U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                  FORM 10-QSB/A

 (Mark One)

[X]  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended March 31, 2004

[ ]  Transition report pursuant section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the transition period from ____________ to ________________


                               eMAGIN CORPORATION
        (Exact name of small business issuer as specified in its charter)

                        Commission file number: 000-24757

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

                              10500 N.E. 8th Street
                                   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 [ ]

APPLICABLE  ONLY TO  ISSUERS  INVOLVED  IN  BANKRUPTCY  PROCEEDINGS  DURING  THE
PRECEDING FIVE YEARS: Not applicable

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 [ ]

APPLICABLE  ONLY TO  ISSUERS  INVOLVED  IN  BANKRUPTCY  PROCEEDINGS  DURING  THE
PRECEDING FIVE YEARS:
Not applicable

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

APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 12, 2004 the Registrant had
63,677,618 shares of Common Stock outstanding.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X]

PRELIMINARY NOTE (restated):

This  Amended  Quarterly  Report  on Form  10-QSB/A  is being  filed to  provide
additional  information  to clarify the  corrections  reported in the previously
Amended  Quarterly  Report on Form  10-QSB/A  filed by the  Company on April 12,
2005. The Consolidated  Balance Sheets,  Consolidated  Statements of Operations,
Consolidated Statements of Cash Flows, and Statement of Changes in Stockholders'
Equity and Selected Notes to  Consolidated  Financial  Statements are labeled as
"restated"  where  applicable.  The  restatement  was  in  connection  with  the
preparation  of the  Company's  annual  report on Form 10-KSB for the year ended
December 31, 2004 where it was determined that the unamortized debt discount and
the deferred financing costs should have been recorded as interest expense.  The
restated  statements  increase additional paid-in capital by approximately $1.67
million representing  unamortized debt discount and deferred financing costs and
increase  interest  expense in relation to the March 3, 2004 debt  conversion of
approximately  $8.567 million in principal and accrued  interest.  The following
table presents the impact of the corrections:
<PAGE>

                 Unaudited Consolidated Statements of Operations
                        Three Months Ended March 31, 2004

                                              Originally
                                                 Filed            Restated
                                            ----------------  -----------------
Other income (expense)                         $(3,403,110)       $(5,076,082)
Net loss                                       $(4,932,972)       $(6,605,944)
Basic and diluted loss per common share          $   (0.09)         $   (0.13)

In all other material respects this Amended Quarterly Report on Form 10-QSB/A is
unchanged from the Amended Quarterly Report on Form 10-QSB/A previously filed by
the Company on April 12, 2005.

In addition,  we are revising Item 3, Controls and Procedures,  to disclose that
the  Company's  management  believes that its controls and  procedures  were not
effective  as of  the  end of the  period  covered  by  this  report  due to the
restatements to the Company's financial statements as set forth above.

                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>

Index                                                                                                Page Number
Item 1.       Consolidated Financial Statements

<S>                                                                                                          <C>
              Consolidated Balance Sheets as of March 31, 2004 (unaudited) and                                4
              December 31, 2003 (restated)

              Unaudited Consolidated Statements of Operations for the
              Three-Months ended March 31, 2004 and March 31, 2003 (restated)                                 5

              Unaudited Consolidated Statements of Cash Flows for the
              Three-Months ended March 31, 2004 and March 31, 2003 (restated)                                 6

              Unaudited Consolidated Statement of Changes in Stockholders'
              Equity from December 31, 2003 to March 31, 2004  (restated)                                     7

              Selected Notes to Consolidated Financial Statements (restated)                                  8

Item 2.       Management's Discussion and Analysis of Financial Condition and
              Results of Operation (restated)                                                                14

Item 3.       Controls and Procedures                                                                        24


PART II.  OTHER INFORMATION

Item 1.       Legal Proceedings                                                                              25

Item 2.       Changes in Securities and Use of Proceeds                                                      25

Item 3.       Defaults Upon Senior Securities                                                                26

Item 4.       Submission of Matters to a Vote of Security Holders                                            26

Item 5.       Other Information                                                                              26

Item 6.       Exhibits and Reports on Form 8-K                                                               26

SIGNATURE                                                                                                    28

CERTIFICATION                                                                                          See Exhibits

31.1          Certification by Chief Executive Officer pursuant to Sarbanes
              Oxley Section 302.

31.2          Certification by Chief Financial Officer pursuant to Sarbanes
              Oxley Section 302.

32.1          Certification by Chief Executive Officer pursuant to 18 U.S.C.
              Section 1350

32.2          Certification by Chief Financial Officer pursuant to 18 U.S.C.
              Section 1350

</TABLE>
                                        3
<PAGE>
                               eMAGIN CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                     ASSETS                                          March 31, 2004        December 31, 2003
                                                                                    -----------------------------------------
CURRENT ASSETS:                                                                       (Unaudited)
                                                                                       (Restated)
<S>                                                                                         <C>                     <C>
   Cash and cash equivalents                                                         $    4,714,959          $     1,053,895
   Trade receivables                                                                        659,099                  768,537
   Unbilled costs and estimated profits on contracts in progress                                  -                   75,359
   Inventory                                                                                513,880                  275,417
   Prepaid expenses and other current assets                                                827,516                  287,957
                                                                                    -----------------------------------------
      Total current assets                                                                6,715,454                2,461,165

EQUIPMENT AND LEASEHOLE IMPROVEMENTS:                                                     3,460,571                3,350,930
Less:  Accumulated Depreciation                                                          (2,309,250)              (2,149,991)
                                                                                    -----------------------------------------
Total equipment and leasehold improvements, net                                           1,151,321                1,200,939

Intangible Assets                                                                            13,504                        -
Less:  Accumulated Amortization                                                                (156)                       -
                                                                                    -----------------------------------------
Total intangible assets, net                                                                 13,348                        -
Other long-term assets                                                                        4,407                   86,907
                                                                                    -----------------------------------------
      Total assets                                                                   $    7,884,530          $     3,749,011
                                                                                    =========================================

                           LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                                                  $      255,301          $       234,869
   Accrued payroll and benefits                                                             554,744                  952,850
   Other accrued expenses                                                                   366,192                  988,569
   Advanced payments                                                                        124,653                  122,362
   Current portion of long term debt                                                         27,826                   38,184
   Other current liabilities                                                                 14,109                   18,008
                                                                                    -----------------------------------------
      Total current liabilities                                                           1,342,825                2,354,842

Capitalized lease obligations                                                                32,923                   36,257
Notes payable and short-term debt subsequently converted to equity                                -                6,124,451
                                                                                    -----------------------------------------
      Total liabilities                                                                   1,375,748                8,515,550

SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY):
   Common Stock, par value $0.001 per share
      Shares authorized - 100,000,000
      Shares issued and outstanding - 63,043,682 and 42,695,412                              63,044                   42,694
   Additional paid-in capital                                                           149,375,720              131,598,910
   Deferred compensation                                                                     (3,460)                 (87,565)
   Accumulated deficit                                                                 (142,926,522)            (136,320,578)
                                                                                    -----------------------------------------
      Total shareholders' equity                                                          6,508,782               (4,766,539)
                                                                                    -----------------------------------------
      Total liabilities and shareholders' equity                                     $    7,884,530          $     3,749,011
                                                                                    =========================================
</TABLE>

                       See notes to financial statements.

                                       4
<PAGE>
                               eMAGIN CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                           Three Months       Three Months
                                                                              Ended              Ended
                                                                          March 31, 2004     March 31, 2003
                                                                            (Restated)
                                                                        ------------------------------------
<S>                                                                     <C>                 <C>
REVENUE:
  Product revenue, net of returns                                       $       540,088     $       465,379
                                                                        ------------------------------------
    Total Revenue                                                               540,088             465,379
                                                                        ------------------------------------
Cost of Goods Sold:
  Direct cost of goods sold                                                     208,599             198,951
  Production expenses                                                         1,154,123             950,917
                                                                        ------------------------------------
    Total Cost of Goods Sold                                                  1,362,722           1,149,868
                                                                        ------------------------------------

Gross Loss                                                                     (822,634)           (684,489)
                                                                        ------------------------------------

COSTS AND EXPENSES:
  Research and development                                                        7,990              21,848
  Amortization of purchased intangibles                                             156             331,442
  Stock based compensation                                                       84,105             111,385
  Selling, general and administrative                                           614,977           1,005,347
                                                                        ------------------------------------
    Total costs and expenses, net                                               707,228           1,470,022
                                                                        ------------------------------------

  Interest expense, net                                                      (5,076,082)           (250,980)
                                                                        ------------------------------------

    Net loss                                                            $    (6,605,944)    $    (2,405,491)
                                                                        ====================================
Basic and diluted loss per common share                                 $         (0.13)    $         (0.08)
                                                                        ====================================
Weighted average common shares outstanding                                   51,940,205          30,731,934
                                                                        ====================================
</TABLE>
                       See notes to financial statements.

                                       5
<PAGE>
                               eMAGIN CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                          Three Months          Three Months
                                                                              ended                ended
                                                                         March 31, 2004        March 31, 2003
                                                                           (Restated)
                                                                       -------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>                  <C>
Net loss                                                               $        (6,605,944) $         (2,405,491)
Adjustments to reconcile net loss to net cash
       used in operating activities-
   Depreciation and amortization                                                   159,259               124,474
   Bad debt expense                                                                 33,656                     -
   Amortization of  intangibles                                                        157               331,442
   Amortization of financing fees                                                    7,863                     -
   Non-cash charge for stock based compensation                                     84,105               111,385
   Non-cash interest related charges                                               125,833               245,962
   Non-cash charge for services received                                             8,400               163,134
   Non-cash financing expense                                                    4,955,186                     -
   Changes in operating assets and liabilities:
       Trade receivables                                                           151,142               110,528
       Unbilled costs and estimated profits on contracts in progress                     -               (50,000)
       Inventory                                                                   (38,741)              124,841
       Prepaid expenses and other current assets                                  (658,443)                 (609)
       Other long-term assets                                                            -                (7,244)
       Advanced payment on contracts to be completed                                 2,291                     -
       Deferred Revenue                                                                  -               (29,900)
       Accounts payable, accrued expenses and accrued payroll                     (425,247)            1,109,609
       Other current liabilities                                                    (3,899)              (21,231)
                                                                       -------------------- ---------------------
             Net cash used in operating activities                              (2,204,382)             (193,100)
                                                                       -------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases/Sales of equipment                                                   (109,097)              139,095
                                                                       -------------------- ---------------------
             Net cash used in investing activities                                (109,097)              139,095
                                                                       -------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sales of common stock, net of issuance costs                    3,916,536                     -
   Proceeds from exercise of stock options and warrants                          2,073,400                50,000
   Payments of long term debt and capital leases                                   (15,393)              (13,692)
                                                                       -------------------- ---------------------
             Net cash provided by financing activities                           5,974,543                36,308
                                                                       -------------------- ---------------------
NET INCREASE  IN CASH AND CASH EQUIVALENTS                                       3,661,064               (17,697)
CASH AND CASH EQUIVALENTS, beginning of period                                   1,053,895                82,951
                                                                       -------------------- ---------------------
CASH AND CASH EQUIVALENTS, end of period                               $         4,714,959  $             65,254
                                                                       ==================== =====================
Supplemental Cash Flow Disclosure:
Conversion of debt to equity                                           $         8,567,424
Payments of A/P through issuance of stock                              $            34,599
Stock issued for prepaid services                                      $            16,800
Cash payments of interest                                              $             2,508
</TABLE>

                       See notes to financial statements.

                                       6
<PAGE>

                               eMAGIN CORPORATION
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
                                  (Unaudited)
                                   (Restated)

<TABLE>
<CAPTION>
                                                                                    Additional
                                         Common Stock               Deferred         paid-in        Accumulated
                                   Shares                 $       Compensation       Capital          Deficit           Total
                                -----------------  ------------  ---------------  --------------  ---------------  -----------------
<S>                    <C>             <C>          <C>           <C>              <C>             <C>              <C>
Balance, December 31, 2003            42,695,412   $   42,694    $      (87,565)  $ 131,598,910   $ (136,320,578)  $     (4,766,539)

Sale of equity                         3,333,364        3,334                         3,913,203                           3,916,537

Conversion of debt to equity          11,394,621       11,395                         8,556,029                           8,567,424

Issuance of warrants for
equity transaction                                                                    3,180,000                           3,180,000

Stock options exercised                5,089,134         5,089                        1,337,784                           1,342,873

Stock warrants exercised                 498,829           499                          730,028                             730,527

Issuance of common stock for
services                                  32,322            33                           59,766                              59,799


Amortization of deferred
compensation                                                             84,105                                              84,105

Net loss for period                                                                                   (6,605,944)        (6,605,944)
                                -----------------  ------------  ---------------  --------------  ---------------  -----------------
Balance, March 31, 2004               63,043,682   $    63,044   $       (3,460)  $ 149,375,720   $ (142,926,522)  $      6,508,782
                                =================  ============  ===============  ==============  ===============  =================
</TABLE>
                       See notes to financial statements.

                                       7
<PAGE>
                               eMAGIN CORPORATION
               Selected Notes to Consolidated Financial Statements

Note 1 - ACCOUNTING POLICIES

Basis of Presentation (Restated)

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 for the year ended  December 31,
2003.  The  results of  operations  for the period  ended March 31, 2004 are not
necessarily indicative of the results to be expected for the full year.

As a result of a  subsequent  analysis of the three  months ended March 31, 2004
Statements  of  Operations,  we noted  that the  Revenue  and Cost of Goods Sold
related  to  intercompany  transactions  had not been  eliminated.  Accordingly,
product revenue,  net of returns and direct cost of goods sold have been reduced
by $143,028.  These amounts offset and do not affect  previously  reported Gross
Margins or Net Loss for the three months ended March 31, 2004. In addition,  the
footnotes  to the March 31,  2004  financial  statements  have been  updated  to
conform  to the  results  presented  in the  amended  March 31,  2004  quarterly
financial statements.

This Amended Quarterly Report is being filed to reflect the  reclassification of
approximately  $1.67 million of unamortized debt discount and deferred financing
costs from  additional  paid-in-capital  to interest  expense in relation to the
March 3, 2004 debt conversion of  approximately  $8.567 million in principal and
accrued  interest.  In connection with the  preparation of the Company's  annual
report on Form 10-KSB for the year ended  December 31,  2004,  on March 28, 2005
the Company was advised by its  independent  registered  public  accounting firm
that the  unamortized  debt discount and the deferred  financing costs should be
recorded  as interest  expense.  In all other  material  respects  this  Amended
Quarterly Report on Form 10-QSB/A is unchanged from the Amended Quarterly Report
on Form 10-QSB/A previously filed by the Company on August 16, 2004.

Stock-Based Compensation (Restated)

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  provision  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 first quarter of 2004 and 2003, respectively: (1) average expected
volatility of 100% and 162%, (2) average  risk-free  interest rates of 3.31% and
3.64%, and (3) expected lives of seven years and ten 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
months ended March 31, 2004 and 2003.
<TABLE>
<CAPTION>
  For the three months ended March 31,                       2004                  2003
                                                          (Restated)
  ----------------------------------------------- --------------------- ---------------------
<S>                                               <C>                   <C>
  Net loss applicable to common stockholders',    $         (6,605,944) $         (2,405,491)
  as reported
  ----------------------------------------------- --------------------- ---------------------
  Add: Stock based employee compensation
  expense included in reported net loss                              -                     -
  ----------------------------------------------- --------------------- ---------------------
  Deduct:  Stock-based employee compensation
  expense determined under fair value method                (1,288,000)           (1,441,445)
  ----------------------------------------------- --------------------- ---------------------
  Pro forma net loss                              $         (7,893,944) $         (3,846,836)
  ----------------------------------------------- --------------------- ---------------------
  Net loss per share applicable to common
  stockholders':
  ----------------------------------------------- --------------------- ---------------------
  Basic and diluted, as reported                  $              (0.13) $              (0.08)
  ----------------------------------------------- --------------------- ---------------------
  Basic and diluted, pro forma                    $              (0.15) $              (0.13)
  ----------------------------------------------- --------------------- ---------------------
</TABLE>

                                       8
<PAGE>
Note 2 - NATURE OF BUSINESS

Through  December  31, 2002,  the Company was  considered  a  development  stage
enterprise,  in  accordance  with  Statement of Financial  Accounting  Standards
("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises".  As
of January 1, 2003, the Company has commenced planned  principal  operations and
as such it is no longer  considered  to be a  development  stage  enterprise  in
accordance with SFAS No 7.

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 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.  Billing  is based on  subjective  cost
investment factors.

Note 4 - RECEIVABLES

The  majority  of our  commercial  accounts  receivable  are due  from  Original
Equipment  Manufacturers  ("OEM"s).  Credit is extended based on 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.  Any account  outstanding longer than the contractual payment terms is
considered  past due. The Company  determines  the  allowance by  considering  a
number of factors,  including the length of time 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.

Receivables consist of the following:

                                           March 31, 2004      December 31, 2003
         Trade receivables                  $   848,033          $    899,174
         Contract receivables                    73,809               173,809
         Unbilled receivables                         -                75,359
                                            ------------          ------------
           Total                                921,842             1,148,342

         Less allowance for doubtful accounts  (262,743)             (304,446)
                                            ------------          ------------
           Net receivables                  $   659,099           $   843,896
                                            ============          ============
                                       9
<PAGE>
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")
were  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   36,594,874  and  39,686,573  have  been  excluded  from  the
computation  of diluted EPS for the three  months ended March 31, 2004 and March
31, 2003, respectively.

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 realized value based upon current market
prices and contracts for future sales.

The components of inventories are as follows:

                                         March 31, 2004       December 31, 2003

        Raw materials                   $   229,157              $     20,416
        Work in process                     142,811                    43,750
        Finished goods                      141,912                   211,251
                                        ------------             -------------
           Total Inventory              $   513,880              $    275,417
                                        ============             =============
Note 8 - DEBT (Restated)

The debt consisted of following:
<TABLE>
<CAPTION>
                                                        March 31, 2004      December 31, 2003
<S>                                                     <C>                  <C>
         a     Current portion of long term debt        $      27,826        $       38,184
         b     Restructuring Agreement and
                Original Secured Notes                              -             6,124,451
         c     Long-term capitalized lease obligations         32,923                36,257
                                                        --------------       ---------------

               Total debt                               $      60,749        $    6,198,892
                                                        ==============       ===============
</TABLE>

                                       10
<PAGE>
a) This amount  includes  (i) $12,655 due to Citicorp  Leasing  over the next 12
months in lease  payments  for  equipment;  and (ii) $15,171 due to IBM over the
next 12 months for  leasehold  improvements.  The  remaining  balance  under the
Citicorp lease is due in 2005.

b) In February  2004,  we entered into an  agreement  whereby the holders of our
Secured Convertible Notes (the "Notes"), which were due in November 2005, agreed
to an early  conversion of 100% of the $7.825  million  principal  amount of the
Notes,  together  with the  $742,424  of accrued  interest  on the  Notes,  into
11,394,621 shares of common stock of eMagin.  The listing of the shares issuable
pursuant to such  agreement was approved by the American Stock Exchange on March
3, 2004.  On the date of the  conversion  the Company  recorded,  $1,598,335  in
non-cash   interest  expense  related  to  the  unamortized  debt  discount  and
beneficial  conversion  feature and $74,637 in non-cash interest expense related
to the writeoff of deferred financing costs.

In  consideration  of the  Noteholders  agreeing to the early  conversion of the
Notes,  eMagin issued the  Noteholders  warrants to purchase an aggregate of 2.5
million shares of common stock (the "Warrants"),  which Warrants are exercisable
at a price of $2.76 per share. 1.5 million of the Warrants are exercisable until
the later of (i) twelve  (12)  months  from the date upon  which a  registration
statement covering the shares issuable upon exercise of the Warrants is declared
effective by the Securities and Exchange Commission,  or (ii) December 31, 2005.
The remaining 1.0 million of the Warrants are  exercisable  until four (4) years
from the date upon which the  registration  statement  covering  such  shares is
declared effective by the Securities and Exchange Commission.  $3.18 million was
recorded in interest expense for the fair value estimate of these warrants.

c) This amount is due to Citicorp  Leasing as long-term  debt for lease payments
for equipment.

Note 9 - STOCKHOLDERS' EQUITY (Restated)

The authorized common stock of the Company consists of 200,000,000 shares with a
par value of $0.001 per share.

On January 9, 2004, we entered into a Securities Purchase Agreement with several
accredited  institutional and private investors whereby such investors purchased
an aggregate of 3,333,364 shares of common stock for an aggregate purchase price
of  $4,200,039.  The Company also entered into a registration  rights  agreement
with the  aforementioned  investors  with respect to the common stock issued and
common stock  issuable  upon the exercise of the  warrants.  The Company filed a
registration statement for the sales of these shares in February 2004.

The shares of common stock were priced at a 20% discount to the average  closing
price of the stock from December 30, 2003 to January 6, 2004,  which ranged from
$1.38 to $1.94 per share during the period for an average closing price of $1.26
per share. In addition, the investors received warrants to purchase an aggregate
of  2,000,019  shares of common  stock  (subject to  anti-dilution  adjustments)
exercisable  at a price of $1.74 per share for a period of five (5)  years.  The
warrants were priced at a 10% premium to the average  closing price of the stock
for the pricing period.

In connection with the private placement, eMagin also issued additional warrants
to the  investors to acquire an aggregate of 2,312,193  shares of common  stock.
1,206,914 of such warrants are  exercisable,  within 6 months from the effective
date of the  registration  statement  covering these  securities,  at a price of
$1.74 per share (a 10% premium to the average closing price of the stock for the
pricing period), and 1,105,279 of such warrants are exercisable within 12 months
from the effective date of the registration statement covering these securities,
at a price of $1.90 per share (a 20% premium to the average closing price of the
stock for the pricing period).

                                       11
<PAGE>
In February 2004, the Company and all of the holders of the Secured  Convertible
Notes (the "Notes"),  which were due in November 2005, entered into an agreement
whereby  the  holders  agreed to an early  conversion  of 100% of the  principal
amount of the Notes aggregating $7.825 million, together with all of the accrued
interest of  approximately  $742,000  on the Notes,  into  11,394,621  shares of
common  stock of eMagin.  The  listing of the shares  issuable  pursuant to such
agreement  was  approved  by the  American  Stock  Exchange.  On the date of the
conversion the Company recorded, $1,598,335 in non-cash interest expense related
to the unamortized debt discount and beneficial  conversion  feature and $74,637
in non-cash  interest  expense  related to the  writeoff  of deferred  financing
costs.

In  consideration  of the  Noteholders  agreeing to the early  conversion of the
Notes, eMagin agreed to issue the Noteholders  warrants to purchase an aggregate
of 2.5 million  shares of common  stock (the  "warrants"),  which  warrants  are
exercisable  at a price of $2.76 per  share.  1.5  million of the  Warrants  are
exercisable until the later of (i) twelve (12) months from the date upon which a
registration  statement  covering  the  shares  issuable  upon  exercise  of the
Warrants is declared  effective by the  Securities and Exchange  Commission,  or
(ii)  December  31,  2005.  The  remaining  1.0  million  of  the  warrants  are
exercisable  until  June 10,  2008.  Using the Black  Scholes  method of valuing
warrants,  an expense totaling $3.18 million was recorded in interest expense in
the first quarter of 2004 to record the estimated fair value of these  warrants.
The  fair  value  of  the  warrants  was  estimated   using  the   Black-Scholes
option-pricing  model  with  the  following  assumptions  for  the  two  sets of
warrants:  (1)  average  expected  volatility  of 100%,  (2)  average  risk-free
interest  rates of 3.52%,  (3) Fair Market Value of $2.30,  (4) dividends of 0%,
and (5) Average  Term (in days) of 670 for the 12 month  warrants  and 1,460 for
the 4 year warrants.

In connection with the above conversion, eMagin also entered into a Registration
Rights  Agreement  with the  holders of the Notes  providing  the  holders  with
certain  registration rights under the Securities Act of 1933, as amended,  with
respect to the common stock issuable upon exercise of the warrants.

In the first quarter of 2004, the Company  received  $2,073,400 for the exercise
of 5,089,134 options and 498,829 warrants.

The Company also issued 32,322 shares of common stock for the payment of $59,799
for  services  rendered and to be rendered in the future.  As such,  the Company
recorded  the fair  value of the  services  rendered  in  selling,  general  and
administrative  expenses,  prepaid expenses and reduction of accounts payable in
the accompanying  unaudited  consolidated  statement of operations for the three
months ended March 31, 2004.

Note 10 - STOCK COMPENSATION

As of March 31, 2004, the Company has outstanding  options to purchase 7,902,924
shares.

In 2000 the Company issued options below fair market value. The Company recorded
$84,105 in the first quarter of 2004, in expense,  for the amortization of those
options. The amount was recorded in Selling, General & Administrative.

Note 11 - COMMITMENTS AND CONTINGENCIES

[a] Royalty payments:

The  Company,  in  accordance  with a royalty  agreement,  is  obligated to make
minimum annual royalty payments to a corporation commencing January 1, 2001. The
minimum annual royalty of $31,500 per year due under this agreement commences in
the first year of the agreement,  and increases to minimum  royalty  payments of
$125,000 in 2006. Under this agreement,  the Company must pay to the corporation
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 may 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 the first quarter of 2004, $22,855 was recorded in royalty expense.  In April
2004,  the Company paid $125,000 for the minimum amount due for 2004. The amount
was recorded in prepaid  expenses  and will be amortized as the Company  records
the royalty expense as defined in the agreement.

[b] Contractual obligations:

The  Company  leases  certain  office  facilities  and  office,  lab and factory
equipment under operating leases expiring  through 2008.  Certain leases provide
for payments of monthly operating expenses. The approximate future minimum lease
payments for 2004 are as follows:

  Operating leases                    $  234,242
  Capital leases                          29,523
                                      ----------
  Total contractual obligations       $  263,765
                                      ==========

                                       12
<PAGE>
We  currently  lease  space  from IBM for  $73,914  per month  that  houses  our
principal executive offices, our equipment for OLED microdisplay fabrication and
research and  development,  as well as our assembly  operations and storage.  We
currently  occupy such space on a  month-to-month  basis.  We are  currently  in
negotiations  with IBM for a new lease.  No assurance  can be given that we will
execute a new lease,  or that such new lease will be on terms that are favorable
to us. In the event that we are forced to locate new space,  we may experience a
disruption in our operations,  which could have a material adverse affect on our
results of operations.

NOTE 12 - SUBSEQUENT EVENTS

eMagin  Corporation  filed a shelf  registration  statement on Form S-3 with the
Securities and Exchange Commission (SEC). The shelf registration statement, when
declared  effective by the SEC,  will allow the company,  from time to time,  to
raise up to $50  million  through the sale of  securities,  which may consist of
common stock,  preferred stock and/or warrants,  in one or more offerings in the
future. Specific terms and prices will be determined at the time of any offering
and  included in a  prospectus  supplement  to be filed with the SEC relating to
that offering.

A  registration  statement  relating  to the  securities  listed  in  the  shelf
registration  has been  filed with the SEC,  but has not yet  become  effective.
These  securities  may not be sold,  nor may  offers to buy such  securities  be
accepted, before the time that the registration statement becomes effective.

Note 13 - RELATED PARTY TRANSACTIONS

A family member of an outside director of eMagin  participated in the Securities
Purchase Agreement in January's private placement in the amount of $90,000.  The
family member received the same considerations as all other investors.

eMagin is party to a financial  advisory and investment  banking  agreement with
Larkspur  Capital  Corporation.  An outside  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.  $283,503 and 43,651  common  stock  purchase
warrants  exercisable at $2.41 per share which expire in January 2009, were paid
under the terms of the agreement.

In February 2004, the Company and all of the holders of the Secured  Convertible
Notes (the "Notes"),  which were due in November 2005, entered into an agreement
whereby  the  holders  agreed to an early  conversion  of 100% of the  principal
amount of the Notes.

In  consideration  of the  Noteholders  agreeing to the early  conversion of the
Notes,  eMagin issued the  Noteholders  warrants to purchase an aggregate of 2.5
million shares of common stock.  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.
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
converted.

An outside director of eMagin, held an aggregate of $0.25 million of the notes
converted.
                                       13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation

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  display  modules,  which we refer to as
OLED-on-silicon-microdisplays,  primarily for incorporation into the products of
other  manufacturers.  Microdisplays are typically smaller than a postage stamp,
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 them.  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.

Since our inception in 1996, we derived  substantially  all of our revenues from
fees paid to us under  research and  development  contracts,  primarily with the
U.S.  federal  government.   We  have  devoted  significant   resources  to  the
development and commercial launch of our products.  We commenced limited initial
sales of our SVGA+  microdisplay in May 2001 and commenced  shipping  samples of
our  SVGA-3D  microdisplay  in  February  2002.  As of March  31,  2004,  we had
recognized  approximately  $2.6 million from sales of our  products,  and have a
backlog of more than $27 million in products  ordered for delivery through 2005.
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.  We have
also  shipped a limited  number of  prototypes  of our  eGlass II  Head-wearable
Display  systems.  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 wholly owned subsidiary, Virtual
Vision, Inc., we are also developing head-wearable displays that incorporate our
Microviewer.

                                       14
<PAGE>
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
the only company to demonstrate  publicly and market full-color  OLED-on-silicon
microdisplays.

Company History

Our history has been as a developmental stage company. As of January 1, 2003, we
are no longer a development 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.

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.  Amounts can be
billed on a bi-monthly  basis.  Billing is based on subjective  cost  investment
factors.

Results of Operations

THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003

Revenues

Revenues  for the three  months  ended  March 31,  2004  were $0.5  million,  as
compared to $0.5 million for the three months ended March 31, 2003.

                                       15
<PAGE>
Cost of Goods  Sold.  Cost of goods  sold  includes  direct and  indirect  costs
associated with production.  Cost of goods sold for the three months ended March
31, 2004 was $1.4  million,  as compared  to $1.1  million for the three  months
ended March 31, 2003.  Gross profit  (loss) for the three months ended March 31,
2004 was ($0.8)  million,  as  compared to ($0.7)  million for the three  months
ended March 31, 2003. This translates to a Gross Margin of (152%) and (147%) for
the three months ended March 31, 2004 and 2003, respectively.

We currently record all expenses  associated with manufacturing in Cost of Goods
Sold. The full facility over head as well as the expense of non-capitalized  raw
materials is matched against our units sold. While our production volume is low,
the Gross  Margin  reflects  the  costs  that  will be  shared  when  quantities
increase.

Costs and Expenses.

Research and Development.  Research and development  expenses included salaries,
development materials and other costs specifically  allocated to the development
of new products.  Gross research and  development  expenses for the three months
ended March 31, 2004 was $8 thousand,  as compared to $22 thousand for the three
months  ended  March  31,  2003.  Our  plans to ramp up our R&D  department  are
directly  tied to our  cash  management  and  projections.  We  expect  to begin
increasing this department when we have sufficient  excess capital to fund these
expenses.

Amortization of Purchased  Intangibles.  Amortization  of purchased  intangibles
expense for the three months  ending March 31, 2004 was $156 as compared to $0.3
million for the three months ended March 31, 2003.  The decrease of $0.3 million
in these non-cash charges is the result of the purchased intangibles being fully
amortized as of March 31, 2003.

Non-cash  Stock Based  Compensation.  Non-cash  expenses  related to stock-based
compensation  amortization  for the three  months  ended  March 31, 2004 was $84
thousand,  as compared to $111  thousand for the three  months  ending March 31,
2003. Non-cash stock-based  compensation costs are the result of amortization of
the  intrinsic  value  ascribed for the issuance of stock  options at below fair
market values. The amortization is done over the vesting period of such options.

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,
amortization,  as well as other marketing and administrative expenses.  Selling,
general and administrative  expenses,  for the three months ended March 31, 2004
were $0.5 million,  as compared to $1.0 million for the three months ended March
31,  2003.  The $0.5  million  decrease  was due to a  reduction  in  legal  and
accounting fees.

Interest  Expense.  Interest  expense for the three months ending March 31, 2004
was ($5.0)  million as compared to ($0.3)  million  for the three  months  ended
March 31, 2003.  The $4.7 million  increase in interest  expense was recorded in
conjunction  with the early  conversion  of the  $7.825  million  in Notes.  The
increase  in  interest  expense  for the three  months  ended March 31, 2004 was
attributable to three factors;  (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)
$1,598,325  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 total liabilities and contractual  obligations of $1,217,593 as of March
31,  2004.  These  contractual  obligations,  along with the dates on which such
payments are due, are described below:


                                       16
<PAGE>
                                                One Year         More than
 Contractual Obligations           Total        or Less          One Year
-------------------------     -------------  ---------------  -------------

Operating leases               $ 1,145,202       $ 234,242      $  910,960
Capital leases                      72,391          29,523          42,868
                              -------------  --------------   ------------
Total contractual obligations  $ 1,217,593       $ 263,765        $953,828
                              =============  ==============   ============

We currently  anticipate that we will continue to experience  significant growth
in our  operating  expenses for the  foreseeable  future and that our  operating
expenses will be the principal  use of our cash. In  particular,  we expect that
salaries for employees engaged in production  operations,  purchase of inventory
and expenses of increased  sales and  marketing  efforts  would be the principle
uses of cash. We expect that our cash  requirements over the next 12 months will
be met by a  combination  of cash on hand  which as of May 13 was  approximately
$4.5  million,  additional  financing,  exercising  of  outstanding  options and
warrants, and revenues generated by operations.  We expect to continue to devote
substantial resources to manufacturing, marketing and selling our products.

We have  received  purchase  agreements  for  approximately  $27 million for our
products to be delivered  now through early 2005.  Management  believes that the
prospects for growth of product revenue remain high.

Scheduled   deliveries  against  our  purchase  agreements  and  other  customer
requirements are subject to change  depending on a number of factors  including,
our production  capacity,  our customers'  production  timing of related systems
into which they are integrating our products and their other supplier schedules,
changes in the  expected  procurement  periods  for  military  programs  and the
requirements  of the  individual  agreements and contracts that we have with our
customers.  We currently  anticipate  the need to ramp our supplies and staffing
quickly  and  efficiently  to be  prepared  to meet  the  currently  anticipated
shipping schedules, which may require significant added effort.

We are in the early phases of  production,  although our past  progress had been
impeded by our prior cash position. Anticipated increased shipments in the first
quarter were delayed,  primarily due to our inability to purchase raw materials.
Based on the planned  schedule,  we have  resolved our supplier  issues and have
been able to produce quantities late in the first quarter of 2004. We expect our
second quarter revenue to begin to reflect this change.

Our cash requirements  depend on numerous factors,  including  completion of our
product development  activities,  ability 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  our
development  programs  directed at  commercializing  our  products in our target
markets,  hire and train additional  staff,  expand our research and development
activities, and develop and expand our manufacturing capacity.


                                       17
<PAGE>

Any delays could change the cash  requirements of the company.  While we believe
that we are in position to handle the anticipated production increase, there can
be no assurance  that we will not experience  some issues  relating to yield and
throughput risk that could result in production delays.

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

If we do not obtain additional cash to operate our business,  we may not be able
to execute our business plan and may not achieve profitability.

     In the event that cash flow from operations is less than anticipated and we
are unable to secure additional funding to cover these added losses, in order to
preserve  cash, we would be required to further reduce  expenditures  and effect
further reductions in our corporate infrastructure, either of which could have a
material adverse effect on our ability to continue or increase 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 are not able to generate  sufficient capital,
either from  operations  or through  additional  financing,  to fund our current
operations,  we may not be able to continue as a going concern. If we are unable
to  continue as a going  concern,  we may be forced to  significantly  reduce or
cease our current operations.  This could significantly  reduce the value of our
securities,  which  could  result  in our  de-listing  from the  American  Stock
Exchange and cause investment losses for our shareholders.

We may not be able to satisfy the American Stock  Exchange's  continued  listing
requirements.

     The AMEX staff  notified us in June 2003 that we have fallen below  Section
1003(a)(i)  of the AMEX Company  Guide for having  shareholders'  equity of less
than $2,000,000 and losses from continuing  operations  and/or net losses in two
out of the three most recent fiscal years.  We were afforded the  opportunity to
submit a plan of compliance to the AMEX and presented a plan to the AMEX in July
2003. On September 9, 2003,  we received  notice from the staff of the AMEX that
the AMEX had  accepted  our plan to  regain  compliance  with  AMEX's  continued
listing  standards and granted us an extension  until December 4, 2004 to regain
compliance with those  standards.  The failure to execute our plan and remain in
compliance with the AMEX equity  requirement  could result in a delisting of our
common stock.

     We will be  subject  to  periodic  review  by the  AMEX  staff  during  the
extension  period.  During this time, we must make progress  consistent with the
terms of the plan or maintain  compliance with the continued listing  standards.
While we  anticipate  that, as a result of our recently  completed  financing in
January 2004 and the  conversion of our  outstanding  promissory  notes in March
2004, our balance sheet as of March 31, 2004 will reflect that we meet AMEX's $2
million shareholder equity requirement, there can be no assurance that AMEX will
waive this  requirement  prior to December 2004 or that we will be in compliance
with this requirement at December 2004. Other unidentified issues may arise that
could  adversely  affect the  financial or the potential  listing  status of the
company.

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 March 31, 2004,
were $41  million  and  acquisition  related  non-cash  transactions  were  $102
million, which resulted in an accumulated net loss of $143 million, the majority
of which was related to the March 2000 merger 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

                                       18
<PAGE>
within the foreseeable future as we fund our operations 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 were previously primarily dependent on U.S. government contracts.

     The majority of our  revenues to date have been  derived from  research and
development  contracts with the U.S.  government.  We cannot continue to rely on
such  contracts  for  revenue.  We  plan  to  submit  proposals  for  additional
development  contract  funding;  however,  funding  is  subject  to  legislative
authorization  and even if funds are  appropriated  such funds may be  withdrawn
based on changes in government  priorities.  No assurances  can be given that we
will be  successful  in obtaining  new  government  contracts.  Our inability to
obtain revenues from government  contracts could have a material  adverse effect
on  our  results  of  long-term   operations,   unless  substantial  product  or
non-government contract revenue offsets any lack of government contract revenue.

Risks related to our intellectual property

     We rely on our license  agreement with Eastman Kodak for the development of
our products.  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.

     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 Eastman Kodak, relating to OLED display technology.  Eastman
Kodak's  patents  expire at various  times in the future  from near term in 2004
through long term  patents that are just being issued in 2004.  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 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.

                                        19
<PAGE>
     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:

     o    our success in designing,  manufacturing  and delivering  expected new
          products,  including those  implementing  new technologies on a timely
          basis;
     o    our ability to address the needs of our  customers  and the quality of
          our customer services;
     o    the  quality,  performance,  reliability,  features,  ease  of use and
          pricing of our products;
     o    successful expansion of our manufacturing capabilities;
     o    our  efficiency of  production,  and ability to  manufacture  and ship
          products on time;
     o    the  rate  at  which  original   equipment   manufacturing   customers
          incorporate our product solutions into their own products;
     o    the market acceptance of our customers' products; and

     o    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.

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.  Some of these  products have been  introduced
years  ahead of our  products  and  some  are  established  in  segments  of the
microdisplay  and virtual imaging markets that we have yet to enter.  Displacing
entrenched  competitors  may be difficult,  especially in long-term  projects or
products, even if our product proves itself to be better.

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.

                                       20
<PAGE>

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  expect  to  compete,  prices  of  established
products  tend to decline  significantly  over time.  In order to  maintain  our
profit margins over the long term, we believe 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
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 manufacturing

We expect  to  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 expect to  provide  the  design
layouts  to  semiconductor  contract  manufacturers  who  will  manufacture  the
integrated  circuits on silicon wafers. We also expect to 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 has resulted in delays could result in future manufacturing delays,
increased  costs and ultimately in reduced or delayed sales or lost orders which
could materially and adversely affect our operating results.

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 attract  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 initially  expect to 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 long. No assurance can be given that we will not lose potential
sales or be able to meet sales orders  delivery  requirements  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.

                                       21
<PAGE>

We currently lease space from IBM on a month-to-month basis.

     We  currently  lease  space from IBM that  houses our  principal  executive
offices,  our  equipment  for OLED  microdisplay  fabrication  and  research and
development, as well as our assembly operations and storage. We currently occupy
such space on a month-to-month  basis. We are currently in negotiations with IBM
for a new lease.  No assurance can be given that we will execute a new lease, or
that such new lease will be on terms that are favorable to us. In the event that
we are  forced to locate  new  space,  we may  experience  a  disruption  in our
operations,  which  could  have a  material  adverse  affect on our  results  of
operations.

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 material  adverse affect on our business
and  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.  This is especially an
issue  while  the  company  staffing  is small.  We will  also  need to  recruit
additional  management in order to expand according to our business plan. We are
currently  recruiting  a chief  financial  officer.  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.

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.  Such  purchase  orders  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.  Large,
long-term  supply line  commitments  and large  inventories  of various types of
displays and other products will be required to support our business and provide
reasonable  order turn around for  customers.  Potentially  enabling rapid sales
growth targets can greatly  increase the cash  requirement  for these  accounts.
Such supplies and inventories are subject to potential obsolescence, long delays
before sale, and potential damage or loss.

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.

                                       22
<PAGE>
     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 into 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 various  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.

Our business may expose us to product liability claims.

     Our business may expose us to product  liability  claims.  Although no such
claims have been brought  against us to date, and to our knowledge no such claim
is  threatened  or likely,  we may face  liability to product  users for damages
resulting from the faulty design or  manufacture of our products.  While we plan
to maintain product liability insurance coverage, there can be no assurance that
product liability claims will not exceed coverage limits, fall outside the scope
of such  coverage,  or that such  insurance  will  continue to be  available  at
commercially reasonable rates, if at all.

Our business is subject to  environmental  regulations  and  possible  liability
arising from governmental claims related to the disposal of hazardous substances
and/or potential  employee claims of exposure to harmful  substances used in the
development and manufacture of our products.

     We are  subject  to  various  governmental  regulations  related  to toxic,
volatile, experimental and other hazardous chemicals used in, and disposed of in
connection  with, our design and  manufacturing  process.  Our failure to comply
with  these  regulations  could  result  in the  imposition  of  fines or in the
suspension or cessation of our  operations.  Compliance  with these  regulations
could  require us to acquire  costly  equipment  or to incur  other  significant
expenses.  We  develop,  evaluate  and  utilize new  chemical  compounds  in the
manufacture  of our products.  While we attempt to ensure that our employees are
protected  from  exposure  to  hazardous  materials,  we cannot  assure you that
potentially  harmful  exposure  will not  occur or that we will not be liable to
employees as a result.


Risks related to our stock

The  substantial  number of shares that are or will be  eligible  for sale could
cause our common stock price to decline even if the company is successful.

     Sales of significant  amounts of common stock in the public market,  or the
perception that such sales may occur,  could materially  affect the market price
of our common  stock.  These sales might also make it more  difficult  for us to
sell equity or equity-related  securities in the future at a time and price that
we deem  appropriate.  As of April 30, 2004, we have  outstanding (i) options to
purchase  7,794,856 shares;  and (ii) warrants to purchase  18,187,964 shares of
common stock.

                                       23
<PAGE>
ITEM 3: 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.

     Notwithstanding  the foregoing,  in connection with the audit of our annual
report on Form 10-KSB for the year ended December 31, 2004, on March 28, 2005 we
determined that the conversion of the debt to equity during the first quarter of
2004 should have been classified as a debt  transaction and therefore an expense
should have been recorded in  connection  with the  conversion.  As set forth in
this report and in our  quarterly  report on Form  10-QSB/A for the period ended
March 31, 2004 which was filed with the SEC on April 12, 2005, the  Consolidated
Balance Sheets,  Consolidated Statements of Operations,  Consolidated Statements
of Cash Flows,  Statement of Changes in Shareholders'  Equity and Selected Notes
to Consolidated  Financial Statements have been restated,  where applicable,  to
classify  the  conversion  as a  debt  transaction  and  record  an  expense  in
connection with the conversion.  Accordingly, these restatements, which were due
to  interpretations  of the accounting  treatment of such transactions which was
subsequently  determined to be incorrect,  has lead management to determine that
our disclosure  controls and procedures  were not effective as of the end of the
period  covered  by this  report  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.

     Notwithstanding the foregoing,  we engaged John Atherly in June 2004 as our
Chief  Financial  Officer,  and in May 2005, we appointed  Irwin Engelman to our
board of  directors  and  appointed  Mr.  Engelman as the  Chairman of our Audit
Committee  immediately  following our annual meeting of  shareholders  which was
held on September 30, 2005. In addition, we have hired a new Director of Finance
to assist  the Chief  Financial  Officer  with our  filing  and other  financial
reporting  obligations.  We believe  these  additions in  personnel  enhance our
ability  to meet  our  financial  and  other  reporting  obligations  as well as
strengthen  our  disclosure  controls and  procedures so that they are currently
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.

                                       24
<PAGE>

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. Changes in Securities and Use of Proceeds

On January 9, 2004, we entered into a Securities Purchase Agreement with several
accredited  institutional and private investors whereby such investors purchased
an aggregate of 3,333,364 shares of common stock for an aggregate purchase price
of  $4,200,039.  The Company also entered into a registration  rights  agreement
with the  aforementioned  investors  with respect to the common stock issued and
common stock issuable upon the exercise of the warrants.

The shares of common stock were priced at a 20% discount to the average  closing
price of the stock from December 30, 2003 to January 6, 2004,  which ranged from
$1.38 to $1.94 per share during the period for an average closing price of $1.26
per share. In addition, the investors received warrants to purchase an aggregate
of  2,000,019  shares of common  stock  (subject to  anti-dilution  adjustments)
exercisable  at a price of $1.74 per share for a period of five (5)  years.  The
warrants were priced at a 10% premium to the average  closing price of the stock
for the pricing period.

In connection with the private placement, eMagin also issued additional warrants
to the  investors to acquire an aggregate of 2,312,193  shares of common  stock.
1,206,914 of such warrants are  exercisable,  within 6 months from the effective
date of the  registration  statement  covering these  securities,  at a price of
$1.74 per share (a 10% premium to the average closing price of the stock for the
pricing period), and 1,105,279 of such warrants are exercisable within 12 months
from the effective date of the registration statement covering these securities,
at a price of $1.90 per share (a 20% premium to the average closing price of the
stock for the pricing period).

The Company received $4.2 million on the initial purchase of investments, with a
potential of another $3.5 million on the 5-year  warrants.  The  additional  2.3
million  warrants could  potentially  allow the company to receive an additional
$4.2  million.  The Company  intends to invest the  proceeds  in raw  materials,
supplies and equipment to increase  production  as well as increasing  the sales
and marketing of our products.

In February 2004, the Company and all of the holders of the Secured  Convertible
Notes (the "Notes"),  which were due in November 2005, entered into an agreement
whereby  the  holders  agreed to an early  conversion  of 100% of the  principal
amount of the Notes aggregating $7.825 million, together with all of the accrued
interest of  approximately  $742,000  on the Notes,  into  11,394,621  shares of
common  stock of eMagin.  The  listing of the shares  issuable  pursuant to such
agreement was approved by the American Stock Exchange.

In  consideration  of the  Noteholders  agreeing to the early  conversion of the
Notes,  eMagin has  agreed to issue the  Noteholders  warrants  to  purchase  an
aggregate of 2.5 million shares of common stock (the "warrants"), which warrants
are  exercisable at a price of $2.76 per share.  1.5 million of the warrants are
exercisable until the later of (i) twelve (12) months from the date upon which a
registration  statement  covering  the  shares  issuable  upon  exercise  of the
Warrants is declared  effective by the  Securities and Exchange  Commission,  or
(ii)  December  31,  2005.  The  remaining  1.0  million  of  the  warrants  are
exercisable  until  four (4)  years  from the date upon  which the  registration

                                       25
<PAGE>
statement  covering  such shares is declared  effective  by the  Securities  and
Exchange Commission.

In connection with the above conversion, eMagin also entered into a Registration
Rights  Agreement  with the  holders of the Notes  providing  the  holders  with
certain  registration rights under the Securities Act of 1933, as amended,  with
respect to the common stock issuable upon exercise of the warrants.

No proceeds were initially  received for this  transaction,  although the future
exercise  of the  warrants  could  potentially  bring in $6.9  million  from the
exercise of the 2,500,000 warrants that were issued.


Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits List

EXHIBIT
NUMBER                           DESCRIPTION
---------                       ------------

31.1 Certification by Chief Executive Officer pursuant to Sarbanes
     Oxley Section 302

31.2 Certification by Chief Financial Officer pursuant to Sarbanes
     Oxley Section 302

32.1 Certification by Chief Executive Officer pursuant to 18 U.S. C.
     Section 1350

32.2 Certification by Chief Financial Officer pursuant to 18 U.S. C.
     Section 1350

(b) Reports on Form 8-K

The Company  filed three  reports on form 8-K during the quarter ended March 31,
2004. Information regarding the items reported on is as follows:

 DATE OF REPORT                     ITEM REPORTED ON
---------------                     ----------------

January 9, 2004     eMagin  and  several  accredited   institutional   investors
                    entered into a  Securities  Purchase  Agreement  whereby the
                    Investors  agreed  purchase an  aggregate of $4.2 million in
                    exchange for an  aggregate  of 3.3 million  shares of common
                    stock.

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<PAGE>
March 4, 2004       eMagin   Corporation   and  the   holders  of  its   Secured
                    Convertible  Notes  entered  into an  agreement  whereby the
                    holders  agreed  to an  early  conversion  of  100%  of  the
                    principal  amount  of the  Notes,  together  with all of the
                    accrued interest on the Notes.


March 24, 2004      eMagin  Corporation  held an earnings call on March 23, 2004
                    to discuss the preliminary 2003 year end results.



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<PAGE>



                                   SIGNATURES

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


                                        eMAGIN CORPORATION



Dated: November 2, 2005
                                      By:  /S/ Gary W. Jones
                                               ---------------
                                               Gary W. Jones
                                               Chief Executive Officer



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