| (Mark One)                                                                                      |
|-------------------------------------------------------------------------------------------------|
| R QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934        |
|                                                                                            |
|  For the quarterly period ended June 30, 2010                                              |
|  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.) |

----

|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Page   |
| PART I   FINANCIAL INFORMATION |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Item 1                                        | Condensed Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 3      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2010 and 2009 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 4      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months ended June 30, 2010 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 5      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 6      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                          | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 7      |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 2                                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 14     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 3                                        | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 18     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 4                                        | Controls and Procedures                                                                                                                                                                     | 18     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| PART II   OTHER INFORMATION         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Item 1                                        | Legal Proceedings                                                                                                                    | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 1A                                       | Risk Factors                                                                                                                         | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 2                                        | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 3                                        | Defaults Upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 4                                        | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                           | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 5                                        | Other Information                                                                                                                    | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| Item 6                                        | Exhibits                                                                                                                             | 19     |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| SIGNATURES                                    | 20                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| CERTIFICATIONS                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

----

|                                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|----------|---------|-------------------|--------|
|                                                                                                                                                                                                                                                                     |   | June 30, 2010(unaudited) |     |    | December 31, 2009 |   |
|                                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |
| ASSETS                                                                                                                                                                                                                                                                   |   |                     |     |    |              |   |
|                                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |
| Current assets:                                                                                                                                                                                                                                                          |   |                     |     |    |              |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                |   | $                        | 4,904    |    |              | $      | 5,295 |   |
| Short-term investments – held to maturity                                                                                                                                                                                                                          |   |                     | 2,600    |    |              |   | 100 |   |
| Accounts receivable, net                                                                                                                                                                                                                                                 |   |                     | 5,105    |    |              |   | 4,563 |   |
| Inventory                                                                                                                                                                                                                                                                |   |                     | 1,545    |    |              |   | 2,179 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                |   |                     | 516      |    |              |   | 687 |   |
| Total current assets                                                                                                                                                                                                                                                     |   |                     | 14,670   |    |              |   | 12,824 |   |
| Long-term investments – held to maturity                                                                                                                                                                                                                           |   |                     | 1,000    |    |              |   | — |   |
| Equipment, furniture and leasehold improvements, net                                                                                                                                                                                                                     |   |                     | 1,997    |    |              |   | 1,021 |   |
| Intangible assets, net                                                                                                                                                                                                                                                   |   |                     | 41       |    |              |   | 43 |   |
| Other assets                                                                                                                                                                                                                                                             |   |                     | 92       |    |              |   | 92 |   |
| Total assets                                                                                                                                                                                                                                                             |   | $                        | 17,800   |    |              | $      | 13,980 |   |
|                                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                               |   |                     |     |    |              |   |   |   |
|                                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                         |   | $                        | 1,446    |    |              | $      | 1,122 |   |
| Accrued compensation                                                                                                                                                                                                                                                     |   |                     | 1,518    |    |              |   | 956 |   |
| Other accrued expenses                                                                                                                                                                                                                                                   |   |                     | 905      |    |              |   | 791 |   |
| Advance payments                                                                                                                                                                                                                                                         |   |                     | 187      |    |              |   | 211 |   |
| Deferred revenue                                                                                                                                                                                                                                                         |   |                     | 117      |    |              |   | 238 |   |
| Other current liabilities                                                                                                                                                                                                                                                |   |                     | 688      |    |              |   | 891 |   |
| Total current liabilities                                                                                                                                                                                                                                                |   |                     | 4,861    |    |              |   | 4,209 |   |
|                                                                                                                                                                                                                                                                     |   |                     |     |    |              |   |   |   |
| 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 at June 30, 2010) stated value $1,000 per share, $.001 par value:  10,000 shares designated and 5,679 issued and outstanding as of June 30, 2010 and 5,739 as of December 31, 2009 |   |                     | —  |    |              |   | — |   |
| Common stock, $.001 par value: authorized 200,000,000 shares, issued and outstanding, 19,837,762 shares as of June 30, 2010 and 16,967,244 as of December 31, 2009                                                                                                       |   |                     | 20       |    |              |   | 17 |   |
| Additional paid-in capital                                                                                                                                                                                                                                               |   |                     | 208,037  |    |              |   | 206,664 |   |
| Accumulated deficit                                                                                                                                                                                                                                                      |   |                     | (195,118 | )  |              |   | (196,910 | ) |
| Total shareholders’ equity                                                                                                                                                                                                                                         |   |                     | 12,939   |    |              |   | 9,771 |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                                                                         |   | $                        | 17,800   |    |              | $      | 13,980 |   |

----

|                                           |   | Three Months EndedJune 30, |         |   | Six Months EndedJune 30, |   |
|------------------------------------------------|--------|----------------------------|--------------|--------|--------------------------|--------|
|                                           |   | 2010                       |         |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Revenue:                                       |   |                       |         |   |                     |   |   |   |   |   |   |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |
| Product revenue                                |   | $                          | 6,404        |   |                     | $      | 4,944 |   |   | $ | 10,890 |   |   | $ | 9,300 |   |
| Contract revenue                               |   |                       | 1,908        |   |                     |   | 908 |   |   |   | 3,349 |   |   |   | 1,696 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total revenue, net                             |   |                       | 8,312        |   |                     |   | 5,852 |   |   |   | 14,239 |   |   |   | 10,996 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold:                            |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Product revenue                                |   |                       | 2,640        |   |                     |   | 1,565 |   |   |   | 4,485 |   |   |   | 3,822 |   |
| Contract revenue                               |   |                       | 933          |   |                     |   | 488 |   |   |   | 1,697 |   |   |   | 916 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Total cost of goods sold                       |   |                       | 3,573        |   |                     |   | 2,053 |   |   |   | 6,182 |   |   |   | 4,738 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                   |   |                       | 4,739        |   |                     |   | 3,799 |   |   |   | 8,057 |   |   |   | 6,258 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                            |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Research and development                       |   |                       | 643          |   |                     |   | 392 |   |   |   | 1,377 |   |   |   | 754 |   |
| Selling, general and administrative            |   |                       | 3,137        |   |                     |   | 1,941 |   |   |   | 4,819 |   |   |   | 3,470 |   |
| Total operating expenses                       |   |                       | 3,780        |   |                     |   | 2,333 |   |   |   | 6,196 |   |   |   | 4,224 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                         |   |                       | 959          |   |                     |   | 1,466 |   |   |   | 1,861 |   |   |   | 2,034 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                        |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                               |   |                       | (30          | )      |                     |   | (166 | ) |   |   | (58 | ) |   |   | (341 | ) |
| Other income, net                              |   |                       | 1            |   |                     |   | 39 |   |   |   | 8 |   |   |   | 40 |   |
| Total other expense, net                       |   |                       | (29          | )      |                     |   | (127 | ) |   |   | (50 | ) |   |   | (301 | ) |
| Income before provision for income taxes       |   |                       | 930          |   |                     |   | 1,339 |   |   |   | 1,811 |   |   |   | 1,733 |   |
| Provision for income taxes                     |   |                       | 18           |   |                     |   | — |   |   |   | 19 |   |   |   | — |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                     |   | $                          | 912          |   |                     | $      | 1,339 |   |   | $ | 1,792 |   |   | $ | 1,733 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Income per share, basic                        |   | $                          | 0.05         |   |                     | $      | 0.08 |   |   | $ | 0.10 |   |   | $ | 0.11 |   |
| Income per share, diluted                      |   | $                          | 0.03         |   |                     | $      | 0.05 |   |   | $ | 0.06 |   |   | $ | 0.07 |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding: |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                       |         |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                          |   |                       | 19,338,241   |   |                     |   | 16,186,482 |   |   |   | 18,230,129 |   |   |   | 16,024,400 |   |
| Diluted                                        |   |                       | 31,873,91075 |   |                     |   | 24,606,945 |   |   |   | 30,147,491 |   |   |   | 24,326,249 |   |

----

|                                                               |   | Preferred Stock |   |    | Common Stock |   |    |  Additional Paid-in |   |   |  Accumulated |   |   |  Total Shareholders’ |    |
|--------------------------------------------------------------------|--------|-----------------|--------|---------|--------------|--------|---------|--------------------------|--------|--------|-------------------|--------|--------|---------------------------------|---------|
|                                                               |   | Shares          |   |    | Amount       |   |    | Shares                   |   |   | Amount            |   |   | Capital                         |    |   |  Deficit |   |   | Equity |   |
| Balance, December 31, 2009                                         |   |            | 5,739  |    |         | $      | — |                     |   |   | 16,967,244        |   |   | $                               | 17      |   |   | $ | 206,664 |   |   | $ | (196,910 | ) |   | $ | 9,771 |   |
|                                                               |   |            |   |    |         |   |    |                     |   |   |              |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cashless exercise of common stock    warrants            |   |            |   |    |         |   |    |                     |   |   | 2,601,591         |   |   |                            | 2       |   |   |   | (2) |   |   |   |   |   |   |   | — |   |
| Conversion of Series B Preferred Stock   to common stock |   |            | (60    | )  |         |   | — |                     |   |   | 80,000       |   |   |                            | — |   |   |   | — |   |   |   |   |   |   |   | — |   |
| Issuance of common stock for services                              |   |            |   |    |         |   |    |                     |   |   | 15,363            |   |   |                            | — |   |   |   | 55 |   |   |   |   |   |   |   | 55 |   |
| Exercise of common stock warrants                                  |   |            |   |    |         |   |    |                     |   |   | 100,000           |   |   |                            | 1       |   |   |   | 249 |   |   |   |   |   |   |   | 250 |   |
| Exercise of common stock options                                   |   |            |   |    |         |   |    |                     |   |   | 73,564            |   |   |                            | — |   |   |   | 121 |   |   |   |   |   |   |   | 121 |   |
| Stock-based compensation                                           |   |            |   |    |         |   |    |                     |   |   |              |   |   |                            |    |   |   |   | 950 |   |   |   |   |   |   |   | 950 |   |
| Net income                                                         |   |            |   |    |         |   |    |                     |   |   |              |   |   |                            |    |   |   |   |   |   |   |   | 1,792 |   |   |   | 1,792 |   |
| Balance, June 30, 2010                                             |   |            | 5,679  |    |         | $      | — |                     |   |   | 19,837,762        |   |   | $                               | 20      |   |   | $ | 208,037 |   |   | $ | (195,118 | ) |   | $ | 12,939 |   |
|                                                               |   |            |   |    |         |   |    |                     |   |   |              |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                               |   |            |   |    |         |   |    |                     |   |   |              |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                      |   | Six Months Ended |    |
|-----------------------------------------------------------------------------------------------------------|--------|------------------|---------|
|                                                                                                      |   | June 30,         |    |
|                                                                                                      |   | 2010             |    |   | 2009 |   |
|                                                                                                      |   | (unaudited)      |    |
| Cash flows from operating activities:                                                                     |   |             |    |   |   |   |
| Net income                                                                                                |   | $                | 1,792   |   |   | $ | 1,733 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:                         |   |             |    |   |   |   |   |   |
| Depreciation and amortization                                                                             |   |             | 35      |   |   |   | 46 |   |
| Amortization of deferred financing and waiver fees                                                        |   |             | — |   |   |   | 301 |   |
| (Reduction of) provision for sales returns and doubtful accounts                                          |   |             | (260    | ) |   |   | (452 | ) |
| Stock-based compensation                                                                                  |   |             | 950     |   |   |   | 545 |   |
| Amortization of common stock issued for services                                                          |   |             | 63      |   |   |   | 126 |   |
| Changes in operating assets and liabilities:                                                              |   |             |    |   |   |   |   |   |
| Accounts receivable                                                                                       |   |             | (342    | ) |   |   | 1,175 |   |
| Inventory                                                                                                 |   |             | 634     |   |   |   | (186 | )  |
| Prepaid expenses and other current assets                                                                 |   |             | 163     |   |   |   | 92 |   |
| Deferred revenue                                                                                          |   |             | (121    | ) |   |   | (32 | ) |
| Accounts payable, accrued compensation, other accrued expenses, and advance payments                      |   |             | 976     |   |   |   | (1,074 | ) |
| Other current liabilities                                                                                 |   |             | (143    | ) |   |   | 120 |   |
| Net cash provided by operating activities                                                                 |   |             | 3,747   |   |   |   | 2,394 |   |
| Cash flows from investing activities:                                                                     |   |             |    |   |   |   |   |   |
| Purchase of equipment                                                                                     |   |             | (1,009  | ) |   |   | (482 | ) |
| Purchase of investments – held to maturity                                                          |   |             | (3,500  | ) |   |   | — |   |
|       Net cash used in investing activities                                 |   |             | (4,509  | ) |   |   | (482 | ) |
| Cash flows from financing activities:                                                                     |   |             |    |   |   |   |   |   |
| Payments of debt                                                                                          |   |             | — |   |   |   | (1,422 | ) |
| Proceeds from exercise of stock options and warrants                                                      |   |             | 371     |   |   |   | — |   |
| Net cash provided by (used in) financing activities                                                       |   |             | 371     |   |   |   | (1,422 | )  |
| Net (decrease) increase in cash and cash equivalents                                                      |   |             | (391    | ) |   |   | 490 |   |
| Cash and cash equivalents, beginning of period                                                            |   |             | 5,295   |   |   |   | 2,404 |   |
| Cash and cash equivalents, end of period                                                                  |   | $                | 4,904   |   |   | $ | 2,894 |   |
|                                                                                                      |   |             |    |   |   |   |   |   |
| Cash paid for interest                                                                                    |   | $                | 25      |   |   | $ | 54 |   |
| Cash paid for taxes                                                                                       |   | $                | 102     |   |   | $ | 35 |   |
|                                                                                                      |   |             |    |   |   |   |   |   |
| Supplemental information of non-cash operating and financing activities:                                  |   |             |    |   |   |   |   |   |
| Common stock issued for services charged to prepaid expenses                                              |   | $                | — |   |   | $ | 133 |   |
| Issuance of 2,601,591 shares of common stock for cashless exercise of 3,778,811 warrants in 2010          |   | $                | — |   |   | $ | — |   |
| Conversion of 60 shares of Series B Convertible Preferred Stock for 80,000 shares of common stock in 2010 |   | $                | — |   |   | $ | — |   |
|                                                                                                      |   |

----

----

|                                 |   | June 30, 2010 (unaudited) |   |   | December 31, 2009 |   |
|--------------------------------------|--------|--------------------------------|--------|--------|-------------------|--------|
| Accounts receivable                  |   | $                              | 5,489  |   |              | $      | 5,147 |   |
| Less allowance for doubtful accounts |   |                           | (384   | )      |              |   | (584 | ) |
| Net receivables                 |   | $                              | 5,105  |   |              | $      | 4,563 |   |

----

|                                                               |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|--------------------------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                                               |   | 2010                       |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Numerator:                                                         |   |                       |       |   |                     |   |   |   |   |   |   |   |
|                                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Net income (loss)                                                  |   | $                          | 912        |   |                     | $      | 1,339 |   |   | $ | 1,792 |   |   | $ | 1,733 |   |
|                                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                                       |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding for basic earnings per share   |   |                       | 19,338,241 |   |                     |   | 16,186,482 |   |   |   | 18,230,129 |   |   |   | 16,024,400 |   |
| Effective of dilutive shares:                                      |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|   Dilution from stock options and warrants               |   |                       | 4,963,669  |   |                     |   | 736,812 |   |   |   | 4,345,362 |   |   |   | 560,246 |   |
|   Redeemable stock                                       |   |                       | —    |   |                     |   | 31,651 |   |   |   | — |   |   |   | 89,603 |   |
|   Convertible preferred stock                            |   |                       | 7,572,000  |   |                     |   | 7,652,000 |   |   |   | 7,572,000 |   |   |   | 7,652,000 |   |
| Dilutive potential common shares                                   |   |                       | 12,535,669 |   |                     |   | 8,420,463 |   |   |   | 11,917,362 |   |   |   | 8,301,849 |   |
| Weighted average shares outstanding for diluted earnings per share |   |                       | 31,873,910 |   |                     |   | 24,606,945 |   |   |   | 30,147,491 |   |   |   | 24,326,249 |   |

|                 |   | June 30,2010 (unaudited) |   |   | December 31, 2009 |   |
|----------------------|--------|-------------------------------|--------|--------|-------------------|--------|
| Raw materials   |   | $                             | 836    |   |              | $      | 806 |   |
| Work in process      |   |                          | 395    |   |              |   | 709 |   |
| Finished goods  |   |                          | 314    |   |              |   | 664 |   |
| Total inventory      |   | $                             | 1,545  |   |              | $      | 2,179 |   |

----

|                                            |   | June 30,2010 (unaudited) |   |   | December 31, 2009 |   |
|-------------------------------------------------|--------|-------------------------------|--------|--------|-------------------|--------|
| Vendor prepayments                              |   | $                             | 114    |   |              | $      | 266 |   |
| Other prepaid expenses *                        |   |                          | 402    |   |              |   | 421 |   |
| Total prepaid expenses and other current assets |   | $                             | 516    |   |              | $      | 687 |   |

|                                |   | Three Months EndedJune 30, |   |   | Six Months Ended June 30, |   |
|-------------------------------------|--------|----------------------------|--------|--------|--------------------------------|--------|
|                                |   | 2010                       |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Cost of revenue                     |   | $                          | 30     |   |                           | $      | 62 |   |   | $ | 127 |   |   | $ | 86 |   |
| Research and development            |   |                       | 26     |   |                           |   | 68 |   |   |   | 128 |   |   |   | 126 |   |
| Selling, general and administrative |   |                       | 461    |   |                           |   | 262 |   |   |   | 695 |   |   |   | 333 |   |
| Total stock compensation expense    |   | $                          | 517    |   |                           | $      | 392 |   |   | $ | 950 |   |   | $ | 545 |   |

|                           |   | For the Six Months Ended June 30, |   |
|--------------------------------|--------|-----------------------------------|--------|
|                           |   | 2010                              |   |   | 2009 |   |
| Dividend yield                 |   |                              | 0      | % |   |   | 0 | % |
| Risk free interest rates       |   | 1.34 to 2.57                      | %      |   | 1.46 to 2.15 |  % |
| Expected  volatility |   | 80.6 to 86.9                      | %      |   | 79.4 to 87.0 |  % |
| Expected term (in years)       |   | 3.5 to 5                          |   |   |   | 3.5 to 5 |   |

----

|                                            |   | Number of Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Remaining Contractual Life (In Years) |   |   | Aggregate Intrinsic Value |   |
|-------------------------------------------------|--------|------------------|-----------|--------|---------------------------------|--------|--------|--------------------------------------------------------|--------|--------|---------------------------|--------|
| Outstanding at December 31, 2009                |   |             | 2,817,574 |   |                            | $      | 1.33   |                                                   |   |   |                      |   |   |   |
| Options granted                                 |   |             | 616,885   |   |                            |   | 2.42   |                                                   |   |   |                      |   |   |   |
| Options exercised                               |   |             | (73,564   | )      |                            |   | 1.65   |                                                   |   |   |                      |   |   |   |
| Options forfeited                               |   |             | —   |   |                            |   |   |                                                   |   |   |                      |   |   |   |
| Options cancelled                               |   |             | (58,119   | )      |                            |   | 2.85   |                                                   |   |   |                      |   |   |   |
| Outstanding at June 30, 2010                    |   |             | 3,302,776 |   |                            | $      | 1.50   |                                                   |   |   | 6.12                      |   |   | $ | 7,256,175 |   |
| Vested or expected to vest at June 30, 2010 (1) |   |             | 3,270,743 |   |                            | $      | 1.60   |                                                   |   |   | 6.12                      |   |   | $ | 6,379,851 |   |
| Exercisable at June 30, 2010                    |   |             | 2,845,178 |   |                            | $      | 1.46   |                                                   |   |   | 6.24                      |   |   | $ | 6,379,851 |   |

|   |          |   |                |   |      |                                                 |   |   |                            |   |   |               |   |   |                               |   |
|--------|---------------|--------|---------------------|--------|-----------|------------------------------------------------------|--------|--------|---------------------------------|--------|--------|--------------------|--------|--------|------------------------------------|--------|
|   |          |   | 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  |   |                |   | 1,180,949 |                                                 |   |   | 5.89                            |   |   | $                  | 0.82   |   |                               |   | 1,166,244 |   |   | $ | 0.82 |   |
| $      | 1.00 - $1.51  |   |                |   | 1,189,337 |                                                 |   |   | 6.67                            |   |   |               | 1.20   |   |                               |   | 1,029,528 |   |   |   | 1.22 |   |
| $      | 1.80 - $1.94  |   |                |   | 448,988   |                                                 |   |   | 6.58                            |   |   |               | 1.94   |   |                               |   | 214,744 |   |   |   | 1.94 |   |
| $      | 2.60 - $3.92  |   |                |   | 450,502   |                                                 |   |   | 5.13                            |   |   |               | 3.02   |   |                               |   | 403,162 |   |   |   | 3.01 |   |
| $      | 5.80 - $22.50 |   |                |   | 33,000    |                                                 |   |   | 1.46                            |   |   |               | 10.20  |   |                               |   | 31,500 |   |   |   | 10.11 |   |
|   |          |   |                |   | 3,302,776 |                                                 |   |   | 6.12                            |   |   | $                  | 1.50   |   |                               |   | 2,845,178 |   |   | $ | 1.46 |   |

----

----

----

----

----

|                          |         |   | Three months endedJune 30, |         |   |   | Six months endedJune 30, |    |
|-------------------------------|--------------|--------|-------------------------------------------|--------------|--------|--------|------------------------------------|---------|
|                          |         |   | 2010                                      |         |   |   | 2009                               |    |   |   | 2010 |   |   |   | 2009 |   |
|                          |         |   | (unaudited)                               |         |   |   | (unaudited)                        |    |
|                          |         |   |                                      |         |   |   |                               |    |   |   |   |   |   |   |   |   |
| Product revenue gross profit  |    | $      | 3,764                                     |         |   | $      | 3,379                              |    |   | $ | 6,405 |    |   | $ | 5,478 |    |
| Product revenue gross margin  |    |   | 59                                        | %            |   |   | 68                                 | %  |   |   | 59 | % |   |   | 59 | %  |
| Contract revenue gross profit |    | $      | 975                                       |    |   | $      | 420                                |    |   | $ | 1,652 |    |   | $ | 780 |    |
| Contract revenue gross margin |    |   | 51                                        | %            |   |   | 46                                 | %  |   |   | 49 | %  |   |   | 46 | %  |
| Total gross profit            |    | $      | 4,739                                     |    |   | $      | 3,799                              |    |   | $ | 8,057 |    |   | $ | 6,258 |    |
| Total gross margin            |    |   | 57                                        | %            |   |   | 65                                 | %  |   |   | 57 | %  |   |   | 57 | %  |

----

----

----

| 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)                       |

----

|   | 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                    |   |
|   |   | Principal Accounting and Financial Officer |   |