10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

Form 10-Q 

(Mark One)

R QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended September 30, 2013

 or

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from  to

Commission file number 001-15751 

eMAGIN CORPORATION 

(Exact name of registrant as specified in its charter) 

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

3006 Northup Way, Suite 103, Bellevue, Washington 98004 

(Address of principal executive offices) 

(425) 284-5200 

(Registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:  None 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Per Share 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes R    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months ).    Yes R     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.   (Check one): 

Large accelerated filer £              Accelerated filer £            Non-accelerated filer £        Smaller reporting company R

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes £   No  R

The number of shares of common stock outstanding as of October 31, 2013 was 23,878,300.

1

eMagin Corporation 

Form 10-Q 

For the Quarter ended September 30, 2013 

Table of Contents

		Page
PART I   FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2013 and 2012 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2013 and 2012 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
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	Mine Safety Disclosures	19
Item 5	Other Information	19
Item 6	Exhibits	19
SIGNATURES		20
CERTIFICATIONS

2

ITEM 1.  Condensed Consolidated Financial Statements 

eMAGIN CORPORATION 

CONDENSED CONSOLIDATED BALANCE SHEETS 

(In thousands, except share data)

	September 30, 2013		December 31,
	(unaudited)		2012
ASSETS
Current assets:
Cash and cash equivalents	$	4,811	$	4,385
Investments		8,000		8,520
Accounts receivable, net		3,850		5,154
Inventories, net		4,407		3,223
Prepaid expenses and other current assets		1,314		653
Total current assets		22,382		21,935
Long-term investments		250		500
Equipment, furniture and leasehold improvements, net		8,197		8,099
Other assets		28		124
Deferred tax asset		5,382		8,881
Total assets	$	36,239	$	39,539
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,258	$	955
Accrued expenses		2,408		2,548
Other current liabilities		359		409
Total current liabilities		4,025		3,912
Commitments and contingencies  (Note 8)
Shareholders’ equity:
Preferred stock, $.001 par value: authorized 10,000,000 shares:
Series B Convertible Preferred stock, (liquidation preference of $5,659,000) stated value $1,000 per share, $.001 par value:  10,000 shares designated and 5,659 issued and outstanding as of September 30, 2013 and December 31, 2012		—		—
Common stock, $.001 par value: authorized 200,000,000 shares, issued and outstanding, 23,878,300 shares as of September 30, 2013  and 23,674,541 as of December 31, 2012		24		24
Additional paid-in capital		225,560		223,575
Accumulated deficit		(192,871)		(187,509)
Treasury stock, 162,066 shares as of September 30, 2013 and 150,000 shares as of December 31, 2012		(499)		(463)
Total shareholders’ equity		32,214		35,627
Total liabilities and shareholders’ equity	$	36,239	$	39,539

See notes to Condensed Consolidated Financial Statements.

3

 eMAGIN CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(In thousands, except share and per share data) 

(unaudited) 

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Revenue:
Product	$	5,770		$	6,309		$	20,671		$	19,263
Contract		559			1,201			1,189			2,971
Total revenue, net		6,329			7,510			21,860			22,234
Cost of goods sold:
Product		3,848			3,132			12,821			9,914
Contract		256			729			672			1,477
Total cost of goods sold		4,104			3,861			13,493			11,391
Gross profit		2,225			3,649			8,367			10,843
Operating expenses:
Research and development		1,239			1,173			3,882			3,571
Selling, general and administrative		2,041			1,918			6,358			6,525
Total operating expenses		3,280			3,091			10,240			10,096
(Loss) income from operations		(1,055	)		558			(1,873	)		747
Other income (expense):
Interest expense, net		(11	)		(10	)		(32	)		(18	)
Other income, net		9			13			45			32
Total other income (expense), net		(2	)		3			13			14
(Loss) income before provision for income taxes		(1,057	)		561			(1,860	)		761
Provision for income taxes		3,502			221			3,502			295
Net (loss) income	$	(4,559	)	$	340		$	(5,362	)	$	466
Less net income allocated to participating securities		—			83			—			113
Net (loss) income allocated to common shares	$	(4,559	)	$	257		$	(5,362	)	$	353
(Loss) income per share, basic	$	(0.19	)	$	0.01		$	(0.23	)	$	0.02
(Loss) income per share, diluted	$	(0.19	)	$	0.01		$	(0.23	)	$	0.01
Weighted average number of shares outstanding:
Basic		23,718,106			23,444,361			23,610,531			23,473,770
Diluted		23,718,106			25,393,035			23,610,531			25,360,864

See notes to Condensed Consolidated Financial Statements.

4

eMAGIN CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands) 

	Nine Months Ended
	September 30,
	2013		2012
	(unaudited)
Cash flows from operating activities:
Net (loss) income	$	(5,362)	$	466
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		656		168
Reduction in provision for doubtful accounts		(1)		—
Amortization of bond premium		20		21
Inventory reserve		16		3
Stock-based compensation		1,645		1,959
Gain on sale of asset		(9)		—
Deferred income taxes		3,499		—
Changes in operating assets and liabilities:
Accounts receivable		1,305		599
Inventories, net		(1,200)		(57)
Prepaid expenses and other current assets		(568)		77
Accounts payable, accrued expenses, and other current liabilities		113		267
Net cash provided by operating activities		114		3,503
Cash flows from investing activities:
Purchase of equipment		(757)		(1,090)
Proceeds from sale of asset		15		—
Maturities of investments		11,250		6,495
Purchase of investments		(10,500)		(8,799)
Net cash provided by (used in) investing activities		8		(3,394)
Cash flows from financing activities:
Proceeds from exercise of stock options		340		255
Purchase of treasury stock		(36)		(368)
Net cash provided by (used in) financing activities		304		(113)
Net increase (decrease) in cash and cash equivalents		426		(4)
Cash and cash equivalents, beginning of period		4,385		7,571
Cash and cash equivalents, end of period	$	4,811	$	7,567
Cash paid for interest, net of amount capitalized of $13 thousand in 2012	$	9	$	—
Cash paid for taxes	$	72	$	—

See notes to Condensed Consolidated Financial Statements.

5

eMAGIN CORPORATION 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 (unaudited) 

Note 1:   Summary of Significant Accounting Policies 

The Business 

eMagin Corporation (the “Company”) designs, develops, manufactures, and markets OLED (organic light emitting diode) on silicon microdisplays and virtual imaging products which utilize OLED microdisplays. The Company’s products are sold mainly in North America, Asia, and Europe. 

Basis of Presentation 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of eMagin Corporation and its subsidiary reflect all adjustments, including normal recurring accruals, necessary for a fair presentation.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission.  The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The results of operations for the period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.  The consolidated condensed financial statements of December 31, 2012 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. 

In accordance with accounting principles generally accepted in the United States of America, management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments related to, among others, allowance for doubtful accounts, warranty reserves, inventory reserves, stock-based compensation expense, deferred tax asset valuation allowances, litigation and other loss contingencies. Management bases its estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. 

Revenue and Cost Recognition                                                       

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, selling price is fixed or determinable and collection is reasonably assured.   Product revenue is generally recognized when products are shipped to customers. The Company defers revenue recognition on products sold directly to the consumer with a maximum thirty day right of return.  Revenue is recognized upon the expiration of the right of return.

The Company also earns revenues from certain research and development (“R&D”) activities (contract revenues) under both firm fixed-price contracts and cost-type contracts.  Revenues relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred (cost-to-cost basis).  Progress is generally based on a cost-to-cost approach however an alternative method may be used such as physical progress, labor hours or others depending on the type of contract.   Physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances.  Contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract, as periodically adjusted to reflect revised agreed upon rates. These rates are subject to audit by the other party.  

6

New Accounting Pronouncement

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, an amendment to FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“FASB ASC Topic 740”).  The amendment provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  ASU 2013-11 is effective for reporting periods after January 1, 2014 and is not expected to have an impact on the Company’s financial statements.

Investments 

Investments consist of debt securities including corporate obligations and FDIC-insured certificates of deposit with maturities up to eighteen months.   The Company classifies these securities as held-to-maturity since it has the positive intent and ability to hold them until maturity. These securities are carried at amortized cost.  

The held-to-maturity investments consist of the following as of September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013 (unaudited)
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Aggregate Fair Value
Current investments:
Corporate debt securities	$	250	$	—	$	—	$	250
Certificates of deposit		7,750		—		—		7,750
Total current investments	$	8,000	$	—	$	—	$	8,000
Long-term investments:
Certificates of deposit	$	250	$	—	$	—	$	250

	December 31, 2012
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Aggregate Fair Value
Current investments:
Corporate debt securities	$	1,520	$	—	$	—	$	1,520
Certificates of deposit		7,000		—		—		7,000
Total current investments	$	8,520	$	—	$	—	$	8,520
Long-term investments:
Corporate debt securities	$	500	$	—	$	—	$	500

As of September 30, 2013, the current investments mature within one year and the long-term investments within 18 months.

7

Net (Loss) Income per Common Share   

Basic (loss) income per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as stock options, warrants, and convertible preferred stock. Diluted (loss) income per share is computed using the weighted average number of common shares outstanding and potentially dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

The Company’s Series B Convertible Preferred stock (“Preferred Stock – Series B”) is considered a participating security as the preferred stock participates in dividends with the common stock, which requires the use of the two-class method when computing basic and diluted earnings per share.  The Preferred Stock – Series B is not required to absorb any net loss. Though the Company paid a one-time special dividend in 2012, the Company does not expect to continue to pay dividends on its common or preferred stock in the near future.   

For the three and nine months ended September 30, 2013, the Company has reported a net loss and as a result, basic and diluted net loss per common share are the same.  Therefore, in calculating net loss per share amounts, shares underlying the potentially dilutive common stock equivalents were excluded from the calculation of diluted net income per common share because their effect was anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data) for the three and nine months ended September 30, 2012: 

	Three Months Ended								Nine Months Ended
	September 30, 2012								September 30, 2012
	(unaudited)								(unaudited)
	Income			Shares		Per Share Amount			Income			Shares		Per Share Amount
Basic EPS
Net Income		$	340							$	466
Income allocated to participating securities			83								113
Income allocated to common shares		$	257		23,444,361		$	0.01		$	353		23,473,770		$	0.02
Diluted EPS
Diluted potential common shares (1)					1,948,674								1,887,094
Income allocated to common shares		$	257		25,393,035		$	0.01		$	353		25,360,864		$	0.01

(1) Dilutive potential common shares consist of shares of common stock issuable upon exercise of outstanding stock options and warrants. 

The following is a table of the potentially dilutive common stock equivalents for the three and nine month periods ended September 30, 2013 and 2012 that were not included in diluted EPS as their effect would be anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended  September 30,
	2013		2012		2013		2012
	(unaudited)				(unaudited)
Options and warrants		5,637,319		2,657,398		5,637,319		3,024,398
Convertible preferred stock		7,545,333				7,545,333
Total potentially dilutive common stock equivalents		13,182,652		2,657,398		13,182,652		3,024,398

8

Note 2:  Accounts Receivable, net 

The majority of the Company’s commercial accounts receivable are due from Original Equipment Manufacturers ("OEM’s”). Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required.  

Accounts receivable consisted of the following (in thousands):

	September 30, 2013		December 31,
	(unaudited)		2012
Accounts receivable	$	4,080	$	5,386
Less allowance for doubtful accounts		(230)		(232)
Net receivable	$	3,850	$	5,154

Note 3:  Inventories, net 

The components of inventories are as follows (in thousands): 

	September 30, 2013		December 31,
	(unaudited)		2012
Raw materials	$	2,021	$	1,745
Work in process		1,869		898
Finished goods		603		651
Total inventories		4,493		3,294
Less inventory reserve		(86)		(71)
Total inventories, net	$	4,407	$	3,223

Note 4:  Line of Credit 

On September 1, 2013, the Company renewed its credit facility with Access Business Finance, LLC (“Access”) under which the Company may borrow up to a maximum of $3 million based on a borrowing base equivalent of 75% of eligible accounts receivable.  It amended the interest rate from Prime plus 5% but not less than 8.25% to Prime plus 4% but not less than 7.25%.  All other material terms of the credit facility remained unchanged:  the minimum monthly interest payment is $1,000 and the early termination fee is $6,000.  The renewal date of the line of credit is September 1, 2014.  The Company’s obligations under the credit facility are secured by its assets.  For the nine months ended September 30, 2013, the Company had not borrowed on its line of credit.

Note 5:  Stock-based Compensation 

The Company uses the fair value method of accounting for share-based compensation arrangements. The fair value of stock options is estimated at the date of grant using the Black-Scholes option valuation model.  Stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method. 

The following table summarizes the allocation of non-cash stock-based compensation to our expense categories for the three and nine month periods ended September 30, 2013 and 2012 (in thousands): 

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2013		2012		2013		2012
Cost of revenue	$	68	$	70	$	219	$	206
Research and development		137		147		428		434
Selling, general and administrative		363		342		998		1,319
Total stock compensation expense	$	568	$	559	$	1,645	$	1,959

At September 30, 2013, total unrecognized compensation costs related to stock options was approximately $1.5 million, net of estimated forfeitures.  Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of approximately 1.6 years.   

9

The following key assumptions were used in the Black-Scholes option pricing model to determine the fair value of stock options granted: 

	For the Nine Months Ended
	September 30,
	2013			2012
Dividend yield		0	%		0	%
Risk free interest rates		0.35 – 1.48	%		0.36 - 0.87	%
Expected  volatility	67.6 to 73.8  %			71.8 to 81.2  %
Expected term (in years)	3.5 to 5.0			3.0 to 5.5

The Company paid a special one-time dividend in 2012.  However, the Company does not expect to continue to pay dividends in the near future therefore the Company used an expected dividend yield of 0%.  The risk-free interest rate used in the Black-Scholes option pricing model is based on the implied yield at the time of grant available on U.S. Treasury securities with an equivalent term.   Expected volatility is based on the weighted average historical volatility of the Company’s common stock for the equivalent term.  The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards. 

A summary of the Company’s stock option activity for the nine months ended September 30, 2013 is presented in the following table (unaudited): 

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		4,685,434		$	3.82
Options granted		407,937			3.50
Options exercised		(203,759	)		1.67
Options forfeited		(125,366	)		4.07
Options cancelled or expired		(126,927	)		6.84
Outstanding at September 30, 2013		4,637,319		$	3.80		4.72	$	2,746,430
Vested or expected to vest at September 30, 2013 (1)		4,602,546		$	3.79		4.73	$	2,745,192
Exercisable at September 30, 2013		3,768,029		$	3.50		4.91	$	2,715,463

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options. 

The aggregate intrinsic value in the table above represents the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock.  For the three and nine months ended September 30, 2013, the aggregate intrinsic value of options exercised was approximately $58 thousand and $401 thousand, respectively.   The Company issues new shares of common stock upon exercise of stock options.

Note 6:  Shareholders’ Equity 

Preferred Stock - Series B Convertible Preferred Stock (“the Preferred Stock – Series B”) 

As of September 30, 2013 and December 31, 2012, there were 5,659 shares of Preferred Stock – Series B issued and outstanding. 

Common Stock 

The Company received approximately $83 thousand and $340 thousand for the exercise of 40,144 and 203,759 stock options in the three and nine months ended September 30, 2013, respectively. The Company received approximately $213 thousand and $255 thousand for the exercise of 131,688 and 160,563 stock options in the three and nine months ended September 30, 2012, respectively.    

10

In the three and nine months ended September 30, 2013, the Company repurchased 12,066 shares at an average cost of $2.99 per share.  During the nine months ended September 30, 2012, the Company repurchased 125,000 shares at an average cost of $2.95 per share.  At September 30, 2013, there was approximately $2.0 million remaining under the stock repurchase plan.

Note 7:  Income Taxes

The Company’s effective tax rate is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The Company’s effective tax rate for the nine months ended September 30, 2013 and 2012 was (193.8)% and 38.8%, respectively.  The difference between the effective tax rate of (193.8)% and the U.S. federal statutory rate of 34% for the nine months ended September 30, 2013 was primarily due to the increase of the valuation allowance on deferred tax assets. The difference between the effective tax rate of 38.8% and the U.S. federal statutory rate of 34% for the nine months ended September 30, 2012 was primarily due to the impact of state income taxes and alternative minimum tax.

The Company's deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance.  In the quarter ended September 30, 2013, the Company increased the valuation allowance $3.5 million as a result of negative evidence, primarily, the Company incurred a year-to-date pre-tax loss where the Company had previously forecasted a profit for 2013.  Actual product costs per completed display have exceeded previously estimated product costs per unit due to an increase in the amount of materials used to produce displays that meet customer specifications. This recent, negative evidence outweighs the more subjective positive evidence, indicating that it is more likely than not that all of the associated tax benefit would not be realized.  With the adjustment, the Company believes that it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, of $5.4 million as of September 30, 2013.  The Company believes its yield of saleable product will return to levels it has experienced in prior years resulting in profitability.  The Company has corrected the design flaw on the new OLED deposition tool and as a result output is expected to increase.  The Company’s estimate of the realizability of deferred tax assets has ranged from estimating no recovery of deferred tax assets to realizing approximately $9 million in 2010 through Q2 of 2013.  The Company’s current estimate is likely to change based on future results.  The Company’s net operating loss carry forward amounts substantially expire in 2027.

Due to the Company’s operating loss carryforwards, all tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. In the event that the Company is assessed interest or penalties at some point in the future, it will be classified in the financial statements as tax expense.  

Note 8:  Commitments and Contingencies 

Royalty Payments  

The Company signed a license agreement on March 29, 1999 with Eastman Kodak (“Kodak’), under which it is obligated to make royalty payments. Under this agreement, the Company must pay to Kodak a minimum royalty plus a certain percentage of net sales with respect to certain products, which percentages are defined in the agreement. The percentages are on a sliding scale depending on the amount of sales generated. Any minimum royalties paid will be credited against the amounts due based on the percentage of sales. The royalty agreement terminates upon the expiration of the issued patent which is the last to expire.  The Company was notified that Kodak sold substantially all rights and obligations under the Company’s license agreement to Global OLED Technology (“GOT”) as of December 30, 2009.

In late 2008, the Company began evaluating the status of its manufacturing process and the use of the intellectual property (“IP”) associated with its license agreement.  After this analysis and after making a few changes to its manufacturing process, by the end of 2008 the Company had stopped using the IP covered under the license agreement.  The last royalty payment under the license agreement was made in November 2009.  The Company determined that it is no longer required to pay the minimum royalty payment and as such has not paid or accrued this amount.  

In April 2011, the Company received a request for royalty payments from a representative of GOT. The Company responded stating that the licenses were no longer in force and that the request for royalties was untimely.  Although GOT does not agree, both parties have expressed an interest in resolving the disagreement amicably.  The Company is in ongoing communication with GOT and both parties are working together to settle the issue. As of the date of this filing, no agreement has been reached.  The Company estimates that the range of loss contingency is between $0 and $250 thousand.

Operating Leases

The Company leases office facilities and office, lab and factory equipment under operating leases.  Certain leases provide for payments of monthly operating expenses. The Company currently has lease commitments for space in Hopewell Junction, New York, Bellevue, Washington, and Santa Clara, California.  

The Company’s manufacturing facilities are leased from IBM in Hopewell Junction, New York.  The Company leases approximately 37,000 square feet to house its equipment for OLED microdisplay fabrication and for research and development, an assembly area and administrative offices. The lease expires May 31, 2014 with the option of extending the lease for five years.   The corporate headquarters are located in Bellevue, Washington where eMagin leases approximately 6,300 square feet.   The lease expires on August 31, 2014.  In addition, the Company leases approximately 2,400 square feet of office space for design and product development in Santa Clara, California and the lease expires October 31, 2015.

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Rent expense was approximately $303 thousand and $909 thousand, respectively, for the three and nine months ended September 30, 2013 and approximately $302 thousand and $905 thousand, respectively, for the three and nine months ended September 30, 2012. 

Equipment Purchase Commitments

The Company has committed to equipment purchases of approximately $1.0 million at September 30, 2013.

Note 9:  Concentrations    

For the three and nine months ended September 30, 2013, approximately 55% and 61%, respectively, of the Company’s net revenues were derived from customers in the United States and approximately 45% and 39%, respectively, of the Company’s net revenues were derived from international customers.  For the three and nine months ended September 30, 2012, approximately 68% and 65%, respectively, of the Company’s net revenues were derived from customers in the United States and approximately 32% and 35%, respectively, of the Company’s net revenues were derived from international customers.   For the three and nine months ended September 30, 2013, one customer accounted for 11% and 13%, respectively, of its net revenue. For the three months ended September 30, 2012, two customers accounted for 38% of its revenue and for the nine months ended September 30, 2012, one customer accounted for 16% of its revenue.

The following is a schedule of revenue by geographic location (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2013		2012		2013		2012
North and South America	$	3,469	$	5,442	$	13,808	$	15,053
Europe, Middle East, and Africa		2,004		1,349		6,017		5,180
Asia Pacific		856		719		2,035		2,001
Total	$	6,329	$	7,510	$	21,860	$	22,234

The Company purchases principally all of its silicon wafers from a single supplier located in Taiwan.

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

Statement of Forward-Looking Information 

In this quarterly report, references to "eMagin Corporation," "eMagin," "Virtual Vision," "the Company," "we," "us," and "our" refer to eMagin Corporation and its wholly owned subsidiary, Virtual Vision, Inc. 

Except for the historical information contained herein, some of the statements in this Report contain forward-looking statements that involve risks and uncertainties. These statements are found in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Risk Factors." They include statements concerning: our business strategy; expectations of market and customer response; liquidity and capital expenditures; future sources of revenues; expansion of our proposed product line; and trends in industry activity generally. In some cases, you can identify forward-looking statements by words such as "may," "will," "should," "expect," "plan," "could," "anticipate," "intend," "believe," "estimate," "predict," "potential," "goal," or "continue" or similar terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined under "Risk Factors," that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited to: our ability to successfully develop and market our products to customers; our ability to generate customer demand for our products in our target markets; the development of our target markets and market opportunities; our ability to manufacture suitable products at competitive cost; our ability to successfully launch new equipment on our manufacturing line; market pricing for our products and for competing products; the extent of increasing competition; technological developments in our target markets and the development of alternate, competing technologies in them; and sales of shares by existing shareholders. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Unless we are required to do so under federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements. 

Overview 

In the third quarter, eMagin continued deliveries on several programs for key customers, was awarded a prized new development contract in the avionics space, and successfully addressed a problem with the OLED deposition production tool.  Investments continued in developing new processes that provide ultra-high brightness displays, an important attribute for applications that are used in direct sunlight or daylight such as wearable personal headsets.

Financial Result

The third quarter financial results were driven primarily by continued activity under the large defense related programs in our business portfolio.  We continued shipping large numbers of displays to BAE/Oasys under the RED-I remote viewer program and another customer for the Enhanced Night Vision Goggle and other programs.  Display Beam Combiner Assemblies (DBCAs) which consist of our SVGA display combined with an optic, were delivered to our customer, ITT Exelis, for the Enhanced Night Vision Goggle II (ENVG II) program.  Exelis was also awarded funding for the 3rd year of production for ENVG II.  We expect DBCA deliveries to continue into 2014.  Also in the quarter, we started delivering displays for a new night vision program, a key new start program for us.  Lastly, we continued to ship displays for the FELIN Soldier Modernization Program in France, to a number of business units within Elbit for both their US and global programs, to FLIR in Sweden for three industrial thermal camera EVFs and to BCF Technology in Scotland for the BUG Binocular Ultrasound Goggles.

eMagin’s third quarter results reflect some of the challenges we face as an R&D provider, primarily for the U.S. government, and as a leader in the developing worldwide OLED microdisplay market.  Although product revenue (primarily displays) increased 7% year to date in 2013 over 2012, in the third quarter, overall revenues were lower than Q3 last year, due primarily to a $0.7 million decrease in R&D contract revenue, and a $0.5 million or 9% decrease in product revenue.  However, total revenues in the first nine months of 2013 decreased 2% from last year.  We believe the reason we have fewer R&D contracts this year is at least partially due to the U.S. government’s sequester/budget issues.  On the microdisplay side, the number of displays shipped in Q3 was about the same as Q3 last year.  Manufacturing challenges, including time spent to install a fix on the new OLED deposition tool, and increased labor requirements for customers requiring additional testing on newer generation displays, prevented our achieving the production and revenue levels we had planned.  We are continuing to apply personnel and other resources to further optimize the new tool to increase yield and output.  Currently, the yields on both deposition tools are comparable.  Manufacturing costs increased due to the costs incurred in improving the performance of the new OLED deposition tool, increased depreciation due to new equipment (primarily the new OLED deposition tool), increased manufacturing labor and the costs of concurrently running both OLED deposition tools this year as opposed to just the Satella deposition tool last year.  The total Q3 gross margin of 35% was an improvement from Q2 but 14 points lower than Q3 last year, due to higher costs.  Year-to-date, the total gross margin for fiscal year 2013 was also 11 points less than last year.

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New Business

Two key new contracts were awarded to eMagin in the quarter.  eMagin was awarded a $3.5 million production contract for a new night vision program.  The customer is the new sole source US Army provider of up to 24,000 thermal weapons sights for medium and heavy weapons over the next 3 years.  Another key program win is a contract to develop a new high brightness display for avionics applications.  This contract was awarded because of eMagin’s leadership in very high brightness and high resolution displays.  If successful, this new avionics display will allow the low contrast liquid crystal and CRT displays that have historically been used for avionics applications to be replaced with high contrast OLED microdisplays.

New Technology Development

In addition to beginning work on the new avionic development program outlined above, we continued work designing and building a high brightness color 2,000 by 2,000 pixel display for NAVAIR (US Navy) targeted for avionic head mounted displays and high performance portable digital goggle systems.  eMagin’s high brightness and high resolution technology is ideal for high performance avionics applications that require both the very high contrast and high brightness that can only be provided by OLED displays.  These same qualities, high contrast coupled with high brightness, are also critical for the emerging wearable personal headset market.  eMagin has undertaken an internally funded effort to develop new ultrahigh brightness OLED microdisplay technology beyond our current industry-leading color display brightness of 1000 candelas/m2.

Fiscal 2013 – Financial Outlook for the Year

Due to ongoing constraints in U.S. government spending and certain manufacturing challenges, eMagin now expects its 2013 revenues to be similar to last year. However, based on current backlog, market conditions and anticipated improvements in production, the Company expects to resume revenue growth in 2014.

At September 30, 2013, we had a total of 103 full-time and part-time employees as compared to 100 employees at December 31, 2012.   

A detailed discussion of our business may be found in Part I, “Business,” of our 2012 Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on March 14, 2013. 

CRITICAL ACCOUNTING POLICIES 

Revenue and Cost Recognition                                                       

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, selling price is fixed or determinable and collection is reasonably assured.   Product revenue is generally recognized when products are shipped to customers. We defer revenue recognition on products sold directly to the consumer with a maximum thirty day right of return.  Revenue is recognized upon the expiration of the right of return.

We also earn revenues from certain R&D activities (contract revenues) under both firm fixed-price contracts and cost-type contracts.  Revenues relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred (cost-to-cost basis).  Progress is generally based on a cost-to-cost approach however an alternative method may be used such as physical progress, labor hours or others depending on the type of contract.   Physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances.  Contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract, as periodically adjusted to reflect revised agreed upon rates. These rates are subject to audit by the other party. 

Income Taxes 

Our deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance.  In the quarter ended September 30, 2013, we increased the valuation allowance $3.5 million as a result of negative evidence, primarily, we have incurred a year-to-date pre-tax loss where we had previously forecasted a profit for 2013.  Actual product costs per completed display have exceeded previously estimated product costs per unit due to an increase in the amount of materials used to produce displays that meet customer specifications.  This recent, negative evidence outweighs the more subjective positive evidence, indicating that it is more likely than not that all of the associated tax benefit would not be realized.  With the adjustment, we believe that it is more likely than not that we will realize the benefits of our deferred tax assets, net of valuation allowances, of $5.4 million as of September 30, 2013.  We believe our yield of saleable product will return to levels we have experienced in prior years resulting in profitability.  We have corrected the design flaw on the new OLED deposition tool and as a result output is expected to increase.  Our estimate of the realizability of deferred tax assets has ranged from estimating no recovery of deferred tax assets to realizing approximately $9 million in 2010 through Q2 of 2013.  Our current estimate is likely to change based on future results.  Our net operating loss carry forward amounts substantially expire in 2027.

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Other critical accounting policies, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, relate to product warranty, use of estimates, fair value of financial instruments and stock-based compensation, and additional information on accounting for income taxes. 

RESULTS OF OPERATIONS 

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012

Revenues 

Revenues for the three and nine months ended September 30, 2013 were approximately $6.3 million and $21.9 million, respectively, as compared to approximately $7.5 million and $22.2 million, respectively, for the three and nine months ended September 30, 2012, a decrease of approximately $1.2 million and $0.3 million, respectively, or 16% and 2%, respectively, for the three and nine month periods.   

Product revenue is comprised primarily of sales of displays, as well as sales of Z800 systems, and other hardware.  For the three months ended September 30, 2013, product revenue decreased approximately $0.5 million or 9% as compared to the three months ended September 30, 2012.   Though we sold a similar number of displays in the third quarter of 2013 as compared to 2012, there was a different mix of products resulting in a decrease in revenue for the quarter.  For the nine months ended September 30, 2013, product revenue increased approximately $1.4 million or 7% as compared to the nine months ended September 30, 2012.   The increase in revenue resulted from an increase in the number of DBCA units and displays shipped which have a higher average selling price.

Contract revenue is comprised of revenue from research and development (“R&D”) or non-recurring engineering (“NRE”) contracts.  For the three and nine months ended September 30, 2013, contract revenue decreased approximately $0.7 million and $1.7 million, respectively, or 53% and 60%, respectively, as compared to the three and nine months ended September 30, 2012. We had two active contracts for the three and nine months ended September 30, 2013 compared to ten and eleven active contracts, respectively, for the three and nine months ended September 30, 2012.  We believe fewer R&D contracts are being awarded this year by the U.S. government agencies, the source of most of our R&D contracts historically, due to the U.S. government sequester event and budget issues.

Cost of Goods Sold 

Cost of goods sold is comprised of costs of product and contract revenues.  Cost of product revenue includes materials, labor and manufacturing overhead and depreciation related to our products.  Cost of contract revenue includes direct and allocated indirect costs associated with performance of contracts.  Cost of goods sold was approximately $4.1 million and $13.5 million, respectively, for the three and nine month periods ended September 30, 2013 as compared to approximately $3.9 million and $11.4 million, respectively, for the three and nine months ended September 30, 2012, an increase of approximately $0.2 million and approximately $2.1 million, respectively, or 6% and 18%, respectively, for the three and nine month periods.   Cost of goods sold as a percentage of revenues was 65% and 62%, respectively, for the three and nine month periods ended September 30, 2013 as compared to 51% for the each of three and nine month periods ended September 30, 2012.   

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The following table outlines product, contract and total gross profit and related gross margins for the three and nine months ended September 30, 2013 and 2012 (dollars in thousands): 

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Product revenue gross profit	$	1,922		$	3,177		$	7,850		$	9,349
Product revenue gross margin		33	%		50	%		38	%		49	%
Contract revenue gross profit	$	303		$	472		$	517		$	1,494
Contract revenue gross margin		54	%		39	%		43	%		50	%
Total gross profit	$	2,225		$	3,649		$	8,367		$	10,843
Total gross margin		35	%		49	%		38	%		49	%

The gross profit for the three and nine months ended September 30, 2013 was approximately $2.2 million and $8.4 million, respectively, as compared to approximately $3.6 million and $10.8 million, respectively, for the three and nine months ended September 30, 2012, a decrease of approximately $1.4 million and $2.4 million, respectively, or 39% and 23%, respectively, for the three and nine month periods.   For both the three and nine months ended September 30, 2013, the gross margin was 35% and 38%, respectively, as compared to 49% for both the three and nine months ended September 30, 2012. 

The product gross profit for the three and nine months ended September 30, 2013 was approximately $1.9 million and $7.9 million, respectively, as compared to approximately $3.2 million and $9.3 million, respectively, for the three and nine months ended September 30, 2012, a decrease of approximately $1.3 million and $1.4 million, respectively, for the three and nine month periods.  Product gross margin was 33% and 38%, respectively, for the three and nine months ended September 30, 2013 down from 50% and 49%, respectively, for the three and nine month periods ended September 30, 2012.  The lower gross margin for Q3 2013 is due to higher costs, including labor costs required for production.  We are incurring increased material costs due to lower yield and also due to concurrently running both deposition tools this year compared to only the Satella deposition tool in the first nine months of 2012.  Depreciation expense has increased due to new equipment coming online, including the new deposition tool.

The contract gross profit was approximately $0.3 million and $0.5 million, respectively, for the three and nine months ended September 30, 2013 as compared to approximately $0.5 million and $1.5 million, respectively, for the three and nine months ended September 30, 2012, a decrease of approximately $0.2 million and $1.0 million, respectively, for the three and nine month periods.  For the three months ended September 30, 2013, contract gross margin increased to 54% from 39% for the same period in 2012 and for the nine months ended September 30, 2013, contract gross margin decreased to 43% from 50% for the same period in 2012. The change in the contract gross margin is due to the nature of the contract and the amount of third party expenses incurred in fulfilling the contract.

Operating Expenses 

Research and Development.  Research and development expenses are company-funded and include salaries and related benefits, development materials and other costs specifically allocated to the development of new technologies and microdisplay products, OLED materials and subsystems.  R&D related costs associated with fulfilling contracts are categorized as contract cost of goods sold.  R&D expenses for the three and nine months ended September 30, 2013 were approximately $1.2 million and $3.9 million, respectively, or 20% and 18%, respectively, of revenue as compared to approximately $1.2 million and $3.6 million, respectively, or 16% of revenue for both the three and nine months ended September 30, 2012.  The increase for the nine month period was due primarily to an increase in spend on internal research and development.

Selling, General and Administrative.  Selling, general and administrative (“SG&A”) expenses consist principally of salaries and related benefits, professional services fees and marketing, general corporate, and administrative expenses.  Selling, general and administrative expenses for the three and nine months ended September 30, 2013 were approximately $2.0 million and $6.4 million, respectively, or 32% and 29%, respectively, of revenue as compared to approximately $1.9 million and $6.5 million, respectively, or 26% and 29%, respectively, of revenue for the three and nine months ended September 30, 2012. The increase in SG&A expenses for the three month period was related to an increase in related personnel costs offset by reduced professional fees.  The decrease in SG&A expenses for the nine month period was due primarily to a decrease in stock compensation and consulting and offset by an increase in personnel costs.

16

Other Income (Expense), net.  Other income (expense), net consists primarily of interest income earned on investments, interest expense and gain on sale of assets. For the three and nine months ended September 30, 2013, interest expense was approximately $11 thousand and $32 thousand, respectively, as compared to approximately $10 thousand and $18 thousand, respectively, offset by the capitalization of interest of $13 thousand for the nine months ended September 30, 2012.  We have no debt upon which we are incurring interest expense however we pay fees to keep our line of credit available.  Other income for the three and nine months ended September 30, 2013 was approximately $9 thousand and $33 thousand, respectively, of interest income and $12 thousand from other income as compared to approximately $13 thousand and $32 thousand, respectively, of interest income for the three and nine months ended September 30, 2012.

Liquidity and Capital Resources      

We had approximately $13.1 million of cash, cash equivalents, and investments at September 30, 2013 as compared to approximately $13.4 million at December 31, 2012.  Of the $13.1 million in cash, approximately $8.3 million was invested in certificates of deposits (“CDs”) and corporate bonds.  

Cash flow provided by operating activities during the nine months ended September 30, 2013 was approximately $0.1 million, attributable to our net non-cash expenses of $5.8 million offset by our net loss of approximately $5.4 million and change in operating assets and liabilities of $0.3 million. Cash flow provided by operating activities during the nine months ended September 30, 2012 was approximately $3.5 million, attributable to our net income of approximately $0.5 million, net non-cash expenses of $2.1 million and the change in operating assets and liabilities of $0.9 million.  

During the nine months ended September 30, 2013 approximately $0.8 million was used to purchase equipment and was offset by net short-term investments proceeds of $0.8 million.  Presently we have committed approximately $1.0 million for capital expenditures for the balance of 2013.  Cash used in investing activities during the nine months ended September 30, 2012 was approximately $3.4 million of which $2.3 million purchased investments in CDs and corporate bonds and approximately $1.1 million purchased equipment primarily for upgrading our production line.

Cash provided by financing activities during the nine months ended September 30, 2013 was approximately $0.3 million of which approximately $0.34 million proceeds from the exercise of stock options was offset by $0.04 million used to purchase treasury stock. Cash used by financing activities during the nine months ended September 30, 2012 was approximately $0.1 million of which approximately $0.4 million was used to purchase treasury stock offset by proceeds from the exercise of stock options of $0.3 million.

Credit Facility 

At September 30, 2013, we had a credit facility with Access Business Finance, LLC (“Access”) that provides for up to a maximum amount of $3 million based on a borrowing base equivalent of 75% of eligible accounts receivable.  The interest on the credit facility is equal to the Prime Rate plus 4% but may not be less than 7.25% with a minimum monthly interest payment of $1 thousand.  The credit facility will automatically renew on September 1, 2014 for a one year term unless written notice is provided.  We did not draw on our credit facility during the nine months ended September 30, 2013 or at any time since its inception in September 2010 and there is no outstanding balance.   

The credit facility contains the customary representations and warranties as well as affirmative and negative covenants.  We were in compliance with all debt covenants as of September 30, 2013. 

We expect our business to experience revenue growth which may result in higher accounts receivable levels and may require increased production and/or higher inventory levels.  We anticipate that our cash needs to fund these requirements as well as other operating or investing cash requirements over the next twelve months will be less than our current cash on hand, investments and the cash we anticipate generating from operations.  We anticipate that we will not require additional funds over the next twelve months other than perhaps for discretionary capital spending.  If unanticipated events arise during the next twelve months, we believe we can raise sufficient funds. However, if we are unable to obtain sufficient funds, we may have to reduce the size of our organization and/or be forced to reduce and/or curtail our production and operations, all of which could have a material adverse impact on our business prospects. 

Off-Balance Sheet Arrangements 

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

17

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk 

Market rate risk

We are exposed to market risk related to changes in interest rates.

Interest rate risk

We hold our cash in cash and cash equivalents, certificates of deposits, and corporate bonds.   We do not hold derivative financial instruments or equity securities.   At September 30, 2013, we have not drawn on our revolving line of credit and therefore do not have any related interest rate risk. A change in interest rates would not have had a material effect on our consolidated financial position, results of operations, or cash flows in the three and nine months ended September 30, 2013.

Foreign currency exchange rate risk

We do not have any material foreign currency exchange rate risk.

ITEM 4.  Controls and Procedures 

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. 

Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Limitations on the Effectiveness of Internal Controls. 

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

Changes in Internal Controls.

There were no changes in our internal controls over financial reporting during the fiscal quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

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PART II - OTHER INFORMATION 

ITEM 1.  Legal Proceedings   

None. 

ITEM 1A.  Risk Factors   

In addition to other information set forth in this Report, you should carefully consider the risk factors previously disclosed in “Item 1A to Part 1” of our Annual Report on Form 10-K for the year ended December 31, 2012.  There were no material changes from the risk factors during the nine months ended September 30, 2013. 

ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds   

Unregistered Sales of Equity Securities 

None. 

Issuer Repurchases of Equity Securities 

Our common stock repurchase activity for the three months ended September 30, 2013 was a follows:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1 through July 31, 2013		—		—		150,000	$	2,036,478
August 1 through August 31, 2013		—		—		150,000	$	2,036,478
September 1 through September 30, 2013		12,066	$	2.99		162,066	$	2,000,475

On August 24, 2011, our Board of Directors approved a stock repurchase plan authorizing a repurchase up to $2.5 million of its common stock.

ITEM 3.  Defaults Upon Senior Securities 

None. 

ITEM 4.  Mine Safety Disclosures 

None. 

ITEM 5.  Other Information 

None.

ITEM 6.  Exhibits 

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)
101.INS	XBRL Instance Document (2)
101.SCH	XBRL Taxonomy Extension Schema Document (2)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (2)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (2)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (2)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (2)
(1)  Filed herewith.
(2)  Furnished herewith.

19

SIGNATURES 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 12th day of November 2013. 

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

20

EX-31.1

EXHIBIT 31.1 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER 

PURSUANT TO SECTION 302 OF THE 

SARBANES-OXLEY ACT OF 2002 

I, Andrew G. Sculley, certify that: 

1.    I have reviewed this quarterly report on Form 10-Q of eMagin Corporation. 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): 

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.     

Dated: November 12, 2013	By:	/s/ Andrew G. Sculley
		Andrew G. Sculley
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2 

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER 

PURSUANT TO SECTION 302 OF THE 

SARBANES-OXLEY ACT OF 2002 

I, Paul Campbell, certify that: 

1.    I have reviewed this quarterly report on Form 10-Q of eMagin Corporation. 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): 

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.     

Dated: November 12, 2013	By:	/s/ Paul Campbell
		Paul Campbell
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

EX-32.1

EXHIBIT 32.1 

CERTIFICATION PURSUANT TO 

18 U.S.C. SECTION 1350, 

AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

In connection with the Quarterly Report of eMagin Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew G. Sculley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 

Dated: November 12, 2013	By:	/s/ Andrew G. Sculley
		Andrew G. Sculley
		Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2 

CERTIFICATION PURSUANT TO 

18 U.S.C. SECTION 1350, 

AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

In connection with the Quarterly Report of eMagin Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul Campbell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 

Dated: November 12, 2013	By:	/s/ Paul Campbell
		Paul Campbell
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies [Abstract]

Held-to-Maturity Investments

	September 30, 2013 (unaudited)
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Aggregate Fair Value
Current investments:
Corporate debt securities	$	250	$	—	$	—	$	250
Certificates of deposit		7,750		—		—		7,750
Total current investments	$	8,000	$	—	$	—	$	8,000
Long-term investments:
Certificates of deposit	$	250	$	—	$	—	$	250

	December 31, 2012
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Aggregate Fair Value
Current investments:
Corporate debt securities	$	1,520	$	—	$	—	$	1,520
Certificates of deposit		7,000		—		—		7,000
Total current investments	$	8,520	$	—	$	—	$	8,520
Long-term investments:
Corporate debt securities	$	500	$	—	$	—	$	500

Schedule of Earnings Per Share, Basic and Diluted

	Three Months Ended					Nine Months Ended
	September 30, 2012					September 30, 2012
	(unaudited)					(unaudited)
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic EPS
Net Income	$	340				$	466
Income allocated to participating securities		83					113
Income allocated to common shares	$	257	23,444,361	$	0.01	$	353	23,473,770	$	0.02
Diluted EPS
Diluted potential common shares (1)			1,948,674					1,887,094
Income allocated to common shares	$	257	25,393,035	$	0.01	$	353	25,360,864	$	0.01

(1) Dilutive potential common shares consist of shares of common stock issuable upon exercise of outstanding stock options and warrants. 

Potentially Dilutive Common Stock Equivalents

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
	(unaudited)		(unaudited)
Options and warrants	5,637,319	2,657,398	5,637,319	3,024,398
Convertible preferred stock	7,545,333		7,545,333
Total potentially dilutive common stock equivalents	13,182,652	2,657,398	13,182,652	3,024,398

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Condensed Consolidated Statements Of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenue:
Product	$ 5,770	$ 6,309	$ 20,671	$ 19,263
Contract	559	1,201	1,189	2,971
Total revenue, net	6,329	7,510	21,860	22,234
Cost of goods sold:
Product	3,848	3,132	12,821	9,914
Contract	256	729	672	1,477
Total cost of goods sold	4,104	3,861	13,493	11,391
Gross profit	2,225	3,649	8,367	10,843
Operating expenses:
Research and development	1,239	1,173	3,882	3,571
Selling, general and administrative	2,041	1,918	6,358	6,525
Total operating expenses	3,280	3,091	10,240	10,096
(Loss) Income from operations	(1,055)	558	(1,873)	747
Other income (expense):
Interest expense, net	(11)	(10)	(32)	(18)
Other income, net	9	13	45	32
Total other income (expense), net	(2)	3	13	14
(Loss) income before provision for income taxes	(1,057)	561	(1,860)	761
Provision for income taxes	3,502	221	3,502	295
Net (loss) income	(4,559)	340	(5,362)	466
Less net income allocated to participating securities		83		113
Net (loss) income allocated to common shares	$ (4,559)	$ 257	$ (5,362)	$ 353
(Loss) income per share, basic	$ (0.19)	$ 0.01	$ (0.23)	$ 0.02
(Loss) income per share, diluted	$ (0.19)	$ 0.01	$ (0.23)	$ 0.01
Weighted average number of shares outstanding:
Basic	23,718,106	23,444,361	23,610,531	23,473,770
Diluted	23,718,106	25,393,035	23,610,531	25,360,864

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Line of Credit

9 Months Ended

Sep. 30, 2013

Line of Credit [Abstract]

Line of Credit

Note 4:  Line of Credit 

On September 1, 2013, the Company renewed its credit facility with Access Business Finance, LLC (“Access”) under which the Company may borrow up to a maximum of $3 million based on a borrowing base equivalent of 75% of eligible accounts receivable.  It amended the interest rate from Prime plus 5% but not less than 8.25% to Prime plus 4% but not less than 7.25%.  All other material terms of the credit facility remained unchanged:  the minimum monthly interest payment is $1,000 and the early termination fee is $6,000.  The renewal date of the line of credit is September 1, 2014.  The Company’s obligations under the credit facility are secured by its assets.  For the nine months ended September 30, 2013, the Company had not borrowed on its line of credit.

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Summary of Significant Accounting Policies (Potentially Dilutive Common Stock Equivalents) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total potentially dilutive common stock equivalents	13,182,652	2,657,398	13,182,652	3,024,398
Options and Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total potentially dilutive common stock equivalents	5,637,319	2,657,398	5,637,319	3,024,398
Convertible Preferred Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total potentially dilutive common stock equivalents	7,545,333		7,545,333

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Accounts Receivables, net (Tables)

9 Months Ended

Sep. 30, 2013

Accounts Receivables, net [Abstract]

Schedule of Accounts Receivable

	September 30, 2013		December 31,
	(unaudited)		2012
Accounts receivable	$	4,080	$	5,386
Less allowance for doubtful accounts		(230)		(232)
Net receivable	$	3,850	$	5,154

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Line of Credit (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 01, 2013
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity	$ 3,000,000
Eligible accounts receivable percentage	75.00%
Line of credit facility, borrowing capacity, description	the Company may borrow up to a maximum of $3 million based on a borrowing base equivalent of 75% of eligible accounts receivable.
Monthly interest payment required	1,000
Interest rate plus Prime		5.00%
Minimum interest rate		8.25%
Early termination fee	6,000
Outstanding amount on credit facility	$ 0
Amended Credit Facility [Member]
Line of Credit Facility [Line Items]
Interest rate plus Prime		4.00%
Minimum interest rate		7.25%
Scenario, Forecast [Member]
Line of Credit Facility [Line Items]
Renewal date for credit facility	Sep. 01, 2014

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Inventories, net (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Inventories, net [Abstract]
Raw materials	$ 2,021	$ 1,745
Work in process	1,869	898
Finished goods	603	651
Total inventories	4,493	3,294
Less inventory reserve	(86)	(71)
Total inventories, net	$ 4,407	$ 3,223

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Commitments And Contingencies (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Commitments And Contingencies [Line Items]
Lease extension option time frame			5 years
Rent expense	$ 303,000	$ 302,000	$ 909,000	$ 905,000
Equipment purchases commitments			1,000,000
Minimum [Member]
Commitments And Contingencies [Line Items]
Loss contingency			0
Maximum [Member]
Commitments And Contingencies [Line Items]
Loss contingency			$ 250,000
Hopewell Junction, New York [Member]
Commitments And Contingencies [Line Items]
Area of leased real estate property	37,000		37,000
Lease expiration date			May 31, 2014
Bellevue, Washington [Member]
Commitments And Contingencies [Line Items]
Area of leased real estate property	6,300		6,300
Lease expiration date			Aug. 31, 2014
Santa Clara, California [Member]
Commitments And Contingencies [Line Items]
Area of leased real estate property	2,400		2,400
Lease expiration date			Oct. 31, 2015

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Stock-based Compensation (Stock Option Activity) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013		Sep. 30, 2013
Stock-based Compensation [Abstract]
Outstanding at December 31, 2012, shares			4,685,434
Options granted, shares			407,937
Options exercised, shares			(203,759)
Options forfeited, shares			(125,366)
Options cancelled or expired, shares			(126,927)
Outstanding at September 30, 2013, shares	4,637,319		4,637,319
Vested or expected to vest at September 30, 2013, shares	4,602,546	[1]	4,602,546	[1]
Exercisable at September 30, 2013, shares	3,768,029		3,768,029
Outstanding at December 31, 2012, exercise price			$ 3.82
Options granted, exercise price			$ 3.50
Options exercised, exercise price			$ 1.67
Options forfeited, exercise price			$ 4.07
Options cancelled or expired, exercise price			$ 6.84
Outstanding at September 30, 2013, exercise price	$ 3.80		$ 3.80
Vested or expected to vest at September 30, 2013, exercise price	$ 3.79	[1]	$ 3.79	[1]
Exercisable at September 30, 2013, exercise price	$ 3.50		$ 3.50
Outstanding at September 30, 2013, contractual life			4 years 8 months 19 days
Vested or expected to vest at September 30, 2013, contractual life			4 years 8 months 23 days	[1]
Exercisable at September 30, 2013, contractual life			4 years 10 months 28 days
Outstanding at September 30, 2013, intrinsic value	$ 2,746,430		$ 2,746,430
Vested or expected to vest at September 30, 2013, intrinsic value	2,745,192	[1]	2,745,192	[1]
Exercisable at September 30, 2013, intrinsic value	2,715,463		2,715,463
Aggregate intrinsic value of options exercised	$ 58,000		$ 401,000

[1] The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options

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Accounts Receivables, net (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accounts Receivables, net [Abstract]
Accounts receivable	$ 4,080	$ 5,386
Less allowance for doubtful accounts	(230)	(232)
Net receivable	$ 3,850	$ 5,154

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Consolidated Statements Of Cash Flows (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Consolidated Statements Of Cash Flows [Abstract]
Capitalized interest	$ 13

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Accounts Receivables, net

9 Months Ended

Sep. 30, 2013

Accounts Receivables, net [Abstract]

Accounts Receivables, net

Note 2:  Accounts Receivable, net 

The majority of the Company’s commercial accounts receivable are due from Original Equipment Manufacturers ("OEM’s”). Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required.  

Accounts receivable consisted of the following (in thousands):

	September 30, 2013		December 31,
	(unaudited)		2012
Accounts receivable	$	4,080	$	5,386
Less allowance for doubtful accounts		(230)		(232)
Net receivable	$	3,850	$	5,154

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Stock-based Compensation

9 Months Ended

Sep. 30, 2013

Stock-based Compensation [Abstract]

Stock-based Compensation

Note 5:  Stock-based Compensation 

The Company uses the fair value method of accounting for share-based compensation arrangements. The fair value of stock options is estimated at the date of grant using the Black-Scholes option valuation model.  Stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method. 

The following table summarizes the allocation of non-cash stock-based compensation to our expense categories for the three and nine month periods ended September 30, 2013 and 2012 (in thousands): 

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2013		2012		2013		2012
Cost of revenue	$	68	$	70	$	219	$	206
Research and development		137		147		428		434
Selling, general and administrative		363		342		998		1,319
Total stock compensation expense	$	568	$	559	$	1,645	$	1,959

At September 30, 2013, total unrecognized compensation costs related to stock options was approximately $1.5 million, net of estimated forfeitures.  Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of approximately 1.6 years.   

The following key assumptions were used in the Black-Scholes option pricing model to determine the fair value of stock options granted: 

	For the Nine Months Ended
	September 30,
	2013		2012
Dividend yield	0	%	0	%
Risk free interest rates	0.35 – 1.48	%	0.36 - 0.87	%
Expected  volatility	67.6 to 73.8	%	71.8 to 81.2	%
Expected term (in years)	3.5 to 5.0		3.0 to 5.5

The Company paid a special one-time dividend in 2012.  However, the Company does not expect to continue to pay dividends in the near future therefore the Company used an expected dividend yield of 0%.  The risk-free interest rate used in the Black-Scholes option pricing model is based on the implied yield at the time of grant available on U.S. Treasury securities with an equivalent term.   Expected volatility is based on the weighted average historical volatility of the Company’s common stock for the equivalent term.  The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards. 

A summary of the Company’s stock option activity for the nine months ended September 30, 2013 is presented in the following table (unaudited): 

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		4,685,434	$	3.82
Options granted		407,937		3.50
Options exercised		(203,759)		1.67
Options forfeited		(125,366)		4.07
Options cancelled or expired		(126,927)		6.84
Outstanding at September 30, 2013		4,637,319	$	3.80		4.72	$	2,746,430
Vested or expected to vest at September 30, 2013 (1)		4,602,546	$	3.79		4.73	$	2,745,192
Exercisable at September 30, 2013		3,768,029	$	3.50		4.91	$	2,715,463

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options.

The aggregate intrinsic value in the table above represents the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock.  For the three and nine months ended September 30, 2013, the aggregate intrinsic value of options exercised was approximately $58 thousand and $401 thousand, respectively.   The Company issues new shares of common stock upon exercise of stock options.

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Inventories, net

9 Months Ended

Sep. 30, 2013

Inventories, net [Abstract]

Inventories, net

Note 3:  Inventories, net 

The components of inventories are as follows (in thousands): 

	September 30, 2013		December 31,
	(unaudited)		2012
Raw materials	$	2,021	$	1,745
Work in process		1,869		898
Finished goods		603		651
Total inventories		4,493		3,294
Less inventory reserve		(86)		(71)
Total inventories, net	$	4,407	$	3,223

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Stock-based Compensation (Narrative) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Stock-based Compensation [Abstract]
Unrecognized stock option compensation net of for feitures	$ 1.5
Unrecognized stock option compensation recognition term	1 year 7 months 6 days
Expected dividend yield	0.00%

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Shareholders' Equity (Details) (USD $)	3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Series B Convertible Preferred Stock [Member]	Dec. 31, 2012 Series B Convertible Preferred Stock [Member]	Sep. 30, 2013 Stock Options [Member]	Sep. 30, 2012 Stock Options [Member]	Sep. 30, 2013 Stock Options [Member]	Sep. 30, 2012 Stock Options [Member]
Shareholders' Equity [Line Items]
Preferred stock, shares issued					5,659	5,659
Preferred stock, shares outstanding					5,659	5,659
Proceeds from stock options exercised	$ 83,000	$ 213,000	$ 340,000	$ 255,000
Exercise of common stock options, shares			203,759				40,144	131,688	203,759	160,563
Shares repurchased	12,066		12,066	125,000
Average cost of shares purchased	$ 2.99		$ 2.99	$ 2.95
Remaining authorized repurchases amount			$ 2,000,000

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	23,878,300	23,674,541
Common stock, shares outstanding	23,878,300	23,674,541
Treasury stock, shares	162,066	150,000
Series B Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock - Series B, liquidation preference	$ 5,659,000	$ 5,659,000
Preferred stock, stated value	$ 1,000	$ 1,000
Preferred stock, shares issued	5,659	5,659
Preferred stock, shares outstanding	5,659	5,659
Designated Series B Convertible Preferred Stock, shares	10,000	10,000

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 8:  Commitments and Contingencies 

Royalty Payments  

The Company signed a license agreement on March 29, 1999 with Eastman Kodak (“Kodak’), under which it is obligated to make royalty payments. Under this agreement, the Company must pay to Kodak a minimum royalty plus a certain percentage of net sales with respect to certain products, which percentages are defined in the agreement. The percentages are on a sliding scale depending on the amount of sales generated. Any minimum royalties paid will be credited against the amounts due based on the percentage of sales. The royalty agreement terminates upon the expiration of the issued patent which is the last to expire.  The Company was notified that Kodak sold substantially all rights and obligations under the Company’s license agreement to Global OLED Technology (“GOT”) as of December 30, 2009.

In late 2008, the Company began evaluating the status of its manufacturing process and the use of the intellectual property (“IP”) associated with its license agreement.  After this analysis and after making a few changes to its manufacturing process, by the end of 2008 the Company had stopped using the IP covered under the license agreement.  The last royalty payment under the license agreement was made in November 2009.  The Company determined that it is no longer required to pay the minimum royalty payment and as such has not paid or accrued this amount.  

In April 2011, the Company received a request for royalty payments from a representative of GOT. The Company responded stating that the licenses were no longer in force and that the request for royalties was untimely.  Although GOT does not agree, both parties have expressed an interest in resolving the disagreement amicably.  The Company is in ongoing communication with GOT and both parties are working together to settle the issue. As of the date of this filing, no agreement has been reached.  The Company estimates that the range of loss contingency is between $0 and $250 thousand.

Operating Leases

The Company leases office facilities and office, lab and factory equipment under operating leases.  Certain leases provide for payments of monthly operating expenses. The Company currently has lease commitments for space in Hopewell Junction, New York, Bellevue, Washington, and Santa Clara, California.  

The Company’s manufacturing facilities are leased from IBM in Hopewell Junction, New York.  The Company leases approximately 37,000 square feet to house its equipment for OLED microdisplay fabrication and for research and development, an assembly area and administrative offices. The lease expires May 31, 2014 with the option of extending the lease for five years.   The corporate headquarters are located in Bellevue, Washington where eMagin leases approximately 6,300 square feet.   The lease expires on August 31, 2014.  In addition, the Company leases approximately 2,400 square feet of office space for design and product development in Santa Clara, California and the lease expires October 31, 2015.

Rent expense was approximately $303 thousand and $909 thousand, respectively, for the three and nine months ended September 30, 2013 and approximately $302 thousand and $905 thousand, respectively, for the three and nine months ended September 30, 2012. 

Equipment Purchase Commitments

The Company has committed to equipment purchases of approximately $1.0 million at September 30, 2013.

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flows from operating activities:
Net (loss) income	$ (5,362)	$ 466
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	656	168
Reduction in provision for doubtful accounts	(1)
Amortization of bond premium	20	21
Inventory reserve	16	3
Stock-based compensation	1,645	1,959
Gain on sale of asset	(9)
Deferred income taxes	3,499
Changes in operating assets and liabilities:
Accounts receivable	1,305	599
Inventories, net	(1,200)	(57)
Prepaid expenses and other current assets	(568)	77
Accounts payable, accrued expenses, and other current liabilities	113	267
Net cash provided by operating activities	114	3,503
Cash flows from investing activities:
Purchase of equipment	(757)	(1,090)
Proceeds from sale of asset	15
Maturities of investments	11,250	6,495
Purchase of investments	(10,500)	(8,799)
Net cash provided by (used in) investing activities	8	(3,394)
Cash flows from financing activities:
Proceeds from exercise of stock options	340	255
Purchase of treasury stock	(36)	(368)
Net cash provided by (used in) financing activities	304	(113)
Net increase (decrease) in cash and cash equivalents	426	(4)
Cash and cash equivalents, beginning of period	4,385	7,571
Cash and cash equivalents, end of period	4,811	7,567
Cash paid for interest, net of amount capitalized of $13 thousand in 2012	9
Cash paid for taxes	$ 72

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
ASSETS
Cash and cash equivalents	$ 4,811	$ 4,385
Investments	8,000	8,520
Accounts receivable, net	3,850	5,154
Inventories, net	4,407	3,223
Prepaid expenses and other current assets	1,314	653
Total current assets	22,382	21,935
Long-term investments	250	500
Equipment, furniture and leasehold improvements, net	8,197	8,099
Other assets	28	124
Deferred tax asset	5,382	8,881
Total assets	36,239	39,539
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	1,258	955
Accrued expenses	2,408	2,548
Other current liabilities	359	409
Total current liabilities	4,025	3,912
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $.001 par value: authorized 10,000,000 shares: Series B Convertible Preferred stock, (liquidation preference of $5,659,000) stated value $1,000 per share, $.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of September 30, 2013 and December 31, 2012
Common stock, $.001 par value: authorized 200,000,000 shares, issued and outstanding, 23,878,300 shares as of September 30, 2013 and 23,674,541 as of December 31, 2012	24	24
Additional paid in capital	225,560	223,575
Accumulated deficit	(192,871)	(187,509)
Treasury stock, 162,066 shares as of September 30, 2013 and 150,000 shares as of December 31, 2012	(499)	(463)
Total shareholders' equity	32,214	35,627
Total liabilities and shareholders' equity	$ 36,239	$ 39,539

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Stock-based Compensation (Allocation Of Stock-Based Compensation To Expense Catagories) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	$ 568	$ 559	$ 1,645	$ 1,959
Cost of Sales [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	68	70	219	206
Research and Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	137	147	428	434
Selling, General and Administrative Expenses [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	$ 363	$ 342	$ 998	$ 1,319

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Summary of Significant Accounting Policies (Schedule of Earnings Per Share, Basic and Diluted) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012		Sep. 30, 2013	Sep. 30, 2012
Summary of Significant Accounting Policies [Abstract]
Net income	$ (4,559)	$ 340		$ (5,362)	$ 466
Income allocated to participating securities		83			113
Net (loss) income allocated to common shares	(4,559)	257		(5,362)	353
Income allocated to common shares, diluted		$ 257			$ 353
Income allocated to common shares, basic shares	23,718,106	23,444,361		23,610,531	23,473,770
Diluted potential common shares		1,948,674	[1]		1,887,094	[1]
Income allocated to common shares, diluted shares	23,718,106	25,393,035		23,610,531	25,360,864
Income allocated to common shares, per share, basic	$ (0.19)	$ 0.01		$ (0.23)	$ 0.02
Income allocated to common shares, per share, diluted	$ (0.19)	$ 0.01		$ (0.23)	$ 0.01

[1] Dilutive potential common shares consist of shares of common stock issuable upon exercise of outstanding stock options and warrants.

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Concentrations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 6,329	$ 7,510	$ 21,860	$ 22,234
North And South America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	3,469	5,442	13,808	15,053
Europe, Middle East, And Africa [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	2,004	1,349	6,017	5,180
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 856	$ 719	$ 2,035	$ 2,001
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenues, percentage	55.00%	68.00%	61.00%	65.00%
International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenues, percentage	45.00%	32.00%	39.00%	35.00%
One Customer [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenues, percentage	11.00%		13.00%	16.00%
Two Customers [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenues, percentage		38.00%

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Income Taxes

9 Months Ended

Sep. 30, 2013

Income Taxes [Abstract]

Income Taxes

Note 7:  Income Taxes 

The Company’s effective tax rate is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The Company’s effective tax rate for the nine months ended September 30, 2013 and 2012 was (193.8)% and 38.8%, respectively.  The difference between the effective tax rate of (193.8)% and the U.S. federal statutory rate of 34% for the nine months ended September 30, 2013 was primarily due to the increase of the valuation allowance on deferred tax assets.The difference between the effective tax rate of 38.8% and the U.S. federal statutory rate of 34% for the nine months ended September 30, 2012 was primarily due to the impact of state income taxes and alternative minimum tax.

The Company's deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance.  In the quarter ended September 30, 2013, the Company increased the valuation allowance $3.5 million as a result of negative evidence, primarily, the Company incurred a year-to-date pre-tax loss where the Company had previously forecasted a profit for 2013.  Actual product costs per completed display have exceeded previously estimated product costs per unit due to an increase in the amount of materials used to produce displays that meet customer specifications.  This recent, negative evidence outweighs the more subjective positive evidence, indicating that it is more likely than not that all of the associated tax benefit would not be realized.   With the adjustment, the Company believes that it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, of $5.4 million as of September 30, 2013.  The Company believes its yield of saleable product will return to levels it has experienced in prior years resulting in profitability.  The Company has corrected the design flaw on the new OLED deposition tool and as a result output is expected to increase.  The Company’s estimate of the realizability of deferred tax assets has ranged from estimating no recovery of deferred tax assets to realizing approximately $9 million in 2010 through Q2 of 2013.  The Company’s current estimate is likely to change based on future results.  The Company’s net operating loss carry forward amounts substantially expire in 2027.  

Due to the Company’s operating loss carryforwards, all tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. In the event that the Company is assessed interest or penalties at some point in the future, it will be classified in the financial statements as tax expense.  

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Stock-based Compensation (Key Assumptions Used For Black-Scholes Option Pricing Model) (Details)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%	0.00%
Risk free interest rates, minimum	0.35%	0.36%
Risk free interest rates, maximum	1.48%	0.87%
Expected volatility, minimum	67.60%	71.80%
Expected volatility, maximum	73.80%	81.20%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	3 years 6 months	3 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	5 years	5 years 6 months

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Summary of Signiicant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of eMagin Corporation and its subsidiary reflect all adjustments, including normal recurring accruals, necessary for a fair presentation.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission.  The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The results of operations for the period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.  The consolidated condensed financial statements of December 31, 2012 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. 

In accordance with accounting principles generally accepted in the United States of America, management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments related to, among others, allowance for doubtful accounts, warranty reserves, inventory reserves, stock-based compensation expense, deferred tax asset valuation allowances, litigation and other loss contingencies. Management bases its estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. 

Revenue and Cost Recognition

Revenue and Cost Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, selling price is fixed or determinable and collection is reasonably assured.   Product revenue is generally recognized when products are shipped to customers. The Company defers revenue recognition on products sold directly to the consumer with a maximum thirty day right of return.  Revenue is recognized upon the expiration of the right of return.

The Company also earns revenues from certain research and development (“R&D”) activities (contract revenues) under both firm fixed-price contracts and cost-type contracts.  Revenues relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred (cost-to-cost basis).  Progress is generally based on a cost-to-cost approach however an alternative method may be used such as physical progress, labor hours or others depending on the type of contract.   Physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances.  Contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract, as periodically adjusted to reflect revised agreed upon rates. These rates are subject to audit by the other party. 

New Accounting Pronouncements

New Accounting Pronouncement

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, an amendment to FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“FASB ASC Topic 740”).  The amendment provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists.An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  ASU 2013-11 is effective for reporting periods after January 1, 2014 and is not expected to have an impact on the Company’s financial statements.

Investments

Investments 

Investments consist of debt securities including corporate obligations and FDIC-insured certificates of deposit with maturities up to eighteen months.   The Company classifies these securities as held-to-maturity since it has the positive intent and ability to hold them until maturity. These securities are carried at amortized cost.  

Net (Loss) Income per Common Share

Net (Loss) Income per Common Share   

Basic (loss) income per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as stock options, warrants, and convertible preferred stock. Diluted (loss) income per share is computed using the weighted average number of common shares outstanding and potentially dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

The Company’s Series B Convertible Preferred stock (“Preferred Stock – Series B”) is considered a participating security as the preferred stock participates in dividends with the common stock, which requires the use of the two-class method when computing basic and diluted earnings per share.  The Preferred Stock – Series B is not required to absorb any net loss. Though the Company paid a one-time special dividend in 2012, the Company does not expect to continue to pay dividends on its common or preferred stock in the near future.   

For the three and nine months ended September 30, 2013, the Company has reported a net loss and as a result, basic and diluted net loss per common share are the same.  Therefore, in calculating net loss per share amounts, shares underlying the potentially dilutive common stock equivalents were excluded from the calculation of diluted net income per common share because their effect was anti-dilutive.

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Shareholders' Equity

9 Months Ended

Sep. 30, 2013

Shareholders' Equity [Abstract]

Shareholders' Equity

Note 6:  Shareholders’ Equity 

Preferred Stock - Series B Convertible Preferred Stock (“the Preferred Stock – Series B”) 

As of September 30, 2013 and December 31, 2012, there were 5,659 shares of Preferred Stock – Series B issued and outstanding. 

Common Stock 

The Company received approximately $83 thousand and $340 thousand for the exercise of 40,144 and 203,759 stock options in the three and nine months ended September 30, 2013, respectively. The Company received approximately $213 thousand and $255

thousand for the exercise of 131,688 and 160,563 stock options in the three and nine months ended September 30, 2012, respectively.    

In the three and nine months ended September 30, 2013, the Company repurchased 12,066 shares at an average cost of $2.99 per share.  During the nine months ended September 30, 2012, the Company repurchased 125,000 shares at an average cost of $2.95 per share.  At September 30, 2013, there was approximately $2.0 million remaining under the stock repurchase plan.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1:   Summary of Significant Accounting Policies 

The Business 

eMagin Corporation (the “Company”) designs, develops, manufactures, and markets OLED (organic light emitting diode) on silicon microdisplays and virtual imaging products which utilize OLED microdisplays. The Company’s products are sold mainly in North America, Asia, and Europe. 

Basis of Presentation 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of eMagin Corporation and its subsidiary reflect all adjustments, including normal recurring accruals, necessary for a fair presentation.  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission.  The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The results of operations for the period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.  The consolidated condensed financial statements of December 31, 2012 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. 

In accordance with accounting principles generally accepted in the United States of America, management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments related to, among others, allowance for doubtful accounts, warranty reserves, inventory reserves, stock-based compensation expense, deferred tax asset valuation allowances, litigation and other loss contingencies. Management bases its estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. 

Revenue and Cost Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, selling price is fixed or determinable and collection is reasonably assured.   Product revenue is generally recognized when products are shipped to customers. The Company defers revenue recognition on products sold directly to the consumer with a maximum thirty day right of return.  Revenue is recognized upon the expiration of the right of return.

The Company also earns revenues from certain research and development (“R&D”) activities (contract revenues) under both firm fixed-price contracts and cost-type contracts.  Revenues relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred (cost-to-cost basis).  Progress is generally based on a cost-to-cost approach however an alternative method may be used such as physical progress, labor hours or others depending on the type of contract.   Physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances.  Contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract, as periodically adjusted to reflect revised agreed upon rates. These rates are subject to audit by the other party. 

New Accounting Pronouncement

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, an amendment to FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“FASB ASC Topic 740”).  The amendment provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists.An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  ASU 2013-11 is effective for reporting periods after January 1, 2014 and is not expected to have an impact on the Company’s financial statements.

Investments 

Investments consist of debt securities including corporate obligations and FDIC-insured certificates of deposit with maturities up to eighteen months.   The Company classifies these securities as held-to-maturity since it has the positive intent and ability to hold them until maturity. These securities are carried at amortized cost.  

The held-to-maturity investments consist of the following as of September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013 (unaudited)
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Aggregate Fair Value
Current investments:
Corporate debt securities	$	250	$	—	$	—	$	250
Certificates of deposit		7,750		—		—		7,750
Total current investments	$	8,000	$	—	$	—	$	8,000
Long-term investments:
Certificates of deposit	$	250	$	—	$	—	$	250

	December 31, 2012
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Aggregate Fair Value
Current investments:
Corporate debt securities	$	1,520	$	—	$	—	$	1,520
Certificates of deposit		7,000		—		—		7,000
Total current investments	$	8,520	$	—	$	—	$	8,520
Long-term investments:
Corporate debt securities	$	500	$	—	$	—	$	500

As of September 30, 2013, the current investments mature within one year and the long-term investments within 18 months.  

Net (Loss) Income per Common Share   

Basic (loss) income per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as stock options, warrants, and convertible preferred stock. Diluted (loss) income per share is computed using the weighted average number of common shares outstanding and potentially dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive.

The Company’s Series B Convertible Preferred stock (“Preferred Stock – Series B”) is considered a participating security as the preferred stock participates in dividends with the common stock, which requires the use of the two-class method when computing basic and diluted earnings per share.  The Preferred Stock – Series B is not required to absorb any net loss. Though the Company paid a one-time special dividend in 2012, the Company does not expect to continue to pay dividends on its common or preferred stock in the near future.   

For the three and nine months ended September 30, 2013, the Company has reported a net loss and as a result, basic and diluted net loss per common share are the same.  Therefore, in calculating net loss per share amounts, shares underlying the potentially dilutive common stock equivalents were excluded from the calculation of diluted net income per common share because their effect was anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data) for the three and nine months ended September 30, 2012: 

	Three Months Ended					Nine Months Ended
	September 30, 2012					September 30, 2012
	(unaudited)					(unaudited)
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic EPS
Net Income	$	340				$	466
Income allocated to participating securities		83					113
Income allocated to common shares	$	257	23,444,361	$	0.01	$	353	23,473,770	$	0.02
Diluted EPS
Diluted potential common shares (1)			1,948,674					1,887,094
Income allocated to common shares	$	257	25,393,035	$	0.01	$	353	25,360,864	$	0.01

(1) Dilutive potential common shares consist of shares of common stock issuable upon exercise of outstanding stock options and warrants. 

The following is a table of the potentially dilutive common stock equivalents for the three and nine month periods ended September 30, 2013 and 2012 that were not included in diluted EPS as their effect would be anti-dilutive:  

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
	(unaudited)		(unaudited)
Options and warrants	5,637,319	2,657,398	5,637,319	3,024,398
Convertible preferred stock	7,545,333		7,545,333
Total potentially dilutive common stock equivalents	13,182,652	2,657,398	13,182,652	3,024,398

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Income Taxes (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2012	Jun. 30, 2013 Minimum [Member]	Jun. 30, 2013 Maximum [Member]
Income Tax Examination [Line Items]
Effective tax rate		(193.80%)	38.80%
Federal statutory rate		34.00%
Deferred tax assets, valuation allowance increase	$ 3,500,000
Deferred tax assets, net of valuation allowance	$ 5,400,000	$ 5,400,000		$ 0	$ 9,000,000

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Inventories, net (Tables)

9 Months Ended

Sep. 30, 2013

Inventories, net [Abstract]

Schedule of Components of Inventories

	September 30, 2013		December 31,
	(unaudited)		2012
Raw materials	$	2,021	$	1,745
Work in process		1,869		898
Finished goods		603		651
Total inventories		4,493		3,294
Less inventory reserve		(86)		(71)
Total inventories, net	$	4,407	$	3,223

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Concentrations

9 Months Ended

Sep. 30, 2013

Concentrations [Abstract]

Concentrations

Note 9:  Concentrations    

For the three and nine months ended September 30, 2013, approximately 55% and 61%, respectively, of the Company’s net revenues were derived from customers in the United States and approximately 45% and 39%, respectively, of the Company’s net revenues were derived from international customers.  For the three and nine months ended September 30, 2012, approximately 68% and 65%, respectively, of the Company’s net revenues were derived from customers in the United States and approximately 32% and 35%, respectively, of the Company’s net revenues were derived from international customers.   For the three and nine months ended September 30, 2013, one customer accounted for 11% and 13%, respectively, of its net revenue. For the three months ended September 30, 2012, two customers accounted for 38% of its revenue and for the nine months ended September 30, 2012, one customer accounted for 16% of its revenue.

The following is a schedule of revenue by geographic location (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2013		2012		2013		2012
North and South America	$	3,469	$	5,442	$	13,808	$	15,053
Europe, Middle East, and Africa		2,004		1,349		6,017		5,180
Asia Pacific		856		719		2,035		2,001
Total	$	6,329	$	7,510	$	21,860	$	22,234

The Company purchases principally all of its silicon wafers from a single supplier located in Taiwan.     

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Summary of Significant Accounting Policies (Held-to-Maturity Securities) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity investments, Noncurrent	$ 250	$ 500
Current Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity investments, Current	8,000	8,520
Held-to-maturity investments, Gross Unrecognized Gains
Held-to-maturity investments, Gross Unrecognized Losses
Held-to-maturity investments, Aggregate Fair Value	8,000	8,520
Investments maturity period	1 year
Current Investments [Member] | Corporate Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity investments, Current	250	1,520
Held-to-maturity investments, Gross Unrecognized Gains
Held-to-maturity investments, Gross Unrecognized Losses
Held-to-maturity investments, Aggregate Fair Value	250	1,520
Current Investments [Member] | Certificates of Deposit [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity investments, Current	7,750	7,000
Held-to-maturity investments, Gross Unrecognized Gains
Held-to-maturity investments, Gross Unrecognized Losses
Held-to-maturity investments, Aggregate Fair Value	7,750	7,000
Long-term Investments [Member]
Schedule of Held-to-maturity Securities [Line Items]
Investments maturity period	18 months
Long-term Investments [Member] | Corporate Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity investments, Noncurrent		500
Held-to-maturity investments, Aggregate Fair Value		500
Long-term Investments [Member] | Certificates of Deposit [Member]
Schedule of Held-to-maturity Securities [Line Items]
Held-to-maturity investments, Noncurrent	250
Held-to-maturity investments, Gross Unrecognized Gains
Held-to-maturity investments, Gross Unrecognized Losses
Held-to-maturity investments, Aggregate Fair Value	$ 250

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Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Stock-based Compensation [Abstract]

Allocation Of Stock-Based Compensation To Expense Catagories

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2013		2012		2013		2012
Cost of revenue	$	68	$	70	$	219	$	206
Research and development		137		147		428		434
Selling, general and administrative		363		342		998		1,319
Total stock compensation expense	$	568	$	559	$	1,645	$	1,959

Key Assumptions Used For Black-Scholes Option Pricing Model

	For the Nine Months Ended
	September 30,
	2013		2012
Dividend yield	0	%	0	%
Risk free interest rates	0.35 – 1.48	%	0.36 - 0.87	%
Expected  volatility	67.6 to 73.8	%	71.8 to 81.2	%
Expected term (in years)	3.5 to 5.0		3.0 to 5.5

Stock Option Activity

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		4,685,434	$	3.82
Options granted		407,937		3.50
Options exercised		(203,759)		1.67
Options forfeited		(125,366)		4.07
Options cancelled or expired		(126,927)		6.84
Outstanding at September 30, 2013		4,637,319	$	3.80		4.72	$	2,746,430
Vested or expected to vest at September 30, 2013 (1)		4,602,546	$	3.79		4.73	$	2,745,192
Exercisable at September 30, 2013		3,768,029	$	3.50		4.91	$	2,715,463

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options.

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 31, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2013
Entity Registrant Name	EMAGIN CORP
Entity Central Index Key	0001046995
Entity Filer Category	Smaller Reporting Company
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		23,878,300

XML

Concentrations (Tables)

9 Months Ended

Sep. 30, 2013

Concentrations [Abstract]

Concentrations

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	(unaudited)				(unaudited)
	2013		2012		2013		2012
North and South America	$	3,469	$	5,442	$	13,808	$	15,053
Europe, Middle East, and Africa		2,004		1,349		6,017		5,180
Asia Pacific		856		719		2,035		2,001
Total	$	6,329	$	7,510	$	21,860	$	22,234