**U.S.
      Securities and Exchange Commission**





**Washington,
      D.C. 20549**





**FORM
      10-Q**











(Mark
      One)





[X]
      Quarterly report under section 13 or 15(d) of the Securities Exchange
      Act
      of 1934 for the quarterly period ended September 30, 2005





[  
      ] Transition report under section 13 or 15(d) of the Securities Exchange
      Act of 1934 for the transition period


from
      ____________ to ________________





Commission
      file number: 000-24757





**eMAGIN
      CORPORATION**





(Exact
      name of issuer as specified in its charter)





**DELAWARE**
            **56-1764501**(State
                or other jurisdiction
            (IRS Employer Identification No.)of
                incorporation or organization)





10500
      NE
      8 th St.,
      Suite 1400


Bellevue,
      WA 98004





(Address
      of principal executive offices)








(425)
      749-3600





(Issuer's
      telephone number)


___________________





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes [ X ] No [ ]





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act. Yes [  ] No [X]





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: As of November 1, 2005 the Registrant
      had 99,787,858 shares of Common Stock outstanding.














**eMAGIN
      CORPORATION**





**FORM
      10-Q**





**For
      the Quarterly Period Ended September 30, 2005**





**TABLE
      OF CONTENTS**





**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.
            Condensed
                Consolidated Financial Statements.
            3Condensed
                Consolidated Balance Sheets as of
                September 30, 2005 (unaudited) and December 31, 2004
            3Condensed
                Consolidated Statements of Operations
                for the Three and Nine Months ended
              September
                30, 2005 and 2004
                (unaudited)
            4Condensed
                Consolidated Statements of Changes in
                Shareholders Equity for the Nine Months
              ended
                September 30, 2005
                (unaudited)
            5Condensed
                Consolidated Statements of Cash Flows for
                the Nine Months
              ended
                September 30, 2005and 2004 (unaudited)
            6Selected
                Notes to Unaudited Condensed Consolidated
                Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            10Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            15Item
                4.
            Controls
                and Procedures
            15**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            17Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            17Item
                3.
            Defaults
                Upon Senior Securities
            17Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            17Item
                5.
            Other
                Information
            17Item
                6.
            Exhibits
            17**SIGNATURES**
            18**CERTIFICATIONS**
            1931.1
            Certification
                by Chief Executive Officer pursuant to
                Sarbanes Oxley Section 30231.2
            Certification
                by Chief Financial Officer pursuant to
                Sarbanes Oxley Section 30232.1
            Certification
                by Chief Executive Officer pursuant to 18
                U.S.C. Section 135032.2
            Certification
                by Chief Financial Officer pursuant to 18
                U.S.C. Section 1350











2








**PART
      I - FINANCIAL INFORMATION**





**Item
        1. Financial Statements.**





**eMAGIN
      CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(In
      thousands except share amounts)





**September
                30, 2005**(Unaudited)
            
            **December
                31, 2004****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            2,085
            
            $
            13,457Trade
                receivables, net
            
            
            760
            
            
            536Inventory
            
            
            3,591
            
            
            2,018Prepaid
                expenses and other current assets
            
            
            1,225
            
            
            880Total
                current assets
            
            
            7,661
            
            
            16,891Equipment
                and leasehold improvements
            
            
            4,737
            
            
            4,072Less:
                Accumulated depreciation
            
            
            (3,397
            )
            
            (2,767
            )Total
                equipment and leasehold improvements, net
            
            
            1,340
            
            
            1,305Intangible
                assets, net
            
            
            61
            
            
            54Other
                long-term assets
            
            
            233
            
            
            186Total
                assets
            
            $
            9,295
            
            $
            18,436**LIABILITIES
                AND SHAREHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            642
            
            $
            822Accrued
                payroll and benefits
            
            
            725
            
            
            674Other
                accrued expenses
            
            
            1,040
            
            
            357Advanced
                payments
            
            
            48
            
            
            64Current
                portion of capitalized lease obligation
            
            
            16
            
            
            14Other
                current liabilities
            
            
            125
            
            
            35Total
                current liabilities
            
            
            2,596
            
            
            1,966Capitalized
                lease obligations - long term
            
            
            10
            
            
            22Total
                liabilities
            
            
            2,606
            
            
            1,988Shareholders'
                equity:Common
                stock, $0.001 par value: authorized 200,000,000 shares; issued and
                outstanding, 83,168,802 shares as of September 30, 2005 and 79,638,817
                shares as of  December 31, 2004
            
            
            83
            
            
            80Additional
                paid-in capital
            
            
            167,367
            
            
            165,399Accumulated
                deficit
            
            
            (160,761
            )
            
            (149,031
            )Total
                shareholders' equity
            
            
            6,689
            
            
            16,448Total
                liabilities and shareholders' equity
            
            $
            9,295
            
            $
            18,436








See
      notes
      to condensed consolidated financial statements.








3







**eMAGIN
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(Unaudited,
      in thousands except per share amounts)






**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Revenue:Product revenue, net of returns
              
              $
              1,131
              
              $
              1,089
              
              $
              2,473
              
              $
              3,075Cost
                  of goods sold:Direct cost of goods sold
              
              
              445
              
              
              616
              
              
              807
              
              
              1,632Production expenses
              
              
              2,241
              
              
              992
              
              
              6,224
              
              
              2,876Total cost of goods sold
              
              
              2,686
              
              
              1,608
              
              
              7,031
              
              
              4,508Gross loss
              
              
              (1,555
              )
              
              (519
              )
              
              (4,558
              )
              
              (1.433
              )Operating
                  expenses:Research and development
              
              
              1,022
              
              
              360
              
              
              3,038
              
              
              443Selling, general and administrative
              
              
              1,220
              
              
              902
              
              
              4,315
              
              
              2,841Total operating expenses
              
              
              2,242
              
              
              1,262
              
              
              7,353
              
              
              3,284Loss
                  from operations
              
              
              (3,797
              )
              
              (1,781
              )
              
              (11,911
              )
              
              (4,717
              )Interest
                  income (expense), net
              
              
              34
              
              
              26
              
              
              181
              
              
              (5,042
              )Net
                  loss
              
              $
              (3,763
              )
              $
              (1,755
              )
              $
              (11,730
              )
              $
              (9,759
              )Net
                  loss per share, basic and diluted
              
              $
              (0.05
              )
              $
              (0.03
              )
              $
              (0.14
              )
              $
              (0.16
              )Weighted
                  average common shares outstanding, basic and diluted
              
              
              83,036,471
              
              
              65,260,205
              
              
              82,320,101
              
              
              60,277,581







See
      notes
      to condensed consolidated financial statements.











4





**eMAGIN
        CORPORATION**


**STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY**


(Unaudited,
      in thousands)







**Common
                Stock**
            
            **Additional
                Paid-in Capital**
            
            **Accumulated
                Deficit**
            
            **Total****Shares**
            
            **$****Balance,
                December 31, 2004**
            
            
            79,639
            
            $
            80
            
            $
            165,399
            
            $
            (149,031
            )
            $
            16,448Exercise
                of Options
            
            
            104
            
            
            -
            
            
            35
            
            
            
            
            
            35Exercise
                of Warrants
            
            
            3,013
            
            
            3
            
            
            1,555
            
            
            
            
            
            1,558Issuance
                of equity for service
            
            
            413
            
            
            -
            
            
            378
            
            
            
            
            
            378Net
                Loss for Period
            
            
            
            
            
            
            
            
            
            
            
            (11,730
            )
            
            (11,730
            )**Balance,
                September 30, 2005**
            
            
            83,169
            
            $
            83
            
            $
            167,367
            
            $
            (160,761
            )
            $
            6,689





See
      notes
      to condensed consolidated financial statements.














5




















**eMAGIN
      CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(Unaudited,
      in thousands)








**Nine
                Months Ended September 30,****2005**
            
            **2004**Cash
                flows from operating activities:Net
                loss
            
            $
            (11,730
            )
            $
            (9,759
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and
                amortization
            
            
            630
            
            
            456Bad
                debt expense
            
            
            (419
            )
            
            34Amortization
                of financing
                fees
            
            
            ---
            
            
            8Non-cash
                charge for stock based
                compensation
            
            
            ---
            
            
            88Non-cash
                interest related
                charges
            
            
            ---
            
            
            130Non-cash
                charge for services
                received
            
            
            397
            
            
            8Non-cash
                financing
                expense
            
            
            ---
            
            
            4,955Changes
                in operating assets and liabilities:Trade
                receivables
            
            
            195
            
            
            (59
            )Inventory
            
            
            (1,574
            )
            
            (984
            )Prepaid
                expenses and other current
                assets
            
            
            (382
            )
            
            (319
            )Other
                long-term
                assets
            
            
            (46
            )
            
            (32
            )Advanced
                payment on contracts to be
                completed
            
            
            (16
            )
            
            (80
            )Accounts
                payable, accrued expenses and accrued
                payroll
            
            
            586
            
            
            54Other
                current
                liabilities
            
            
            68
            
            
            17Net
                cash used in operating
                activities
            
            
            (12,291
            )
            
            (5,483
            )Cash
                flows from investing activities:Purchases/Sales
                of equipment,
                net
            
            
            (665
            )
            
            (477
            )Net
                cash used in investing
                activities
            
            
            (665
            )
            
            (477
            )Cash
                flows from financing activities:Proceeds
                from sales of common stock, net of issuance
                costs
            
            
            ---
            
            
            3,917Proceeds
                from exercise of stock options and
                warrants
            
            
            1,594
            
            
            5,078Payments
                of long term debt and capital leases
            
            
            (10
            )
            
            (38
            )Net
                cash provided by financing
                activities
            
            
            1,584
            
            
            8,957Net
                increase (decrease) in cash and cash
                equivalents
            
            
            (11,372
            )
            
            2,997Cash
                and cash equivalents, beginning of
                period
            
            
            13,457
            
            
            1,054Cash
                and cash equivalents, end of
                period
            
            $
            2,085
            
            $
            4,051Supplemental
                Cash Flow Disclosure:Conversion
                of debt to equity
            
            $
            ----
            
            $
            8,567Payments
                of A/P through issuance of stock
            
            
            ----
            
            
            203Stock
                issued for prepaid services
            
            
            378
            
            
            186Cash
                payments of interest
            
            
            8
            
            
            5





See
      notes
      to condensed consolidated financial statements.








6


**eMAGIN
      CORPORATION**





**NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**


Note
      1 -
      ACCOUNTING POLICIES





Basis
      of
      Presentation





In
      the
      opinion
      of management, the accompanying unaudited interim financial
      information reflects all adjustments, consisting of normal recurring
      accruals, necessary for a fair presentation.  Certain information
      and
      footnote disclosure normally included in financial statements prepared
      in
      accordance with generally accepted accounting principles in
      the
      United States have been condensed or omitted pursuant
      to
      instructions, rules and regulations prescribed by
      the
      Securities and Exchange Commission.  The Company believes
      that
      the disclosures provided herein are adequate to make
      the information presented not misleading when these unaudited
      interim
      condensed consolidated financial statements are read in conjunction
      with
      the audited consolidated financial statements contained in the Company's
      Annual Report on Form 10-KSB/A for the year ended December 31,
      2004.  The results of operations for the period ended
      September 30, 2005 are not necessarily indicative of the results to be expected
      for the full year.





Stock-Based
      Compensation





The
      Company has elected to follow Accounting Principles Board Opinion
      No. 25
      ("APB No. 25"), "Accounting for Stock Issued
      to Employees,” and related interpretations in accounting for its
      employee stock options.  Under APB No. 25, when the exercise price of
      employee stock options equals the market price of the underlying stock on the
      date of grant, no compensation expense is recorded. The Company
      discloses information relating to the fair value
      of
      stock-based compensation awards in accordance with Statement
      of Financial Accounting Standards No.123 ("SFAS No. 123"), "Accounting
      for Stock-Based Compensation.” The following table illustrates the effect
      on net loss and loss per share as if the Company had applied the fair value
      recognition provisions of SFAS No. 123. The fair value of each option grant
      is estimated on the date of grant using the
      Black-Scholes option-pricing model with
      the following assumptions used for grants in the third
      quarter of
      2005 and 2004, respectively: (1) average expected volatility of 52%
      and
      99%, (2) average risk-free interest rates of 4.39% and
      3.79%, and
      (3) expected lives of ten and seven years.





The
      pro
      forma amounts that are disclosed in accordance with SFAS No. 123 reflect the
      portion of the estimated fair value of awards that were earned for the three
      and
      nine months ended September 30, 2005 and 2004 (in thousands except per share
      data).




**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  loss applicable to common stockholders, as reported
              
              $
              (3,763
              )
              $
              (1,755
              )
              $
              (11,730
              )
              $
              (9,759
              )Deduct: 
                  Stock-based employee compensation expense determined under fairvalue
                  method
              
              
              (465
              )
              
              (298
              )
              $
              (2,809
              )
              
              (7,629
              )Pro
                  forma net loss
              
              $
              (4,228
              )
              $
              (2,053
              )
              $
              (14,539
              )
              $
              (17,388
              )Net
                  loss per share:Basic
                  and diluted, as reported
              
              $
              (0.05
              )
              $
              (0.03
              )
              $
              (0.14
              )
              $
              (0.16
              )Basic
                  and diluted, pro forma
              
              $
              (0.05
              )
              $
              (0.03
              )
              $
              (0.18
              )
              $
              (0.29
              )




In
      March
      2005, the Company granted 1,100,000 stock options to certain officers and
      employees of the Company.  The exercise price of these options was equal
      to
      the market price of the stock on the date of grant.  The options vest
      over
      five years unless there is a change in control or a dismissal without cause
      in
      which case the options would vest immediately.





Note
      2 -
      NATURE OF BUSINESS





eMagin 
      Corporation  is a  developer  and manufacturer of 
      optical  systems  and microdisplays  for use in 
      the 
      electronics  industry.  eMagin also develops and markets
      microdisplay systems and optics technology for
      commercial, industrial and military applications.





Note
      3 -
      REVENUE AND COST RECOGNITION





Revenue
      is recognized when products are shipped to customers, net of allowances
      for
      anticipated returns.  The Company’s revenue-earning
      activities generally involve delivering products and revenues
      are considered to be earned when the Company
      has completed the process by which it is entitled
      to such
      revenues. Revenue is recognized when
      persuasive evidence of an arrangement exists, delivery
      has
      occurred, selling price is fixed or determinable and collection is
      reasonably assured. The Company defers revenue on products sold directly to
      the
      consumer with a thirty day right of return. Revenue is recognized upon the
      expiration of the right of return.





The
      Company also earns revenues from certain of eMagin's
      R&D activities under
      both firm fixed-price contracts and cost-type
      contracts, including some cost-plus-fee contracts. 
      Revenues relating to firm fixed-price contracts are
      generally recognized on the percentage-of-completion method
      of accounting as costs are incurred (cost-to-cost basis). 
      Revenues on cost-plus-fee contracts include costs incurred plus
      a
      portion of estimated fees or profits based on the relationship of costs incurred
      to total estimated costs.  Contract costs include all direct material
      and labor costs and an allocation of allowable indirect
      costs as
      defined by each contract, as periodically adjusted to reflect
      revised
      agreed upon rates. These rates are subject to audit by the other party. 
      Amounts can be billed on a bi-monthly basis.





Note
      4 -
      RECEIVABLES





The
      majority of our commercial accounts receivable are
      due
      from Original Equipment Manufacturers  ("OEM"s).  Credit
      is
      extended based on an evaluation of a customers'
      financial condition and, generally, collateral is not
      required.
      Accounts receivable are payable in U.S. dollars, are due within
      30-90
      days and are stated at amounts due from customers net
      of
      an allowance for doubtful accounts and sales returns. 
      Any
      account outstanding longer than the contractual payment terms is considered
      past due. The Company determines the allowance for doubtful accounts
      by considering a number of factors, including the length of time
      the
      trade accounts receivable are past due, eMagin's previous loss history,
      the
      customer's current ability to pay its obligation, and the condition
      of
      the general economy and the industry as a whole.  
      The Company writes off accounts receivable when
      they
      become uncollectable, and payments subsequently received on
      such receivables are reported as income in the year the payment
      is
      received.




7





Receivables
      consisted of the following (in thousands):





**September
                30, 2005**
            
            **December
                31, 2004**Trade
                receivables
            
            $
            1,112
            
            $
            1,282Contract
                receivables
            
            
            ---
            
            
            25Total
            
            
            1,112
            
            
            1,307Less
                allowance for doubtful accounts
            
            
            (352
            )
            
            (771
            )Net
                receivables
            
            $
            760
            
            $
            536





Note
      5 -
      RESEARCH AND DEVELOPMENT COSTS





Research
      and development costs are expensed as incurred.





Note
      6 -
      NET LOSS PER COMMON SHARE





In
      accordance with SFAS No. 128, net loss per common share amounts ("basic EPS")
      was computed by dividing net loss by the weighted average number
      of common shares outstanding and excluding any
      potential dilution.  Net loss per common share assuming dilution
      ("diluted EPS") was computed by reflecting potential dilution from
      the
      exercise of stock options and warrants.  Common equivalent
      shares totaling 2,233,511 and 3,305,274 have been excluded from the computation
      of diluted EPS for the three and
      nine months ended September 30, 2005, respectively, and 11,366,619 and
      32,828,735 have been excluded from the computation of diluted EPS
      for the three and nine months ended September 30, 2004,
      respectively, because their effect would be antidilutive.





Note
      7 -
      INVENTORIES





Inventory
      is stated at the lower of cost or market. Cost is determined using the first-in
      first-out method.  The Company reviews the value of its inventory
      and
      reduces the inventory value to its net realizable value based upon current
      market prices and contracts for future sales. The components of inventories
      are
      as follows (in thousands):





**September
                30, 2005**
            
            **December
                31, 2004**Raw
                materials
            
            $
            2,623
            
            $
            1,420Work
                in process
            
            
            323
            
            
            169Finished
                goods
            
            
            645
            
            
            429Total
                Inventory
            
            $
            3,591
            
            $
            2,018





Note
      8 -
      DEBT





Debt
      consisted of capitalized leased obligation for equipment as follows (in
      thousands):





**September
                30, 2005**
            
            **December
                31, 2004**Current
                portion of capitalized lease obligations
            
            $
            16
            
            $
            14Long-term
                capitalized lease obligations
            
            
            10
            
            
            22Total
                debt
            
            $
            26
            
            $
            36













8





Note
      9 -
      STOCKHOLDERS' EQUITY





The
      authorized common stock of the Company consists of 200,000,000 shares with
      a par
      value of $0.001 per share. In the three and nine months ending September 30,
      2005, the Company received $29,572 and $1,593,619, respectively, for
      the
      exercise of 95,694 and 3,117,053 warrants and options, respectively.





The
      Company also issued 116,808 and 412,932 shares of common stock, respectively,
      for the three and nine months ended September 30, 2005 for the payment of
      $121,583 and $378,207, respectively, for services rendered and to be
      rendered in the future.  As such, the Company recorded the
      fair value of the services rendered in prepaid expense and
      selling, general and administrative expenses in the
      accompanying unaudited consolidated statement of operations for
      the
      three months ended September 30, 2005.





Note
      10 -
      STOCK COMPENSATION





As
      of
      September 30, 2005, the Company has outstanding options to purchase
      17,420,494 shares. The Company issued all outstanding options at or above fair
      market value, or has previously expensed those options repriced below fair
      market value.





Note
      11 -
      COMMITMENTS AND CONTINGENCIES





[a]
      Royalty payments:





The Company, in accordance with
      a royalty agreement, with Eastman Kodak is obligated to
      make
      minimum annual royalty payments of $125,000 which commenced on January
      1,
      2001. Under this agreement, the Company must pay to Eastman Kodak
      a
      certain percentage of net sales of certain products, which percentages
      are defined in the agreement. The percentages are on a sliding scale depending
      on the amount of sales generated. Any minimum royalties paid will
      be
      credited against the amounts due based on the percentage of sales. The
      royalty agreement terminates upon the expiration of the last-to-expire
      issued patent.





In
      April
      2005, the Company paid $125,000 for the minimum amount due for 2005. The amount
      was recorded in prepaid expenses and will be amortized as the
      Company records the royalty expense as defined in the agreement. Royalty
      expense was $64,872 and $129,659, respectively, for the three and nine months
      ended September 30, 2005 as compared to $58,150 and $144,781, respectively,
      for
      the three and nine months ended September 30, 2004.





[b]
      Contractual obligations:





The Company leases
      certain office facilities and office, lab and factory
      equipment under operating leases expiring through 2009.  Certain leases
      provide for payments of monthly operating expenses. The approximate minimum
      lease payments for the remainder of 2005 are approximately $338,608. Subsequent
      to 2005 the obligations total approximately $5,053,000.


We
      currently lease space from IBM for approximately $74,000
      per month that houses our own equipment for OLED microdisplay fabrication
      and for research and development plus additional space for assembly
      and administrative offices.  In 2004 we entered into an
      amended
      lease agreement which extends the term of this lease to May 31, 2009.





In
      July
      2005, we finalized a sub-lease agreement for approximately 18,961 square feet
      in
      Bellevue Washington. The lease was effective September 1, 2005, expires on
      August 31, 2009 and is used by the Company for general office purposes
      (including incidental light assembly of electronic equipment). The Company’s
      lease at its current Redmond location expired in August and will not be renewed.




Note
      12 -
      SUBSEQUENT EVENTS





On
      October 20, 2005, the Company entered into a Securities Purchase Agreement,
      pursuant to which the Company sold and issued 16,619,056 shares of common stock,
      par value $0.001 per share, at a price of $.55 per share and warrants to
      purchase up to 9,971,437 shares of common stock for an aggregate purchase price
      of $9.14 million. The net proceeds received after expenses were $8.38
      million.





The
      warrants are exercisable at a price of $1.00 per share and expire on October
      20,
      2010. Of the 9,971, 437 warrants, 6,647,627 of the warrants are exercisable
      on
      or after May 20, 2006. The remaining 3,323,810 are exercisable after March
      31,
      2007, however these warrants will be cancelled if the Company’s net revenue for
      fiscal year 2006 exceeds $20 million or if the investor has sold more than
      25%
      of the shares purchased under the securities purchase agreement prior to
      December 31, 2006.








9





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





Statement
      of Forward-Looking Information





This
      report contains forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934.  These statements relate to future events or
      our future financial performance.  In some cases, you
      can identify forward-looking statements by terminology
      such
      as "may," "will," "should,"  "expect,"  "plan,"  "anticipate,"
      "believe,"  "estimate,"  "predict,"  "potential" or
      "continue," the negative of such terms, or
      other comparable terminology.  
      These statements are only predictions.  Actual events
      or results
      may differ materially from those in the forward-looking statements as
      a
      result of various important factors. Although we believe that the
      expectations reflected in the forward-looking statements
      are
      reasonable, such should not be regarded as a representation by the
      Company, or any other person, that such forward-looking statements
      will be achieved.  The business and operations of the Company are subject
      to substantial risks, which increase the uncertainty inherent in the
      forward-looking statements contained in this release. We undertake no duty
      to
      update any of the forward-looking statements, whether as a result of new
      information, future events or otherwise.  Readers are cautioned not
      to
      place undue reliance on the forward-looking statements contained in
      this
      report.





**Overview**





We
      design and manufacture miniature displays, which we refer
      to
      as OLED-on-silicon microdisplays, and microdisplay modules for
      virtual
      imaging, primarily for incorporation into the products of other
      manufacturers. Microdisplays are typically smaller than many postage
      stamps, but when viewed through a magnifier they can contain all of
      the
      information appearing on a high-resolution personal computer screen. 
      Our microdisplays use organic light emitting diodes, or OLEDs, which emit
      light themselves when a current is passed through the device.
      Our technology permits OLEDs to
      be coated onto silicon chips to produce high resolution
      OLED-on-silicon microdisplays. We believe that our
      OLED-on-silicon microdisplays offer a number of advantages
      in near to the eye applications over other current microdisplay
      technologies,
      including lower power requirements, less weight, fast
      video speed without
      flicker, and wider viewing angles. 
      In addition, many computer and video electronic
      system functions can be built directly into
      the OLED-on-silicon microdisplay, resulting in compact systems
      with lower expected overall system costs relative to alternate microdisplay
      technologies.





We
      commenced limited initial sales of our SVGA+ microdisplay in May 2001
      and
      commenced shipping samples of our SVGA-3D microdisplay in February 2002. 
      Through inception, as of September 30, 2005, we have recognized
      an aggregate of approximately $10.3 million from sales of our
      products, and have a backlog of more than $28 million in
      products ordered for delivery through 2007.  These products are
      being
      applied or considered for near-eye and headset applications
      in
      products such as entertainment and gaming headsets, handheld
      Internet
      and telecommunication appliances, viewfinders, and wearable computers to be
      manufactured by original equipment manufacturer (OEM) customers.  In
      addition to marketing OLED-on-silicon microdisplays as components, we also
      offer
      microdisplays as an integrated package, which we call Microviewer that includes
      a compact lens for viewing the microdisplay and electronic interfaces to convert
      the signal from our customer's product into a viewable image on the
      microdisplay. Through our operations in Bellevue, Washington we are also
      developing personal near-eye display systems and modules that incorporate our
      Microviewer.





We
      license our core OLED technology from Eastman Kodak and we have developed our
      own technology to create high performance OLED-on-silicon microdisplays and
      related optical systems. We believe our technology licensing agreement with
      Eastman Kodak, coupled with our own intellectual property portfolio, gives
      us a
      leadership position in OLED and OLED-on-silicon microdisplay technology. We
      are
      currently the only company to demonstrate publicly and market full-color
      OLED-on-silicon microdisplays.





**Company
      History**





From
      inception through January 1, 2003, we were a developmental stage company. We
      have transitioned to manufacturing our product and intend to significantly
      increase our marketing, sales, and research and development
      efforts, and expand our operating infrastructure.  Most of
      our operating expenses are fixed in the near term. 
      If we
      are unable to generate significant revenues, our
      net losses in any given period could be greater than expected.





**CRITICAL
      ACCOUNTING POLICIES**





The
      Securities and
      Exchange Commission ("SEC") defines "critical accounting
      policies" as those that require application of management's most
      difficult, subjective or complex judgments, often as a result of the need to
      make estimates about the effect of matters that
      are inherently uncertain and may change in subsequent
      periods.





Not all
      of
      the accounting policies require management to make difficult,
      subjective or complex judgments or estimates.  However, the following
      policies could be deemed to be critical within the SEC definition.





**Revenue
      Recognition**





Revenue on product sales is
      recognized when persuasive evidence of an
      arrangement exists, such as when a purchase order or contract
      is
      received from the customer, the price is fixed, title to the goods has
      changed and there is a reasonable assurance of collection of
      the
      sales proceeds.  We obtain written purchase authorizations
      from
      our customers for a specified amount of product at a specified price
      and consider delivery to have occurred at
      the time
      of shipment.  Revenue is recognized at shipment
      and we
      record a reserve for estimated sales returns, which
      is reflected as a reduction of revenue at the time of revenue recognition.
      We defer revenue on products sold directly to the consumer with a thirty day
      right of return. Revenue is recognized upon the expiration of the right of
      return.







10




Revenues
      from research and development activities relating to firm fixed-price
      contracts are generally recognized on the percentage-of-completion
      method of accounting as costs are incurred (cost-to-cost basis). 
      Revenues from research and development activities relating to
      cost-plus-fee contracts include costs incurred plus a
      portion of
      estimated fees or profits based on the relationship of costs incurred to
      total estimated costs.  Contract costs include all direct
      material and labor costs and an allocation of allowable
      indirect costs as defined by each contract, as periodically adjusted
      to
      reflect revised agreed upon rates. These rates are subject to audit
      by the
      other party.





**Use
      of estimates**





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and the disclosure of
      contingent assets and liabilities at the date of the financial statements as
      well as the reported amounts of revenues and expenses during the reporting
      period. Actual results could differ from those estimates. These estimates and
      assumptions relate to recording net revenue, collectibility of accounts
      receivable, useful lives and impairment of tangible and intangible assets,
      accruals, income taxes, inventory realization and other factors. Management
      has
      exercised reasonable judgment in deriving these estimates. Consequently, a
      change in conditions could affect these estimates.





**Fair
      value of financial instruments**





The
      Company's cash, cash equivalents, accounts receivable and accounts payable
      are
      stated at cost which appropriates fair value due to the short-term nature of
      these instruments.





**Results
      of Operations**





**THREE
      AND NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE AND NINE MONTHS
      ENDED
      SEPTEMBER 30, 2004**





**Revenues**





Revenues
      for the three months ended September 30, 2005 and 2004 were
      approximately $1.1 million. Revenues for the nine months ended
      September 30, 2005 were approximately $2.5 million as compared
      to $3.1
      million for the nine months ended September 30, 2004, a decrease of 20%. The
      decrease in revenue during the first half of 2005 resulted from a shortage
      of
      displays available for sale due to manufacturing plant conversions and equipment
      maintenance issues which were alleviated during the first half of the year.
      Assuming consistent availability of product we anticipate that revenue will
      increase over the next several quarters.





**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, 2005 were approximately $2.7 million and $7.0 million,
      respectively, as compared to $1.6 million and $4.5 million for the three and
      nine months ended September 30, 2004, an increase of $1.1 million and $2.5
      million, respectively.  The gross losses for the three and nine
      months
      ended September 30, 2005 were ($1.6) million and ($4.6) million,
      respectively, as compared to ($0.5) million and ($1.4)
      million,
      respectively, for the three and nine months ended September 30, 2004.
      This
      translates to a Gross Margin of (137%) and (184%) for the three and nine months
      ended September 30, 2005 as compared to a Gross Margin of (48%) and (47%) for
      the three and nine months ended September 30, 2004, respectively.





The
      increased cost of goods sold is directly attributable to our preparation for
      increased production volumes and lower unit volume.  Expenses for the
      three
      and nine months ended September 30, 2005 reflect twice the number of personnel
      in order to run two full shifts of production and initial training for a partial
      third shift.   Manufacturing startup for the new
      Z800
      3DVisor was also recorded during the first half of 2005.   For comparative
      purposes expenses for the three and nine months ended September
      30, 2004 represented staff required to run a single shift at relatively
      low
      throughput. We anticipate that gross margins will now improve as product
      output increases over the next several quarters.





**Operating
      Expenses**





*Research
      and Development* . 
      Research and development expenses included salaries, development materials
      and
      other costs specifically allocated to the development of new microdisplay
      products and OLED materials.  Gross research
      and development expenses for the three and nine months ended
      September
      30, 2005 were $1.0 million and $3.0 million, respectively, as compared
      to
      $0.3 million and $0.4 million, respectively, for the three and nine
      months ended September 30, 2004.  During the second
      half of
      2004 we initiated two new design projects, the SXGA and the SVGA shrink, that
      are projected to yield future microdisplay products. More detailed
      information on these projects can be found in our annual report, on Form 10KSB/A
      for 2004. To accommodate these efforts our costs for the three and nine months
      ended September 30, 2005 reflect expanded staff size and outsourced design
      services as compared to the three and nine months ended September 30,
      2004.  We expect R&D expenses to remain fairly constant for the
      next several quarters as these projects are completed and then to decline
      slightly through the end of 2006.









11






*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, 2005 were $1.2 million and $4.3 million, respectively, as compared
      to
      $0.9 million and $2.8 million, respectively, for the three and nine months
      ended
      September 30, 2004.  The selling, general and administrative
      expenses
      were reduced by $200,000 as a result of the recovery of bad debts for the
      quarter ended September 30, 2005.  The increases of $300,000 and
      $1.5
      million were primarily due to an increase in sales, marketing and
      support staff and increased marketing expenses related to our new product
      launches and trade show participation.  We expect sales, general and
      administrative expenses to remain relatively constant or to increase slightly
      over the next several quarters.





*Interest Income
      (Expense* ).
      Interest income (expense) for the three and nine months ending September 30,
      2005 were $34,000 and $181,000 as compared to $26,000 and
      ($5.0) million for the three and nine months ended September
      30,
      2004. The $5.0 million in interest expense for the nine months
      ended
      September 30, 2004 was attributable to three factors recorded in 2004: (1)
      $3.18
      million of non-cash charges related to the value of the warrants issued to
      induce the holders of the $7.825 million in Notes to agree to an early
      conversion of the Notes into common stock, (2) $1.6 million
      in non-cash charges related to the remaining
      unamortized debt discount and beneficial conversion feature
      associated with the aforementioned Notes, and (3) $74,637
      in non-cash charges related to the write-off of the remaining
      unamortized deferred financing costs.




**Liquidity
      and Capital Resources**





**Current
      Financial Position**





We
      have
      approximately $2.6 million in liabilities and $6.4 million in
      contractual obligations for a combined total of $9.0 million as of
      September 30, 2005. The contractual obligations, along
      with the
      dates on which such payments are due, are described below (in thousands):





**One
                Year**
            
            ******More
                Than****Contractual
                Obligations**
            
            
            **Total**
            
            
            **or
                Less**
            
            
            **One
                Year**Operating
                leases
            
            $
            5,233
            
            $
            1,339
            
            $
            3,894Royalties
            
            
            1,125
            
            
            125
            
            
            1,000Capital
                leases
            
            
            29
            
            
            18
            
            
            11Total
                contractual obligations
            
            $
            6,387
            
            $
            1,482
            
            $
            4,905





At
      September 30, 2005 our working capital was $5.1 million and our cash balance
      was
      $2.1million. As mentioned in Note 12 - Subsequent Events, we completed a private
      placement of common stock and warrants that resulted in net proceeds after
      expenses of $8.38 million. These funds strengthen our liquidity and capital
      resources and will be used to fund our working capital requirements.





We
      currently anticipate that we will experience a material increase in sales if
      our
      new products meet with commercial success.  As a result we anticipate
      that
      working capital to facilitate higher accounts
      receivable, inventories and operating losses will be a principal
      use of cash through the end of 2005 and in 2006. We anticipate that
      our
      operating expenses will remain flat to slightly up over the next
      several quarters and that they will also be one of the principal uses
      of
      our cash. We expect that these cash requirements over the next 12 months will
      be
      met by a combination of cash on hand, debt, exercising of outstanding options,
      and warrants and revenues generated by operations, though there is no guarantee
      that these sources of capital will be available or sufficient. If they are
      not
      we will have to materially reduce our expenses which would likely have
      a
      negative impact on executing our business plans and achieving our projected
      revenue growth.





Our
      longer term cash requirements depend on numerous factors, including
      completion of our product development activities, ability to
      continue
      to commercialize our products, timely market acceptance of our products and
      our customers' products, and other factors. 
      We expect
      to carefully devote capital resources to continue these
      efforts.





**Effect
      Of Recently Issued Accounting Pronouncements**





In
      November 2004, the FASB issued FAS No. 151, "An amendment of ARB No. 43, Chapter
      4", which amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing",
      to
      clarify the accounting for abnormal amounts of idle facility expense, freight,
      handling costs, and wasted material (spoilage). This Statement requires that
      those items be recognized as current-period charges regardless of whether they
      meet the criterion of "so abnormal". In addition, this statement requires that
      allocation of fixed production overheads to the costs of conversion be based
      on
      the normal capacity of the production facilities. The statement is effective
      for
      fiscal years beginning after September 15, 2005 with early adoption permitted.
      We are currently evaluating the requirements and impact of FAS No. 151, but
      at
      this point do not believe the adoption will have a material impact on its
      financial position, cash flows or results of operations.





FASB
      Statement 123R (Revision 2004), "Share-Based Payment", was issued in December
      2004 and is effective for reporting periods beginning after December 31, 2005.
      The new statement requires all share-based payments to employees to be
      recognized in the financial statements based on their fair values. We currently
      account for share-based payments to employees under the intrinsic value method
      of accounting set forth in Accounting Principles Board Opinion No. 25,
      "Accounting for Stock Issues to Employees". Additionally, we comply with the
      stock-based employer compensation disclosure requirements of SFAS No. 148,
      "Accounting for Stock-Based Compensation - Transition and Disclosure, an
      amendment of FASB Statement No. 123". We will adopt the new statement in its
      financial statements for the quarter ending March 31, 2006.







12




**Factors
      Which May Affect Future Results**





In evaluating our
      business, prospective investors and shareholders should
      carefully consider the risks factors, any of which could have a material adverse
      impact on our business, operating results and financial condition and
      result in a complete loss of your investment.





**RISKS
      RELATED TO OUR FINANCIAL RESULTS**





**WE
      HAVE A HISTORY OF LOSSES SINCE OUR INCEPTION AND MAY INCUR LOSSES FOR THE
      FORESEEABLE FUTURE.**





Accumulated
      losses excluding non-cash transactions as of September 30, 2005, were $59
      million and acquisition related non-cash transactions were $102 million, which
      resulted in an accumulated deficit of $161 million, the majority of
      which
      was related to the March 2000 acquisition and the subsequent write-down of
      our
      goodwill. The non-cash losses were dominated by the amortization and write-down
      of goodwill and purchased intangibles and write-down of acquired in process
      research and development related to the March 2000 acquisition, and also
      included some non-cash stock-based compensation. We have not yet achieved
      profitability and we can give no assurances that we will achieve profitability
      within the foreseeable future as we fund operating and capital expenditures
      in
      areas such as establishment and expansion of markets, sales and marketing,
      operating equipment and research and development. We cannot assure investors
      that we will ever achieve or sustain profitability or that our operating losses
      will not increase in the future.





**WE
      MAY NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN AND MAY NOT GENERATE CASH FROM
      OPERATIONS.**





In
      the
      event that cash flow from operations is less than anticipated and we are unable
      to secure additional funding to cover our expenses, in order to preserve cash,
      we would be required to reduce expenditures and effect reductions in our
      corporate infrastructure, either of which could have a material adverse effect
      on our ability to continue our current level of operations. To the extent that
      operating expenses increase or we need additional funds to make acquisitions,
      develop new technologies or acquire strategic assets, the need for additional
      funding may be accelerated and there can be no assurances that any such
      additional funding can be obtained on terms acceptable to us, if at all. If
      we
      were not able to generate sufficient capital, either from operations or through
      additional debt or equity financing, to fund our current operations, we would
      be
      forced to significantly reduce or delay our plans for continued research and
      development and expansion. This could significantly reduce the value of our
      securities.





**RISKS
      RELATED TO MANUFACTURING**





**THE
      MANUFACTURE OF OLED-ON-SILICON IS NEW AND OLED MICRODISPLAYS HAVE NOT BEEN
      PRODUCED IN SIGNIFICANT QUANTITIES.**





If
      we are
      unable to produce our products in sufficient quantity, we will be unable to
      meet
      our customer’s time requirements and would have difficulties in attracting new
      customers. In addition, we cannot assure you that once we commence volume
      production we will attain yields at high throughput that will result in
      profitable gross margins or that we will not experience manufacturing problems
      which could result in delays in delivery of orders or product introductions.





**WE
      ARE DEPENDENT ON A SINGLE MANUFACTURING LINE.**





We
      currently manufacture our products on a single manufacturing line. If we
      experience any significant disruption in the operation of our manufacturing
      facility or a serious failure of a critical piece of equipment, we may be unable
      to supply microdisplays to our customers. For this reason, some OEMs may also
      be
      reluctant to commit a broad line of products to our microdisplays without a
      second production facility in place. Interruptions in our manufacturing could
      be
      caused by manufacturing equipment problems, the introduction of new equipment
      into the manufacturing process or delays in the delivery of new manufacturing
      equipment. Lead-time for delivery of manufacturing equipment can be extensive.
      No assurance can be given that we will not lose potential sales or be unable
      to
      meet production orders due to production interruptions in our manufacturing
      line. In order to meet the requirements of certain OEMs for multiple
      manufacturing sites, we will have to expend capital to secure additional sites
      and may not be able to manage multiple sites successfully.





**WE
      DEPEND ON SEMICONDUCTOR CONTRACT MANUFACTURERS TO SUPPLY OUR SILICON INTEGRATED
      CIRCUITS AND OTHER SUPPLIERS OF KEY COMPONENTS, MATERIALS AND SERVICES.**





We
      do not
      manufacture the silicon integrated circuits on which we incorporate our OLED
      technology. Instead, we provide the design layouts to semiconductor contract
      manufacturers who manufacture the integrated circuits on silicon wafers. We
      also
      depend on suppliers of a variety of other components and services, including
      circuit boards, graphic integrated circuits, passive components, materials
      and
      chemicals, and equipment support. Our inability to obtain sufficient quantities
      of high quality silicon integrated circuits or other necessary components,
      materials or services on a timely basis could result in manufacturing delays,
      increased costs and ultimately in reduced or delayed sales or lost orders which
      could materially and adversely affect our operating results.





**RISKS
      RELATED TO OUR INTELLECTUAL PROPERTY**





We
      rely
      on our license agreement with Eastman Kodak for the development of our products,
      and the termination of this license, Eastman Kodak's licensing of its OLED
      technology to others for microdisplay applications, or the sublicensing by
      Eastman Kodak of our OLED technology to third parties, could have a material
      adverse impact on our business.







13




Our
      principal products under development utilize OLED technology that we license
      from Eastman Kodak. We rely upon Eastman Kodak to protect and enforce key
      patents held by them, relating to OLED display technology. Eastman Kodak's
      patents expire at various times in the future. Our license with Eastman Kodak
      could terminate if we fail to perform any material term or covenant under the
      license agreement. Since our license from Eastman Kodak is non-exclusive,
      Eastman Kodak could also elect to become a competitor itself or to license
      OLED
      technology for microdisplay applications to others who have the potential to
      compete with us. The occurrence of any of these events could have a material
      adverse impact on our business.





**WE
      MAY NOT BE SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY AND PROPRIETARY
      RIGHTS.**





We
      rely
      on a combination of patents, trade secret protection, licensing agreements
      and
      other arrangements to establish and protect our proprietary technologies. If
      we
      fail to successfully enforce our intellectual property rights, our competitive
      position could suffer, which could harm our operating results. Patents may
      not
      be issued for our current patent applications, third parties may challenge,
      invalidate or circumvent any patent issued to us, unauthorized parties could
      obtain and use information that we regard as proprietary despite our efforts
      to
      protect our proprietary rights, rights granted under patents issued to us may
      not afford us any competitive advantage, others may independently develop
      similar technology or design around our patents, our technology may be available
      to licensees of Eastman Kodak, and protection of our intellectual property
      rights may be limited in certain foreign countries. We may be required to expend
      significant resources to monitor and police our intellectual property rights.
      Any future infringement or other claims or prosecutions related to our
      intellectual property could have a material adverse effect on our business.
      Any
      such claims, with or without merit, could be time consuming to defend, result
      in
      costly litigation, divert management's attention and resources, or require
      us to
      enter into royalty or licensing agreements. Such royalty or licensing
      agreements, if required, may not be available on terms acceptable to us, if
      at
      all. Protection of intellectual property has historically been a large yearly
      expense for eMagin. We have not been in a financial position to properly protect
      all of our intellectual property, and may not be in a position to properly
      protect our position or stay ahead of competition in new research and the
      protecting of the resulting intellectual property.





**RISKS
      RELATED TO THE MICRODISPLAY INDUSTRY**





**THE
      COMMERCIAL SUCCESS OF THE MICRODISPLAY INDUSTRY DEPENDS ON THE WIDESPREAD MARKET
      ACCEPTANCE OF MICRODISPLAY SYSTEMS PRODUCTS.**





The
      market for microdisplays is emerging. Our success will depend on consumer
      acceptance of microdisplays as well as the success of the commercialization
      of
      the microdisplay market. As an OEM supplier, our customer's products must also
      be well accepted. At present, it is difficult to assess or predict with any
      assurance the potential size, timing and viability of market opportunities
      for
      our technology in this market. The viewfinder microdisplay market sector is
      well
      established with entrenched competitors with whom we must compete.





**THE
      MICRODISPLAY SYSTEMS BUSINESS IS INTENSELY COMPETITIVE.**




We
      do
      business in intensely competitive markets that are characterized by rapid
      technological change, changes in market requirements and competition from both
      other suppliers and our potential OEM customers. Such markets are typically
      characterized by price erosion. This intense competition could result in pricing
      pressures, lower sales, reduced margins, and lower market share. Our ability
      to
      compete successfully will depend on a number of factors, both within and outside
      our control. We expect these factors to include the following:





·
            our
                success in designing, manufacturing and delivering expected new products,
                including those implementing new technologies on a timely
                basis;


·
            our
                success in designing, manufacturing and delivering expected new products,
                including those implementing new technologies on a timely
                basis;


·
            our
                ability to address the needs of our customers and the quality of
                our
                customer services;


·
            the
                quality, performance, reliability, features, ease of use and pricing
                of
                our products;


·
            successful
                expansion of our manufacturing
                capabilities;


·
            our
                efficiency of production, and ability to manufacture and ship products
                on
                time;


·
            the
                rate at which original equipment manufacturing customers incorporate
                our
                product solutions into their own
                products;


·
            the
                market acceptance of our customers’ products;
                and


·
            product
                or technology introductions by our
                competitors.





Our
      competitive position could be damaged if one or more potential OEM customers
      decide to manufacture their own microdisplays, using OLED or alternate
      technologies. In addition, our customers may be reluctant to rely on a
      relatively small company such as eMagin for a critical component. We cannot
      assure you that we will be able to compete successfully against current and
      future competition, and the failure to do so would have a materially adverse
      effect upon our business, operating results and financial condition.





**THE
      DISPLAY INDUSTRY IS CYCLICAL.**





The
      display industry is characterized by
      fabrication facilities that
      require large capital expenditures and long lead
      times
      for supplies and the subsequent processing time, leading to
      frequent mismatches between supply and demand. The OLED microdisplay
      sector
      may experience overcapacity if and when all of the facilities
      presently in the planning stage come on line leading to a difficult
      market in which to sell our products.









14


**COMPETING
      PRODUCTS MAY GET TO MARKET SOONER THAN OURS.**





Our competitors are
      investing substantial resources in the development and
      manufacture of microdisplay systems using alternative
      technologies such as reflective liquid crystal displays
      (LCDs), LCD-on-Silicon ("LCOS") microdisplays, active
      matrix
      electroluminescence and scanning image systems, and transmissive active matrix
      LCDs. Our competitive position could be damaged if one or more of our
      competitors’ products get to the market sooner than our products. We cannot
      assure you that our product will get to market ahead of our competitors or
      that
      we will be able to compete successfully against current and future competition.
      The failure to do so would have a materially adverse effect upon our business,
      operating results and financial condition.





**OUR
      COMPETITORS HAVE MANY ADVANTAGES OVER US.**





As
      the microdisplay market develops, we expect to experience
      intense competition from numerous domestic and foreign
      companies including well-established corporations possessing worldwide
      manufacturing and production facilities, greater name recognition,
      larger retail bases and significantly greater
      financial, technical, and marketing resources than us, as well
      as from
      emerging companies attempting to obtain a share of the various markets
      in
      which our microdisplay products have the potential to compete. We cannot assure
      you that we will be able to compete successfully against current and future
      competition, and the failure to do so would have a materially adverse effect
      upon our business, operating results and financial condition.





**OUR
      PRODUCTS ARE SUBJECT TO LENGTHY OEM DEVELOPMENT PERIODS.**





We
      plan
      to sell most of our microdisplays and related products to OEMs who will
      incorporate them into or with products they sell. OEMs determine during their
      product development phase whether they will incorporate our products. The time
      elapsed between initial sampling of our products by OEMs, the custom design
      of
      our products to meet specific OEM product requirements, and the ultimate
      incorporation of our products into OEM consumer products is significant. If
      our
      products fail to meet our OEM customers' cost, performance or technical
      requirements or if unexpected technical challenges arise in the integration
      of
      our products into OEM consumer products, our operating results could be
      significantly and adversely affected. Long delays in achieving customer
      qualification and incorporation of our products could adversely affect our
      business.





**OUR
      PRODUCTS WILL LIKELY EXPERIENCE RAPIDLY DECLINING UNIT PRICES.**





In
      the
      markets in which we compete, prices of established products tend to decline
      significantly over time. In order to maintain our profit margins over the long
      term, we anticipate that we will need to continuously develop product
      enhancements and new technologies that will either slow price declines of our
      products or reduce the cost of producing and delivering our products. While
      we
      anticipate many opportunities to reduce production costs over time, there can
      be
      no assurance that these cost reduction plans will be time, there can be no
      assurance that these cost reduction plans will be successful. We may also
      attempt to offset the anticipated decrease in our average selling price by
      introducing new products, increasing our sales volumes or adjusting our product
      mix. If we fail to do so, our results of operations would be materially and
      adversely affected.





**RISKS
      RELATED TO OUR BUSINESS**





**OUR
      SUCCESS DEPENDS ON ATTRACTING AND RETAINING HIGHLY SKILLED AND QUALIFIED
      TECHNICAL AND CONSULTING PERSONNEL.**





We
      must
      hire highly skilled technical personnel as employees and as independent
      contractors in order to develop our products. The competition for skilled
      technical employees is intense and we may not be able to retain or recruit
      such
      personnel. We must compete with companies that possess greater financial and
      other resources than we do, and that may be more attractive to potential
      employees and contractors. To be competitive, we may have to increase the
      compensation, bonuses, stock options and other fringe benefits offered to
      employees in order to attract and retain such personnel. The costs of retaining
      or attracting new personnel may have a materially adverse affect on our business
      and our operating results. In addition, difficulties in hiring and retaining
      technical personnel could delay the implementation of our business plan.





**OUR
      SUCCESS DEPENDS IN A LARGE PART ON THE CONTINUING SERVICE OF KEY PERSONNEL.**





Changes
      in management could have an adverse effect on our business. We are dependent
      upon the active participation of several key management personnel, including
      Gary W. Jones, our chief executive officer. We will also need to recruit
      additional management in order to expand according to our business plan. The
      failure to attract and retain additional management or personnel could have
      a
      material adverse effect on our operating results and financial performance.





**OUR
      BUSINESS DEPENDS ON NEW PRODUCTS AND TECHNOLOGIES.**





The
      market for our products is characterized by rapid changes in product, design
      and
      manufacturing process technologies. Our success depends to a large extent on
      our
      ability to develop and manufacture new products and technologies to match the
      varying requirements of different customers in order to establish a competitive
      position and become profitable. Furthermore, we must adopt our products and
      processes to technological changes and emerging industry standards and practices
      on a cost-effective and timely basis. Our failure to accomplish any of the
      above
      could harm our business and operating results.






15





**WE
      GENERALLY DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS.**




Our
      business is operated on the basis of short-term purchase orders and we cannot
      guarantee that we will be able to obtain long-term contracts for some time.
      Our
      current purchase agreements can be cancelled or revised without penalty,
      depending on the circumstances. In the absence of a backlog of orders that
      can
      only be canceled with penalty, we plan production on the basis of internally
      generated forecasts of demand, which makes it difficult to accurately forecast
      revenues. If we fail to accurately forecast operating results, our business
      may
      suffer and the value of your investment in the Company may decline.





**OUR
      BUSINESS STRATEGY MAY FAIL IF WE CANNOT CONTINUE TO FORM STRATEGIC RELATIONSHIPS
      WITH COMPANIES THAT MANUFACTURE AND USE PRODUCTS THAT COULD INCORPORATE OUR
      OLED-ON-SILICON TECHNOLOGY.**





Our
      prospects will be significantly affected by our ability to develop strategic
      alliances with OEMs for incorporation of our OLED-on-silicon technology into
      their products. While we intend to continue to establish strategic relationships
      with manufacturers of electronic consumer products, personal computers,
      chipmakers, lens makers, equipment makers, material suppliers and/or systems
      assemblers, there is no assurance that we will be able to continue to establish
      and maintain strategic relationships on commercially acceptable terms, or that
      the alliances we do enter in to will realize their objectives. Failure to do
      so
      would have a material adverse effect on our business.





**OUR
      BUSINESS DEPENDS TO SOME EXTENT ON INTERNATIONAL TRANSACTIONS.**





We
      purchase needed materials from companies located abroad and may be adversely
      affected by political and currency risk, as well as the additional costs of
      doing business with a foreign entity. Some customers in other countries have
      longer receivable periods or warranty periods. In addition, many of the OEMs
      that are the most likely long-term purchasers of our microdisplays are located
      abroad exposing us to additional political and currency risk. We may find it
      necessary to locate manufacturing facilities abroad to be closer to our
      customers which could expose us to additional risks, including management
      of a multi-national organization, the complexities of complying with foreign
      laws and customs, political instability and the complexities of taxation in
      multiple jurisdictions.





**WE
      HAVE A STAGGERED BOARD OF DIRECTORS AND OTHER ANTI-TAKEOVER PROVISIONS, WHICH
      COULD INHIBIT POTENTIAL INVESTORS OR DELAY OR PREVENT A CHANGE OF CONTROL THAT
      MAY FAVOR YOU.**





Our
      Board
      of Directors is divided into three classes and our Board members are elected
      for
      terms that are staggered. This could discourage the efforts by others to obtain
      control of the Company. Some of the provisions of our certificate of
      incorporation, our bylaws and Delaware law could, together or separately,
      discourage potential acquisition proposals or delay or prevent a change in
      control. In particular, our board of directors is authorized to issue up to
      10,000,000 shares of preferred stock (less any outstanding shares of preferred
      stock) with rights and privileges that might be senior to our common stock,
      without the consent of the holders of the common stock.





**Item
      3. Quantitative and Qualitative Disclosures About Market Risk.**





We
      did
      not have material exposure to market risk from derivatives or other financial
      instruments as of September 30, 2005, and we do not expect any significant
      effect on our results of operations from interest rate and foreign currency
      fluctuations.





**Item
      4. Controls and Procedures.**





(a)
        Evaluation of Disclosure Controls and Procedures. As of the end of
      the
      period covered by this report, we conducted an evaluation, under the supervision
      and with the participation of our chief executive officer and chief financial
      officer of our disclosure controls and procedures (as defined in Rule 13a-15(e)
      and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief
      executive officer and chief financial officer concluded that our disclosure
      controls and procedures are effective to ensure that information required to
      be
      disclosed by us in the reports that we file or submit under the Exchange Act
      is
      recorded, processed, summarized and reported, within the time periods specified
      in the Commission's rules and forms.





(b)
        Changes in internal controls.   There was no change in our
      internal
      controls or in other factors that could affect these controls during our last
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.
















16




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





The
      Company is party to certain legal proceedings arising in the ordinary course
      of
      business. In the opinion of management, the outcome of such legal matters will
      not have a material adverse effect on the Company's results of operations or
      financial position.





**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds.**





The
      Company issued 720,000 options that have common shares
      underlying.





**Item
      3. Defaults Upon Senior Securities.**





None





**Item
      4. Submission of Matters to a Vote of Security Holders.**





1.
      On
      September 30, 2005, the Company held its Annual Meeting of Stockholders at
      the
      American Stock Exchange in New York City on at 2:00 P.M. local time.





2.
      There
      were present in person or by proxy 63,584,583  shares
      of
      Common Stock, of a total of 82,829,846 shares of Common Stock entitled to vote.





3.
      The
      number of shares voted in favor of the election of the following nominees for
      director is set forth opposite each nominee's name:





Nominee
            
            Number
                of SharesGary
                W. Jones
            
            62,201,647Irwin
                Engleman
            
            62,370,181




4.
      34,376,771 shares were voted in favor of the 2005 Employee Stock Purchase Plan.





5.
      31,764,637 shares were voted in favor of amending the 2003 Stock Option Plan
      to
      provide for grants of shares of Common Stock in addition to options to purchase
      shares of Common Stock.





6.
      31,734,261 shares were voted in favor of increasing the number of authorized
      shares of Common Stock issuable pursuant to the 2004 Non-Employee Stock
      Compensation Plan from 1,000,000 to 2,000,000 shares.





7.
      62,510,034 shares were voted in favor of the appointment of Eisner LLP as the
      Company’s independent auditors for the fiscal year ending December 31, 2005.





**Item
      5. Other Information.**





None.





**Item
      6. Exhibits**






EXHIBIT
              NUMBER
            DESCRIPTION31.1
            Certification by
              Chief
              Executive Officer pursuant to Sarbanes Oxley Section
              30231.2
            Certification by
              Chief
              Financial Officer pursuant to Sarbanes Oxley Section 30232.1
            Certification by
              Chief
              Financial Officer pursuant to 18 U.S.C.
              Section 135032.2
            Certification by
              Chief
              Financial Officer pursuant to 18 U.S.C. Section 1350






17











**SIGNATURES**


In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.










**eMAGIN
                CORPORATION**Date:
                November 14, 2005By:
            /s/  Gary
                JonesGary
                Jones*Chief
                Executive Officer and President*
              *(Principal
                Executive Officer)*Date:
                November 14, 2005By:
            /s/  John
                AtherlyJohn
                Atherly*Chief
                Financial Officer*
              *(Principal
                Accounting and Financial Officer)*













18