Business and Product HighlightsThe Company continued to expand its presence in commercial, industrial and foreign military markets while winning new U.S. military programs. Additionally, the Company made improvements in technology and product design. Some of the highlights include:
- Signed a multi-million-dollar agreement with another major consumer electronics company to design and develop a microdisplay for a VR headset.
- Completed a prototype of a full color 2Kx2K device with advanced backplane and direct patterning. This high-performance display has many built in features due to the new backplane. Initial tests showed more than 5,000 nits in brightness which we believe would make this the world's highest resolution, highest brightness OLED microdisplay.
- Selected as a sole source provider of OLED microdisplays for a major US Army helicopter helmet upgrade program to retrofit high brightness, monochrome green microdisplays into the current fielded helmet. Program includes funding for production tooling for a higher-level display, taper, and lens assembly.
- Completed requirements review with a major aviation prime contractor for an OLED upgrade to a fixed wing production helmet.
- Continued our negotiations on a new thermal weapon sight program with a major European customer.
Overall gross margin for the fourth quarter was 30% on gross profit of $1.8 million compared to a gross margin of 48% on gross profit of $3.3M in the first quarter of 2016. The decline in gross profit margin was attributable to the favorable impact of $1.0 million in license revenue recorded in the first quarter of 2016, against which no cost of revenues was recorded, and the impact of lower production volumes on our fixed production costs.Operating expenses for the first quarter of 2017, including R&D expenses, increased to $3.8 million, from $3.3 million in the first quarter of 2016. First quarter operating expenses reflect higher R&D spending as we dedicated our production resources to our direct patterned display development and to achieving higher production volumes of these displays. SG&A expenses increased due to higher spending on professional services associated with negotiating and structuring agreements with prospective partners as well as higher stock based compensation costs and travel, marketing and promotional expenses for our night vision consumer products. Operating loss for the first quarter was $2.0 million versus operating income of $22 thousand in the first quarter of last year. Net loss for the first quarter of 2017 increased to $2.0 million, or $0.06 per diluted share, compared to net income of $11 thousand, or $0.00 per diluted share, in the first quarter of 2016. Cash and cash equivalents were $3.8 million at the end of the first quarter. There were outstanding borrowings of $1.4 million, net of issuance costs, and $2.3 million of additional borrowing availability under our working capital facility. There were no borrowings under our $5 million unsecured credit facility. Outlook "We continue to pursue our milestone approach to driving shareholder value. We believe eMagin is the only Company whose products can meet the low power, high brightness and resolution requirements for high-pixel density displays being demanded both for next generation VR/AR Consumer HMDs as well as today's commercial and military applications," continued Mr. Sculley.
The Company remains focused on the following objectives to drive shareholder value:
- Advance our product development discussions with major consumer electronics companies to incorporate OLED technology into their next generation products,
- Advance discussions with high volume production partners to utilize our leading production and process technologies,
- Further penetrate high growth commercial/industrial markets including medical devices and other vertical markets where integration of our OLED microdisplays and optics technology advances product development and adoption,
- Expand our presence in existing and future major military programs and overall customer count in domestic and international military markets,
- Launch new products focused on the consumer market which offer high performance and broad appeal at an attractive price, and
- Continue our progress in manufacturing improvements including yield enhancement and production capacity expansion.
Non-GAAP Financial MeasuresTo supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization, and non-cash compensation expense ("Adjusted EBITDA"). The Company's management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financial statements. Management believes that these adjusted measures reflect the essential operating activities of the Company. A reconciliation of non-GAAP financial information appears below.
|eMAGIN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)|
|March 31, 2017||December 31, 2016|
|Cash and cash equivalents||$||3,750||$||5,241|
|Accounts receivable, net||3,118||2,834|
|Unbilled accounts receivable||1,131||1,401|
|Prepaid expenses and other current assets||1,275||1,040|
|Total current assets||17,238||17,951|
|Equipment, furniture and leasehold improvements, net||9,189||8,980|
|Intangibles and other assets||426||282|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Revolving credit facility, net||1,450||1,689|
|Other accrued expenses||2,364||1,513|
|Other current liabilities||629||591|
|Total current liabilities||8,140||6,753|
|Commitments and contingencies (Note 8)|
|Preferred stock, $.001 par value: authorized 10,000,000 shares:|
|Series B Convertible Preferred stock, (liquidation preference of $5,659,000) stated value $1,000 per share, $.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of March 31, 2017 and December 31, 2016||—||—|
|Common stock, $.001 par value: authorized 200,000,000 shares, issued 31,814,655 shares as of March 31, 2017 and 31,788,582 shares as of December 31, 2016||32||32|
|Additional paid-in capital||240,167||239,915|
|Treasury stock, 162,066 shares as of March 31, 2017 and December 31, 2016||(500)||(500)|
|Total shareholders' equity||18,713||20,460|
|Total liabilities and shareholders' equity||$||26,853||$||27,213|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In thousands, except share and per share data)|
|Three Months Ended|
|Total revenues, net||6,069||7,001|
|Cost of revenues:|
|Total cost of revenues||4,251||3,666|
|Research and development||1,334||1,303|
|Selling, general and administrative||2,463||2,010|
|Total operating expenses||3,797||3,313|
|(Loss) Income from operations||(1,979)||22|
|Other income (expense):|
|Interest expense, net||(35)||(10)|
|Other income, net||15||2|
|Total other expense, net||(20)||(8)|
|Loss (Income) before provision for income taxes||(1,999)||14|
|Provision for income taxes||—||—|
|Net (loss) income||$||(1,999)||$||14|
|Less net income allocated to participating securities||—||3|
|Net (loss) income allocated to common shares||$||(1,999)||$||11|
|Loss per share, basic||$||(0.06)||$||—|
|Loss per share, diluted||$||(0.06)||$||—|
|Weighted average number of shares outstanding:|
|Three Months Ended|
|Net (loss) income||$||(1,999)||$||14|
|Depreciation and intangibles amortization expense||486||415|
|Provision for income taxes||-||-|