The Offering

Common stock offered by selling stockholders			Up to 2,450,000 shares, consisting of the following:
			·         1,450,000 shares of common stock issuable upon conversion of the $500,000 Stillwater Notes and accrued interest at a conversion price of $0.35 per share;*
			·         up to 1,000,000 shares of common stock issuable upon the exercise of common stock purchase warrants at an exercise price of $0.48 per share.
Common Stock to be outstanding after the offering			14,350,424 shares**
Use of proceeds			We will not receive any proceeds from the sale of the common stock however, we will receive proceeds from the exercise of our warrants.
Over-The-Counter Bulletin Board Symbol			EMAN
●	*    This includes 720,476 shares issued to Stillwater but not registered .
●	**The information above regarding the common stock to be outstanding after the offering is based on 12,620,900 shares of the Company’s common stock outstanding   as of January 31, 2008.   This includes 720,476 shares issued to Stillwater and not registered.

 

Recent Developments

 

Amendment of Stillwater Note Purchase Agreement (the “Note”) - April 2007

On July 21, 2006, eMagin Corporation (the “Company”) entered into a Note Purchase Agreement (the “Stillwater Agreement”) with Stillwater LLC (“Stillwater”) which provides for the purchase and sale of a 6% senior secured convertible note in the principal amount of up to $500,000 (the “Stillwater Note”), together with a warrant (the “Stillwater Warrant”) to purchase 70% of the number of shares issuable upon conversion of the Stillwater Note, at the sole discretion of the Company by delivery of a notice to Stillwater on December 14, 2006.  Interest payments from the Stillwater Note are to be made in cash, unless Stillwater elects to convert any portion of the principal of the Stillwater Note plus any accrued and unpaid interest for such principal amount.

As previously reported in the Form 8-K dated April 13, 2007, by way of amendment to the Stillwater Agreement, dated March 28, 2007 (the “Amendment”), the Company and Stillwater agreed to certain amendments to the Stillwater Agreement. Based upon the provisions of the Stillwater Agreement, Stillwater was bound to purchase the Stillwater Note and the Stillwater Warrant so long as the conditions to closing as set forth in the Stillwater Agreement were satisfied by the Company.  However, prior to Stillwater’s obligation to purchase the Stillwater Note and Stillwater Warrant, the Company received notice from the American Stock Exchange (“AMEX”) that it was no longer in compliance with their listing requirements, and the Company was subsequently de-listed in March of 2007. Since compliance with the AMEX listing requirements was a condition of closing in the Stillwater Agreement, Stillwater was no longer obligated to purchase the Stillwater Note and Stillwater Warrant.  Therefore, among other things, pursuant to the Amendment, the parties agreed to a new closing date, and amended certain closing conditions, including the following: on the closing date, (i) trading in securities on the New York Stock Exchange, Inc., the AMEX, Nasdaq, the Nasdaq Capital Market, the Over-The-Counter Bulletin Board, the Pink Sheets, LLC or any similar organization shall not have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in the State of New York shall not have been declared by either federal or state authorities, and (iii) the Company has obtained waivers from all the noteholders of the other notes or has executed an additional Allonge with the majority holders to amend Section 3.2 of the Note and other notes to provide that the Company maintain cash and cash equivalents balances of at least equal to $200,000 from April 1, 2007 through and including May 15, 2007 and that subsequent to May 15, 2007 the Company maintain cash and cash equivalents balances of at least equal to $600,000.

 

Additionally, at July 23, 2007 the conversion price for $5,770,000 of the principal amount of the notes was revised from $2.60 to $.75 and remained $.35 for the remaining $250,000 of the notes, subject to adjustment as provided in the Stillwater Agreement, and that the exercise price of the Stillwater Warrant would be $0.48 per share . If all of the Stillwater Warrants are exercised for cash, the Company would receive $480,000, which would be used for working capital and other corporate purposes. There cannot be any assurances that any of the Stillwater Warrants will be exercised. The closing for the sale of the Stillwater Note and Stillwater Warrant was completed on April 9, 2007 and the Company issued Stillwater the Stillwater Note in a 6% Senior Secured Convertible Note in the principal amount of $500,000 and the Stillwater Warrant to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.48 in accordance with the terms of the Stillwater Agreement and Amendment. Interest payments from the Stillwater Note are to be made in cash, unless Stillwater elects to convert any portion of the principal of the Stillwater Note plus any accrued and unpaid interest for such principal amount.  The principal of the Stillwater Note would have become due in installments as follows:

 

 

 

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Principal Amount			Due Date*
$	250,000		July 21, 2007
$	250,000		January 21, 2008

* If the due date falls on a non-business day, the payment date will be the next business day.

 

 On July, 23 2007, Stillwater elected to convert $252,166.50 of the Note representing $250,000 of the principal amount of the Note due on July 21, 2007 and $2,166.50 of accrued and unpaid interest into shares of common stock. Stillwater will receive 720,476 shares of the common stock at the conversion price of $0.35.

This prospectus covers the resale by Stillwater of the above-referenced common stock underlying the Stillwater Note and the Stillwater Warrant.

 

Amendment Agreements - July 2007

As previously reported in the Form 8-K of the Company dated as of July 25, 2006, the Company entered into several Note Purchase Agreements (the “Original Purchase Agreements”), including the Stillwater Agreement, to sell to certain qualified institutional buyers and accredited investors $5,990,000 in principal amount 6% Senior Secured Convertible Notes Due July 21, 2007 and January 21, 2008 (the “Notes”), together with warrants (the “Warrants”) to purchase 1,612,700 shares of the Company’s common stock, par value $0.001 per share at $3.60 per share.

As previously reported in the Form 8-K of the Company dated as of July 25, 2007, by way of Amendment Agreements dated July 23, 2007 (the “Amendment Agreements”) between the Company and each of the holders of the Notes (each a “Holder” and collectively, the “Holders”), the Company agreed to issue each Holder an amended and restated Note (the “Amended Notes”) in the principal amount equal to the principal amount outstanding as of July 23, 2007 and an amended restated Warrant (the “Amended Warrants”).   The changes to the Amended Notes and Amended Warrants include the following:

·	The maturity date for the outstanding Notes (totaling after conversions an aggregate of $6,020,000)  has been extended to December 21, 2008;
·	Liquidated damages of 1% per month related to the Company’s delisting from the American Stock Exchange will no longer accrue and the deferred interest balance of approximately $230,000 has been forgiven;
·	The Company no longer has to maintain a minimum cash or cash equivalents balances of $600,000;
·	The Amended Notes may not be prepaid without the consent of the Holders;
·	As of July 23, 2007 the interest rate was raised from 6% per annum to 8% per annum;
·	The Amended Notes are convertible into (i) 8,407,612 shares of the Company’s common stock.  The conversion price for $5,770,000 of principal was revised from $2.60 to $.75 per share. The conversion price of $.35 per share for $250,000 of principal (which represents the remaining portion of the original principal balance of $500,000) was unchanged;
·	In addition to the right to convert the Amended Notes in the Company’s common stock, up to $3,010,000 of the Amended Notes can be converted into (ii) 3,010 shares of the Company’s newly formed Series A Senior Secured Convertible Preferred Stock (the “Preferred”) at a stated value of $1,000 per share.  The Preferred is convertible into common stock at $.75 per share, subject to adjustment as provided for in the Certificate of Designations (discussed below);
·	Except for the Amended Note associated with the original Purchase Agreement, the Amendment Agreements adjusts the exercise price of the Amended Warrants from $3.60 to $1.03 per share for 1,553,468 shares of common stock and requires the issuance of Warrants exercisable for an additional 3,831,859 shares of common stock  at  $1.03 per share with an expiration date of July 21, 2011;
·	The Amended Notes eliminate the requirement that the Company comply with certain covenants of management contained in the Notes. Specifically, among other things, the requirements to defer management compensation and to maintain a management committee were removed; and
·	The Amended Notes and/or the Preferred are subject to certain anti-dilution adjustment rights in the event the Company issues shares of its common stock or securities convertible into its common stock at a price per share that is less than the Conversion Price, in which case the Conversion Price shall be adjusted to such lower price.  The Amended Warrants are subject to certain anti-dilution adjustment rights in the event the Company issues shares of its common stock or securities convertible into its common stock at a price per share that is less than the Strike Price, in which case the Strike Price shall be adjusted to the lower of (1) 138% of the price at which such common stock is issued or issuable and (2) the exercise price of warrants, issued in such transaction.

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§	the consolidation or merger of the Company or any of its subsidiaries;
§	the acquisition by a person or group of entities acting in concert of 50% or more of the combined voting power of the outstanding  securities of the Company; and
§	the occurrence of any transaction or event in which all or substantially all of the shares of the Company’s common stock is exchanged for converted into acquired for or constitutes the right to receive consideration which is not all or substantially all common stock which is listed on a national securities exchange or approved for quotation on Nasdaq or any similar United States system of automated dissemination of transaction reporting securities prices.

Pursuant to the Amendment Agreements, the Company is required to file a Certificate of Designations of Series A Senior Secured Convertible Preferred Stock (the “Certificate of Designations”). The Certificate of Designations designates 3,198 shares of the Company’s preferred stock as Series A Senior Secured Convertible Preferred Stock (the “Preferred Stock”).  Each share of the Preferred Stock has a stated value of $1,000.  The Preferred Stock is entitled to cumulative dividends which accrue at a rate of 8% per annum, payable on the December 21, 2008. Each share of Preferred Stock has voting rights equal to (1) in any case in which the Preferred Stock votes together with the Company’s common stock or any other class or series of stock of the Company, the number of shares of common stock issuable upon conversion of such shares of Preferred Stock at such time (determined without regard to the shares of common stock so issuable upon such conversion in respect of accrued and unpaid dividends on such share of Preferred Stock) and (2) in any case not covered by the immediately preceding clause one vote per share of Preferred Stock.  The Certificate of Designations prohibits the Company from entering into a Fundamental Change without consent of the Holders and contains antidilution adjustments rights that are comparable to the antidilution adjustments contained in the Amended Notes.

Pursuant to the Amendment Agreements, the Company is required to file a registration statement with the Securities and Exchange Commission by August 31, 2007 covering the resale of 100% of the sum of (a) the number of shares issuable upon conversion of the Amended Notes and Preferred Stock, and (b) the number of shares issuable upon exercise of the Warrants.

Pursuant to the Amendment Agreement, the Company and the Collateral Agent, on behalf of the note holders, executed Amendment No. 1 to the Pledge and Security Agreement; Amendment No. 1 to Patent and Trademark Security Agreement; Amendment No. 1 to Lockbox Agreement.  The Pledge and Security Agreement, Trademark Security Agreement and Lockbox Agreement were previously entered into on July 21, 2006 (collectively, the “Ancillary Agreements”).  The Ancillary Agreements were amended to cover obligations that may become payable to holders of Preferred Stock, to delete certain definitions used in the Ancillary Agreements and substitute definitions of terms used in the Ancillary Agreements.

The summary of amendment terms contained herein does not include all information included in the Amendment Agreement, the Amended Notes, the Amended Warrants, the Certificate of Designations or the Ancillary Agreements and, consequently, is qualified in its entirety by reference to the entire text of the Amendment Agreements and the forms of the Amended Notes, Amended Warrants, Certificate of Designations, Amendment No. 1 to Pledge and Security Agreement, Amendment No. 1 to Patent and Trademark Security Agreement and Amendment No. 1 to Lockbox Agreement.

The following table presents certain financial data as a percentage of total revenue for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.

		Year ended December 31,												Nine Months Ended September 30,
		2006				2005				2004				2007				2006
														(Unaudited)
Revenue			100	%			100	%			100	%			100	%			100	%
Cost of goods sold			139				273				166				71				159
Gross (loss)/income			(39	)			(173	)			(66	)			29				(59	)
Operating expenses:
Research and development			54				107				25				18				63
Stock based compensation			—				—				2				—				—
Selling, general and administrative			109				169				121				40				119
Total operating expenses			163				276				148				58				182
Loss from operations			(202	)			(449	)			(214	)			(29	)			(241	)
Other income (expense)			15				8				(140	)			(105	)			(5	)
Net loss			(187	)%			(441	)%			(354	)%			(134	)%			(246	)%

 

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006

Revenues  

Revenues for the three and nine months ended September 30, 2007 were approximately $5.1 million and $12.9 million, respectively, as compared to approximately $2.3 million and $5.6 million for the three and nine months ended September 30, 2006, an increase of approximately 122% and 130%, respectively.  Higher revenue for the three and nine month periods was primarily due to increased microdisplay demand and increased availability of finished displays due to manufacturing improvements.

Cost of Goods Sold

Cost of goods sold includes direct and indirect costs associated with production.  Cost of goods sold for the three and nine months ended September 30, 2007 was approximately $3.1 million and $9.1 million, respectively, as compared to $2.9 million and $8.9 million, respectively, for the three and nine months ended September 30, 2006, a slight increase of $0.2 million.

The gross margin for the three and nine months ended September 30, 2007 was approximately $2.0 million and $3.8 million, respectively, as compared to a gross loss of approximately ($0.6) million and ($3.3) million, respectively, for the three and nine months ended September 30, 2006. As a percentage of revenue this translates to a gross margin of 39% and 29% for the three and nine months ended September 30, 2007 as compared to a gross loss of (26%) and (59%)for the three and nine months ended September 30, 2006.  The gross margin improvement was attributed to fuller utilization of our fixed production overhead due to higher unit volume.

Operating Expenses

Research and Development.  Research and development expenses include salaries, development materials and other costs specifically allocated to the development of new microdisplay products, OLED materials and subsystems.  Research and development expenses for the three and nine months ended September 30, 2007 were approximately $0.6 million and $2.3 million, respectively, as compared to $1.0 million and $3.5 million, respectively, for the three and nine months ended September 30, 2006, a decrease of approximately $0.4 million and $1.2 million, respectively.  The decrease was due to the re-deployment of research and development personnel to production contract services which are included in cost of goods sold.

Selling, General and Administrative.  Selling, general and administrative expenses consist principally of salaries and fees for professional services, legal fees incurred in connection with patent filings and related matters, as well as other marketing and administrative expenses.  Selling, general and administrative expenses for the three and nine months ended September 30, 2007 were approximately $1.4 million and $5.2 million, respectively, as compared to approximately $1.8 million and $6.7 million, respectively, for the three and nine months ended September 30, 2006.  The decrease of approximately $0.4 and $1.5 million, respectively, for the three and nine months ended September 30, 2007 was primarily related to a reduction of marketing, tradeshow and personnel costs as compared to the three and nine months ended September 30, 2006. 

Other Income (Expense), net. Other income (expense), net consists primarily of interest expense related to the secured debt, loss from the change in the derivative liability, loss on the extinguishment of debt, interest income and other income from the licensing of intangible assets.  For the three and nine months ended September 30, 2007, interest income was approximately $9 and $32 thousand compared to approximately $14 and $74 thousand for the three and nine months ended September 30, 2006.   The decrease in interest income was primarily a result of lower cash balances available for investment.

For the three and nine months ended September 30, 2007, interest expense was approximately $592 thousand and $2.8 million, respectively, as compared to $509 thousand for the three and nine months ended September 30, 2006.   The breakdown of the interest expense for the three and nine month periods in 2007 is as follows:  interest expense associated with debt of approximately $195 thousand and $652 thousand, respectively; the amortization of the deferred costs associated with the notes payable of approximately $0 and $265 thousand, respectively; and the amortization of the debt discount associated with the debt of approximately $397 thousand and $1.96 million, respectively.

For the three and nine months ended September 30, 2007, the change in the derivative liability was a loss of approximately $1.5 million and $0.9 million, respectively, as compared to $177 thousand for the three and nine months ended September 30, 2006.

The loss on extinguishment of debt was $10.7 million for the three and nine months ended September 30, 2007 as compared to $0 for the three and nine months ended September 30, 2006.  See Note 7:  Debt of the 10-Q for additional information.

 

 

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Other income for the three and nine months ended September 30, 2007 was approximately $172 thousand and $762 thousand, respectively, as compared to approximately $14 thousand and $73 thousand, respectively.  The increase in other income for the three and six month periods ended September 30, 2007 was primarily income from a gain on the license of intangible assets.  See Note 11:  Commitments and Contingencies – Royalty Payments of the 10-Q for additional information.

 

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenue. Revenues increased by approximately $4.5 million to a total of approximately $8.2 million for the year ended December 31, 2006 from approximately $3.7 million for the year ended December 31, 2005, representing an increase of 122%. This increase was due to increased microdisplay demand and the broadening of our product revenue through the sales of the Z800 3D Visor. Our contract revenue increased approximately $150 thousand while our product revenue increased approximately $4.3 million. Average price per unit for microdisplays was $386 in 2006 and $372 in 2005.

Cost of Goods Sold. Cost of goods sold includes direct and indirect costs associated with production of our products. Cost of goods sold for the years ended December 31, 2006 and 2005 was approximately $11.4 million and approximately $10.2, respectively, an increase of $1.2 million. The gross loss was approximately ($3.2) million and approximately ($6.5) million, respectively, for the years ended December 31, 2006 and 2005, respectively. The gross loss was (39%) for the year ended December 31, 2006 as compared to (176%) for the year ended December 31, 2005. The increase in cost of goods sold for the year ended December 31, 2006 was attributed to higher materials usage to support increased production as well as approximately $343 thousand of stock compensation expense reflected in accordance with SFAS No. 123R in 2006.   The decrease in gross loss was attributed to fuller utilization of our fixed production overhead due to higher unit volume. 

Research and Development Expenses. Research and development expenses for the year ended December 31, 2006 were approximately $4.4 million as compared to approximately $4.0 million for the year ended December 31, 2005. The increase was primarily due to the stock-based compensation expense of approximately $435 thousand in 2006.

Selling, General and Administrative Expenses. General and administrative expenses increased by approximately $2.6 million to a total of approximately $8.9 million for the year ended December 31, 2006 from $6.3 million for the year ended December 31, 2005. The increase in selling, general and administrative expenses was due primarily to stock-based compensation expense of approximately $2.9 million and an increase in marketing expenses related to our Z800 3DVisor.

Other Income (Expense). For the year ended December 31, 2006, interest income was approximately $92 thousand as compared to approximately $210 thousand for the year ended December 31, 2005. The decrease in interest income was primarily a result of lower cash balances available for investment. For the year ended December 31, 2006, interest expense was approximately $1.3 million as compared to approximately $4 thousand for the year ended December 31, 2005. The increase in the interest expense was a result of interest associated with our notes payable of approximately $124 thousand, the amortization of the deferred costs associated with the notes payable of approximately $221 thousand, and the amortization of the debt discount of approximately $956 thousand. For the year ended December 31, 2006, income from the change in the derivative liability was approximately $2.4 million as compared to $0 for the year ended December 31, 2005.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenues. Revenues increased by approximately $152 thousand to a total of approximately $3.7 million for the year ended December 31, 2005 from approximately $3.6 million for the year ended December 31, 2004, representing an increase of 4%. This increase was due primarily to the broadening of our product offerings with the Z800 product and incremental revenue generated by these sales. Our contract revenue decreased approximately $72 thousand while our product revenue increased approximately $217 thousand. Average price per unit for microdisplays was $372 in 2005 and 2004.

Cost of Goods Sold. Cost of goods sold includes direct and indirect costs associated with production of our products. In the year ended December 31, 2005 we recorded approximately $10.2 million in cost of goods sold which resulted in a gross loss of approximately $6.5 million as compared to approximately $6.0 million in costs of goods sold resulting in a gross loss of $2.4 million in the year ended December 31, 2004. The production expenses for 2005 include labor costs related to operating two full eight hour shifts and a partial third shift as compared to a single shift in 2004.  To accommodate longer operating hours and expected higher product output in 2005 we initiated modifications to our production process that resulted in less than 10% of our expected capacity while underway.  Stabilization of these modifications initially was expected to be completed early in 2005, but took until the first quarter of 2006 to achieve.  As a result gross margins in 2005 declined as compared to 2004 due to the higher labor costs. 

 

Research and Development Expenses. Gross research and development expenses increased by approximately $3.1 million to a total of $4.0 million for the year ended December 31, 2005 from approximately $0.9 million for the year ended December 31, 2004. The approximately $3.1 million increase in R&D expenses for the year ended December 31, 2005 reflects efforts to develop two new microdisplays and three visor products.

 

 

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Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $2.0 million to a total of approximately $6.3 million for the year ended December 31, 2005 from approximately $4.3 million for the year ended December 31, 2004. The increase in selling, general and administrative expenses was due primarily to an increase in staff and personnel costs.

Other Income (Expense). Other income, net, for 2005 was approximately $282 thousand and was comprised of net interest income of approximately $207 thousand; a gain on miscellaneous equipment sales of approximately $38 thousand; and a gain on foreign exchange of approximately $37 thousand. Other expense, net, for 2004 was approximately $5.0 million and was comprised of approximately $3.2 million of charges related to the value of the warrants issued to induce the holders of the approximately $7.8 million in notes to agree to an early conversion of the notes into common stock; approximately $1.6 million in charges related to the remaining unamortized debt discount and beneficial conversion feature associated with aforementioned notes; and approximately $75 thousand in charges related to the write-off of the remaining unamortized deferred financing costs.

 

Liquidity and Capital Resources

As of September 30, 2007, we had approximately $0.9 million of cash and investments as compared to $1.6 million as of December 31, 2006.  The decrease of approximately $0.7 million was due primarily to cash used for operating activities.

Cash flow used in operating activities during the nine months ended September 30, 2007 was approximately $1.7 million as compared to cash used of approximately $10.4 million during the nine months ended September 30, 2006.  The decrease was mainly attributable to a reduction in net losses.

Cash provided by investing activities during the nine months ended September 30, 2007 was approximately $24 thousand as compared to approximately $210 thousand used in investing activities during the nine months ended September 30, 2006. The decrease in the cash used in investing activities was attributable to lower equipment purchases.

Cash provided by financing activities during the nine months ended September 30, 2007 was approximately $1.0 million and was comprised of approximately $3 thousand of proceeds from exercise of warrants, approximately $460 thousand in net proceeds from debt issuance, and approximately $608 from the line of credit  and offset by payments on debt of $88 thousand.  The cash provided by financing activities during the nine months ended September 30, 2006 primarily consisted of $5.3 million, net, from the sale of senior secured debentures.

Our condensed consolidated financial statements as of September 30, 2007 have been prepared under the assumption that we will continue as a going concern for the year ending December 31, 2007. Our independent registered public accounting firm had issued a report dated March 27, 2007 in connection with the audit of the financial statements for the year ended December 31, 2006, that included an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is likely dependant upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

Sources and Uses of Cash

		Years ended December 31,												Nine Months Ended September 30,
		2006				2005				2004				2007				2006
Cash flow data:														(unaudited)
Net cash used in operating activities		$	(10,389	)		$	(15,713	)		$	(8,297	)		$	(1,670	)		$	(10,369	)
Net cash provided by (used in) investing activities			(257	)			(1,072	)			(820	)			24				(210	)
Net cash provided by (used in) financing activities			5,334				10,055				21,520				.1,023				5,259
Net decrease in cash and cash equivalents			(5,312	)			(6,730	)			(12,403	)			(623	)			(5,320	)
Cash and cash equivalents, beginning of period			6,727				13,457				1,054				1,415				6,727
Cash and cash equivalents, end of period		$	1,415			$	6,727			$	13,457			$	792			$	1,407

 

Cash Flows from Operating Activities

Cash used in operating activities during the nine months ended September 30, 2007 was approximately $1.7 million as compared to cash used of approximately $10.4 million during the nine months ended September 30, 2006.   The decrease was attributable to a reduction in net losses.

 

 

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Cash used in operating activities was $10.4 million in 2006, $15.7 million in 2005 and $8.3 million in 2004. For 2006, net cash used in operating activities was approximately $10.4 million, primarily attributable to our net loss of approximately $15.3 million. For 2005, net cash used by operating activities was approximately $15.7 million, primarily attributable to our net loss of approximately $16.5 million. For 2004, net cash used in operating activities was $8.3 million, primarily attributable to our net loss of $12.7 million principally offset by non-cash interest related charges of $5.1 million.

Cash Flows from Investing Activities

Cash provided by investing activities during the nine months ended September 30, 2007 was approximately $24 thousand as compared to cash used in investing activities of approximately $210 thousand during the nine months ended September 30, 2006. The reduction of cash used in investing activities was primarily due to lower purchases of equipment.

Cash used in investing activities was $0.3 million in 2006, $1.1 million in 2005, and $0.8 million in 2004. Investing activities for all years were capital expenditures.

Cash Flows from Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2007 was $1.0 million and was comprised of approximately $3 thousand of proceeds from exercise of warrants, $1.1 million in net proceeds from debt issuance and offset by payments on debt of $88 thousand.  The cash provided by financing activities during the nine months ended September 30, 2006 was $5.3 million primarily reflecting funding from issuance of our 6% Senior Secured Convertible Notes (see Note 7 of the Condensed Consolidated Financial Statements of the 10-Q).

 

Cash provided by financing activities was $5.3 million in 2006, $10.1 million in 2005, and $21.5 million in 2004. Net cash provided by financing activities in 2006 was comprised primarily of approximately $5.4 million in proceeds from debt issuance and offset by payments on long-term debt and capitalized lease obligations of approximately $55 thousand. Net cash provided by financing activities during 2005 consisted primarily of approximately $8.4 million in proceeds from the sale of common stock and approximately $1.6 million from the exercise of stock options and warrants. In 2004, the financing activities included $16.4 million in proceeds from the sale of common stock and $5.1 million from the exercise of stock options and warrants.

 

Working Capital and Capital Expenditure Needs

As previously discussed, our business experienced significant revenue growth during the nine months ended September 30, 2007. This trend, if it continues, may result in higher accounts receivable levels and may require increased production and/or higher inventory levels both of which require additional working capital.   We anticipate that our cash requirements to fund operating or investing cash requirements over the next twelve months will be greater than our current cash on hand.

To address these liquidity issues we have finalized an agreement with our note holders that defers the note re-payments until December 21, 2008.  See Note 7:  Debt in our September 2007 10Q for additional information.  We have entered into an intellectual property agreement with Kodak and assigned Kodak the rights, title and interest to a Company owned patent not being used by the Company and in consideration, Kodak has waived the royalties due under existing licensing agreements for the first six months of 2007, and reduced the royalty payments by 50% for the second half of 2007 and for the entire year of 2008.   In addition, the minimum royalty payment due date is delayed until December 1 st for the years 2007 and 2008.  We have entered into an asset based loan agreement establishing a $2.5 million revolving line of credit allowed for in our notes payable agreement. However, the line of credit is limited by our collateral.  We believe that these funds if available would be sufficient to fund our working capital requirements over the next 12 months, however they would not be sufficient to fund both working capital requirements and retirement of our notes payable. If we are unable to obtain sufficient funds we may be forced to reduce and/or curtail our production and operations, all of which could have a material adverse impact on our business prospects.

 

 

 

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Contractual Obligations

The following chart describes the outstanding contractual obligations of eMagin as of  September 30, 2007 (in thousands):

 

		Payments due by period
		Total				1 Year				2-3 Years				4-5 Years
Operating lease obligations			2,339				1,437				902				—
Purchase obligations (a)			1,455				1,455				—				—
Other long-term liabilities (b)			6,682				179				6,253				250
Total		$	10,476			$	3,071			$	7,155			$	250

(a) The majority of purchase orders outstanding contain no cancellation fees except for minor re-stocking fees.

(b) This amount represents the obligation for repayment of Notes, royalty payments, capitalized software, and the New York Urban Development settlement.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Effect of Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN 48 on January 1, 2007.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of 2008. The Company is evaluating the effect that the adoption of SFAS 157 will have on its consolidated results of operations and financial condition.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”  (“SFAS 159”).  SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates.  Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected.  SFAS 159 is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances.  The Company is currently evaluating the impact of SFAS 159 will have on its consolidated results of operations and statement of financial condition.

Competition

We may face competition in the OLED and microdisplay industry from a variety of companies and technologies. We believe that our key competition will come from liquid crystal on silicon microdisplays, or LCOS, also known as reflective liquid crystal displays. While we believe that OLED-on-silicon provides comparatively lower optics cost, larger apparent image size, reduced electronics cost and complexity, enhanced color, and improved power efficiency advantages over liquid crystal on silicon microdisplays, there is no assurance that these benefits will be realized or that liquid crystal on silicon manufacturers will not suitably improve these parameters. Companies pursuing liquid crystal on silicon technology include Microdisplay Corporation and Syntax/Brillian Corporation, among others, although most of the companies are primarily focusing on projection microdisplays, which do not compete directly with us. In certain markets, we may also face competition from developers of transmissive liquid crystal displays, such as those developed by Kopin, or laser scanning systems, such as those developed by Microvision Corporation.

To our knowledge, the only other company that has publicly stated plans to develop OLED microdisplays for near-eye applications is MicroEmissive Displays in Britain. We may also compete with potential licensees of Universal Display Corporation and Cambridge Display Corporation, each of which license OLED technology portfolios. Even though we could potentially license technology from these developers, potential competitors could also obtain such licenses and may do so at more favorable royalty rates. However, should they decide to embark on developing microdisplays on silicon, we believe that our progress to date in this area gives us a substantial head start.

Employees

As of January 31, 2008, we had a total of 69 full time and part time staff. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

 

 

 

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Summary Compensation Table

The following table sets forth information with respect to the compensation for the year ended December 31, 2006 of our principal executive officers and principal financial officers during 2006, and each person who served as an executive officer of our Company as of December 31, 2006.

Name & Principal Position	Year		Salary ($) (a)				Option Awards($) (b)				Non-Equity Incentive Plan Compensation ($) (c)				All Other Compensation ($) (d)				Total  ($)
Gary Jones* Chief Executive Officer	2006		$	368,170			$	788,180				—			$	127,928			$	1,268,808
John Atherly** Chief Financial Officer	2006		$	242,308			$	244,890				—				—			$	487,198
Susan Jones Chief Strategy and Marketing Officer	2006		$	289,163			$	538,817			$	81,379				—			$	895,188

*Gary Jones, the Company’s former Chief Executive Officer, resigned in January 2007.

**John Atherly, the Company’s former Chief Financial Officer, resigned effective as of January 2, 2008.  As of December 27, 2007, Michael Fowler became the Company’s Interim Chief Financial Officer

Column notes:

(a) The amounts in this column represent the dollar value of base salary earned. Gary Jones and Susan Jones have deferred 10% of their 2006 base salary, all of which has been included in column (a). See “Narrative Disclosure to Summary Compensation Table.” The other officer did not defer any salary in 2006.

(b) The amounts in this column represent the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS123R disregarding the estimate of forfeitures related to service-based vesting conditions. The fair value of each grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Assumptions made in the valuation of option awards are incorporated by reference from Note 10 in eMagin's financial statements. Mr. Jones resigned from his positions of CEO and President in January of 2007 and agreed to forfeit all options held as part of his severance agreement. The detail of outstanding officer options is listed in the following section.

(c) The amount in this column represents the deferred dollar amount earned in sales incentive plan by the named executive officer.

 

 

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Director Compensation Arrangements

The following table sets forth with respect to the named director, compensation information inclusive of equity awards and payments made in the year ended December 31, 2006. The Compensation Committee is in the process of redefining Board compensation provisions for fiscal year 2006 and 2007.

 

Name (a)		Fees Earned or Paid in Cash ($) (b)				Option Awards ($) (c)				Total ($)
Charles Claude		$	——			$	2,509			$	2,509
Paul Cronson		$	——			$	38			$	38
Irwin Engelman		$	——			$	25,592			$	25,592
Jacob Goldman		$	——			$	842			$	842
Thomas Paulsen		$	20,835			$	——			$	20,835
Stephen Seay		$	——			$	5,759			$	5,759

 

Column notes:

	( a) This column includes only directors that are not employees of eMagin Corporation. Any director who is also an executive officer is included in the Summary Compensation Table.
	(b) This column includes the dollar amount of all fees earned or paid in cash for services as a director.
	(c) The amounts in this column represent the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with FAS123R disregarding the estimate of forfeitures related to service-based vesting conditions. The fair value of each grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Assumptions made in the valuation of option awards are incorporated by reference from Note 10 in eMagin's financial statements. The following table sets forth information with respect to the outstanding equity awards of our non-employee directors as of December 31, 2006:

Equity Compensation Plan Information

 

The following table sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2006:

 

Plan	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column
Equity compensation plans approved by security holders	657,288	$2.78	1,001,546
Equity compensation plans not approved by security holders	408,457	$3.24

 

TRANSFER AGENT

 

Our transfer agent for our common stock is Continental Stock Transfer, 17 Battery Place, New York, NY 10004. 

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INDEMNIFICATION FOR SECURITIES ACT LIABILITIES 

Our Articles of Incorporation, as amended and restated, provide to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, that our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of our Articles of Incorporation, as amended and restated, is to eliminate our rights and our shareholders (through shareholders' derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers.

Our By Laws also provide that the Board of Directors may also authorize us to indemnify our employees or agents, and to advance the reasonable expenses of such persons, to the same extent, following the same determinations and upon the same conditions as are required for the indemnification of and advancement of expenses to our directors and officers. As of the date of this Registration Statement, the Board of Directors has not extended indemnification rights to persons other than directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 

·	the market price per share of the underlying securities on the date of the sale of that other security;
·	the conversion/exercise price per share as of the date of the sale of that other security;
·	the combined market price of the total number of underlying shares, calculated by using the market price per share on the date of the sale of that other security and the total possible shares to be received;
·	the total possible shares to be received and the combined conversion price of the total number of shares underlying the other security calculated by using the conversion price on the date of the sale of that other security and the total possible number of underlying shares; and
·	the total possible discount (premium) to the market price as of the date of the sale of that other security, calculated by subtracting the total conversion/exercise price on the date of the sale of that other security from the combined market price of the total number of underlying shares on that date:

 

Date	Entity		Shares			Instrument		Market				Conversion				Market				Conversion				Discount
								Price				Price				Value				Value				(Premium)
3/28/2007	Stillwater			1,000,000		Warrant		$	0.46			$	0.48			$	460,000			$	480,000			$	(20,000	)
7/21/2006	Rainbow Gate (Stillwater Affiliate )			269,231		Convertible  Note		$	2.60			$	2.60			$	700,001			$	700,001			$	-
7/21/2006	Rainbow Gate (Stillwater Affiliate )			188,462		Warrant		$	2.60			$	3.60			$	490,001			$	678,463			$	(188,462	)
10/20/2005	Rainbow Gate (Stillwater Affiliate)			54,546		Warrant		$	8.70			$	10.00			$	474,550			$	545,460			$	(70,910	)
10/28/2004	Rainbow Gate (Stillwater Affiliate)			29,742		Warrant		$	10.40			$	8.60			$	309,317			$	255,781			$	53,536
3/4/2004	Stillwater			51778		Warrant		$	24.90			$	27.60			$	1,289,272			$	1,429,073			$	(139,801	)
6/20/2002	Stillwater			30000		Warrant		$	3.20			$	4.26			$	96,000			$	127,800			$	(31,800	)
Total				1,623,759												$	3,819,141			$	4,216,578			$	(397,437	)

Gross Proceeds Paid or Payable to the Company in the Convertible Note Transactions

The below table discloses the gross proceeds paid or payable to the registrant in the convertible note transaction, along with the following information:

·	all payments that have been made or that may be required to be made by the registrant;
·	the resulting net proceeds to the registrant; and
·	the combined total possible profit to be realized as a result of any conversion discounts regarding the securities underlying the convertible notes and any other warrants, options, notes, or other securities of the registrant that are held by the selling stockholder or any affiliates of the selling stockholder (as disclosed elsewhere in this registration statement).

Gross	Fees	Net	Discount	Premium	Combined
Proceeds		Proceeds			Premium
$500,000	$108,583	$391,417	157,143	$(397,437)	$(240,294)

 

The below table discloses the total amount of all possible payments and the total possible discount to the market price of the shares underlying the convertible note divided by the net proceeds to the registrant from the sale of the convertible notes as well as the amount of that resulting percentage averaged over the term of the convertible notes:

 

Item		Amount				% of Net				Monthly
						Proceeds				Average
Total Potential Payments		$	525,000				134	%			13	%
Total Possible Discount		$	157,143				40	%			4	%

 

 

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Prior Securities Transactions Between the Issuer and the Selling Stockholder

 

Below is a tabular disclosure of prior securities transactions after March 2004 between the issuer (or any of its predecessors) and the selling stockholder, any affiliates of the selling stockholder, or any person with whom the selling stockholder has a contractual relationship regarding the transaction (or any predecessors of those persons), with the table including the following information disclosed separately for each transaction:

 

·	the date of the transaction;

·	the number of shares of the class of securities subject to the transaction that were outstanding prior to the transaction;

·	the number of shares of the class of securities subject to the transaction that were outstanding prior to the transaction and held by persons other than the selling stockholder, affiliates of the company, or affiliates of the selling stockholder;

·	the number of shares of the class of securities subject to the transaction that were issued or issuable in connection with the transaction;

·

the percentage of total issued and outstanding securities that were issued or issuable in the transaction (assuming full issuance), with the percentage calculated by taking the number of shares issued or issuable in connection with the applicable transaction and dividing that number by the number of shares issued and outstanding prior to the applicable transaction and held by persons other than the selling stockholder, affiliates of the company, or affiliates of the selling stockholder;

·	the market price per share of the class of securities subject to the transaction immediately prior to the transaction; and

· ·	the current market price per share of the class of securities subject to the transaction.

 

 

Date		Prior				Shares Held				Prior				Shares				Shares				% of Net				Market				Current
–		Outstanding				and Affiliates				(a) - (b)				Transaction				To Selling				Offer				Day				Price
		(a)				(b)				Shares				Stock & Warrants				Shareholder								Prior				10/08/07
3/28/2007			11,049,164				2,023,832				9,025,332				2,450,000				2,450,000				27	%		$	0.40			$	0.90
7/21/2006			10,052,249				1,523,832				8,528,417				4,108,845				650,001				48	%		$	2.60			$	0.90
10/20/2005			9,978,786				1,496,832				8,481,954				2,659,049				145,454				31	%		$	7.90			$	0.90
10/28/2004			6,625,759				1,309,152				5,309,152				1,950,000				276,071				37	%		$	10.70			$	0.90

 

Relationship Between Shares Issued and Outstanding and Shares Held by Selling Stockholders

 

The following tabular disclosure reflects:

·	the number of shares outstanding prior to the convertible note transaction that are held by persons other than the selling stockholder, affiliates of the Company, and affiliates of the selling stockholder;
·	the number of shares registered for resale by the selling stockholder or affiliates of the selling stockholder in prior registration statements;
·	the number of shares registered for resale by the selling stockholder or affiliates of the selling stockholder that continue to be held by the selling stockholder or affiliates of the selling stockholder;
·	the number of shares that have been sold in registered resale transactions by the selling stockholder or affiliates of the selling stockholder; and
·	the number of shares registered for resale on behalf of the selling stockholder or affiliates of the selling stockholder in the current transaction.

 

 

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In this analysis, the calculation of the number of shares outstanding do not include any securities underlying any outstanding convertible securities, options, or warrants.

Shares Not	Shares		Shares	Shares to be
Held by	Registered by	Registered	Sold in	Registered in
Affiliates or	Selling Stockholder	Shares	Registered	Current
Selling Stockholder	in Previous	To Be Held	Resale	Transaction
Prior to Note	Filings	Selling Stockholder	Transactions
9,025,332	1,071,526	4,052,040	147,000	2,450,000

Company’s Financial Ability to Satisfy its Obligations to the Selling Shareholder

The Company has the intention, and a reasonable basis to believe that it will have the financial ability, to make payments on the overlying securities. The Company has duly accounted for such payments in its 2007 - 2009 comprehensive strategy and financial plan.

Existing Short Positions by Selling Shareholder

Based upon information provided by the selling shareholder, to the best of management’s knowledge, the Company is not aware of the selling shareholder having an existing short position in the Company’s common stock.

Relationships Between the Company and Selling Shareholder and Affiliates

The Company hereby confirms that a description of the relationships and arrangements between and among those parties already is presented in the prospectus and that all agreements between and/or among those parties are included as exhibits to the registration statement by incorporation by reference.

A family member of an outside director of eMagin is the holder of a Series A warrant to purchase an aggregate of 4,286 shares of common stock. Accordingly, the exercise price of all Series A warrants was reduced from $10.50 to $5.50 per share.

eMagin is also a party to a financial advisory and investment banking agreement with Larkspur Capital Corporation. Paul Cronson, a director of eMagin, is a founder and shareholder of Larkspur Capital Corporation. Larkspur Capital Corporation received as compensation for financial advisory and investment banking services in connection with the January 2004 private placement a cash fee of 6 3/4% of the funds raised and warrants to purchase eMagin shares of common stock equal to 2.5% of the cash netted to eMagin. Approximately $284 thousand and 4,365 common stock purchase warrants exercisable at $24.10 per share which expire in January 2009, were paid under the terms of the agreement. Paul Cronson was engaged as an advisor in connection with the sale of securities sold in October 2004 and received a fee of $136 thousand.

 

A family member of an outside director of eMagin participated in the Securities Purchase Agreement in January 2004's private placement in the amount of $90 thousand.

Stillwater LLC, a limited liability company and a beneficial owner of more than five percent of the outstanding shares of eMagin's common stock, held an aggregate of $4 million of the notes converted in February 2004. Ginola Limited, a beneficial owner of more than five percent of the outstanding shares of eMagin's common stock, held an aggregate of $1.3 million of the notes which were converted. An outside director of eMagin held $250 thousand of the notes converted.

A family member of an outside director of eMagin participated in the re-pricing of the Securities Purchase Agreement in August. 209,989 warrants were re-priced and exercised. The family member re-priced and exercised 2,586 B warrants and 2,368 C warrants.

Director Independence

Board of Directors has determined that Messrs. Thomas Paulsen, Jacob Goldman, Claude Charles, Irwin Engelman, and Stephen Seay are each independent directors. 

 

The Board of Directors has established a compensation committee which is currently comprised of Thomas Paulsen and Jacob Goldman each of whom is independent. 

The Board of Directors has established a corporate governance and nominating committee, which is comprised of Thomas Paulsen and Jacob Goldman, each of whom is independent.

The  Board  of  Directors  has a  separately  designated  audit  committee established in accordance  with Section  3(a)(58)(A) of the Securities  Exchange Act of 1934, which is currently comprised of Claude Charles, Irwin Engelman, and Steve Seay. The members of the Audit Committee are independent.

 

 

We have filed a registration statement on Form S-1 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of eMagin Corp., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

We are subject to the informational requirements of the Securities Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s Internet website at http://www.sec.gov.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	63
Consolidated Balance Sheets as of December 31, 2006 and 2005	64
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004	65
Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2006, 2005 and 2004	66
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	67
Notes to the Consolidated Financial Statements	68

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CONSOLIDATED BALANCE SHEETS

		December 31,
		2006				2005
		(In thousands, except
		share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents		$	1,415			$	6,727
Investments - held to maturity			171				120
Accounts receivable, net			908				822
Inventory			2,485				3,839
Prepaid expenses and other current assets			656				1,045
Total current assets			5,635				12,553
Equipment, furniture and leasehold improvements, net			666				1,299
Intangible assets, net			55				57
Other assets			233				233
Deferred financing costs, net			416				—
Total assets		$	7,005			$	14,142
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable		$	1,192			$	562
Accrued compensation			959				1,010
Other accrued expenses			749				1,894
Advanced payments			444				60
Deferred revenue			126				96
Current portion of capitalized lease obligations			6				16
Current portion of debt			1,217				—
Derivative liability - warrants			1,195				—
Other current liabilities			52				47
Total current liabilities			5,940				3,685
Capitalized lease obligations			—				6
Other long-term liabilities			2,229				50
Total liabilities			8,169				3,741
Commitments and contingencies
Shareholders’ (deficit) equity:
Preferred stock, $.001 par value: authorized 10,000,000 shares; no shares issued and outstanding			—				—
Common stock, $.001 par value: authorized 200,000,000 shares, issued and outstanding, 10,341,029 shares in 2006 and 9,997,246 shares in 2005			10				10
Additional paid in capital			179,651				175,950
Accumulated deficit			(180,825	)			(165,559	)
Total shareholders’ (deficit) equity			(1,164	)			10,401
Total liabilities and shareholders’ (deficit) equity		$	7,005			$	14,142

See notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Year Ended December 31,
		2006				2005				2004
		(In thousands, except per share data)
Revenue:
Product revenue		$	7,983			$	3,719			$	3,502
Contract revenue			186				36				108
Sales returns and allowance			—				(10	)			(17	)
Total revenue, net			8,169				3,745				3,593
Cost of goods sold			11,359				10,219				5,966
Gross loss			(3,190	)			(6,474	)			(2,373	)
Operating expenses:
Research and development			4,406				4,020				898
Selling, general and administrative			8,860				6,316				4,428
Total operating expenses			13,266				10,336				5,326
Loss from operations			(16,456	)			(16,810	)			(7,699	)
Other income (expense):
Interest expense			(1,306	)			(4	)			(5,087	)
Gain on warrant derivative liability			2,405				—				—
Other income, net			91				286				75
Total other income (expense), net			1,190				282				(5,012	)
Net loss		$	(15,266	)		$	(16,528	)		$	(12,711	)
Loss per share, basic and diluted		$	(1.52	)		$	(1.94	)		$	(1.98	)
Weighted average number of shares outstanding:
Basic and diluted			10,058				8,541				6,428

 

See notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

														Additional								Total
		Common Stock								Deferred				Paid-In				Accumulated				Shareholders’
		Shares				Amount				Compensation				Capital				Deficit				Equity
		(In thousands, except share amounts)
Balance, December 31, 2003			4,270			$	4			$	(88	)		$	131,638			$	(136,320	)		$	(4,766	)
Sale of common stock, net of issuance costs			1,641				2				—				16,383				—				16,385
Debt to equity conversion			1,139				1				—				8,566				—				8,567
Issuance of warrants for early conversion of debt to equity											—				3,180				—				3,180
Exercise of common stock warrants			353				—				—				3,790				—				3,790
Stock options exercised			522				1				—				1,383				—				1,384
Issuance of common stock for services			39				—				—				531				—				531
Amortization of deferred stock compensation			—				—				88				—				—				88
Net loss			—				—				—				—				(12,711	)			(12,711	)
Balance, December 31, 2004			7,964			$	8			$	—			$	165,471			$	(149,031	)		$	16,448
Sale of common stock, net of issuance costs			1,662				2				—				8,398				—				8,400
Stock options exercised			11				—				—				37				—				37
Exercise of common stock warrants			306				—				—				1,584				—				1,584
Issuance of common stock for services			54				—				—				461				—				460
Net loss			—				—				—				—				(16,528	)			(16,528	)
Balance, December 31, 2005			9,997			$	10			$	—			$	175,950			$	(165,559	)		$	10,401
Debt to equity conversion			85				—				—				220				—				220
Issuance of common stock for services			254				—				—				580				—				580
Stock-based compensation			—				—				—				2,891				—				2,891
Stock options exercised			5				—				—				10				—				10
Net loss			—				—				—				—				(15,266	)			(15,266	)
Balance, December 31, 2006			10,341			$	10			$	—			$	179,651			$	(180,825	)		$	(1,164	)

 

 

 

See notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2006				2005				2004
		(In thousands)
Cash flows from operating activities:
Net loss		$	(15,266	)		$	(16,528	)		$	(12,711	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			841				908				620
Amortization of deferred financing fees			221				—				8
Increase (reduction) of provision for sales returns and doubtful accounts			(39	)			(284	)			467
Stock based compensation			2,891				—				88
Non-cash interest related charges			—				—				5,094
Issuance of common stock for services, net			553				470				531
Amortization of discount on notes payable			956				—				—
Gain on warrant derivative liability			(2,405	)			—				—
Loss on other asset			157
Changes in operating assets and liabilities:
Accounts receivable			(42	)			(2	)			(235	)
Unbilled costs and estimated profits on contracts in progress			—				—				75
Inventory			1,354				(1,821	)			(1,742	)
Prepaid expenses and other current assets			389				(175	)			(400	)
Advance payments			384				(4	)			(58	)
Deferred revenue			30				96				—
Accounts payable, accrued compensation, and accrued expenses			(566	)			1,613				(51	)
Other current liabilities			153				14				17
Net cash used in operating activities			(10,389	)			(15,713	)			(8,297	)
Cash flows from investing activities:
Purchase of equipment			(204	)			(898	)			(721	)
Purchase of investments - held to maturity			(51	)			(120	)
Purchase of intangibles and other assets			(2	)			(54	)			(99	)
Net cash used in investing activities			(257	)			(1,072	)			(820	)
Cash flows from financing activities:
Proceeds from sale of common stock, net of issuance costs			—				8,400				16,385
Proceeds from exercise of stock options and warrants			10				1,621				5,173
Proceeds from long-term debt			5,970				50				—
Payments related to deferred financing costs			(591	)			—				—
Payments of long-term debt and capitalized lease obligations			(55	)			(16	)			(38	)
Net cash provided by financing activities			5,334				10,055				21,520
Net (decrease) increase in cash and cash equivalents			(5,312	)			(6,730	)			12,403
Cash and cash equivalents, beginning of year			6,727				13,457				1,054
Cash and cash equivalents, end of year		$	1,415			$	6,727			$	13,457
Cash paid for interest		$	128			$	4			$	8
Cash paid for taxes		$	40			$	15			$	—
Supplemental non-cash transactions:
Conversion of debt to equity		$	220			$	—			$	8,567
During the year ended December 31, 2006, the Company

 

	·	entered into several Note Purchase Agreements with investors and issued warrants that are exercisable at $3.60 per share into approximately 1.6 million shares of common stock valued at $3.4 million;
	·	issued 10,000 shares of common stock in lieu of cash payment of $26,000 as compensation for services performed and recorded as deferred costs; and
	·	issued approximately 85,000 shares for the conversion of Notes totaling $220,000.

  

See notes to Consolidated Financial Statements.

Advertising

Costs related to advertising and promotion of products is charges to sales and marketing expense as incurred. Advertising expense for the years ended December 31, 2006, 2005 and 2004 were $296 thousand, $108 thousand, and $0, respectively.

Income taxes

The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). SFAS No. 109 requires that the Company recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more than likely that these deferred income tax assets will be realized.

Loss per common share

In accordance with SFAS No. 128, "Basic Earnings Per Share", net loss per common share amounts ("basic EPS") is computed by dividing net loss by the weighted average number of common shares outstanding and excluding any potential dilution. Net loss per common share amounts assuming dilution ("diluted EPS") reflects the potential dilution from the exercise of stock options and warrants. These common equivalent shares have been excluded from the computation of diluted EPS for all periods presented as their effect is antidilutive. The years ended December 31, 2006, 2005, and 2004 do not include options and warrants to purchase 4,613,919, 4,424,988 and 3,517,739 respectively, of common equivalent shares, as their effect would be antidilutive.

Comprehensive income (loss)

SFAS No. 130, "Reporting Comprehensive Income", requires companies to report all changes in equity during a period, except those resulting from investment by owners and distributions to owners, for the period in which they are recognized. Comprehensive income (loss) is the total of net income (loss) and other comprehensive income (loss) items, such as unrealized gains or losses on foreign currency translation adjustments. Comprehensive income (loss) must be reported on the face of the annual financial statements. The Company's operations did not give rise to any material items includable in comprehensive income (loss), which were not already in net loss for the years ended December 31, 2006, 2005, and 2004. Accordingly, the Company's comprehensive loss is the same as its net income (loss) for the periods presented.

Stock-based compensation 

On January 1, 2006, the Company adopted the provisions of SFAS No. 123R, “Share-Based Payment”, which requires the Company to recognize expense related to the fair value of the Company’s share-based compensation issued to employees and directors. Prior to January 1, 2006, the Company accounted for share-based compensation under the recognition and measurement provisions of APB No. 25 and related interpretations, as permitted by SFAS No. 123. We adopted SFAS No. 123R using the modified prospective transition method. Accordingly, periods prior to adoption have not been restated. Compensation cost recognized for the twelve months ended December 31, 2006 includes a) compensation cost for all share-based compensation granted prior to, but not vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No.123 and b) compensation cost for all share-based compensation granted beginning January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No.123R. The compensation cost was recognized using the straight-line attribution method. See Note 10 for a further discussion on stock-based compensation.

Fair value of financial instruments 

At December 31, 2006, the Company's cash, cash equivalents, accounts receivable, short-term investments and accounts payable are shown at cost which approximates fair value due to the short-term nature of these instruments.

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Legal proceedings

On December 6, 2005, New York State Urban Development Corporation commenced action against eMagin in the Supreme Court of the State of New York, County of New York against eMagin, asserting breach of contract and seeking to recover a $150 thousand grant which was made to eMagin based on goals set forth in the agreement for recruitment of employees. On July 13, 2006, eMagin agreed to a settlement with the New York State Urban Development Corporation to repay approximately $112 thousand of the $150 thousand grant. The settlement requires that repayments be made on a monthly basis in the amount of approximately $3 thousand per month commencing August 1, 2006 and ending on July 1, 2009.

Note 13 - RELATED PARTY TRANSACTIONS

2006

On July 21, 2006, the Company entered into several Note Purchase Agreements for the sale of approximately $5.99 million of senior secured debentures (the “Notes”) and warrants to purchase approximately 1.8 million shares of common stock, par value $.001 per share. The investors purchased $5.99 million principal amount of Notes with conversion prices of $2.60 per share that may convert into approximately 2.3 million shares of common stock and 5 year warrants exercisable at $3.60 per share into approximately 1.6 million shares of common stock. If the Notes are not converted, 50% of the principal amount will be due on July 21, 2007 and the remaining 50% will be due on January 21, 2008. Commencing September 1, 2006, 6% interest is payable in quarterly installments on outstanding notes.

In the Note Purchase transaction, two employees and two board members participated. Olivier Prache, Senior VP of Display Operations, purchased a $30 thousand promissory note which may be converted into 11,539 shares and received 8,077 warrants which are exercisable at $3.60 per share. Mr. Prache converted $20 thousand of his promissory note and received 7,693 shares. John Atherly, CFO, purchased a $40 thousand promissory note which may be converted into 15,385 shares and received 10,770 warrants exercisable at $3.60 per share. David Gottfried, board member, purchased a $250 thousand promissory note which may be converted into 96,154 shares and received 67,308 warrants exercisable at $3.60 per share. Paul Cronson, board member, through Navacorp III, LLC purchased a $200 thousand promissory note which may be converted into 76,923 shares and received 53,847 warrants exercisable at $3.60 per share.

Stillwater is a beneficial owner of more than 5% of the Company’s common stock. Rainbow Gate Corporation, a corporation in which its investment manager is the sole member of Stillwater LLC and its controlling shareholder is the same as Ginola Limited, purchased a $700 thousand promissory note which may be converted into 269,231 shares and received 188,462 warrants exercisable at $3.60 per share. Ginola Limited purchased an $800 thousand promissory note which may be converted into 307,693 shares and received 215,385 warrants exercisable at $3.60 per share. Stillwater LLC disclaims beneficial ownership of shares owned by Rainbow Gate Corporation.

A family member of an outside director of eMagin is the holder of a Series A warrant to purchase an aggregate of 4,286 shares of common stock. As a result of the Note Purchase transaction, the exercise price of all Series A warrants was reduced from $5.50 to $2.60 per share. Family members of an outside director of eMagin are holders of Series F warrants to purchase an aggregate of 10 thousand shares of common stock. As a result of the Note Purchase transaction, the exercise price of all Series F warrants was reduced from $10.90 to $8.60 per share.

 

 

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eMagin has entered into a financial advisory agreement with Larkspur Capital Corporation. Paul Cronson, a director of eMagin, is a founder and shareholder of Larkspur Capital Corporation. The Company has agreed to pay a minimum fee of $500 thousand to Larkspur Capital Corporation in the event certain transactions occur, i.e. sale of the Company’s assets or change of control.

2005

On October 20, 2005, the Company entered into a Securities Purchase Agreement to sell to certain qualified institutional buyers and accredited investors an aggregate of 1,661,906 shares of eMagin’s common stock, par value $0.001 per share (the “Shares”), and warrants to purchase an additional 997,143 shares of common stock, for an aggregate purchase price of approximately $9.1 million. The purchase price of the common stock and corresponding warrant was $5.50 per share.

The warrants are exercisable at a price of $10.00 per share and expire on October 20, 2010. Of the 997,143 warrants, 664,762 of the warrants are exercisable on or after May 20, 2006. The remaining 332,380 are exercisable after March 31, 2007. Both Stillwater and Ginola are beneficial owners of more than 5% of the Company’s common stock.

 

Note 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial information for 2006 and 2005 are as follows (in thousands except per share data):

	Quarters Ended
	March 31, 2006				June 30, 2006				September 30, 2006				December 31, 2006
Revenues		$	1,641			$	1,674			$	2,292			$	2,562
Gross margin (loss)		$	(1,388	)		$	(1,291	)		$	(648	)		$	137
Net loss		$	(5,160	)		$	(4,838	)		$	(3,769	)		$	(1,499	)
Net loss per share - basic and diluted		$	(0.52	)		$	(0.48	)		$	(0.37	)		$	(0.15	)
Shares used in per share calculation - basic and diluted			10,004				10,011				10,077				10,196
	Quarters Ended
		March 31, 2005				June 30, 2005				September 30, 2005				December 31, 2005
Revenues		$	690			$	652			$	1,131			$	1,272
Gross loss		$	(1,267	)		$	(1,737	)		$	(1,555	)		$	(1,915	)
Net loss		$	(3,469	)		$	(4,498	)		$	(3,763	)		$	(4,798	)
Net loss per share - basic and diluted		$	(0.43	)		$	(0.55	)		$	(0.47	)		$	(0.52	)
Shares used in per share calculation - basic and diluted			8,143				8,245				8,304				9,476

 

 

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In 2004, we issued options to purchase an aggregate of 313,300 shares of common stock at a weighted average price of $15.30 per share to employees as compensation for services performed on behalf of our company. In addition, we issued options to purchase an aggregate of 16,250 shares of common stock at a weighted average price of $17.70 per share to directors as compensation for services performed on our behalf in each of their capacities as directors of our company.

*All of the above issuances and sales were deemed to be exempt under Rule 506 of Regulation D and Section (2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of eMagin or executive officers of eMagin, and transfer was restricted by eMagin in accordance with the requirement of the Securities Act of 1933. In addition to representations by the above-reference persons, we have made independent determinations that 11 of the above-referenced person were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

 

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Exhibit Number		Description
2.1		Agreement and Plan of Merger between Fashion Dynamics Corp., FED Capital Acquisition Corporation and FED Corporation dated March 13, 2000 (incorporated by reference to exhibit 2.1 to the Registrant's Current Report on Form 8-K/A filed on March 17, 2000).
3.1		Amended and Restated Articles of Incorporation (incorporated by reference to exhibit 99.2 to the Registrant's Definitive Proxy Statement filed on June 14, 2001).
3.2		Amended Articles of Incorporation (incorporated by reference to exhibit A to the Registrant's Definitive Proxy Statement filed on June 13, 2003).
3.3		Bylaws of the Registrant (incorporated by reference to exhibit 99.3 to the Registrant's Definitive Proxy Statement filed on June 14, 2001).
3.4		Form of Certificate of Designation on Series A Senior Secured Convertible Preferred Stock, filed July 25, 2007, incorporated by reference to the Company's Form 8-K as filed on July 25, 2007.
4.1		Form of Warrant dated as of April 25, 2003 (incorporated by reference to exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on April 28, 2003).
4.2		Form of Series A Common Stock Purchase Warrant dated as of January 9, 2004 (incorporated by reference to exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on January 9, 2004).
4.3		Form of Series B Common Stock Purchase Warrant dated as of January 9, 2004 (incorporated by reference to exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on January 9, 2004).
4.4		Form of Series C Common Stock Purchase Warrant dated as of January 9, 2004 (incorporated by reference to exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on January 9, 2004).
4.5		Form of Series D Warrant (incorporated by reference to exhibit 4.1 to the Registrant's current report on Form 8-K filed on March 4, 2004).
4.6		Form of Series E Warrant (incorporated by reference to exhibit 4.2 to the Registrant's current report on Form 8-K filed on March 4, 2004).
10.1		2000 Stock Option Plan, (incorporated by reference to exhibit 99.1 to the Registrant's Registration Statement on Form S-8 filed on March 14, 2000).*
10.2		Form of Agreement for Stock Option Grant pursuant to 2003 Stock Option Plan (incorporated by reference to exhibit 99.2 to the Registrant's Registration Statement on Form S-8 filed on March 14, 2000).*
4.7		Form of Series F Warrant (incorporated by reference to exhibit 4.1 to the Registrant's current report on Form 8-K filed on October 26, 2004).
4.8		Form of Common Stock Purchase Warrant dated October 20, 2005, filed October 31, 2005, as filed in the Registrant's Form 8-K incorporated herein by reference.
5.1		Opinion of Sichenzia Ross Friedman Ference LLP (Filed herewith).
10.3		Nonexclusive Field of Use License Agreement relating to OLED Technology for miniature, high resolution displays between the Eastman Kodak Company and FED Corporation dated March 29, 1999 (incorporated by reference to exhibit 10.6 to the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 2000 filed on April 30, 2001).
10.4		Amendment Number 1 to the Nonexclusive Field of Use License Agreement relating to the LED Technology for miniature, high resolution displays between the Eastman Kodak Company and FED Corporation dated March 16, 2000 (incorporated by reference to exhibit 10.7 to the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 2000 filed on April 30, 2001).
10.5		Lease between International Business Machines Corporation and FED Corporation dated May 28, 1999 (incorporated by reference to exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).
10.6		Amendment Number 1 to the Lease between International Business Machines Corporation and FED Corporation dated July 9, 1999 (incorporated by reference to exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).
10.7		Amendment Number 2 to the Lease between International Business Machines Corporation and FED Corporation dated January 29, 2001 (incorporated by reference to exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).
10.8		Amendment Number 3 to Lease between International Business Machines Corporation and FED Corporation dated May 28, 2002.

 

 

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10.9		Amendment Number 4 to Lease between International Business Machines Corporation and FED Corporation dated December 14, 2004.
10.10		Registration Rights Agreement dated as of April 25, 2003 by and among eMagin and certain initial investors identified on the signature pages thereto (incorporated by reference to exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on April 28, 2003).
10.11		Securities Purchase Agreement dated as of January 9, 2004 by and among eMagin and the investors identified on the signature pages thereto (incorporated by reference to exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 9, 2004).
10.12		Registration Rights Agreement dated as of January 9, 2004 by and among eMagin and certain initial investors identified on the signature pages thereto (incorporated by reference to exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 9, 2004).
10.13		Master Amendment Agreement dated as of February 17, 2004 by and among eMagin and the investors identified on the signature pages thereto (incorporated by reference to exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 4, 2004).
10.14		Registration Rights Agreement dated as of February 17, 2004 by and among eMagin and certain initial investors identified on the signature pages thereto (incorporated by reference to exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on March 4, 2004).
10.15		Letter Agreement amending the Master Amendment Agreement dated as of March 1, 2004 by and among eMagin and the parties to the Master Amendment Agreement (incorporated by reference to exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on March 4, 2004).
10.16		Lease between International Business Machines Corporation and FED Corporation dated May 28, 1999, as filed in the Registrant's Form 10-K/A for the year ended December 31, 2000 incorporated by reference herein.
10.17		Amendment Number 2 to the Lease between International Business Machines Corporation and FED Corporation dated January 29, 2001, as filed in the Registrant's Form 10-K/A for the year ended December 31, 2000 incorporated by reference herein.
10.18		Secured Note Purchase Agreement entered into as of November 27, 2001, by and among eMagin Corporation and certain investors named therein, as filed in the Registrant's Form 8-K dated December 18, 2001 incorporated herein by reference.
10.19		Securities Purchase Agreement dated as of April 25, 2003 by and among eMagin and the investors identified on the signature pages thereto, filed April 28, 2003, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.20		Registration Rights Agreement dated as of April 25, 2003 by and among eMagin and certain initial investors identified on the signature pages thereto filed April 28, 2003, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.21		Securities Purchase Agreement dated as of January 9, 2004 by and among eMagin and the investors identified on the signature pages thereto, filed January 9, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.22		Registration Rights Agreement dated as of January 9, 2004 by and among eMagin and certain initial investors identified on the signature pages thereto. Incorporated herein by reference to our January 9, 2004 Form 8-K.
10.23		Master Amendment Agreement dated as of February 17, 2004 by and among eMagin and the investors identified on the signature pages thereto, filed March 4, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.24		Registration Rights Agreement dated as of February 17, 2004 by and among eMagin and certain initial investors identified on the signature pages thereto, filed March 4, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.25		Letter Agreement amending the Master Amendment Agreement dated as of March 1, 2004 by and among eMagin and the parties to the Master Amendment Agreement, filed March 4, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.26		2004 Non-Employee Compensation Plan, filed July 7, 2004, as filed in the Registrant’s Form S-8, incorporated herein by reference.*
10.27		Form of Letter Agreement by and among eMagin and the holders of the Class A, Class B and Class C common stock purchase warrants, filed August 9, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.28		Securities Purchase Agreement dated as of October 21, 2004 by and among eMagin and the purchasers listed on the signature pages thereto, filed October 26, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.29		Placement Agency Agreement dated as of October 21, 2004 by and among eMagin and W.R. Hambrecht & Co., LLC, filed October 26, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.30		Agreement, dated as of June 29, 2004, by and between eMagin and Larkspur Capital Corporation, filed October 26, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.31		Amendment No. 4 to Lease by and between eMagin and International Business Machines Corporation, filed December 20, 2004, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.32		Sublease Agreement dated as of July 14, 2005 by and between eMagin and Capgemini U.S., LLC, filed August 2, 2005, as filed in the Registrant's Form 8-K incorporated herein by reference.
10.33		Amended and Restated 2003 Stock Option Plan, filed September 1, 2005, as filed in the Registrant’s Definitive Proxy Statement, incorporated herein by reference.*
10.34		Amended and Restated 2004 Non-Employee Compensation Plan, filed September 1, 2005, as filed in the Registrant’s Definitive Proxy Statement, incorporated herein by reference.*
10.35		2005 Employee Stock Purchase Plan, filed September 1, 2005, as filed in the Registrant’s Definitive Proxy Statement, incorporated herein by reference.*
10.36		Securities Purchase Agreement dated as of October 20, 2005, by and among eMagin and the purchasers listed on the signature pages thereto, filed October 31, 2005, as filed in the Registrant's Form 8-K incorporated herein by reference.

 

 

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1.	Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
2.	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
3.	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
4.	Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 (6) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.

 

(7) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(8) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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