10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

Form 10-Q 

(Mark One)

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

For the quarterly period ended June 30, 2016

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.)

2070 Route 52, Hopewell Junction, NY  12533

(Address of principal executive offices) 

(845)  838-7900 

(Registrant’s telephone number, including area code) 

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☑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☑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☑

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

The number of shares of common stock outstanding as of July 31,  2016 was 29,388,104.

eMagin Corporation 

Form 10-Q

For the Quarter ended June 30, 2016

Table of Contents

		Page
PART I   FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December31, 2015	3
	Condensed Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2016 and 2015 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2016 and 2015 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4	Controls and Procedures	22
PART II   OTHER INFORMATION
Item 1	Legal Proceedings	23
Item 1A	Risk Factors	23
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3	Defaults Upon Senior Securities	23
Item 4	Mine Safety Disclosures	23
Item 5	Other Information	23
Item 6	Exhibits	24
SIGNATURES
CERTIFICATIONS

2

ITEM 1.  Condensed Consolidated Financial Statements

eMAGIN CORPORATION 

CONDENSED CONSOLIDATED BALANCE SHEETS 

(In thousands, except share data)

	June 30, 2016		December 31, 2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,100	$	9,273
Accounts receivable, net		3,455		3,508
Unbilled accounts receivable		1,383		1,445
Inventories, net		5,272		3,901
Prepaid expenses and other current assets		706		489
Total current assets		16,916		18,616
Equipment, furniture and leasehold improvements, net		8,806		9,131
Intangibles and other assets		309		336
Total assets	$	26,031	$	28,083
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,571	$	1,636
Accrued compensation		1,354		1,246
Other accrued expenses		1,044		1,193
Other current liabilities		546		602
Total current liabilities		4,515		4,677
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 June 30, 2016 and December 31, 2015		—		—
Common stock, $.001 par value: authorized 200,000,000 shares, issued 29,550,170 shares as of June 30, 2016 and December 31, 2015		30		30
Additional paid-in capital		235,074		234,814
Accumulated deficit		(213,088)		(210,938)
Treasury stock, 162,066 shares as of June 30, 2016 and December 31, 2015		(500)		(500)
Total shareholders’ equity		21,516		23,406
Total liabilities and shareholders’ equity	$	26,031	$	28,083

See notes to Condensed Consolidated Financial Statements.

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eMAGIN CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(In thousands, except share and per share data) 

(unaudited) 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Revenues:
Product	$	4,781	$	5,426	$	10,076	$	10,530
Contract		752		1,608		1,458		2,493
License		—		—		1,000		—
Total revenues, net		5,533		7,034		12,534		13,023
Cost of revenues:
Product		3,807		3,533		7,094		6,585
Contract		391		893		770		1,470
License		—		—		—		—
Total cost of revenues		4,198		4,426		7,864		8,055
Gross profit		1,335		2,608		4,670		4,968
Operating expenses:
Research and development		1,499		1,028		2,802		2,013
Selling, general and administrative		1,993		1,640		4,003		2,686
Total operating expenses		3,492		2,668		6,805		4,699
Income (loss) from operations		(2,157)		(60)		(2,135)		269
Other income (expense):
Interest expense, net		(10)		(11)		(20)		(21)
Other income, net		3		5		5		6
Total other income (expense), net		(7)		(6)		(15)		(15)
Income (loss) before provision for income taxes		(2,164)		(66)		(2,150)		254
Provision for income taxes		—		—		—		—
Net income (loss)	$	(2,164)	$	(66)	$	(2,150)	$	254
Less net income allocated to participating securities		—		—		—		59
Net income (loss) allocated to common shares	$	(2,164)	$	(66)	$	(2,150)	$	195
Income (loss) per share, basic	$	(0.07)	$	—	$	(0.07)	$	0.01
Income (loss) per share, diluted	$	(0.07)	$	—	$	(0.07)	$	0.01
Weighted average number of shares outstanding:
Basic		29,388,104		25,142,371		29,388,104		25,091,875
Diluted		29,388,104		25,142,371		29,388,104		25,759,778

See notes to Condensed Consolidated Financial Statements.

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eMAGIN CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) 

	Six Months Ended June 30,
	2016		2015
	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(2,150)	$	254
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		814		703
Reduction in provision for doubtful accounts		—		(473)
Reduction in inventory reserve		(171)		(17)
Stock-based compensation		260		316
Loss on sale of asset		1		—
Changes in operating assets and liabilities:
Accounts receivable		53		303
Unbilled accounts receivable		62		(520)
Inventories, net		(1,200)		(861)
Prepaid expenses and other current assets		(217)		57
Accounts payable, accrued expenses, and other current liabilities		(162)		(92)
Net cash used in operating activities		(2,710)		(330)
Cash flows from investing activities:
Purchase of equipment		(463)		(547)
Maturities of investments		—		750
Net cash provided by (used in) investing activities		(463)		203
Cash flows from financing activities:
Proceeds from exercise of stock options		—		266
Net cash provided by financing activities		—		266
Net increase (decrease) in cash and cash equivalents		(3,173)		139
Cash and cash equivalents, beginning of period		9,273		5,290
Cash and cash equivalents, end of period	$	6,100	$	5,429
Cash paid for interest	$	6	$	6
Cash paid for income taxes	$	—	$	—
Non-cash investing activities:
Non-cash equipment purchases	$	—	$	456

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, 2015.  The results of operations for the period ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.  The consolidated condensed financial statements as of December 31, 2015 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. 

Use of estimates 

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. 

Reclassifications

Certain immaterial prior period amounts have been reclassified to conform to current period presentation with no impact on previously reported net income, assets or shareholders’ equity.

Revenues and Cost Recognition

Revenues from product sales are recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from the customer, the price is fixed, title and risk of loss to the goods has changed and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment.

Revenues from research and development activities 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, labor and subcontractor 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.

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Revenues from sales or licenses of intellectual property are recognized when transferred to the customer, provided the license has stand-alone value and the contract provides the right to use the intellectual property as it exists at the point the license is granted, without further obligations of the Company to update the intellectual property after the license is transferred.  If the license does not have standalone value, then the license is combined with other deliverables, such as Research and Development (“R&D”) or manufacturing services into a single unit of account.  Revenue from the single unit of account is recognized when earned, typically as the R&D or manufacturing services are performed over the life of the contract.

Recently issued accounting standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which changes the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statement of Cash Flows. The guidance is effective January 1, 2017 and early adoption is permitted.  The Company is currently evaluating the impact of the new guidance.

In February 2016, the FASB issued guidance which changes the accounting for leases. The guidance requires lessees to recognize a right-of-use asset, which is an asset that represents the lessee’sright to use, or control the use of, a specified asset for the lease term and, a lease liability, which is a lessee’s obligation to make lease payments arising from alease, measured on a discounted basis for all leases (with the exception of short-term leases).The guidance is effective January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact of the new guidance and the date of adoption. The Company’s operating lease commitments were $3.2million at December 31, 2015. 

In November 2015, the FASB issued guidance which requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. This guidance requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. The guidance is effective for annual and interim periods beginning after December 15, 2016 and can be applied prospectively or retrospectively to adjustments with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not expect the adoption of the new accounting guidance to have a material impact on its financial statements.

In July 2015, the FASB issued guidance on the measurement of inventory, which requires that inventory be measured at the lower of cost or net realizable value.   The updated standard should be adopted prospectively and is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2016 with early adoption permitted. The Company does not expect the adoption of the new accounting guidance to have a material impact on its financial statements.

In April 2015, the FASB issued guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a services contract. All software licenses recognized under this guidance will be accounted for consistent with other licenses of intangible assets. The guidance was effective January 1, 2016 and the Company adopted it on a prospective basis. The guidance did not have a material impact on the Company’s financial statements.

In November 2014, the FASB issued guidance to eliminate the diversity in practice for the accounting for hybrid financial instruments issued in the form of a share.  The guidance requires management to consider all terms and features, whether stated or implied, of a hybrid instrument when determining whether the nature of the instrument is more akin to a debt instrument or an equity instrument. Embedded derivative features, which are accounted for separately from host contracts, should also be considered in the analysis of the hybrid instrument. The Company adopted the guidance effective January 1, 2016 and it did not have an impact on its financial statements.

In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers, which will require an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles (GAAP) when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) and permitted early adoption of the standard, but not before the original effective date of December 15, 2016.  The Company expects the updated standard to become effective for it in the first quarter of fiscal 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its financial statements.

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Unbilled Accounts Receivable

Unbilled accounts receivable represents contract revenue recognized but not yet invoiced due to contract terms or the timing of the accounting invoicing cycle.

Intangible Assets – Patents

Acquired patents are recorded at purchase price as of the date acquired and amortized over the expected useful life which is generally the remaining life of the patent.   

The total intangible amortization expense was approximately $13 thousand and $27 thousand for the three and six months ended June 30, 2016, respectively.  Estimated future amortization expense as of June 30, 2016 is as follows (in thousands):

Fiscal Years ending December 31,		Total Amortization
		(unaudited)
2016 (six months remaining)	$	27
2017		54
2018		54
2019		32
2020		9
Later years		40
	$	216

Product warranty

The Company generally offers a one-year product replacement warranty. The standard policy is to repair or replace the defective products. The Company accrues for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues. The determination of these accruals requires the Company to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty. If the actual warranty activity and/or repair and replacement costs differ significantly from these estimates, adjustments to cost of revenue may be required in future periods.

The following table provides a summary of the activity related to the Company's warranty liability included in other current liabilities, (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Beginning balance	$	555	$	403	$	599	$	663
Warranty accruals		105		276		108		289
Warranty usage		(120)		(114)		(167)		(387)
Ending balance	$	540	$	565	$	540	$	565

Net Income per Common Share   

Basic income (loss) 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 income (loss) 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. 

8

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. Although the Company paid a one-time special dividend in 2012, the Company does not expect to pay dividends on its common or preferred stock in the near future.   

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share and share data) for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended				Six Months Ended
	June 30				June 30
	(unaudited)				(unaudited)
	2016			2015	2016			2015
Net Income	$	(2,164)	$	(66)	$	(2,150)	$	254
Income allocated to participating securities		—		—		—		59
Income allocated to common shares	$	(2,164)	$	(66)	$	(2,150)	$	195
Weighted average common shares outstanding - Basic		29,388,104		25,142,371		29,388,104		25,091,875
Dilutive effect of stock options		—		—		—		667,903
Weighted average common shares outstanding - Diluted		29,388,104		25,142,371		29,388,104		25,759,778
Net income per share:
Basic	$	(0.07)	$	-	$	(0.07)	$	0.01
Diluted	$	(0.07)	$	-	$	(0.07)	$	0.01

The following table sets forth the potentially dilutive common stock equivalents for the three and six month periods ended June 30, 2016 and 2015 that were not included in diluted EPS as their effect would be anti-dilutive:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2016	2015	2016	2015
	(unaudited)		(unaudited)
Options	3,966,089	4,154,689	3,966,089	3,306,545
Warrants	2,600,000	7,545,333	2,600,000	—
Total potentially dilutive common stock equivalents	6,566,089	11,700,022	6,566,089	3,306,545

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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):

	June 30,  2016		December 31, 2015
	(unaudited)
Accounts receivable	$	3,582	$	3,635
Less allowance for doubtful accounts		(127)		(127)
Accounts receivable, net	$	3,455	$	3,508

Note 3:  Inventories, net

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

	June 30,    2016		December 31, 2015
	(unaudited)
Raw materials	$	3,286	$	2,595
Work in process		1,514		1,369
Finished goods		1,850		1,486
Total inventories		6,650		5,450
Less inventory reserve		(1,378)		(1,549)
Total inventories, net	$	5,272	$	3,901

Note 4:  Line of Credit 

On September 1, 2015, the Company renewed its credit facility with is existing lender, 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.  The terms are: interest on outstanding borrowings is Prime plus 4% but not less than 7.25%, the minimum monthly interest payment of$1,000 and early termination fee of $6,000.  The Company is in discussions with its lender regarding possible modifications to the credit facility and the parties have agreed that an automatic renewal provision originally scheduled on September 1, 2016is no longer in effect.The Company’s obligations under the credit facility are secured by its assets.  For the three andsix months ended June 30, 2016 and 2015, the Company had notdrawn on its line of credit.

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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 threeand six month periods ended June 30, 2016 and 2015 (in thousands): 

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Cost of revenues	$	3	$	13	$	10	$	36
Research and development		5		26		33		62
Selling, general and administrative		85		60		217		218
Total stock compensation expense	$	93	$	99	$	260	$	316

At June 30, 2016, total unrecognized compensation costs related to stock options was approximately  $0.2  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 1.5years.

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

		For the Six Months Ended
		June 30,
	2016			2015
		(unaudited)
Dividend yield		0	%		0	%
Risk free interest rates		0.71 - 1.01	%		0.84 – 1.56	%
Expected  volatility		51.3 to 53.5	%		57.8 to 63.9	%
Expected term (in years)		3.5 to 5.0			3.5 to 5.0

The Company does not expect 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 yield available at dates of option grant, 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 the options represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards. 

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A summary of the Company’s stock option activity for the six months ended June 30, 2016 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, 2015		4,218,139	$	3.75
Options granted		295,065		1.74
Options exercised		—
Options forfeited		(49,980)		2.02
Options cancelled or expired		(497,135)		7.66
Outstanding at June 30, 2016		3,966,089	$	3.13		3.76	$	607,968
Vested or expected to vest at June 30, 2016		3,961,104	$	3.13		3.76	$	607,888
Exercisable at June 30, 2016		3,716,914	$	3.14		3.73	$	603,968

(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 threeand six months ended June 30, 2016, there were no options exercised.   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 June 30, 2016 and December 31, 2015, there were 5,659 shares of Preferred Stock – Series B  issued and outstanding. 

Common Stock

There were no stock options or warrants exercised during the three or six month periods ended June 30, 2016. 

Warrants

At June 30, 2016, there were2.6 million warrants to purchase shares of common stock outstanding and exercisable at an exercise price of $2.05 with an expiration date of June 23, 2021.

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 thethreemonth periods ended June 30, 2016and 2015was 0%.  The difference between the effective tax rate of 0% and the U.S. federal statutory rate of 34% for the three months ended June 30, 2016 and 2015 was primarily due to recognizing a full valuation allowance on deferred tax assets.  

As of June 30, 2016, the Company determined that based on all available evidence, both positive and negative, including the Company’s latestforecasts and cumulative losses in recent years, it was more likely than not that none of its deferred tax assets would be realized and therefore it continued to record a full valuation allowance.

The Company’s net operating loss carry forward amounts expire through2037 and are subject to certain limitations that may occur due to change in ownership provisionsunder Section 382 of the Internal Revenue Code and similar state provisions.

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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Note 8:  Commitments and Contingencies 

Equipment Purchase Commitments

The Company has committed to equipment purchases of approximately $0.8 million at June 30, 2016.

Future Sales Concessions

In the first quarter of 2014, the Company received a notification to stop shipments to three of its customers regarding a possible wire bonding problem in some of the microdisplays shipped to these customers. Shipments to two of the three customers resumed in 2014.   As the third customer (“this Customer”) was not interested in continuing to use eMagin’s standard commercial microdisplay which was originally shipped, eMagin has been working, at this Customer’s request, on a more mechanically robust display configuration.  This Customer provided a proposal to eMagin which the Company countered that included concessions to this Customer predicated on future business.  On June 16, 2016, the Company obtained a formal release from this Customer for any future concessions and from any liabilities or obligations arising from the matter.

Litigation

From time to time, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. All estimates are based on the best information available at the time which can be highly subjective.

On May 5, 2015, Kimchuk, Inc. (“Kimchuk”), a former supplier, commenced action against the Company in the U.S. District Court, District of Connecticut, asserting breach of contract and seeking to recover approximately $389,000 in alleged damages. The Company filed its response and counter-complaint on August 11, 2015 wherein the Company denied the material allegations asserted by Kimchuk and sought approximately $3.5 million in damages from Kimchuk.  On June 1, 2016, the Company entered into a settlement agreement with Kimchuk whereby, for consideration of approximately $227,000, Kimchuk agreed to dismiss the matter, provide parts and material to eMagin and settle outstanding accounts payable.  The Company recorded an accrual for the litigation in the quarter ended September 30, 2015, and did not incur any additional settlement expense during the current quarter ended June 30, 2016 associated with the matter.

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Note 9:  Concentrations    

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
North and South America	$	2,890	$	4,999	$	7,173	$	8,723
Europe, Middle East, and Africa		2,149		1,430		4,336		3,591
Asia Pacific		494		605		1,025		709
Total	$	5,533	$	7,034	$	12,534	$	13,023

The following table represents the domestic and international revenues as a percentage of total net revenues:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(unaudited)						(unaudited)
Domestic		52	%		71	%		57	%		66	%
International		48	%		29	%		43	%		34	%

The Company purchases principally all of its silicon wafers from twosuppliers located in Taiwan and Korea.

For the three months ended June 30, 2016,  twocustomers accounted for 14% and 11%of net revenues.For the six months ended June 30, 2016,  one customer accounted for 10%of net revenues.  For the three months ended June 30, 2015,  three customers accounted for 15%, 14% and 12% of net revenues.  For the six months ended June 30, 2015,  two customers accounted for 14% and 10%of net revenues.As of June 30, 2016,one customer accounted for 10%of the Company’s consolidated accounts receivable balance.

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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 Operations" 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 the heading "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2015, and in this Quarterly Report on Form 10-Q, 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 successfully implement resolutions related to customer stop orders; 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. 

Business

eMagin Corporation is headquartered in Hopewell Junction, NY and was incorporated in the state of Delaware in 1996.  We are the leader in OLED (organic light emitting diode) microdisplay technology, OLED microdisplay manufacturing know-how and mobile display systems. eMagin manufactures high-resolution OLED microdisplays and integrates them with magnifying optics to deliver virtual images comparable to large-screen computer and television displays in portable, low-power, lightweight personal displays. eMagin microdisplays provide near-eye imagery in a variety of products from military, industrial, medical and consumer OEMs.  The Company is expanding its product base to include handheld and wearable products for the consumer markets.

We derive the majority of our revenue from sales of our OLED microdisplay products which we manufacture in our Hopewell Junction, NY clean rooms and manufacturing facility. We also earn revenue from government and commercial developmentcontracts that may complement and support our internal research and development programs. In addition, we generate sales from optics and microdisplayscombined with optics.

The Company’s stock is traded on the NYSE under the symbol EMAN.

Overview 

In the second quarter, eMagin delivered display products to over 72 customers in 23 countries and performed R&D contract services for 4 customers.  Over the first six months of 2016, eMagin grew its active global customer base by over 10%. Towards the end of the second quarter, the Company’s production and sales volume were hampered by the breakdown of a major piece of equipment.  The replacement of the machine was contemplated in the capital raise in December 2015 and the order was placed in the first quarter 2016.  In light of the time required to design, build and qualify the custom-built machine to our unique manufacturing processes, we do not anticipate that it will enter production until fourth quarter of 2016.  The original machine has been repaired and is currently in operation.  As a result of the production issue combined with committed machine time dedicated to scheduled R&D work, the volume of production during the second quarter was lower than planned and the previous quarter, resulting in higher unit costs and a lower profit margin on display sales.

Despite the equipment breakdown in the second quarter, the Company continues to make progress on its multi-year yield improvement initiative by strengthening production resources, making key process engineering hires, and ordering production equipment with the objectives of achieving greater efficiencies, lower unit costs and higher production capacity. This initiative will

15

position us to meet customer demand and provide better response time to customer orders.

During the first six months of 2016, and accelerating during the second quarter, the Company has been developing handheld and wearable products for the consumer markets and has been working with suppliers and contract manufacturers to establish the supply chain. Two products are scheduled for release to the marketplace during fourth quarter 2016.  The wearable devices will utilize eMagin’s advanced OLED microdisplay technology to deliver an extraordinary user experience at an attractive price.  During the second quarter the Company incurred expenses associated with the development of these products and utilized working capital to fund the buildup of inventory and pay amounts to contract manufacturers, vendors and third party logistic providers in anticipation of the products’ release.  The development expenses and working capital expenditures are expected to continue in the third quarter.

New Business

In the second quarter, the Company achieved the following new business highlights:

· Received the first production order for a display upgrade to a United StatesArmy training system.

· Received an $825 thousand order from an existing customer to upgrade displays in their medical device equipment.  This represents the largest single order eMagin has received from a customer in the medical device industry.

· Completed a review of current and potential new business and realigned sales and marketing personnel to expand the existing customer base and penetrate newly identified markets.

· Sold Design Reference Kits and displays to 22 customers to facilitate development and prototyping of new systems.

· Delivered sample displays for over twenty new projects including major military and commercial avionics applications.

New Technology Development

We are making steady progress in our development of very high brightness full-color microdisplays. Our recent improvements and optimization of the processes have led to a brightness level that crosses the luminence threshold for military see-through and many consumer applications including augmented reality.

During the second quarter we continued to advance our ultra-high brightness color display technology with a second-generation WUXGA (1920 x 1200 resolution) full color display that can show pictures or video at a brightness of over 4,000 nits (cd/meter squared).  These displays are particularly well suited for augmented and virtual reality applications and for aviation.  They were completed during the second quarter and engineering samples are being provided to select consumer and military prime contractors for evaluation.

New Product Development

Our product development efforts on the 2K x 2K display project that was initiated in the fourth quarter of 2015 continued in the current quarter.  This project is on track to produce engineering samples for select customers beginning in the fourth quarter including the customer with whom we entered into the license agreement in December 2015.  General availability is scheduled for the first quarter of 2017.

Additionally, we are investigating the development of a prototype display that is 35 x 35 millimeters with a resolution of up to 4,000 x 4,000 pixels. We are working with potential partners interested in developing and supporting the infrastructure needed to productize the display, and will bring the proposed design to several commercial customers who are seeking displays of this size and features.

Employees

At July 31, 2016 we had a total of 89 employees, of whom 85 were full-time employees, as compared to a total of 88 employees, of whom 85 were full-time employees, at December 31, 2015.   

A detailed discussion of our business and operations may be found in Part I, “Business,” of our 2015 Annual Report on Form 10-K for the year ended December 31, 2015, and as filed with the Securities and Exchange Commission on March 17, 2016.

CRITICAL ACCOUNTING POLICIES 

Revenue and Cost Recognition

Revenue on product sales is recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract

16

is received from the customer, the price is fixed or determinable, title and risk of loss to the goods has transferred and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment.

Revenues from research and development activities 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, labor and subcontractor 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.

Revenues from sales or licenses of intellectual property is recognized when transferred to the customer, provided the license has stand-alone value and the contract provides the right to use the intellectual property as it exists at the point the license is granted, without further obligations by the Company to update the intellectual property after the license is transferred.  If the license does not have standalone value, then the license is combined with other deliverables, such as R&D or manufacturing services into a single unit of account.  Revenue from the single unit of account is recognized when earned, typically as the R&D or manufacturing services are performed over the life of the contract

Income Taxes 

We evaluate out deferred tax assets and their potential realizability each quarter to determine if we should make  any changes to the valuation allowance.  As of June 30, 2016,  we determined that based on all available evidence, both positive and negative, including the Company’s latestforecasts and cumulative losses in recent years, it was more likely than not that none of our deferred tax assets would be realized and therefore, we continued to record a full valuation allowance.

Other critical accounting policies, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, relate to product warranty, use of estimates, fair value of financial instruments and stock-based compensation, and additional information on accounting for income taxes.

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RESULTS OF OPERATIONS 

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2016 COMPARED TO THREE AND SIX MONTHS ENDED, JUNE 30, 2015

Revenues

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016		2015		Change		2016		2015		Change
	(in thousands)						(unaudited)
							(in thousands)
Product	$	4,781	$	5,426	$	(645)	$	10,076	$	10,530	$	(454)
Contract	$	752	$	1,608	$	(856)	$	1,458	$	2,493	$	(1,035)
License	$	—	$	—	$	—	$	1,000	$	—	$	1,000
Total revenue, net	$	5,533	$	7,034	$	(1,501)	$	12,534	$	13,023	$	(489)

Revenues for the threeand six months ended June 30, 2016 were approximately $5.5 million and $12.5 million respectively,  as compared to approximately $7.0 million and $13.0 million for the three and six months ended June 30 2015.

Product revenue is comprised primarily of sales of displays, as well as sales of other hardware.   For the three and six months ended June 30, 2016, product revenue decreased by $0.6 million and $0.5 million, respectively, as compared to the three and six months ended June 30, 2015. The decrease in display revenues in the second quarter 2016 of $0.6 million was primarily due to lower demand from maturing military programs, less availability of product late in the quarter due to the equipment failure noted above and a larger proportion of sales of displays with a lower average unit price.

Contract revenue is comprised of revenue from research and development (“R&D”) or non-recurring engineering (“NRE”) contracts.  For the three and six months ended June 30, 2016, contract revenue decreased approximately $0.9 million and $1.0 million, respectively, as compared to the three and six months ended June 30, 2015.  The decrease in the R&D contract revenue was primarily due to the extensive work performed on the ManTech contract during the second quarter of 2015 and fewer active contracts during the three month and six months endedJune 30, 2016.

License revenue for the six months ended June 30, 2016 is comprised of revenue from the sale of a $1.0 million non-exclusive intellectual property licensing agreement for our virtual reality headset technology. The Company expects that the licensee will use eMagin’s 2K x 2K pixel full-color displays in their headsets upon their successful development.

Cost of Revenues

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016		2015		Change			2016		2015		Change
	(in thousands)						(unaudited)
							(in thousands)
Product	$	3,807	$	3,533	$	274	$	7,094	$	6,585	$	509
Contract	$	391	$	893	$	(502)	$	770	$	1,470	$	(700)
License	$	—	$	—	$	—		—		—		—
Total cost of revenues	$	4,198	$	4,426	$	(228)	$	7,864	$	8,055	$	(191)

Total cost of revenues is comprised of costs of product and contract revenues.  Cost of product revenue includes materials, labor and manufacturing overhead, warranty costs and depreciation related to our products.  Cost of contract revenue includes direct and allocated indirect costs associated with performance of contracts.  Total cost of revenues for each of the three months and six months ended June 30, 2016decreased by $0.2 million as compared to three and six months ended June 30, 2015.   Total cost of revenues as a percentage of revenues was 76% and 63%, respectively, for the three and six month periods ended June 30, 2016 as compared to 63%  and 62% for the three and six month periods ended June 30, 2015.

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The following table outlines product, contract and license total gross profit and related gross margins for the three months ended June 30, 2016 and 2015 (dollars in thousands): 

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2016			2015			2016			2015
		(unaudited)			(unaudited)			(unaudited)			(unaudited)
Product revenue gross profit	$	974		$	1,893		$	2,982		$	3,945
Product revenue gross margin		20	%		35	%		30	%		37	%
Contract revenue gross profit	$	361		$	715		$	688		$	1,023
Contract revenue gross margin		48	%		44	%		47	%		41	%
License revenue gross profit	$	—		$	—			1,000			—
License revenue gross margin		—	%		—	%		100	%		—	%
Total gross profit	$	1,335		$	2,608		$	4,670		$	4,968
Total gross margin		24	%		37	%		37	%		38	%

Total gross profit is a function of revenues less cost of revenues.  The total gross profit for the three and six months ended June 30, 2016decreased $1.3 million and $0.3 million, respectively,as compared to the three and six months ended June 30, 2015reflecting lower product revenue in 2016, partially offset by $1.0 million in license revenue that had no associated current years cost that was recognized in the first quarter of 2016.  For the three months ended June 30, 2016, the total gross margin decreased to 24% as compared to 37% for the prior year period.  The gross margin of 37% for the six months ended June 30, 2016 was comparable to the gross margin of 38% for the first six months of 2015.

The product gross profit for the three and six months endedJune 30, 2016, decreased $0.9 million and $1.0 million respectively as compared to the three and six months ended June 30, 2015. Product gross margins of 20% and 30% for the three and six month periods ended June 30, 2016, respectively decreased from the prior year periods, due primarily to lower volumes as a result of the equipment failure and higher unit cost of sales associated with spreading fixed production costs over a smaller number of units produced. 

For the three and six months ended June 30, 2016 contract gross profit was $0.4 million and $0.7 million, respectively as compared to $0.7 million and $1.0 million, respectively for the comparable2015 periods.Reduced contracts gross profit in the 2016 periods were due to reductions in the number of contracts and changes in the nature of both the individual contracts and the work completed during each quarterly period.  

Operating Expenses

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2016			2015			Change		2016			2015				Change
	($ in thousands)								(unaudited)
									($ in thousands)
Research and development expense	$	1,499		$	1,028		$	471	$	2,802		$	2,013		$	789
Percentage of net revenue		27	%		15	%				22	%		15	%
Selling, general and administrative expense	$	1,993		$	1,640		$	353	$	4,003		$	2,686		$	1,317
Percentage of net revenue		36	%		23	%				32	%		21	%
Total operating expenses	$	3,492		$	2,668		$	824	$	6,805		$	4,699		$	2,106
Percentage of net revenue		63	%		38	%				54	%		36	%

Research and Development.  Research and development (“R&D”) 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 revenues.  Increases in R&D expenses on both an absolute and percentage basis, for the three and six months ended June 30, 2016 compared to the prior year periods were primarily due to costs incurred for the development of a consumer product utilizing the Company’s display technology anticipated to launch in the fourth quarter.

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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 six months ended June 30, 2016 increased $0.4 million and $1.3 million, respectively as compared to the three and six months ended June 30, 2015. 

The increases in SG&A for the three and six months ended June 30, 2016over the prior year periods was primarily due to $0.5 million in reversals of allowances for doubtful accounts and vacation accruals in the first quarter of 2015.  In addition, this year’s first and second quarters reflected higher spending for administrative expenses associated with our HMD activities, higher legal expenses and administrative transition costs associated with the effort to consolidate the Company’s finance and procurement functions to our New York location. 

Other Income (Expense), net.  Other income (expense), net consists primarily of interest income earned on cash balances and interest expense.  Other expense for the three and six months ended June 30, 2016, of $6 thousand and $15 thousand, respectively was comparable to the similar 2015 periods.

Liquidity and Capital Resources

We had approximately $6.1 million of cash and cash equivalents at June 30, 2016 as compared to approximately $9.3 million at December 31, 2015. 

Cash flow used in operating activities during the six months ended June 30, 2016 was approximately $2.7 million, attributable to net loss of $2.2 millionpartially offset by non-cash expenses of $903 thousand and a net change in operating assets and liabilities of $1.4 million.Cash flow usedin operating activities during the six months ended June 30, 2015 was approximately $0.3 million.  

Cash used in investing activities during the six months ended June 30, 2016 was approximately $0.5 million related to equipment purchases.   As of June 30, 2016, we had outstanding commitments to purchase approximately $0.8 million in capital expenditures, and expect to make additional capital expenditures during 2016 to improve our manufacturing and R&D capabilities.   Cash provided by investing activities during the six months ended June 30, 2015 was approximately $0.2 million of which net short-term investments proceeds were approximately $0.8 million offset by equipment purchases of approximately $0.5 million.  We anticipate continued investment in equipment in support of our yield improvement initiatives and are currently designing with equipment vendors the machines that address our specific production requirements. As a result, we expect continued equipment investment in our production and development activities over the remainder of 2016 and into 2017.

There was no cash provided by financing activities during the six months ended June 30, 2016 compared to approximately $266 thousand from stock option exercises during the six months ended June 30, 2015.

Credit Facility

At June 30, 2016, we had a credit facility with a lender that provides for up to a maximum of $3 million in borrowings based on 75% of eligible accounts receivable, as defined in the agreement.  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 Company is in discussions with its lender regarding possible modifications to the credit facility and the parties have agreed that an automatic renewal provision originally scheduled on September 1, 2016is no longer in effect.  We did not draw on our credit facility during thesix months ended June 30, 2016 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 ofJune 30, 2016.

Our cash needs to fund our operations and investment requirements over the next twelve months may be more than our current cash on hand, and the cash we anticipate generating from operations.  We may require additional funds over the next twelve months and, if so, 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, capital expenditures and operations, all of which could have a material adverse impact on our business prospects.

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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.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 

Not applicable.

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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.

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

There were no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II - OTHER INFORMATION 

ITEM 1. Legal Proceedings

On May 5, 2015, Kimchuk, Inc. (“Kimchuk”), a former supplier commenced action against the Company in the U.S. District Court, District of Connecticut, asserting breach of contract and seeking to recover approximately $389,000 in alleged damages. The Company filed its response and counter-complaint on August 11, 2015 wherein the Company denied the material allegations asserted by Kimchuk and seeks approximately $3.5 million in damages from Kimchuk.

On June 1, 2016, the Company entered into a settlement agreement with Kimchuk wherebyfor consideration of approximately $227,000, Kimchuk would dismiss the matter, provide parts and material to eMagin and settle outstanding accounts payable.  On July 1, 2016 the Company wired the cash payment to Kimchuk and a related Court Order for Dismal was filedand approved on July 5, 2016.

ITEM 1A.  Risk Factors   

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. During the quarterly period covered by this Quarterly Report on Form 10-Q, there were no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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

None.

ITEM 3.  Defaults Upon Senior Securities

None. 

ITEM 4.  Mine Safety Disclosures

Not applicable.

ITEM 5.  Other Information

None.

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ITEM 6.  Exhibits    

3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to an appendix to the Company’s Definitive Proxy Statement filed on September 21, 2006).
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to an appendix to the Company’s Definitive Proxy Statement filed on October 26, 2010)
3.3	Bylaws of the Company (incorporated by reference to exhibit 99.3 to the Company’s Definitive Proxy Statement filed on June 14, 2001).
10.1	Amended and Restated Employment Agreement dated July 6, 2016, by and between the Company and Andrew G. Sculley, Jr (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 7, 2016).
31.1	Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
31.2	Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
32.1	Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
32.2	Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
101.INS	XBRL Instance Document (1)
101.SCH	XBRL Taxonomy Extension Schema Document(1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document(1)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document(1)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document(1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document(1)
(1)  Filed herewith.
(2)  Furnished herewith.

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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.

	eMAGIN CORPORATION
Date: August 11, 2016	By:	/s/ Andrew G. Sculley
		Andrew G. Sculley
		Chief Executive Officer
		Principal Executive Officer

Date: August 11, 2016	By:	/s/ Jeffrey P. Lucas
		Jeffrey P. Lucas
		Chief Financial Officer
		Principal Accounting and Financial Officer

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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: August 11, 2016	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, Jeffrey P. Lucas, 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: August 11, 2016	By:	/s/ Jeffrey P. Lucas
		Jeffrey P. Lucas
		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 June 30, 2016, 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: August 11, 2016	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 June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey P. Lucas, 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: August 11, 2016	By:	/s/ Jeffrey P. Lucas
		Jeffrey P. Lucas
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 31, 2016
Document And Entity Information [Abstract]
Entity Registrant Name	EMAGIN CORP
Entity Filer Category	Smaller Reporting Company
Entity Central Index Key	0001046995
Amendment Flag	false
Document Type	10-Q
Document Fiscal Period Focus	Q2
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		29,388,104

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 6,100	$ 9,273
Accounts receivable, net	3,455	3,508
Unbilled accounts receivable	1,383	1,445
Inventories, net	5,272	3,901
Prepaid expenses and other current assets	706	489
Total current assets	16,916	18,616
Equipment, furniture and leasehold improvements, net	8,806	9,131
Intangibles and other assets	309	336
Total assets	26,031	28,083
Current liabilities:
Accounts payable	1,571	1,636
Accrued compensation	1,354	1,246
Other accrued expenses	1,044	1,193
Other current liabilities	546	602
Total current liabilities	4,515	4,677
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 June 30, 2016 and December 31, 2015
Common stock, $.001 par value: authorized 200,000,000 shares, issued 29,550,170 shares as of June 30, 2016 and December 31, 2015	30	30
Additional paid-in capital	235,074	234,814
Accumulated deficit	(213,088)	(210,938)
Treasury stock, 162,066 shares as of June 30, 2016 and December 31, 2015	(500)	(500)
Total shareholders' equity	21,516	23,406
Total liabilities and shareholders' equity	$ 26,031	$ 28,083

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
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	29,550,170	29,550,170
Treasury stock, shares	162,066	162,066
Series B Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, liquidation preference	$ 5,659,000	$ 5,659,000
Preferred stock, stated value	$ 1,000	$ 1,000
Preferred stock, shares designated	10,000	10,000
Preferred stock, shares issued	5,659	5,659
Preferred stock, shares outstanding	5,659	5,659

XML

Condensed Consolidated Statements Of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenue:
Product	$ 4,781	$ 5,426	$ 10,076	$ 10,530
Contract	752	1,608	1,458	2,493
License			1,000
Total revenues, net	5,533	7,034	12,534	13,023
Cost of revenues:
Product	3,807	3,533	7,094	6,585
Contract	391	893	770	1,470
License
Total cost of revenues	4,198	4,426	7,864	8,055
Gross profit	1,335	2,608	4,670	4,968
Operating expenses:
Research and development	1,499	1,028	2,802	2,013
Selling, general and administrative	1,993	1,640	4,003	2,686
Total operating expenses	3,492	2,668	6,805	4,699
Income (loss) from operations	(2,157)	(60)	(2,135)	269
Other income (expense):
Interest expense, net	(10)	(11)	(20)	(21)
Other income, net	3	5	5	6
Total other income (expense), net	(7)	(6)	(15)	(15)
Income (loss) before provision for income taxes	(2,164)	(66)	(2,150)	254
Provision for income taxes
Net income (loss)	(2,164)	(66)	(2,150)	254
Less net income allocated to participating securities				59
Net income (loss) allocated to common shares	$ (2,164)	$ (66)	$ (2,150)	$ 195
Income (loss) per share, basic	$ (0.07)		$ (0.07)	$ 0.01
Income (loss) per share, diluted	$ (0.07)		$ (0.07)	$ 0.01
Weighted average number of shares outstanding:
Basic	29,388,104	25,142,371	29,388,104	25,091,875
Diluted	29,388,104	25,142,371	29,388,104	25,759,778

XML

Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net income (loss)	$ (2,150)	$ 254
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	814	703
Reduction in provision for doubtful accounts		(473)
Reduction in inventory reserve	(171)	(17)
Stock-based compensation	260	316
Loss on sale of asset	1
Changes in operating assets and liabilities:
Accounts receivable	53	303
Unbilled accounts receivable	62	(520)
Inventories, net	(1,200)	(861)
Prepaid expenses and other current assets	(217)	57
Accounts payable, accrued expenses, and other current liabilities	(162)	(92)
Net cash used in operating activities	(2,710)	(330)
Cash flows from investing activities:
Purchase of equipment	(463)	(547)
Maturities of investments		750
Net cash provided by (used in) investing activities	(463)	203
Cash flows from financing activities:
Proceeds from exercise of stock options		266
Net cash provided by financing activities		266
Net increase (decrease) in cash and cash equivalents	(3,173)	139
Cash and cash equivalents, beginning of period	9,273	5,290
Cash and cash equivalents, end of period	6,100	5,429
Cash paid for interest	6	6
Cash paid for income taxes
Non-cash investing activities:
Non-cash equipment purchases		$ 456

XML

Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

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, 2015.  The results of operations for the period ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.  The consolidated condensed financial statements as of December 31, 2015 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. 

Use of estimates 

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. 

Reclassifications

Certain immaterial prior period amounts have been reclassified to conform to current period presentation with no impact on previously reported net income, assets or shareholders’ equity.

Revenues and Cost Recognition

Revenues from product sales are recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from the customer, the price is fixed, title and risk of loss to the goods has changed and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment.

Revenues from research and development activities 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, labor and subcontractor 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.

Revenues from sales or licenses of intellectual property are recognized when transferred to the customer, provided the license has stand-alone value and the contract provides the right to use the intellectual property as it exists at the point the license is granted, without further obligations of the Company to update the intellectual property after the license is transferred.  If the license does not have standalone value, then the license is combined with other deliverables, such as Research and Development (“R&D”) or manufacturing services into a single unit of account.  Revenue from the single unit of account is recognized when earned, typically as the R&D or manufacturing services are performed over the life of the contract.

Recently issued accounting standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which changes the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statement of Cash Flows. The guidance is effective January 1, 2017 and early adoption is permitted.  The Company is currently evaluating the impact of the new guidance.

In February 2016, the FASB issued guidance which changes the accounting for leases. The guidance requires lessees to recognize a right-of-use asset, which is an asset that represents the lessee’sright to use, or control the use of, a specified asset for the lease term and, a lease liability, which is a lessee’s obligation to make lease payments arising from alease, measured on a discounted basis for all leases (with the exception of short-term leases).The guidance is effective January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact of the new guidance and the date of adoption. The Company’s operating lease commitments were $3.2 million at December 31, 2015. 

In November 2015, the FASB issued guidance which requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. This guidance requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. The guidance is effective for annual and interim periods beginning after December 15, 2016 and can be applied prospectively or retrospectively to adjustments with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not expect the adoption of the new accounting guidance to have a material impact on its financial statements.

In July 2015, the FASB issued guidance on the measurement of inventory, which requires that inventory be measured at the lower of cost or net realizable value.   The updated standard should be adopted prospectively and is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2016 with early adoption permitted. The Company does not expect the adoption of the new accounting guidance to have a material impact on its financial statements.

In April 2015, the FASB issued guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a services contract. All software licenses recognized under this guidance will be accounted for consistent with other licenses of intangible assets. The guidance was effective January 1, 2016 and the Company adopted it on a prospective basis. The guidance did not have a material impact on the Company’s financial statements.

In November 2014, the FASB issued guidance to eliminate the diversity in practice for the accounting for hybrid financial instruments issued in the form of a share.  The guidance requires management to consider all terms and features, whether stated or implied, of a hybrid instrument when determining whether the nature of the instrument is more akin to a debt instrument or an equity instrument. Embedded derivative features, which are accounted for separately from host contracts, should also be considered in the analysis of the hybrid instrument. The Company adopted the guidance effective January 1, 2016 and it did not have an impact on its financial statements.

In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers, which will require an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles (GAAP) when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) and permitted early adoption of the standard, but not before the original effective date of December 15, 2016.  The Company expects the updated standard to become effective for it in the first quarter of fiscal 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its financial statements.

Unbilled Accounts Receivable

Unbilled accounts receivable represents contract revenue recognized but not yet invoiced due to contract terms or the timing of the accounting invoicing cycle.

Intangible Assets – Patents

Acquired patents are recorded at purchase price as of the date acquired and amortized over the expected useful life which is generally the remaining life of the patent.   

The total intangible amortization expense was approximately $13 thousand and $27 thousand for the three and six months ended June 30, 2016, respectively.  Estimated future amortization expense as of June 30, 2016 is as follows (in thousands):

Fiscal Years ending December 31,		Total Amortization
		(unaudited)
2016 (six months remaining)	$	27
2017		54
2018		54
2019		32
2020		9
Later years		40
	$	216

Product warranty

The Company generally offers a one-year product replacement warranty. The standard policy is to repair or replace the defective products. The Company accrues for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues. The determination of these accruals requires the Company to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty. If the actual warranty activity and/or repair and replacement costs differ significantly from these estimates, adjustments to cost of revenue may be required in future periods.

The following table provides a summary of the activity related to the Company's warranty liability included in other current liabilities, (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Beginning balance	$	555	$	403	$	599	$	663
Warranty accruals		105		276		108		289
Warranty usage		(120)		(114)		(167)		(387)
Ending balance	$	540	$	565	$	540	$	565

Net Income per Common Share   

Basic income (loss) 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 income (loss) 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. Although the Company paid a one-time special dividend in 2012, the Company does not expect to pay dividends on its common or preferred stock in the near future.   

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share and share data) for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended				Six Months Ended
	June 30				June 30
	(unaudited)				(unaudited)
	2016			2015	2016			2015
Net Income	$	(2,164)	$	(66)	$	(2,150)	$	254
Income allocated to participating securities		—		—		—		59
Income allocated to common shares	$	(2,164)	$	(66)	$	(2,150)	$	195
Weighted average common shares outstanding - Basic		29,388,104		25,142,371		29,388,104		25,091,875
Dilutive effect of stock options		—		—		—		667,903
Weighted average common shares outstanding - Diluted		29,388,104		25,142,371		29,388,104		25,759,778
Net income per share:
Basic	$	(0.07)	$	-	$	(0.07)	$	0.01
Diluted	$	(0.07)	$	-	$	(0.07)	$	0.01

The following table sets forth the potentially dilutive common stock equivalents for the three and six month periods ended June 30, 2016 and 2015 that were not included in diluted EPS as their effect would be anti-dilutive:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2016	2015	2016	2015
	(unaudited)		(unaudited)
Options	3,966,089	4,154,689	3,966,089	3,306,545
Warrants	2,600,000	7,545,333	2,600,000	—
Total potentially dilutive common stock equivalents	6,566,089	11,700,022	6,566,089	3,306,545

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Accounts Receivable, Net

6 Months Ended

Jun. 30, 2016

Accounts Receivable, Net [Abstract]

Accounts Receivable, 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):

	June 30,  2016		December 31, 2015
	(unaudited)
Accounts receivable	$	3,582	$	3,635
Less allowance for doubtful accounts		(127)		(127)
Accounts receivable, net	$	3,455	$	3,508

XML

Inventories, Net

6 Months Ended

Jun. 30, 2016

Inventories, Net [Abstract]

Inventories, Net

Note 3:  Inventories, net 

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

	June 30,    2016		December 31, 2015
	(unaudited)
Raw materials	$	3,286	$	2,595
Work in process		1,514		1,369
Finished goods		1,850		1,486
Total inventories		6,650		5,450
Less inventory reserve		(1,378)		(1,549)
Total inventories, net	$	5,272	$	3,901

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Line Of Credit

6 Months Ended

Jun. 30, 2016

Line Of Credit [Abstract]

Line Of Credit

Note 4:  Line of Credit 

On September 1, 2015, the Company renewed its credit facility with is existing lender, 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.  The terms are: interest on outstanding borrowings is Prime plus 4% but not less than 7.25%, the minimum monthly interest payment of$1,000 and early termination fee of $6,000.  The Company is in discussions with its lender regarding possible modifications to the credit facility and the parties have agreed that an automatic renewal provision originally scheduled on September 1, 2016is no longer in effect.The Company’s obligations under the credit facility are secured by its assets.  For the three andsix months ended June 30, 2016 and 2015, the Company had notdrawn on its line of credit.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2016

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 six month periods ended June 30, 2016 and 2015 (in thousands): 

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Cost of revenues	$	3	$	13	$	10	$	36
Research and development		5		26		33		62
Selling, general and administrative		85		60		217		218
Total stock compensation expense	$	93	$	99	$	260	$	316

At June 30, 2016, total unrecognized compensation costs related to stock options was approximately  $0.2  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 1.5  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 Six Months Ended
		June 30,
	2016			2015
		(unaudited)
Dividend yield		0	%		0	%
Risk free interest rates		0.71 - 1.01	%		0.84 – 1.56	%
Expected  volatility		51.3 to 53.5	%		57.8 to 63.9	%
Expected term (in years)		3.5 to 5.0			3.5 to 5.0

The Company does not expect 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 yield available at dates of option grant, 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 the options represents the period that the Company’s 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 six months ended June 30, 2016 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, 2015		4,218,139	$	3.75
Options granted		295,065		1.74
Options exercised		—
Options forfeited		(49,980)		2.02
Options cancelled or expired		(497,135)		7.66
Outstanding at June 30, 2016		3,966,089	$	3.13		3.76	$	607,968
Vested or expected to vest at June 30, 2016		3,961,104	$	3.13		3.76	$	607,888
Exercisable at June 30, 2016		3,716,914	$	3.14		3.73	$	603,968

(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 six months ended June 30, 2016, there were no options exercised.   The Company issues new shares of common stock upon exercise of stock options.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2016

Shareholders' Equity [Abstract]

Shareholders' Equity

Note 6:  Shareholders’ Equity 

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

As of June 30, 2016 and December 31, 2015, there were 5,659 shares of Preferred Stock – Series B  issued and outstanding. 

Common Stock

There were no stock options or warrants exercised during the three or six month periods ended June 30, 2016. 

Warrants

At June 30, 2016, there were2.6 million warrants to purchase shares of common stock outstanding and exercisable at an exercise price of $2.05 with an expiration date of June 23, 2021.  

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Income Taxes

6 Months Ended

Jun. 30, 2016

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 three month periods ended June 30, 2016and 2015 was 0%.  The difference between the effective tax rate of 0% and the U.S. federal statutory rate of 34% for the three months ended June 30, 2016 and 2015 was primarily due to recognizing a full valuation allowance on deferred tax assets.  

As of June 30, 2016, the Company determined that based on all available evidence, both positive and negative, including the Company’s latestforecasts and cumulative losses in recent years, it was more likely than not that none of its deferred tax assets would be realized and therefore it continued to record a full valuation allowance. 

The Company’s net operating loss carry forward amounts expire through2037 and are subject to certain limitations that may occur due to change in ownership provisionsunder Section 382 of the Internal Revenue Code and similar state provisions.

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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Commitments And Contingencies

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies [Abstract]

Commitments And Contingencies

Note 8:  Commitments and Contingencies 

Equipment Purchase Commitments

The Company has committed to equipment purchases of approximately $0.8 million at June 30, 2016.

Future Sales Concessions

In the first quarter of 2014, the Company received a notification to stop shipments to three of its customers regarding a possible wire bonding problem in some of the microdisplays shipped to these customers. Shipments to two of the three customers resumed in 2014.   As the third customer (“this Customer”) was not interested in continuing to use eMagin’s standard commercial microdisplay which was originally shipped, eMagin has been working, at this Customer’s request, on a more mechanically robust display configuration.  This Customer provided a proposal to eMagin which the Company countered that included concessions to this Customer predicated on future business.  On June 16, 2016, the Company obtained a formal release from this Customer for any future concessions and from any liabilities or obligations arising from the matter.

Litigation

From time to time, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. All estimates are based on the best information available at the time which can be highly subjective.

On May 5, 2015, Kimchuk, Inc. (“Kimchuk”), a former supplier, commenced action against the Company in the U.S. District Court, District of Connecticut, asserting breach of contract and seeking to recover approximately $389,000 in alleged damages. The Company filed its response and counter-complaint on August 11, 2015 wherein the Company denied the material allegations asserted by Kimchuk and sought approximately $3.5 million in damages from Kimchuk.  On June 1, 2016, the Company entered into a settlement agreement with Kimchuk whereby, for consideration of approximately $227,000, Kimchuk agreed to dismiss the matter, provide parts and material to eMagin and settle outstanding accounts payable.  The Company recorded an accrual for the litigation in the quarter ended September 30, 2015, and did not incur any additional settlement expense during the current quarter ended June 30, 2016 associated with the matter.

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Concentrations

6 Months Ended

Jun. 30, 2016

Concentrations [Abstract]

Concentrations

Note 9:  Concentrations    

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
North and South America	$	2,890	$	4,999	$	7,173	$	8,723
Europe, Middle East, and Africa		2,149		1,430		4,336		3,591
Asia Pacific		494		605		1,025		709
Total	$	5,533	$	7,034	$	12,534	$	13,023

The following table represents the domestic and international revenues as a percentage of total net revenues:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(unaudited)						(unaudited)
Domestic		52	%		71	%		57	%		66	%
International		48	%		29	%		43	%		34	%

The Company purchases principally all of its silicon wafers from two suppliers located in Taiwan and Korea.   

For the three months ended June 30, 2016, twocustomers accounted for 14% and 11% of net revenues. For the six months ended June 30, 2016,  one customer accounted for 10% of net revenues.  For the three months ended June 30, 2015,  three customers accounted for 15%,  14% and 12% of net revenues.  For the six months ended June 30, 2015,  two customers accounted for 14% and 10%of net revenues.  As of June 30, 2016, one customer accounted for 10%of the Company’s consolidated accounts receivable balance.

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Summary Of Significant Accounting Policies (Policy)

6 Months Ended

Jun. 30, 2016

Summary Of Significant Accounting Policies [Abstract]

The Business

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

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, 2015.  The results of operations for the period ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.  The consolidated condensed financial statements as of December 31, 2015 are derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. 

Use Of Estimates

Use of estimates 

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. 

Reclassifications

Reclassifications

Certain immaterial prior period amounts have been reclassified to conform to current period presentation with no impact on previously reported net income, assets or shareholders’ equity.

Revenues And Cost Recognition

Revenues and Cost Recognition

Revenues from product sales are recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from the customer, the price is fixed, title and risk of loss to the goods has changed and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment.

Revenues from research and development activities 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, labor and subcontractor 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.

Revenues from sales or licenses of intellectual property are recognized when transferred to the customer, provided the license has stand-alone value and the contract provides the right to use the intellectual property as it exists at the point the license is granted, without further obligations of the Company to update the intellectual property after the license is transferred.  If the license does not have standalone value, then the license is combined with other deliverables, such as Research and Development (“R&D”) or manufacturing services into a single unit of account.  Revenue from the single unit of account is recognized when earned, typically as the R&D or manufacturing services are performed over the life of the contract.

Recently Issued Accounting Standards

Recently issued accounting standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which changes the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statement of Cash Flows. The guidance is effective January 1, 2017 and early adoption is permitted.  The Company is currently evaluating the impact of the new guidance.

In February 2016, the FASB issued guidance which changes the accounting for leases. The guidance requires lessees to recognize a right-of-use asset, which is an asset that represents the lessee’sright to use, or control the use of, a specified asset for the lease term and, a lease liability, which is a lessee’s obligation to make lease payments arising from alease, measured on a discounted basis for all leases (with the exception of short-term leases).The guidance is effective January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact of the new guidance and the date of adoption. The Company’s operating lease commitments were $3.2 million at December 31, 2015. 

In November 2015, the FASB issued guidance which requires deferred tax liabilities and assets be classified as noncurrent in the statement of financial position. This guidance requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. The guidance is effective for annual and interim periods beginning after December 15, 2016 and can be applied prospectively or retrospectively to adjustments with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not expect the adoption of the new accounting guidance to have a material impact on its financial statements.

In July 2015, the FASB issued guidance on the measurement of inventory, which requires that inventory be measured at the lower of cost or net realizable value.   The updated standard should be adopted prospectively and is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2016 with early adoption permitted. The Company does not expect the adoption of the new accounting guidance to have a material impact on its financial statements.

In April 2015, the FASB issued guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a services contract. All software licenses recognized under this guidance will be accounted for consistent with other licenses of intangible assets. The guidance was effective January 1, 2016 and the Company adopted it on a prospective basis. The guidance did not have a material impact on the Company’s financial statements.

In November 2014, the FASB issued guidance to eliminate the diversity in practice for the accounting for hybrid financial instruments issued in the form of a share.  The guidance requires management to consider all terms and features, whether stated or implied, of a hybrid instrument when determining whether the nature of the instrument is more akin to a debt instrument or an equity instrument. Embedded derivative features, which are accounted for separately from host contracts, should also be considered in the analysis of the hybrid instrument. The Company adopted the guidance effective January 1, 2016 and it did not have an impact on its financial statements.

In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers, which will require an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles (GAAP) when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) and permitted early adoption of the standard, but not before the original effective date of December 15, 2016.  The Company expects the updated standard to become effective for it in the first quarter of fiscal 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its financial statements.

Unbilled Accounts Receivable

Unbilled Accounts Receivable

Unbilled accounts receivable represents contract revenue recognized but not yet invoiced due to contract terms or the timing of the accounting invoicing cycle.

Intangible Assets – Patents

Intangible Assets – Patents

Acquired patents are recorded at purchase price as of the date acquired and amortized over the expected useful life which is generally the remaining life of the patent.   

The total intangible amortization expense was approximately $13 thousand and $27 thousand for the three and six months ended June 30, 2016, respectively.  Estimated future amortization expense as of June 30, 2016 is as follows (in thousands):

Fiscal Years ending December 31,		Total Amortization
		(unaudited)
2016 (six months remaining)	$	27
2017		54
2018		54
2019		32
2020		9
Later years		40
	$	216

Product Warranty

Product warranty

The Company generally offers a one-year product replacement warranty. The standard policy is to repair or replace the defective products. The Company accrues for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues. The determination of these accruals requires the Company to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty. If the actual warranty activity and/or repair and replacement costs differ significantly from these estimates, adjustments to cost of revenue may be required in future periods.

The following table provides a summary of the activity related to the Company's warranty liability included in other current liabilities, (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Beginning balance	$	555	$	403	$	599	$	663
Warranty accruals		105		276		108		289
Warranty usage		(120)		(114)		(167)		(387)
Ending balance	$	540	$	565	$	540	$	565

Net Income per Common Share

Net Income per Common Share   

Basic income (loss) 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 income (loss) 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. Although the Company paid a one-time special dividend in 2012, the Company does not expect to pay dividends on its common or preferred stock in the near future.   

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share and share data) for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended				Six Months Ended
	June 30				June 30
	(unaudited)				(unaudited)
	2016			2015	2016			2015
Net Income	$	(2,164)	$	(66)	$	(2,150)	$	254
Income allocated to participating securities		—		—		—		59
Income allocated to common shares	$	(2,164)	$	(66)	$	(2,150)	$	195
Weighted average common shares outstanding - Basic		29,388,104		25,142,371		29,388,104		25,091,875
Dilutive effect of stock options		—		—		—		667,903
Weighted average common shares outstanding - Diluted		29,388,104		25,142,371		29,388,104		25,759,778
Net income per share:
Basic	$	(0.07)	$	-	$	(0.07)	$	0.01
Diluted	$	(0.07)	$	-	$	(0.07)	$	0.01

The following table sets forth the potentially dilutive common stock equivalents for the three and six month periods ended June 30, 2016 and 2015 that were not included in diluted EPS as their effect would be anti-dilutive:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2016	2015	2016	2015
	(unaudited)		(unaudited)
Options	3,966,089	4,154,689	3,966,089	3,306,545
Warrants	2,600,000	7,545,333	2,600,000	—
Total potentially dilutive common stock equivalents	6,566,089	11,700,022	6,566,089	3,306,545

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Summary Of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2016

Summary Of Significant Accounting Policies [Abstract]

Schedule Of Estimated Future Amortization Expense

Fiscal Years ending December 31,		Total Amortization
		(unaudited)
2016 (six months remaining)	$	27
2017		54
2018		54
2019		32
2020		9
Later years		40
	$	216

Summary Of Activity Related To Warranty Liability Included In Other Current Liabilities

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Beginning balance	$	555	$	403	$	599	$	663
Warranty accruals		105		276		108		289
Warranty usage		(120)		(114)		(167)		(387)
Ending balance	$	540	$	565	$	540	$	565

Schedule Of Earnings Per Share, Basic And Diluted

	Three Months Ended				Six Months Ended
	June 30				June 30
	(unaudited)				(unaudited)
	2016			2015	2016			2015
Net Income	$	(2,164)	$	(66)	$	(2,150)	$	254
Income allocated to participating securities		—		—		—		59
Income allocated to common shares	$	(2,164)	$	(66)	$	(2,150)	$	195
Weighted average common shares outstanding - Basic		29,388,104		25,142,371		29,388,104		25,091,875
Dilutive effect of stock options		—		—		—		667,903
Weighted average common shares outstanding - Diluted		29,388,104		25,142,371		29,388,104		25,759,778
Net income per share:
Basic	$	(0.07)	$	-	$	(0.07)	$	0.01
Diluted	$	(0.07)	$	-	$	(0.07)	$	0.01

Schedule Of Potentially Dilutive Common Stock Equivalents

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2016	2015	2016	2015
	(unaudited)		(unaudited)
Options	3,966,089	4,154,689	3,966,089	3,306,545
Warrants	2,600,000	7,545,333	2,600,000	—
Total potentially dilutive common stock equivalents	6,566,089	11,700,022	6,566,089	3,306,545

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Accounts Receivable, Net (Tables)

6 Months Ended

Jun. 30, 2016

Accounts Receivable, Net [Abstract]

Schedule Of Accounts Receivable

	June 30,  2016		December 31, 2015
	(unaudited)
Accounts receivable	$	3,582	$	3,635
Less allowance for doubtful accounts		(127)		(127)
Accounts receivable, net	$	3,455	$	3,508

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Inventories, Net (Tables)

6 Months Ended

Jun. 30, 2016

Inventories, Net [Abstract]

Schedule Of Components of Inventories

	June 30,    2016		December 31, 2015
	(unaudited)
Raw materials	$	3,286	$	2,595
Work in process		1,514		1,369
Finished goods		1,850		1,486
Total inventories		6,650		5,450
Less inventory reserve		(1,378)		(1,549)
Total inventories, net	$	5,272	$	3,901

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

Stock-Based Compensation [Abstract]

Schedule Of Allocation Of Non-Cash Stock-Based Compensation

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
		(unaudited)				(unaudited)
Cost of revenues	$	3	$	13	$	10	$	36
Research and development		5		26		33		62
Selling, general and administrative		85		60		217		218
Total stock compensation expense	$	93	$	99	$	260	$	316

Schedule Of Key Assumptions Of Fair Value Of Stock Options Granted

		For the Six Months Ended
		June 30,
	2016			2015
		(unaudited)
Dividend yield		0	%		0	%
Risk free interest rates		0.71 - 1.01	%		0.84 – 1.56	%
Expected  volatility		51.3 to 53.5	%		57.8 to 63.9	%
Expected term (in years)		3.5 to 5.0			3.5 to 5.0

Schedule Of Option Activity

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2015		4,218,139	$	3.75
Options granted		295,065		1.74
Options exercised		—
Options forfeited		(49,980)		2.02
Options cancelled or expired		(497,135)		7.66
Outstanding at June 30, 2016		3,966,089	$	3.13		3.76	$	607,968
Vested or expected to vest at June 30, 2016		3,961,104	$	3.13		3.76	$	607,888
Exercisable at June 30, 2016		3,716,914	$	3.14		3.73	$	603,968

(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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Concentrations (Tables)

6 Months Ended

Jun. 30, 2016

Concentrations [Abstract]

Schedule Of Concentrations

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(unaudited)				(unaudited)
North and South America	$	2,890	$	4,999	$	7,173	$	8,723
Europe, Middle East, and Africa		2,149		1,430		4,336		3,591
Asia Pacific		494		605		1,025		709
Total	$	5,533	$	7,034	$	12,534	$	13,023

The following table represents the domestic and international revenues as a percentage of total net revenues:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(unaudited)						(unaudited)
Domestic		52	%		71	%		57	%		66	%
International		48	%		29	%		43	%		34	%

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Summary Of Significant Accounting Policies (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Summary Of Significant Accounting Policies [Abstract]
Operating lease commitments			$ 3,200
Total intangible amortization expense	$ 13	$ 27
Standard product warranty period		1 year

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Summary Of Significant Accounting Policies (Schedule Of Estimated Future Amortization Expense) (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Summary Of Significant Accounting Policies [Abstract]
2016 (six months remaining)	$ 27
2017	54
2018	54
2019	32
2020	9
Later years	40
Total	$ 216

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Summary Of Significant Accounting Policies (Summary Of Activity Related To Warranty Liability Included In Other Current Liabilities) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Summary Of Significant Accounting Policies [Abstract]
Beginning balance	$ 555	$ 403	$ 599	$ 663
Warranty accruals	105	276	108	289
Warranty usage	(120)	(114)	(167)	(387)
Ending balance	$ 540	$ 565	$ 540	$ 565

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Summary Of Significant Accounting Policies (Schedule Of Earnings Per Share, Basic And Diluted) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Summary Of Significant Accounting Policies [Abstract]
Net income	$ (2,164)	$ (66)	$ (2,150)	$ 254
Less net income allocated to participating securities				59
Net income (loss) allocated to common shares	$ (2,164)	$ (66)	$ (2,150)	$ 195
Weighted average common shares outstanding - Basic	29,388,104	25,142,371	29,388,104	25,091,875
Dilutive effect of stock options				667,903
Weighted average common shares outstanding - Diluted	29,388,104	25,142,371	29,388,104	25,759,778
Net income per share: Basic	$ (0.07)		$ (0.07)	$ 0.01
Net income per share: Diluted	$ (0.07)		$ (0.07)	$ 0.01

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Summary Of Significant Accounting Policies (Schedule Of Potentially Dilutive Common Stock Equivalents) (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total potentially dilutive common stock equivalents	6,566,089	11,700,022	6,566,089	3,306,545
Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total potentially dilutive common stock equivalents	3,966,089	4,154,689	3,966,089	3,306,545
Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total potentially dilutive common stock equivalents	2,600,000	7,545,333	2,600,000

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Accounts Receivable, Net (Schedule Of Accounts Receivable) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts Receivable, Net [Abstract]
Accounts receivable	$ 3,582	$ 3,635
Less allowance for doubtful accounts	(127)	(127)
Accounts receivable, net	$ 3,455	$ 3,508

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Inventories, Net (Schedule Of Components of Inventories) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Inventories, Net [Abstract]
Raw materials	$ 3,286	$ 2,595
Work in process	1,514	1,369
Finished goods	1,850	1,486
Total inventories	6,650	5,450
Less inventory reserve	(1,378)	(1,549)
Total inventories, net	$ 5,272	$ 3,901

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Line Of Credit (Details) - Line of Credit [Member] - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 3,000,000		$ 3,000,000
Eligible accounts receivable percentage			75.00%
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.
Early termination fee			$ 6,000
Amount drawn	$ 0	$ 0	$ 0	$ 0
Minimum [Member]
Line of Credit Facility [Line Items]
Interest rate	7.25%		7.25%
Monthly interest payment			$ 1,000
Prime Rate [Member]
Line of Credit Facility [Line Items]
Basis spread on variable rate			4.00%

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Stock-Based Compensation (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
Stock-Based Compensation [Abstract]
Unrecognized stock option compensation, net of forfeitures	$ 0.2	$ 0.2
Unrecognized compensation cost, weighted average period of recognition		1 year 6 months
Dividend yield		0.00%	0.00%
Options exercised	0

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Stock-Based Compensation (Schedule Of Allocation Of Non-Cash Stock-Based Compensation) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	$ 93	$ 99	$ 260	$ 316
Cost of Revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	3	13	10	36
Research and Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	5	26	33	62
Selling, General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock compensation expense	$ 85	$ 60	$ 217	$ 218

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Stock-Based Compensation (Schedule Of Key Assumptions Of Fair Value Of Stock Options Granted) (Details)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%	0.00%
Risk free interest rates, minimum	0.71%	0.84%
Risk free interest rates, maximum	1.01%	1.56%
Expected volatility, minimum	51.30%	57.80%
Expected volatility, maximum	53.50%	63.90%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	3 years 6 months	3 years 6 months
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	5 years	5 years

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Stock-Based Compensation (Schedule Of Option Activity) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) $ / shares shares		Jun. 30, 2016 USD ($) $ / shares shares
Stock-Based Compensation [Abstract]
Outstanding, Number of Shares | shares			4,218,139
Options granted, Number of Shares | shares			295,065
Options exercised, Number of Shares | shares	0
Options forfeited, Number of Shares | shares			(49,980)
Options cancelled or expired, Number of Shares | shares			(497,135)
Outstanding, Number of Shares | shares	3,966,089		3,966,089
Vested or expected to vest, Number of Shares | shares	3,961,104	[1]	3,961,104	[1]
Exercisable, Number of Shares | shares	3,716,914		3,716,914
Outstanding, Weighted Average Exercise Price | $ / shares			$ 3.75
Options granted, Weighted Average Exercise Price | $ / shares			1.74
Options exercised, Weighted Average Exercise Price | $ / shares
Options forfeited, Weighted Average Exercise Price | $ / shares			2.02
Options cancelled or expired, Weighted Average Exercise Price | $ / shares			7.66
Outstanding, Weighted Average Exercise Price | $ / shares	$ 3.13		3.13
Vested or expected to vest, Weighted Average Exercise Price | $ / shares	3.13	[1]	3.13	[1]
Exercisable, Weighted Average Exercise Price | $ / shares	$ 3.14		$ 3.14
Outstanding, Weighted Average Remaining Contractual Life (In Years)			3 years 9 months 4 days
Vested or expected to vest, Weighted Average Remaining Contractual Life (In Years)			3 years 9 months 4 days	[1]
Exercisable, Weighted Average Remaining Contractual Life (In Years)			3 years 8 months 23 days
Outstanding, Aggregate Intrinsic Value | $	$ 607,968		$ 607,968
Vested or expected to vest, Aggregate Intrinsic Value | $	607,888	[1]	607,888	[1]
Exercisable, Aggregate Intrinsic Value | $	$ 603,968		$ 603,968

[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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Shareholders' Equity (Details) - $ / shares	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Class of Stock [Line Items]
Options exercised	0
Number of warrants exercised	0	0
Warrants outstanding	2,600,000	2,600,000
Warrants exercise price per share	$ 2.05	$ 2.05
Warrant expiration		Jun. 23, 2021
Series B Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares issued	5,659	5,659	5,659
Preferred stock, shares outstanding	5,659	5,659	5,659

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Income Taxes (Narrative) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016
Income Taxes [Abstract]
Effective tax rate	0.00%	0.00%
U.S. Federal income tax benefit at federal statutory rate	34.00%	34.00%
Operating loss carry forward amounts substantially expire			Dec. 31, 2037

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Commitments And Contingencies (Details)			3 Months Ended		6 Months Ended	12 Months Ended
	Jun. 01, 2016 USD ($)	May 05, 2015 USD ($)	Jun. 30, 2016 USD ($)	Mar. 31, 2014 customer	Jun. 30, 2016 USD ($) shares	Dec. 31, 2014 customer	Aug. 11, 2015 USD ($)
Commitments And Contingencies [Abstract]
Equipment purchases commitments					$ 800,000
Options granted, Number of Shares | shares					295,065
Stock options, value			$ 200,000		$ 200,000
Shipments stopped, number of customers | customer				3
Shipments resumed, number of customers | customer						2
Loss contingency, damages sought by plaintiff		$ 389,000
Counter complaint, damages sought							$ 3,500,000
Settlement consideration	$ 227,000
Additional settlement expense			$ 0

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Concentrations (Narrative) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016 customer	Jun. 30, 2015 customer	Jun. 30, 2016 customer item	Jun. 30, 2015 customer
Cost of Goods, Product Line [Member] | Supplier Concentration Risk [Member]
Concentration Risk [Line Items]
Number of suppliers | item			2
Revenues [Member] | Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Number of customers	2	3	1	2
Revenues [Member] | Customer Concentration Risk [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration of risk percentage	14.00%	15.00%	10.00%	14.00%
Revenues [Member] | Customer Concentration Risk [Member] | Customer Two [Member]
Concentration Risk [Line Items]
Concentration of risk percentage	11.00%	14.00%		10.00%
Revenues [Member] | Customer Concentration Risk [Member] | Customer Three [Member]
Concentration Risk [Line Items]
Concentration of risk percentage		12.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Number of customers			1
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration of risk percentage			10.00%

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Concentrations (Schedule Of Concentrations) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 5,533	$ 7,034	$ 12,534	$ 13,023
Geographic Concentration Risk [Member] | Revenues [Member] | North And South America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	2,890	4,999	7,173	8,723
Geographic Concentration Risk [Member] | Revenues [Member] | Europe, Middle East, And Africa [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	2,149	1,430	4,336	3,591
Geographic Concentration Risk [Member] | Revenues [Member] | Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 494	$ 605	$ 1,025	$ 709
Geographic Concentration Risk [Member] | Revenues [Member] | Domestic [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration of risk percentage	52.00%	71.00%	57.00%	66.00%
Geographic Concentration Risk [Member] | Revenues [Member] | International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration of risk percentage	48.00%	29.00%	43.00%	34.00%