto brightly lit real-life backgrounds such as desert sand, water reflections
or sunlit clouds. The OLED can be operated over a large luminance range without
loss of gray level control, permitting the displays to be used in a range of
dark environments to very bright ambient applications. Since military simulation
and situation awareness applications, including night vision, typically require
large fields of view, the OLED's Lambertian optical characteristics make it an
excellent choice.
High-speed
performance resulting in clear video image. OLEDs switch much
more rapidly than liquid crystals or most cathode ray tubes, or CRTs. This
results in smear-free video rate imagery and provides improved image quality for
DVD playback applications. This eliminates visible image smear and makes
practicable three-dimensional stereo imaging using a split frame rate. This
advantage of our OLED-on-silicon is very important for 3-D stereovision gaming
applications.
Flicker-free and
no color breakup. Because the OLED-on-silicon stores
brightness and color information at each pixel, the display can be run with no
noticeable flicker and no color sequential breakup, even at low refresh rates. A
lower refresh rate not only helps reduce power, but it also facilitates system
integration. Color sequential breakup occurs in systems such as liquid crystal
on silicon and some liquid crystal display microdisplays when red, green and
blue frames are sequentially imaged in time for the eye to combine. Since the
different color screens occur at different times, movement of the eye due to
vibration or just fast pupil movement can create color bands at each dark-light
edge, making the image unpleasant to view and making text difficult to read. For
example, the liquid crystal on silicon display needs to run at least three times
the "normal" frame rate or speed to produce color sequential images, which
wastes power and makes for a difficult technological challenge as display
resolutions increase.
Wide operating
temperature range. Our OLEDs offer much less temperature
sensitivity at both high and low temperatures than LCDs. LCDs are sluggish or
non-operative much below freezing unless heaters are added and lose contrast
above 50 degrees Celsius, while our OLEDs turn on instantly and can operate
between -55 degrees Celsius and 130 degrees Celsius. We specify a smaller
temperature range on most consumer products to accommodate lower cost packaging.
This is an important characteristic for many portable products that may be used
outdoors in many varying environmental conditions. It is especially important
for military customers. Insensitivity to vibration, shock, and pressure are also
important environmental control attributes.
Complementary lens and system
technologies. We have developed a wide range of technologies
which complement our core OLED and lens technologies and which will enhance our
competitive position in the microdisplay and head-wearable display markets.
These include:
Lens technology. High
quality, large view lenses with a wide range for eye positioning are essential
for using our displays in near-eye systems. We have developed advanced lens
technology for microdisplays and personal head-wearable display systems and hold
key patents in these areas. Our lens technology permits our OLED-on-silicon
microdisplays to provide large field of view images that can be viewed for
extended periods with reduced eye-fatigue. We have engaged a firm to manufacture
our lenses in order to provide them in larger quantities to our customers and
are using them in our own personal display systems.
We
believe that the key advantages of our lens technology include:
·
|
Can
be very low cost, with minimal assembly. A one piece, molded plastic optic
attached to the microdisplay has been introduced and may potentially serve
consumer end-product markets. Since our process is plastic molding, our
per unit production costs are low;
|
·
|
Allows
a compact and lightweight lens system that can greatly magnify a
microdisplay to produce a large field of view. For example, our WF05 prism
lens, in combination with our SVGA OLED microdisplay, provides a virtual
view equivalent to that of a 105-inch diagonal display viewed at 12
feet;
|
·
|
Can
use single-piece molded microdisplay lenses to permit high light
throughput making the display image brighter or permitting the use of less
power for an acceptable brightness;
|
·
|
Can
be designed to provide focusing to enable users with various eyesight
qualities to view images clearly; and
|
·
|
Can
optionally provide focal plane adjustment for simultaneous focusing of
computer images and real world objects. For example, this characteristic
is beneficial for word processing or spreadsheet applications where a
person is typing data in from reference material. This feature can make it
easier for people with moderately poor accommodation to use a
head-wearable display as a portable computer-viewing
accessory.
|
Personal display system
technology. We have developed ergonomic technologies that make
head-wearable displays easier to use in a wide variety of applications. For
example, the use of our patented rotatable Eyeblocker(TM) provides a sharp image
without requiring most users to squint. The Eyeblocker can also be moved to
create an effective see-through appearance. To our knowledge, we have made the
lightest weight, high-resolution head-wearable display with an over 35 degree
diagonal field of view ever publicly demonstrated. We have also incorporated low
cost, small size, high speed headtrackers to further enhance game and
telepresence applications.
Sales
and Marketing
We
primarily provide display components for OEMs to incorporate into their branded
products and sell through their own well-established distribution channels. In
addition, we market head-wearable displays directly to various vertical market
channels, such as medical, industrial, and government customers. A typical buyer
is a manufacturer of a product requiring a specific resolution of visual display
or viewfinder for insertion into a product such as a portable DVD headset, a
PC-gaming headset, or an instrument.
We market
our services in North America, Asia, and Europe primarily through direct
technical sales from our headquarters. Regular purchase orders are processed by
our customer service coordinators and technical questions related to product
purchases or product applications are processed by our technical support team.
As a market-driven company, we assess customer needs both quantitatively and
qualitatively, through market research and direct communications. Because our
microdisplays are the main functional component that defines many of our
customers' end products, we work closely with potential customers to define our
products to optimize the final design, typically on a senior
engineer-to-engineer basis. Our personal display systems are sold through select
value-added resellers and on-line through PC Mall, Google Checkout, and our
e-commerce site, www.3dvisor.com.
We
identify companies with end products and applications for which we believe that
our products will provide a system level solution and for which our products can
be a key differentiator. We target both market leaders and select early adopter
companies; their acceptance validates our technology and approach in the market.
We believe successful marketing will require relationships with recognized
consumer brand companies.
Near term
sales efforts for OLED microdisplays have been focused on our military,
industrial, and medical customers. We have received production orders and design
wins for both the SVGA+ and SVGA 3D displays. To date, we have shipped products
and evaluation kits to more than 200 OEM customers. An OEM design cycle
typically requires between 6 and 36 months, depending on the uniqueness of the
market and the complexity of the end product. New product development may
require several design iterations prior to commercialization. Some of our
initial customers have completed their initial evaluation cycle and we continue
to receive follow-on orders and notification of product purchase decisions. (See
"Our Market Opportunity: Military; Commercial, Industrial, and Medical; and
Consumer")
Customers
Customers
for our products include both large multinational and smaller OEMs. We maintain
relationships with OEMs in a diverse range of industries encompassing the
military, industrial, medical, and consumer market sectors. During 2007, 51% of
our net revenue was to firms based in the United States and 49% was to
international firms as compared to 59% domestic revenue and 41% international
revenue during 2006. In 2007, we had 10 customers that accounted for
more than 54% of our total revenue as compared to 5 customers that accounted for
more than 68% of our total revenue in 2006. In 2007, we did not have any
customers that accounted for more than 10% of our total revenue as compared to
2006, when we had one customer that accounted for 13% of our total
revenues.
Backlog
As of
September 30, 2008, we had a backlog of approximately $4.6 million for purchases
through December 31, 2009. This backlog consists of purchase orders and purchase
agreements but does not include expected revenue from R&D contracts or
expected NRE (non-recurring engineering) programs under
development.
The
majority of our backlog consists of purchase agreements for delivery over the
next 12 months. Most purchase orders are subject to rescheduling or cancellation
by the customer with no or limited penalties. Because of the possibility of
customer changes in delivery schedules or cancellations and potential delays in
product shipments, our backlog as of a particular date may not be indicative of
net sales for any succeeding period. Some customers have experienced delays in
their expected product launch schedules due to their own product development
delays not directly related to our microdisplays, such as development of custom
optics or other aspects of their end product, or by delays in government
programs contracted to them.
Research
and Development
Near-to-the-eye
virtual imaging and OLED technology are relatively new technologies that have
considerable room for substantial improvements in luminance, life, power
efficiency, voltage swing, design compactness, field of view, optical range of
visibility, headtracking options, wireless control and many other parameters. We
anticipate that achieving reductions in manufacturing costs will require new
technology developments. We also anticipate that improving the performance,
capability and cost of our products will provide an important competitive
advantage in our fast moving, high technology marketplace. Past and current
research activities include development of improved OLED and display device
structures, developing and/or evaluating new materials (including the synthesis
of new organic molecules), manufacturing equipment and process development,
electronics design methodologies and new circuits and the development of new
lenses and related systems. In 2007, we spent approximately $2.9 million on
research and development. In 2007 we continued to research more efficient
materials and processes. We also completed the primary designs of our new
smaller display, the SVGA 3DS, as well as the design of the SXGA.
External
relationships play an important role in our research and development efforts.
Suppliers, equipment vendors, government organizations, contract research
groups, external design companies, customer and corporate partners, consortia,
and university relationships all enhance the overall research and development
effort and bring us new ideas (See "Strategic Relationships").
U.S.
Government-Funded Research
We have
entered into several U.S. government contracts to fund a portion of our efforts
to develop next-generation OLED technologies for a variety of applications.
These include, among others, Small Business Innovation Research (SBIR) Phase II
program contracts for continued research and development and the fabrication of
prototypes. On contracts for which we are the prime contractor, we subcontract
portions of the work to various entities and institutions, including the
University of Michigan. Our recent government contracts include the
following:
OLED Performance and Reliability
Improvement for Active Matrix OLED Microdisplays. Armed forces as well as
other security related agencies are relying increasingly on the benefits of OLED
technology in active matrix microdisplays. Applications range from night vision
thermal imaging to tactical awareness and communication systems to
weapons-mounted sights, among others. As the systems capabilities are expanded,
the need for higher brightness and ability to display static imagery such as
maps and drawings is growing, placing higher demands on the OLED technology. In
2007 eMagin was awarded a contract managed by the Night Vision Electronic
Sensors Directorate (NVESD) with funding by the Department of Defense
Appropriations Bill. The objective of the program is to improve on the present
performance of the microdisplay-based OLED technology from lifetime, efficiency
and reliability standpoints. For 2007, we received approximately $360 thousand
of the $1.12 million program. The FY 2008 Department of Defense Appropriations
Bill has provided for continuation of a second phase of the program
Organic Light Emitting Diode (OLED)
Display Technology for Military Aircraft. In 2007 we continued our
efforts to develop a robust thin film encapsulation technique for OLED displays
under a Small Business Technology Transfer (STTR) program from the US Navy.
University of Michigan, Ann Arbor, MI is the university partner for this STTR.
Many new schemes to encapsulate OLED devices with thin film techniques were
developed, evaluated and tested under accelerated environmental condition. The
contract expired on February 29, 2008. For 2007 we received approximately $328
thousand in funding under this program.
Ultra High Resolution Display for
Army Medicine.
In 2007 we formally initiated efforts on a multiple year program under contract
with the US Army TATRC (Telemedicine and
Advanced Technologies Research Center) with funding provided by
the FY 2006 and 2007 Department of Defense Appropriations Bills. The culmination
of this multiple year effort will provide an ultra-high resolution, wide field
of view display system suitable for dual-use application within Army medicine,
U.S. military simulation and training, and commercial uses. We received
approximately $698 thousand in funding during 2007 under this contract and
expect to receive approximately $2 million during 2008.
High Dynamic Range Microdisplay
Feasibility Study. The US Army/RDECOM/NVESD and eMagin Corporation have
established a CRADA (Cooperative Research and Development Agreement) with the
goal of evaluating and characterizing new and existing AMOLED microdisplay
configurations with an emphasis on the usable lifetime of the displays. This
work is aimed at developing AMOLED microdisplays capable of being fielded in a
wide range of US Army applications. The effort is for a 3 month period and is a
feasibility study aimed at evaluating several concepts leading to a higher
dynamic range without changing the existing pixel driver design of the
microdisplays. If successful, a second phase can be considered addressing a
complete high dynamic range OLED microdisplay. The total program cost for the 3
month program is approximately $236 thousand. The program started on March 14,
2008.
Manufacturing
Facilities
We are
located at IBM's Microelectronics Division facility, known as the Hudson Valley
Research Park, located about 70 miles north of New York City in Hopewell
Junction, New York. We lease approximately 33,000 square feet of space which
houses our own equipment for OLED microdisplay fabrication and research and
development, includes a 16,300 square foot class 10 clean room space, additional
lower level clean room space, assembly space and administrative
offices.
Facilities
services provided by IBM include our clean room, pure gases, high purity
de-ionized water, compressed air, chilled water systems, and waste disposal
support. This infrastructure provided by our lease with IBM provides us with
many of the resources of a larger corporation without the added overhead costs.
It further allows us to focus our resources more efficiently on our product
development and manufacturing goals.
We lease
additional non-clean room facilities for chemical mixing, cleaning, chemical
systems, and glass/silicon cutting. OLED chemicals can be purified in our
facility with our own equipment, permitting the company to evaluate new
chemicals in pilot production that are not yet available in suitable purity for
OLED applications on the market.
Our
display fabrication process starts with the silicon wafer, which is manufactured
by a semiconductor foundry using conventional CMOS process. After a device is
designed by a combination of internal and external designers with customer
participation, we outsource wafer fabrication.
Our
manufacturing process for OLED-on-silicon microdisplays has three main
components: organic film deposition, organic film encapsulation (also known as
sealing), and color filter processing. All steps are performed in
semi-automated, hands-free environment suitable for high volume throughput. An
automated cluster tool provides all OLED deposition steps in a highly controlled
environment that is the centerpiece of our OLED fabrication. After wafer
processing, each part is inspected using an automated inspection system, prior
to shipment. We have electrical and optical instrumentation required to
characterize the performance of our displays including photometric and color
coordinate analysis. We are also equipped for integrated circuit and electronics
design and display testing.
We also
lease a facility in Bellevue, Washington where we operate our system development
effort and business development activities. The facilities are well suited for
designing and building limited volume prototypes and small quantity industrial
or government products. Cables and electronic interfaces have recently been
produced to permit our OEM customers to more rapidly create products and shorten
their time-to-market. We plan to outsource medium to high volume subsystem
production to low cost plastics, lenses, and assembly manufacturers. We are
currently using domestic and international outside manufacturers and we are
investigating new outsource opportunities.
We
believe that manufacturing efficiency is an important factor for success in the
consumer markets. We believe that high yield and maximum utilization of our
equipment set will be key for profitability. The equipment required for initial
profitable production is in place. Some equipment will be added when our
production volume increases or as needed.
We have
developed a significant intellectual property portfolio of patents, trade
secrets and know-how, supported by our license from Eastman Kodak and our
current patent portfolio.
Our
license from Eastman Kodak gives us the right to use in miniature displays a
portfolio in organic light emitting diode and optics technology, some of which
are fundamental. Our agreement with Eastman Kodak provides for perpetual access
to the OLED technology for our OLED-on-silicon applications, provided we remain
active in the field and meet our contractual requirements to Eastman Kodak. We
also generate intellectual property as a result of our internal research and
development activities.
Our
patents and patent applications cover a wide range of materials, device
structures, processes, and fabrication techniques, such as methods of
fabricating full color OLEDs. We believe that our patent applications relating
to up-emitting structures on opaque substrates such as silicon wafers, which are
critical for OLED microdisplays, and applications relating to the hermetic
sealing of such structures are particularly important.
Our
patents are concentrated in the following areas:
·
|
OLED
Materials, Structures, and Processes;
|
·
|
Display
Color Processing and Sealing;
|
·
|
Active
Matrix Circuit Methodologies and Designs;
|
·
|
Field
Emission and General Display Technologies;
|
·
|
Lenses
and Tracking (Eye and Head);
|
·
|
Ergonomics
and Industrial Design; and
|
·
|
Wearable
Computer Interface
Methodology
|
We also
rely on proprietary processes, trade secrets, and know-how related to OLED
technologies and materials which are not patented. To protect this information
and know-how from unauthorized use or disclosure, we require all employees, and
where appropriate, contractors, consultants, advisors and collaborators to enter
into confidentiality and non-competition agreements. There can be no assurance,
however, that these agreements will provide meaningful protection for our trade
secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets, know-how
or other proprietary information.
We
believe that our intellectual property portfolio, coupled with our strategic
relationships and accumulated experience in the OLED field, gives us an
advantage over potential competitors.
The industry in which we
operate is highly competitive. We may face competition from legacy technologies
such as CRTs as well as from alternative flat panel display technologies.
We believe that our key competition will come from liquid crystal on silicon
microdisplays, or LCOS, also known as reflective liquid crystal displays and
small transmissive LCDs. While we believe that OLED-on-silicon has the capability to
provide higher quality image quality images, greater environmental
ruggedness, reduced electronics cost and complexity, and improved power
efficiency advantages over either type of liquid crystal based microdisplays,
there is no assurance that these benefits will be fully
realized or that liquid crystal manufacturers will not suitably improve these
parameters to reduce these potential advantages of OLEDs.
Most companies pursuing
liquid crystal on silicon technology, such as Syntax/Brillian Corporation, among
others, have primarily focused on projection microdisplays, which do not
compete directly with us. In most near-to-the-eye
imaging markets, we face more serious competition from developers of
transmissive liquid crystal displays, such as those developed by Kopin, or
possibly laser scanning systems, such as those developed by Microvision
Corporation. Large amounts of investment in an intrinsically weaker
technology can potentially overcome advantages of one technology over
another.
To our knowledge, the only other
company that has publicly stated plans to develop OLED microdisplays for
near-eye applications is MicroEmissive Displays (MED) in Britain. MED has raised substantial
funds and created a newer facility than ours. This competition
has not been
significant to date, but could become more serious if they enter our markets
with directly relevant display designs and resolve their manufacturing and
reliability-lifetime issues.
We may also compete with
potential licensees of Universal Display Corporation, Eastman
Kodak, or Sumitomo Corporation and other companies, each of which
potentially can license OLED technology portfolios. Even though we could also
potentially license technology from these developers, potential competitors
could also obtain such licenses and may
do so at more favorable royalty rates or allocate more resources to the
competitive effort than we could obtain. However, should they decide to embark
on developing microdisplays on silicon, we believe that our progress to
date in this area gives us a
substantial head start.
Employees
As of
October 14, 2008, we had a total of 60 full time and part time staff. None of
our employees are represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be
good.
DESCRIPTION
OF PROPERTY
Our
corporate offices are located in Bellevue, Washington. Our Washington
location includes administrative, finance, operations, research and development
and sales and marketing functions and consists of leased space of approximately
19,000 square feet. The lease expires in 2009. Our
manufacturing facility is located in Hopewell Junction, New York, where we lease
approximately 33,000 square feet from IBM. The NY facility houses our
equipment for OLED microdisplay fabrication, assembly operations, research and
development, and administrative functions. The lease expires in
2009. We believe our facilities are adequate for our current and
near-term needs. See Note 12 to our December 31, 2007 consolidated
financial statements for more information about our lease
commitments.
LEGAL
PROCEEDINGS
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.
A former
employee (“plaintiff”) of the Company commenced legal action in the United
States District Court for the Southern District of New York, on or about October
12, 2007, alleging that the plaintiff was subject to gender based discrimination
and retaliation in violation of Title VII of the Civil Rights Act of 1964 (Case No. 07-CV-8827
(KMK). The plaintiff seeks unspecified compensatory damages,
punitive damages and attorneys’ fees. On November 26, 2007, the
Company served and filed its Answer, in which it denied the material allegations
of the Complaint and asserted numerous affirmative defenses. This
action is presently in the discovery stage. The Company disputes the
allegations of the Complaint and intends on vigorously defending this
action.
On
December 6, 2005, New York State Urban Development Corporation commenced action
against eMagin in the Supreme Court of the State of New York, County of New York
against eMagin, asserting breach of contract and seeking to recover a $150,000
grant which was made to eMagin based on goals set forth in the agreement for
recruitment of employees. On July 13, 2006, eMagin agreed to a
settlement with the New York State Urban Development Corporation to repay
$112,200 of the $150,000 grant. The settlement requires that repayments be made
on a monthly basis in the amount of $3,116.67 per month commencing August 1,
2006 and ending on July 1, 2009.
The
following table sets forth the names of our directors and executive officers as
of September 30, 2008:
Name
|
Age
|
Position
|
Andrew
G. Sculley (5)
|
57
|
Chief
Executive Officer and President
|
Paul
Campbell (4)
|
52
|
Interim
Chief Financial Officer
|
Susan
K. Jones
|
56
|
Chief
Business Officer, Secretary
|
Adm.
Thomas Paulsen (Ret.) (2)(3*)
|
71
|
Chairman
of the Board, Director
|
Claude
Charles (1)
|
71
|
Director
|
Paul
Cronson
|
51
|
Director
|
Irwin
Engelman (1*)
|
73
|
Director
|
Dr.
Jacob Goldman (2*)(3)
|
86
|
Director
|
Brig.
Gen. Stephen Seay (Ret.) (1)(3)
|
61
|
Director
|
(1)
|
Audit
Committee
|
(2)
|
Governance
& nominating Committee
|
(3)
|
Compensation
Committee
|
(4)
|
On
April 14, 2008, Michael D. Fowler resigned from his position as Interim
Chief Financial Officer of the Company
|
(5)
|
As
of June 1, 2008, Andrew G. Sculley is Chief Executive Officer and
President. Admiral Paulsen resigned from his position as
interim Chief Executive Officer and continues to serve as Chairman of the
Board.
|
*
Committee Chair
Andrew G.
Sculley became the Company’s Chief Executive Officer and President on June 1,
2008. Mr. Sculley served as the General Manager of Kodak’s OLED
systems Business Unit and Vice President of Kodak’s Display Business from 2004
to 2008. From 2003 to 2006, he served on the Board of Directors of SK Display, a
joint venture between Sanyo and Kodak. From 1996 to 2001 Mr. Sculley served as
the Manager of Operations, CFO and member of the Board of Directors of Kodak
Japan Ltd., where he managed Distribution, Information Technologies, Legal,
Purchasing and Finance. Previously, he held positions in strategic planning and
finance in Eastman Kodak Company. Mr. Sculley holds an MBA from
Carnegie-Mellon University and an MS in physics from Cornell University. He
attended Harvard University’s International Senior Management Program while an
executive at Kodak.
Paul
Campbell became the Company’s Interim Chief Financial Officer on April 15, 2008.
Mr. Campbell has been a partner with Tatum, LLC (“Tatum”), an executive services
firm, since November 2007. Mr. Campbell served as the Chief Financial
Officer of four public companies, including Checkers Drive-In Restaurants, Inc,
which until 2006 was traded on the Nasdaq and as Chief Financial Officer of
Famous Dave’s of America, Inc., a publicly held company currently trading on the
Nasdaq. Mr. Campbell also served as Chief Financial Officer of Sonus
Corporation, a medical device retailer, and of Organic To Go, Inc., an emerging
publicly-held food company, from May 2007 through October 2007. From
2001 through April 2007, Mr. Campbell owned and operated Campbell Capital, LLC,
a consulting and investment firm in Seattle, Washington providing strategic
planning and financing services to small businesses. Mr. Campbell received
his Masters of Business Administration from Pepperdine University and his
Bachelor of Arts degree in Business Economics from the University of California
at Santa Barbara.
Susan K.
Jones has served as Executive Vice President and Secretary since 1992, and
assumed responsibility of Chief Business Officer in 2008. Ms. Jones has more
than 30 years of industrial experience, including senior research, management,
and marketing assignments at Texas Instruments and Merck, Sharp, & Dohme
Pharmaceuticals. Ms. Jones serves on the boards or chairs committees for
industry organizations including IEEE, SPIE, and SID. Ms. Jones served as a
director of eMagin Corporation from 1993 to 2000 and was a director of Virtual
Vision, Inc. Ms. Jones graduated from Lamar University with a B.S. in
chemistry and biology, holds more than a dozen patents, and has authored more
than 100 papers and talks.
Rear
Admiral Thomas Paulsen resigned from his position as Interim CEO and President
on June 1, 2008 and continues to serve as Chairman of the Board. He
has served as a director since July 2003. Admiral Thomas Paulsen served for over
34 years in the US Navy in Command Control, Communications and Intelligence
(C3I), Telecommunications, Network Systems Operations, Computers and Computer
Systems Operations until his retirement in 1994 as a Rear Admiral. He then
served as Chief Information Officer for Williams Telecommunications. Admiral
Paulsen has served as a director of Umbanet, Inc. since 2002. Since 2000,
Admiral Paulsen has served on the Board of Governors of the Institute of
Knowledge Management, George Washington University. Since 1994, he has served as
the Chairman of the Advisory Board and President Emeritus of the Center for
Advanced Technologies (CAT) and a Managing Partner on the National Knowledge and
Intellectual Property Management Taskforce, a not-for-profit company
headquartered in Dallas, Texas, and is a member of the Board of Governors for
the Japanese American National Museum, Los Angeles, California.
Claude
Charles has served as a director since April of 2000. Mr. Charles has served as
President of Azure Capital Limited since 1999. From 1996 to 1998 Mr. Charles was
Chairman of Equinox Group Holdings. Prior to 1996, Mr. Charles has also served
as a director and in senior executive positions at SG Warburg and Co. Ltd.,
Peregrine Investment Holdings, Trident International Finance Ltd., and Dow
Banking Corporation. Mr. Charles holds a B.S. in economics from the Wharton
School at the University of Pennsylvania and a M.S. in international finance
from Columbia University.
Paul
Cronson has served as a director since July of 2003. Mr. Cronson is Managing
Director of Larkspur Capital Corporation, which he founded in 1992. Larkspur is
a broker dealer that is a member of the National Association of Securities
Dealers and advises companies seeking private equity or debt. Mr. Cronson's
career in finance began in 1979 at Laidlaw, Adams Peck where he worked in asset
management and corporate finance. From 1983 to 1985, Mr. Cronson worked with
Samuel Montagu Co., Inc. in London, where he marketed eurobond issuers and
structured transactions. Subsequently from 1985 to 1987, he was employed by
Chase Investment Bank Ltd., where he structured international debt securities
and he developed "synthetic asset" products using derivatives. Returning to the
U.S., he joined Peter Sharp Co., where he managed a real estate portfolio,
structured financings and assisted with capital market investments until 1992.
Mr. Cronson received his BA from Columbia College in 1979, and his MBA from
Columbia University School of Business Administration in 1982. He is on the
Board of Umbanet, in New York City, a private company specializing in email
based distributed applications and secure messaging.
Irwin
Engelman has served as a director since May of 2005. He is currently a
consultant to various industrial companies. He is currently a director of
Sanford Bernstein Mutual Funds, a publicly-traded company, and a member of its
audit committee. From November 1999 until April 2002, he served as
Executive Vice President and Chief Financial Officer of YouthStream Media
Networks, Inc., a media and retailing company serving high school and
college markets. From 1992 until April 1999, he served as Executive Vice
President and Chief Financial Officer of MacAndrews and Forbes
Holdings, Inc., a privately-held financial holding company. From
November 1998 until April 1999, he also served as Vice Chairman, Chief
Administrative Officer and a director of Revlon, Inc., a publicly-traded
consumer products company. From 1978 until 1992, he served as an executive
officer of various public companies including International Specialty
Products, Inc. (a subsidiary of GAF Holdings Inc.), CitiTrust
Bancorporation, General Foods Corporation and The Singer Company. Mr. Engelman
received a BBA in Accounting from Baruch College in 1955 and a Juris Doctorate
from Brooklyn Law School in 1961. He was admitted practice law in the State of
New York in 1962. In addition, he was licensed as a CPA in the State of New
Jersey in 1966.
Dr. Jack
Goldman joined our board of directors in February of 2003. Dr. Goldman is the
retired senior vice-president for R&D and chief technical officer of the
Xerox Corporation. While at Xerox, he founded and directed the celebrated Xerox
PARC laboratory. Prior to joining Xerox, Dr. Goldman was Director of Ford Motor
Company's Scientific Research Laboratory. He also served as Visiting Edwin
Webster Professor at MIT. Dr. Goldman presently serves on the Boards of
Directors of Umbanet Inc. and Medis Technologies Inc., and he has served on the
Boards of Xerox, General Instrument Corp., United Brands, Intermagnetics
General, GAF and Bank Leumi USA. He has also been active in government and
professional advisory roles including service on the US Dept. of Commerce
Technical Advisory Board, chairman of Statutory Visiting Committee of The
National Bureau of Standards (National Institute of Standards and Technology),
vice-president of the American Association for the Advancement of Science and
president of the Connecticut Academy of Science and Engineering.
General
Stephen Seay was elected to the Board of Directors in January 2006. In his
33-year Army career, General Stephen Seay held a wide variety of command and
staff positions, most importantly as a soldier's soldier volunteering for his
final assignment with his troops in Iraq. Most recently he was Program Executive
Officer for Simulation, Training and Instrumentation, and Commanding General,
Joint Contracting Command-Iraq/Head of Contracting Authority, Operation Iraqi
Freedom. He has also served as Program Manager for a joint system, headed the
Joint Target Oversight Council and was Commanding General, Simulation, Training
and Instrumentation Command (STRICOM), Army Materiel Command. Earlier, as a
Field Artillery officer, he commanded at all levels, rising to corps artillery
commander. He served as Chief of Staff, United States Army, Europe (Forward) and
National Security Element, Taszar, Hungary, during Operation Joint Endeavor. He
held resource management, operations research, and acquisition positions during
three tours on Department of the Army staff. Stephen Seay holds a Bachelor of
Science degree from the University of New Hampshire and a Master of Science
degree from North Carolina State University.
Code
of Ethics
We have
adopted a Code of Business Conduct and Ethics that applies to all of our
directors, officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. The Code of
Business Conduct and Ethics is posted on our website at
http://www.emagin.com/investors.
We intend
to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an
amendment to, or waiver from, a provision of this Code of Business Conduct and
Ethics by filing a Current Report on Form 8-K with the SEC, disclosing such
information.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors and
executive officers and persons who own more than 10% of the issued and
outstanding shares of eMagin common stock to file reports of initial ownership
of common stock and other equity securities and subsequent changes in that
ownership with the SEC and the NYSE. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file. To our knowledge, based solely on a
review of the copies of such reports furnished to us and written representations
that no other reports were required, during the fiscal year ended December 31,
2007 all Section 16(a) filing requirements applicable to our officers, directors
and greater than 10% beneficial owners were complied with except as noted
below:
As of
December 31, 2007, there was one Form 4 filed late by Dr. K. C.
Park and Susan K. Jones filed a Form 5 as a result of certain unfiled Form
4 filings.
General Information Concerning the
Board of Directors
The Board
of Directors of eMagin is classified into three classes: Class A, Class B and
Class C. As of June 30, 2008, Irwin Engelman is the only Class A Director, and
will hold office until the next Annual Meeting of our stockholders. Paul
Cronson, Admiral Thomas Paulsen, and General Stephen Seay are Class B directors
who will hold office until the 2009 Annual Meeting. Claude Charles and Dr.
Jacob Goldman are Class C directors who will hold office until the next Annual
Meeting. There was no Annual Meeting held during
2007. In each case, each director will hold office until his
successor is duly elected or appointed and qualified in the manner provided in
our Amended and Restated Certificate of Incorporation and our Amended and
Restated Bylaws, or as otherwise provided by applicable law.
Our Board
of Directors held 20 meetings during 2007. Our independent directors met in
executive session on a periodic basis in connection with regular meetings, as
well as in their capacity as members of our Audit Committee and Compensation
Committee.
Compensation
of Directors
Non-management
directors receive options under the Company’s stock option
plan. A grant of options to purchase 15,000 shares of common stock
will automatically be granted on the date a director is first elected or
reelected or otherwise validly appointed to the Board with an exercise price per
share equal to 100% of the market value of one share on the date of grant. Such
options granted will expire ten years after the date of grant and will become
exercisable on December 31 of the year granted. For calendar years 2007 and
2008, Directors shall receive an annual cash retainer of $10,000 and an annual
stock retainer of 25,000 options at market price on the date of issuance that
will become fully exercisable on December 31 of the year granted.
Directors are also granted options based on committee assignments
consisting of options to purchase 5,000 shares per year for members of the
compensation committee, 10,000 shares for the governance committee and 15,000
shares for the audit committee. Each committee chair will receive 5,000
additional shares. The governance and audit committee chairs will each
receive an additional 10,000 option shares. In addition, each non-management
director receives $1,000 for each in-person Board meeting, and $500 for each
teleconference meeting or Committee meeting. Directors are eligible for
reimbursement for ordinary expenses incurred in connection with attendance at
such meetings.
The Audit
Committee is responsible for determining the adequacy of our internal accounting
and financial controls, supervising matters relating to audit functions,
reviewing and setting internal policies and procedures regarding audits,
accounting and other financial controls, reviewing the results of our audit
performed by the independent public accountants, and recommending the selection
of independent public accountants. The Audit Committee has adopted an Audit
Charter, which is posted on our website at http://www.emagin.com/investors.The
Audit Committee is composed of three Directors, Claude Charles, Irwin Engelman,
and Adm. Stephen Seay. The Board has determined that each of the members of the
Audit Committee is unrelated, an outside member with no other affiliation with
us and is independent. The Board has determined that Mr. Engelman is an “audit
committee financial expert” as defined by the SEC. During 2007, the Audit
Committee held 5 meetings via teleconference.
Compensation
Committee. The
Compensation Committee determines matters pertaining to the compensation and
expense reporting of certain of our executive officers, and administers our
stock option, incentive compensation, and employee stock purchase plans. The
Compensation Committee is presently composed of three Directors, Jack Goldman,
Thomas Paulsen, and Stephen Seay, each of whom the Board has determined to be
independent and none of whom has been an employee of the Company. During 2007,
the Compensation Committee held 4 meetings in person or through a conference
call.
Governance and
Nominating Committee. The Governance and Nominating Committee is
responsible for considering potential Board members, nominating Directors for
election to the Board, implementing the Company’s corporate governance and
ethics policies, and for all other purposes outlined in the Governance and
Nominating Committee Charter, which is posted on our website at
http://www.emagin.com/investors. The Governance and Nominating
Committee is composed of Jack Goldman and Thomas Paulsen, each of whom the Board
has determined to be independent. During 2007, the Governance and Nominating
Committee held 1meeting.
Nomination
of Directors
As
provided in its charter and our company’s corporate governance principles, the
Governance and Nominating Committee is responsible for identifying individuals
qualified to become directors. The Governance and Nominating Committee seeks to
identify director candidates based on input provided by a number of sources,
including (1) the Governance and Nominating Committee members, (2) our other
directors, (3) our stockholders, (4) our Chief Executive Officer or Chairman,
and (5) third parties such as professional search firms. In evaluating potential
candidates for director, the Nominating and Corporate Governance Committee
considers the entirety of each candidate’s credentials.
Qualifications
for consideration as a director nominee may vary according to the particular
areas of expertise being sought as a complement to the existing composition of
the Board of Directors. However, at a minimum, candidates for director must
possess:
|
• |
high
personal and professional ethics and integrity; |
|
• |
the
ability to exercise sound judgment; |
|
• |
the
ability to make independent analytical inquiries; |
|
•
|
a
willingness and ability to devote adequate time and resources to
diligently perform Board and committee duties; and
|
|
• |
the
appropriate and relevant business experience and
acumen |
In
addition to these minimum qualifications, the Governance and Nominating
Committee also takes into account when considering whether to nominate a
potential director candidate the following factors:
|
• |
whether
the person possesses specific industry expertise and familiarity with
general issues affecting our business; |
|
•
|
whether
the person’s nomination and election would enable the Board to have a
member that qualifies as an “audit committee financial expert” as such
term is defined by the Securities and Exchange Commission (the “SEC”) in
Item 401 of Regulation S-K;
|
|
•
|
whether
the person would qualify as an “independent” director under the listing
standards of the OTC Bulletin
Board;
|
|
•
|
the
importance of continuity of the existing composition of the Board of
Directors to provide long term stability and experienced oversight;
and
|
|
•
|
the
importance of diversified Board membership, in terms of both the
individuals involved and their various experiences and areas of
expertise.
|
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
This
section describes the compensation program for our executive officers. In
particular, this section focuses on our 2007 compensation program and related
decisions.
Compensation
Discussion and Analysis
The
objectives of our compensation program are as follows:
|
• |
Reward performance
that drives substantial increases in shareholder value, as evidenced
through both future operating profits and increased market price of our
common shares; and |
|
• |
Attract, hire and
retain well-qualified executives. |
The
compensation level of our executives generally reflects their unique position
and incentive to positively affect our future operating performance and
shareholder value. Part of the compensation of our executives is from equity
compensation, primarily through stock option grants or restricted stock awards.
The stock option exercise price is generally the fair market value of the stock
on the date of grant. Therefore, a gain is only recognized if the value of the
stock increases, which promotes a long term alignment between the interests of
the Company’s executives and its shareholders. For that reason, stock options
are a component of 100% of our employees’ salary package.
Specific
salary and bonus levels, as well as the amount and timing of equity incentive
grants, are determined informally and judgmentally, on an individual-case basis,
taking into consideration each executive's unique talents and experience as they
relate to our needs. Executive compensation is paid or granted pursuant to each
executive's compensation agreement. Compensation adjustments are made
occasionally based on changes in an executive's level of responsibility or on
changed local and specific executive employment market conditions.
The Board
of Directors has established a Compensation Committee, comprised exclusively of
independent outside directors which approves all compensation and awards to
executive management. The members of the Compensation Committee have extensive
executive level experience in other companies and bring a perspective of
reasonableness to compensation matters with our Company. In addition, the
Compensation committee compares executive compensation practices of similar
companies at similar stages of development.
Generally
on its own initiative, at least annually, the Compensation Committee reviews the
performance of executives and establishes compensation levels based on the
performance evaluation, historical compensation levels of the executives, levels
of responsibility and contributions to the Company, and comparable position
studies provided by independent sources. With respect to equity
compensation, the Compensation Committee approves all option grants, generally
based on the recommendation of the president and chief executive officer and has
delegated granting authority to the president and chief executive officer or, on
occasion, his designee. Executives are eligible to receive bonus compensation at
the discretion of the Compensation Committee, which is primarily based on the
achievement of certain goals and objectives and the executive’s contributions to
the Company. Executives also are entitled to participate in the same benefit
plans that are available to other Company employees.
Compensation
for the Chairman
From
January through May 2008, Admiral Paulsen served as Interim Chief Executive
Officer. Admiral Paulsen receives an annual stipend of $60,000 for serving as
Non-Executive Chairman of the Board. No change occurred in Admiral Paulsen’s
compensation as a director of the Company as a result of his accepting the
temporary position of Interim Chief Executive Officer and
President.
Summary
Compensation Table
SUMMARY
COMPENSATION TABLE
|
|
|
Salary
|
Bonus
|
Stock
Awards
|
|
Option
awards
|
Non-equity
incentive plan
compensation
|
Change
in pension value and non qualified deferred compensation
|
All
Other Compensation
|
|
Total
|
Name
and principal position
|
Year
|
($)
|
($)
|
($)
|
|
($),
(a)
|
($)
|
($)
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
K.C. Park,
Interim President and Chief Executive Officer (1)
|
2007
|
313,462
|
-
|
40,000
|
(4)
|
-
|
-
|
-
|
-
|
|
353,462
|
|
2006
|
200,000
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
-
|
|
2005
|
119,923
|
-
|
-
|
|
141,362
|
-
|
-
|
-
|
|
141,362
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
Jones, President and Chief Executive Officer (2)
|
2007
|
102,060
|
-
|
430,000
|
(5)
|
-
|
-
|
-
|
51,638
|
(6)
|
583,698
|
|
2006
|
368,170
|
-
|
-
|
|
-
|
-
|
-
|
127,928
|
(7)
|
496,098
|
|
2005
|
320,313
|
-
|
-
|
|
404,150
|
-
|
-
|
147,420
|
(7)
|
871,883
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Atherly, Chief Financial Officer (3)
|
2007
|
243,000
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
243,000
|
|
2006
|
242,308
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
242,308
|
|
2005
|
221,406
|
-
|
-
|
|
316,240
|
-
|
-
|
-
|
|
537,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan
Jones, Executive Vice President, Chief Marketing and Strategy Officer, and
Secretary
|
2007
|
278,888
|
-
|
-
|
|
-
|
-
|
-
|
175,184
|
(8)
|
454,072
|
|
2006
|
289,163
|
-
|
-
|
|
-
|
-
|
-
|
81,379
|
(8)
|
370,542
|
|
2005
|
259,568
|
26,049
|
-
|
|
316,240
|
-
|
-
|
26,049
|
(8)
|
627,906
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Dr. Park was appointed Interim President and Chief Executive Officer in
January 2007 and resigned his post in January 2008. Prior to
January 2007, Dr. Park served as Executive Vice President of International
Operations.
|
(2)
Mr. Jones resigned as President and Chief Executive Officer in January
2007.
|
(3)
Mr. Atherly resigned as Chief Financial Officer in January
2008.
|
(4)
This amount represents a retention bonus in the form of a stock grant that
was issued to the named executive officer.
|
(5)
This amount represents a payment in the form of a stock grant pursuant to
Mr. Jones' severance agreement. Previously granted options that
remained unexercised were also forfeited pursuant to the severance
agreement.
|
(6)
This amount represents legal and accounting fee reimbursement for the
benefit of the named executive officer.
|
(7)
This amount represents relocation expense reimbursement for the benefit of
the named executive officer.
|
(8)
This amount represents deferred dollar amount earned in sales incentive
compensation by the named executive officer.
|
|
Column
note:
|
(a) The
amounts in this column represent the fair value of option awards to the
named executive officer as computed on the date of the option grants using
the Black-Scholes option-pricing model.
|
Grants
of Plan-Based Awards
There
were no grants of plan-based awards to named executive officers for the year
ended December 31, 2007.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information with respect to the outstanding equity
awards of our principal executive officers and principal financial officer
during 2007, and each person who served as an executive officer of eMagin
Corporation as of December 31, 2007:
OUTSTANDING
EQUITY AWARDS AT YEAR-END
|
|
Option
awards
|
Stock
awards
|
|
Number
of securities underlying unexercised options (#)
|
Number
of securities underlying unexercised options (#)
|
Equity
incentive plan awards: Number of securities underlying
unexercised options
|
Options
exercise price
|
Option
expiration
|
Number
of shares or units of stock that have not vested
|
Market
value of shares or units of stock that have not vested
|
Equity
incentive plan awards:
Number
of unearned shares other rights that have not vested
|
Equity
incentive plan awards:
Market
or payout value of unearned shares, units or other rights that have not
vested
|
Name
and principal position
|
Exercisable
|
|
(#),
(a)
|
($)
|
Date
|
(#)
|
($)
|
(#)
|
($)
|
K.C. Park,
Interim President and Chief Executive Officer (1)
|
465
|
-
|
465
|
2.60
|
July
21, 2008
|
-
|
-
|
-
|
-
|
19,500
|
-
|
19,500
|
2.60
|
May
10, 2009
|
|
|
|
|
3,676
|
-
|
3,676
|
2.60
|
January
11, 2010
|
|
|
|
|
6,500
|
-
|
6,500
|
2.60
|
March
17, 2010
|
|
|
|
|
6,500
|
-
|
6,500
|
2.60
|
November
30, 2012
|
|
|
|
|
6,846
|
-
|
6,846
|
2.60
|
April
24, 2013
|
|
|
|
|
4,108
|
-
|
4,108
|
2.60
|
August
30, 2013
|
|
|
|
|
4,108
|
-
|
4,108
|
2.60
|
December
1, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Atherly, Chief Financial Officer (2)
|
24,375
|
8,125
|
32,500
|
2.60
|
June
16, 2011
|
-
|
-
|
-
|
-
|
-
|
25,000(3)
|
25,000
|
2.60
|
June
16, 2011
|
|
|
|
|
16,250
|
-
|
16,250
|
2.60
|
March
17, 2012
|
|
|
|
|
11,700
|
-
|
11,700
|
2.60
|
November
30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUTSTANDING
EQUITY AWARDS AT YEAR-END (cont.)
|
|
Option
awards
|
Stock
awards
|
|
Number
of securities underlying unexercised options (#)
|
Number
of securities underlying unexercised options (#)
|
Equity
incentive plan awards: Number of securities underlying
unexercised options
|
Options
exercise price
|
Option
expiration
|
Number
of shares or units of stock that have not vested
|
Market
value of shares or units of stock that have not vested
|
Equity
incentive plan awards:
Number
of unearned shares other rights that have not vested
|
Equity
incentive plan awards:
Market
or payout value of unearned shares, units or other rights that have not
vested
|
Name
and principal position
|
Exercisable
|
|
(#),
(a)
|
($)
|
Date
|
(#)
|
($)
|
(#)
|
($)
|
Susan
Jones, Executive Vice President, Chief Marketing and Strategy Officer, and
Secretary
|
48,750
|
-
|
48,750
|
2.60
|
May
17, 2009
|
-
|
-
|
-
|
-
|
16,770
|
-
|
16,770
|
2.60
|
January
11, 2010
|
|
|
|
|
9,685
|
-
|
9,685
|
2.60
|
January
11, 2010
|
|
|
|
|
16,250
|
-
|
16,250
|
2.60
|
March
17, 2010
|
|
|
|
|
11,700
|
-
|
11,700
|
2.60
|
November
30, 2012
|
|
|
|
|
11,932
|
-
|
11,932
|
2.60
|
April
24, 2013
|
|
|
|
|
7,159
|
-
|
7,159
|
2.60
|
August
30, 2013
|
|
|
|
|
7,159
|
-
|
7,159
|
2.60
|
December
1, 2013
|
|
|
|
|
(1)
Dr. Park was appointed Interim President and Chief Executive Officer in
January 2007 and resigned his post in January 2008.
|
(2)
Mr. Atherly resigned as Chief Financial Officer in January 2008 and has
forfeited all options shown above.
|
(3)
25,000 options subject to vesting when the Company completes four
consecutive EBITDA positive quarters.
|
Column
note:
|
On
November 3, 2006, a reverse stock split, ratio of 1-for-10, became
effective. All stock options presented reflect the stock
split.
|
(a)
The options in this column were repriced. On July 21,
2006, certain employees agreed to cancel a portion of their existing stock
options in return for repricing the remaining stock options at $2.60 per
share. The repriced unvested options continued to vest on the
original schedule.
|
Option Exercises and Stock
Vested
No
executive officer identified in the Summary Compensation Table above exercised
an option in fiscal year 2007. There were no shares of stock awarded
or vested with respect to any of those executive officers.
Pension
Benefits
eMagin
does not have any plan which provides for payments or other benefits at,
following, or in connection with retirement.
Non-qualified
Deferred Compensation
eMagin
does not have any defined contribution or other plan which provides for the
deferral of compensation on a basis that is not tax-qualified.
Employment
Agreements
Effective
January 1, 2006, the Company entered into a revised executive employment
agreement with Susan K. Jones, Chief Marketing and Strategy Officer. The
agreement is effective for an initial term of three years. The agreement
provides for an annual salary, benefits made available by the Company to its
employees and eligibility for an incentive bonus pursuant to one or more
incentive compensation plans established by the Company from time to time. The
Company may terminate the employment of Ms. Jones at any time with or without
notice and with or without cause (as such term is defined in the
agreements). If Ms. Jones’ employment is terminated without cause, or if
Ms. Jones resigns with good reason (as such term is defined in the agreements),
or Ms. Jones’ position is terminated or significantly changed as result of
change of control (as such term is defined in the agreements), Ms. Jones shall
be entitled to receive salary until the end of the agreement’s full term or
twelve months, whichever is greater, payment for accrued vacation, and bonuses
which would have been accrued during the term of the agreement. If Ms. Jones
voluntarily terminates employment with the Company, other than for good reason
or is terminated with cause (as such term is defined in the agreement), she
shall cease to accrue salary, vacation, benefits, and other compensation on the
date of the voluntary or with cause termination. The Executive Employment
Agreement includes other conventional terms and also contains invention
assignment, non-competition, non-solicitation and non-disclosure
provisions. On April 17, 2006, the parties entered into amendments to
the employment agreements pursuant to which the parties clarified that the
Company has agreed to pay for health benefits equivalent to medical and dental
benefits provided during Ms. Jones’ full time employment until the end of the
agreement’s full term or twenty-four (24) months, whichever is
greater.
Effective
January 30, 2008, the Company entered into an amended employment agreement with
Susan K. Jones, Chief Business Officer. The amended agreement
provides for an annual base salary of $315 thousand, an extension of the term of
the agreement to January 31, 2010, modification and clarification of the basis
for the incentive component of her salary, and extension of the
change-of-control/material change/termination-without-cause compensation payout
periods to the greater of 18 months or the remaining term of the amended
employment agreement.
On
January 11, 2007, Dr. K.C. Park was appointed Interim Chief Executive Officer,
President, and a Director of the Company. On February 12, 2007, the
Company entered in a Compensation Agreement (“the Agreement”) with Dr.
Park. Under the Agreement, the Company has agreed to pay Dr. Park an
annual base salary equal to $300 thousand plus a quarterly increase in his base
salary in the amount of $12.5 thousand per fiscal quarter through December 31,
2007. The Company agreed to issue Dr. Park an aggregate of 250,000
restricted shares of common stock within 10 business days of the completion of a
change of control of the Company. In addition, if a change of control
transaction is completed and Dr. Park is not offered a senior executive position
in the new organization, the Company has agreed to pay Dr. Park three month’s
salary. On January 31, 2008, Dr. Park resigned his positions as
Interim Chief Executive Officer, President and Director.
Effective
April 2, 2008, Mr. Campbell is serving as the Company’s Chief Financial Officer
pursuant to an agreement between the Company and Tatum, dated April 2, 2008 (the
“Tatum Agreement”). Pursuant to the Tatum Agreement, for a minimum
term of three months, Mr. Campbell will be paid a salary of $24,500 per month
and the Company will also pay Tatum a fee of $10,500 per month plus $300 per
business day. Either party may terminate the Tatum Agreement by
providing the other with at least 30 days notice.
Potential
Payments Upon Termination or Change-in-Control
The
following table sets forth information regarding potential payments and benefits
Ms. Jones would receive upon termination of employment under specified
circumstances, assuming that the triggering event in question occurred on
December 31, 2007, the last business day of the fiscal year:
Name
|
|
Voluntary
Resignation w/o Good Reason
|
|
|
Voluntary
Resignation for Good Reason
|
|
|
Involuntary
Termination without Cause
|
|
|
Involuntary
Termination with Cause
|
|
|
Involuntary
Termination with a Change in Control
|
|
Susan
Jones
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
severance
|
|
$ |
— |
|
|
$ |
566,860 |
(1) |
|
$ |
566,860 |
(1) |
|
$ |
— |
|
|
$ |
566,860 |
(1) |
Post-termination
health and welfare
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,988 |
(2) |
|
$ |
— |
|
|
$ |
— |
|
Vesting
of stock options
|
|
$ |
— |
|
|
$ |
— |
(3) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
(3) |
(1) This
amount reflects the lump sum that is payable within thirty days of the
triggering event to the named executive. All calculations were made
as of December 31, 2007 using then current salary figures for the named
executive.
(2) This
amount reflects the COBRA payments for health and dental benefits that eMagin
would make on behalf of the named executive.
(3) This
amount would reflect the value of the stock option awards that were unvested as
of December 31, 2007 which would accelerate and vest under the terms of eMagin’s
option plans following a triggering event. As of December 31, 2007,
all stock options were fully vested.
Director
Compensation Arrangements
The
following table sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year ended
December 31, 2007. The table includes only directors that were not
employees of eMagin Corporation. Any director who was also an
executive officer is included in the Summary Compensation Table.
DIRECTOR
COMPENSATION
|
|
Name
|
|
Fees
earned or paid in cash($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards($)
|
|
|
Non-equity
incentive plan compensation($)
|
|
|
Change
in pension value and nonqualified deferred compensation
earnings($)
|
|
|
All
other compensation
($)
|
|
|
Total($)
|
|
Claude
Charles
|
|
|
8,000 |
|
|
|
- |
|
|
|
42,932 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50,932 |
|
Paul
Cronson
|
|
|
8,000 |
|
|
|
- |
|
|
|
40,228 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48,228 |
|
Irwin
Engelman
|
|
|
8,000 |
|
|
|
- |
|
|
|
33,924 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
41,924 |
|
Jack
Goldman
|
|
|
8,000 |
|
|
|
- |
|
|
|
42,139 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50,139 |
|
Thomas
Paulsen
|
|
|
66,672 |
|
|
|
- |
|
|
|
41,184 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
107,856 |
|
Stephen
Seay
|
|
|
8,000 |
|
|
|
- |
|
|
|
32,586 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,586 |
|
The
following table sets forth information with respect to the outstanding equity
awards of our directors as of December 31, 2007:
OUTSTANDING
EQUITY AWARDS AT YEAR-END
|
|
Option
awards
|
Stock
awards
|
|
Number
of securities underlying unexercised options (#)
|
Number
of securities underlying unexercised options (#)
|
Equity
incentive plan awards: Number of securities underlying
unexercised options
|
Options
exercise price
|
Option
expiration
|
Number
of shares or units of stock that have not vested
|
Market
value of shares or units of stock that have not vested
|
Equity
incentive plan awards:
Number
of unearned shares other rights that have not vested
|
Equity
incentive plan awards:
Market
or payout value of unearned shares, units or other rights that have not
vested
|
Name
and principal position
|
Exercisable
|
Unexercisable
|
(#),
(a)
|
($)
|
Date
|
(#)
|
($)
|
(#)
|
($)
|
Claude
Charles
|
1,000
|
-
|
1,000
|
3.50
|
January
2, 2010
|
-
|
-
|
-
|
-
|
975
|
-
|
975
|
2.60
|
July
2, 2010
|
|
|
|
|
650
|
-
|
650
|
2.60
|
September
2, 2010
|
|
|
|
|
3,250
|
-
|
3,250
|
2.60
|
April
5, 2011
|
|
|
|
|
1,950
|
-
|
1,950
|
2.60
|
June
15, 2014
|
|
|
|
|
975
|
-
|
975
|
2.60
|
September
30, 2015
|
|
|
|
|
3,900
|
-
|
3,900
|
2.60
|
December
31, 2015
|
|
|
|
|
12,700
|
-
|
12,700
|
1.51
|
November
23, 2017
|
|
|
|
|
25,000
|
-
|
25,000
|
1.44
|
December
3, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Cronson
|
4,875
|
-
|
4,875
|
2.60
|
July
2, 2010
|
-
|
-
|
-
|
-
|
1,625
|
-
|
1,625
|
2.60
|
June
15, 2014
|
|
|
|
|
3,900
|
-
|
3,900
|
2.60
|
December
31, 2015
|
|
|
|
|
10,400
|
-
|
10,400
|
1.51
|
November
23, 2017
|
|
|
|
|
25,000
|
-
|
25,000
|
1.44
|
December
3, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irwin
Engelman
|
3,900
|
-
|
3,900
|
2.60
|
October
3, 2012
|
-
|
-
|
-
|
-
|
975
|
-
|
975
|
2.60
|
September
30, 2015
|
|
|
|
|
163
|
-
|
163
|
2.60
|
October
3, 2015
|
|
|
|
|
5,038
|
-
|
5,038
|
1.51
|
November
23, 2017
|
|
|
|
|
25,000
|
-
|
25,000
|
1.44
|
December
3, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUTSTANDING
EQUITY AWARDS AT YEAR-END (cont.)
|
|
Option
awards
|
Stock
awards
|
|
Number
of securities underlying unexercised options (#)
|
Number
of securities underlying unexercised options (#)
|
Equity
incentive plan awards: Number of securities underlying
unexercised options
|
Options
exercise price
|
Option
expiration
|
Number
of shares or units of stock that have not vested
|
Market
value of shares or units of stock that have not vested
|
Equity
incentive plan awards:
Number
of unearned shares other rights that have not vested
|
Equity
incentive plan awards:
Market
or payout value of unearned shares, units or other rights that have not
vested
|
Name
and principal position
|
Exercisable
|
Unexercisable
|
(#),
(a)
|
($)
|
Date
|
(#)
|
($)
|
(#)
|
($)
|
Jacob
Goldman
|
650
|
-
|
650
|
2.60
|
July
2, 2010
|
|
|
|
|
3,900
|
-
|
3,900
|
2.60
|
September
2, 2010
|
|
|
|
|
2,113
|
-
|
2,113
|
2.60
|
June
15, 2014
|
|
|
|
|
650
|
-
|
650
|
2.60
|
September
30, 2015
|
|
|
|
|
488
|
-
|
488
|
2.60
|
October
3, 2015
|
|
|
|
|
3,900
|
-
|
3,900
|
2.60
|
December
31, 2015
|
|
|
|
|
12,026
|
-
|
12,026
|
1.51
|
November
23, 2017
|
|
|
|
|
25,000
|
-
|
25,000
|
1.44
|
December
3, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Paulsen
|
3,900
|
|
3,900
|
2.60
|
July
30, 2010
|
|
|
|
|
1,300
|
-
|
1,300
|
2.60
|
June
15, 2014
|
|
|
|
|
1,625
|
-
|
1,625
|
2.60
|
September
30, 2015
|
|
|
|
|
3,250
|
-
|
3,250
|
2.60
|
October
3, 2015
|
|
|
|
|
813
|
-
|
813
|
2.60
|
December
31, 2015
|
|
|
|
|
11,213
|
-
|
11,213
|
1.51
|
November
23, 2017
|
|
|
|
|
25,000
|
-
|
25,000
|
1.44
|
December
3, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Seay
|
3,900
|
-
|
3,900
|
2.60
|
February
14, 2016
|
|
|
|
|
3,900
|
-
|
3,900
|
1.51
|
November
23, 2017
|
|
|
|
|
25,000
|
-
|
25,000
|
1.44
|
December
3, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column
note:
|
|
On
November 3, 2006, a reverse stock split, ratio of 1-for-10, became
effective. All stock options presented reflect the stock
split.
|
Compensation
Committee Interlocks and Insider Participation
None of
the members of our Compensation Committee has been an officer or employee of
eMagin during years ending December 31, 2005, 2006 and 2007. In addition,
during the most recent fiscal year, no eMagin executive officer served on the
Compensation Committee (or equivalent), or the Board, of another entity whose
executive officer(s) served on our Compensation Committee or
Board. On January 31, 2008, Dr. K.C. Park resigned as our
Interim Chief Executive Officer and President; and Thomas Paulsen, a director
and Chairman of both the Board of Directors and the Compensation Committee,
assumed that role on an interim basis until June 1, 2008
when Andrew G. Sculley, Jr. joined the Company as Chief Executive Officer and
President. No change in Admiral Paulsen’s compensation as a director
of the Company occurred as a result of his accepting the temporary position of
Interim Chief Executive Officer and President.
Compensation
Committee Report
The
Committee has reviewed the Compensation Discussion and Analysis and discussed
that analysis with management. Based on its review and discussions with
management, the Committee recommended to the Board that the Compensation
Discussion and Analysis be included in eMagin’s 10-K. This report is
provided by the following independent directors, who comprise the
Committee:
Thomas
Paulsen (Chairman)
Jacob
Goldman
Stephen
Seay
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The following
table sets forth the number of shares known to be owned by all persons who own
at least 5% of eMagin's outstanding common stock, the Company's directors, the
executive officers, and the directors and executive officers as a group as of
October 14, 2008, unless otherwise noted. Unless otherwise indicated, the
stockholders listed in the table have sole voting and investment power with
respect to the shares indicated.
Name
of Beneficial Owner
|
|
Common
Stock Beneficially Owned
|
|
|
Percentage
of Common Stock
|
|
Moriah
Capital L.P. (1)
|
|
|
2,017,500 |
|
|
|
5.7 |
% |
Stillwater
LLC (2)
|
|
|
5,877,823 |
|
|
|
16.6 |
% |
Alexandra
Global Master Fund Ltd (3)
|
|
|
3,488,569 |
|
|
|
9.9 |
% |
Ginola
Limited (4)
|
|
|
5,071,856 |
|
|
|
14.4 |
% |
Susan
K Jones (5)
|
|
|
683,465 |
|
|
|
1.9 |
% |
Rainbow
Gate Corporation (6)
|
|
|
1,947,038 |
|
|
|
5.5 |
% |
Kettle
Hill (7)
|
|
|
1,467,662 |
|
|
|
4.2 |
% |
Paul
Cronson (8)
|
|
|
568,682 |
|
|
|
1.6 |
% |
Claude
Charles (9)
|
|
|
105,400 |
|
|
|
* |
|
Jack
Goldman (10)
|
|
|
103,727 |
|
|
|
* |
|
Thomas
Paulsen (11)
|
|
|
92,101 |
|
|
|
* |
|
Irwin
Engelman(12)
|
|
|
90,076 |
|
|
|
* |
|
Stephen
Seay( 13)
|
|
|
76,825 |
|
|
|
* |
|
Andrew
G. Sculley (14)
|
|
|
166,667 |
|
|
|
* |
|
All
executive officers and directors as a group (consisting of 8 individuals)
(15)
|
|
|
1,886,943 |
|
|
|
5.3 |
% |
*Less
than 1*% of the outstanding common stock
**
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options,
warrants, or convertible debt currently exercisable or convertible, or
exercisable or convertible within 60 days of October 14, 2008 are deemed
outstanding for computing the percentage of the person holding such option or
warrant. Percentages are based on a total of 35,317,523
shares: 15,018,839 shares of common stock outstanding on October 14,
2008 and 20,298,684 shares issuable upon the exercise of options, warrants
exercisable, and debt convertible on or within 60 days of October 14, 2008, as
described below.
(1) This
figure represents (i) 647,500 shares owned by Moriah Capital, L.P and (ii)
warrants held by Moriah Capital L.P. to purchase 1,370,000
shares. Alexandre Speaker and Greg Zilberstein exercise the shared
voting power with respect to the shares.
(2) This
figure represents: (i) 2,252,199 shares owned by Stillwater LLC, which includes
276,084 shares owned by Rainbow Gate Corporation, in which the sole member of
Stillwater LLC is the investment manager of Rainbow Gate Corporation; (ii)
warrants held by Stillwater LLC to purchase 1,978,006 shares, which includes
warrants to purchase 737,621 shares held by Rainbow Gate Corporation, in which
the sole member of Stillwater LLC is the investment manager of Rainbow Gate
Corporation; and (iii) 1,647,618 shares of common stock underlying an 8%
senior convertible note which includes 933,333 shares of common stock underlying
an 8% senior convertible note held by Rainbow Gate Corporation, which the sole
member of Stillwater LLC is the investment manager of Rainbow Gate Corporation.
Mortimer D.A. Sackler exercises the sole voting power with respect to the shares
held in the name of Stillwater LLC as sole member, and Mortimer D.A. Sackler
exercises the sole voting power with respect to the shares held in the name of
Rainbow Gate Corporation as investment manager; therefore Stillwater LLC is
deemed to beneficially own the shares held by Rainbow Gate as “beneficially
owned” but Stillwater LLC disclaims beneficial ownership of such
shares.
(3) This
figure represents: (1) 420,387 shares owned by Alexandra Global
Master Fund; (ii) warrants held to purchase 1,068,182 shares; and (iii)
2,000,000 shares of common stock underlying an 8% senior convertible note.
Alexandra Investment Management, LLC, a Delaware limited liability company
(“AIM”), serves as investment adviser to Alexandra Global Master Fund Ltd., a
British Virgin Islands company (“Alexandra”). By reason of such
relationship, AIM may be deemed to share dispositive power over the shares of
common stock stated as beneficially owned by Alexandra. AIM disclaims beneficial
ownership of such shares of common stock. Mr. Mikhail A. Filimonov (“Filimonov”)
is the Chairman, Chief Executive Officer, Chief Investment Officer and a
managing member of AIM. By reason of such relationships, Filimonov
may be deemed to share dispositive power over the shares of common stock stated
as beneficially owned by Alexandra. Filimonov disclaims beneficial
ownership of such shares of common stock.
(4) This
figure represents: (i) 1,257,629 shares owned by Ginola Limited, which include
276,084 shares held indirectly by Rainbow Gate Corporation; 65,080 shares owned
by Mount Union Corp.; 57,372 shares owned by Chelsea Trust Company Limited, as
trustee; and 284,736 shares owned by Crestflower Corporation (Ginola Limited
disclaims beneficial ownership of the shares owned by Crestflower Corporation;
Mount Union Corp.; and Chelsea Trust Company Limited, as trustee); and (ii)
warrants held by Ginola Limited to purchase 1,814,228 common shares, which
includes warrants to purchase 737,620 shares held by Rainbow Gate Corporation,
in which the sole shareholder of Ginola Limited is also the sole shareholder of
Rainbow Gate Corporation, and warrants to purchase 32,540 shares owned by Mount
Union Corp., 27,273 shares of common stock issuable upon exercise of a common
stock purchase warrant held indirectly by Chelsea Trust Company Limited, as
trustee, and 120,193 shares of common stock issuable upon exercise of common
stock purchase warrant held by Crestflower Corporation (Ginola Limited disclaims
beneficial ownership of the shares owned by Crestflower Corporation, Mount Union
Corp. and Chelsea Trust Company Limited, as trustee); and (iii) 1,999,999
shares of common stock underlying an 8% senior convertible note, which includes
933,333 shares of common stock underlying an 8% senior convertible note held by
Rainbow Gate Corporation, in which the sole shareholder of Ginola Limited is
also the sole shareholder of Rainbow Gate Corporation. Stillwater LLC and Ginola
Limited are beneficially owned by separate individuals and therefore do not
exert voting control over one another. However, Stillwater LLC does include the
shares held by Rainbow Gate as “beneficially owned” since the sole member of
Stillwater LLC is investment manager and sole director of Rainbow Gate
Corporation and exerts voting control over such shares but Stillwater LLC
disclaims beneficial ownership of such shares. Jonathan White, Steven
Meiklejohn, and Joerg Fischer exercise the shared voting power with respect to
the shares held in the name of Mount Union Corp.. Stuart Baker, Joerg Fischer,
Charles Lubar, Christopher Mitchell, Leslie Schreyer and Jonathan White exercise
the shared voting power with respect to the shares held in the name of Chelsea
Trust Company Limited. Jonathan White, Joerg Fischer and Steven
Meiklejohn exercise the shared voting power with respect to the shares held in
the name of Crestflower Corporation. Jonathan White, Joerg Fischer
and Steven Meiklejohn are the directors of Ginola Limited and exercise the
shared voting power with respect to the shares held in the name of Ginola
Limited.
(5) This
figure represents shares owned by Gary Jones and Susan Jones who are married to
each other, including (i) 395,268 shares owned by Gary Jones and 158,792 shares
owned by Susan Jones; and (ii) 129,405 shares of common stock issuable upon
exercise of stock options held by Susan Jones.
(6) This
figure represents (1) 276,084 shares owned by Rainbow Gate Corporation; (ii)
warrants held by to purchase 737,621 shares; and (iii) 933,333 shares of common
stock underlying an 8% senior convertible note. Mortimer D.A. Sackler
exercises the sole voting power with respect to the shares held in the name of
Rainbow Gate Corporation but disclaims beneficial ownership of such
shares.
7) This
figure represents (i) 1,227,276 shares of common stock owned by Kettle Hill of
which 195,941 shares held by Kettle Hill Partners, LP, 724,800 shares held by
Kettle Hill Partners II, LP, and 306,534 shares held by Kettle Hill Offshore,
Ltd. and (ii) warrants held by Kettle Hill to purchase 240,386 common shares
which includes warrants to purchase 55,289 shares held by Kettle Hill Partners,
LP, warrants to purchase 98,558 shares held by Kettle Hill Partners II, LP, and
warrants to purchase 86,539 shares held by Kettle Hill Offshore,
Ltd. Kettle Hill Capital Management, LLC acts as investment manager
for Kettle Hill Partners, LP, Kettle Hill Partners II LP, and Kettle Hill
Offshore, Ltd. Andrew Kurita exercises the voting power with respect
to the shares.
(8) This
figure represents 22,198 shares owned by Mr. Cronson, 208,235 shares underlying
warrants, 70,800 shares underlying options, and 266,666 shares of common stock
underlying an 8% senior convertible note held directly and indirectly by Paul
Cronson. This includes (i) 12,097 common stock shares and 4,286 shares
underlying warrants held indirectly by a family member of Paul Cronson; (ii)
4,366 shares underlying warrants held indirectly by Larkspur Corporation of
which he is the Managing Director and (iii) 3,783 shares of common stock,
186,666 shares underlying warrants and 266,666 shares of common stock underlying
an 8% senior convertible note held indirectly by Navacorp III, LLC. Mr. Paul
Cronson exercises the sole voting power with respect to the shares held in the
name of Larkspur Corporation, and Paul Cronson exercises the sole voting power
with respect to the shares held in the name of Navacorp III, LLC.
(9) This figure represents
shares underlying options.
(10) This
figure represents shares underlying options.
(11) This
figure represents shares underlying options.
(12) This
figure represents shares underlying options.
(13) This
figure represents shares underlying options.
(14) This
figure represents shares underlying options.
(15)
This
figure represents: (i) 577,041 shares; (ii) warrants held to purchase
208,235 shares; (iii) 266,666 shares of common stock underlying an 8% senior
convertible note; and (iv) 835,001 shares of common stock issuable upon exercise
of stock options.
Equity
Compensation Plan Information
The
following table sets forth the aggregate information of our equity compensation
plans in effect as of December 31, 2007:
Plan
|
|
Number of
securities to be
issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities reflected
in first column
|
|
Equity
compensation plans approved by security holders
|
|
|
487,674 |
|
|
$ |
2.14 |
|
|
|
817,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
406,649 |
|
|
$ |
3.02 |
|
|
|
|
|
TRANSFER
AGENT
Our
transfer agent for our common stock is Continental Stock Transfer, 17 Battery
Place, New York, NY 10004.
INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our
Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware that our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Our By
Laws also provide that the Board of Directors may also authorize us to indemnify
our employees or agents, and to advance the reasonable expenses of such persons,
to the same extent, following the same determinations and upon the same
conditions as are required for the indemnification of and advancement of
expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
We are
registering the shares of common stock issuable upon exercise of the warrants
and conversion of the notes to permit the resale of these shares of common stock
by the holders of the warrants from time to time after the date of this
prospectus. We will receive proceeds of $480,000 from the exercise of
the warrants. We will bear all fees and expenses incident to our
obligation to register the shares of common stock.
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or negotiated prices. The selling
stockholders may use any one or more of the following methods when selling
shares:
|
·
ordinary brokerage transactions and
transactions in which the broker-dealer solicits
investors;
|
|
·
block trades in which the broker-dealer
will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the
transaction;
|
|
·
purchases by a broker-dealer as principal
and resale by the broker-dealer for its account;
|
|
·
an exchange distribution in accordance with
the rules of the applicable exchange;
|
|
·
privately negotiated
transactions;
|
|
·
to cover short sales made after the date
that this registration statement is declared effective by the
Commission;
|
|
·
through the writing or settlement of
options or other hedging transactions, whether through an options exchange
or otherwise;
|
|
·
broker-dealers may agree with the selling
stockholders to sell a specified number of such shares at a stipulated
price per share;
|
|
·
a combination of any such methods of sale;
and
|
|
·
any other method permitted pursuant to
applicable law.
|
|
|
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts
from the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and if such short
sale shall take place after the date that this registration statement is
declared effective by the Commission, the selling stockholders may deliver these
securities to close out such short sales, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
Upon us
being notified in writing by a selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of each such selling stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such the shares of common stock were sold, (iv)the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction. In addition, upon us being notified in
writing by a selling stockholder that a donee or pledgee intends to sell more
than 500 shares of common stock, a supplement to this prospectus will be filed
if then required in accordance with applicable securities law.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of securities will be paid by the selling stockholder and/or the
purchasers.
We have
advised each selling stockholder that it may not use shares registered on this
registration statement to cover short sales of common stock made prior to the
date on which this registration statement shall have been declared effective by
the Commission. If a selling stockholder uses this prospectus for any sale
of the common stock, it will be subject to the prospectus delivery requirements
of the Securities Act unless an exemption therefrom is available. The
selling stockholders will be responsible to comply with the applicable
provisions of the Securities Act and Exchange Act, and the rules and regulations
thereunder promulgated, including, without limitation, Regulation M, as
applicable to such selling stockholders in connection with resales of their
respective shares under this registration statement.
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
We have
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities
Act.
DESCRIPTION OF SECURITIES
COMMON
STOCK
We are
authorized to issue up to 200,000,000 shares of common stock, $0.001 par value.
As of October 14, 2008, there were 15,018,839 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
non-assessable.
PREFERRED
STOCK
We are
authorized to issue up to 10,000,000 shares of Preferred Stock, $0.001 par
value. The 10,000,000 shares of Preferred Stock authorized are undesignated as
to preferences, privileges and restrictions. As the shares are issued, the Board
of Directors must establish a “series” of the shares to be issued and designate
the preferences, privileges and restrictions applicable to that
series.
Pursuant
to the Agreements entered into on July 23, 2007, as outlined above in our Recent
Developments section, the Company has designated but not issued 3,198
shares of the Company’s preferred stock as Series A Senior Secured Convertible
Preferred Stock (the “Preferred Stock”) at a stated value of $1,000. The
Preferred Stock is entitled to cumulative dividends which accrue at a rate of 8%
per annum, payable on December 21, 2008. Each share of Preferred Stock has
voting rights equal to (1) in any case in which the Preferred Stock votes
together with the Company’s Common Stock or any other class or series of stock
of the Company, the number of shares of Common Stock issuable upon conversion of
such shares of Preferred Stock at such time (determined without regard to the
shares of Common Stock so issuable upon such conversion in respect of accrued
and unpaid dividends on such share of Preferred Stock) and (2) in any case not
covered by the immediately preceding clause one vote per share of Preferred
Stock.
SELLING STOCKHOLDERS
The table
below sets forth information concerning the resale of the shares of common stock
by the selling stockholders. We will not receive any proceeds from the resale of
the common stock by the selling stockholders. We will receive proceeds from the
exercise of the warrants. Assuming all the shares registered below are sold by
the selling stockholders, none of the selling stockholders will continue to own
any shares of our common stock registered pursuant to the registration statement
of which this prospectus forms a part.
The
following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person based on its ownership of the
shares of common stock and the warrants, as of October 14, 2008, assuming
exercise of the warrants held by the selling stockholders on that date, without
regard to any limitations on exercise, the number of shares of common stock that
may be sold in this offering and the number of shares of common stock each
person will own after the offering, assuming they sell all of the shares
offered.
Except as described below
the selling stockholders do not have and within the past three years have not
had any position, office or other material relationship with us or any of our
predecessors or affiliates.
In
accordance with the terms of registration rights agreements with the holders of
the shares of common stock and the warrants, this prospectus generally covers
the resale of at least the sum of (i) the number of shares of common stock
issued and (ii) the shares of common stock issued and issuable upon exercise of
the related warrants, determined as if the outstanding warrants were exercised,
as applicable, in full, as of the trading day immediately preceding the date
this registration statement was initially filed with the SEC.
Name of Selling Security
Holder
|
Beneficial
Ownership Prior to Offering (1)
|
Shares
Offered (3)
|
|
|
Shares
|
Percentage
(2)
|
|
Stillwater
LLC (4)
|
5,877,823
|
16.6%
|
2,450,000
|
(
1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options,
warrants, or debt currently exercisable or convertible, or exercisable or
convertible within 60 days of October 14, 2008 are deemed outstanding for
computing the percentage of the person holding such option, warrant, or
debt but are not deemed outstanding for computing the percentage of any
other person.
|
(2)
|
Percentage
prior to offering is based on 35,317,523 shares of common stock
outstanding as of October 14, 2008 and the shares issuable upon exercise
of options, warrants exercisable, and debt convertible on or within 60
days of October 14, 2008.
|
(3)
|
Represents
(i) 1,000,000 shares issuable upon the exercise of common stock purchase
warrants, (ii) 729,524 shares of common stock issuable upon conversion of
the remaining $250,000 Stillwater Note (original Stillwater Note of
$500,000 less $250,000 partial Note coversion (as described in
iii)) and accrued interest of $5,333 at a conversion price
of $0.35 per share, and (iii) 720,476 shares of common stock issued (but
not registered) to Stillwater due to Stillwater's election to
partially convert the Stillwater Note pursuant to its terms. With respect
to the aforementioned subpart (iii) above, on July, 23 2007, Stillwater
elected to convert $252,166.50 of the Stillwater Note representing
$250,000 of the principal amount of the Note due on July 23, 2007 and
$2,166.50 of accrued and unpaid interest into shares of common stock.
Stillwater received 720,476 shares of the common stock at the conversion
price of $0.35.
|
(4)
|
The
total number of shares underlying the Note amounted to 1,428,571 shares,
which was derived by dividing the Note amount, $500,000, by $0.35, the
conversion price. The market price on March 28, 2007 was $0.46 per share,
and the value of shares underlying notes was
$657,142.66.
|
Additional
Disclosures
Conversion
Price
With
respect to the shares being registered pursuant to this registration statement,
the conversion price was based on the average closing price of our
stock on the five trading days prior to the March 28, 2007
agreement. Those prices were $.40, $.34, $.33, $.33 and $.34,
respectively, or an average of $.35 per share. The $500,000 Stillwater
Notes converts into 1,428,571 shares of common stock at $.35 per share. The
number of warrants issued was established at 70% of the underlying conversion
shares. The Stillwater Notes allow the investor at the time of conversion
to also convert any outstanding interest into shares of common
stock. Interest is paid quarterly therefore the maximum outstanding
interest would be three months interest on $500,000 or at 6% per annum
$7,500. This interest could be converted into 21,429 shares of common
stock at the $.35 conversion price if the principal is converted and such
interest is accrued and unpaid at the time of conversion of
principal.
Shares
underlying conversion rights
|
|
|
1,428,571 |
|
Shares
underlying warrants
|
|
|
1,000,000 |
|
Shares
underlying interest conversion
|
|
|
21,429 |
|
Total
shares to register
|
|
|
2,450,000 |
|
Payments to be made in
connection with the transaction
In
connection with the transaction, below is a disclosure of the dollar amount of
each payment (including the value of any payments to be made in common stock) in
connection with the transaction that the Company has made or may be required to
make to the selling stockholder, any affiliate of the selling stockholder, or
any person with whom any selling shareholder has a contractual relationship
regarding the transaction (including any interest payments, liquidated damages,
payments made to “finders” or “placement agents,” and any other payments or
potential
payments):
Fees
|
|
Amount
($)
|
|
|
|
|
|
Accounting
Fees (1)
|
|
|
25,000
|
|
SEC
Registration Fees (2)
|
|
|
113
|
|
Legal
Fees (3)
|
|
|
65,000
|
|
Roth
Capital (4)
|
|
|
35,000
|
|
Total
|
|
|
125,113
|
|
(1)
Represents the estimated amount of services by the Company’s auditors,
Eisner LLP, in connection with services rendered for this
transaction.
|
|
(2)
Represents the Company’s previously paid filing fees in connection with
the registration statement.
|
|
(3)
Amount represents estimated fees. As of the date of the filing of this
registration statement, $33,000 in legal fees have been
incurred.
|
|
(4)
Represents the placement agent fee.
|
|
Potential Net Proceeds to
the Company in the Convertible Note Transaction
Below are
the potential net proceeds to the Company from the sale of the Convertible Notes
and the total possible payments to the selling stockholder and its affiliates in
the first year following the sale of convertible notes:
Net
Proceeds
To
Issuer
|
|
|
Interest
(10
months)
|
|
|
Note
Redemption
|
|
|
Total
Payments
|
|
$
|
391,417
|
|
|
$
|
25,000
|
|
|
$
|
500,000
|
|
|
$
|
525,000
|
|
Potential Total Profit to
the Selling Stockholders from the Secured Convertible
Debentures
Below is
the total possible profit the selling stockholder could realize as a result of
the conversion discount for the securities underlying the convertible note,
along with the following information:
·
|
the
market price per share of the securities underlying the convertible note
on the date of the sale of the convertible note;
|
·
|
the
conversion price per share of the underlying securities on the date of the
sale of the convertible note;
|
·
|
the
total possible shares underlying the convertible note (assuming no
interest payments and complete conversion throughout the term of the
note);
|
·
|
the
combined market price of the total number of shares underlying the
convertible note, calculated by using the market price per share on the
date of the sale of the convertible note and the total possible shares
underlying the convertible note;
|
·
|
the
total possible shares the selling stockholder may receive and the combine
conversion price of the total number of shares underlying the convertible
note; and
|
·
|
the
total possible discount to the market price as of the date of the sale of
the convertible note.
|
Market
Price
Per
Share of
Securities
|
|
|
Conversion
Price
Per Share of
Underlying
Securities
|
|
|
Total
Possible
Shares
Underlying
The
Convertible
Debentures
(1)
|
|
|
Market
Value
(Market
Price
Per Share *
Total
Possible
Shares)
(1)
|
|
|
Conversion
Value
of the Total Number
Shares
Underlying
The
Convertible
Debentures
|
|
|
Total
Possible Discount
To
Market Price as of
The
Date of Sale of
The
Convertible Note
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.46
|
|
|
$
|
0.35
|
|
|
|
1,428,571
|
|
$ 657,143
|
|
|
$
|
500,000
|
|
|
$
|
157,143
|
|
|
|
(1) The
Secured Convertible Debenture contains a reset provision, in that the conversion
price of the convertible debenture shall be lowered in the event that we issue
shares of common stock, or securities convertible into shares of common stock,
at a lower price than the then current conversion price. As of the date of the
filing of this registration statement, the conversion price of the convertible
debenture has not been reduced as a result of any stock issuances or the
issuances of any securities convertible into shares of common stock, at a lower
price than the current conversion price.
Potential Profit to be
Realized as a Result of any Conversion Discounts Held by the Selling
Stockholder
The below
table discloses the total possible profit to be realized as a result of any
conversion discounts for securities underlying any other warrants, options,
notes, or other securities of the registrant that are held by the selling
stockholder or any affiliates of the selling stockholder, along
with:
·
|
the
market price per share of the underlying securities on the date of the
sale of that other security;
|
·
|
the
conversion/exercise price per share as of the date of the sale of that
other security;
|
·
|
the
combined market price of the total number of underlying shares, calculated
by using the market price per share on the date of the sale of that other
security and the total possible shares to be received;
|
·
|
the
total possible shares to be received and the combined conversion price of
the total number of shares underlying the other security calculated by
using the conversion price on the date of the sale of that other security
and the total possible number of underlying shares; and
|
·
|
the
total possible discount (premium) to the market price as of the date of
the sale of that other security, calculated by subtracting the total
conversion/exercise price on the date of the sale of that other security
from the combined market price of the total number of underlying shares on
that date:
|
·
|
the
market price per share of the underlying securities on the date of the
sale of that other security;
|
·
|
the
conversion/exercise price per share as of the date of the sale of that
other security;
|
·
|
the
combined market price of the total number of underlying shares, calculated
by using the market price per share on the date of the sale of that other
security and the total possible shares to be received;
|
·
|
the
total possible shares to be received and the combined conversion price of
the total number of shares underlying the other security calculated by
using the conversion price on the date of the sale of that other security
and the total possible number of underlying shares; and
|
·
|
the
total possible discount (premium) to the market price as of the date of
the sale of that other security, calculated by subtracting the total
conversion/exercise price on the date of the sale of that other security
from the combined market price of the total number of underlying shares on
that date:
|
Date
|
Entity
|
|
Shares
|
|
Instrument
|
|
Market
|
|
|
Conversion
|
|
|
Market
|
|
|
Conversion
|
|
|
Discount
|
|
|
|
|
|
|
|
|
Price
|
|
|
Price
|
|
|
Value
|
|
|
Value
|
|
|
(Premium)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/28/2007
|
Stillwater
|
|
|
1,000,000
|
|
Warrant
|
|
$
|
0.46
|
|
|
$
|
0.48
|
|
|
$
|
460,000
|
|
|
$
|
480,000
|
|
|
$
|
(20,000
|
)
|
7/21/2006
|
Rainbow
Gate (Stillwater Affiliate )
|
|
|
269,231
|
|
Convertible
Note
|
|
$
|
2.60
|
|
|
$
|
2.60
|
|
|
$
|
700,001
|
|
|
$
|
700,001
|
|
|
$
|
-
|
|
7/21/2006
|
Rainbow
Gate (Stillwater Affiliate )
|
|
|
188,462
|
|
Warrant
|
|
$
|
2.60
|
|
|
$
|
3.60
|
|
|
$
|
490,001
|
|
|
$
|
678,463
|
|
|
$
|
(188,462
|
)
|
10/20/2005
|
Rainbow
Gate (Stillwater Affiliate)
|
|
|
54,546
|
|
Warrant
|
|
$
|
8.70
|
|
|
$
|
10.00
|
|
|
$
|
474,550
|
|
|
$
|
545,460
|
|
|
$
|
(70,910
|
)
|
10/28/2004
|
Rainbow
Gate (Stillwater Affiliate)
|
|
|
29,742
|
|
Warrant
|
|
$
|
10.40
|
|
|
$
|
8.60
|
|
|
$
|
309,317
|
|
|
$
|
255,781
|
|
|
$
|
53,536
|
|
3/4/2004
|
Stillwater
|
|
|
51,778
|
|
Warrant
|
|
$
|
24.90
|
|
|
$
|
27.60
|
|
|
$
|
1,289,272
|
|
|
$
|
1,429,073
|
|
|
$
|
(139,801
|
)
|
6/20/2002
|
Stillwater
|
|
|
30,000
|
|
Warrant
|
|
$
|
3.20
|
|
|
$
|
4.26
|
|
|
$
|
96,000
|
|
|
$
|
127,800
|
|
|
$
|
(31,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
1,623,759
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,819,141
|
|
|
$
|
4,216,578
|
|
|
$
|
(397,437
|
)
|
Gross Proceeds Paid or
Payable to the Company in the Convertible Note Transactions
The below
table discloses the gross proceeds paid or payable to the registrant in the
convertible note transaction, along with the following information:
·
|
all
payments that have been made or that may be required to be made by the
registrant;
|
·
|
the
resulting net proceeds to the registrant; and
|
·
|
the
combined total possible profit to be realized as a result of any
conversion discounts regarding the securities underlying the convertible
notes and any other warrants, options, notes, or other securities of the
registrant that are held by the selling stockholder or any affiliates of
the selling stockholder (as disclosed elsewhere in this registration
statement).
|
Gross
|
|
|
Fees
|
|
|
Net
|
|
|
Discount
|
|
|
Premium
|
|
|
Combined
|
|
Proceeds
|
|
|
|
|
|
Proceeds
|
|
|
|
|
|
|
|
|
Premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,000 |
|
|
$ |
108,583 |
|
|
$ |
391,417 |
|
|
|
157,143 |
|
|
$ |
(397,437 |
) |
|
$ |
(240,294 |
) |
The below
table discloses the total amount of all possible payments and the total possible
discount to the market price of the shares underlying the convertible note
divided by the net proceeds to the registrant from the sale of the convertible
notes as well as the amount of that resulting percentage averaged over the term
of the convertible notes:
|
|
|
|
|
%
of Net
|
|
|
Monthly
|
|
Item |
|
Amount
|
|
|
Proceeds
|
|
|
Average
|
|
Total
Potential Payments
|
|
$
|
525,000
|
|
|
|
134
|
%
|
|
|
13
|
%
|
Total
Possible Discount
|
|
$
|
157,143
|
|
|
|
40
|
%
|
|
|
4
|
%
|
Prior Securities
Transactions Between the Issuer and the Selling Stockholder
Below is
a tabular disclosure of prior securities transactions after March 2004 between
the issuer (or any of its predecessors) and the selling stockholder, any
affiliates of the selling stockholder, or any person with whom the selling
stockholder has a contractual relationship regarding the transaction (or any
predecessors of those persons), with the table including the following
information disclosed separately for each transaction:
·
|
the
date of the transaction;
|
·
|
the
number of shares of the class of securities subject to the transaction
that were outstanding prior to the transaction;
|
·
|
the
number of shares of the class of securities subject to the transaction
that were outstanding prior to the transaction and held by persons other
than the selling stockholder, affiliates of the company, or affiliates of
the selling stockholder;
|
·
|
the
number of shares of the class of securities subject to the transaction
that were issued or issuable in connection with the
transaction;
|
·
|
the
percentage of total issued and outstanding securities that were issued or
issuable in the transaction (assuming full issuance), with the percentage
calculated by taking the number of shares issued or issuable in connection
with the applicable transaction and dividing that number by the number of
shares issued and outstanding prior to the applicable transaction and held
by persons other than the selling stockholder, affiliates of the company,
or affiliates of the selling stockholder;
|
·
|
the
market price per share of the class of securities subject to the
transaction immediately prior to the transaction; and
|
·
|
the
current market price per share of the class of securities subject to the
transaction.
|
Date
|
|
Prior
|
|
|
Shares
Held
|
|
|
Prior
|
|
|
Shares
|
|
|
Shares
|
|
|
%
of
|
|
|
Market
|
|
|
Current
|
|
|
|
Outstanding
|
|
|
and
Affiliates
|
|
|
(a)
- (b)
|
|
|
Transaction
|
|
|
To
Selling
|
|
|
Net
|
|
|
Day
|
|
|
Price
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Shares
|
|
|
Stock
& Warrants
|
|
|
Shareholder
|
|
|
Offer
|
|
|
Prior
|
|
|
10/08/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/28/2007
|
|
|
11,049,164
|
|
|
|
2,043,987
|
|
|
|
9,005,177
|
|
|
|
2,450,000
|
|
|
|
2,450,000
|
|
|
|
27
|
%
|
|
$
|
0.40
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/21/2006
|
|
|
10,052,249
|
|
|
|
1,523,832
|
|
|
|
8,528,417
|
|
|
|
4,108,845
|
|
|
|
650,001
|
|
|
|
48
|
%
|
|
$
|
2.60
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/20/2005
|
|
|
9,978,786
|
|
|
|
1,496,832
|
|
|
|
8,481,954
|
|
|
|
2,659,049
|
|
|
|
145,454
|
|
|
|
31
|
%
|
|
$
|
7.90
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/28/2004
|
|
|
6,625,759
|
|
|
|
1,309,152
|
|
|
|
5,309,152
|
|
|
|
1,950,000
|
|
|
|
276,071
|
|
|
|
37
|
%
|
|
$
|
10.70
|
|
|
$
|
0.90
|
|
Relationship Between Shares
Issued and Outstanding and Shares Held by Selling
Stockholders
The
following tabular disclosure reflects:
·
|
the
number of shares outstanding prior to the convertible note transaction
that are held by persons other than the selling stockholder, affiliates of
the Company, and affiliates of the selling stockholder;
|
·
|
the
number of shares registered for resale by the selling stockholder or
affiliates of the selling stockholder in prior registration
statements;
|
·
|
the
number of shares registered for resale by the selling stockholder or
affiliates of the selling stockholder that continue to be held by the
selling stockholder or affiliates of the selling
stockholder;
|
·
|
the
number of shares that have been sold in registered resale transactions by
the selling stockholder or affiliates of the selling stockholder;
and
|
·
|
the
number of shares registered for resale on behalf of the selling
stockholder or affiliates of the selling stockholder in the current
transaction.
|
The
number of shares stated in the first column of the table below,
“Shares not held by affiliates or selling stockholder prior to
Note”, is based solely upon shares actually issued and outstanding as of the
March 28, 2007. However, the other columns of the table include securities
underlying outstanding convertible securities, options, or warrants held by
selling stockholder.
Shares
Not
|
Shares
|
|
Shares
|
Shares
to be
|
|
Held
by
|
Registered
by
|
Registered
|
Sold
in
|
Registered
in
|
Affiliates
or
|
Selling
Stockholder
|
Shares
|
Registered
|
Current
|
Selling
Stockholder
|
in
Previous
|
To
Be Held
|
Resale
|
Transaction
|
Prior
to Note
|
Filings
|
Selling
Stockholder
|
Transactions
|
|
|
|
|
|
|
|
|
9,005,177
|
1,757,744
|
1,610,244
|
147,500
|
2,450,000
|
|
Company’s Financial Ability
to Satisfy its Obligations to the Selling Shareholder
The
Company has the intention, and a reasonable basis to believe that it will have
the financial ability, to make payments on the overlying securities. The Company
has duly accounted for such payments in its 2007 - 2009 comprehensive strategy
and financial plan.
Existing Short Positions by
Selling Shareholder
Based
upon information provided by the selling shareholder, to the best of
management’s knowledge, the Company is not aware of the selling shareholder
having an existing short position in the Company’s common stock.
Relationships Between the
Company and Selling Shareholder and Affiliates
The
Company hereby confirms that a description of the relationships and arrangements
between and among those parties already is presented in the prospectus and that
all agreements between and/or among those parties are included as exhibits to
the registration statement by incorporation by reference.
TRANSACTIONS WITH RELATED PERSONS,
PROMOTERS AND CERTAIN CONTROL PERSONS
2008
On April
2, 2008, the Company completed a private placement of its common stock with
several institutional investors for gross proceeds of $1,650,000. The
transaction involved the sale of 1,586,539 shares of common stock at $1.04 per
share, or the 5-day average closing price of the Company’s common stock on the
trading days immediately preceding the closing date. The Company also
issued to the investors 793,273 warrants to buy our common stock at a price of
$1.30 per share. Pursuant to the transaction, the Company filed a
registration statement for the shares issued as well as shares underlying the
warrants on April 29, 2008. Stillwater (as defined above) and Ginola
Limited participated in the private placement. Stillwater and Ginola
Limited are beneficial owners of more than 5% of the Company’s common
stock.
2007
As
previously reported in the Form 8-K of the Company dated as of July 25, 2007, on
July 23, 2007, the Company entered into Amendment Agreements (the Amendment
Agreements”) with the note holders and issued 8% Amended Senior Secured
Convertible Notes (“Amended Notes”) to the note holders in the principal amount
equal to the principal amount outstanding as of July 23, 2007. The due date for
the principal payment was extended to December 21, 2008 and the interest rate
increased to 8%. The Amended Notes are convertible into 8,407,612 shares of the
Company’s common stock. The conversion price for approximately $5,770,000 of
principal was revised from $2.60 to $.75 per share and the conversion price of
$.35 per share for $250,000 of principal was unchanged. $3,010,000 of the Notes
can convert into 3,010 shares of the Company’s newly formed Series A Convertible
Preferred Stock (the “Preferred”) at a conversion price of $1,000 per share. The
Preferred is convertible into common stock at the same price allowable by
the Amended Notes, subject to adjustment as provided for in the Certificate
of Designations. The Amendment Agreements adjusted the exercise price, except
for the Stillwater Warrant (as defined above), from $3.60 to $1.03
per share for 1,553,468 warrants and require the issuance of 3,831,859 warrants
exercisable at $1.03 per share pursuant to which the note holders may acquire
common stock, until July 21, 2011.
Two
employees and one board member participated in the Amendment Agreements. Olivier
Prache, Senior VP of Display Operations, has an Amended Note of $10,000 which
may be converted into 13,333 shares, received 9,333 warrants which are
exercisable at $1.03 per share, and has 5,385 warrants which are exercisable at
$3.60 per share. John Atherly, former CFO as of January 2, 2008, has
an Amended Note of $40,000 which may be converted into 53,333 shares and
received 37,333 warrants which are exercisable at $1.03 per
share. Paul Cronson, Board member, through Navacorp III, LLC,
has an Amended Note of $200,000 which may be converted into 266,666 shares and
received 186,666 warrants which are exercisable at $1.03 per share.
Stillwater
is a beneficial owner of more than 5% of the Company’s common
stock. Rainbow Gate Corporation, a corporation in which its
investment manager is the sole member of Stillwater and its controlling
shareholder is the same as Ginola Limited, has an Amended Note of $700,000 which
may be converted into 933,333 shares and received 653,333 warrants exercisable
at $1.03 per share. Ginola Limited has an Amended Note of $800,000
which may be converted into 1,066,333 shares and received 746,666 warrants
exercisable at $1.03 per share.
Alexandra
Global Master Fund Ltd (“Alexandra”) is a beneficial owner of more than 5% of
the Company’s common stock. Alexandra has an Amended Note of $3
million which may be converted into 4 million shares and received 2.8 million
warrants exercisable at $1.03 per share.
On March
28, 2007, the Company entered into an amendment to the Stillwater Agreement (as
defined above), originally dated July 21, 2006. On April 9, 2007, the sale of
the Stillwater Note (as defined above) and Stillwater Warrant was complete and
the Company issued a 6% Senior Secured Convertible Note in the principal amount
of $500,000 and warrants to purchase 1,000,000 shares of the Company’s common
stock at an exercise price of $0.48. On July 23, 2007, Stillwater elected to
convert $250,000 of the principal amount of the Stillwater Note and
approximately $2,167 of accrued and unpaid interest. Stillwater received 720,476
shares of Common Stock at the conversion price of $0.35. The
remaining 50% was amended to an 8% Amended Senior Secured Convertible Note on
July 23, 2007.
A family
member of an outside director of the Company is the holder of a Series A warrant
to purchase an aggregate of 4,286 shares of common stock. As a result of the
Stillwater transaction, the exercise price of all Series A warrants was reduced
from $5.50 to $0.35 per share. Family members of an outside
director of the Company are holders of Series F warrants to purchase an
aggregate of 10,000 shares of common stock. As a result of the
debt transactions, the exercise price of all Series F warrants was ultimately
reduced from $8.60 to $4.09 per share.
On July
21, 2006, the Company entered into several Note Purchase Agreements for the sale
of approximately $5.99 million of senior secured debentures (the “Notes”) and
warrants to purchase approximately 1.8 million shares of common stock, par value
$.001 per share. The investors purchased $5.99 million principal amount of Notes
with conversion prices of $2.60 per share that may convert into approximately
2.3 million shares of common stock and 5 year warrants exercisable at $3.60 per
share into approximately 1.6 million shares of common stock. If the Notes are
not converted, 50% of the principal amount will be due on July 21, 2007 and the
remaining 50% will be due on January 21, 2008. If the due date falls on a
non-business day, the payment date will be due on the next business day.
Commencing September 1, 2006, 6% interest is payable in quarterly installments
on outstanding notes.
In the
Note Purchase transaction, two employees and one board member participated.
Olivier Prache, Senior VP of Display Operations, purchased a $30,000 promissory
note which may be converted into 11,539 shares and received 8,077 warrants which
are exercisable at $3.60 per share. Mr. Prache converted $20,000 of his
promissory note and received 7,693 shares. John Atherly, CFO, purchased a
$40,000 promissory note which may be converted into 15,385 shares and received
10,770 warrants exercisable at $3.60 per share. Paul Cronson, board
member, through Navacorp III, LLC purchased a $200,000 promissory
note which may be converted into 76,923 shares and received 53,847 warrants
exercisable at $3.60 per share.
Stillwater
is a beneficial owner of more than 5% of the Company’s common stock. Rainbow
Gate Corporation, a corporation in which its investment manager is the sole
member of Stillwater and its controlling shareholder is the same as Ginola
Limited, purchased a $700,000 promissory note which may be converted into
269,231 shares and received 188,462 warrants exercisable at $3.60 per share.
Ginola Limited purchased an $800,000 promissory note which may be converted into
307,693 shares and received 215,385 warrants exercisable at $3.60 per share.
Stillwater disclaims beneficial ownership of shares owned by Rainbow Gate
Corporation.
A family
member of an outside director of the Company is the holder of a Series A warrant
to purchase an aggregate of 4,286 shares of common stock. As a result of the
Note Purchase transaction, the exercise price of all Series A warrants was
reduced from $5.50 to $2.60 per share. Family members of an outside director of
the Company are holders of Series F warrants to purchase an aggregate of 10
thousand shares of common stock. As a result of the Note Purchase transaction,
the exercise price of all Series F warrants was reduced from $10.90 to $8.60 per
share.
The
Company has entered into a financial advisory agreement with Larkspur Capital
Corporation. Paul Cronson, a director of the Company, is a founder and
shareholder of Larkspur Capital Corporation. The Company has agreed to pay a
minimum fee of $500 thousand to Larkspur Capital Corporation in the event
certain transactions occur, i.e. sale of the Company’s assets or change of
control.
2005
On
October 20, 2005, the Company entered into a Securities Purchase Agreement to
sell to certain qualified institutional buyers and accredited investors an
aggregate of 1,661,906 shares of the Company’s common stock, par value $0.001
per share (the “Shares”), and warrants to purchase an additional 997,143 shares
of common stock, for an aggregate purchase price of approximately $9.1 million.
The purchase price of the common stock and corresponding warrant was $5.50 per
share.
Rainbow
Gate Corporation, a corporation in which its investment manager is the sole
member of Stillwater and its controlling shareholder is the same as Ginola
Limited, participated in the sale of equity pursuant to the Securities Purchase
Agreement by investing $500,000. Stillwater disclaims beneficial ownership of
shares owned by Rainbow Gate Corporation.
Chelsea
Trust Company, as trustee of a trust with the same directors and/or controlling
shareholders as Ginola Limited, participated in the sale of equity pursuant to
the Securities Purchase Agreement by investing $250,000. Ginola Limited
disclaims beneficial ownership of shares owned by Chelsea Trust
Company.
In
connection with the issuance of the Shares and the warrants pursuant to the
Securities Purchase Agreement, the Company was required to lower the exercise
prices of existing Series A and F warrants from $10.50 and $12.10, respectively,
to $5.50 and $10.90 per share, respectively, pursuant to the anti-dilution
provisions of the Series A and F warrants.
A family
member of an outside director of the Company is the holder of a Series A warrant
to purchase an aggregate of 4,286 shares of common stock. Accordingly, the
exercise price of all Series A warrants was reduced from $10.50 to $5.50 per
share.
Director
Independence
Board of
Directors has determined that Messrs. Thomas Paulsen, Claude Charles, Jacob
Goldman, Irwin Engelman, and Stephen Seay are
each independent directors as of December 31, 2007. Thomas
Paulsen was not an independent director during the period January through May
2008 when he was acting Interim CEO and President. As of June 1,
2008, Thomas Paulsen is an independent director.
The Board
of Directors has established a compensation committee which is
currently comprised of Thomas Paulsen, Jacob Goldman, and Stephen Seay each of
whom is independent as of December 31, 2007. Thomas Paulsen was
not an independent director during the period January through May 2008 when he
was acting Interim CEO and President. As of June 1, 2008, Thomas
Paulsen is an independent director.
The Board of Directors has established
a corporate governance and nominating committee, which is comprised of
Thomas Paulsen and Jacob Goldman, each of whom is independent as of
December 31, 2007. Thomas Paulsen was not an independent director during the
period January through May 2008 when he was acting Interim CEO and
President. As of June 1, 2008, Thomas Paulsen is an independent
director.
The
Board of Directors has a separately
designated audit committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, which is
currently comprised of Claude Charles, Irwin Engelman, and Steve Seay. The
members of the Audit Committee are independent.
All
future transactions, if any, between us and any of our officers, directors and
principal security holders and their affiliates, as well as any transactions
between us and any entity with which our officers, directors or principal
security holders are affiliated, will be approved in accordance with applicable
law governing the approval of the transactions.
Promoter
and Certain Control Persons
Not
applicable.
LEGAL MATTERS
Sichenzia
Ross Friedman & Ference LLP will issue an opinion with respect to the
validity of the shares of common stock being offered hereby.
EXPERTS
Eisner
LLP, Independent Registered Public Accountants, have audited, as set forth in
their report thereon appearing in this Prospectus and Registration Statement,
our financial statements as of December 31, 2007 and 2006 and for each of the
years in the three year period ended December 31, 2007, which report
included an explanatory paragraph expressing substantial doubt as to our
ability to continue as a going concern. The financial statements referred to
above are included herein in reliance upon the auditors’ opinion based on their
expertise in accounting and auditing.
We have
filed a registration statement on Form S-1 under the Securities Act of 1933, as
amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of eMagin Corp., filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange
Commission.
We are
subject to the informational requirements of the Securities Exchange Act of 1934
which requires us to file reports, proxy statements and other information with
the Securities and Exchange Commission. Such reports, proxy statements and other
information may be inspected at public reference facilities of the SEC at 100 F
Street, N.E., Washington D.C. 20549. Copies of such material can be obtained
from the Public Reference Section of the SEC at 100 F Street, N.E., Washington,
D.C. 20549 at prescribed rates. Because we file documents electronically with
the SEC, you may also obtain this information by visiting the SEC’s Internet
website at http://www.sec.gov.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
67
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
68
|
Consolidated
Statements of Operations for the years ended December 31, 2007, 2006, and
2005
|
69
|
Consolidated
Statements of Changes in Shareholders’ Equity (Capital Deficit) for the
years ended December 31, 2007, 2006,
and 2005
|
70
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006, and
2005
|
71
|
Notes
to the Consolidated Financial Statements
|
72
|
|
73
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
eMagin
Corporation
We have
audited the accompanying consolidated balance sheets of eMagin Corporation (the
"Company") as of December 31, 2007 and 2006, and the related consolidated
statements of operations, shareholders' equity (capital deficit) and cash flows
for each of the three years in the period ended December 31,
2007. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits include consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of eMagin Corporation as
of December 31, 2007 and 2006, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has had recurring losses from
operations which it believes will continue, and has working capital and capital
deficits at December 31, 2007. These factors raise substantial
doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
discussed in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
As
discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for stock-based compensation effective
January 1, 2006.
\s\ Eisner
LLP
New York,
New York
April 9,
2008
eMAGIN
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands, except
|
|
|
|
share
and per share amounts)
|
|
ASSETS
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
713 |
|
|
$ |
1,415 |
|
Investments
– held to maturity
|
|
|
94 |
|
|
|
171 |
|
Accounts
receivable, net
|
|
|
2,383 |
|
|
|
908 |
|
Inventory
|
|
|
1,815 |
|
|
|
2,485 |
|
Prepaid
expenses and other current assets
|
|
|
850 |
|
|
|
656 |
|
Total
current assets
|
|
|
5,855 |
|
|
|
5,635 |
|
Equipment,
furniture and leasehold improvements, net
|
|
|
292 |
|
|
|
666 |
|
Intangible
assets, net
|
|
|
51 |
|
|
|
55 |
|
Other
assets
|
|
|
232 |
|
|
|
233 |
|
Deferred
financing costs, net
|
|
|
218 |
|
|
|
416 |
|
Total
assets
|
|
$ |
6,648 |
|
|
$ |
7,005 |
|
|
|
LIABILITIES
AND CAPITAL DEFICIT
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
620 |
|
|
$ |
1,192 |
|
Accrued
compensation
|
|
|
891 |
|
|
|
959 |
|
Other
accrued expenses
|
|
|
729 |
|
|
|
749 |
|
Advance
payments
|
|
|
35 |
|
|
|
444 |
|
Deferred
revenue
|
|
|
179 |
|
|
|
126 |
|
Current
portion of debt
|
|
|
7,089 |
|
|
|
1,223 |
|
Derivative
liability - warrants
|
|
|
— |
|
|
|
1,195 |
|
Other
current liabilities
|
|
|
1,020 |
|
|
|
52 |
|
Total
current liabilities
|
|
|
10,563 |
|
|
|
5,940 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
60 |
|
|
|
2,229 |
|
Total
liabilities
|
|
|
10,623 |
|
|
|
8,169 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value: authorized 10,000,000 shares; no shares issued and
outstanding
|
|
|
— |
|
|
|
— |
|
Series
A Senior Secured Convertible Preferred stock, stated value $1,000 per
share, $.001 par value: 3,198 shares designated and none
issued
|
|
|
— |
|
|
|
— |
|
Common
stock, $.001 par value: authorized 200,000,000 shares, issued and
outstanding, 12,620,900 shares in 2007 and 10,341,029 shares in
2006
|
|
|
12 |
|
|
|
10 |
|
Additional
paid in capital
|
|
|
195,326 |
|
|
|
179,651 |
|
Accumulated
deficit
|
|
|
(199,313 |
) |
|
|
(180,825 |
) |
Total
capital deficit
|
|
|
( 3,975 |
) |
|
|
( 1,164 |
) |
Total
liabilities and capital deficit
|
|
$ |
6,648 |
|
|
$ |
7,005 |
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial
Statements.
eMAGIN
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the Year Ended December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands, except per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Product
revenue
|
|
$ |
16,169 |
|
|
$ |
7,983 |
|
|
$ |
3,709 |
|
Contract
revenue
|
|
|
1,385 |
|
|
|
186 |
|
|
|
36 |
|
Total
revenue, net
|
|
|
17,554 |
|
|
|
8,169 |
|
|
|
3,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
12,628 |
|
|
|
11,359 |
|
|
|
10,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
4,926 |
|
|
|
(3,190 |
) |
|
|
(6,474 |
) |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,949 |
|
|
|
4,406 |
|
|
|
4,020 |
|
Selling,
general and administrative
|
|
|
6,591 |
|
|
|
8,860 |
|
|
|
6,316 |
|
Total
operating expenses
|
|
|
9,540 |
|
|
|
13,266 |
|
|
|
10,336 |
|
Loss
from operations
|
|
|
(4,614 |
) |
|
|
(16,456 |
) |
|
|
(16,810 |
) |
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,087 |
) |
|
|
(1,306 |
) |
|
|
(4 |
) |
Loss
on extinguishment of debt
|
|
|
(10,749 |
) |
|
|
— |
|
|
|
— |
|
(Loss)
gain on warrant derivative liability
|
|
|
(853 |
) |
|
|
2,405 |
|
|
|
— |
|
Other
income, net
|
|
|
815 |
|
|
|
91 |
|
|
|
286 |
|
Total
other (expense) income, net
|
|
|
(13,874 |
) |
|
|
1,190 |
|
|
|
282 |
|
Net
loss
|
|
$ |
(18,488 |
) |
|
$ |
(15,266 |
) |
|
$ |
(16,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, basic and diluted
|
|
$ |
(1.59 |
) |
|
$ |
(1.52 |
) |
|
$ |
(1.94 |
) |
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
11,633 |
|
|
|
10,058 |
|
|
|
8,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to Consolidated Financial
Statements.
eMAGIN
CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CAPITAL DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Shareholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid
–in Capital
|
|
|
Deficit
|
|
|
(Capital
Deficit)
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
7,964 |
|
|
$ |
8 |
|
|
$ |
165,471 |
|
|
$ |
(149,031 |
) |
|
$ |
16,448 |
|
Sale
of common stock, net of issuance costs
|
|
|
1,662 |
|
|
|
2 |
|
|
|
8,398 |
|
|
|
— |
|
|
|
8,400 |
|
Stock
options exercised
|
|
|
11 |
|
|
|
— |
|
|
|
37 |
|
|
|
— |
|
|
|
37 |
|
Exercise
of common stock warrants
|
|
|
306 |
|
|
|
— |
|
|
|
1,584 |
|
|
|
— |
|
|
|
1,584 |
|
Issuance
of common stock for services
|
|
|
54 |
|
|
|
— |
|
|
|
461 |
|
|
|
— |
|
|
|
460 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,528 |
) |
|
|
(16,528 |
) |
Balance,
December 31, 2005
|
|
|
9,997 |
|
|
$ |
10 |
|
|
$ |
175,950 |
|
|
$ |
(165,559 |
) |
|
$ |
10,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
to equity conversion
|
|
|
85 |
|
|
|
— |
|
|
|
220 |
|
|
|
— |
|
|
|
220 |
|
Issuance
of common stock for services
|
|
|
254 |
|
|
|
— |
|
|
|
580 |
|
|
|
— |
|
|
|
580 |
|
Stock-based
compensation
|
|
|
— |
|
|
|
— |
|
|
|
2,891 |
|
|
|
— |
|
|
|
2,891 |
|
Stock
options exercised
|
|
|
5 |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
10 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,266 |
) |
|
|
(15,266 |
) |
Balance,
December 31, 2006
|
|
|
10,341 |
|
|
$ |
10 |
|
|
|
179,651 |
|
|
$ |
(180,825 |
) |
|
$ |
(1,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
to equity conversion
|
|
|
797 |
|
|
|
1 |
|
|
|
310 |
|
|
|
— |
|
|
|
311 |
|
Issuance
of common stock for services
|
|
|
1,473 |
|
|
|
1 |
|
|
|
1,324 |
|
|
|
— |
|
|
|
1,325 |
|
Exercise
of common stock warrants
|
|
|
10 |
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Stock-based
compensation
|
|
|
— |
|
|
|
— |
|
|
|
1,652 |
|
|
|
— |
|
|
|
1,652 |
|
Expiration
of derivative liability- warrants
|
|
|
— |
|
|
|
— |
|
|
|
2,653 |
|
|
|
— |
|
|
|
2,653 |
|
Beneficial
conversion premium
|
|
|
— |
|
|
|
— |
|
|
|
5,078 |
|
|
|
— |
|
|
|
5,078 |
|
Fair
value of warrants issued
|
|
|
— |
|
|
|
— |
|
|
|
4,655 |
|
|
|
— |
|
|
|
4,655 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(18,488 |
) |
|
|
(18,488 |
) |
Balance,
December 31, 2007
|
|
|
12,621 |
|
|
$ |
12 |
|
|
$ |
195,326 |
|
|
$ |
(199,313 |
) |
|
$ |
(
3,975 |
) |
See notes
to Consolidated Financial Statements.
eMAGIN
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(18,488 |
) |
|
$ |
(15,266 |
) |
|
$ |
(16,528 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
392 |
|
|
|
841 |
|
|
|
908 |
|
Amortization
of deferred financing fees
|
|
|
418 |
|
|
|
221 |
|
|
|
--- |
|
Reduction
of provision for sales returns and doubtful accounts
|
|
|
(79 |
) |
|
|
(39 |
) |
|
|
(284 |
) |
Stock
based compensation
|
|
|
1,652 |
|
|
|
2,891 |
|
|
|
--- |
|
Issuance
of common stock for services, net
|
|
|
1,325 |
|
|
|
553 |
|
|
|
470 |
|
Amortization
of discount on notes payable
|
|
|
1,925 |
|
|
|
956 |
|
|
|
--- |
|
Loss
(gain) on warrant derivative liability
|
|
|
853 |
|
|
|
(2,405 |
) |
|
|
--- |
|
Loss
on extinguishment of debt
|
|
|
10,749 |
|
|
|
--- |
|
|
|
--- |
|
Loss
on other asset
|
|
|
--- |
|
|
|
157 |
|
|
|
--- |
|
Write-off
of miscellaneous receivable
|
|
|
103 |
|
|
|
--- |
|
|
|
--- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,390 |
) |
|
|
(42 |
) |
|
|
(2 |
) |
Inventory
|
|
|
670 |
|
|
|
1,354 |
|
|
|
(1,821 |
) |
Prepaid
expenses and other current assets
|
|
|
(194 |
) |
|
|
389 |
|
|
|
(175 |
) |
Advance
payments
|
|
|
(409 |
) |
|
|
384 |
|
|
|
(4 |
) |
Deferred
revenue
|
|
|
53 |
|
|
|
30 |
|
|
|
96 |
|
Accounts
payable, accrued compensation, and accrued expenses
|
|
|
(381 |
) |
|
|
(566 |
) |
|
|
1,613 |
|
Other
current liabilities
|
|
|
858 |
|
|
|
153 |
|
|
|
14 |
|
Net
cash used in operating activities
|
|
|
(1,943 |
) |
|
|
(10,389 |
) |
|
|
(15,713 |
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(16 |
) |
|
|
(204 |
) |
|
|
(898 |
) |
Proceeds
from maturity of (purchase of) investments – held to
maturity
|
|
|
77 |
|
|
|
(51 |
) |
|
|
(120 |
) |
Purchase
of intangibles and other assets
|
|
|
--- |
|
|
|
(2 |
) |
|
|
(54 |
) |
Net
cash provided by (used in) investing activities
|
|
|
61 |
|
|
|
(257 |
) |
|
|
(1,072 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock, net of issuance costs
|
|
|
--- |
|
|
|
--- |
|
|
|
8,400 |
|
Proceeds
from exercise of stock options and warrants
|
|
|
3 |
|
|
|
10 |
|
|
|
1,621 |
|
Proceeds
from long-term debt
|
|
|
1,608 |
|
|
|
5,970 |
|
|
|
50 |
|
Payments
related to deferred financing costs
|
|
|
(368 |
) |
|
|
(591 |
) |
|
|
--- |
|
Payments
of long-term debt and capitalized lease obligations
|
|
|
(63 |
) |
|
|
(55 |
) |
|
|
(16 |
) |
Net
cash provided by financing activities
|
|
|
1,180 |
|
|
|
5,334 |
|
|
|
10,055 |
|
Net
decrease in cash and cash equivalents
|
|
|
(702 |
) |
|
|
(5,312 |
) |
|
|
(6,730 |
) |
Cash
and cash equivalents, beginning of year
|
|
|
1,415 |
|
|
|
6,727 |
|
|
|
13,457 |
|
Cash
and cash equivalents, end of year
|
|
$ |
713 |
|
|
$ |
1,415 |
|
|
$ |
6,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
426 |
|
|
$ |
128 |
|
|
$ |
4 |
|
Cash
paid for taxes
|
|
$ |
78 |
|
|
$ |
40 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debt to equity
|
|
$ |
311 |
|
|
$ |
220 |
|
|
$ |
--- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the year ended December 31, 2007, the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
· |
Entered into an
intellectual property agreement with Kodak where Kodak was assigned the
rights to a specific patent and as part of the consideration waived the
royalty payments for the first six months of 2007 and reduced the royalty
payment to 50% for the third and fourth quarters of 2007. $869
thousand was recorded as other income from the gain on the licensing of
intangible assets; |
· |
Entered
into an amended Note Purchase Agreement with investors and issued warrants
that are exercisable at $1.03 per share into approximately 5.4 million
shares of common stock valued at $5.5
million. |
See notes
to Consolidated Financial Statements.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - NATURE OF BUSINESS
eMagin
Corporation and its wholly owned subsidiary (the “Company”)
designs, develops, manufactures, and markets virtual imaging products
for consumer, commercial, industrial and military applications. The
Company’s products are sold mainly in North America, Asia, and
Europe.
Note
2 - SIGNIFICANT ACCOUNTING POLICIES
Principles
of consolidation
The
accompanying audited consolidated financial statements include the accounts of
eMagin Corporation and its wholly owned subsidiary. All intercompany
transactions have been eliminated in consolidation.
Basis
of presentation
The
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has had recurring losses
from operations which it believes will continue for the foreseeable
future. The Company’s cash requirements over the next twelve months are
greater than the Company’s current cash, cash equivalents, and
investments. At December 31, 2007, the Company has working capital
and capital deficits. These factors raise substantial doubt regarding the
Company’s ability to continue as a going concern without continuing to obtain
additional funding. The Company does not have commitments for such
financing and no assurance can be given that additional financing will be
available, or if available, will be on acceptable terms. If the Company is
unable to obtain sufficient funds during the next twelve months, the Company
will further reduce the size of its organization and/or curtail operations which
will have a material adverse impact on the Company’s business prospects. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. To partially address the liquidity
issue, the Company completed a private placement of its common stock for gross
proceeds of $1.65 million on April 2, 2008. Please see Note 17 –
Subsequent Events for additional information.
On
November 3, 2006, the Company effected a one-for-ten (1-for-10) reverse stock
split of its issued and outstanding common stock. All common
and per share amounts in the accompanying financial statements have been
adjusted to reflect the 1-for-10 reverse stock split.
Use
of estimates
In
accordance with accounting principles generally accepted in the United States of
America, management utilizes certain estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, management evaluates its estimates and
judgments. Management bases its estimates and judgments on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those estimates.
Revenue and cost
recognition
Revenue
is recognized when products are shipped to customers, net of allowances for
anticipated returns. The Company’s revenue-earning
activities generally involve delivering products and revenues
are considered to be earned when the Company has completed the process
by which it is entitled to such revenues.
Revenue is recognized when persuasive evidence of
an arrangement exists, delivery has occurred, selling price is
fixed or determinable and collection is reasonably assured. The
Company defers revenue recognition on products sold directly to the consumer
with a fifteen day right of return. Revenue is recognized upon the
expiration of the right of return.
The
Company also earns revenues from certain R&D 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 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. These rates are subject to audit by the other
party.
Research and
development expenses
Research
and development costs are expensed as incurred.
Cash
and cash equivalents
All
highly liquid instruments with an original maturity of three months or less at
the date of purchase are considered to be cash equivalents.
Investments-held
to maturity
Securities
that the Company has the positive intent and ability to hold to maturity are
classified as held-to-maturity and are carried at amortized cost on the
accompanying balance sheet.
Accounts
receivable
The
majority of the Company’s commercial accounts receivable is due from Original
Equipment Manufacturers ("OEM’s”). Credit is extended based on evaluation of a
customer’s financial condition and, generally, collateral is not required.
Accounts receivable are payable in U.S. dollars, are due within 30-90 days and
are stated at amounts due from customers net of an allowance for doubtful
accounts. Any account outstanding longer than the contractual payment terms is
considered past due.
Allowance for doubtful
account
The
allowance for doubtful accounts reflects an estimate of probable losses inherent
in the accounts receivable balance. The allowance is determined based on a
variety of factors, including the length of time receivables are past due,
historical experience, the customer's current ability to pay its obligation, and
the condition of the general economy and the industry as a whole. The
Company will record a specific reserve for individual accounts when the Company
becomes aware of a customer's inability to meet its financial obligations, such
as in the case of bankruptcy filings or deterioration in the customer's
operating results or financial position. If circumstances related to customers
change, the Company would further adjust estimates of the recoverability of
receivables.
Inventory
Inventory
is stated at the lower of cost or market. Cost is determined using the first-in
first-out method. Cost includes materials, labor, and manufacturing overhead
related to the purchase and production of inventories. The Company regularly
reviews inventory quantities on hand, future purchase commitments with the
Company’s suppliers, and the estimated utility of the inventory. If the Company
review indicates a reduction in utility below carrying value, the inventory is
reduced to a new cost basis.
Equipment,
furniture and leasehold improvements
Equipment,
furniture and leasehold improvements are stated at cost. Depreciation on
equipment is calculated using the straight-line method of depreciation over its
estimated useful life. Amortization of leasehold improvements is calculated by
using the straight-line method over the shorter of their estimated useful lives
or lease terms. Expenditures for maintenance and repairs are charged to expense
as incurred.
In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the Company performs impairment tests on its long-lived
assets when circumstances indicate that their carrying amounts may not be
recoverable. If required, recoverability is tested by comparing the estimated
future undiscounted cash flows of the asset or asset group to its carrying
value. Impairment losses, if any, are recognized based on the excess of the
assets' carrying amounts over their estimated fair values.
Intangible
Assets
The
Company’s intangible assets consist of patents that are amortized over their
estimated useful lives of fifteen years using the straight line
method. Total intangible amortization expense was approximately $4
thousand for each of the years ended December 31, 2007, 2006, and 2005,
respectively.
Advertising
Costs
related to advertising and promotion of products is charged to sales and
marketing expense as incurred. Advertising expense for the years
ended December 31, 2007, 2006, and 2005 was $10 thousand, $296 thousand, and
$108 thousand, respectively.
Income
taxes
The
Company accounts for income taxes in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS
No. 109”). SFAS No. 109 requires that the Company recognize deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined on the basis of the difference between the tax basis of assets and
liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the
temporary differences are expected to reverse. The Company records an
estimated valuation allowance on its deferred income tax assets if it is more
likely than not that these deferred income tax assets will not be
realized.
Loss
per common share
In
accordance with SFAS No. 128, "Basic Earnings Per Share", net loss per common
share amounts ("basic EPS") is computed by dividing net loss by the weighted
average number of common shares outstanding and excluding any potential
dilution. Net loss per common share amounts assuming dilution ("diluted EPS")
reflects the potential dilution from the exercise of stock options and warrants.
These common equivalent shares have been excluded from the computation of
diluted EPS for all periods presented as their effect is antidilutive. The years
ended December 31, 2007, 2006, and 2005 do not include options and warrants to
purchase common equivalent shares of 9,234,832, 4,613,919, and 4,424,988,
respectively, as their effect would be antidilutive.
Comprehensive
income (loss)
SFAS No.
130, "Reporting Comprehensive Income", requires companies to report all changes
in equity during a period, except those resulting from investment by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income (loss) is the total of net income (loss) and other
comprehensive income (loss) items, such as unrealized gains or losses on foreign
currency translation adjustments. Comprehensive income (loss) must be reported
on the face of the annual financial statements. The Company's operations did not
give rise to any material items includable in comprehensive income (loss), which
were not already in net loss for the years ended December 31, 2007, 2006, and
2005. Accordingly, the Company's comprehensive loss is the same as its net
income (loss) for the periods presented.
Stock-based
compensation
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123R,
“Share-Based Payment”, which requires the Company to recognize expense related
to the fair value of the Company’s share-based compensation issued to employees
and directors. Prior to January 1, 2006, the Company accounted for
share-based compensation under the recognition and measurement provisions of
APB No. 25 and related interpretations, as permitted by SFAS No.
123. We adopted SFAS No. 123R using the modified prospective
transition method. Accordingly, periods prior to adoption have not
been restated. Compensation cost recognized for the twelve months
ended December 31, 2007 and 2006 includes a) compensation cost for all
share-based compensation granted prior to, but not vested as of January 1, 2006,
based on the grant-date fair value estimated in accordance with the original
provisions of SFAS No.123 and b) compensation cost for all share-based
compensation granted beginning January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS
No.123R. The compensation cost was recognized using the straight-line
attribution method. See Note 11 for a further discussion
on stock-based compensation.
Fair value of financial
instruments
At
December 31, 2007, the Company's cash, cash equivalents, accounts receivable,
short-term investments, accounts payable and debt are shown at cost which
approximates fair value due to the short-term nature of these
instruments.
Concentration
of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist of cash and cash equivalents. The Company’s cash and
cash equivalents are deposited with financial institutions which, at times, may
exceed federally insured limits. To date, the Company has not
experienced any loss associated with this risk.
Note
3- RECENTLY ISSUED ACCOUNTING STANDARDS
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
157”). SFAS 157 provides guidance for using fair value to measure
assets and liabilities. It also responds to investors’ requests for
expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and the
effect of fair value measurements on earnings. SFAS 157 applies
whenever other standards require (or permit) assets or liabilities to be
measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. SFAS 157 is
effective for the Company on January 1, 2008 and is not expected to have a
material impact on its consolidated results of operations and financial
condition.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial
Liabilities: (“SFAS159”). SFAS159 allows entities the
option to measure eligible financial instruments at fair value as of specified
dates. Such election, which may be applied on an instrument by instrument basis,
is typically irrevocable once elected. SFAS 159 is effective for fiscal years
beginning after November 15, 2007, and early application is allowed under
certain circumstances. SFAS 159 is effective for the Company on January 1, 2008
and is not expected to have a material impact on its consolidated results of
operations and financial condition.
In June
2007, the FASB ratified EITF No. 07-03, “Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Future Research and Development
Activities (“EITF 07-03”). EITF 07-03 requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities be deferred and
capitalized and recognized as an expense as the goods are delivered or the
related services are performed. EITF 07-03 is effective, on a
prospective basis, for fiscal years beginning after December 15,
2007. The Company will be required to adopt EITF 07-03 in the first
quarter of 2008. The Company does not expect the adoption of EITF
07-03 to have a material effect on its operations or financial
position.
Note
4- RECEIVABLES
Receivables
consisted of the following (in thousands):
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Trade
receivables
|
|
$ |
2,741 |
|
|
$ |
1,351 |
|
Less
allowance for doubtful accounts
|
|
|
(358 |
) |
|
|
(443 |
) |
Net
receivables
|
|
$ |
2,383 |
|
|
$ |
908 |
|
Note
5 - INVENTORY
The
components of inventories were as follows (in thousands):
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Raw
materials
|
|
$ |
1,069 |
|
|
$ |
1,146 |
|
Work
in process
|
|
|
370 |
|
|
|
558 |
|
Finished
goods
|
|
|
376 |
|
|
|
781 |
|
Total
inventory
|
|
$ |
1,815 |
|
|
$ |
2,485 |
|
Note
6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consist of the following (in
thousands):
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Vendor
prepayments
|
|
$ |
537 |
|
|
$ |
294 |
|
Other
prepaid expenses*
|
|
|
310 |
|
|
|
353 |
|
Other
current assets
|
|
|
3 |
|
|
|
9 |
|
Total
prepaid expenses and other current assets
|
|
$ |
850 |
|
|
$ |
656 |
|
*No
individual amounts greater than 5% of current assets.
Note
7 – EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment,
furniture and leasehold improvements consist of the following (in
thousands):
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Computer
hardware and software
|
|
$ |
1,025 |
|
|
$ |
1,017 |
|
Lab
and factory equipment
|
|
|
3,318 |
|
|
|
3,312 |
|
Furniture,
fixtures, and office equipment
|
|
|
306 |
|
|
|
306 |
|
Assets
under capital leases
|
|
|
66 |
|
|
|
66 |
|
Leasehold
improvements
|
|
|
473 |
|
|
|
473 |
|
Total
equipment, furniture and leasehold improvements
|
|
|
5,188 |
|
|
|
5,174 |
|
Less: accumulated
depreciation
|
|
|
(4,896 |
) |
|
|
(4,508 |
) |
Equipment,
furniture and leasehold improvements, net
|
|
$ |
292 |
|
|
$ |
666 |
|
Depreciation
expense was $388 thousand, $837 thousand, and $904 thousand for the years ended
December 31, 2007, 2006, and 2005, respectively. Assets under capital
leases are fully amortized.
Note
8 - DEBT
Debt is
as follows (in thousands):
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Current
portion of long-term debt:
|
|
|
|
|
|
|
Capitalized
lease obligations
|
|
$ |
— |
|
|
$ |
6 |
|
Other
debt
|
|
|
44 |
|
|
|
58 |
|
Line
of credit
|
|
|
1,108 |
|
|
|
|
|
6%
Senior Secured Convertible Notes
|
|
|
— |
|
|
|
2,880 |
|
Less: Unamortized
discount on notes payable
|
|
|
— |
|
|
|
(1,721 |
) |
8%
Amended Senior Secured Convertible Notes
|
|
|
5,962 |
|
|
|
— |
|
Less: Unamortized
discount on notes payable
|
|
|
(25 |
) |
|
|
— |
|
Current
portion of long-term debt, net
|
|
|
7,089 |
|
|
|
1,223 |
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
Other
debt
|
|
|
60 |
|
|
|
104 |
|
6%
Senior Secured Convertible Notes
|
|
|
— |
|
|
|
2,890 |
|
Less: Unamortized
discount on notes payable
|
|
|
— |
|
|
|
(765 |
) |
Long-term
debt, net
|
|
|
60 |
|
|
|
2,229 |
|
Total
debt, net
|
|
$ |
7,149 |
|
|
$ |
3,452 |
|
Maturities
with respect to the other debt, line of credit and the 8% Amended Senior Secured
Convertible Notes as of December 31, 2007 are as follows (in
thousands):
Years
Ending December 31,
|
|
|
|
2008
|
|
$ |
7,089 |
|
2009
|
|
|
60 |
|
On July
23, 2007, an investor elected to convert approximately $252 thousand of the 6%
Senior Secured Convertible Note (“Original Note”) representing $250 thousand of
the principal amount of the Note due on July 23, 2007 and approximately $2
thousand of accrued and unpaid interest. The investor received 720,476 shares of
Common Stock at the conversion price of $0.35.
On July
23, 2007, the Company entered into Amended Agreements with the note holders of
the Original Notes issued July 21, 2006 and March 28, 2007 and agreed to issue
each holder an 8% Amended Senior Secured Convertible Note (“Amended
Note”)
in the
principal amount equal to the principal amount outstanding as of July 23, 2007
which was in total approximately $6.0 million. The significant changes to the
Amended Notes include the following:
·
|
The
due dates have been changed from July 23, 2007 and January 21, 2008 to
December 21, 2008;
|
·
|
The
annual interest has been changed from 6% to 8%;
|
·
|
The
Amended Notes are convertible into 8,407,612 shares of the Company’s
common stock. The conversion price for $5.8 million of
principal is at a conversion price of $0.75, originally $2.60 and the
conversion price for $250,000 of principal remains the same at
$0.35;
|
·
|
The
Agreement adjusts the exercise price of the amended Warrants from $3.60 to
$1.03 per share for 1,553,468 shares of common stock and requires the
issuance of warrants for an additional 3,831,859 shares of common stock at
$1.03 per share with an expiration date of July 21,
2011. The warrants are subject to anti-dilution
adjustment rights;
|
·
|
50%
of the Amended Notes can be converted into the Company’s newly designated
Series A Senior Secured Convertible Preferred Stock which is convertible
into common stock at the same rate as the Amended
Notes;
|
·
|
The
liquidated damages of 1% per month will no longer accrue and the deferred
balance at July 23, 2007 is forgiven; and
|
·
|
There
is no minimum cash or cash equivalents balance
requirement.
|
Under the
guidance of EITF 96-19, “Debtor’s Accounting for a Modification or Exchange of
Debt Instruments”, the Company determined the change in the present value of the
expected cash flows between the Amended Notes and the Original Notes issued July
21, 2006 was greater than 10%; therefore (a) for financial reporting purposes,
the modifications to the Original Notes issued July 21, 2006 were treated as an
extinguishment of debt and (b) on July 23, 2007, the Company recorded a loss on
extinguishment of debt of approximately $10.7 million reflecting the difference
between (i) the recorded amount of debt, net of related discounts, of
approximately $4.8 million and (ii) the fair value of the new debt instrument of
approximately $10.7 plus the change in the fair value of the
warrants on July 23, 2007, the date of the modification, of
approximately $4.7 million. The Company has also recorded a
beneficial conversion charge of approximately $5.1 million on the Amended Notes
adjusting the Amended Notes to their face value of approximately $5.8
million. The Original Note issued on March 28, 2007 and amended on
July 23, 2007 was not treated as an extinguishment but a
modification.
On August
16, 2007, an investor elected to convert approximately $58 thousand of the
Amended Note. The investor received 76,923 shares of Common Stock at the
conversion price of $0.75.
On August
7, 2007, the Company entered into a loan agreement
with Moriah Capital, L.P. (“Moriah) and established a
revolving line of credit (the “Loan”) of $2.5 million. The Company is
permitted to borrow an amount not to exceed 90% of its eligible accounts
receivable and 50% of its eligible inventory capped at $600
thousand. As part of the transaction, the Company issued 162,500
shares of unregistered common stock valued at $195 thousand and paid a servicing
fee of $82,500 to Moriah which will be amortized to interest expense over the
life of the agreement. For the year ended December 31, 2007,
approximately $93 thousand was amortized to interest expense. In
conjunction with entering into this loan and issuing unregistered common stock,
the Company granted Moriah registration rights. The Loan can be
converted into shares of the Company’s common stock pursuant to the terms of the
Loan Conversion agreement. The Loan matures on August 8, 2008 however
the Company has the option of extending it an additional year. On
January 30 and on March 25, 2008, the loan agreement was
amended. Please see Note 17 - Subsequent Events for additional
information.
For the
year ended December 31, 2007, interest expense consisted of interest paid or
accrued on outstanding debt of $836 thousand.
Note
9 - INCOME TAXES
The
difference between the statutory federal income tax rate on the Company's
pre-tax income and the Company's effective income tax rate is summarized as
follows:
|
|
For
the years ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
U.S.
Federal income tax provision (benefit) at federal statutory
rate
|
|
|
(34)%
|
|
|
|
(34)%
|
|
|
|
(35)%
|
|
Change
in valuation allowance
|
|
|
2
%
|
|
|
|
32%
|
|
|
|
35%
|
|
Permanent
difference
|
|
|
32%
|
|
|
|
2%
|
|
|
|
—
|
|
|
|
|
0
%
|
|
|
|
0%
|
|
|
|
0%
|
|
The tax
effects of significant items comprising the Company’s deferred taxes as of
December 31 are as follows (numbers are in thousands):
|
|
For
the years ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Federal
and state net operating loss carry-forwards
|
|
$ |
42,266 |
|
|
$ |
41,554 |
|
|
$ |
37,159 |
|
Research
and development carry-forwards
|
|
|
1,397 |
|
|
|
— |
|
|
|
— |
|
Other
provision and expenses not currently deductible
|
|
|
1,746 |
|
|
|
520 |
|
|
|
216 |
|
Total
deferred tax assets
|
|
|
45,409 |
|
|
|
42,074 |
|
|
|
37,375 |
|
Less
valuation allowance
|
|
|
(45,409 |
) |
|
|
(42,074 |
) |
|
|
(37,375 |
) |
Net
deferred tax asset
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
As of
December 31, 2007, eMagin has federal and state net operating loss carryforwards
of approximately $150 million and $1.4 million that will be available to offset
future taxable income, if any, through December 2027. The utilization of net
operating losses is subject to a limitation due to the change of ownership
provisions under Section 382 of the Internal Revenue Code and similar state
provisions. Such limitation may result in the expiration of the net operating
losses before their utilization. The Company has done preliminary analysis
regarding prior year ownership changes, and although more analysis needs to be
done, we have tentatively determined that the Section 382 limitation on the
utilization of net operating losses is not material.
As of
December 31, 2007 and 2006, the Company has net deferred tax assets of
approximately of $45 and $42 million, respectively, primarily
resulting from the future tax benefit of net operating loss
carryforwards. Such net deferred tax assets are fully offset by a
valuation allowance due to the uncertainty as to their
realizability. A valuation allowance has been established to reserve
for the deferred tax assets arising from the net operating losses and other
temporary differences due to the uncertainty that their benefit will be realized
in the future. The valuation allowance increased approximately $3.3 million for
the year ended December 31, 2007 and $4.7 million for the year ended December
31, 2006.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. The Company did not
have unrecognized tax benefits which would require an adjustment to the January
1, 2007 beginning balance of retained earnings. The Company did not
have any unrecognized tax benefits at January 1, 2007 and December 31,
2007.
The
Company recognizes interest accrued and penalties related to unrecognized tax
benefits in tax expense. During the years ended December 31, 2007 and
2006 the Company recognized no interest and penalties.
The
Company files income tax returns in the U.S. federal jurisdiction and New
York. The tax years 2004-2006 remain open to examination by major
taxing jurisdictions to which the Company is subject.
Note
10 - SHAREHOLDERS' EQUITY
Preferred
Stock
2007
The
Company has designated but not issued 3,198 shares of the Company’s preferred
stock as Series A Senior Secured Convertible Preferred Stock (“the Preferred
Stock”) at a stated value of $1,000 per share. The Preferred Stock is
entitled to cumulative dividends which accrue at a rate of 8% per annum, payable
on December 21, 2008. Each share of the Preferred Stock has voting
rights equal to (1) in any case in which the Preferred Stock votes
together with the Company's Common Stock or any other class or series of stock
of the Company, the number of shares of Common Stock issuable upon conversion of
such shares of Preferred Stock at such time (determined without regard to the
shares of Common Stock so issuable upon such conversion in respect of accrued
and unpaid dividends on such share of Preferred Stock) and (2) in any case not
covered by the immediately preceding clause one vote per share of Preferred
Stock. The Preferred Stock has a mandatory redemption at December 21,
2008.
Common
Stock
2007
On August
16, 2007, an investor elected to convert approximately $58 thousand of the
Amended Note. The investor received 76,923 shares of Common Stock at the
conversion price of $0.75.
On August
7, 2007, the Company entered into a loan agreement
with Moriah Capital, L.P. (“Moriah) and established a
revolving line of credit (the “Loan”) of $2.5 million. As part of the
transaction, the Company issued 162,500 shares of unregistered common stock
valued at $195 thousand, recognized as deferred financing costs, and paid a
servicing fee of $82,500 to Moriah which will be amortized to interest expense
over the life of the agreement. For the year ended December 31, 2007
approximately $116 thousand was amortized to interest expense. In
conjunction with entering into this loan and issuing unregistered common stock,
the Company granted Moriah registration rights. The Loan can be
converted to shares of the Company’s common stock pursuant to the terms of the
Loan Conversion agreement. The Loan matures on August 8, 2008 however
the Company has the option of extending it an additional year. On
January 30, and March 25, 2008, the loan agreement was
amended. Please see Note 17 - Subsequent Events for additional
information.
A
registration rights agreement was entered into in connection with the Loan which
requires the Company to file a registration statement for the resale of the
common stock issued. The Company must use its best efforts to have
the registration statement declared effective by the end of a specified grace
period and also maintain the effectiveness of the registration statement until
all shares of common stock have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) of the Securities Act. Please
see Note 17 – Subsequent Events for additional information.
On July
23, 2007, the Company entered into Agreements with the note holders and agreed
to issue each holder an Amended Note in the principal amount equal to the
principal amount outstanding as of July 23, 2007 which was in total
approximately $6.0 million. The Amended Notes are convertible into 8,407,612
shares of the Company’s common stock. The conversion price for $5.8
million of principal is at a conversion price of $0.75 and the conversion price
for $250 thousand of principal remains the same at $0.35. The
Agreement adjusts the exercise price of the amended Warrants from $3.60 to $1.03
per share for 1,553,468 shares of common stock and requires the issuance of
warrants for an additional 3,831,859 shares of common stock at $1.03 per share
with an expiration date of July 21, 2011. The warrants are
subject to anti-dilution adjustment rights. 50% of the Amended Notes
can be converted into the Company’s newly designated Series A Senior Secured
Convertible Preferred Stock which is convertible into common stock at the same
rate as the Amended Notes.
The
Company had recorded the fair value of the warrants associated with the Note as
a liability as the warrant agreement required a potential net-cash settlement in
the first year of the warrant agreement if the registration statement is not
effective as required by EITF 00-19 “Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock” (“EITF
00-19”). The liability was adjusted to fair value at each reporting
period. As of July 23, 2007, the potential net-cash settlement had
expired. As a result, the fair value of the warrant liability on July
23, 2007, approximately $2.7 million, was reversed. For the year
ended December 31, 2007, the Company recorded losses of approximately $0.8
million from the change in the fair value of the warrant derivative liability.
The change in the fair value of the warrant liability was recorded in the
Consolidated Statement of Operations as other income (expense).
On July
23, 2007, an investor converted $250 thousand of the principal amount of the
Original Note due on July 23, 2007 and approximately $2 thousand of accrued and
unpaid interest totaling $252 thousand and received 720,476 shares of Common
Stock at the conversion price of $0.35. On August 16, 2007, an
investor elected to convert approximately $58 thousand of the Amended Note. The
investor received 76,923 shares of Common Stock at the conversion price of
$0.75.
On March
28, 2007, the Company entered into a Note Purchase Agreement for the sale of
$500 thousand of 6% senior secured convertible debentures (the “Note”) and
warrants to purchase approximately 1,000,000 shares of common stock, par value
$.001 per share. The investor purchased the Note with a conversion
price of $0.35 per share that may convert into approximately 1,400,000 shares of
common stock and issued warrants exercisable at $0.48 per share for
approximately 1,000,000 shares of common stock expiring in July
2011. On April 9, 2007, the Company closed the transaction and
received approximately $460 thousand, net of offering costs of approximately $40
thousand, which are amortized over the life of the Note. The
Note was amended on July 23, 2007 as described in Note
8: Debt.
As a
result of the issuance of the Note, the outstanding 116,573 Series A Common
Stock Purchase Warrants, that were issued to certain accredited and/or
institutional investors pursuant to the Securities Purchase Agreement dated
January 9, 2004, were re-priced from $2.60 to $0.35 and the outstanding 650,000
Series F Common Stock Purchase Warrants, that were issued to certain accredited
and/or institutional investors pursuant to the Securities Purchase Agreement
dated October 25, 2004, were re-priced from $8.60 to $7.12. As a result of the
issuance of the Amended Notes the outstanding 650,000 Series F Common Stock
Purchase Warrants that were issued to certain accredited and/or institutional
investors pursuant to the Securities Purchase Agreement dated October 25, 2004,
were re-priced from $7.12 to $4.39 in accordance with the anti-dilution
provision of the original agreement. These warrants were further
re-priced in connection with the loan agreement with Moriah from $4.39 to
$4.09. The repricing of the warrants has no effect on the financial
statements.
For
the year ended December 31, 2007, there were no stock options exercised and the
Company received approximately $3 thousand in proceeds for warrants exercised.
For the year ended December 31, 2007, the Company also issued approximately 1.5
million shares of common stock for payment of approximately $1.3 million for
services rendered and to be rendered in the future. As such, the
Company recorded the fair value of the services rendered in
prepaid expenses and selling, general and administrative expenses
in the accompanying consolidated statement of operations for the year ended
December 31, 2007.
2006
At the
Company’s 2006 Annual Meeting of Shareholders held on October 20, 2006, the
Company’s shareholders approved an amendment to the Company’s certificate of
incorporation to effect a reverse stock split of the issued and outstanding
common stock on a ratio of 1-for-10. On November 3, 2006, the reverse
stock split became effective. The Company has adjusted its shareholders’ equity
accounts by reducing its stated capital and increasing its additional paid-in
capital by approximately $91 thousand as of December 31, 2006 and 2005 to
reflect the reduction in outstanding shares as a result of the reverse stock
split.
On July
21, 2006, the Company entered into several Note Purchase Agreements for the sale
of approximately $5.99 million of senior secured debentures (the “Notes”) and
warrants to purchase approximately 1.8 million shares of common stock, par value
$.001 per share. The investors purchased $5.99 million principal
amount of Notes with conversion prices of $2.60 per share that may convert into
approximately 2.3 million shares of common stock and 5 year warrants exercisable
at $3.60 per share into approximately 1.6 million shares of common
stock. If the Notes are not converted, 50% of the principal amount
will be due on July 23, 2007 and the remaining 50% will be due on January 21,
2008. Commencing September 1, 2006, 6% interest is payable in
quarterly installments on outstanding notes. For the year ended
December 31, 2006, the Company paid approximately $124 thousand of interest to
investors. The Company received approximately $5.4 million, net of deferred
financing costs of approximately $0.6 million which are amortized over the life
of the Notes. The Company amortized approximately $221 thousand
of deferred financing costs in 2006. For the year ended December 31, 2006, two
note holders converted their promissory notes valued at approximately $220
thousand and were issued an aggregate of approximately 85,000
shares.
Under
EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company’s Own Stock”, the fair value of the warrants,
$3.6 million, have been recorded as a liability since the warrant agreement
requires a potential net-cash settlement in the first year of the warrant
agreement if the registration statement is not effective. As of
December 31, 2006, the registration statement is effective. The
liability will be adjusted to fair value at each reporting
period. The change in the fair value of the warrants will be recorded
in the Consolidated Statement of Operations as other income
(expense). For the twelve months ended December 31, 2006, the Company
recorded approximately $2.4 million of gain from the change in the fair value of
the derivative liability.
An
additional $0.5 million was to be invested through the exercise of a warrant to
purchase approximately 192,000 shares of common stock at $2.60 per share on or
prior to December 14, 2006, or at the election of the Company, by the purchase
of additional Notes and warrants. The Company determined the relative
fair value of the warrants to be approximately $157,000 which was recorded as an
other asset. The following assumptions were used to determine the
fair value of the warrant:
Dividend
yield
|
|
0%
|
Risk
free interest rates
|
|
5.25%
|
Expected volatility
|
|
122%
|
Expected
term (in years)
|
|
0.4
years
|
|
|
|
The
investor elected not to exercise its warrants prior to December 14,
2006. The fair value of the warrants which was recorded as an other
asset was written off as a sales, general and administrative
expense.
In
connection with the Notes, a registration rights agreement was entered into
which requires the Company to file a registration statement for the resale of
the common stock underlying the Notes and the warrants. The Company
must use its best efforts to have the registration statement declared effective
by the end of a specified grace period and also maintain the effectiveness of
the registration statement until all shares of common stock underlying the Notes
and the warrants have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) of the Securities Act. If the Company fails
to have the registration statement declared effective within the grace period or
fails to maintain the effectiveness as set forth in the preceding sentence, the
Company is required to pay each investor cash payments equal to 1.0% of the
aggregate purchase price monthly until the failure is cured. If the
Company fails to pay the liquidated damages, interest at 16.0% will accrue until
the liquidated damages are paid in full. The registration statement
was filed and declared effective by the Securities and Exchange Commission
within the specified grace period.
The
Company accounts for the registration rights agreement as a separate
freestanding instrument and accounts for the liquidated damages provision as a
derivative liability subject to SFAS 133. The estimated fair value of
the derivative liability is based on an estimate of the probability and costs of
cash penalties being incurred. The Company determined that the fair
value of the liability was immaterial and it is not recorded in accrued
liabilities. The Company will revalue the potential liability at each
balance sheet date.
As a
result of the issuance of the Notes, the outstanding 116,576 Series A Common
Stock Purchase Warrants, that were issued to certain accredited and/or
institutional investors pursuant to the Securities Purchase Agreement dated
January 9, 2004, were re-priced from $5.50 to $2.60 and the outstanding 650,001
Series F Common Stock Purchase Warrants, that were issued to certain accredited
and/or institutional investors pursuant to the Securities Purchase Agreement
dated October 25, 2004, were re-priced from $10.90 to $8.60.
For the
year ended December 31, 2006, the Company received approximately $10 thousand
for the exercise of 5,000 options and there were no warrants
exercised. For year ended December 31, 2006, the Company issued
approximately 254,000 shares of common stock in lieu of cash payments in the
amount of approximately $580 thousand as compensation for services rendered
and to be rendered in the future. The fair value of the services was
measured at market value of the common stock at the time of
payment. As such, the Company recorded the fair value of the services
rendered in selling, general and administrative expenses in the accompanying
audited consolidated statement of operations for the year ended December 31,
2006.
The 2004
Non-Employee Compensation Plan (the “2004 Plan”) was established to help the
Company retain consultants, professionals and service providers. The
Board of Directors will select the recipient of the awards, the nature of the
awards and the amount. At the 2006 Annual Shareholder meeting, the shareholders
approved an increase in the number of authorized shares of common stock usable
from 200,000 to 950,000. This number is subject to adjustment in the
event of a recapitalization, reorganization or similar event.
2005
On
October 20, 2005, the Company entered into a Securities Purchase Agreement,
pursuant to which the Company sold and issued 1,661,906 shares of common stock,
par value $0.001 per share, at a price of $5.50 per share and warrants to
purchase up to 997,143 shares of common stock for an aggregate purchase price of
approximately $9.14 million. The net proceeds received after expenses
were approximately $8.4 million.
The
warrants are exercisable at a price of $10.00 per share and expire on April 20,
2011. Of the 997,143 warrants, 664,763 of the warrants are
exercisable on or after May 20, 2006. The remaining 332,381 are
exercisable after March 31, 2007, however these warrants will be cancelled if
the Company’s net revenue for fiscal year 2006 exceeds $20 million or if the
investor has sold more than 25% of the shares purchased under the securities
purchase agreement prior to December 31, 2006.
As a
result of the above transaction, the outstanding 121,335 Series A Common Stock
Purchase Warrants, that were issued to participants of the Securities Purchase
Agreement dated January 9, 2004, were re-priced from $10.50 to $5.50 and the
outstanding 650,001 Series F Common Stock Purchase Warrants, that were issued to
participants of the Securities Purchase Agreement dated October 25, 2004, were
re-priced from $12.10 to $10.90.
A
registration rights agreement was entered into in connection with the private
placement which requires the Company to file a registration statement for the
resale of the common stock and the shares underlying the
warrants. The Company must use its best efforts to have the
registration statement declared effective by the end of a specified grace period
and also maintain the effectiveness of the registration statement until all
common stock have been sold or may be sold without volume restrictions pursuant
to Rule 144(k) of the Securities Act. If the Company fails to have
the registration statement declared effective within the grace period or fails
to maintain the effectiveness, the agreement requires the Company to pay each
investor cash payments equal to 2.0% of the aggregate purchase price monthly
until the failure is cured. If the Company fails to pay the
liquidated damages, interest at 15.0% will accrue until the liquidated damages
are paid in full. The registration statement was filed and declared
effective within the specified grace period. As of December 31, 2006,
the registration statement remains effective.
The
Company accounts for the registration rights agreement as a separate
freestanding instrument and accounts for the liquidated damages provision as a
derivative liability subject to SFAS 133. The estimated fair value of
the liability is based on an estimate of the probability and costs of cash
penalties being incurred. The Company determined that the fair value
of the liability was
immaterial
and it is not recorded in accrued liabilities. The Company will
revalue the potential liability at each balance sheet date.
In 2005,
the Company received approximately $1.6 million for the exercise of
approximately 11,100 options and 306,000 warrants. The Company also
issued approximately 54,300 shares of common stock for the payment of $461
thousand of services rendered and to be rendered in the future. The
fair value of the services was measured at market value of the common stock at
the time of payment. As such, the Company recorded the fair value of
the services rendered in selling, general and administrative expenses in the
accompanying audited consolidated statement of operations for the year ended
December 31, 2005.
Note
11 - STOCK COMPENSATION
Employee
stock purchase plan
In 2005,
the stockholders approved the 2005 Employee Stock Purchase Plan
(“ESPP”). The ESPP provides the Company’s employees with the
opportunity to purchase common stock through payroll deductions. Employees
purchase stock semi-annually at a price that is 85% of the fair market value at
certain plan-defined dates. At December 31, 2007, the number of shares of common
stock available for issuance was 225,000 and the plan will automatically
increase 75,000 shares on January 1 of each year for a period of three years
starting January 1, 2006. As of December 31, 2007, the plan had not been
implemented.
Incentive
compensation plans
In 2000,
the Company established the 2000 Stock Option Plan (the "2000 Plan"). The Plan
permits the granting of options and stock purchase rights to employees and
consultants of the Company. The 2000 Plan allows for the grant of incentive
stock options meeting the requirements of Section 422 of the Internal Revenue
Code of 1986 (the "Code") or non-qualified stock options which are not intended
to meet such requirements.
In 2003,
the Company established the 2003 Stock Option Plan (the "2003 Plan"). The 2003
Plan provided for the granting of options to purchase an aggregate of 9,200,000
shares of the common stock to employees and consultants. On July 2, 2003, the
shareholders approved the plan and the 2003 Plan was subsequently amended by the
Board of Directors on July 2, 2003 to reduce the number of additional shares
that may be provided for issuance under the "evergreen" provisions of the 2003
Plan. The amended 2003 Plan provides for an increase of 2,000,000 shares in
January 2004 and an annual increase on January 1 of each year for a period of
nine (9) years commencing on January 1, 2005 of 3% of the diluted shares
outstanding. The shareholders approved an amendment to the 2003 Plan
to provide grants of shares of common stock in addition to options to purchase
shares of common stock. In 2005, approximately 2.4 million shares
were added to the plan.
On
February 20, 2008, the Board of Directors authorized the establishment of the
2008 Incentive Stock Plan. Please see Note 17 - Subsequent events for
addition information.
Vesting
terms of the options range from immediate vesting to a ratable vesting period of
5 years. Option activity for the years ended December 31, 2007, 2006 and 2005 is
summarized as follows:
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life (In Years)
|
|
Aggregate
Intrinsic Value
|
Balances
at December 31, 2004
|
|
1,355,916
|
|
$11.40
|
|
|
|
|
Options
granted
|
|
582,400
|
|
9.60
|
|
|
|
|
Options
exercised
|
|
(11,059)
|
|
3.40
|
|
|
|
|
Options
cancelled
|
|
(121,993)
|
|
13.90
|
|
|
|
|
Balances
at December 31, 2005
|
|
1,805,264
|
|
10.90
|
|
|
|
|
Options
granted
|
|
185,744
|
|
4.30
|
|
|
|
|
Options
exercised
|
|
(5,000)
|
|
2.10
|
|
|
|
|
Options
forfeited
|
|
(453,115)
|
|
7.47
|
|
|
|
|
Options
cancelled
|
|
(467,148)
|
|
11.97
|
|
|
|
|
Balances
at December 31, 2006
|
|
1,065,745
|
|
2.94
|
|
|
|
|
Options
granted
|
|
228,577
|
|
1.41
|
|
|
|
|
Options
exercised
|
|
—
|
|
—
|
|
|
|
|
Options
forfeited
|
|
(203,943)
|
|
2.90
|
|
|
|
|
Options
cancelled
|
|
(196,056)
|
|
2.67
|
|
|
|
|
Balances
at December 31, 2007
|
|
894,323
|
|
$
2.62
|
|
5.36
|
|
$6,524
|
Vested
or expected to vest at
December
31, 2007 (1)
|
|
877,408
|
|
$
2.67
|
|
5.36
|
|
$—
|
Exercisable
at December 31, 2007
|
|
682,883
|
|
$
2.57
|
|
5.53
|
|
$—
|
(1) The
expected to vest options are the result of applying the pre-vesting forfeiture
rate assumptions to total unvested options.
At
December 31, 2007, there were 813,185 shares available for grant under the 2003
Plan and the 2000 Plan.
The
following table summarizes information about stock options outstanding at
December 31, 2007:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (In Years)
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercisable Price
|
$1.00
- $1.51
|
|
228,577
|
|
9.60
|
|
$ 1.41
|
|
205,277
|
|
$
1.46
|
$2.60
- $2.70
|
|
624,546
|
|
3.91
|
|
2.61
|
|
445,506
|
|
2.60
|
$3.50
- $5.80
|
|
12,000
|
|
4.68
|
|
5.61
|
|
12,000
|
|
5.61
|
$6.60
- $22.50
|
|
29,200
|
|
3.57
|
|
10.91
|
|
20,100
|
|
11.23
|
|
|
894,323
|
|
5.36
|
|
$ 2.62
|
|
682,883
|
|
$
2.57
|
(1) The
expected to vest options are the result of applying the pre-vesting forfeiture
rate assumptions to total outstanding options.
The
aggregate intrinsic value in the table above represents the difference between
the exercise price of the underlying options and the quoted price of the
Company’s common stock for the options that were in-the-money. As of
December 31, 2007 there were 23,300 options that were
in-the-money. The Company’s closing stock price was $1.28 as of
December 31, 2007. The Company issues new shares of common stock upon exercise
of stock options.
On July
21, 2006, certain employees and Directors of the Company agreed to cancel
approximately 467,000 shares underlying existing stock options in return for the
re-pricing of approximately 869,000 existing options at $2.60 per share having a
weighted average original exercise price of $11.97. Option grants
that have not been re-priced remain unchanged. The unvested options
which were re-priced continue to vest on original vesting schedules, but in no
event vest prior to January 19, 2007. Previously vested options which
were re-priced were fully vested on January 19, 2007. Re-priced
grants will be forfeited if the individual leaves voluntarily. The
Company has accounted for the re-pricing and cancellation transactions as a
modification under SFAS No. 123R.
Stock based
compensation
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123R, which
requires the Company to recognize expense related to the fair value of the
Company’s share-based compensation issued to employees and
directors. Prior to January 1, 2006, the Company accounted for
share-based compensation under the recognition and measurement provisions of
APB No. 25 and related interpretations, as permitted by SFAS No.
123. The Company adopted SFAS No. 123R using the modified prospective
transition method. Accordingly, periods prior to adoption have not
been restated. Compensation cost recognized for the twelve months
ended December 31, 2007 and 2006 includes a) compensation cost for all
share-based compensation granted prior to, but not vested as of January 1, 2006,
based on the grant-date fair value estimated in accordance with the original
provisions of SFAS No.123 and b) compensation cost for all share-based
compensation granted beginning January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS
No.123R. The compensation cost was recognized using the straight-line
attribution method.
The
following table summarizes the allocation of stock-based compensation to expense
categories for the years ended December 31, 2007 and 2006 (in
thousands):
|
|
For
the years ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Cost
of revenue
|
|
$ |
215 |
|
|
$ |
343 |
|
Research
and development
|
|
|
357 |
|
|
|
435 |
|
Selling,
general and administrative
|
|
|
1,080 |
|
|
|
2,113 |
|
Total
stock compensation expense
|
|
$ |
1,652 |
|
|
$ |
2,891 |
|
For the
year ended December 31, 2007, stock compensation was approximately $1.7
million. At December 31, 2007, total unrecognized compensation costs
related to stock options was approximately $1.7 million, net of estimated
forfeitures. Total unrecognized compensation cost will be adjusted
for future changes in estimated forfeitures and is expected to be recognized
over a weighted average period of approximately 2.6 years. For the
year ended December 31, 2006, stock compensation was approximately $2.9
million.
The
Company recognizes compensation expense for options granted to non-employees in
accordance with the provision of Emerging Issues Task Force (“EITF”) consensus
Issue 96-18, “Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services,”
which requires using a fair value options pricing model and re-measuring such
stock options to the current fair market value at each reporting period as the
underlying options vest and services are rendered.
In
determining the fair value of stock options granted during the years ended
December 31, 2007, 2006, and 2005, the following key assumptions were used in
the Black-Scholes option pricing model:
|
|
For
the years ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Dividend
yield
|
|
0%
|
|
0%
|
|
0%
|
Risk
free interest rates
|
|
3.28%
- 4.23%
|
|
4.59%
- 4.82%
|
|
4.4%
|
Expected volatility
|
|
105%
-106%
|
|
123%
- 126%
|
|
126%
|
Expected
term ( in years)
|
|
5
years
|
|
5
years
|
|
5
years
|
We have
not declared or paid any dividends and do not currently expect to do so in the
near future. The risk-free interest rate used in the Black-Scholes is
based on the implied yield currently available on U.S. Treasury securities with
an equivalent term. Expected volatility is based on the
weighted average historical volatility of the Company’s common stock for the
most recent five year period. The expected term of options represents
the period that eMagin’s stock-based awards are expected to be outstanding and
was determined based on historical experience and vesting schedules of similar
awards.
The
following table shows the proforma effect on eMagin’s net loss and net loss per
share had compensation expense been determined based on the fair value at the
award grant date in accordance with SFAS No. 123 for the twelve months ended
December 31, 2005 (in thousands, except per share data):
|
|
For
the year ended December 31, 2005
|
|
|
|
|
|
Net
loss applicable to common stockholders, as reported
|
|
$ |
(16,528 |
) |
Add: Stock-based
employee compensation expense included in reported net
loss
|
|
|
— |
|
Deduct:
Stock-based employee compensation expense determined under fair value
method
|
|
|
(3,035 |
) |
Pro
forma net loss
|
|
$ |
(19,563 |
) |
Net
loss per share:
|
|
|
|
|
Basic
and diluted, as reported
|
|
$ |
(1.94 |
) |
Basic
and diluted, pro
forma
|
|
$ |
(2.29 |
) |
|
|
|
|
|
Warrants
At
December 31, 2007, 8,340,509 warrants to purchase shares of common stock are
outstanding and exercisable at exercise prices ranging from $0.35 to $27.60 and
expiration dates ranging from June 10, 2008 to February 27, 2012.
|
|
Outstanding
Warrants
|
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Balances
at December 31, 2004
|
|
|
2,161,823 |
|
|
$ |
11.40 |
|
Warrants
granted
|
|
|
997,143 |
|
|
|
10.00 |
|
Warrants
exercised
|
|
|
(370,820 |
) |
|
|
6.10 |
|
Warrants
cancelled
|
|
|
(168,421 |
) |
|
|
26.70 |
|
Balances
at December 31, 2005
|
|
|
2,619,725 |
|
|
$ |
10.20 |
|
Warrants
granted
|
|
|
1,805,037 |
|
|
|
3.49 |
|
Warrants
exercised
|
|
|
— |
|
|
|
— |
|
Warrants
expired
|
|
|
(876,588 |
) |
|
|
6.90 |
|
Balances
at December 31, 2006
|
|
|
3,548,174 |
|
|
$ |
7.05 |
|
Warrants
granted
|
|
|
4,831,859 |
|
|
|
0.88 |
|
Warrants
exercised
|
|
|
(9,524 |
) |
|
|
0.35 |
|
Warrants
expired
|
|
|
(30,000 |
) |
|
|
4.26 |
|
Balances
at December 31, 2007
|
|
|
8,340,509 |
|
|
$ |
2.65 |
|
|
|
|
|
|
|
|
|
|
On
January 30 and March 25, 2008, the loan agreement with Moriah was amended and
restated and 750,000 warrants and 250,000 warrants, respectively, were issued
with exercise prices of $1.50 per share. Please see Note 17 –
Subsequent Events for additional information.
Note
12 - COMMITMENTS AND CONTINGENCIES
Royalties
The Company, in accordance with
a royalty agreement with Eastman Kodak, is obligated to make
minimum annual royalty payments of $125 thousand which commenced on January
1, 2001. Under this agreement, the Company must pay to Eastman Kodak a certain
percentage of net sales with respect to certain products, which
percentages are defined in the agreement. The percentages are on a sliding scale
depending on the amount of sales generated. Any minimum royalties
paid will be credited against the amounts due based on the percentage of
sales. The royalty agreement terminates upon the expiration of the issued
patent which is the last to expire.
Effective
May 30, 2007, Kodak and eMagin entered into an intellectual property agreement
where eMagin has assigned Kodak the rights, title, and interest to a Company
owned patent currently not being used by the Company and in consideration, Kodak
has waived the royalties due under existing licensing agreements for the first
six months of 2007, and reduced the royalty payments by 50% for the second half
of 2007 and for the entire calendar year of 2008. In addition, the minimum
royalty payment is delayed until December 1st for the
years 2007 and 2008. The Company recorded approximately $868 thousand
for the year ended December 31, 2007 as income from the license of intangible
assets and included this amount in other income on the Consolidated Statement of
Operations.
For the
years ended December 31, 2007, 2006, and 2005, royalty expense of approximately
$1.2 million, $515 thousand, and $191 thousand, respectively, is included in
cost of goods sold.
Operating
leases
The
Company leases office facilities and office, lab and factory equipment under
operating leases expiring through 2009. The Company currently
has lease commitments for space in Hopewell Junction, New York and Bellevue,
Washington.
The
Company’s manufacturing facilities are leased from IBM in New
York. eMagin leases approximately 40,000 square feet to house its
equipment for OLED microdisplay fabrication and for research and development, an
assembly area and administrative offices. In 2004, eMagin
entered into an agreement to extend the term of the lease until
2009.
In July
2005, eMagin signed a sub-lease agreement for approximately 19,000 square feet
in Bellevue Washington. The leased space is used as the Company’s corporate
headquarters. This lease will expire in 2009. The
Company’s lease at the Redmond Washington location expired in August 2005 and
was not renewed.
The
future minimum lease payments through 2009 are as follows (in
thousands):
2008
|
|
$ |
1,444 |
|
2009
|
|
|
538 |
|
|
|
$ |
1,982 |
|
|
|
|
|
|
Employee
benefit plans
eMagin
has a defined contribution plan (the 401(k) Plan) under Section 401(k) of the
Internal Revenue Code, which is available to all employees who meet established
eligibility requirements. Employee contributions are generally limited to 15% of
the employee's compensation. Under the provisions of the 401(k) Plan, eMagin may
match a portion of the participating employees' contributions. There was no
matching contribution to the 401(k) Plan for the years ended December 31, 2007,
2006 and 2005.
Legal
proceedings
A former
employee (“plaintiff”) of the Company commenced legal action in the United
States District Court for the Southern District of New York, on or about October
12, 2007, alleging that the plaintiff was subject to gender based discrimination
and retaliation in violation of Title VII of the Civil Rights Act of 1964 (Case No. 07-CV-8827
(KMK). The plaintiff seeks unspecified compensatory damages,
punitive damages and attorneys’ fees. On November 26, 2007, the
Company served and filed its Answer, in which it denied the material allegations
of the Complaint and asserted numerous affirmative defenses. This
action is presently in the discovery stage. The Company disputes the
allegations of the Complaint and intends on vigorously defending this
action.
On
December 6, 2005, New York State Urban Development Corporation commenced action
against eMagin in the Supreme Court of the State of New York, County of New York
against eMagin, asserting breach of contract and seeking to recover a $150,000
grant which was made to eMagin based on goals set forth in the agreement for
recruitment of employees. On July 13, 2006, eMagin agreed to a
settlement with the New York State Urban Development Corporation to repay
$112,200 of the $150,000 grant. The settlement requires that repayments be made
on a monthly basis in the amount of $3,116.67 per month commencing August 1,
2006 and ending on July 1, 2009.
Note
13 – RELATED PARTY TRANSACTIONS
2007
On July
23, 2007, the Company entered into Agreements with the note holders and issued
8% Amended Senior Secured Convertible Notes (“Amended Notes”) to the note
holders in the principal amount equal to the principal amount outstanding as of
July 23, 2007. The due date for the principal payment has been extended to
December 21, 2008 and the interest rate increased to 8%. The Amended Notes are
convertible into 8,407,612 shares of the Company’s common stock. The conversion
price for approximately $5,770,000 of principal was revised from $2.60 to $.75
per share and the conversion price of $.35 per share for $250,000 of principal
was unchanged. $3,010,000 of the Notes can convert into 3,010 shares of the
Company’s newly formed Series A Convertible Preferred Stock (the “Preferred”) at
a conversion price of $1,000 per share. The Preferred is convertible into common
stock at the same price allowable by the Amended Notes, subject to
adjustment as provided for in the Certificate of Designations. The Amended Notes
adjust the exercise price from $3.60 to $1.03 per share for 1,553,468 warrants
and require the issuance of 3,831,859 warrants exercisable at $1.03 per share
pursuant to which the note holders may acquire common stock, until July 21,
2011.
Two
employees and one board member participated in the Agreements. Olivier Prache,
Senior VP of Display Operations, has an Amended Note of $10 thousand which may
be converted into 13,333 shares, received 9,333 warrants which are exercisable
at $1.03 per share, and has 5,385 warrants which are exercisable at $3.60 per
share. John Atherly, former CFO as of January 2, 2008, has an Amended
Note of $40 thousand which may be converted into 53,333 shares and received
37,333 warrants which are exercisable at $1.03 per share. Paul
Cronson, Board member, through Navacorp III, LLC, has an Amended Note of $200
thousand which may be converted into 266,666 shares and received 186,666
warrants which are exercisable at $1.03 per share.
Stillwater
LLC is a beneficial owner of more than 5% of the Company’s common
stock. Rainbow Gate Corporation, a corporation in which its
investment manager is the sole member of Stillwater LLC and its controlling
shareholder is the same as Ginola Limited, has an Amended Note of $700 thousand
which may be converted into 933,333 shares and received 653,333 warrants
exercisable at $1.03 per share. Ginola Limited has an Amended Note of
$800 thousand which may be converted into 1,066,333 shares and received 746,666
warrants exercisable at $1.03 per share. Stillwater LLC disclaims
beneficial ownership of shares owned by Rainbow Gate Corporation.
Alexandra
Global Master Fund Ltd (“Alexandra”) is a beneficial owner of more than 5% of
the Company’s common stock. Alexandra has an Amended Note of $3
million which may be converted into 4 million shares and received 2.8 million
warrants exercisable at $1.03 per share.
On March
28, 2007, the Company entered into an amendment to the Stillwater Agreement,
originally dated July 21, 2006. On April 9, 2007, the sale of the Stillwater
Note and Warrant was complete and the Company issued a 6% Senior Secured
Convertible Note in the principal amount of $500,000 and warrants to purchase
1,000,000 shares of the Company’s common stock at an exercise price of $0.48. On
July 23, 2007, Stillwater elected to convert $250,000 of the principal amount of
the Note and approximately $2,167 of accrued and unpaid interest. Stillwater
received 720,476 shares of Common Stock at the conversion price of
$0.35. The remaining 50% was amended to an 8% Amended Senior Secured
Convertible Note on July 23, 2007.
A family
member of an outside director of eMagin is the holder of a Series A warrant to
purchase an aggregate of 4,286 shares of common stock. As a result of the
Stillwater transaction, the exercise price of all Series A warrants was reduced
from $5.50 to $0.35 per share. Family members of an outside
director of eMagin are holders of Series F warrants to purchase an aggregate of
10,000 shares of common stock. As a result of the debt
transactions, the exercise price of all Series F warrants was ultimately reduced
from $8.60 to $4.09 per share.
2006
On July
21, 2006, the Company entered into several Note Purchase Agreements for the sale
of approximately $5.99 million of senior secured debentures (the “Notes”) and
warrants to purchase approximately 1,800,000 shares of common stock, par value
$.001 per share. The investors purchased $5.99 million principal
amount of Notes with conversion prices of $2.60 per share that may convert into
approximately 2.3 million shares of common stock and 5 year warrants exercisable
at $3.60 per share into approximately 1,600,000 million shares of common
stock. If the Notes are not converted, 50% of the principal amount
will be due on July 23, 2007 and the remaining 50% will be due on January 21,
2008. Commencing September 1, 2006, 6% interest was payable in
quarterly installments on outstanding notes. The Notes were amended
on July 23, 2007.
In the
Note Purchase transaction, two employees and a board member
participated. Olivier Prache, Senior VP of Display Operations,
purchased a $30 thousand promissory note which may be converted into 11,539
shares and received 8,077 warrants which are exercisable at $3.60 per
share. Mr. Prache converted $20 thousand of his promissory note and
received 7,693 shares. John Atherly, CFO, purchased a $40
thousand promissory note which may be converted into 15,385 shares and received
10,770 warrants exercisable at $3.60 per share. Paul Cronson, Board
member, through Navacorp III, LLC purchased a $200 thousand promissory note
which may be converted into 76,923 shares and received 53,847 warrants
exercisable at $3.60 per share. The Notes were amended on July 23,
2007.
Stillwater
LLC is a beneficial owner of more than 5% of the Company’s common
stock. Rainbow Gate Corporation, a corporation in which its
investment manager is the sole member of Stillwater LLC and its controlling
shareholder is the same as Ginola Limited, purchased a $700 thousand promissory
note which may be converted into 269,231 shares and received 188,462 warrants
exercisable at $3.60 per share. Ginola Limited purchased an $800
thousand promissory note which may be converted into 307,693 shares and received
215,385 warrants exercisable at $3.60 per share. Stillwater LLC
disclaims beneficial ownership of shares owned by Rainbow Gate
Corporation. The Notes were amended on July 23, 2007.
A family
member of an outside director of eMagin is the holder of a Series A warrant to
purchase an aggregate of 4,286 shares of common stock. As a result of the Note
Purchase transaction, the exercise price of all Series A warrants was reduced
from $5.50 to $2.60 per share. Family members of an outside
director of eMagin are holders of Series F warrants to purchase an aggregate of
10,000 shares of common stock. As a result of the Note Purchase
transaction, the exercise price of all Series F warrants was reduced from $10.90
to $8.60 per share.
eMagin
has entered into a financial advisory agreement with Larkspur Capital
Corporation. Paul Cronson, a director of eMagin, is a founder and shareholder of
Larkspur Capital Corporation. The Company has agreed to pay a minimum fee of
$500 thousand to Larkspur Capital Corporation in the event certain transactions
occur, i.e. sale of the Company’s assets or change of control.
2005
On
October 20, 2005, the Company entered into a Securities Purchase Agreement to
sell to certain qualified institutional buyers and accredited investors an
aggregate of 1,661,906 shares of eMagin’s common stock, par value $0.001 per
share (the “Shares”), and warrants to purchase an additional 997,143 shares of
common stock, for an aggregate purchase price of approximately $9.1 million. The
purchase price of the common stock and corresponding warrant was $5.50 per
share.
The
warrants are exercisable at a price of $10.00 per share and expire on October
20, 2010. Of the 997,143 warrants, 664,762 of the warrants are exercisable on or
after May 20, 2006. The remaining 332,380 are exercisable after March 31,
2007.
Stillwater
LLC is a beneficial owner of more than 5% of the Company’s common
stock. Rainbow Gate Corporation, a corporation in which its
investment manager is the sole member of Stillwater LLC and its controlling
shareholder is the same as Ginola Limited, participated in the sale of equity
pursuant to the Securities Purchase Agreement by investing $500
thousand. Stillwater LLC disclaims beneficial ownership of shares
owned by Rainbow Gate Corporation.
Chelsea
Trust Company, as trustee of a trust with the same directors and/or controlling
shareholders as Ginola Limited, participated in the sale of equity pursuant to
the Securities Purchase Agreement by investing $250 thousand. Ginola
Limited disclaims beneficial ownership of shares owned by Chelsea Trust
Company.
In
connection with the issuance of the Shares and the warrants pursuant to the
Securities Purchase Agreement, the Company was required to lower the exercise
prices of existing Series A and F warrants from $10.50 and $12.10 per share,
respectively, to $5.50 and $10.90 per share, respectively, pursuant to the
anti-dilution provisions of the Series A and F warrants.
A family
member of an outside director of eMagin is the holder of a Series A warrant to
purchase an aggregate of 4,286 shares of common stock. Accordingly, the exercise
price of all Series A warrants was reduced from $10.50 to $5.50 per
share.
Note
14 – SEPARATION AND EMPLOYMENT AGREEMENTS
Executive
Separation and Consulting Agreement
On
January 11, 2007, Gary Jones resigned as the President, Chief Executive Officer,
and as a Director of the Company. Mr. Jones and the Company entered
into an Executive Separation and Consulting Agreement (“the
Agreement”). Under the Agreement, the Company made a payment to Mr.
Jones in an amount equal to: all accrued salary as of the date of the Agreement
plus an additional 30 days of salary (approximately $47 thousand); 360
hours of unused vacation (approximately $55 thousand); advance for legal and
accounting fees associated with 2004 stock options ($30 thousand); and an
advance for future travel expenditures ($5 thousand). Mr. Jones also received
500,000 shares of registered common stock of the Company valued at $430
thousand. In his consulting relationship, Mr. Jones will be paid $460 thousand
upon the consummation of a strategic transaction. The Company
will provide up to $7.5 thousand for reasonable moving expenses of personal
property from the New York office. In addition, the Company will pay
up to an additional $30 thousand to Mr. Jones related to personal legal
fees.
Compensation
Agreement
On
January 11, 2007, Dr. K.C. Park was appointed Interim Chief Executive Office,
President, and a Director of the Company. On February 12, 2007, the
Company entered into a Compensation Agreement (“the Agreement”) with Dr.
Park. Under the Agreement, the Company paid Dr. Park an annual base
salary equal to $300 thousand plus a quarterly increase in his base salary in
the amount of $12.5 thousand per fiscal quarter through December 31,
2007. The Company agreed to issue Dr. Park an aggregate of 250,000
restricted shares of common stock within 10 business days of the completion of a
change of control of the Company. In addition, if a change of control
transaction is completed and Dr. Park is not offered a senior executive position
in the new organization, the Company has agreed to pay Dr. Park three month’s
salary. K.C. Park resigned effective January 31,
2008. Please see Note 17 - Subsequent Events.
Effective
January 30, 2008, the Company entered into an amended employment agreement with
Susan K. Jones, its Chief Marketing and Strategy Officer. The amended
agreement provides for an increase in compensation, extends the term of the
agreement to January 31, 2010, changes certain incentive award payment
requirements, clarifies the basis for incentive award determination, and extends
the change-of-control/material change/termination-without-cause compensation
payout periods. Please see Note 17 - Subsequent Events.
Note
15 - CONCENTRATIONS
The
Company had no customers that accounted for more than 10% of its total revenues
in 2007. In 2006, the Company had one customer that accounted for 13%
of its total revenues. In 2005, the Company had no customers that
accounted for more than 10% of its total revenues.
For the
year ended December 31, 2007, approximately 51% of the Company’s net revenues
were made to customers in the United States and approximately 49% of the
Company’s net revenues were made to international customers. For the
year ended December 31, 2006, approximately 59% of the Company's net revenues
were made to customers in the United States and approximately 41% of the
Company's net revenues were made to international customers. For the
year ended December 31, 2005, approximately 49% of the Company’s net revenues
were made to customers in the United States and approximately 51% of the
Company’s net revenues were made to international customers.
There
were 5 customers which comprised 54% of the outstanding accounts receivable at
December 31, 2007. At December 31, 2006, there were 5 customers which
comprised 69% of the outstanding accounts receivable.
The
Company purchases principally all of its silicon wafers from a single supplier
located in Taiwan.
Note
16 – AMEX DELISTING
On
October 9, 2006, the Company received notice from the American Stock Exchange
(the “AMEX”) Listing Qualifications Department stating that the Company does not
meet certain continued listing standards as set forth in Part 10 of the AMEX
Company Guide (the “Company Guide”). Specifically, pursuant to a review by the
AMEX of the Company’s 10-Q for the three and six months ended June 30, 2006, the
AMEX has determined that the Company is not in compliance with Sections
1003(a)(ii) and 1003(a)(iii) of the Company Guide, respectively, which state, in
relevant part, that the AMEX will normally consider suspending dealings in, or
removing from the list, securities of a company that (a) has stockholders'
equity of less than $4.0 million if such company has sustained losses from
continuing operations and/or net losses in three of its four most recent fiscal
years; or (b) has stockholders' equity of less than $6.0 million if such company
has sustained losses from continuing operations and/or net losses in its five
most recent fiscal years, respectively.
On
November 6, 2006, the Company submitted a plan advising the AMEX of actions that
it would take, which may bring it into compliance with Sections 1003 (a)(ii) and
1003(a)(iii) of the Company Guide within a maximum of 18 months of receipt of
the notice letter. On January 5, 2007, the Company received notice from the
staff of the AMEX indicating that it intended to strike the Company’s common
stock from listing on AMEX by filing a delisting application with the Securities
and Exchange Commission as it had determined that the Company has failed to
comply with the continued listing standards. The Company requested a
verbal hearing which was held on February 27, 2007.
On March
1, 2007, the Company received notice from the AMEX indicating that the AMEX
would initiate the delisting process with respect to the Company’s common
stock. On March 12, 2007, in accordance with Part 12 of the Company
Guide, the Company was suspended from trading on the AMEX. The
Company’s common stock is trading on the Over-the-Counter Bulletin Board under
the symbol, EMAN.
The
delisting from the AMEX triggered a compliance condition on the notes
payable. As a result the Company was required to pay the note holders
monthly interest at 1% rather than .5% on the outstanding principal of the notes
payable. The Company received a waiver from the note holders that
allowed the Company to accrue the interest and delay the interest payment until
the earliest of the Company (i) completing $2 million of debt or equity
financing or (ii) the occurrence of a Repurchase Event per the
note. On July 23, 2007, the Company entered into Amended Agreements
with the note holders where the 1% monthly interest will no longer accrue and
the accrued interest was forgiven.
Note
17 – SUBSEQUENT EVENTS
Effective
January 2, 2008, John Atherly resigned as Chief Financial
Officer. There was no separation agreement executed between Mr.
Atherly and the Company. Michael D. Fowler became the Company’s
Interim Chief Financial Officer effective December 27, 2007.
Effective
January 31, 2008, K.C. Park resigned as Interim Chief Executive Officer,
President and Director. Dr. Park and the Company entered into a
Separation Agreement and General Release (“Separation
Agreement”). The Company will pay Dr. Park severance of $60 thousand
to be payable over a three month period. Dr. Park and the Company
also entered into a Consulting Agreement (“Agreement”) for a term beginning
February 1 and ending on August 1, 2008. He will be paid a sum of $75
thousand, payable in monthly installments of $10 thousand for the first three
months of the term and $15 thousand for the remaining three months of the
term. In addition to the compensation, Dr. Park will be entitled to
receive non-qualified stock options to acquire 18,750 shares of common stock on
each three month anniversary of the Agreement at the fair market value on the
date of the grant and will be fully vested and exercisable on the date of the
grant. If the Agreement is not renewed at the end of the term, he
will be entitled to an additional grant of 18,750 shares of common stock with
the same terms. In addition, on May 1, 2008, Dr. Park will be
entitled to receive non-qualified stock options to acquire 51,703 shares of
common stock at the fair market value and will be fully vested.
Effective
January 30, 2008, the Company entered into an amended employment agreement with
Susan K. Jones, its Chief Marketing and Strategy Officer. The amended
agreement provides for an increase in compensation, extends the term of the
agreement to January 31, 2010, changes certain incentive award payment
requirements, clarifies the basis for incentive award determination, and extends
the change-of-control/material change/termination-without-cause compensation
payout periods.
Michael
D. Fowler, the Company’s Interim Chief Financial Officer, has indicated his
intention to resign his position with the Company following the filing of the
Annual Report on Form 10-K for December 31, 2007 to pursue other
interests.
Line of
Credit
On
January 30, 2008, the Company amended and restated its Loan and Security
Agreement (“Amended Loan Agreement”) with Moriah. The Amended Loan
Agreement’s borrowing base calculation was modified to include 70% of eligible
foreign accounts. The Loan conversion agreement was terminated. The
amendment eliminated optional conversion of principal up to $2.0 million into
common stock at $1.50, in lieu of issuance of a Warrant to purchase 750,000
shares of its common stock at a price of $1.50 per share with an expiration date
of January 29, 2013.
The
Amended Loan Agreement has specific terms to which the Company must comply
including (a) maintaining a lockbox account into which payments from related
accounts receivable must be deposited, (b) periodic certifications as to
borrowing base amounts equaling or exceeding net balances outstanding under the
Line of Credit, and (c) a requirement that a registration statement with respect
to shares held or to be issued to the lender be filed within thirty days of
January 30, 2008. A delay in establishing the required lockbox
account created a technical default under the Line of Credit
agreement. Similarly, the production and subsequent discovery of
defective displays resulted in an inadvertent overstatement of inventory during
December, January and early February that created a technical default under the
agreement. Finally, the Company was not able to complete the
registration of shares within the thirty day timeframe mandated in the amended
agreement. On March 25, 2008 the Company received a waiver from the
lender (a) waiving compliance with the lockbox account requirement through March
14, 2008, (b) waiving compliance with the borrowing base requirement in so far
as it related exclusively to the defective displays inadvertently included in
inventory, and (c) extending the period for filing a registration statement for
certain shares held or to be issued to the lender until April 29,
2008.
Effective
March 25, 2008, the Company amended the Warrant Issuance Agreement (“Amended
Warrant Agreement”) with Moriah. In connection with such amendment, the Company
issued a Warrant to purchase an additional 250,000 shares of its common stock at
a price of $1.50 expiring March 25, 2013.
Incentive Compensation
Plan
On
February 20, 2008, the Board of Directors authorized the establishment of the
20087 Incentive Stock Plan with 2,000,000 options available for
grant. The 2008 Incentive Stock Plan is intended to provide long-term
performance incentives to directors, executives, selected employees and
consultants and reward them for making major contributions to the success and
well being of the Company.
Private
Placement
On April
2, 2008, the Company completed a private placement of its common stock with
several institutional investors for gross proceeds of $1.65
million. The transaction involved the sale of 1,586,539 shares of
common stock at $1.04 per share, or the 5-day average closing price of the
Company’s common stock on the trading days immediately preceding the closing
date. The Company also issued to the investors 793,273 warrants to
buy our common stock at a price of $1.30 per share. Pursuant to the
transaction, the Company is obligated to file a registration statement for the
shares issued as well as shares underlying the warrants by May 17,
2008.
Note
18 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized
quarterly financial information for 2007 and 2006 are as follows (in thousands
except per share data):
|
|
Quarters
Ended
|
|
|
|
March
31, 2007
|
|
|
June
30, 2007
|
|
|
September
30, 2007
|
|
|
December
31, 2007
|
|
Revenues
|
|
$ |
3,609 |
|
|
$ |
4,232 |
|
|
$ |
5,071 |
|
|
$ |
4,642 |
|
Gross
margin
|
|
$ |
494 |
|
|
$ |
1,286 |
|
|
$ |
2,012 |
|
|
$ |
1,134 |
|
Net
loss
|
|
$ |
(2,937 |
) |
|
$ |
(1,728 |
) |
|
$ |
(12,651 |
) |
|
$ |
(1,172 |
) |
Net
loss per share – basic and diluted
|
|
$ |
(0.27 |
) |
|
$ |
(0.15 |
) |
|
$ |
(1.06 |
) |
|
$ |
(0.10 |
) |
Weighted
average number of shares outstanding – basic and diluted
|
|
|
10,792 |
|
|
|
11,176 |
|
|
|
11,935 |
|
|
|
12,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
|
|
March
31, 2006
|
|
|
June
30, 2006
|
|
|
September
30, 2006
|
|
|
December
31, 2006
|
|
Revenues
|
|
$ |
1,641 |
|
|
$ |
1,674 |
|
|
$ |
2,292 |
|
|
$ |
2,562 |
|
Gross
margin (loss)
|
|
$ |
(1,388 |
) |
|
$ |
(1,291 |
) |
|
$ |
(648 |
) |
|
$ |
137 |
|
Net
loss
|
|
$ |
(5,160 |
) |
|
$ |
(4,838 |
) |
|
$ |
(3,769 |
) |
|
$ |
(1,499 |
) |
Net
loss per share – basic and diluted
|
|
$ |
(0.52 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.15 |
) |
Weighted
average number of shares outstanding – basic and diluted
|
|
|
10,004 |
|
|
|
10,011 |
|
|
|
10,077 |
|
|
|
10,196 |
|
eMagin
Corporation
June
30, 2008
|
|
|
|
|
Page
|
PART
I FINANCIAL INFORMATION
|
|
Item
1
|
Condensed
Consolidated Financial Statements
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December
31, 2007
|
93
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the Three and Six Months ended
June 30, 2008 and 2007 (unaudited)
|
94
|
|
|
|
|
Condensed
Consolidated Statements of Changes in Capital Deficit for the Six Months
ended June 30, 2008 (unaudited)
|
95
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months ended June 30,
2008 and 2007 (unaudited)
|
96
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
97
|
eMAGIN
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share data)
|
|
June
30,
|
|
|
|
|
|
|
2008
(unaudited)
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,038 |
|
|
$ |
713 |
|
Investments
– held to maturity
|
|
|
94 |
|
|
|
94 |
|
Accounts
receivable, net
|
|
|
3,601 |
|
|
|
2,383 |
|
Inventory
|
|
|
1,726 |
|
|
|
1,815 |
|
Prepaid
expenses and other current assets
|
|
|
750 |
|
|
|
850 |
|
Total
current assets
|
|
|
7,209 |
|
|
|
5,855 |
|
Equipment,
furniture and leasehold improvements, net
|
|
|
401 |
|
|
|
292 |
|
Intangible
assets, net
|
|
|
49 |
|
|
|
51 |
|
Other
assets
|
|
|
232 |
|
|
|
232 |
|
Deferred
financing costs, net
|
|
|
135 |
|
|
|
218 |
|
Total
assets
|
|
$ |
8,026 |
|
|
$ |
6,648 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND CAPITAL DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,135 |
|
|
$ |
620 |
|
Accrued
compensation
|
|
|
962 |
|
|
|
891 |
|
Other
accrued expenses
|
|
|
704 |
|
|
|
729 |
|
Advance
payments
|
|
|
13 |
|
|
|
35 |
|
Deferred
revenue
|
|
|
80 |
|
|
|
179 |
|
Current
portion of debt
|
|
|
8,148 |
|
|
|
7,089 |
|
Other
current liabilities
|
|
|
596 |
|
|
|
1,020 |
|
Total
current liabilities
|
|
|
11,638 |
|
|
|
10,563 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
41 |
|
|
|
60 |
|
Total
liabilities
|
|
|
11,679 |
|
|
|
10,623 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value: authorized 10,000,000 shares; no shares issued and
outstanding
|
|
|
— |
|
|
|
— |
|
Series
A Senior Secured Convertible Preferred stock, stated value $1,000 per
share, $.001 par value: 3,198 shares designated and none
issued
|
|
|
— |
|
|
|
— |
|
Common
stock, $.001 par value: authorized 200,000,000 shares, issued and
outstanding, 14,389,439 shares as of June 30, 2008 and 12,620,900 shares
as of December 31, 2007
|
|
|
14 |
|
|
|
12 |
|
Additional
paid-in capital
|
|
|
198,442 |
|
|
|
195,326 |
|
Accumulated
deficit
|
|
|
(202,109 |
) |
|
|
(199,313 |
) |
Total
capital deficit
|
|
|
( 3,653 |
) |
|
|
( 3,975 |
) |
Total
liabilities and capital deficit
|
|
$ |
8,026 |
|
|
$ |
6,648 |
|
|
|
|
|
|
|
|
|
|
See notes
to Condensed Consolidated Financial Statements.
eMAGIN
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except share and per share data)
(unaudited)
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
revenue
|
|
$ |
4,496 |
|
|
$ |
4,144 |
|
|
$ |
6,958 |
|
|
$ |
7,667 |
|
Contract
revenue
|
|
|
1,123 |
|
|
|
88 |
|
|
|
1,326 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue, net
|
|
|
5,619 |
|
|
|
4,232 |
|
|
|
8,284 |
|
|
|
7,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
2,996 |
|
|
|
2,946 |
|
|
|
5,309 |
|
|
|
6,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,623 |
|
|
|
1,286 |
|
|
|
2,975 |
|
|
|
1,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
634 |
|
|
|
887 |
|
|
|
1,308 |
|
|
|
1,740 |
|
Selling,
general and administrative
|
|
|
1,697 |
|
|
|
1,543 |
|
|
|
3,504 |
|
|
|
3,764 |
|
Total
operating expenses
|
|
|
2,331 |
|
|
|
2,430 |
|
|
|
4,812 |
|
|
|
5,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
292 |
|
|
|
(1,144 |
) |
|
|
(1,837 |
) |
|
|
(3,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(537 |
) |
|
|
(1,333 |
) |
|
|
(1,168 |
) |
|
|
(2,174 |
) |
Gain
on warrant derivative liability
|
|
|
— |
|
|
|
182 |
|
|
|
— |
|
|
|
643 |
|
Other
income, net
|
|
|
123 |
|
|
|
567 |
|
|
|
209 |
|
|
|
590 |
|
Total
other expense
|
|
|
(414 |
) |
|
|
(584 |
) |
|
|
(959 |
) |
|
|
(941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(122 |
) |
|
$ |
(1,728 |
) |
|
$ |
(2,796 |
) |
|
$ |
(4,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, basic and diluted
|
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
14,320,570 |
|
|
|
11,175,888 |
|
|
|
13,470,735 |
|
|
|
10,983,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes
to Condensed Consolidated Financial Statements.
eMAGIN
CORPORATION
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT
(In
thousands)
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
12,621 |
|
|
$ |
12 |
|
|
$ |
195,326 |
|
|
$ |
(199,313 |
) |
|
$ |
(
3,975 |
) |
Sale
of common stock, net of issuance costs
|
|
|
1,587 |
|
|
|
2 |
|
|
|
1,578 |
|
|
|
— |
|
|
|
1,580 |
|
Issuance
of common stock for services
|
|
|
181 |
|
|
|
— |
|
|
|
202 |
|
|
|
— |
|
|
|
202 |
|
Stock-based
compensation
|
|
|
— |
|
|
|
— |
|
|
|
607 |
|
|
|
— |
|
|
|
607 |
|
Fair
value of warrants issued
|
|
|
— |
|
|
|
— |
|
|
|
729 |
|
|
|
— |
|
|
|
729 |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,796 |
) |
|
|
(2,796 |
) |
Balance,
June 30, 2008 (unaudited)
|
|
|
14,389 |
|
|
$ |
14 |
|
|
$ |
198,442 |
|
|
$ |
(202,109 |
) |
|
$ |
(3,653 |
) |
See notes
to Condensed Consolidated Financial Statements.
eMAGIN
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Six
months Ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,796 |
) |
|
$ |
(4,665 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
129 |
|
|
|
227 |
|
Amortization
of deferred financing and waiver fees
|
|
|
821 |
|
|
|
265 |
|
Increase
in (reduction of) provision for sales returns and doubtful
accounts
|
|
|
146 |
|
|
|
(35 |
) |
Stock-based
compensation
|
|
|
607 |
|
|
|
899 |
|
Amortization
of common stock issued for services
|
|
|
88 |
|
|
|
677 |
|
Amortization
of discount on notes payable
|
|
|
25 |
|
|
|
1,452 |
|
Gain
on warrant derivative liability
|
|
|
— |
|
|
|
(643 |
) |
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,364 |
) |
|
|
(329 |
) |
Inventory
|
|
|
89 |
|
|
|
675 |
|
Prepaid
expenses and other current assets
|
|
|
214 |
|
|
|
55 |
|
Deferred
revenue
|
|
|
(99 |
) |
|
|
(45 |
) |
Accounts
payable, accrued compensation, other accrued expenses, and advance
payments
|
|
|
539 |
|
|
|
323 |
|
Other
current liabilities
|
|
|
(424 |
) |
|
|
(7 |
) |
Net
cash used in operating activities
|
|
|
(2,025 |
) |
|
|
(1,151 |
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(236 |
) |
|
|
— |
|
Purchase
of investments – held to maturity
|
|
|
— |
|
|
|
(4 |
) |
Net
cash used in investing activities
|
|
|
(236 |
) |
|
|
(4 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock, net of issuance costs
|
|
|
1,580 |
|
|
|
— |
|
Proceeds
from exercise of warrants
|
|
|
— |
|
|
|
3 |
|
Proceeds
from debt
|
|
|
1,700 |
|
|
|
500 |
|
Payments
related to deferred financing costs
|
|
|
(9 |
) |
|
|
(40 |
) |
Payments
of debt and capital leases
|
|
|
(685 |
) |
|
|
(33 |
) |
Net
cash provided by financing activities
|
|
|
2,586 |
|
|
|
430 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
325 |
|
|
|
(725 |
) |
Cash
and cash equivalents beginning of period
|
|
|
713 |
|
|
|
1,415 |
|
Cash
and cash equivalents end of period
|
|
$ |
1,038 |
|
|
$ |
690 |
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
314 |
|
|
$ |
180 |
|
Cash
paid for taxes
|
|
$ |
21 |
|
|
$ |
46 |
|
|
|
|
|
|
|
|
|
|
During
the six months ended June 30, 2008, the Company:
|
|
|
|
|
|
|
|
|
· |
Entered
into amended Loan and Security Agreement and issued warrants that are
exercisable at $1.50 per share into 1.0 million shares of common stock
valued at approximately $0.7
million. |
See notes
to Condensed Consolidated Financial Statements.
eMAGIN
CORPORATION
(Unaudited)
Note
1: Description of the Business and Summary of Significant Accounting
Policies
The
Business
eMagin
Corporation (the “Company”) designs, develops, manufactures, and markets virtual
imaging products for consumer, commercial, industrial and military
applications. The Company’s products are sold mainly in North
America, Asia, and Europe.
Basis
of Presentation
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements of eMagin Corporation and its subsidiary reflect all
adjustments, including normal recurring accruals, necessary for a fair
presentation. Certain information and footnote disclosure normally
included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to instructions, rules and regulations prescribed by the
Securities and Exchange Commission. The Company believes that the
disclosures provided herein are adequate to make the information presented not
misleading when these unaudited condensed consolidated financial statements are
read in conjunction with the audited consolidated financial statements contained
in the Company’s Annual Report on Form 10-K for the year ended December 31,
2007. The results of operations for the period ended June 30, 2008
are not necessarily indicative of the results to be expected for the full
year.
The
unaudited condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has had recurring losses from operations which it believes will continue through
the foreseeable future. The Company’s cash requirements over the next
twelve months are greater than the Company’s current cash, cash equivalents, and
investments at June 30, 2008. In addition, the Company’s line of
credit was temporarily extended (see Notes 8 and 15). The Company has working
capital and capital deficits as of June 30, 2008. These factors raise
substantial doubt regarding the Company’s ability to continue as a going concern
without continuing to obtain additional funding. The Company does not have
commitments for such financing and no assurance can be given that additional
financing will be available, or if available, will be on acceptable terms. If
the Company is unable to obtain sufficient funds during the next twelve months,
the Company will further reduce the size of its organization and/or curtail
operations which will have a material adverse impact on the Company’s business
prospects. The Company is reviewing its cost structures for cost efficiencies
and is taking measures to reduce costs. The unaudited condensed consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Use
of Estimates
In
accordance with accounting principles generally accepted in the United States of
America, management utilizes certain estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, management evaluates its estimates and
judgments. Management bases its estimates and judgments on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those estimates.
Revenue
Recognition
Revenue
is recognized when products are shipped to customers, net of allowances for
anticipated returns. The Company’s revenue-earning
activities generally involve delivering products.
Revenue is recognized when persuasive evidence of
an arrangement exists, delivery has occurred, selling price is
fixed or determinable and collection is reasonably
assured.
The
Company also earns revenues from certain R&D activities under
both firm fixed-price contracts and cost-type
contracts, including some cost-plus-fee contracts. 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. These rates are subject to audit by the other party.
Note
2: Recently Issued Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. In February 2008, the FASB issued
FASB Staff Position No. FSP 157-2, “Effective Date of FASB Statement
No. 157”, which provides a one year deferral of the effective date of SFAS
157 for non-financial assets and non-financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value on a
recurring basis. The Company adopted SFAS 157 as of January 1, 2008, with
the exception of the application of the statement to non-recurring non-financial
assets and non-financial liabilities which it will defer the adoption until
January 1, 2009. The adoption of SFAS 157 did not have a material impact on the
Company’s consolidated results of operations, financial condition or cash
flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — including an amendment of FASB
Statement No. 115,” (“SFAS 159”) which is effective for fiscal years
beginning after November 15, 2007. This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. This statement also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. Unrealized
gains and losses on items for which the fair value option is elected would be
reported in earnings. The Company has adopted SFAS 159 and has elected not to
measure any additional financial instruments and other items at fair value and
therefore the adoption of SFAS 159 did not have a material impact on the
Company’s condensed consolidated results of operations, financial condition or
cash flows.
In
March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires
entities to provide greater transparency about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations and (c) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations, and cash flows.
SFAS 161 is effective prospectively for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application permitted. The Company is currently evaluating the disclosure
implications of this statement.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, (“SFAS 162”), which identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the
SEC's approval of the Public Company Accounting Oversight Board's amendments to
AU section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is currently evaluating the impact
of SFAS 162, but does not expect the adoption of this pronouncement will
have a material impact on the Company's financial statements.
Note
3: Receivables
The
majority of the Company’s commercial accounts receivable are due from Original
Equipment Manufacturers ("OEM’s”). Credit is extended based on evaluation of a
customer’s financial condition and, generally, collateral is not required.
Accounts receivable are payable in U.S. dollars, are due within 30-90 days and
are stated at amounts due from customers, net of an allowance for doubtful
accounts. Any account outstanding longer than the contractual payment terms is
considered past due.
The
Company determines the allowance for doubtful accounts
by considering a number of factors, including the length of time the
trade accounts receivable are past due, eMagin's previous loss history, the
customer's current ability to pay its obligation, and the condition of
the general economy and the industry as a whole. The Company will
record a specific reserve for individual accounts when the Company becomes aware
of a customer's inability to meet its financial obligations, such as in the case
of bankruptcy filings or deterioration in the customer's operating results or
financial position. If circumstances related to customers change, the
Company would further adjust estimates of the recoverability of
receivables.
Receivables
consisted of the following (in thousands):
|
|
June
30,
2008
(unaudited)
|
|
|
December
31, 2007
|
|
Accounts
receivable
|
|
$ |
4,105 |
|
|
$ |
2,741 |
|
Less
allowance for doubtful accounts
|
|
|
(504 |
) |
|
|
(358 |
) |
Net
receivables
|
|
$ |
3,601 |
|
|
$ |
2,383 |
|
Note
4: Research and Development Costs
Research
and development costs are expensed as incurred.
Note
5: Net Loss per Common Share
In
accordance with SFAS No. 128, net loss per common share amounts ("basic EPS")
was 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. As of June 30, 2008 and
2007, there were stock options, warrants and convertible notes outstanding to
acquire 11,508,295 and 5,297,927 shares of our common stock,
respectively. These shares were excluded from the computation
of diluted loss per share because their effect would be
antidilutive.
Note
6: Inventory
Inventory
is stated at the lower of cost or market. Cost is determined using the first-in
first-out method. The Company reviews the value of its inventory and
reduces the inventory value to its net realizable value based upon current
market prices and contracts for future sales. The components of inventories are
as follows (in thousands):
|
|
June
30,
2008
(unaudited)
|
|
|
December
31, 2007
|
|
Raw
materials
|
|
$ |
945 |
|
|
$ |
1,069 |
|
Work
in process
|
|
|
260 |
|
|
|
370 |
|
Finished
goods
|
|
|
521 |
|
|
|
376 |
|
Total
inventory
|
|
$ |
1,726 |
|
|
$ |
1,815 |
|
Note
7: Prepaid Expenses and Other Current Assets:
Prepaid
expenses and other current assets consist of the following (in
thousands):
|
|
June
30,
2008
(unaudited)
|
|
|
December
31, 2007
|
|
Vendor
prepayments
|
|
$ |
339 |
|
|
$ |
537 |
|
Other
prepaid expenses *
|
|
|
408 |
|
|
|
310 |
|
Other
assets
|
|
|
3 |
|
|
|
3 |
|
Total
prepaid expenses and other current assets
|
|
$ |
750 |
|
|
$ |
850 |
|
*No individual amounts greater
than 5% of current assets.
Note
8: Debt
Debt is
as follows (in thousands):
|
|
June
30,
|
|
|
|
|
|
|
2008
(unaudited)
|
|
|
December
31,
2007
|
|
Current
portion of long-term debt:
|
|
|
|
|
|
|
Other
debt
|
|
$ |
38 |
|
|
$ |
44 |
|
Line
of credit
|
|
|
2,148 |
|
|
|
1,108 |
|
8%
Senior Secured Convertible Notes
|
|
|
5,962 |
|
|
|
5,962 |
|
Less: Unamortized
discount on notes payable
|
|
|
— |
|
|
|
(25 |
) |
Current
portion of long-term debt, net
|
|
|
8,148 |
|
|
|
7,089 |
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
Other
debt
|
|
|
41 |
|
|
|
60 |
|
Long-term
debt, net
|
|
|
41 |
|
|
|
60 |
|
Total
debt, net
|
|
$ |
8,189 |
|
|
$ |
7,149 |
|
On August
7, 2007, the Company entered into a loan agreement
with Moriah Capital, L.P. (“Moriah) and established a
revolving line of credit (the “Loan”) of $2.5 million. The Company is
permitted to borrow an amount not to exceed 90% of its domestic eligible
accounts receivable and 50% of its eligible inventory capped at $600
thousand. As part of the transaction, the Company issued 162,500
shares of unregistered common stock valued at $195 thousand and paid a servicing
fee of $82,500 to Moriah which are amortized to interest expense over the life
of the agreement. In conjunction with entering into this loan and issuing
unregistered common stock, the Company granted Moriah registration
rights. The Loan can be converted into shares of the Company’s common
stock pursuant to the terms of the Loan Conversion agreement. The
Loan matures on August 8, 2008 with an option to extend it an additional year if
the Company meets certain requirements. On August 8, 2008, Moriah
granted to the Company an extension of the Loan with the same terms for 8
days.
On
January 30, 2008, the Company amended and restated its Loan and Security
Agreement (“Amended Loan Agreement”) with Moriah. The Amended Loan
Agreement’s borrowing base calculation was modified to include 70% of eligible
foreign accounts. The Amended Loan Agreement eliminated the optional
conversion of principal up to $2.0 million into common stock at
$1.50. In connection with the amendment, the Company issued a Warrant
to purchase 750,000 shares of its common stock at a price of $1.50 per share
with an expiration date of January 29, 2013.
The
Amended Loan Agreement has specific terms to which the Company must comply
including (a) maintaining a lockbox account into which payments from related
accounts receivable must be deposited, (b) periodic certifications as to
borrowing base amounts equaling or exceeding net balances outstanding under the
Line of Credit, and (c) a requirement that a registration statement with respect
to shares held or to be issued to the lender be filed within thirty days of
January 30, 2008. A delay in establishing the required lockbox
account created a technical default under the Line of Credit
agreement. Similarly, the production and subsequent discovery of
defective displays resulted in an inadvertent overstatement of inventory during
December, January and early February that created a technical default under the
agreement. Finally, the Company was not able to complete the
registration of shares within the thirty day timeframe mandated in the amended
agreement. On March 25, 2008 the Company received a waiver from the
lender (a) waiving compliance with the lockbox account requirement through March
14, 2008, (b) waiving compliance with the borrowing base requirement in so far
as it related exclusively to the defective displays inadvertently included in
inventory, and (c) extending the period for filing a registration statement for
certain shares held or to be issued to the lender until April 29,
2008. The Company established a lockbox account by March 14, 2008 and
filed a registration statement with the SEC on April 29, 2008.
Effective
March 25, 2008, the Company amended the Warrant Issuance Agreement (“Amended
Warrant Agreement”) with Moriah. In connection with such amendment, the Company
issued a Warrant to purchase an additional 250,000 shares of its common stock at
a price of $1.50 expiring March 25, 2013.
The
Company determined the fair value of the 1,000,000 warrants to be $729 thousand
which was recorded as deferred debt issuance and waiver fees of which $168
thousand was expensed immediately and $561 thousand will be amortized over the
life of the loan. The following assumptions were used to determine
the fair value of the warrants: dividend yield of 0%; risk free
interest rates of 2.61 % and 2.96%; expected volatility of 90.9% and 92.3%; and
expected contractual term of 5 years. The deferred debt issuance
costs are being amortized to interest expense over the life of the
loan.
In the
three and six months ended June 30, 2008, approximately $373 thousand and $821
thousand, respectively, of deferred debt issuance and waiver fees were amortized
to interest expense. For the three and six months ended June 30,
2008, interest expense includes interest paid or accrued on outstanding debt of
approximately $164 thousand and $323 thousand, respectively.
The 8%
Senior Secured Convertible Notes can also convert into the Company’s Series A
convertible Preferred Stock (the “Preferred Stock”). See Note
10: Shareholders’ Equity for additional information.
Note
9: Stock-based Compensation
The
Company accounts for the measurement and recognition of compensation expense for
all share-based payment awards made to employees and directors under Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS
123(R)). Under SFAS 123(R), the fair value of stock awards is estimated at the
date of grant using the Black-Scholes option valuation
model. Stock-based compensation expense is reduced for estimated
forfeitures and is amortized over the vesting period using the straight-line
method.
The
following table summarizes the allocation of non-cash stock-based compensation
to our expense categories for the three and six month periods ended June 30,
2008 and 2007 (in thousands):
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Cost
of revenue
|
|
$ |
23 |
|
|
$ |
61 |
|
|
|
75 |
|
|
$ |
130 |
|
Research
and development
|
|
|
52 |
|
|
|
97 |
|
|
|
134 |
|
|
|
200 |
|
Selling,
general and administrative
|
|
|
176 |
|
|
|
227 |
|
|
|
398 |
|
|
|
569 |
|
Total
stock compensation expense
|
|
$ |
251 |
|
|
$ |
385 |
|
|
$ |
607 |
|
|
$ |
899 |
|
At June
30, 2008, total unrecognized non-cash compensation cost related to stock options
was approximately $964 thousand, net of forfeitures. Total
unrecognized compensation cost will be adjusted for future changes in estimated
forfeitures and is expected to be recognized over a weighted average period of
approximately 1.7 years.
The
Company recognizes compensation expense for options granted to non-employees in
accordance with the provisions of Emerging Issues Task Force (“EITF”) consensus
Issue 96-18, “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services,” which requires using a fair
value options pricing model and re-measuring such stock options to the current
fair market value at each reporting period as the underlying options vest and
services are rendered.
There
were approximately 588,000 and 748,000 options granted to employees and
directors during the three and six months ended June 30, 2008. The following key
assumptions were used in the Black-Scholes option pricing model to determine the
fair value of stock options granted:
|
|
For
the Six Months Ended
June
30, 2008
|
|
Dividend
yield
|
|
|
0 |
% |
Risk
free interest rates
|
|
2.46
to 3.28%
|
|
Expected volatility
|
|
89.6
to 92.3%
|
|
Expected
term (in years)
|
|
|
5 |
|
There
were no stock options granted during the three and six month period ended June
30, 2007. We have not declared or paid any dividends and do not
currently expect to do so in the near future. The risk-free interest
rate used in the Black-Scholes option pricing model is based on the implied
yield currently available on U.S. Treasury securities with an equivalent
term. Expected volatility is based on the weighted average
historical volatility of the Company’s common stock for the most recent five
year period. The expected term of options represents the period that
our stock-based awards are expected to be outstanding and was determined based
on historical experience and vesting schedules of similar awards.
On
February 20, 2008, the Board of Directors authorized the establishment of the
2008 Incentive Stock Plan with 2,000,000 options available for
grant. The 2008 Incentive Stock Plan is intended to provide long-term
performance incentives to directors, executives, selected employees and
consultants and reward them for making major contributions to the success and
well being of the Company. No options were granted from this plan as
of June 30, 2008.
A summary
of the Company’s stock option activity for the six months ended June 30, 2008 is
presented in the following tables:
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (In Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at January 1, 2008
|
|
|
894,323 |
|
|
$ |
2.62 |
|
|
|
|
|
|
|
Options
granted
|
|
|
748,153 |
|
|
|
0.94 |
|
|
|
|
|
|
|
Options
exercised
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Options
forfeited
|
|
|
(167,953 |
) |
|
|
2.60 |
|
|
|
|
|
|
|
Options
cancelled
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
1,474,523 |
|
|
$ |
1.77 |
|
|
|
6.50 |
|
|
$ |
15,000 |
|
Vested
or expected to vest at June 30, 2008 (1)
|
|
|
1,434,149 |
|
|
$ |
1.68 |
|
|
|
6.50 |
|
|
$ |
14,200 |
|
Exercisable
at June 30, 2008
|
|
|
969,855 |
|
|
$ |
1.96 |
|
|
|
6.60 |
|
|
$ |
5,000 |
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (In Years)
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercisable Price
|
$0.81
- $1.51
|
|
976,730
|
|
8.04
|
|
$ 1.05
|
|
592,397
|
|
$ 1.19
|
$2.60
- $2.70
|
|
456,593
|
|
3.49
|
|
2.61
|
|
345,358
|
|
2.60
|
$3.50
- $5.80
|
|
12,000
|
|
4.18
|
|
5.61
|
|
12,000
|
|
5.61
|
$6.60
- $22.50
|
|
29,200
|
|
3.07
|
|
10.91
|
|
20,100
|
|
11.23
|
|
|
1,474,523
|
|
6.50
|
|
$ 1.77
|
|
969,855
|
|
$ 1.96
|
(1) The
expected to vest options are the result of applying the pre-vesting forfeiture
rate assumptions to total unvested options.
The
aggregate intrinsic value in the table above represents the difference between
the exercise price of the underlying options and the quoted price of the
Company’s common stock. There were 500,000 options in-the-money at
June 30, 2008. The Company’s closing stock price was $0.84 as
of June 30, 2008. The Company issues new shares of common stock upon exercise of
stock options.
Note
10: Shareholders’ Equity
Preferred
Stock
The
Company has designated but not issued 3,198 shares of the Company’s Preferred
Stock at a stated value of $1,000 per share. The Preferred Stock is
entitled to cumulative dividends which accrue at a rate of 8% per annum, payable
on December 21, 2008. Each share of the Preferred Stock has voting
rights equal to (1) in any case in which the Preferred Stock votes
together with the Company's Common Stock or any other class or series of stock
of the Company, the number of shares of Common Stock issuable upon conversion of
such shares of Preferred Stock at such time (determined without regard to the
shares of Common Stock so issuable upon such conversion in respect of accrued
and unpaid dividends on such share of Preferred Stock) and (2) in any case not
covered by the immediately preceding clause one vote per share of Preferred
Stock. The Preferred Stock, if issued, has a mandatory redemption at
December 21, 2008.
Common
Stock
On
January 30, 2008, the Company amended and restated its Loan and Security
Agreement (“Amended Loan Agreement”) with Moriah. As part of the
amended agreement, the Loan Conversion agreement was terminated which eliminated
the optional conversion of principal up to $2.0 million into common stock at
$1.50. In connection with the Amended Loan agreement, the
Company issued a Warrant to purchase 750,000 shares of its common stock at a
price of $1.50 per share with an expiration date of January 29,
2013.
Effective
March 25, 2008, the Company amended the Warrant Issuance Agreement (“Amended
Warrant Agreement”) with Moriah. In connection with such amendment, the Company
issued a Warrant to purchase an additional 250,000 shares of its common stock at
a price of $1.50 expiring March 25, 2013.
On April
2, 2008, the Company entered into a Securities Purchase Agreement (“Purchase
Agreement”), pursuant to which the Company sold and issued 1,586,539 shares of
common stock, par value of $0.001 per share, at a price of $1.04 per share and
warrants to purchase an additional 793,273 shares of common stock for an
aggregate purchase price of approximately $1.65 million. The net
proceeds received after expenses were approximately $1.58
million. The warrants are exercisable at a price of $1.30 per share
and expire on April 2, 2013.
As a
result of the Purchase Agreement, the outstanding 650,000 Series F Common Stock
Purchase Warrants that were issued to participants of the Securities Purchase
Agreement dated October 25, 2004, were repriced from $4.09 to
$3.45.
A
registration rights agreement was entered into on April 2, 2008 in connection
with the private placement which required the Company to file a registration
statement for the resale of the common stock and the shares underlying the
warrants within 45 days of the signing of the agreement. The Company
must use its best efforts to have the registration statement declared effective
within 90 days of the signing of the agreement or if a SEC review, 120
days. In addition, the Company must use its best efforts to maintain
the effectiveness of the registration statement until all common stock have been
sold or may be sold without volume restrictions pursuant to Rule 144(k) of the
Securities Act.
If the
registration statement is not effective within the grace periods (“Event Date”)
or the Company cannot maintain its effectiveness (“Event Date”), the Company
must pay partial liquidated damages (“damages”) in cash to each investor equal
to 2% of the aggregate purchase price paid by each investor under the Purchase
Agreement on the Event Date and each monthly anniversary of the Event Date (or
on a pro-rata basis for any portion of a month) until the registration statement
is effective. The Company is not liable for any damages with respect
to the warrants or warrant shares. The maximum damages payable to
each investor is 36% of the aggregate purchase price. If the Company
fails to pay the damages to the investors within 7 days after the date payable,
the Company must pay interest at a rate of 15% per annum to each investor which
accrues daily from the date payable until damages are paid in full.
The
Company filed the registration statement within the 45 day period however the
Company was notified that the registration statement was under review by the
SEC. The Company failed to file the amended registration statement by
August 2, 2008 which was the 120th day from the signing of the purchase
agreement and therefore the registration statement is not
effective.
The
Company accounted for the registration payment arrangement under the guidance of
EITF 00-19-2, “Accounting for Registration Payment Arrangements”, (“EITF
00-19-2”) which requires the contingent obligation to make future payments be
recognized and measured in accordance with FASB Statement No. 5, “Accounting for
Contingencies”, (“Statement 5”) and FASB Interpretation No. 14, “Reasonable
Estimation of the Amount of a Loss”, (“Interpretation 14”). The Company
estimated $399 thousand to be the maximum potential damages that the Company may
be required to pay the investors if the registration statement is not effective
within three years of the signing of the agreement. The Company estimated $66
thousand to be a reasonable estimate of the potential damages that may be due to
the investors. As a result, the Company recorded a liability of $66
thousand in the condensed consolidated balance sheets and the associated expense
in other income in the condensed consolidated statements of operations for the
three and six months ended June 30, 2008.
For the
three and six months ended June 30, 2008 and 2007, there were no stock options
exercised. For the three and six months ended June 30, 2008, there
were no warrants exercised and for the three and six months ended June 30, 2007,
the Company received approximately $3 thousand in proceeds for warrants
exercised.
For the
three and six months ended June 30, 2008, the Company issued approximately
182,000 shares of common stock for payment of approximately $202 thousand for
services rendered or to be rendered in the future. For the three and
six months ended June 30, 2007, the Company issued approximately 206,000 and
914,000 shares of common stock, respectively, for payment of approximately $138
thousand and $758 thousand, respectively, for services rendered and to be
rendered in the future. As such, the Company recorded the fair value
of the services to be rendered in prepaid expenses and rendered in selling,
general and administrative expenses in the accompanying unaudited condensed
consolidated statement of operations for the three and six months ended June 30,
2008 and 2007, respectively.
Note
11: Income Taxes
The
Company adopted the provisions of Financial Standards Accounting Board
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an
interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. As a
result of the implementation of FIN 48, we did not recognize any adjustment in
the liability for unrecognized income tax benefits. The tax years 2004-2007
remain open to examination by the major taxing jurisdictions to which we are
subject. In the event that the Company is assessed interest or penalties at some
point in the future, they will be classified in the financial statements as
general and administrative expense. The Company has not provided for
income taxes in the three and six months ended June 30, 2008 as the Company
expects its effective interest rate to be zero due to continuing
losses.
Note
12: Commitments and Contingencies
Royalty
Payments
The Company, in accordance with
a royalty agreement with Eastman Kodak, must pay to Eastman Kodak a
certain percentage of net sales with respect to certain
products, which percentages are defined in the agreement. The percentages
are on a sliding scale depending on the amount of sales generated. Any
minimum royalties paid will be credited against the amounts due based on
the percentage of sales. The royalty agreement terminates upon the
expiration of the issued patent which is the last to expire.
Effective
May 30, 2007, Kodak and eMagin entered into an intellectual property agreement
where eMagin has assigned Kodak the rights, title, and interest to a Company
owned patent currently not being used by the Company and in consideration, Kodak
waived the royalties due under the existing licensing agreements for the first
six months of 2007, and reduced the royalty payments by 50% for the second half
of 2007 and for the entire calendar year of 2008. In addition, the minimum
royalty payment is delayed until December 1st for the
years 2007 and 2008. The Company recorded approximately $170 thousand
and $254 thousand for the three and six months ended June 30, 2008,
respectively, and $560 thousand for the three and six months ended June 30, 2007
as income from the license of intangible assets and included this amount as
other income in the condensed consolidated statements of
operations. The income from the license of intangible assets is
equivalent to the royalty payments that have been waived by Kodak.
Royalty
expense (including amounts imputed – see above) was approximately $341 thousand
and $509 thousand, respectively, for the three and six months ended June
30, 2008 and approximately $304 thousand and $560 thousand, respectively, for
the three and six months ended June 30, 2007.
Contractual
Obligations
The Company leases
office facilities and office, lab and factory equipment under operating leases
expiring through 2009. Certain leases provide for payments of monthly
operating expenses. The Company currently has lease commitments for space in
Hopewell Junction, New York and Bellevue, Washington. Rent expense
was approximately $332 thousand and $664 thousand, respectively, for the three
and six months ended June 30, 2008 and 2007.
Note
13: Legal Proceedings
A former
employee (“plaintiff”) of the Company commenced legal action in the United
States District Court for the Southern District of New York, on or about October
12, 2007, alleging that the plaintiff was subject to gender based discrimination
and retaliation in violation of Title VII of the Civil Rights Act of 1964 (
Case No. 07-CV-8827 (KMK)). The plaintiff seeks unspecified compensatory
damages, punitive damages and attorneys’ fees. On November 26, 2007,
the Company served and filed its Answer, in which it denied the material
allegations of the Complaint and asserted numerous affirmative
defenses. This action is presently in the discovery
stage. The Company disputes the allegations of the Complaint and
intends on vigorously defending this action.
Note
14: Separation and Employment Agreements
Effective
April 14, 2008, Michael D. Fowler, the Company’s Interim Chief Financial
Officer, resigned his position with the Company. There was no separation
agreement executed between Mr. Fowler and the Company. On April 15, 2008, Paul
Campbell was appointed as Interim Chief Financial Officer of the
Company. There is no employment agreement between the Company and Mr.
Campbell.
On May
13, 2008, the Company signed an executive employment agreement with Andrew
Sculley, Jr. to serve as the Company’s Chief Executive Officer and President
effective June 1, 2008. Pursuant to the Employment Agreement, Mr.
Sculley is paid a salary of $300,000. The salary will increase to
$310,000, per annum, after six months and to $320,000 per annum at the end of
the first year. If Mr. Sculley voluntarily terminates his employment
with the Company, other than for Good Reason as defined in the Employment
Agreement, he shall cease to accrue salary, personal time off, benefits and
other compensation on the date of voluntary termination. The Company may
terminate Mr. Sculley’s employment with or without cause. If the Company
terminates without cause, Mr. Sculley will be entitled to, at the Company’s sole
discretion, either (i) monthly salary payments for twelve (12) months, based on
his monthly rate of base salary at the date of such termination, or (ii) a
lump-sum payment of his salary for such 12 month period, based on his monthly
rate of base salary at the date of such termination. Mr. Sculley shall also be
entitled to receive (i) payment for accrued and unpaid vacation pay and (ii) all
bonuses that have accrued during the term of the Employment Agreement, but not
been paid. Mr. Sculley was granted 500,000 options of which one
third vested immediately and one third will vest annually on the subsequent two
anniversary dates.
Effective
June 1, 2008, Admiral Thomas Paulsen resigned from his position as Interim Chief
Executive Officer. Admiral Paulsen continues to serve as the
Company’s Chairman of the Board.
Note
15: Subsequent Events
On August
8, 2008, Moriah granted to the Company an extension of the Loan with the same
terms for 8 days.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
NATURE
OF EXPENSE AMOUNT
SEC
Registration fee
|
|
$
|
113
|
|
Accounting
fees and expenses
|
|
25,000
|
*
|
Legal
fees and expenses
|
|
65,000
|
*
|
Miscellaneous
|
|
35,000
|
|
TOTAL
|
|
$
|
125,113
|
*
|
* Estimated.
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our
Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware that our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Our By
Laws also provide that the Board of Directors may also authorize us to indemnify
our employees or agents, and to advance the reasonable expenses of such persons,
to the same extent, following the same determinations and upon the same
conditions as are required for the indemnification of and advancement of
expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
On August
26, 2008, the Company and Moriah Capital, L.P. (“Moriah”) entered into Amendment
No. 3 to the Loan and Security Agreement dated as of August 20, 2008 (the
“Amendment No. 3”). Pursuant to Amendment No. 3, the Company issued Moriah
a warrant, which terminates on August 7, 2013, to purchase up to 370,000 shares
of the Company’s common stock at an exercise price of $1.30 per
share.
Pursuant
to Amendment No. 3, the Company and Moriah entered into an Amended and
Restated Securities Issuance agreement (the “Amended and Restated Securities
Issuance Agreement”). In connection with a Securities Issuance Agreement, dated
as of August 7, 2007 (the “Original Securities Issuance Agreement”), the Company
issued Moriah 162,500 shares of the Company’s common stock (the “2007
Shares”). Pursuant to the Amended and Restated Securities Issuance
Agreement, Moriah agreed to waive the Company’s obligation to buy back the
2007 Shares with respect to 125,000 of such shares and to defer the Company’s
obligation to buy back 37,500 of such 2007 Shares (collectively, the
“Put Waiver”). Pursuant to the Amended and Restated Securities Agreement, the
Company is issuing Moriah 485,000 shares of its Common Stock (of which 125,000
shares were issued in consideration for the Put Waiver from Moriah and 360,000
shares were issued in lieu of the issuance to Moriah of the Contingent
Issued Shares (as described in the Original Securities Issuance Agreement)).
Additionally, pursuant to the Amended and Restated Securities Issuance
Agreement, the Company has also granted Moriah a put option pursuant to which
Moriah can sell 162,500 shares of its common stock issued under the Amended and
Restated Securities Agreement for $195,000, pro-rated for any
portion thereof (the “2007 Put Price”). The 2007 Put Option shall
automatically be deemed exercised by Moriah unless Moriah delivers written
notice to the Company at any time between July 1, 2009 and August 1, 2009 that
it does not wish to exercise the 2007 Put Option. The Company also granted
Moriah a second put option pursuant to which Moriah can sell 360,000 of the
shares issued to Moriah pursuant to the Amended and Restated Securities Purchase
Agreement to the Company for $234,000 (the “2008 Put
Option”). The 2008 Put Option shall automatically be deemed
exercised by Moriah unless Moriah delivers written notice to the Company at any
time between July 1, 2009 and August 1, 2009 that Moriah does not wish to
exercise the 2008 Put option in whole or in part.
On August
19, 2008, the Holders of the Amended Notes and the Investors in
the Purchase Agreement consented to the Company’s execution of the Amended
Note, Amendment No. 3, Amended and Restated Securities Issuance Agreement, and
the Amended Registration Rights Agreement. In consideration for the
consent, a total of 144,000 shares of common stock were issued to the Holders
and Investors based on individual participation in the Amended Notes and
Securities Purchase Agreement on September 4, 2008.
On April
2, 2008, the Company entered into a Securities Purchase Agreement, pursuant to
which it sold to certain qualified institutional buyers and accredited investors
an aggregate of 1,586,539 shares of the Company’s common stock, par value $0.001
per share, and warrants to purchase an additional 793,273 shares of common
stock, for an aggregate purchase price of $1,650,000. The purchase price of the
common stock was $1.04 per share and the strike price of the corresponding
warrant was $1.30 per share. The warrants expire April 2, 2013.
The
Company and Moriah entered into Amendment No. 2 to the Loan and Security
Agreement dated as of March 25, 2008 (the “Amendment No.
2”). Pursuant to Amendment No. 2, Moriah waived the Company’s
noncompliance with Sections 7.2, 7.3, 8.11, 9.1, 9.3, 9.5(c) and 11.5 of the
Loan and Security Agreement to the extent such noncompliance resulted solely
from the Company’s inadvertently misstating the amount of its inventory that
contained defective parts (the “Defective Inventory Count”), provided that on or
before April 8, 2008 the Company repays Moriah all prior Advances (as defined in
the Loan and Security Agreement), which exceed the Maximum Credit (as defined in
the Loan and Security Agreement) if any, as a result of the Defective Inventory
Count.
Pursuant
to Amendment No. 2 the Company has advised Moriah of certain delays in
implementing the Lockbox Agreement, as required under the Loan and
Security Agreement, which, if unwaived, would result in the Company’s
noncompliance with section 2.1(f) of the Loan and Security Agreement and with
Section 3 of the Post-Closing Agreement between the Company and Moriah, dated
August 7, 2007. Moriah agreed to waive noncompliance with Sections
2.1(f) of the Loan and Security Agreement and Section 3 of the Post-Closing
Agreement in reliance on the Company’s representation and warranty that all
lockbox arrangements required to be implemented under Section 2.1(f) of the Loan
and Security Agreement and under Section 3 of the Post-Closing Agreement have
been consummated and are in full force and effect as of March 12,
2008.
On
January 30, 2008, the Company and Moriah entered into a Warrant Issuance
Agreement (the “Warrant Issuance Agreement”). The Company and Moriah
entered into Amendment No. 1 to the Warrant Issuance Agreement. Pursuant to the
Amendment No. 1 to Warrant Issuance Agreement, the Company issued Moriah a
Warrant to purchase 250,000 shares of the Company’s common stock at an exercise
price of $1.50 per share until March 25, 2013 (the “March 2008 Warrant”).
Pursuant to the Amendment No. 1 to the Warrant Issuance Agreement, Section 3.2
of the Warrant Issuance Agreement was amended to provide that the Company has to
file by April 29, 2008 a registration statement with the Securities and Exchange
Commission to register 1,000,000 shares of the Company’s common stock issuable
upon exercise of warrants issued to Moriah (including the March 2008 Warrant and
a warrant to purchase 750,000 shares of the Common Stock which was previously
issued to Moriah).
The
Company entered into a Loan and Security Agreement, effective as of August 7,
2007 with Moriah. In connection with the transaction, a Securities
Issuance Agreement pursuant to which the Company issued 162,500 shares of its
common stock, which shares had an aggregate market value at the Closing Date of
$195,000.
On July
23, 2007, the Company entered into Amendment Agreements with the holders of the
Notes issued July 21, 2006 and March 28, 2007 (each a “Holder” and collectively,
the “Holders”) and agreed to issue each Holder an amended and restated Note (the
“Amended Notes”) in the principal amount equal to the principal amount
outstanding as of July 23, 2007.
The
changes to the Amended Notes include the following:
·
|
The
due date for the outstanding Notes (totaling after conversions an
aggregate of $6,020,000) has been extended to December 21,
2008;
|
·
|
The
Amended Notes are convertible into (i) 8,407,612 shares of the Company’s
common stock. The conversion price for $5,770,000 of principal was revised
from $2.60 to $0.75 per share. The conversion price of $0.35 per share for
$250,000 of principal was
unchanged;
|
·
|
$3,010,000
of the Notes can convert into (ii) 3,010 shares of the Company’s newly
formed Series A Convertible Preferred Stock (the “Preferred”) at a
conversion price of $1,000 per share. The Preferred is convertible into
common stock at the same price allowable by the Amended Notes,
subject to adjustment as provided for in the Certificate of
Designations;
|
·
|
The
Amended Notes adjust the exercise price from $3.60 to $1.03 per share for
1,553,468 Warrants and require the issuance of 3,831,859 Warrants
exercisable at $1.03 per share pursuant to which the holders may acquire
common stock, until July 21, 2011;
and
|
·
|
As
of July 23, 2007 the interest rate was raised from 6% to
8%.
|
On March
28, 2007, we entered into an amendment of the Note Purchase Agreement (the
“Stillwater Note Purchase Agreement”) for the sale of $500 thousand of senior
secured debentures (the “Stillwater Note”) and warrants to purchase
approximately 1.0 million shares of common stock, par value $.001 per share. The
investor purchased the Stillwater Note with a conversion price of $0.35 per
share that may convert into approximately 1.4 million shares of common stock and
warrants exercisable at $0.48 per share into approximately 1.0 million shares of
common stock expiring in 4.2 years. If the Stillwater Notes are not converted,
50% of the principal amount will be due on July 21, 2007 and the remaining 50%
will be due on January 21, 2008. 6% interest is payable in quarterly
installments on outstanding notes with the first installment to be paid June 1,
2007. On April 9, 2007, we closed the transaction and received approximately
$460 thousand, net of offering costs of approximately $40 thousand which are
amortized over the life of the Stillwater Note.
In 2006,
we issued options to purchase an aggregate of 114,855 shares of common stock at
a weighted average price of $2.64 per share to employees as compensation for
services performed on behalf of our company. In addition, we issued options to
purchase an aggregate of 3,900 shares of common stock at a price equal to $2.60
per share to a director as compensation for services performed on our behalf as
his capacity as director of our company.
On July
21, 2006, we entered into several Note Purchase Agreements, including the
Stillwater Note Purchase Agreement, for the sale of approximately $5.99 million
of senior secured debentures (the “Notes”) together with warrants to purchase
approximately 1.8 million shares of common stock. The Notes may convert into
approximately $2.3 million shares at a conversion price of $2.60. The 5 year
warrants are exercisable at $3.60 per share into approximately 1.6 million
shares of common stock. 50% of the aggregate principal amount matures on July
21, 2007 and the remaining 50% matures on January 21, 2008. For the year ended
December 31, 2006, two note holders converted their promissory notes valued at
approximately $0.22 million and were issued an aggregate of approximately 85
thousand shares.
On October
20, 2005, the Company entered into a Securities Purchase Agreement, pursuant to
which the Company sold and issued 1,661,906 shares of common stock, par value
$0.001 per share, at a price of $5.50 per share and warrants to purchase up to
997,143 shares of common stock for an aggregate purchase price of approximately
$9.14 million. The warrants are exercisable at a price of $10.00 per share and
expire on April 20, 2011. Of the 997,143 warrants, 664,763 of the warrants are
exercisable on or after May 20, 2006. The remaining 332,381 are exercisable
after March 31, 2007.
In 2005,
we issued options to purchase an aggregate of 267,900 shares of common stock at
a weighted average price of $12.10 per share to employees as compensation for
services performed on behalf of our company. In addition, we issued options to
purchase an aggregate of 49,750 shares of common stock at a weighted average
price of $6.80 per share to directors as compensation for services performed on
our behalf in each of their capacities as directors of our company.
On
January 9, 2004, the Company entered into a Securities Purchase Agreement with
several accredited institutional and private investors whereby such investors
purchased an aggregate of 333,336 shares of common stock and 431,221 warrant
shares for an aggregate purchase price of approximately $4.2 million. The shares
of common stock were priced at a 20% discount to the average closing price of
the stock from December 30, 2003 to January 6, 2004, which ranged from $13.80 to
$19.40 per share during the period for an average closing price of $12.60 per
share. In addition, the investors received warrants to purchase an aggregate of
200,002 shares of common stock (subject to anti-dilution adjustments)
exercisable at a price of $17.40 per share for a period of five (5) years. The
warrants were priced at a 10% premium to the average closing price of the stock
for the pricing period. In connection with the Securities Purchase Agreement,
eMagin also issued additional warrants to the investors to acquire an aggregate
of 231,219 shares of common stock. On April 9, 2007, the 116,573 outstanding
Series A Common Stock Purchase Warrants were re-priced to $0.35.
In
February 2004, the Company and all of the holders of the Secured Convertible
Notes (the "Notes"), which were due in November 2005, entered into an agreement
whereby the holders agreed to an early conversion of 100% of the principal
amount of the Notes aggregating $7.825 million, together with all of the accrued
interest of approximately $742,000 on the Notes, into 1,139,462 shares of the
Company's common stock. In consideration of the Note holders agreeing to the
early conversion of the Notes, eMagin agreed to issue the Note holders warrants
to purchase an aggregate of 250,000 shares of common stock (the "warrants"),
which warrants are exercisable at a price of $27.60 per share. 150,000 of the
warrants (series D warrants) expired on December 31, 2005. The remaining 100,000
of the warrants (series E warrants) are exercisable until June 10,
2008.
In August
2004, the Company and certain of the holders of its outstanding Class A, B and C
common stock purchase warrants entered into an agreement pursuant to which the
Company and the holders of the warrants agreed to the $9.00 re-pricing and
exercise of Class A, B and C common stock purchase warrants. As a condition to
the transaction, the holders of the warrants agreed to limit the right of
participation that they were granted in January 9, 2004. As a result of the
transaction, the holders agreed to re-price and exercise approximately, 209,989
Class A, B and/or C common stock purchase warrants for an aggregate of
$1,889,900.
On
October 21, 2004, the Company entered into a Securities Purchase Agreement,
pursuant to which eMagin sold and issued 1,033,453 shares of common stock, and
series F common stock warrants to purchase 512,976 of common stock for an
aggregate purchase price of $10,772,500. The common stock was priced at $10.50.
The Series F Warrants are exercisable from April 25, 2005 until April 25, 2010
at an exercise price of $12.10 per share, subject to adjustment upon the
occurrence of specific events, including stock dividends, stock splits,
combinations or reclassifications of the Company’s common stock or distributions
of cash or other assets. In addition, the Series F Warrants contain provisions
protecting against dilution resulting from the sale of additional shares of the
Company’s common stock for less than the exercise price of the Series F
Warrants, or the market price of the common stock, on the date of such issuance
or sale.
On
October 28, 2004, eMagin entered into a Securities Purchase Agreement, pursuant
to which eMagin sold and issued 274,048 shares of common stock, and series F
common stock purchase warrants to purchase eMagin’s common stock to purchasers
for an aggregate purchase price of $2,877,500. The common stock was priced at
$10.50. The Series F Warrants are exercisable from April 25, 2005 until April
25, 2010 to purchase up to 137,024 shares of common stock at an exercise price
of $12.10 per share, subject to adjustment upon the occurrence of specific
events, including stock dividends, stock splits, combinations or
reclassifications of eMagin’s common stock or distributions of cash or other
assets. In addition, the Series F Warrants contain provisions protecting against
dilution resulting from the sale of additional shares of eMagin’s common stock
for less than the exercise price of the Series F Warrants, or the market price
of the common stock, on the date of such issuance or sale. On April 9, 2007, the
outstanding 650,001 Series F Common Stock Purchase Warrants were re-priced to
$7.12.
*All of
the above issuances and sales were deemed to be exempt under Rule 506 of
Regulation D and Section (2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of eMagin or executive officers of
eMagin, and transfer was restricted by eMagin in accordance with the requirement
of the Securities Act of 1933. In addition to representations by the
above-reference persons, we have made independent determinations that 11 of the
above-referenced person were accredited or sophisticated investors, and that
they were capable of analyzing the merits and risks of their investment, and
that they understood the speculative nature of their investment. Furthermore,
all of the above-referenced persons were provided with access to our Securities
and Exchange Commission filings.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The
following exhibits are included as part of this Form S-1. References to “the
Company” in this Exhibit List mean eMagin Corp., a Delaware
corporation.
Exhibit
Number
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger between Fashion Dynamics Corp., FED Capital Acquisition
Corporation and FED Corporation dated March 13, 2000 (incorporated by
reference to exhibit 2.1 to the Registrant's Current Report on Form 8-K/A
filed on March 17, 2000).
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation (incorporated by reference to
exhibit 99.2 to the Registrant's Definitive Proxy Statement filed on June
14, 2001).
|
|
|
|
3.2
|
|
Amended
Articles of Incorporation (incorporated by reference to exhibit A to the
Registrant's Definitive Proxy Statement filed on June 13,
2003).
|
|
|
|
3.3
|
|
Bylaws
of the Registrant (incorporated by reference to exhibit 99.3 to the
Registrant's Definitive Proxy Statement filed on June 14,
2001).
|
|
|
|
4.1
|
|
Form
of Warrant dated as of April 25, 2003 (incorporated by reference to
exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on April
28, 2003).
|
|
|
|
4.2
|
|
Form
of Series A Common Stock Purchase Warrant dated as of January 9, 2004
(incorporated by reference to exhibit 4.1 to the Registrant's Current
Report on Form 8-K filed on January 9, 2004).
|
|
|
|
4.3
|
|
Form
of Series B Common Stock Purchase Warrant dated as of January 9, 2004
(incorporated by reference to exhibit 4.2 to the Registrant’s Current
Report on Form 8-K filed on January 9, 2004).
|
|
|
|
4.4
|
|
Form
of Series C Common Stock Purchase Warrant dated as of January 9, 2004
(incorporated by reference to exhibit 4.3 to the Registrant's Current
Report on Form 8-K filed on January 9, 2004).
|
|
|
|
4.5
|
|
Form
of Series D Warrant (incorporated by reference to exhibit 4.1 to the
Registrant's current report on Form 8-K filed on March 4,
2004).
|
|
|
|
4.6
|
|
Form
of Series E Warrant (incorporated by reference to exhibit 4.2 to the
Registrant's current report on Form 8-K filed on March 4,
2004).
|
|
|
|
4.7
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to exhibit 4.1
to the Registrant's current report on Form 8-K filed on August 26,
2008).
|
|
|
|
4.8
|
|
Form
of Amended and Restated Secured Revolving Loan Note (incorporated by
reference to exhibit 4.2 to the Registrant's current report on Form 8-K
filed on August 26, 2008).
|
|
|
|
4.9
|
|
Form
of Series F Warrant (incorporated by reference to exhibit 4.1 to the
Registrant's current report on Form 8-K filed on October 26,
2004).
|
|
|
|
4.10
|
|
Form
of Common Stock Purchase Warrant dated October 20, 2005, filed October 31,
2005, as filed in the Registrant's Form 8-K incorporated herein by
reference.
|
|
|
|
5.1
|
|
Consent
of Sichenzia Ross Friedman Ference LLP (filed
herewith).
|
|
|
|
10.1
|
|
2000
Stock Option Plan, (incorporated by reference to Annex A to Exhibit
99.1 to the Registrant's Registration Statement on Form S-8 filed on March
14, 2000).*
|
|
|
|
10.2
|
|
Form
of Agreement for Stock Option Grant pursuant to 2003 Stock Option Plan
(incorporated by reference to exhibit 99.2 to the Registrant's
Registration Statement on Form S-8 filed on March 14,
2000).*
|
|
|
|
10.3
|
|
Nonexclusive
Field of Use License Agreement relating to OLED Technology for miniature,
high resolution displays between the Eastman Kodak Company and FED
Corporation dated March 29, 1999 (incorporated by reference to exhibit
10.6 to the Registrant's Annual Report on Form 10-K/A for the year ended
December 31, 2000 filed on April 30,
2001).
|
10.4
|
|
Amendment
Number 1 to the Nonexclusive Field of Use License Agreement relating to
the LED Technology for miniature, high resolution displays between the
Eastman Kodak Company and FED Corporation dated March 16, 2000
(incorporated by reference to exhibit 10.7 to the Registrant's Annual
Report on Form 10-K/A for the year ended December 31, 2000 filed on April
30, 2001).
|
|
|
|
10.5
|
|
Lease
between International Business Machines Corporation and FED Corporation
dated May 28, 1999 (incorporated by reference to exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
2000 filed on March 30 , 2001).
|
|
|
|
10.6
|
|
Amendment
Number 1 to the Lease between International Bushiness Machines Corporation
and FED Corporation dated July 9, 1999 (incorporated by reference to
exhibits 10.8 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000 filed on March 30, 2001)
|
|
|
|
10.7
|
|
Amendment
Number 2 to the Lease between International Business Machines Corporation
and FED Corporation dated January 29, 2001 (incorporated by reference to
exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2000 filed on March 30,
2001).
|
|
|
|
10.8
|
|
Amendment
Number 3 to Lease between International Business Machines Corporation and
FED Corporation dated May 28, 2002 (filed
herewith).
|
|
|
|
10.9
|
|
Amendment
Number 4 to Lease between International Business Machines Corporation and
FED Corporation dated December 14, 2004 (incorporated by reference to
the Registrant’s Current Report on Form 8-K filed on December 20,
2004).
|
|
|
|
10.10
|
|
Securities
Purchase Agreement dated as of April 25, 2003 by and among eMagin and the
investors identified on the signature pages thereto, filed April 28, 2003,
as filed in the Registrant's Form 8-K incorporated herein by
reference. |
|
|
|
10. 11
|
|
Registration
Rights Agreement dated as of April 25, 2003 by and among eMagin and
certain initial investors identified on the signature pages thereto
(incorporated by reference to exhibit 10.3 to the Registrant's Current
Report on Form 8-K filed on April 28, 2003).
|
|
|
|
10. 12
|
|
Securities
Purchase Agreement dated as of January 9, 2004 by and among eMagin and the
investors identified on the signature pages thereto (incorporated by
reference to exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on January 9, 2004).
|
|
|
|
10. 13
|
|
Registration
Rights Agreement dated as of January 9, 2004 by and among eMagin and
certain initial investors identified on the signature pages thereto
(incorporated by reference to exhibit 10.2 to the Registrant's Current
Report on Form 8-K filed on January 9, 2004).
|
|
|
|
10. 14
|
|
Master
Amendment Agreement dated as of February 17, 2004 by and among eMagin and
the investors identified on the signature pages thereto (incorporated by
reference to exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on March 4, 2004).
|
|
|
|
10. 15
|
|
Registration Rights Agreement dated
as of February 17, 2004 by and among eMagin and certain initial
investors identified on the signature
pages thereto (incorporated by reference
to exhibit 10.2 to the Registrant's
Current Report on Form 8-K filed on March 4, 2004).
|
|
|
|
10. 16
|
|
Letter
Agreement amending the Master Amendment Agreement
dated as of March 1, 2004 by
and among eMagin and
the parties to
the Master Amendment
Agreement (incorporated by reference to exhibit 10.3 to the
Registrant's Current Report on Form 8-K filed on March 4,
2004).
|
|
|
|
10. 17
|
|
Lease
between International Business Machines Corporation and
FED Corporation dated May 28, 1999, as
filed in the Registrant's Form 10-K/A for the year
ended December 31, 2000 (incorporated by
reference to the Form 10-K filed on March 30,
2001).
|
|
|
|
10. 18
|
|
Amendment Number 2 to the Lease between International Business
Machines Corporation and
FED Corporation dated January 29, 2001,
as filed in the Registrant's Form 10-K/A for the
year ended December 31, 2000 (incorporated by reference to
Form 10-K filed March 30, 2001).
|
|
|
|
10. 19
|
|
Secured
Note Purchase Agreement entered into as of November 27, 2001,
by and among eMagin Corporation and
certain investors named therein,
as filed in
the Registrant's Form 8-K dated December 18, 2001
(incorporated by reference to Form 8-K filed December 18,
2001).
|
10. 20
|
|
2004
Non-Employee Compensation Plan, filed July 7, 2004, as filed in the
Registrant’s Form S-8, incorporated herein by
reference.*
|
|
|
|
10. 21
|
|
Form
of Letter Agreement by and among eMagin and the holders of the Class A,
Class B and Class C common stock purchase warrants, filed August 9, 2004 ,
as filed in the Registrant's Form 8-K incorporated herein by
reference.
|
|
|
|
10. 22
|
|
Securities
Purchase Agreement dated as of October 21, 2004 by and among eMagin and
the purchasers listed on the signature pages thereto, filed October 26,
2004 as filed in the Registrant's Form 8-K incorporated herein by
reference.
|
|
|
|
10. 23
|
|
Placement
Agency Agreement dated as of October 21, 2004 by and among eMagin and W.R.
Hambrecht & Co., LLC, filed October 26, 2004, as filed in the
Registrant's Form 8-K incorporated herein by reference.
|
|
|
|
10. 24
|
|
Agreement,
dated as of June 29, 2004, by and between eMagin and Larkspur Capital
Corporation, filed October 26, 2004, as filed in the Registrant's Form 8-K
incorporated herein by reference.
|
|
|
|
10. 25
|
|
Sublease
Agreement dated as of July 14, 2005 by and between eMagin and
Cap Gemini U.S., LLC, filed August 2, 2005, as filed in the
Registrant's Form 8-K incorporated herein by reference.
|
|
|
|
10. 26
|
|
Amended
and Restated 2003 Stock Option Plan, filed September 1, 2005, as filed in
the Registrant’s Definitive Proxy Statement, incorporated herein by
reference.*
|
|
|
|
10. 27
|
|
Amended
and Restated 2004 Non-Employee Compensation Plan, filed September 1, 2005,
as filed in the Registrant’s Definitive Proxy Statement, incorporated
herein by reference.*
|
10. 28
|
|
2005
Employee Stock Purchase Plan, filed September 1, 2005, as filed in the
Registrant’s Definitive Proxy Statement, incorporated herein by
reference.*
|
|
|
|
10. 29
|
|
Securities
Purchase Agreement dated as of October 20, 2005, by and among eMagin and
the purchasers listed on the signature pages thereto, filed October 31,
2005, as filed in the Registrant's Form 8-K incorporated herein by
reference.
|
|
|
|
10. 30
|
|
Registration
Rights Agreement dated as of October 20, 2005, by and among eMagin and the
purchasers listed on the signature pages thereto, filed October 31, 2005,
as filed in the Registrant's Form 8-K incorporated herein by
reference.
|
|
|
|
10. 31
|
|
Employment
Agreement effective as of January 1, 2006 by and between eMagin and Gary
Jones, filed January 27, 2006, as filed in the Registrant's Form 8-K
incorporated herein by reference.
|
|
|
|
10. 32
|
|
Employment
Agreement effective as of January 1, 2006 by and between eMagin and Susan
Jones, filed January 27, 2006, as filed in the Registrant's Form 8-K
incorporated herein by reference.
|
|
|
|
10. 33
|
|
Amendment
to Employment Agreement as of April 17, 2006 by and between eMagin and
Gary Jones.
|
|
|
|
10. 34
|
|
Amendment
to Employment Agreement as of April 17, 2006 by and between eMagin and
Susan Jones.
|
|
|
|
10. 35
|
|
Form
of Note Purchase Agreement dated July 21, 2006, by and among the Company
and the investors named on the signature pages thereto, (filed herewith)
.
|
|
|
|
10. 36
|
|
Form
of Note Purchase Agreement dated July 21, 2006, by and between the Company
and Stillwater LLC, (filed herewith)
|
|
|
|
10. 37*
|
|
2004
Amended and Restated Non-Employee Compensation Plan, filed September 21,
2006, as filed in the Registrant's Definitive Proxy Statement incorporated
herein by reference.
|
|
|
|
10. 38
|
|
Executive
Separation and Consulting Agreement dated as of January 11, 2007 by and
between eMagin Corporation and Gary W. Jones, filed January 19, 2007, as
filed in the Registrant's Form 8-K/A incorporated herein by
reference.
|
|
|
|
10. 39
|
|
Letter
Agreement dated as of February 12, 2007 by and between eMagin Corporation
and Dr. K.C. Park, filed February 16, 2007, as filed in the Registrant's
Form 8-K incorporated herein by reference.
|
|
|
|
10. 40
|
|
Allonge
to the 6% Senior Secured Convertible Notes Due 2007-2008 of eMagin
Corporation dated as of March 9, 2007, filed March 13, 2007, as filed in
the Registrant's Form 8-K incorporated herein by
reference.
|
|
|
|
10. 41
|
|
First
Amendment to Note Purchase Agreement as of March 28, 2007 by and between
eMagin Corporation and Stillwater LLC, as filed in the Registrant's
Form 8-K dated April 26, 2007 incorporated herein by
reference.
|
|
|
|
10. 42
|
|
Note
Purchase Agreement as of April 9, 2007 by and between eMagin
Corporation and Stillwater LLC, as filed in the Registrant's Form 8-K
dated April 25, 2007 (filed herewith).
|
|
|
|
10. 43
|
|
6%
Senior Secured Convertible Note, dated April 9, 2007, by and between the
Company and Stillwater LLC, incorporated by reference to the Company’s
Form 8-K as filed on April 26, 2007.
|
|
|
|
10. 44
|
|
Common
Stock Purchase Warrant, dated April 9, 2007, by and between the Company
and Stillwater LLC, incorporated by reference to the Company’s Form 8-K as
filed on April 26, 2007.
|
|
|
|
10. 45
|
|
Employment
Agreement between the Company and Tatum, LLC, dated December 26, 2007,
incorporated by reference to the Company’s Form 8-K as filed on January 3,
2008.
|
|
|
|
10. 46
|
|
Form
of Common Stock Purchase Warrant, incorporated by reference to the
Company’s Form 8-K/A as filed on February 8, 2008.
|
|
|
|
10. 47
|
|
Amendment
No. 1 to Loan and Security Agreement, dated as of January 30, 2008, to the
Loan and Security Agreement, dated August 7, 2007, incorporated by
reference to the Company’s Form 8-K/A as filed February 8,
2008.
|
|
|
|
10. 48
|
|
Warrant
Issuance Agreement, dated January 30, 2008, incorporated by reference to
the Company’s Form 8-K/A as filed February 8, 2008.
|
|
|
|
10. 49
|
|
Form
of Common Stock Purchase Warrant, incorporated by reference to the
Company’s Form 8-K, as filed on March 31, 2008.
|
|
|
|
10. 50
|
|
Amendment
No. 2 to Loan and Security Agreement, dated as of March 25, 2008 to the
Loan and Security Agreement, dated August 7, 2007, as amended on January
30, 2008, incorporated by reference to the Company’s Form 8-K, as filed
March 31, 2008.
|
|
|
|
10. 51
|
|
Amendment
No. 1 to Warrant Issuance Agreement, dated as of March 25, 2008, as
amended on January 30, 2008, incorporated by reference to the Company’s
Form 8-K, as filed March 31, 2008.
|
|
|
|
10 .52
|
|
Form
of Common Stock Purchase Warrant, incorporated by reference to the
Company’s Form 8-K, as filed on April 4,
2008.
|
10. 53
|
|
Securities
Purchase Agreement, dated as of April 2, 2008, incorporated by reference
to the Company’s Form 8-K, as filed April 4, 2008 (filed
herewith).
|
|
|
|
10. 54
|
|
Registration
Rights Agreement, dated as of April 2, 2008, incorporated by reference to
the Company’s Form 8-K, as filed April 4, 2008.
|
|
|
|
10 .55
|
|
Agreement
between the Company and Tatum, LLC, incorporated by reference to the
Company’s Form 8-K, filed April 18, 2008
|
|
|
|
10. 56
|
|
Employment
Agreement effective as of June 1, 2008 by and between eMagin and Andrew
Sculley, incorporated by reference to the Company’s Form 8-K/A as filed
August 19, 2008.
|
|
|
|
10. 57
|
|
Amendment
No. 3 to Loan and Security Agreement, dated as of August 20,
2008 to the Loan and Security Agreement, dated August 7, 2007,
incorporated by reference to the Company’s Form 8-K, as filed August 26,
2008.
|
|
|
|
10. 58
|
|
Warrant
Issuance Agreement No. 2, dated August 20, 2008, incorporated by reference
to the Company’s Form 8-K as filed August 26, 2008.
|
|
|
|
10. 59
|
|
Amended
and restated Securities Issuance Agreement, dated as of August 20, 2008,
incorporated by reference to the Company’s Form 8-K, as filed August 26,
2008.
|
|
|
|
10. 60
|
|
Amendment,
dated August 20, 2008, to Registration Rights Agreement, dated as of
August 7, 2007, incorporated by reference to the Company’s Form 8-K, as
filed August 26, 2008.
|
|
|
|
10. 61
|
|
Loan
and Security Agreement between Moriah Capital, L.P. and eMagin
Corporation, dated as of August 7, 2007, (filed
herewith).
|
|
|
|
23.1
|
|
Consent
of Sichenzia Ross Friedman Ference LLP (included in Exhibit
5.1). |
|
|
|
23.2
|
|
Consent
of Independent Registered Public Accounting Firm (filed
herewith).
|
*
Each of the Exhibits noted by an asterisk is a management compensatory
plan or arrangement.
|
The
undersigned registrant hereby undertakes to:
(1) File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the “Securities Act”);
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act if,
in the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement,
and,
(iii)
Include any additional or changed material information on the plan of
distribution.
(2) For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3) File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4) For
purposes of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For
the purpose of determining liability of the registrant under the Securities Act
of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
1.
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
2.
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
3.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
4.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
(6) For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
(7)
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(8) Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and authorizes this registration statement to
be signed on its behalf by the undersigned, in the City of Bellevue, State of
Washington, on November 12, 2008.
|
EMAGIN
CORP. |
|
|
|
|
Date: November
12 , 2008
|
By: /s/ ANDREW G.
SCULLEY
|
|
Andrew
G. Sculley
|
|
Chief
Executive Officer and President
(Principal
Executive Officer)
|
|
|
Date: November
12 , 2008
|
By: /s/ PAUL
CAMPBELL
|
|
Paul
Campbell
|
|
Chief
Financial Officer
(Principal
Financial Officer and Principal Accounting
Officer)
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Andrew G. Sculley
Andrew
G. Sculley
|
|
Chief
Executive Officer and President
(Principal
Executive Officer)
|
|
November
12, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/ Paul S. Campbell
Paul
S. Campbell
|
|
Chief
Financial Officer
(Principal
Financial Officer and Principal Accounting Officer)
|
|
November 12,
2008
|
*
|
|
Director
|
|
November
12,
2008
|
*
|
|
Director
|
|
November
12,
2008
|
*
|
|
Director
|
|
November
12,
2008
|
*
|
|
Director
|
|
November
12,
2008
|
*
|
|
Director
|
|
November
12, 2008
|
*
|
|
Director
|
|
November
12,
2008
|
* By: |
/s/ THOMAS
PAULSEN |
|
|
|
Thomas
Paulsen |
|
|
|
Attorney-in-fact |
|
|
118