Press release

eMagin Corporation Announces Fourth Quarter 2018 Financial Results

Sponsored by Businesswire

eMagin Corporation, or the “Company” (NYSE MKT: EMAN), a
leader in the development, design and manufacture of Active Matrix OLED
microdisplays for high resolution imaging products, today announced
financial results and corporate highlights for the fourth quarter ended
December 31, 2018.

“During 2018, we experienced growing demand for our products, especially
from U.S. military and aviation programs, and expanded our presence
among medical and other commercial customers. We sold to over 80
customers this past year and supplied products for over 20 new programs.
At December 31, 2018, we had a backlog of non-binding purchase orders of
approximately $10.6 million in products ordered for delivery through
December 31, 2019, an increase of approximately $800,000 from our
backlog of $9.8 million at December 31, 2017,” stated Andrew Sculley,
Chief Executive Officer.

“Development efforts to support the F-35 helmet accelerated during the
year. Under contract from Collins Aerospace, we designed, manufactured
and delivered the initial displays for this multi-service, multi-country
program which are being installed in helmets for flight tests scheduled
for this year. We will continue to deliver displays throughout 2019
while working closely with the Collins Aerospace team in preparation for
limited rate initial production (“LRIP”) scheduled for 2020.

“From a technology perspective, we continue to make significant advances
with our high brightness, full-color microdisplays incorporating our
color filter and patented Direct Patterning (“dPd”) technology which is
critical to driving our growth in all the markets we serve. We have
surpassed the 5,000 nits threshold requirements of Tier One companies
for their enterprise and consumer AR/VR applications. Additionally, by
making architectural improvements and using superior OLED materials, we
have increased the efficiency and lifetime of our displays by more than

“We continue to refine our production processes and are upgrading our
existing dPd equipment. This should increase production throughput as
well as significantly extend the lifetime of our displays. In 2018, we
received U.S. Army funding of $830,000 to support these efforts and are
pursuing additional awards to fund production improvements and capacity

“While our full year revenues increased 19% on a year-on-year basis, we
did experience a manufacturing equipment related issue in the fourth
quarter. This resulted in lower yields and loss of production, affecting
our fourth quarter and full-year performance. We addressed this issue
and have made the necessary improvements to minimize the risk of future
recurrences. It did not affect any of our U.S. military programs but did
have an impact on production and deliveries early in the first quarter

“Going forward, we believe that the equipment purchases we have made
over the past few quarters will improve the reliability of our
manufacturing processes. In addition, as the only manufacturer of OLED
microdisplays in the U.S., we are working closely with the Department of
Defense for substantial funding of further production enhancements that
will improve our production reliability, expand our capacity and lower
our unit costs. Overall, we are extremely well-positioned as the only
company whose products can meet the low power, high brightness, high
contrast and resolution requirements for high-pixel density displays
being demanded both for next generation enterprise and consumer VR/AR
HMDs, as well as today’s military and commercial applications,”
concluded Mr. Sculley.

Business and Product Highlights

In addition to winning new U.S. military programs and expanding our
presence in commercial/industrial and foreign military markets, we made
significant improvements in technology and product design. Further
optimization of our dPd process has led to brightness levels that we
believe surpass the threshold requirements for AR/VR applications for
consumer products and enterprise focused companies and satisfy the
requirements of several pending military programs. We have demonstrated
more than 15,000 nits brightness in monochrome and more than 7,000 nits
brightness in full color, a milestone towards the application of
eMagin’s microdisplays to AR/VR headsets. Our current year-end target of
10,000 nits in full color is part of our multi-year R&D roadmap to
achieve over 25,000 nits and meeting our military customers’ future
requirements. This brightness capability allows for greater power
efficiency and longer lifetimes when operated at conventional luminance.
It also gives us a significant advantage in consumer and
commercial/industrial applications as it enables OEM’s to utilize our
displays with less efficient and less expensive optics.

Fiscal 2018 highlights in addition to those noted above include:

  • We received approval of our design from a Tier 1 consumer electronics
    partner for prototype high resolution, 4k x 4k displays featuring very
    high brightness using our dPd technology, which will result in a
    headset with a wide field of view and no screen door effect. We worked
    with a foundry partner to manufacture the silicon wafers needed to
    develop our displays, the first of which were shipped to us in
    December 2018 for testing and evaluation. We anticipate completing
    these displays in the third quarter of 2019.
  • We received an order totaling $560 thousand in support of the Javelin
    Missile program Command Launch Unit. We anticipate a follow-on order
    in the second quarter of 2019.
  • We supported multiple prime contractors with display deliveries for
    pre-production units for the US Army Enhanced Night Vision Goggle –
    Binocular program. This program is anticipated to commence production
    in 2020 with an overall acquisition objective by the US Army of
    190,000 systems.
  • Ground and flight tests were successfully completed in the fourth
    quarter of 2018 for a major U.S. Army helicopter helmet upgrade
    program to retrofit high brightness microdisplays into the current
    fielded helmet.
  • We delivered the first 2K x 2K compact board interface to an aviation
    prime contractor for the development of a next generation helmet
    prototype in the second quarter and continued to provide samples to
    key potential customers throughout the year. The compact size, long
    interface cables, and DisplayPort compliant standard make this system
    ideally suited for head-wearable applications for both the military
    and consumer markets.
  • We delivered high brightness 2K × 2K microdisplays to a major defense
    contractor for use in a prototype aviation helmet. This was in
    anticipation of a Request for Proposal which has now been issued by
    the U.S. Government to develop a next generation rotary wing helmet.
  • We are currently developing a prism optic to pair with our displays
    and evaluating prototypes received from potential manufacturing
    partners. There is interest in this display and prism combination for
    both military and commercial applications.

Full Year Results

Revenues for 2018 were $26.2 million, up 19% from the $22.0 million in
2017. Product revenues totaled $23.3 million, representing a 25%
increase from $18.7 million in 2017, due primarily to continued growth
from new U.S. and foreign military programs as well as the ramp-up of
existing programs. R&D contract revenues totaled approximately $2.9
million as compared to $3.3 million in 2017. The decrease in R&D
contract revenue was mainly the result of the completion during late
2017 and early 2018 of several commercial and U.S. Government R&D

Gross margin for 2018 was 15%, down from 23% in 2017. The decline in
gross margin for the year was due primarily to an impairment charge of
$2.7 million related to the Consumer Night Vision Business and the
fourth quarter production issues previously discussed. Excluding the
impairment charge, the total gross margin was 25%, reflecting higher
production volumes and improved yields during the year.

Operating expenses for 2018, including R&D expenses, were $15.7 million
compared to $13.9 million in 2017. The majority of the increase was due
to higher R&D expenses for company-funded work related to the Company’s
direct patterning technology product and process development, resources
expended on improving manufacturing processes, and higher spending on
professional services related to contract negotiations with prospective
consumer electronics and manufacturing partners.

Operating loss for the full year 2018 was $11.7 million versus $8.7
million in 2017. Net loss for the full year 2018, including $2.2 million
recorded income from the change in the fair value of the warrant
liability, was $9.6 million, or $0.21 per diluted share. This compares
to a net loss of $7.8 million, including a $1.1 million impact from the
change in the fair value of the warrant liability and an income tax
benefit of $0.2 million, or $0.23 per diluted share.

As of December 31, 2018, the Company had approximately $3.4 million of
cash, cash equivalents and investments compared to $3.5 million as of
December 31, 2017. There were no net borrowings outstanding under the
Company’s asset-based loan facility and there was unused borrowing
availability of $4.1 million at December 31, 2018.

The Company received net proceeds of $11.9 million in January 2018 from
a public offering of common stock and warrants. In a concurrent private
placement which closed on February 18, 2018, certain directors and
officers purchased common stock and warrants totaling $0.3 million.

Fourth Quarter Results

Revenues in the fourth quarter of 2018 were $5.4 million as compared to
$6.4 million in the fourth quarter of 2017. Production yields and output
were negatively impacted by manufacturing related issues which occurred
late in the fourth quarter of 2018. The Company has implemented remedial
measures and expects yields to improve and production capacity to
increase during the first and second quarters of 2019.

Product revenues totaled $5.2 million in the fourth quarter of 2018
versus $5.6 million in the fourth quarter of 2017. The decline is a
result of the manufacturing related issues mentioned previously. R&D
contract revenues totaled approximately $240,000 in the fourth quarter
of 2018 versus $787,000 in the fourth quarter or 2017 reflecting the
completion of contracts during 2017 and 2018.

In the fourth quarter of 2018, the Company reported a gross loss of
$471,000 compared to a gross profit of $1.8 million in the fourth
quarter of 2017. The decrease in gross profit was primarily related to
the previously mentioned manufacturing related issues and to the
resultant lower production volumes.

Operating expenses for the fourth quarter of 2018, including R&D
expenses, were $3.7 million compared to $3.4 million in the fourth
quarter of 2017. The increase in operating expenses was due to higher
company-funded R&D expenses related to work on the Company’s dPd
technology and associated process development as well as funding for
improved manufacturing processes. SG&A expenses were flat at $2.0
million year-over-year for the period.

Operating loss for the fourth quarter of 2018 was $4.2 million compared
to $1.6 million in the fourth quarter of 2017. Net loss for the fourth
quarter of 2018 was $2.5 million, or $0.05 per diluted share, including
the impact of $1.8 million related to the change in the fair value of
the warrant liability. This compares to a net loss of $875,000, or $0.03
per diluted share, in the fourth quarter of 2017 including the impact of
$616,000 related to the change in the fair value of the warrant
liability and an income tax benefit of $212,000.

Conference Call Information

A conference call and live webcast will begin today at 9:00 am ET. An
archive of the webcast will be available one hour after the live call
through April 27, 2019. To access the live webcast or archive, please
visit the Company’s website at or

About eMagin Corporation

A leader in OLED microdisplay technology, OLED microdisplay
manufacturing know-how and mobile display systems, eMagin manufactures
high-resolution OLED microdisplays and integrates them with magnifying
optics to deliver virtual images comparable to large-screen computer and
television displays in portable, low-power, lightweight personal
displays. eMagin’s microdisplays provide near-eye imagery in a variety
of products from military, industrial, medical and consumer OEMs. More
information about eMagin is available at

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, including those regarding eMagin
Corporation’s expectations, intentions, strategies and beliefs
pertaining to future events or future financial performance. Actual
events or results may differ materially from those in the
forward-looking statements as a result of various important factors,
including those described in the Company’s most recent filings with the
SEC. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, such statements should not be
regarded as a representation by the Company, or any other person, that
such forward-looking statements will be achieved. The business and
operations of the Company are subject to substantial risks which
increase the uncertainty inherent in forward-looking statements. We
undertake no duty to update any of the forward-looking statements,
whether as a result of new information, future events or otherwise. In
light of the foregoing, readers are cautioned not to place undue
reliance on such forward-looking statements.

Non-GAAP Financial Measures

To 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.




(in thousands, except share and per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
Product $ 5,195 $ 5,635 $ 23,322 $ 18,685
Contract 240 787 2,913 3,346
Total revenues, net   5,435   6,422   26,235   22,031
Cost of revenues:
Contract 5,541 4,277 17,797 15,195
365 366 1,754 1,712

Impairment of Consumer Night Vision inventory

Total cost of revenues   5,906   4,643   22,241   16,907
Gross profit (loss)   (471)   1,779   3,994   5,124
Operating expenses:
Research and development 1,753 1,393 6,694 5,175
Selling, general and administrative   1,985   1,976   8,967   8,682
Total operating expenses   3,738   3,369   15,661   13,857
Loss from operations (4,209) (1,590) (11,667) (8,733)
Other income (expense):

Change in fair value of common stock
warrant liability

1,807 616 2,194 1,089
Interest expense, net (57) (114) (69) (363)
Other income, net     1     12
Total other income   1,750   503   2,125   738
Loss before provision for income taxes (2,459) (1,087) (9,542) (7,995)
Income tax benefit     212     212
Net loss $ (2,459) $ (875) $ (9,542) $ (7,783)
Loss per share, basic $ (0.05) $ (0.03) $ (0.21) $ (0.23)
Loss per share, diluted $ (0.05) $ (0.03) $ (0.21) $ (0.23)

Weighted average number
of shares outstanding:

Basic   45,161,273   34,989,530   44,429,114   33,661,727
Diluted   45,161,273   34,989,530   44,429,114   33,661,727


(in thousands, except share and per share data)
December 31, December 31,
2018 2017
Current assets:
Cash and cash equivalents $ 3,359 $ 3,526
Accounts receivable, net 3,186 4,528
Unbilled accounts receivable 224 406
Inventories 8,582 8,640
Prepaid expenses and other current assets   875   1,328
Total current assets 16,226 18,428
Equipment, furniture and leasehold improvements, net 8,921 8,553
Intangibles and other assets   269   326
Total assets $ 25,416 $ 27,307
Current liabilities:
Accounts payable $ 2,024 $ 1,714
Accrued compensation 1,634 1,557
Revolving credit facility, net 3,808
Common stock warrant liability 1,497 784
Other accrued expenses 1,827 719
Deferred revenue 38 765
Other current liabilities   427   469
Total current liabilities   7,447   9,816
Commitments and contingencies (Note 9)
Shareholders’ equity:
Preferred stock, $.001 par value: authorized 10,000,000 shares:

Series B Convertible Preferred stock, (liquidation preference
$5,659) stated value $1,000 per share, $.001 par value:
shares designated and 5,659 issued and outstanding
as of
December 31, 2018 and 2017

Common stock, $.001 par value: authorized 200,000,000 shares,
45,323,339 shares, outstanding 45,161,273 shares
as of
December 31, 2018 and issued 35,182,589 shares,
35,020,523 shares as of December 31, 2017

45 35
Additional paid-in capital 254,736 244,726
Accumulated deficit (236,312) (226,770)

Treasury stock, 162,066 shares as of December 31, 2018
December 31, 2017

  (500)   (500)
Total shareholders’ equity   17,969   17,491
Total liabilities and shareholders’ equity $ 25,416 $ 27,307

Non-GAAP Information

Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
Net income (loss) $ (2,459) $ (875) $ (9,542) $ (7,783)
Non-cash compensation 98 108 610 628
Change in fair value of common stock warrant liability (1,807) (616) (2,194) (1,089)
Depreciation and intangibles amortization expense 486 460 1,906 1,836
Interest expense 82 114 188 363
Provision for income taxes     (212)     (212)
Adjusted EBITDA $ (3,600) $ (1,021) $ (9,032) $ (6,257)