| (Mark One)                                                                                      |
|-------------------------------------------------------------------------------------------------|
| R QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934        |
|                                                                                            |
|  For the quarterly period ended March 31, 2011                                             |
|  or                                                                                        |
|                                                                                            |
| £ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                            |
|  For the transition period from  to                                              |

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

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| ●   | Adoption of certain provisions of Accounting Standards Codification (“ASC”) 815 – “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815”).  ASC 815 became effective January 1, 2009.  The anti-dilution features in certain outstanding warrants (“Warrants”) of the Company require these Warrants to be accounted for as liabilities and measured at fair value.  The restated condensed consolidated financial statements reflect the reclassification of the Warrants from shareholders’ equity to warrant liability, the cumulative effect adjustment to the opening balance of accumulated deficit and record changes in the fair value of the warrant liability in the condensed consolidated statements of operations. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | Adoption of the two-class method for Earnings Per Share (“EPS”) calculation under ASC 260, “Earnings Per Share” (“ASC 260”).  The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security.  Under the two-class method, securities that participate in dividends, such as the Company’s Series B Convertible Preferred stock, are considered ‘participating securities.” The restated financial statements reflect the restated basic and diluted earnings per share, if applicable and weighted average shares outstanding calculations. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Page   |
| PART I   FINANCIAL INFORMATION |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Item 1                                        | Condensed Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Balance Sheets as of March 31, 2011 (Restated) (unaudited) and December 31, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 4      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 (Restated) and 2010 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 5      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Three Months ended March 31, 2011 (Restated) (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 6      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 (Restated) and 2010 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 7      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 8      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 2                                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 3                                        | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 24     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 4                                        | Controls and Procedures                                                                                                                                                                                                                                 | 24     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| PART II   OTHER INFORMATION         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Item 1                                        | Legal Proceedings                                                                                                                    | 25     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 1A                                       | Risk Factors                                                                                                                         | 25     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 2                                        | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 25     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 3                                        | Defaults Upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 25     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 4                                        | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                 | 25     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 5                                        | Other Information                                                                                                                    | 25     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 6                                        | Exhibits                                                                                                                             | 26     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| SIGNATURES                                    | 27                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| CERTIFICATIONS                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

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|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|----------|--------|-------------------|--------|
|                                                                                                                                                                                                                                         |   | March 31, 2011(Restated)See Note 16(unaudited) |     |   | December 31, 2010 |   |
|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |
| ASSETS                                                                                                                                                                                                                                       |   |                                           |     |   |              |   |
|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |
| Current assets:                                                                                                                                                                                                                              |   |                                           |     |   |              |   |
| Cash and cash equivalents                                                                                                                                                                                                                    |   | $                                              | 7,763    |   |              | $      | 7,796 |   |
| Short-term investments – held to maturity                                                                                                                                                                                              |   |                                           | 3,500    |   |              |   | 3,100 |   |
| Accounts receivable, net                                                                                                                                                                                                                     |   |                                           | 4,698    |   |              |   | 5,150 |   |
| Inventory                                                                                                                                                                                                                                    |   |                                           | 2,149    |   |              |   | 1,905 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                    |   |                                           | 704      |   |              |   | 777 |   |
| Total current assets                                                                                                                                                                                                                         |   |                                           | 18,814   |   |              |   | 18,728 |   |
| Long-term investments – held to maturity                                                                                                                                                                                               |   |                                           | 1,750    |   |              |   | 1,500 |   |
| Equipment, furniture and leasehold improvements, net                                                                                                                                                                                         |   |                                           | 3,538    |   |              |   | 3,287 |   |
| Intangible assets, net                                                                                                                                                                                                                       |   |                                           | 38       |   |              |   | 39 |   |
| Other assets                                                                                                                                                                                                                                 |   |                                           | 92       |   |              |   | 92 |   |
| Deferred tax asset                                                                                                                                                                                                                           |   |                                           | 9,056    |   |              |   | 9,056 |   |
| Total assets                                                                                                                                                                                                                                 |   | $                                              | 33,288   |   |              | $      | 32,702 |   |
|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                   |   |                                           |     |   |              |   |   |   |
|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |   |   |
| Current liabilities:                                                                                                                                                                                                                         |   |                                           |     |   |              |   |   |   |
| Accounts payable                                                                                                                                                                                                                             |   | $                                              | 1,324    |   |              | $      | 1,100 |   |
| Accrued compensation                                                                                                                                                                                                                         |   |                                           | 1,811    |   |              |   | 1,975 |   |
| Other accrued expenses                                                                                                                                                                                                                       |   |                                           | 1,488    |   |              |   | 1,781 |   |
| Advance payments                                                                                                                                                                                                                             |   |                                           | 239      |   |              |   | 101 |   |
| Deferred revenue                                                                                                                                                                                                                             |   |                                           | 24       |   |              |   | 26 |   |
| Warrant liability                                                                                                                                                                                                                            |   |                                           | 7,536    |   |              |   | 7,694 |   |
| Other current liabilities                                                                                                                                                                                                                    |   |                                           | 175      |   |              |   | 170 |   |
| Total current liabilities                                                                                                                                                                                                                    |   |                                           | 12,597   |   |              |   | 12,847 |   |
| Warrant liability                                                                                                                                                                                                                            |   |                                           | 5,966    |   |              |   | 5,158 |   |
| Total liabilities                                                                                                                                                                                                                            |   |                                           | 18,563   |   |              |   | 18,005 |   |
|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |   |   |
| Commitments and contingencies  (Note 12)                                                                                                                                                                                           |   |                                           |     |   |              |   |   |   |
|                                                                                                                                                                                                                                         |   |                                           |     |   |              |   |   |   |
| Shareholders’ equity:                                                                                                                                                                                                                  |   |                                           |     |   |              |   |   |   |
| Preferred stock, $.001 par value: authorized 10,000,000 shares:                                                                                                                                                                              |   |                                           |     |   |              |   |   |   |
| Series B Convertible Preferred stock, (liquidation preference of $5,679,000) stated value $1,000 per share, $.001 par value:  10,000 shares designated and 5,679 issued and outstanding as of March 31, 2011 and December 31, 2010 |   |                                           | —  |   |              |   | — |   |
| Common stock, $.001 par value: authorized 200,000,000 shares, issued and outstanding, 21,616,708 shares as of March 31, 2011 and 21,210,445 as of December 31, 2010                                                                          |   |                                           | 22       |   |              |   | 21 |   |
| Additional paid-in capital                                                                                                                                                                                                                   |   |                                           | 209,664  |   |              |   | 206,298 |   |
| Accumulated deficit                                                                                                                                                                                                                          |   |                                           | (194,961 | )      |              |   | (191,622 | ) |
| Total shareholders’ equity                                                                                                                                                                                                             |   |                                           | 14,725   |   |              |   | 14,697 |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                                             |   | $                                              | 33,288   |   |              | $      | 32,702 |   |

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|                                                  |   | Three Months EndedMarch 31, |       |
|-------------------------------------------------------|--------|-----------------------------|------------|
|                                                  |   | 2011(Restated)See Note 16   |       |   | 2010 |   |
|                                                  |   |                        |       |   |   |   |
| Revenue:                                              |   |                        |       |   |   |   |
| Product                                               |   | $                           | 4,310      |   |   | $ | 4,486 |   |
| Contract                                              |   |                        | 1,131      |   |   |   | 1,441 |   |
| Total revenue, net                                    |   |                        | 5,441      |   |   |   | 5,927 |   |
|                                                  |   |                        |       |   |   |   |   |   |
| Cost of goods sold:                                   |   |                        |       |   |   |   |   |   |
| Product                                               |   |                        | 2,609      |   |   |   | 1,845 |   |
| Contract                                              |   |                        | 586        |   |   |   | 764 |   |
|     Total cost of goods sold      |   |                        | 3,195      |   |   |   | 2,609 |   |
| Gross profit                                          |   |                        | 2,246      |   |   |   | 3,318 |   |
|                                                  |   |                        |       |   |   |   |   |   |
| Operating expenses:                                   |   |                        |       |   |   |   |   |   |
| Research and development                              |   |                        | 532        |   |   |   | 734 |   |
| Selling, general and administrative                   |   |                        | 2,141      |   |   |   | 1,682 |   |
| Total operating expenses                              |   |                        | 2,673      |   |   |   | 2,416 |   |
| (Loss) income from operations                         |   |                        | (427       | ) |   |   | 902 |   |
|                                                  |   |                        |       |   |   |   |   |   |
| Other income (expense):                               |   |                        |       |   |   |   |   |   |
| Interest expense, net                                 |   |                        | (29        | ) |   |   | (28 | ) |
| Other income, net                                     |   |                        | 16         |   |   |   | 7 |   |
| Change in fair value of warrant liability             |   |                        | (3,057     | ) |   |   | (9,497 | ) |
| Total other expense, net                              |   |                        | (3,070     | ) |   |   | (9,518 | ) |
| Loss before (benefit from) provision for income taxes |   |                        | (3,497     | )  |   |   | (8,616 | ) |
| (Benefit from) provision for income taxes             |   |                        | (158       | ) |   |   | 1 |   |
| Net loss                                              |   | $                           | (3,339     | )  |   | $ | (8,617 | ) |
|                                                  |   |                        |       |   |   |   |   |   |
| Loss per common share, basic                          |   | $                           | (0.16      | )  |   | $ | (0.50 | ) |
| Loss per common share, diluted                        |   | $                           | (0.16      | )  |   | $ | (0.50 | ) |
|                                                  |   |                        |       |   |   |   |   |   |
| Weighted average number of common shares outstanding: |   |                        |       |   |   |   |   |   |
| Basic                                                 |   |                        | 21,522,716 |   |   |   | 17,109,706 |   |
| Diluted                                               |   |                        | 21,522,716 |   |   |   | 17,109,706 |   |

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|                                                                    |   | Preferred Stock |    |   | Common Stock |   |    |   |   |   |       |   |   |                                            |          |
|-------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|---------|--------|--------|--------|------------|--------|--------|-------------------------------------------------|---------------|
|                                                                    |   | Shares          |    |   | Amount       |   |    | Shares |   |   | Amount     |   |   | Additional Paid-in Capital(Restated)See Note 16 |          |   | Accumulated Deficit(Restated)See Note 16 |   |   | Total Shareholders’ Equity(Restated)See Note 16 |   |
| Balance,December 31, 2010                                               |   |            | 5,679   |   |         | $      | — |   |   |   | 21,210,445 |   |   | $                                               | 21            |   |   | $ | 206,298 |   |   | $ | (191,622 | ) |   | $ | 14,697 |   |
|                                                                    |   |            |    |   |         |   |    |   |   |   |       |   |   |                                            |          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair value of warrants reclassed from liability to equity upon exercise |   |            | — |   |         |   | — |   |   |   | —    |   |   |                                            | —       |   |   |   | 2,407 |   |   |   | — |   |   |   | 2,407 |   |
| Cashless exercise of common stock warrants                              |   |            | — |   |         |   | — |   |   |   | 310,897    |   |   |                                            | —       |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Exercise of common stock warrants                                       |   |            | — |   |         |   | — |   |   |   | 72,116     |   |   |                                            | 1             |   |   |   | 81 |   |   |   | — |   |   |   | 82 |   |
| Exercise of common stock options                                        |   |            | — |   |         |   | — |   |   |   | 23,250     |   |   |                                            | —       |   |   |   | 22 |   |   |   | — |   |   |   | 22 |   |
| Stock-based compensation                                                |   |            | — |   |         |   | — |   |   |   | —    |   |   |                                            | —       |   |   |   | 856 |   |   |   | — |   |   |   | 856 |   |
| Net loss                                                                |   |            | — |   |         |   | — |   |   |   | —    |   |   |                                            | —  |   |   |   | —  |   |   |   | (3,339 | ) |   |   | (3,339 | ) |
| Balance,March 31, 2011                                                  |   |            | 5,679   |   |         | $      | — |   |   |   | 21,616,708 |   |   | $                                               | 22            |   |   | $ | 209,664 |   |     | $ | (194,961 | ) |   | $ | 14,725 |   |
|                                                                    |   |            |    |   |         |   |    |   |   |   |       |   |   |                                            |          |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                                                                                                                                   |   | Three Months Ended        |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                                                                                                   |   | March 31,                 |    |
|                                                                                                                                                   |   | 2011(Restated)See Note 16 |    |   | 2010 |   |
|                                                                                                                                                   |   | (unaudited)               |    |
| Cash flows from operating activities:                                                                                                                  |   |                      |    |   |   |   |
| Net loss                                                                                                                                               |   | $                         | (3,339  | ) |   | $ | (8,617 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities:                                                                        |   |                      |    |   |   |   |   |   |
| Depreciation and amortization                                                                                                                          |   |                      | 34      |   |   |   | 16 |   |
| Reduction of provision for sales returns and doubtful accounts                                                                                         |   |                      | (204    | ) |   |   | (161 | ) |
| Deferred tax benefit                                                                                                                                   |   |                      | (150    | ) |   |   | — |   |
| Stock-based compensation                                                                                                                               |   |                      | 856     |   |   |   | 433 |   |
| Amortization of common stock issued for services                                                                                                       |   |                      | — |   |   |   | 1 |   |
| Change in fair value of warrant liability                                                                                                              |   |                      | 3,057   |   |   |   | 9,497 |   |
| Changes in operating assets and liabilities:                                                                                                           |   |                      |    |   |   |   |   |   |
| Accounts receivable                                                                                                                                    |   |                      | 656     |   |   |   | 303 |   |
| Inventory                                                                                                                                              |   |                      | (244    | ) |   |   | (14 | ) |
| Prepaid expenses and other current assets                                                                                                              |   |                      | 73      |   |   |   | (53 | ) |
| Deferred revenue                                                                                                                                       |   |                      | (2      | ) |   |   | 128 |   |
| Accounts payable, accrued compensation, other accrued expenses, advance payments, and other current liabilities                                        |   |                      | 60      |   |   |   | (67 | ) |
| Net cash provided by operating activities                                                                                                              |   |                      | 797     |   |   |   | 1,466 |   |
| Cash flows from investing activities:                                                                                                                  |   |                      |    |   |   |   |   |   |
| Purchase of equipment                                                                                                                                  |   |                      | (284    | ) |   |   | (763 | ) |
| Purchase of investments – held to maturity                                                                                                       |   |                      | (650    | ) |   |   | — |   |
|       Net cash used in investing activities                                                                              |   |                      | (934    | ) |   |   | (763 | ) |
| Cash flows from financing activities:                                                                                                                  |   |                      |    |   |   |   |   |   |
| Proceeds from exercise of stock options and warrants                                                                                                   |   |                      | 104     |   |   |   | — |   |
| Net cash provided by financing activities                                                                                                              |   |                      | 104     |   |   |   | — |   |
| Net (decrease) increase in cash and cash equivalents                                                                                                   |   |                      | (33     | ) |   |   | 703 |   |
| Cash and cash equivalents, beginning of period                                                                                                         |   |                      | 7,796   |   |   |   | 5,295 |   |
| Cash and cash equivalents, end of period                                                                                                               |   | $                         | 7,763   |   |   | $ | 5,998 |   |
|                                                                                                                                                   |   |                      |    |   |   |   |   |   |
| Cash paid for interest                                                                                                                                 |   | $                         | 15      |   |   | $ | 15 |   |
| Cash paid for taxes                                                                                                                                    |   | $                         | — |   |   | $ | 115 |   |
|                                                                                                                                                   |   |                      |    |   |   |   |   |   |
| Issuance of 310,897 and 334,608 shares of common stock for cashless exercise of  380,511 and 669,717 warrants in 2011 and 2010, respectively |   | $                         | — |   |   | $ | — |   |
|                                                                                                                                                   |   |

----

----

|                         |                           |   | Fair Value Measurement Using |   |
|------------------------------|--------------------------------|--------|------------------------------|--------|
|                         | Fair Value as ofMarch 31, 2011 |   | Level 1                      |   | Level 2 |   | Level 3 |   |
|                         |                           |   |                         |   |   |   |   |   |
| Warrant liability, current   |                           | $      | 7,536                        |   |   | $ | — |   |   | $ | — |   |   | $ | 7,536 |   |
| Warrant liability, long-term |                           |   | 5,966                        |   |   |   | — |   |   |   | — |   |   |   | 5,966 |   |
| Total Warrant liability      |                           | $      | 13,502                       |   |   | $ | — |   |   | $ | — |   |   | $ | 13,502 |   |

----

| Balance as of January 1, 2011    |   | $      | 12,852 |   |
|----------------------------------|--------|--------|--------|--------|
| Change in fair value of warrants |   |   | 3,057  |   |
| Fair value of warrants exercised |   |   | (2,407 | )      |
| Balance as of March 31, 2011     |   | $      | 13,502 |   |

|                      |   | March 31, 2011 |              |   | December 31, 2010 |   |
|---------------------------|--------|----------------|-------------------|--------|-------------------|--------|
| Risk-free interest rate   |   |           | 0.09% - 1.29      | %      |              |   | 0.19% - 1.02 | % |
| Expected volatility       |   |           | 72.1% - 74.7      | %      |              |   | 71.9% - 79.2 | % |
| Expected life ( in years) |   |           | 0.25 – 2.75 |   |              |   | 0.50 – 3.0 |   |
| Expected dividend yield   |   |           | 0                 | %      |              |   | 0 | % |

|                                 |   | March 31,2011 (unaudited) |   |   | December 31, 2010 |   |
|--------------------------------------|--------|--------------------------------|--------|--------|-------------------|--------|
| Accounts receivable                  |   | $                              | 4,868  |   |              | $      | 5,524 |   |
| Less allowance for doubtful accounts |   |                           | (170   | )      |              |   | (374 | ) |
| Net receivables                 |   | $                              | 4,698  |   |              | $      | 5,150 |   |

----

|                                       |   | Three Months EndedMarch 31, 2011 |    |   | Three Months EndedMarch 31, 2010 |   |
|--------------------------------------------|--------|----------------------------------|---------|--------|----------------------------------|--------|
| Basic EPS                                  |   | Income                           |    |   | Shares                           |   |   | Per Share Amount |   |   | Income |   |   | Shares |   |   | Per Share Amount |   |
| Net Loss                                   |   | $                                | (3,339  | )      |                             |   |   |   |   |   |   | $ | (8,617 | ) |   |   |   |   |   |   |
| Loss allocated to participating securities |   | $                                | — |   |                             |   |   |   |   |   |   | $ | — |   |   |   |   |   |   |   |
| Loss allocated to common shares            |   | $                                | (3,339  | )      |                             |   | 21,522,716 |   |   | $ | (0.16 | ) |   | $ | (8,617 | ) |   |   | 17,109,706 |   |   | $ | (0.50 | ) |
| Diluted EPS                                |   |                             |    |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted potential common shares            |   |                             |    |   |                             |   | — |   |   |   |   |   |   |   |   |   |   |   | — |   |   |   |   |   |
| Loss allocated to common shares            |   | $                                | (3,339  | )      |                             |   | 21,522,716 |   |   | $ | (0.16 | ) |   | $ | (8,617 | ) |   |   | 17,109,706 |   |   | $ | (0.50 | ) |

|                 |   | March 31,2011 (unaudited) |   |   | December 31, 2010 |   |
|----------------------|--------|--------------------------------|--------|--------|-------------------|--------|
| Raw materials   |   | $                              | 1,177  |   |              | $      | 748 |   |
| Work in process      |   |                           | 599    |   |              |   | 681 |   |
| Finished goods  |   |                           | 373    |   |              |   | 476 |   |
| Total inventory      |   | $                              | 2,149  |   |              | $      | 1,905 |   |

|                                            |   | March 31,2011 (unaudited) |   |   | December 31, 2010 |   |
|-------------------------------------------------|--------|--------------------------------|--------|--------|-------------------|--------|
| Vendor prepayments                              |   | $                              | 45     |   |              | $      | 83 |   |
| Other prepaid expenses *                        |   |                           | 659    |   |              |   | 694 |   |
| Total prepaid expenses and other current assets |   | $                              | 704    |   |              | $      | 777 |   |

----

|                                |   | Three Months EndedMarch 31, |   |
|-------------------------------------|--------|-----------------------------|--------|
|                                |   | 2011                        |   |   | 2010 |   |
| Cost of  revenue          |   | $                           | 25     |   |   | $ | 97 |   |
| Research and development            |   |                        | 19     |   |   |   | 102 |   |
| Selling, general and administrative |   |                        | 812    |   |   |   | 234 |   |
| Total stock compensation expense    |   | $                           | 856    |   |   | $ | 433 |   |

|                           |   | Three Months EndedMarch 31, |         |
|--------------------------------|--------|-----------------------------|--------------|
|                           |   | 2011                        |         |   | 2010 |   |
| Dividend yield                 |   |                        | 0            |  % |   |   | 0 |  % |
| Risk free interest rates       |   |                        | 1.04 to 2.37 |  % |   |   | 1.34 to 2.07 |  % |
| Expected  volatility |   |                        | 67.1 to 85.7 |  % |   |   | 80.6 to 86.9 |  % |
| Expected term (in years)       |   |                        | 3.5 to 5.5   |   |   |   | 3.5 to 4.0 |   |

----

|                                             |   | Number of Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Contractual Life (In Years) |   |   | Aggregate Intrinsic Value |   |
|--------------------------------------------------|--------|------------------|-----------|--------|---------------------------------|--------|--------|--------------------------------------------------------|--------|--------|---------------------------|--------|
| Outstanding at December 31, 2010                 |   |             | 3,152,114 |   |                            | $      | 1.71   |                                                   |   |   |                      |   |   |   |
| Options granted                                  |   |             | 1,294,177 |   |                            |   | 7.51   |                                                   |   |   |                      |   |   |   |
| Options exercised                                |   |             | (23,250   | )      |                            |   | 0.95   |                                                   |   |   |                      |   |   |   |
| Options forfeited                                |   |             | (130      | )      |                            |   | 2.60   |                                                   |   |   |                      |   |   |   |
| Options cancelled                                |   |             | (4,537    | )      |                            |   | 1.38   |                                                   |   |   |                      |   |   |   |
| Outstanding at March 31, 2011                    |   |             | 4,418,374 |   |                            | $      | 3.42   |                                                   |   |   | 5.96                      |   |   | $ | 17,182,953 |   |
| Vested or expected to vest at March 31, 2011 (1) |   |             | 4,332,600 |   |                            | $      | 4.22   |                                                   |   |   | 5.96                      |   |   | $ | 16,151,976 |   |
| Exercisable at March 31, 2011                    |   |             | 2,988,823 |   |                            | $      | 1.95   |                                                   |   |   | 6.38                      |   |   | $ | 15,694,652 |   |

|   |          |                |      |                                                 |                |   |                            |   |   |               |   |   |                               |      |
|--------|---------------|---------------------|-----------|------------------------------------------------------|---------------------|--------|---------------------------------|--------|--------|--------------------|--------|--------|------------------------------------|-----------|
|   |          | Options Outstanding |      |                                                 | Options Exercisable |   |
|   |          | Number Outstanding  |      | Weighted AverageRemaining Contractual Life(In Years) |                |   | Weighted Average Exercise Price |   |   | Number Exercisable |   |   | Weighted Average Exercisable Price |      |
| $      | 0.34 - $0.98  |                | 979,058   |                                                 |                | 5.31   |                            |   | $      | 0.81               |   |   |                               | 968,098   |   |   | $ | 0.81 |   |
| $      | 1.00 - $1.51  |                | 1,085,798 |                                                 |                | 6.18   |                            |   |   | 1.21               |   |   |                               | 932,224   |   |   |   | 1.23 |   |
| $      | 1.80 - $1.94  |                | 376,099   |                                                 |                | 5.87   |                            |   |   | 1.94               |   |   |                               | 368,899   |   |   |   | 1.94 |   |
| $      | 2.60 - $3.92  |                | 581,242   |                                                 |                | 6.98   |                            |   |   | 3.13               |   |   |                               | 492,602   |   |   |   | 3.10 |   |
| $      | 5.62 - $22.50 |                | 1,396,177 |                                                 |                | 5.84   |                            |   |   | 7.48               |   |   |                               | 227,000   |   |   |   | 7.29 |   |
|   |          |                | 4,418,374 |                                                 |                | 5.96   |                            |   | $      | 3.42               |   |   |                               | 2,988,823 |   |   | $ | 1.95 |   |

----

----

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|          |   | Three Months EndedMarch 31, |   |
|---------------|--------|-----------------------------|--------|
|          |   | 2011                        |   |   | 2010 |   |
| North America |   | $                           | 4,095  |   |   | $ | 3,716 |   |
| Europe        |   |                        | 532    |   |   |   | 1,490 |   |
| Asia          |   |                        | 814    |   |   |   | 721 |   |
| Total         |   | $                           | 5,441  |   |   | $ | 5,927 |   |

----

| Warrant Issuance Dates |   | Number of Warrants Outstanding as of March 31, 2011 |      |   | Exercise Price |   | Warrant Expiration Dates |   | Fair Value of Warrants atJanuary 1, 2011(in thousands) |   |   | Fair Value of Warrants atMarch 31, 2011(in thousands) |   |
|------------------------|--------|-----------------------------------------------------|-----------|--------|----------------|--------|--------------------------|--------|--------------------------------------------------------|--------|--------|-------------------------------------------------------|--------|
|                   |   |                                                |      |   |           |   |                     |   |                                                   |   |   |                                                  |   |
| July 23, 2007          |   |                                                | 201,384   |   |           | $      | 1.03                     |   | July 21, 2011                                          |   | $      | 2,560                                                 |   |   | $ | 1,205 |   |
| July 23, 2007          |   |                                                | 1,000,000 |   |           | $      | 0.48                     |   | July 21, 2011                                          |   |   | 5,135                                                 |   |   |   | 6,331 |   |
| April 2, 2008          |   |                                                | —   |   |           | $      | 1.13                     |   | April 2, 2013                                          |   |   | 347                                                   |   |   |   | — |   |
| December 22, 2008      |   |                                                | 1,000,000 |   |           | $      | 1.03                     |   | December 22, 2013                                      |   |   | 4,810                                                 |   |   |   | 5,966 |   |
|                   |   |                                                |      |   |           |   |                     |   | Total Fair Value                                       |   | $      | 12,852                                                |   |   | $ | 13,502 |   |

|                             |   | Number of Warrants |    | Warrant Issuance Dates |          | Fair Value of Warrants(in thousands) |   |
|----------------------------------|--------|--------------------|---------|------------------------|---------------|--------------------------------------|--------|
| Balance as of January 1, 2011    |   |               |    |                   |          | $                                    | 12,852 |   |
| Change in fair value of warrants |   |               |    |                   |          |                                 | 3,057  |   |
| Fair value of warrants exercised |   |               | 326,665 |                   | July 23, 2007 |                                 |   | (1,975 | ) |
| Fair value of warrants exercised |   |               | 72,116  |                   | April 2, 2008 |                                 |   | (432 | ) |
| Balance as of March 31, 2011     |   |               |    |                   |          |                                 | $      | 13,502 |   |
|                             |   |               |    |                   |          |                                 |   |   |   |

| Condensed Consolidated Balance Sheet |   | March 31, 2011           |     |   | March 31, 2011 |   |
|--------------------------------------|--------|--------------------------|----------|--------|----------------|--------|
| (in thousands)                       |   | (As previously reported) |     |   | (As restated)  |   |
|                                 |   |                     |     |   |           |   |
| Warrant liability                    |   | $                        | —  |   |           | $      | 7,536 |   |
| Total current liabilities            |   |                     | 5,211    |   |           |   | 12,597 |   |
| Warrant liability                    |   |                     | —  |   |           |   | 5,966 |   |
| Total liabilities                    |   | $                        | 5,211    |   |           | $      | 18,563 |   |
|                                 |   |                     |     |   |           |   |   |   |
| Shareholders’ equity:          |   |                     |     |   |           |   |   |   |
| Additional paid-in capital           |   | $                        | 210,550  |   |           | $      | 209,664 |   |
| Accumulated deficit                  |   |                     | (182,345 | )      |           |   | (194,961 | ) |
| Total shareholders’ equity     |   | $                        | 28,227   |   |           | $      | 14,725 |   |

----

| Condensed Consolidated Statements of Operations |   | Three Months EndedMarch 31, 2011 |       |
|-------------------------------------------------|--------|----------------------------------|------------|
| (in thousands except share and per share data)  |   | (As previously reported)         |       |   | (As restated) |   |
|                                            |   |                             |       |   |   |   |
| Change in fair value of warrant liability       |   | $                                | —    |   |   | $ | (3,057 | ) |
| Total other expense                             |   | $                                | (13        | ) |   | $ | (3,070 | ) |
| Net loss                                        |   | $                                | (282       | ) |   | $ | (3,339 | ) |
| Loss per share, basic                           |   | $                                | (0.01      | ) |   | $ | (0.16 | ) |
| Loss per share, diluted                         |   | $                                | (0.01      | ) |   | $ | (0.16 | ) |
|                                            |   |                             |       |   |   |   |   |   |
| Weighted average number of shares outstanding:  |   |                             |       |   |   |   |   |   |
|   Basic                               |   |                             | 21,522,716 |   |   |   | 21,522,716 |   |
|   Diluted                             |   |                             | 21,522,716 |   |   |   | 21,522,716 |   |

| Condensed Consolidated Statements of Cash Flows     |   | Three Months EndedMarch 31, 2011 |    |
|-----------------------------------------------------|--------|----------------------------------|---------|
| (in thousands)                                      |   | (As previously reported)         |    |   | (As restated) |   |
|                                                |   |                             |    |   |   |   |
| Net loss                                            |   | $                                | (282    | ) |   | $ | (3,339 | ) |
| Loss from change in fair value of warrant liability |   |                             | — |   |   |   | 3,057 |   |
| Net cash provided by operating activities           |   | $                                | 797     |   |   | $ | 797 |   |
|                                                |   |                             |    |   |   |   |   |   |

----

| ●   | To correct errors in the accounting for certain warrants.  Specifically, we previously classified as equity instruments warrants that should have been classified as derivative liability instruments based on the terms of the warrants and the applicable accounting guidance. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | To correct an error in the calculation of earnings per share (“EPS”).  We issued Preferred Stock – Series B which participates in dividends with our common stock; as a result, we should have used the two-class method for calculating EPS. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                          |    | Three months endedMarch 31, |   |
|-------------------------------|--------------|---------------------------------------|--------|
|                          |    | 2011                                  |   |   | 2010 |   |
|                          |    | (unaudited)                           |   |
| Product revenue gross profit  |    | $                                     | 1,701  |    |   | $ | 2,641 |    |
| Product revenue gross margin  |    |                                  | 39     | % |   |   | 59 | % |
| Contract revenue gross profit |    | $                                     | 545    |   |   | $ | 677 |   |
| Contract revenue gross margin |    |                                  | 48     | % |   |   | 47 | % |
| Total gross profit            |    | $                                     | 2,246  |   |   | $ | 3,318 |   |
| Total gross margin            |    |                                  | 41     | % |   |   | 56 | % |
|                          |    |                                  |   |   |   |   |   |   |

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| 31.1                    | Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302 (1)         |
|------------------------------|-------------------------------------------------------------------------------------------------------|
|                         |                                                                                                  |
| 31.2               | Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302 (1)    |
|                         |                                                                                                  |
| 32.1     | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (1)                       |
|               |                                                                                                  |
| 32.2                         | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (1)                       |

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|   | eMAGIN CORPORATION |                        |
|--------|--------------------|-----------------------------|
|   |               |                        |   |
|   | By:                | /s/ Andrew G. Sculley       |   |
|   |               | Andrew G. Sculley           |   |
|   |               | Chief Executive Officer     |   |
|   |               | Principal Executive Officer |   |

|   |   |                                                       |   |
|--------|--------|------------------------------------------------------------|--------|
|   | By:    | /s/ Paul Campbell                                          |   |
|   |   | Paul Campbell                                              |   |
|   |   | Chief Financial Officer                                    |   |
|   |   | (Chief Accounting Officer and Principal Financial Officer) |   |