EMAGIN CORP - Quarter Report: 2022 September (Form 10-Q)

eman-20220930x10q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-15751

eMAGIN CORPORATION

(Exact name of registrant as specified in its charter)


Delaware	56-1764501
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

700 South Drive, Suite 201, Hopewell Junction, NY 12533

(Address of principal executive offices) (Zip Code)

(845) 838-7900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 Par Value Per Share	EMAN	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨		Smaller Reporting Company þ
Accelerated filer ¨		Emerging growth company ¨
Non-accelerated Filer þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No þ

As of October 31, 2022 there were 78,216,573 common shares at $0.001 par value per share of the registrant outstanding.

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		Page
PART I - FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	5
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	6
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4	Controls and Procedures	29

PART II - OTHER INFORMATION
Item 1	Legal Proceedings	30
Item 1A	Risk Factors	30
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3	Defaults Upon Senior Securities	30
Item 4	Mine Safety Disclosures	30
Item 5	Other Information	30
Item 6	Exhibits	31
SIGNATURES		33

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STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q, or Report, contains forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” in this Report, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in our other filings with the SEC. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

Important factors, among others, that may affect the future results expressed or implied by forward-looking statements in this Report include:

our ability to generate sufficient cash flows and obtain the additional financing we need in order to continue as a going concern;

our ability to generate additional revenue or secure additional financing when required, in order to continue our current operations;

our ability to manufacture our products on a timely basis and at a competitive cost;

our ability to successfully remediate manufacturing issues that have resulted in production delays and successfully integrate new equipment on our manufacturing line;

our ability to achieve our yield improvement initiatives and successfully manage any variations in our production yields;

our ability to meet our obligations as they become due over the next twelve months;

our needs for additional financing, and our ability to obtain such additional financing on reasonable terms, the interest rate and expense we incur on any debt financing and our ability to pursue strategic transaction;

the potential impact of semiconductor industry supply chain shortages and increased demand on the availability of the raw materials we need for production;

the potential impact of prolonged inflation and supply chain disruptions on our revenues, cost of goods and margins;

our ability to maintain our operations as a result of potential employee, customer and supplier disruptions caused by the COVID-19 pandemic or any resurgences and quarantine restrictions;

any impacts related to the war in Ukraine;

our anticipated cash needs and our estimates regarding our capital requirements;

our ability to repay our indebtedness pursuant to the asset based lending, or ABL, facility, the impact of the covenants contained in our ABL facility on our ability to operate our business, and our ability to extend or renew our ABL facility;

our ability to maintain our relationships with customers and vendors;

our ability to protect our intellectual property;

our ability to successfully develop and market our products to customers;

our ability to generate customer demand for our products in our target markets and successfully balance such demand with capacity;

the development of our target markets and market opportunities, including the consumer market;

technological developments in our target markets and the development of alternate, competing technologies in them;

the rate of acceptance of augmented reality/virtual reality, or AR/VR, systems and products in the consumer and commercial marketplace;

our ability to maintain and protect our information technology systems and prevent security breaches and other disruptions that could compromise our information technology systems or expose us to liability;

our potential exposure to product liability claims;

whether amounts included in our backlog result in actual revenue or translate into profits for us;

our ability to meet customers’ delivery schedules;

market pricing for our products and for competing products;

the impact of the majority holder of our Series B convertible stock, being able to prevent us from entering into significant corporate transactions, including certain capital raising transactions;

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changes in demand by original equipment manufacturer, or OEM, customers for advanced microdisplays, limited availability of suppliers and foundries, high costs of raw materials, pricing pressure brought by the marketplace or governmental customers and other factors that impact the commercial, military and consumer markets in which we operate;

changes in federal budget priorities and the timing of government funding and its potential impact on customer buying decision

increasing competition;

our ability to satisfy the requirements and milestones imposed as conditions to the receipt of the government awards we have received and to otherwise comply with the terms of government awards we receive; and

provisions in certain of our organizational documents, commercial agreements, government awards, and our military contracts that may prevent or delay an acquisition of, partnership with, or investment in us and our ability to develop original equipment manufacturer and mass production partnerships.

The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.

In this Report, references to “eMagin Corporation,” “eMagin,” “we,” “us,” and “our company” refer to eMagin Corporation and our wholly owned subsidiary, Virtual Vision, Inc.

eMagin® is a registered trademark of eMagin Corporation. dPd^TM is an unregistered trademark of eMagin. All other trademarks used in this Report are the property of their respective owners.

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ITEM 1. Financial Statements

eMAGIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(unaudited)


	September 30,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	3,862	$	5,724
Restricted cash		323		806
Accounts receivable, net		5,086		4,488
Account receivable-due from government awards		110		292
Unbilled accounts receivable		1,797		1,102
Inventories		8,334		7,632
Prepaid expenses and other current assets		837		691
Total current assets		20,349		20,735
Property, plant and equipment, net		39,511		30,483
Operating lease right - of - use assets		69		113
Intangibles and other assets		31		37
Total assets	$	59,960	$	51,368

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,522	$	1,348
Accrued compensation		2,007		1,664
Revolving credit facility, net		720		1,974
Common stock warrant liability		—		1,374
Other accrued expenses		564		722
Deferred revenue		12		54
Operating lease liability - current		64		60
Finance lease liability - current		1,185		1,133
Other current liabilities		379		608
Total current liabilities		6,453		8,937
Other liability - long term		14		28
Deferred income - government awards - long term		19,346		12,458
Operating lease liability - long term		6		54
Finance lease liability - long term		13,670		11,647
Total liabilities		39,489		33,124

Commitments and contingencies (Note 8)

Shareholders’ equity:
Preferred stock, $0.001 par value: authorized 10,000,000 shares:
Series B Convertible Preferred stock, (liquidation preference of $5,659) stated value $1,000 per share, $0.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of September 30, 2022 and December 31, 2021.		—		—
Common stock, $0.001 par value: authorized 200,000,000 shares, issued 77,601,253 shares, outstanding 77,439,503 shares as of September 30, 2022 and issued 72,931,490 shares, outstanding 72,769,424 shares as of December 31, 2021.		77		72
Additional paid-in capital		280,069		275,936
Accumulated deficit		(259,175)		(257,264)
Treasury stock, 162,066 shares as of September 30, 2022 and December 31, 2021.		(500)		(500)
Total shareholders’ equity		20,471		18,244
Total liabilities and shareholders’ equity	$	59,960	$	51,368

See notes to Condensed Consolidated Financial Statements.

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eMAGIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues:
Product	$	7,040	$	5,313	$	21,093	$	17,160
Contract		581		469		1,045		1,674
Total revenues, net		7,621		5,782		22,138		18,834

Cost of revenues:
Product		4,462		4,962		14,771		15,135
Contract		304		261		454		861
Total cost of revenues		4,766		5,223		15,225		15,996

Gross profit		2,855		559		6,913		2,838

Operating expenses:
Research and development		1,236		1,669		4,177		5,299
Selling, general and administrative		1,728		2,203		5,802		5,717
Total operating expenses		2,964		3,872		9,979		11,016

Loss from operations		(109)		(3,313)		(3,066)		(8,178)

Other (expense) income:
Change in fair value of common stock warrant liability		2		4,742		1,374		176
Interest expense, net		(249)		(210)		(688)		(625)
Gain on forgiveness of debt		—		—		—		1,963
Other income, net		22		87		469		314
Total other income (expense)		(225)		4,619		1,155		1,828
Income (loss) before provision for income taxes		(334)		1,306		(1,911)		(6,350)
Income taxes		—		—		—		—
Net income (loss)	$	(334)	$	1,306	$	(1,911)	$	(6,350)
Less net income allocated to participating securities		—		268		—		—
Net income (loss) allocated to common shares	$	(334)	$	1,038	$	(1,911)	$	(6,350)

Income (loss) per share, basic	$	—	$	0.01	$	(0.03)	$	(0.09)
Loss per share, diluted	$	—	$	(0.05)	$	(0.03)	$	(0.09)

Weighted average number of shares outstanding:
Basic		76,752,107		72,527,479		74,508,662		71,675,336

Diluted		76,752,107		73,861,952		74,508,662		73,416,993

See notes to Condensed Consolidated Financial Statements.

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eMAGIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

(In thousands, except share data)

(unaudited)


	Preferred Shares		Preferred Stock		Common Shares		Common Stock		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
Balance, December 31, 2021		5,659	$	—		72,931,490	$	72	$	275,936	$	(257,264)	$	(500)	$	18,244
Stock based compensation		—		—		—		—		165		—		—		165
Public offering of common shares, net of offering costs		—		—		405,086		—		460		—		—		460
Net loss		—		—		—		—		—		(137)		—		(137)
Balance, March 31, 2022		5,659	$	—		73,336,576	$	72	$	276,561	$	(257,401)	$	(500)	$	18,732
Vesting of RSUs						110,608		—		—		—		—		—
Stock based compensation		—		—		—		—		214		—		—		214
Public offering of common shares, net of offering costs		—		—		2,173,942		3		1,597		—		—		1,600
Net loss		—		—		—		—		—		(1,440)		—		(1,440)
Balance, June 30, 2022		5,659	$	—		75,621,126	$	75	$	278,372	$	(258,841)	$	(500)	$	19,106
Vesting of RSUs		—		—		2,273		—		—		—		—		—
Stock based compensation		—		—		—		—		229		—		—		229
Public offering of common shares, net of offering costs		—		—		1,977,854		2		1,468		—		—		1,470
Net loss		—		—		—		—		—		(334)		—		(334)
Balance, September 30, 2022		5,659	$	—		77,601,253	$	77	$	280,069	$	(259,175)	$	(500)	$	20,471


	Preferred Shares		Preferred Stock		Common Shares		Common Stock		Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
Balance, December 31, 2020		5,659	$	—		68,890,819	$	69	$	268,729	$	(252,058)	$	(500)	$	16,240
Exercising of options		—		—		227,792		—		364		—		—		364
Stock based compensation		—		—		—		—		13		—				13
Exercise of common stock warrants		—		—		3,019,247		3		5,059		—		—		5,062
Net loss		—		—		—		—		—		(7,378)		—		(7,378)
Balance, March 31, 2021		5,659	$	—		72,137,858	$	72	$	274,165	$	(259,436)	$	(500)	$	14,301
Exercising of options		—		—		203,459		—		381		—		—		381
Stock based compensation		—		—		—		—		37		—		—		37
Exercise of common stock warrants		—		—		324,413		—		590		—		—		590
Net loss		—		—		—		—		—		(278)		—		(278)
Balance, June 30, 2021		5,659	$	—		72,665,730	$	72	$	275,173	$	(259,714)	$	(500)	$	15,031
Exercising of options		—		—		15,300		—		—		—		—		—
Vesting of RSUs		—		—		16,667		—		—		—		—		—
Stock based compensation		—		—		—		—		419		—		—		419
Net income		—		—		—		—		—		1,306		—		1,306
Balance, September 30, 2021		5,659	$	—		72,697,697	$	72	$	275,592	$	(258,408)	$	(500)	$	16,756

See notes to Condensed Consolidated Financial Statements.

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eMAGIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(1,911)	$	(6,350)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,236		2,110
Change in fair value of common stock warrant liability		(1,374)		(176)
Gain on forgiveness of debt		—		(1,963)
Stock-based compensation		608		469
Amortization of operating lease right-of-use assets		44		45
Changes in operating assets and liabilities:
Accounts receivable		(416)		1,778
Unbilled accounts receivable		(695)		(920)
Inventories		(702)		462
Prepaid expenses and other current assets		(146)		220
Deferred revenues		(42)		(360)
Operating lease liabilities		(44)		(46)
Accounts payable, accrued expenses, and other current liabilities		187		(1,964)
Net cash used in operating activities		(2,255)		(6,695)
Cash flows from investing activities:
Purchase of equipment		(2,634)		(729)
Purchase of equipment, government grant		(6,385)		(9,393)
Net cash used in investing activities		(9,019)		(10,122)
Cash flows from financing activities:
Borrowings (repayments) under revolving line of credit, net		(1,254)		117
Proceeds from public offering, net		3,530		—
Change in finance lease liabilities		(165)		(225)
Proceeds from government grant		6,818		8,711
Proceeds from warrant exercise		—		5,652
Proceeds from exercise of stock options		—		745
Net cash provided by financing activities		8,929		15,000
Net decrease in cash, cash equivalents, and restricted cash		(2,345)		(1,817)
Cash, cash equivalents, and restricted cash, beginning of period		6,530		10,426
Cash, cash equivalents, and restricted cash, end of period	$	4,185	$	8,609
Cash, cash equivalents, end of period		3,862		7,337
Restricted cash, end of period		323		1,272

Supplementary Cash Flow Information
Cash paid for interest	$	688	$	625
Cash paid for income taxes	$	—	$	—

Non-cash activities:
Right-of-use assets obtained in exchange for finance lease liabilities	$	2,240	$	194

See notes to Condensed Consolidated Financial Statements.

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eMAGIN CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Description of the Business and Summary of Significant Accounting Policies

The Business

eMagin Corporation, or the Company, designs, develops, manufactures and markets Active Matrix organic light emitting diode, or OLED, -on-silicon microdisplays used in military and commercial AR/VR devices and other near-eye imaging products which utilize OLED microdisplays. The Company’s products are sold mainly in North America, Asia, and Europe.

Basis of Presentation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements of eMagin Corporation and its subsidiary reflect all adjustments, including normal recurring accruals, necessary for a fair presentation. All significant intercompany balances and transactions have been eliminated in consolidation. The Company manages its operations on a consolidated, integrated basis in order to optimize its equipment and facilities and to effectively service its global customer base and concludes that it operates in a single business segment. Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the SEC. These unaudited Condensed Consolidated Financial Statements, and related disclosures, should be 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, 2021 (the “2021 Form 10-K”). The results of operations for the periods ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year. The Consolidated Financial Statements as of December 31, 2021 are derived from audited financial statements included in the Company’s 2021 Form 10-K.

Use of estimates

In accordance with GAAP, 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 related to, among others, allowance for doubtful accounts, warranty reserves, inventory reserves, stock-based compensation expense, liability classified warrants, percentage of completion of contracts, deferred tax asset valuation allowances, litigation and other loss contingencies. 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.

Intangible Assets – Patents

Acquired patents are recorded at purchase price as of the date acquired and amortized over the expected useful life which is generally the remaining life of the patent.

The total intangible amortization expense was approximately $2 thousand and $6 thousand for the three and nine months ended September 30, 2022 and 2021, respectively.

Product warranty

The Company generally offers a one year product replacement warranty. The standard policy is to repair or replace the defective products. The Company accrues for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues. The determination of these accruals requires the Company to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty. If the actual warranty activity and/or repair and replacement costs differ significantly from these estimates, adjustments to cost of revenue may be required in future periods.

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The following table provides a summary of the activity related to the Company's warranty liability included in other current liabilities, during the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Beginning balance	$	282	$	705	$	519	$	615
Warranty accruals and adjustments		76		(73)		(151)		27
Warranty claims		(34)		(2)		(44)		(12)
Ending balance	$	324	$	630	$	324	$	630

Earnings per Common Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares such as stock options, warrants, restricted stock units and convertible preferred stock. Diluted earnings per share is computed using the weighted average number of common shares outstanding and potentially dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

The Company’s Series B Convertible Preferred stock, or Preferred Stock – Series B, is considered a participating security as the preferred stock participates in dividends with the common stock, which requires the use of the two-class method when computing basic earnings per share. Diluted earnings per share must be calculated under both the treasury stock and two-class method, and the calculation that results in the most dilutive earnings per share amount for the common stock is reported. The Preferred Stock – Series B is not required to absorb any net loss. Although the Company paid a one-time special dividend in 2012, the Company does not expect to pay dividends on its common or preferred stock in the near future. In accordance with the Preferred Stock – Series B agreements, the conversion price was adjusted to $0.3033 per share in December 2019, and the resultant, if converted common shares are reflected in the table of anti-dilutive common stock equivalents below.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share and share data) for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net (Loss) Income	$	(334)	$	1,306	$	(1,911)	$	(6,350)
Income allocated to participating securities		—		268		—		—
(Loss) income allocated to common shares	$	(334)	$	1,038	$	(1,911)	$	(6,350)

Change in fair value of warrant liability⁽¹⁾	$	—	$	(4,742)	$	—	$	(176)
Loss allocated to common shares ‎ - Diluted	$	(334)	$	(3,704)	$	(1,911)	$	(6,526)

Weighted average common shares outstanding ‎ - Basic		76,752,107		72,527,479		74,508,662		71,675,336
Dilutive effect of liability classified warrants		—		1,334,473		—		1,741,657
Weighted average common shares outstanding ‎ - Diluted⁽¹⁾		76,752,107		73,861,952		74,508,662		73,416,993

Net (loss) income per share:
Basic	$	—	$	0.01	$	(0.03)	$	(0.09)
Diluted	$	—	$	(0.05)	$	(0.03)	$	(0.09)

(1)For the three and nine months ended September 30, 2022, income (loss) allocated to common shares, and the weighted average shares used for calculating basic and diluted earnings per share exclude the assumed impact of exercise liability classified warrants, because it would be anti-dilutive to the earnings per share calculation.

In calculating net income (loss) per share amounts, all shares underlying the potentially dilutive common stock equivalents were excluded from the calculation of diluted net income (loss) per common share in both periods, because their effect was anti-dilutive.

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The following table sets forth the potentially dilutive common stock equivalents for the three and nine months ended September 30, 2022 and 2021 that were not included in diluted earnings per share as their effect would be anti-dilutive:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Restricted Stock Units		1,888,448		402,099		1,888,448		402,099
Options		3,459,882		3,973,758		3,459,882		3,973,758
Warrants		5,909,374		4,780,447		5,909,374		4,780,447
Convertible preferred stock		18,726,009		18,726,009		18,726,009		18,726,009
Total potentially dilutive common stock equivalents		29,983,713		27,882,313		29,983,713		27,882,313

Government Funding

The Company accounts for awards received from the U.S. Government for procurement of capital equipment after reviewing the terms of the underlying award contract, and in accordance with contract and equipment purchase milestones and accounting principles for grant accounting. For awards in which the Company will hold title to the underlying equipment, the Company initially records amounts invoiced to the U.S. Government for equipment progress payments on the accompanying Condensed Consolidated Balance Sheets as Deferred Income – Government Awards – long term and Accounts Receivable – due from Government Awards. The Company records such progress payments made to capital equipment vendors in Property, plant and equipment. Amounts recorded in Deferred Income – Government Awards – long term are recognized as Other Income on the accompanying Condensed Consolidated Statement of Operations on a systematic basis as depreciation and other expenses are incurred over the useful life of the capital equipment.

Restricted Cash

The Company accounts for cash received pursuant to U.S. Government funding, that is legally restricted for procurement of capital equipment, as Restricted Cash on the accompanying Condensed Consolidated Balance Sheets. Restricted Cash amounts are received from the U.S. Government in advance of progress payments required for various program related capital equipment purchases and are disbursed by the Company to related equipment vendors.

Fair Value of Financial Instruments

Cash, cash equivalents, accounts receivable, short-term investments and accounts payable are stated at cost, which approximates fair value, due to the short-term nature of these instruments. The asset based lending facility, or the ABL Facility, is also stated at cost, which approximates fair value because the interest rate is based on a market based rate plus a margin.

The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).

Assets and liabilities recorded in the Condensed Consolidated Balance Sheets at fair value are categorized based on a hierarchy of inputs as follows:

Level 1 – Unadjusted quoted prices in active markets of identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 – Unobservable inputs for the asset or liability.

The common stock warrant liability is currently the only financial asset or liability recorded at fair value on a recurring basis and is considered a Level 3 liability. The fair value of the common stock warrant liability is included in current liabilities on the Condensed Consolidated Balance Sheets, as the warrants are currently exercisable.

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The following table shows the reconciliation of the Level 3 warrant liability measured and recorded at fair value on a recurring basis, using significant unobservable inputs (in thousands):


	Estimated Fair Value
Balance as of January 1, 2022	$	1,374
Change in fair value of warrant liability, net		(1,374)
Balance as of September 30, 2022	$	-

The fair value of the liability for common stock purchase warrants at issuance and at September 30, 2022 was estimated using the Black Scholes option pricing model based on the market value of the underlying common stock at the measurement date the contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. Inputs to the model at September 30, 2022 included remaining contractual terms of the warrants of 0.33 years, at risk-free interest rates of 3.33% with no expected dividends, and expected volatility of the price of the underlying common stock of 56.59%.

Concentrations

The Company purchases principally all of its silicon wafers, which are a key ingredient in its OLED production process, from two suppliers located in Taiwan and Korea.

For the three and nine months ended September 30, 2022, one customer of 22.8% and 16.0%, respectively accounted for over 10% of net revenues. As of September 30, 2022, the Company had accounts receivable from that one customer that accounted for 32.5% of total accounts receivable. For the three and nine months ended September 30, 2021, one customer of 25.2% and 18.5%, respectively accounted for over 10% of the Company’s net revenues.

Liquidity and Going Concern

The accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which assumes that the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. For the nine months ended September 30, 2022, the Company incurred a net loss of $1.9 million and used cash in operating activities of $2.3 million. As of September 30, 2022, the Company had $3.9 million of cash, $0.7 million of outstanding indebtedness and borrowing availability of $1.1 million under its ABL Facility.

The Company’s ABL Facility expires on December 31, 2022, and renews automatically for another year unless terminated pursuant to its terms. The ABL Facility agreement contains certain lenders remedies that give the bank the ability to impose discretionary reserves against our borrowing availability or terminate the facility upon events of default. Although our relationship with the lender is positive, there is no assurance the lender will renew or extend this facility or continue to make funds available during 2022 and beyond at present availability levels, or at all.

Due to continuing losses, the Company’s financial position, and uncertainty regarding the Company’s ability to borrow under its ABL Facility, or continue to raise funds under its ATM facility, the Company may not be able to meet its financial obligations as they become due without additional financing or sources of capital. In addition, the COVID-19 pandemic, and disruptions caused by the war in the Ukraine have significantly increased economic and demand uncertainty across the globe and contributed to supply chain shortages and disruptions. Although demand for the Company’s products has remained steady, the Company’s ability to obtain components and other materials or services on a timely basis has resulted in manufacturing delays, and increased costs. If these trends continue or worsen as a result of COVID-19, the Ukraine war, or other semiconductor supply chain issues or result in lost orders it could materially and adversely affect its business, financial condition, and results of operations. Management is prepared to reduce expenses and raise additional capital, but there can be no assurance that the Company will be successful in sufficiently reducing expenses or raising capital to meet its operating needs.

The Company has taken actions to increase revenues and to reduce expenses and is considering financing alternatives. The Company’s plans with regard to these matters include the following actions: 1) focus production and engineering resources on improving manufacturing yields and increasing production volumes, 2) continue a Work Status Reduction program that began in October 2019 wherein senior management work status was reduced by approximately 20%, 3) continue to utilize government grants for purchase of capital equipment and funding manufacturing personnel, 4) reduce discretionary and other expenses, 5) seek to enter new markets, 6) sell shares under its At the Market or ATM equity facility entered into in November 2021, and 7) consider additional financing and/or strategic alternatives.

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The Company is reassessing its business plans and forecasts over the next two years. Based on its known cash needs as of October 2022, and the anticipated availability of its ABL facility, the Company has developed plans to extend its liquidity to support its working capital requirements through the fourth quarter of 2023.

However, there can be no assurance the Company’s plans will be achieved and the Company will be able to meet its financial obligations as they become due without obtaining additional financing or sources of capital or pursuing potential strategic transactions. Therefore, in accordance with applicable accounting guidance, and based on the Company’s current financial condition and availability of funds, there is substantial doubt about the Company’s ability to continue as a going concern through twelve months from the date these financial statements were issued.

Recently adopted accounting pronouncements

The Company's accounting policies are the same as those described in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2021 Form 10-K.

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequently issued amendments. The guidance affects the Company's accounts receivable, and it requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Based on the composition of the Company's receivables, current market conditions and historical credit loss activity, the Company is currently evaluating the impact of this ASU on the Condensed Consolidated Financial Statements.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This guidance changes how entities account for convertible instruments and contracts in an entity's own equity and simplifies the accounting for convertible instruments by removing certain separation models for convertible instruments. This guidance also modifies the guidance on diluted earnings per share calculations. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently evaluating the impact of this ASU on the Condensed Consolidated Financial Statements.

Note 2 – Revenue Recognition

All of the Company’s revenues are earned from contracts with customers and are classified as either Product or Contract revenues. Contract revenues include R&D activities performed pursuant to written agreements and purchase orders, as well as arrangements that are implied by customary practices or law.

Product revenue is generated primarily from contracts to produce, ship and deliver OLED microdisplays. The Company’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time when control transfers to our customer for product shipped. The Company’s customary terms are FOB our factory and control is deemed to transfer upon shipment. The Company has elected to treat shipping and other transportation costs charged to customers as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. As customers are invoiced at the time control transfers and the right to consideration is unconditional at that time, the Company does not maintain contract asset balances for product revenue. Additionally, the Company does not maintain contract liability balances for product revenues, as performance obligations are satisfied prior to customer payment for product. The Company generally offers a one year product warranty, for replacement of product only, and does not allow returns. The Company offers industry standard payment terms that typically require payment from our customers from 30 to 60 days after title transfers.

The Company also recognizes revenues under the over time method from certain research and development, or R&D, activities (contract revenues) under both firm fixed-price contracts and cost-type contracts. Progress and revenues from research and development activities relating to firm fixed-price contracts and cost-type contracts are generally recognized on an input method of accounting as costs are incurred. Under the input method, revenue is recognized based on efforts expended to date (e.g., the costs of resources consumed or labor hours worked, or machine hours used) relative to total efforts intended to be expended. Contract costs include all direct material, labor and subcontractor 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. Any changes in estimate related to contract accounting are accounted for prospectively over the remaining life of the contract. Under the over time method, billings may not correlate directly to the revenue recognized. Based upon the terms of the specific contract, billings may be in excess of the revenue recognized, in which case the amounts are included in deferred revenues as a liability on the Condensed Consolidated Balance Sheets. Likewise, revenue

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recognized may exceed customer billings in which case the amounts are reported as unbilled receivables. Unbilled revenues are expected to be billed and collected within one year.

Costs to Obtain and Fulfill a Contract

The incidental costs related to obtaining product sales contracts are non-recoverable from customer and, accordingly, are expensed as incurred. The Company capitalizes costs incurred to fulfill its R&D contracts that i) relate directly to a contract or anticipated contract, ii) are expected to satisfy the Company’s performance obligation under the contract, and iii) are expected to be recovered through revenue generated under the contract. Contact fulfillment costs are expensed to cost of revenue as the related performance obligations are satisfied.

Disaggregation of Revenue

The Company sells products directly to military contractors and OEM’s who use the Company’s displays in a diverse range of applications encompassing the military and commercial, including medical and industrial, market sectors. Revenues are classified as either military, commercial, consumer or multiple based on management’s knowledge of the customer’s products and markets served by displays or the R&D contract work. Revenues classified as multiple are for sales to customers that incorporate the Company’s displays in products that could be used for either military or commercial applications. R&D activities are performed for both military customers and U.S. Government defense related agencies and consumer companies. Product and contract revenues are disclosed on the Condensed Consolidated Statements of Operations.

Additional disaggregated revenue information for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
North and South America	$	5,324	$	3,727	$	13,440	$	10,677
Europe, Middle East, and Africa		1,635		1,957		7,654		6,578
Asia Pacific		662		98		1,044		1,579
Total	$	7,621	$	5,782	$	22,138	$	18,834


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021			2022		2021
Military	$	5,612	$	3,733	$	15,771	$	11,492
Commercial, including industrial and medical		910		440		3,071		2,240
Consumer		11		448		323		1,598
Multiple		1,088		1,161		2,973		3,504
Total	$	7,621	$	5,782	$	22,138	$	18,834

Accounts Receivable from Customers

Accounts receivable, net of allowances, were $5.1 million and $4.5 million as of September 30, 2022 and December 31, 2021.

Contract Assets and Liabilities

Unbilled Accounts Receivables (Contract Assets) - Pursuant to the over time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled accounts receivable is recorded to reflect revenue that is recognized when the cost based input method is applied and such revenue exceeds the amount invoiced to the customer. Unbilled receivables are disclosed on the Condensed Consolidated Balance Sheets.

Customer Advances and Deposits (Contract Liabilities) - The Company recognizes a contract liability when it has billed and received consideration from the customer pursuant to the terms of a contract but has not yet recognized the related revenue. These billings in excess of revenue are classified as deferred revenue on the Condensed Consolidated Statements of Operations.

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Total contract assets and liabilities consisted of the following amounts (in thousands):


	September 30,		December 31,
	2022		2021

Unbilled Receivables (contract assets)	$	1,797	$	1,102

Deferred Revenue (contract liabilities)	$	12	$	54

For the three and nine months ended September 30, 2022 the Company recognized no revenue and $42 thousand of revenue related to its contract liabilities that existed at December 31, 2021, respectively. For the three and nine months ended September 30, 2021 the Company recognized $21 thousand and $360 thousand respectively, of revenue related to its contract liabilities that existed at December 31, 2020.

Remaining Performance Obligations

The Company has elected the practical expedient, which allows disclosure of remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations primarily relate to engineering and design services. As of September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.2 million. The Company expects to recognize revenue on all of its remaining performance obligations over the next 12 months.

Note 3 – Accounts Receivable

The majority of the Company’s commercial accounts receivable are due from OEM’s. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required.

Accounts receivable consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Accounts receivable	$	5,225	$	4,627
Less allowance for doubtful accounts		(139)		(139)
Accounts receivable, net	$	5,086	$	4,488

Note 4 – Inventories, net

The components of inventories are as follows (in thousands):


	September 30,		December 31,
	2022		2021
Raw materials	$	3,200	$	3,517
Work in process		3,373		2,149
Finished goods		2,162		2,363
Total inventories		8,735		8,029
Less inventory reserve		(401)		(397)
Total inventories, net	$	8,334	$	7,632

Note 5 – Line of Credit / Loan Payable

Revolving Credit Facility


	September 30,		December 31,
(in thousands)	2022		2021
Revolving credit facility	$	720	$	1,974

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On December 21, 2016, the Company entered into the ABL Facility with a lender that provides for up to a maximum amount of $5 million based on a borrowing base equivalent to 85% of eligible accounts receivable plus the lesser of $2 million or 50% of eligible inventory. The interest on the ABL Facility is equal to the Prime Rate plus 3% but may not be less than 6.5% with a minimum monthly interest payment of $2 thousand. The Company is also obligated to pay the lender a monthly administrative fee of $1 thousand and an annual facility fee equal to 1% of the maximum amount borrowable under the facility.

The ABL Facility renewed on December 31, 2021 and will automatically renew on December 31, 2022 for a one year term unless written notice to terminate the agreement is provided by either party. The ABL Facility agreement contains certain lenders remedies that upon events of default, give the bank the ability to terminate the facility before the scheduled maturity date. Accordingly, the Company classifies borrowing under the ABL Facility as current liabilities on the accompanying Consolidated Balance Sheet.

The ABL Facility contains customary representations and warranties, affirmative and negative covenants and events of default. The Company is required to maintain a minimum tangible net worth of $13 million and a minimum working capital balance of $4 million at all times. As of September 30, 2022 the Company had $0.7 million in borrowings outstanding under the ABL Facility, had unused borrowing availability of $1.1 million under the ABL Facility and was in compliance with all financial debt covenants under the ABL Facility.

Promissory Note under the Paycheck Protection Program

On June 8, 2020, the Company received a loan under the U.S. Small Business Administration’s, or SBA, Paycheck Protection Program, or PPP, from KeyBank National Association related to the COVID-19 pandemic in the amount of $1.9 million at an interest rate of 1% per annum. The Company used the proceeds to pay qualified payroll costs, in accordance with loan requirements and applied for forgiveness of the entire loan in the fourth quarter of 2020. During the first quarter of 2021 the entire loan amount was forgiven and recorded in the Condensed Consolidated Statements of Operations as gain on forgiveness of debt.

Note 6 – Stock Compensation

The Company uses the fair value method of accounting for share-based compensation arrangements. The fair value of stock options 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 fair value of Restricted Stock Units, or RSU’s is established by the market price of the Company’s common stock at the date of grant and for time based grants, is amortized over the vesting period using the straight line method. Performance-based RSUs are typically granted such that they vest upon the achievement of EBITDA targets, during a specified performance period, subject to the satisfaction of certain time-based service criteria. Certain Performance-based RSUs vest upon the achievement of operational milestones. Compensation expense from these awards is equal to the fair market value of the Company’s ordinary shares on the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics used in the specific grant’s performance criteria. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified non-market performance criteria, which are assessed at each reporting period.

The following table summarizes the allocation of non-cash stock-based compensation to our expense categories for the three and nine months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Cost of revenues	$	28	$	33	$	86	$	36
Research and development		125		62		217		74
Selling, general and administrative		76		324		305		359
Total stock compensation expense	$	229	$	419	$	608	$	469

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The following table summarizes the Company’s stock-based compensation expense by each award type:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Stock options	$	17	$	284	$	206	$	309
Restricted Share Units		212		135		402		160
Total stock compensation expense	$	229	$	419	$	608	$	469

At September 30, 2022, total unrecognized compensation costs related to stock options and RSUs was approximately $46 thousand and $1.8 million, respectively, net of estimated forfeitures. Total unrecognized compensation cost for stock options and RSUs will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of approximately 0.7 years and approximately 2.4 years, respectively.

Stock Option Summary

The following key assumptions were used in the Black-Scholes option pricing model to determine the fair value of stock options granted:


	Nine Months Ended
	September 30,
	2022				2021
Dividend yield			0	%			0	%
Risk free interest rates	3.24	-	3.25	%	0.89	-	0.95	%
Expected volatility	79.3	to	83.0	%	75.9	to	79.0	%
Expected term (in years)	5.0	to	5.5		5.0	to	5.5

The Company does not expect to pay dividends in the near future. Therefore, the Company used an expected dividend yield of 0%. The risk-free interest rate used in the Black-Scholes option pricing model is based on applicable yield available at the date of the option grant 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 equivalent term. The expected term of the options represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards.

A summary of the Company’s stock option activity for the nine months ended September 30, 2022 presented in the following table (unaudited):



	Number of ‎Shares		Weighted ‎Average ‎Exercise ‎Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate ‎Intrinsic ‎Value
Outstanding at December 31, 2021		3,712,867	$	1.81
Options granted		270,000		0.73
Options exercised		—		—
Options forfeited		(5,000)		0.40
Options cancelled or expired		(517,985)		3.33
Outstanding at September 30, 2022		3,459,882	$	1.50	3.58	$	97,361
Vested or expected to vest at September 30, 2022 ⁽¹⁾		3,457,997	$	1.50	3.58	$	97,361
Exercisable at September 30, 2022		3,324,882	$	1.53	3.33	$	97,361

(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. The Company issues new shares of common stock upon exercise of stock options. There were no options were exercised in the three and nine months ended September 30, 2022.

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Restricted Stock Units (“RSU”) Summary

The following table summarized the activity in respect of RSUs issued under the Company’s plans for the nine months ended September 30, 2022:


					Weighted Average Grant Date
	Number of Awards				Fair Value Per Share

	Service		Performance		Service		Performance
	based		based		based		based
RSU's outstanding at December 31, 2021		405,453		103,047	$	3.52	$	3.60
Granted		1,234,424		414,905		0.83		0.82
Vested and settled		(112,881)		—		3.58		—
Forfeited		(53,137)		(34,349)		3.60		3.60
RSU's outstanding at September 30, 2022		1,473,859		483,603	$	1.26	$	1.21

Note 7 – Income Taxes

The Company’s effective tax rate is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The Company’s effective tax rate was 0% for the three and nine months ended September 30, 2022 and 2021. The difference between the effective tax rate of 0% and the U.S. federal statutory rate of 21% for three and nine months ended September 30, 2022 and 2021 was primarily due to recognizing a full valuation allowance on deferred tax assets.

The Company determined that, based on all available evidence, both positive and negative, including the Company’s latest forecasts and cumulative losses in recent years, it was more likely than not that none of its deferred tax assets would be realized and therefore it continued to record a full valuation allowance as of September 30, 2022.

The Company’s 2017 and prior net operating loss carry-forward amounts expire through 2037 and are subject to certain limitations that may occur due to a change in the ownership provisions under Section 382 of the Internal Revenue Code and similar state provisions. Pursuant to provisions of the Tax Cuts and Jobs Act, the net operating losses originating in years subsequent to 2017 can be carried forward indefinitely.

Due to the Company’s operating loss carry-forwards, all tax years remain open to examination to the extent of the operating loss carry-forward by the major taxing jurisdictions to which the Company is subject. In the event that the Company is assessed interest or penalties at some point in the future, it will be classified in the financial statements as tax expense.

On March 27, 2020, the President of the United States signed the CARES Act. The CARES Act provides several provisions that effect businesses from an income tax perspective. Due to the history of the tax losses, most of the CARES Act provisions have no current benefit to the Company. The Company can, however, benefit from one provision, which allows for the immediate refund of the Alternative Minimum Tax Credit, or AMT Credit, previously recognized as deferred tax asset. The Company has filed an amendment to claim the AMT Credit and is anticipating a refund of $212 thousand. This tax receivable is reflected in Prepaid Expenses and Other Current Assets on the Condensed Consolidated Balance Sheets.

Note 8 – Commitments and Contingencies

Equipment Purchase Commitments

The Company has committed to equipment purchases of approximately $17.0 million at September 30, 2022, of which $16.3 million relates to equipment to be purchased under government awards.

Litigation

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of our business. In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims. The Company investigates these claims as they arise. Although claims are inherently unpredictable, the Company is currently not aware of any matters that, if determined adversely to the Company, would individually or taken together, have a material adverse effect on its business, financial position, results of operations, or cash flows.

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As disclosed in the financial statements in Company’s Annual Report on Form 10-K for the year ended December 31, 2018, the Company made a decision to exit the consumer night vision business and accrued approximately $1.0 million related to invoices received for inventory purchased by Suga Electronics Limited, or Suga, a contract manufacturer in anticipation of future production. As a result of settlement of the arbitration with Suga related to those costs in the second quarter of 2021, the Company removed the $1.0 million accrual from its balance sheet, wrote off $0.3 million in prepayments and recorded a gain of $0.1 million in Other Income/Expense during the second quarter of 2021.

Note 9 – Warrants

The Company accounts for common stock warrants pursuant to applicable accounting guidance contained in ASC 815, "Derivatives and Hedging - Contracts in Entity's Own Equity" and makes a determination as to their treatment as either equity instruments or a warrant liability based on an analysis of the underlying warrant agreements.

The following table sets forth the Company’s outstanding common stock warrants as of September 30, 2022:


	Issued		Outstanding		Exercise Price		Expiration
2018 Warrant Issuance ⁽¹⁾		4,004,329		2,909,374		1.55		Jan 2023
2019 Warrant Issuance ⁽²⁾		6,000,000		3,000,000		0.78		Oct 2024
				5,909,374

(1)Warrant is subject to liability accounting.

(2)Private Placement unregistered warrants exercisable six months following issuance.

Equity classified warrants

The 2019 warrants share similar terms, and the exercise price of the Warrant Shares are subject to adjustment in the event of any stock dividends and splits, reverse stock splits, stock dividends, recapitalizations, reorganizations or similar transactions. The Warrants will be exercisable on a “cashless” basis in certain circumstances, including in the event a registration statement is not in effect at time of exercise. The warrant agreements contain a clause specifying that in the event there is no effective registration in effect for the underlying warrant shares to be issued at time of exercise, in no circumstance will the Company be required to net cash settle the warrants.

Based on the Company’s analysis of the terms and conditions of the warrants, the Company has concluded that they meet the conditions outlined in applicable accounting guidance to be classified as equity instruments. As a result, the Company has accounted for the exercise price paid by investors for purchase of the pre-funded warrants as additional paid in capital on the accompanying Condensed Consolidated Balance Sheets.

Liability classified warrants

The 2018 warrants have alternative settlement provisions that, at the option of the holder, provide for physical settlement or if, at the time of settlement there is no effective registration statement, a cashless exercise as defined in the warrant agreement.

Based on analysis of the underlying warrant agreement and applicable accounting guidance, the Company concluded that these registered warrants require the issuance of registered securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. Accordingly, these warrants were classified in the accompanying Condensed Consolidated Balance Sheets as a current liability upon issuance and will be revalued at each subsequent balance sheet date.

The fair value of the liability for common stock purchase warrants is estimated using the Black Scholes option pricing model based on the market value of the underlying common stock at the measurement date, the contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.

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Based on the Black Scholes method the fair value of the Company’s warrants are as follows (in thousands):


	September 30,		December 31,
	2022		2021
2018 January and February Issuance
Fair Value	$	—	$	1,355

2017 May Issuance ⁽¹⁾
Fair Value		—		19
	$	—	$	1,374

(1)Warrants from the 2017 May Issuance expired on May 24, 2022.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Change in Fair Value of common stock warrant liability ⁽¹⁾	$	2	$	4,742	$	1,374		176

(1)The combined changes in fair value are reflected as income (loss) from change in the fair market value of common stock warrant liability.

During the three and nine months ended September 30, 2022, there were no warrant exercises. During the three months ended September 30, 2021, there were no warrant exercises. During the nine months ended September 30, 2021, the Company received $5.7 million in payment of the exercise price for warrants to purchase 3,343,660 shares of common stock.

Note 10 – Leases

The Company leases office and manufacturing facilities in Hopewell Junction, New York under a non-cancelable lease agreement, which, as amended, expire in 2031, and includes two, five year options to extend. The lease agreement did not contain any residual value guarantees, or material restrictive covenants. Upon signing a 12^th amendment in November 2020, the Company reassessed the lease from operating to a finance lease.

The Company also leases an office facility for its design group in Santa Clara, California. During the fourth quarter of 2019, the Company signed a two year extension of this lease that expired in October 2021. The lease agreement did not contain any residual value guarantees, material restrictive covenants or a renewal option and was classified as an operating lease. In October 2021, the Company signed an additional two year extension of the lease for the Santa Clara design group facility, and has classified this as an operating lease. On May 2, 2019, the Company entered into a three year finance lease commitment for phone equipment.

The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring lease liabilities. The Company estimates its incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of the Company’s credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease.

The components of lease expense were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Finance Lease Cost:
Amortization of right-of-use assets	$	174	$	157	$	476	$	469
Interest on lease liabilities		245		198		641		594
Operating lease cost		16		15		49		46
Total Lease Cost	$	435	$	370	$	1,166	$	1,109

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Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15	$	15	$	44	$	46
Financing cash flows from finance leases	$	266	$	271	$	808	$	815
Right-of-use assets obtained in exchange for new finance lease liabilities	$	2,102	$	86	$	2,240	$	194
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	—	$	—	$	—


	September 30, 2022		December 31, 2021
Finance lease right-of-use assets	$	14,081	$	12,318
Operating lease right-of-use assets	$	69	$	113
Finance lease liability, current	$	1,185	$	1,133
Finance lease liability, non-current	$	13,670	$	11,647
Operating lease liabilities, current	$	64	$	60
Operating lease liabilities, non-current	$	6	$	54
Weighted average remaining lease terms - finance leases		20.25 years		20.58 years
Weighted average remaining lease terms - operating leases		1.08 years		1.83 years
Weighted average discount rate - finance leases		6.94%		6.42%
Weighted average discount rate - operating leases		6.48%		7.75%

Future annual minimum lease payments and finance lease commitments as of September 30, 2022 were as follows (in thousands):


	Operating Leases		Finance Leases
2022	$	16	$	263
2023		55		1,229
2024		—		1,229
2025		—		1,229
2026		—		1,229
Thereafter		—		22,614
Total undiscounted future minimum lease payments		71		27,793
Less imputed interest		(1)		(12,938)
Lease liability	$	70	$	14,855

Note 11 – Shareholders’ Equity

Equity Raises

On November 18, 2021, the Company entered into an ATM offering agreement with H.C. Wainwright & Co., LLC, or Wainwright, relating to sales of shares of its common stock under an ATM facility. On November 18, 2021, the Company also filed a prospectus supplement to allow the sale of shares of its common stock having an aggregate offering price of up to $10.0 million under the ATM facility.

During the nine months ended September 30, 2022, the Company raised $3.5 million, net of offering expenses, through the sale of shares under the ATM facility. The Company used and intends to use the net proceeds from sales made under the ATM facility for working capital and other general corporate purposes.

Note 12 – Government Funding

On July 28, 2020, the Company announced that it had been awarded a $33.6 million contract over the next 33 months from the U.S. Department of Defense, or the DoD, to sustain and enhance U.S. domestic capability for high resolution, high brightness OLED microdisplays that will be based on the Company’s proprietary direct patterning technology dPd. This investment is in addition to the $5.5 million award announced on June 11, 2020, under the U.S. Department of Defense Industrial Base Analysis, or IBAS, Program for OLED Supply Chain Assurance and will be used to increase capacity and sustain operations at the Company’s Hopewell Junction, New York, headquarters. These funds will be used to procure key equipment and tooling, and reimburse the Company for certain labor and material costs, which the Company believes will improve all aspects of its OLED microdisplay production, including increased throughput and capacity.

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Pursuant to the preliminary Technology Investment Agreement the U.S. government provided when the award was announced, the Company expects that the U.S. government will own the related equipment purchases until the end of the 33 month contract period, at which point the Company can apply to take title. The Company began making payments to related equipment vendors during the fourth quarter of 2020. For accounting purposes, the Company considers that it is probable that title will pass to the Company and accordingly will treat this award in a similar fashion as the IBAS award.

The Company recognizes the government awards as deferred income – government awards as program milestones are invoiced, and will recognize other income as depreciation and other expenditures are incurred over the useful life of the capital equipment. As of September 30, 2022, the Company has received $19.9 million in total, for initial deposits required by capital equipment vendors. Amounts received, pending payment of deposits to vendors as of September 30, 2022, of $0.3 million are reflected in restricted cash on the accompanying Condensed Consolidated Balance Sheets. Amounts due from the U.S. DoD pursuant to invoices for capital equipment are presented on the Condensed Consolidated Balance Sheets as accounts receivable – due from government awards. The total amount invoiced on these programs of $19.9 million is reflected less depreciation in deferred revenue government awards – long term, and other current liabilities. Additional amounts remaining under the awards will be recorded in a similar fashion and will coincide with the progress payments required under the various capital equipment purchase terms. For the nine months ended September 30, 2022, the Company recognized deferred income related to certain overhead expenses, not capitalized, of $236 thousand.

The terms of various government agreements provide among other items that the Company must achieve certain yield targets, give priority to military orders and continue to maintain the productive capacity of equipment purchased for up to five years past the completion of the programs.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes thereto. Our fiscal year ends December 31. This Report contains certain forward-looking statements including, among others, anticipated trends in our financial condition and results of operations and our business strategy. 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 changes in external factors or in our internal budgeting process which might impact trends in our results of operations, unanticipated working capital or other cash requirements, changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate, and various competitive market factors that may prevent us from competing successfully in the marketplace. Forward-looking statements do not represent our views as of any date other than the date of this Report. Please see "Statement Regarding Forward-Looking Information" and the sections titled “Risk Factors” included in this Report, in our Annual Report on Form 10-K for year ended December 31, 2021 filed with the SEC on March 10, 2022, or 2021 Form 10-K, and in our other filings with the SEC.

Business

We design, develop, manufacture and market organic light emitting diode, or OLED, miniature displays, which we refer to as OLED-on-silicon microdisplays, virtual imaging products that utilize OLED microdisplays, and related products. We also perform research in the OLED field. Our virtual imaging products integrate OLED technology with silicon chips to produce high-resolution microdisplays which, when viewed through a magnifying headset, 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 in the military and commercial markets to develop and market improved or new electronic products.

We believe that our OLED microdisplays offer a number of significant advantages over comparable liquid crystal microdisplays, including higher contrast, greater power efficiency, less weight, more compact size, and negligible image smearing. Using our active matrix OLED technology, many computer and electronic system functions can be built directly into the OLED microdisplays silicon backplane, resulting in compact, high resolution and power efficient systems. Already proven in military and commercial systems, our product portfolio of OLED microdisplays deliver high‑resolution, virtual images that perform effectively even in extreme temperatures and high‑vibration conditions.

During the third quarter of 2022 our total revenue was $7.6 million marked by continuing strength in military demand and increased revenue contributions from medical customers. In addition to higher yields, we saw a 51% increase in display production from the third quarter of last year. Our third quarter 2022 display revenues of $7.0 million was up 32% year over year while our quarterly display revenue gross margin improved to 37% from the prior year’s third quarter of 7%. The gross margin improvement resulted from several factors including higher yields, increased volumes, a more favorable product mix, and the successful qualification and sale of product that had previously been written off because of an initial quality issue that was ultimately resolved. This resulted in a savings of approximately $0.6 million in third quarter materials costs as compared to the expected cost of producing these displays. Excluding this positive impact, third quarter 2022 gross margin would have been 30% on gross profit of $2.3 million. As of the end of the third quarter, our sales backlog remained strong at $15.4 million, reflecting demand for our displays for use in thermal weapon sights, military night vision goggles, and medical applications.

Operating expenses for the third quarter of 2022, including R&D expenses were $3.0 million, compared with $3.9 million in the prior-year period. Operating expenses as a percentage of sales were 39% in the third quarter of 2022, with 67% in the prior-year period.

We have implemented employee health and safety measures as required by the Centers for Disease Control and Prevention, or CDC, guidelines, and monitor, Federal, State, and local governmental regulations to respond to the latest health and safety guidelines. As a result of the COVID-19 pandemic, we experienced disruptions in supply, had several employees test positive for the COVID-19 virus and had to close our facilities for cleaning purposes. There is no assurance that our operations will not be disrupted in the future by additional impacts of the COVID-19 pandemic, its variants, or other resurgences of the virus, on either our internal operations or those of our suppliers or customers, including the possible impact of disruptions in the supply of silicon wafers or other raw materials that could harm our ability to meet demand for our products in a timely manner, or within budget.

We received a validation of our products and technology during fiscal 2020 from the U.S. government. In 2020, we received two U.S. Department of Defense, or DoD, awards totaling $39.1 million. We believe we are the only commercial U.S. manufacturer of OLED microdisplays and our displays are used in many U.S. Military programs. The Company has committed the funds and ordered all equipment to be purchased under these programs. As of the end of the third quarter of 2022, the Company has qualified and added four pieces of equipment to its production line and received three additional pieces of equipment that are currently in qualification stages. We expended $19.4 million of grant money towards progress payments to equipment vendors and have seven more major pieces of equipment on order, including an advanced, production-capable dPd organic deposition tool that is expected to improve yield and

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throughput of this innovative technology for the benefit of AR/VR customers. Overall, the Company remains on track and on budget with the requirements of these important government grants.

As of September 30, 2022, all equipment awarded by these grants had been ordered, including a production-capable dPd organic deposition tool that is expected to improve yield and throughput of this innovative technology. We have taken delivery of seven pieces of production equipment and received $19.9 million of the total $39.1 million in government granted awards for initial deposits required by capital equipment vendors.

We are seeking to improve our production processes and we are beginning to add government funded equipment to our production line. However, most of our equipment is older and malfunctions in single point of failure equipment have the potential to delay our production until repairs can be made. We experienced equipment issues leading to late order shipments during 2020 and through the second quarter of 2021, and had delays in getting vendor support personnel due to COVID-19 travel restrictions, resulting in occasional production disruptions. Additional equipment to be purchased and added to our line during fiscal 2022 and 2023 under our government awards programs have begun to reduce our single point of failure risk and continue to improve manufacturing yields and throughput. As part of our ongoing efforts to improve our throughput, yield, and quality practices, we are working with an industrial engineering firm to develop an operations excellence strategy. In October 2022, we obtained the AS9100 quality certification. AS9100 is an internationally recognized quality management system standard specific to the aerospace, aviation, and defense industries. The standard is widely supported and adhered to by major aerospace OEMs and is increasingly required by vendors within the supply chain. Our backlog on September 30, 2022, was $15.4 million compared to backlog of $13.2 million at September 30, 2021. Backlog is comprised of orders believed to be firm with scheduled delivery dates over the next twelve months and does not include contract revenues.

We believe that our U.S.-based design and manufacturing, combined with in-house advanced backplane design, and our dPd technology give us a competitive advantage. Our direct patterning equipment is operational. We have fabricated full color displays using the newly upgraded and installed dPd tool during 2021 including our 4kX4k and WUXGA displays. In July 2021, using our dPd technology we created full color WUXGA displays with a brightness of over 10,000 cd/m2 and displayed these to industry analysts. We continue our development work for a tier one consumer customer and are targeting similar levels of brightness on proof-of-concept displays using our full color dPd process.

Consumer, commercial (in which we include the medical and industrial sectors), and military customers continue to look to us because of our technological leadership in display brightness and resolution. This leadership in brightness is further demonstrated by our proprietary dPd capability. Unlike traditional OLEDs that produce colors by using a white source with filters that eliminate about 80% of the emitted light, with dPd we make full color displays by directly depositing each of the primary color materials on respective sub-pixels, without the use of filters. This advanced technology gives us an increase in brightness of over 10X versus the competition. In July 2021, we achieved full color brightness levels of over 10,000 cd/m2 and expect to achieve a brightness level of over 28,000 cd/m2 ready for mass production of full color displays by 2023. We achieved the highest monochrome brightness levels in the market years ago and are continuing our leadership with color displays. Display brightness is critical for AR/VR devices because of optics inefficiency and the need to eliminate motion artifacts. This is especially important for heads up displays used in bright, daylight environments. Our high resolution and low pixel pitch are also important to eliminate the “screen door” effect that comes with expanding lower resolution displays over wide fields of view.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. which require that management make numerous estimates and assumptions.

Please refer to the information provided under the heading "Critical Accounting Policies and Estimates" included in our 2021 Form 10-K for a discussion of our critical accounting policies. There were no material changes to such policies in the nine months ended September 30, 2022.

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Results of Operations

Comparative results of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Revenues


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022		2021		Change		2022		2021		Change
Product	$	7,040	$	5,313	$	1,727	$	21,093	$	17,160	$	3,933
Contract		581	$	469		112		1,045		1,674		(629)
Total revenue, net	$	7,621	$	5,782	$	1,839	$	22,138	$	18,834	$	3,304

Total revenue for the three and nine months ended September 30, 2022 were $7.6 million and $22.1 million, respectively, as compared to revenues of $5.8 million and $18.8 million, for the three and nine months ended September 30, 2021.

Product revenue is comprised primarily of sales of displays as well as sales of other hardware. For the three and nine months ended September 30, 2022 product revenue increased by $1.7 million and $3.9 million, respectively, primarily due to increased medical revenues and shipments of displays used for the ENVG-B program.

Contract revenue primarily reflected development associated with a high brightness display design for the Department of Defense and a proof of concept display for a tier one consumer company. For the three and nine months ended September 30, 2022 contract revenue increased by $0.1 million and decreased by $0.6 million, respectively, as compared to the prior period, reflecting the timing of phases and milestones of these contracts. We are continuing to work on the high brightness display design and our proof of concept for this consumer customer and expect ongoing contract revenue under these programs.

Cost of Revenues


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022		2021		Change		2022		2021		Change
Product	$	4,462	$	4,962	$	(500)	$	14,771	$	15,135	$	(364)
Contract		304		261		43		454		861		(407)
Total cost of revenues	$	4,766	$	5,223	$	(457)	$	15,225	$	15,996	$	(771)

Total cost of revenues is comprised of costs of product and contract revenues. Cost of product revenue includes materials, labor and manufacturing overhead, warranty costs and depreciation related to our products. Cost of contract revenue includes direct and allocated indirect costs associated with performance on the contracts, primarily engineering resources and materials. Total cost of revenues for the three and nine months ended September 30, 2022 decreased by $0.5 million and $0.8 million, respectively from the comparable prior year period due to improvements in yield.

Product cost of revenues for the three and nine months ended September 30, 2022, decreased from the prior year period, primarily due to the impact of 2022 revenues from shipments of reclaimed displays with no associated current quarter and year to date cost of revenue.

Contract cost of revenues for the three months ended September 30, 2022 was comparable to the prior year period, while for the nine months ended September 30, 2022 decreased by $0.4 million, compared to the prior year period, reflecting decreased contract revenue.

The following table outlines product and contract gross profit and related gross margins for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Product revenues gross profit	$	2,578		$	351		$	6,322		$	2,025
Product revenues gross margin		37	%		7	%		30	%		12	%
Contract revenues gross profit	$	277		$	208		$	591		$	813
Contract revenues gross margin		48	%		44	%		57	%		49	%
Total gross profit	$	2,855		$	559		$	6,913		$	2,838
Total gross margin		37	%		10	%		31	%		15	%

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Total gross profit is a function of revenues less cost of revenues. Gross profit for the three months ended September 30, 2022 of $2.9 million increased $2.3 million, from the comparable prior year period reflecting increased product revenues and the impact of higher average selling prices in the current year’s periods due to price increases and a favorable sales mix. Total gross margin was 37% and 31% for the three and nine months ended September 30, 2022, respectively, compared to 10% and 15% for the comparable 2021 periods. Total gross profit and total gross margin were also positively impacted by successful qualification and sale of reclaimed displays that were previously written off because of an initial quality issue that was ultimately resolved. Total gross profit and total gross margin do not reflect costs associated with the production of such reclaimed displays, as such costs were recorded in prior quarters. Sales or previously written off reclaimed displays had a positive effect on total gross profit in the amount of approximately $0.6 million If we exclude gross profits attributable to such previously written off products, our third quarter gross profit would have been $2.3 million and our third quarter gross margin would have been 30%. Although we may sell additional previously written off products in the future, the gross margin and yields may vary from current quarters levels.

The product gross profit of $2.6 million and $6.3 million for the three and nine months ended September 30, 2022, increased from $0.3 million and $2.0 million in the comparable prior year periods due to increased shipments of displays in the three and nine months ended September 30, 2022 combined with the favorable impact of price increases, the favorable impact of the reclaimed displays that were previously written off, improvements in yields and increases in period costs capitalized into inventory due to increased production volumes.

Contract gross margin is dependent upon the mix of internal labor costs versus external third-party costs and materials, with the external third-party costs and materials causing a lower gross margin and reducing the contract gross profit. For the three and nine months ended September 30, 2022, contract revenue gross profit was $0.3 million and $0.6 million compared to $0.2 million and $0.8 million, respectively, for the prior year period. The increase in contract gross margin for the three and nine months ended September 30, 2022 versus the prior year period is primarily due to margins earned on the military contract entered into in the second quarter of 2022.

Operating Expenses


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2022			2021			Change		2022			2021			Change
Research and development expense	$	1,236		$	1,669		$	(433)	$	4,177		$	5,299		$	(1,122)
Percentage of net revenue		16	%		29	%				19	%		28	%
Selling, general and administrative expense	$	1,728		$	2,203		$	(475)	$	5,802		$	5,717		$	85
Percentage of net revenue		23	%		38	%				26	%		30	%
Total operating expenses	$	2,964		$	3,872		$	(908)	$	9,979		$	11,016		$	(1,037)
Percentage of net revenue		39	%		67	%				45	%		58	%

Research and Development Expense

R&D expenses are Company funded and are primarily compromised of salaries and related benefits, development materials and other costs specifically allocated to the development of new technologies, microdisplay products, OLED technologies and production processes. R&D related costs associated with fulfilling contracts are categorized as contract cost of revenues. R&D expense was $1.2 million and $4.2 million for the three and nine months ended September 30, 2022, compared to $1.7 million and $5.3 million, respectively, in the prior year period. Prior year R&D expenses reflected significant investments in high brightness XLE, and dPd processes.

Selling, General and Administrative Expense

SG&A expenses consist primarily of personnel expenses, professional services fees, as well as other marketing, general corporate and administrative expenses. The decrease in SG&A expenses for the three months ended September 30, 2022 of $0.5 million reflects changes in non-cash stock compensation and decrease in legal fees. SG&A expenses for the nine months ended September 30, 2022 were comparable to the prior year period.

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Other Income (Expense)

Other income (expense), net consists of changes in the fair value of warrant liability as well as interest income earned on cash balances. Other income related to the change in fair value of warrant liability was $2 thousand for the three months ended September 30, 2022, compared to other income of $4.7 million for the three months ended September 30, 2021. This non-cash income or expense is associated with changes in the liability related to registered warrants issued in May 2017 and January 2018. We are required to revalue warrants classified on our Condensed Consolidated Balance Sheets as a liability at the end of each reporting period and reflect a gain or loss from the change in fair value in the period in which the change occurred. We calculate the fair value of the warrants outstanding using the Black-Scholes model. Warrants issued in May 2017 expired on May 24, 2022.

Other income for the three and nine months ended September 30, 2022, also includes $22 thousand and $469 thousand, respectively in deferred income related to assets provided under government grant programs and the related reimbursement of labor overhead charges incurred under these grant programs. Pursuant to our accounting policy, we reduce the deferred income – government awards liability to recognize income associated with these grants over depreciable lives of the assets purchased with the awards.

Gain on forgiveness of debt

Gain on forgiveness of debt of $1.9 million reflects indebtedness payable to the Small Business Administration that was forgiven on March 31, 2021, pursuant to the terms of the Paycheck Protection Program and the CARES Act.

Liquidity and Capital Resources

As of September 30, 2022, we had $3.9 million in cash and cash equivalents, working capital of $13.9 million and borrowings outstanding and borrowing availability under the ABL Facility of $0.7 million and $1.1 million, respectively. We had $5.7 million in cash, working capital of $11.8 million and borrowings outstanding and borrowing availability under the ABL Facility of $2.0 million and $2.3 million, respectively, at December 31, 2021.

On July 28, 2020, we announced that we had been awarded a $33.6 million contract over the following 33 months from the DoD to sustain and enhance U.S. domestic capability for high resolution, high brightness OLED microdisplays that will be based on our proprietary direct dPd technology. This investment is in addition to the $5.5 million award announced on June 11, 2020, under the IBAS Program for OLED Supply Chain Assurance. We have used and expect to continue to use the investment to increase capacity and sustain operations at our Hopewell Junction, New York headquarters. In August 2020, these funds began to be released to us and will continue to be released over the life of the programs in accordance with the down payment and progress payment schedules of the various capital equipment vendors.

As of September 30, 2022, we have ordered all equipment awarded by these grants, including a production-capable dPd organic deposition tool that is expected to improve yield and throughput of this innovative technology. We have taken delivery of seven pieces of production equipment and received $19.9 million of the total $39.1 million in government granted awards for initial deposits required by capital equipment vendors.

For the nine months ended September 30, 2022 cash used in operating activities were $2.3 million which was attributable to a net loss of $1.9 million and cash used by operating assets and liabilities of $1.8 million offset by non-cash income and expenses of $1.5 million. Cash used in operating activities for the nine months ended September 30, 2021 was $6.7 million.

For the nine months ended September 30, 2022 cash used in investing activities was $9.0 million related to equipment purchases primarily to improve manufacturing yields and production capacity and to advance our dPd technology including grant proceeds for capital expenditures of $6.4 million.

As of September 30, 2022, we had outstanding commitments to purchase approximately $0.8 million in capital expenditures, and expect to make additional capital expenditures during 2022 to improve our manufacturing and R&D capabilities. These commitments exclude $16.3 million expected to be purchased and funded by the DoD, as described above. Cash used in investing activities during the nine months ended September 30, 2021 was $10.1 million for equipment purchases.

For the nine months ended September 30, 2022, cash provided by financing activities of $8.9 million, includes proceeds from government grants of $6.8 million, and public offering (ATM) proceeds of $3.5 million offset by net borrowings of $1.2 million under our ABL Facility and change in finance lease liabilities of $0.2 million. Net cash provided by financing activities during the nine months ended September 30, 2021 was $15.0 million.

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Going concern

The accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which assumes that we will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. For the nine months ended September 30, 2022, a net loss of $1.9 million was incurred and cash used in operating activities of $2.3 million. As of September 30, 2022, we had $3.9 million of cash, $0.7 million of outstanding indebtedness and borrowing availability of $1.1 million under our ABL Facility.

Our ABL Facility expires on December 31, 2022, and renews automatically for another year unless terminated pursuant to its terms. The ABL Facility agreement contains certain lenders remedies that give the bank the ability to impose discretionary reserves against our borrowing availability or terminate the facility upon events of default. Although our relationship with the lender is positive, there is no assurance the lender will renew or extend this facility or continue to make funds available during 2022 and beyond at present availability levels, or at all.

Due to continuing losses, our financial position, and uncertainty regarding our ability to borrow under our ABL Facility, or continue to raise funds under our ATM facility, we may not be able to meet our financial obligations as they become due without additional financing or sources of capital. In addition, the COVID-19 pandemic and disruptions caused by the war in Ukraine have significantly increased economic and demand uncertainty across the globe and contributed to supply chain shortages and disruptions. Although demand for our products has remained steady, inflationary factors and our ability to obtain components and other materials or services on a timely basis has resulted in manufacturing delays, and increased costs. If these trends continue or worsen as a result of COVID-19, the Ukraine war, or other semiconductor supply chain issues or result in lost orders it could materially and adversely affect our business, financial condition, and results of operations. Management is prepared to reduce expenses and raise additional capital, but there can be no assurance that we will be successful in sufficiently reducing expenses or raising capital to meet our operating needs.

We have taken actions to increase revenues and to reduce expenses and are considering financing alternatives. Our plans with regard to these matters include the following actions: 1) focus production and engineering resources on improving manufacturing yields and increasing production volumes, 2) continue a Work Status Reduction program that began in October 2019 wherein senior management work status was reduced by approximately 20%, 3) continue to utilize government grants for purchase of capital equipment and funding manufacturing personnel, 4) reduce discretionary and other expenses, 5) seek to enter new markets, 6) sell shares under our At the Market, or ATM, equity facility entered into in November 2021, and 7) consider additional financing and/or strategic alternatives.

We are reassessing our business plans and forecasts over the next two years. Based on our known cash needs as of October 2022, our latest forecast of revenues and expenses, and the anticipated availability of our ABL facility, we have developed plans to extend our liquidity to support working capital requirements through the fourth quarter of 2023 and beyond.

However, there can be no assurance our plans will be achieved and we will be able to meet our financial obligations as they become due without obtaining additional financing or sources of capital or pursuing potential strategic transactions. Therefore, in accordance with applicable accounting guidance, and based on our current financial condition and availability of funds, there is substantial doubt about our ability to continue as a going concern through twelve months from the date these financial statements were issued.

Equity Raises

On November 18, 2021, we entered into an ATM offering agreement with H.C. Wainwright & Co., LLC, or Wainwright, relating to sales of shares of our common stock under an ATM facility. On November 18, 2021, we also filed a prospectus supplement to allow the sale of shares of our common stock having an aggregate offering price of up to $10.0 million under the ATM facility.

For the nine months ended September 30, 2022, we raised $3.5 million through the sale of shares under the ATM facility. During 2021, we raised $0.2 million, net of offering expenses. We used and intend to use the net proceeds from sales made under the ATM facility for working capital and other general corporate purposes. We had approximately $6.3 million of potential sales remaining under the ATM facility, gross of offering expenses as of September 30, 2022.

ABL Facility

On December 21, 2016, we entered into an asset based revolving credit facility with a lender that provides for up to a maximum amount of $5 million based on a borrowing base equivalent of 85% of eligible accounts receivable plus the lesser of $2 million or 50% of eligible inventory. The interest on the ABL Facility is equal to the Prime Rate plus 3% but may not be less than 6.5% with a minimum monthly interest payment of $2,000. We are obligated to pay the lender a monthly administrative fee of $1,000 and an annual facility fee equal to 1% of the maximum amount borrowable under the facility. The ABL Facility automatically renewed on December 31, 2021 for a one-year term.

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Our ABL Facility expires on December 31, 2022 and renews automatically for another year unless terminated pursuant to its terms. Our ABL Facility agreement contains certain lenders remedies that give the bank the ability to impose discretionary reserves against our borrowing availability or terminate the facility upon events of default.

The ABL Facility is secured by a lien on all receivables, property and the proceeds thereof, credit insurance policies and other insurance relating to the collateral, books, records and other general intangibles, inventory and equipment, proceeds of the collateral and accounts, instruments, chattel paper, and documents. The ABL Facility contains customary representations and warranties, affirmative and negative covenants and events of default, including a provision that we maintain a minimum tangible net worth of $13 million and a minimum working capital balance of $4 million. During the third quarter, we repaid $1.4 million under the ABL facility. As of September 30, 2022, we had $0.7 million in borrowings, had unused borrowing availability of $1.1 million and were in compliance with all financial debt covenants.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this Report.

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting related to complex and nonroutine transactions. In connection with management’s review of internal control over financial reporting as of September 30, 2022, it concluded that it did not design and maintain controls at a sufficient level of precision to verify the reliability of data used in its calculation of a right of use asset and a lease liability. Accordingly, management has concluded that this control deficiency constitutes a material weakness. Management did not identify a material misstatement within its financial statements in this or any previously filed Quarterly Report on Form 10-Q or Annual Report on Form 10-K as a result of the material weakness.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Remediation Steps to Address the Material Weakness

The Company has commenced its remediation plan with the goal of remediating this material weakness as soon as possible, subject to the conclusion by management that the enhanced internal control over financial reporting is operating effectively following appropriate testing, although the Company cannot estimate when the remediation will be completed. Specifically, management plans to identify and document key controls over complex and nonroutine transactions and modify existing controls as necessary to ensure they operate at a sufficient level of precision.

During the remediation of the above material weakness, the Company may decide to modify other internal controls to further strengthen its overall internal control environment.

Changes in Internal Control Over Financial Reporting

Except with respect to the remediation described above, during the quarter ended September 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we may become subject to various legal proceedings that are incidental to the ordinary conduct of our business. In the ordinary course of business, we may be subject from time to time to various proceedings, lawsuits, disputes, or claims. We investigate these claims as they arise. Although claims are inherently unpredictable, we are currently not aware of any matters that, if determined adversely to us, would individually or taken together, reasonably be expected to have a material adverse effect on our business, financial position, results of operations, or cash flows.

ITEM 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Report, you should carefully consider the factors discussed in the sections titled “Risk Factors” included in this Report, in our 2021 Form 10-K and in our other filings with the SEC. In addition, refer to our discussion in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other sections of this report, which address the effects of the COVID-19 pandemic and the war in Ukraine, inflationary factors and our ability to continue as a going concern. The COVID-19 pandemic can also exacerbate other risks discussed in the “Risk Factors” sections of this Report, our 2021 Form 10-K and our other filings with the SEC, which could in turn have a material adverse effect on us. The “Risk Factors” section in our 2021 Form 10-K otherwise remains current in all material respects. The risks discussed in the “Risk Factors” section in our 2021 Form 10-K do not identify all risks that we face. Our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Significant Congressional delays or reductions in appropriations for programs our military customers participate in, and U.S. government funding more broadly, can negatively impact our sales of microdisplays and could have a material adverse effect on our financial position, results of operations and/or cash flows.

U.S. government programs are subject to annual Congressional budget authorization and appropriation processes. For many military programs, including those our customers participate in, Congress appropriates funds on an annual fiscal year basis even though the program performance period may extend over several years. Programs are often partially funded initially, and additional funds are committed only as Congress makes further appropriations. We cannot predict the extent to which funding for individual programs will be included, increased, or reduced in annual appropriations or in separate supplemental appropriations or continuing resolutions or what the impact will be on our customers’ buying decisions regarding purchases of our microdisplays.

We have identified a material weakness in our internal control over financial reporting. Any future material weakness could adversely affect our ability to report our financial condition and results of operations accurately or on a timely basis.

In the third quarter of 2022, we identified a material weakness in internal control over financial reporting related to complex and nonroutine transactions. Specifically, management concluded that it had not designed or maintained controls at a sufficient level of precision to verify the reliability of data used in its calculation of our right of use asset and lease liability. This control deficiency could have resulted in a misstatement of right of use asset and lease liability, which would have resulted in a material misstatement of the annual or interim financial statements that would not have been prevented or detected. Accordingly, management has concluded that this control deficiency constitutes a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Management did not identify a material misstatement within our financial statements in this or any previously filed quarterly report on Form 10-Q or annual report on Form 10-K as a result of the material weakness, and we have commenced a remediation plan with the goal of remediating this material weakness as soon as possible. However, we cannot estimate when the remediation will be completed, nor can we assure you that the measures we take will fully remediate this material weakness; or assure you that we have identified all of our existing deficiencies and material weaknesses or that we will not in the future have additional significant deficiencies or material weaknesses. Any failure to timely remedy a material weakness or deficiency, or the occurrence of any additional material weaknesses or deficiencies, could result in misstatements of our results of operations or restatements of our financial statements, cause us to fail to meet our reporting obligations, negatively impact our ability to enter into certain corporate transactions, cause investors to lose confidence in our financial reporting or harm our operating results, any of which could adversely affect our reputation, the market price of our common stock or our ability to remain listed with NYSE American.

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We may require significant additional capital funding to meet our business requirements. Such capital may be difficult to obtain or may not be available to us at all.

In the event that our operating expenses or working capital levels are higher than anticipated, we may be required to implement contingency plans within our control to conserve and/or enhance our liquidity to meet operating needs. Such plans include implementing cost reductions and restricting our operations. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and increasing production and inventory levels. Our ability to meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments, the timing and amount of our operating expenses; the ability to raise additional funding, the timing and costs of working capital needs; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and any new research and development programs, and any potential changes in our strategy or our planned activities. If we are unable to fund our operations without additional financing and therefore cannot sustain future operations, we may be required to delay, reduce and/or cease our operations.

Alternatives we would consider for additional funding include additional equity or debt financings, or licensing of our technology. In addition to raising capital, it may be necessary for us to consider strategic transactions, such as partnerships or entering into a business combination, and government programs that may be available to us. If we are unable to obtain additional capital, we may not be able to sustain our future operations and may be required to reduce our headcount, sell all or a portion of our assets, delay, reduce, reorganize and/or cease our operations through bankruptcy or otherwise. We cannot assure you that any necessary additional financing will be available on terms favorable to us, or at all. Additionally, even if we raise sufficient capital through additional equity or debt financings, strategic transactions or otherwise, there can be no assurance that the revenue or capital infusion will be sufficient to enable us to develop our business to a level where it will be profitable or generate positive cash flow. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. In addition, there can be no assurances that the majority holder of our Series B convertible preferred stock, will not withhold its consent for any future capital raise or strategic transaction we propose. See “The holders of shares of our Series B convertible preferred stock have exercised, and may continue to exercise, significant influence over us.” If we incur additional debt, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. The terms of any debt securities issued could also impose significant restrictions on our operations. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds.

The holders of shares of our Series B convertible preferred stock have exercised, and may continue to exercise, significant influence over us.

Under the terms of the certificate of designations governing our Series B convertible preferred stock, the Series B convertible preferred stock generally ranks, with respect to liquidation and dividends, senior to our other securities and, so long as any shares of Series B convertible preferred stock remain outstanding, the approval of the holders of a majority of the Series B convertible preferred stock outstanding at the time of approval is required in order for us to, among other things, (i) amend, alter or repeal our certificate of incorporation if such amendment, alteration or repeal adversely affects the powers, preferences or special rights of the Series B convertible preferred stock; (ii) create any series or class of stock ranking senior as to liquidation rights or dividends with the Series B convertible preferred stock (other than series A senior secured convertible preferred stock, or series A convertible preferred stock); (iii) redeem, or pay dividends on, any class or series of our capital stock (other than the series A convertible preferred stock); (iv) sell, lease or convey all or substantially all of our assets, or merge, consolidate, or enter into a business combination with any other person; or (v) so long as there are holders of at least 577 outstanding shares of Series B convertible preferred stock, issue any shares of Series B convertible preferred stock. The terms of the certificate of designations also provide that so long as any shares of Series B convertible preferred stock are outstanding, we may not offer, sell or issue, or enter into any agreement, arrangement or understanding to offer, sell or issue, any common stock or common stock equivalent (other than offerings that are underwritten on a firm commitment basis and registered with the SEC under the Securities Act) without the approval of holders of a majority of the Series B convertible preferred stock outstanding. These and other rights granted to holders of the Series B convertible preferred stock enable the holders thereof to exert substantial control over our affairs and potentially exercise their control in a manner adverse to the interest of our other stockholders.

The majority holder of our Series B convertible stock, has prevented, and may in the future prevent, us from entering into significant corporate transactions that our management and Board have otherwise approved, including certain capital raising transactions.

Certain provisions in the documents governing the issuance and sale of our Series B convertible preferred stock have impaired, and

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may in the future impair, our ability to enter into significant corporate transactions, including certain capital raising transactions and business combinations. For example, the securities purchase agreement pursuant to which we sold the Series B convertible preferred stock provides that so long as there are holders of at least 577 outstanding shares of Series B convertible preferred stock and until such date that (i) all shares of our Series B convertible stock become eligible for resale under Rule 144 without volume restrictions or (ii) a registration statement registering the sale of such shares become effective, unless we obtain the prior written consent of the majority holders, we may not issue or sell any securities in a capital raising transaction, unless such securities are not and will not be registered under the Securities Act until on or after the effective date of a registration statement registering the sale of the Series B convertible stock. The majority holder of our Series B convertible preferred stock, has previously withheld consent to certain capital raises that were proposed by our management and approved by our Board, most recently in September 2021. As a result, we were unable to proceed with the proposed offerings and raise capital at the times, at the prices, and in the amounts, that our management and our Board deemed most beneficial to the Company.. In addition, the certificate of designations.. The certificate of designations also requires, among other things, that we obtain the consent of the majority holder of our Series B convertible preferred stock before we may sell, lease or convey all or substantially all of our assets, or merge, consolidate, or enter into a business combination with another party. The requirement to obtain this consent may also delay or prevent an acquisition of our company on terms that our other stockholders may desire and may adversely affect the market price of our common stock. There can be no assurances that the majority holder of our Series B convertible preferred stock will ultimately grant consent for any future capital raise we propose, any proposed asset sale, merger, consolidation or similar business combination, or any other transaction or other matter that is subject to its consent pursuant the Series B certificate of designations or the securities purchase agreement.

Our third quarter 2022 total gross profit and total gross margin reflect the one-time favorable impact of reclaimed displays that were previously written off.

Our third quarter 2022 total gross profit and total gross margin reflect the favorable impact of our successful qualification and sale of reclaimed displays that were previously written off because of an initial quality issue that was ultimately resolved. Third quarter 2022 total gross profit and total gross margin do not reflect costs associated with the production of such reclaimed displays, as such costs were recorded in prior quarters. Such sales had a positive effect on total gross profit in the amount of approximately $0.6 million. If we exclude gross profits attributable to such previously written off products, our third quarter gross profit would have been $2.3 million and our third quarter gross margin would have been 30%. Although we may sell additional previously written off products in the future, the gross margin and yield may vary from current quarter levels. Accordingly, if sales of our displays do not increase in future quarters, gross margins for such quarters may decrease, which likely would have a negative effect on the market price of our common stock.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits


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 Certificate of Incorporation (incorporated by reference to an appendix to the Registrant's Definitive Proxy Statement filed on September 21, 2006).

3.2		Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to an appendix to the Registrant’s Definitive Proxy Statement filed on October 26, 2010).

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).

3.4		Certificate of Designations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 of the Registrant’s current report on Form 8-K filed on December 23, 2008).

3.5		Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 filed on May 13, 2021).

4.1		Common Stock Purchase Warrant issued on March 24, 2017, set forth as Exhibit 4.5 to the Company’s quarterly report on form 10-Q filed on November 9, 2017 (incorporated by reference to exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q filed on November 9, 2017).

4.2		Form of Common Stock Purchase Warrant set forth as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 24, 2017 (incorporated by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 24, 2017).

4.3		Form of Common Stock Warrant Agreement and Common Stock Purchase Warrant Certificate (incorporated by reference to exhibit 4.2 to the Company’s registration statement on Form S-1/A filed on January 23, 2018).

4.4		Form of Common Stock Purchase Warrant (incorporated by reference to exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on August 24, 2016).

4.5		Form of Common Stock Purchase Warrant (incorporated by reference to exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on April 8, 2019).

4.7		Form of Common Stock Purchase Warrant (incorporated by reference to exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on April 12, 2019).

4.8		Description of Registrant's Securities (incorporated by reference to Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022).

10.1		Lease between International Business Machines Corporation (“IBM”) 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).

10.2		Securities Purchase Agreement, dated December 18, 2008 (incorporated by reference to exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on December 23, 2008).

10.3		2011 Incentive Stock Plan (incorporated by reference to exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on November 8, 2011).*

10.4		2013 Incentive Stock Plan (incorporated by reference to an appendix to the Registrant's Definitive Proxy Statement filed on April 2, 2013).*

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10.5		8th Lease Amendment between International Global Foundries U.S. 2 LLC and eMagin Corporation, effective as of March 21, 2016 (incorporated by reference to exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on May 9, 2016).

10.6		Financing Agreement, dated as of December 29, 2016, by and between the Company and Rosenthal & Rosenthal, Inc. (incorporated by reference to exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2016 filed on March 29, 2017).

10.7		Form of Amended and Restated Change in Control Agreement (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 18, 2019).

10.8		2019 Employee and Consultant Stock Option and Incentive Plan (incorporated by reference to an appendix to the Registrant's Definitive Proxy Statement filed on October 23, 2019).*

10.9		2019 Non-Employee Director Stock Option and Incentive Plan (incorporated by reference to an appendix to the Registrant's Definitive Proxy Statement filed on October 23, 2019).*

10.10		12th Lease Amendment between IPark East Fishkill and eMagin Corporation, effective as of November 20, 2020 (incorporated by reference to exhibit 10.10 to the Company's Current Report on Form 10-K filed on March 19, 2021).

10.11		At Market Offering Agreement, dated November 18, 2021, between eMagin Corporation and H.C. Wainwright & Co., LLC (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 19, 2021).

10.12		Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 8, 2019).

10.11		Prototype Project Agreement for Organic Light Emitting Diode (OLED) Micro-Displays, dated as of June 8, 2020, between the Company and the United States of America (incorporated by reference to exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 13, 2020).

31.1		Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302 (filed herewith).

31.2		Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302 (filed herewith).

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (furnished herewith).

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (furnished herewith).

101.INS		Inline XBRL Instance Document (filed herewith).

101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

104.		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) (filed herewith).

* Each of the Exhibits noted by an asterisk is a management compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 10, 2022


	eMAGIN CORPORATION

	By:	/s/ Andrew G. Sculley
		Andrew G. Sculley
		Chief Executive Officer
		Principal Executive Officer