Cover page
                                     [LOGO]

                              Mission In Sight (TM)







                                Inside cover page

     "With their HIGH CONTRAST images, TRUE COLORS, and LARGE FIELD OF VIEW, the
eMagin  OLED  microdisplays  are the  microdisplay  solution  of  choice  in our
Virtual-Reality applications." Norbert Hinckers, CEO, VRmagic

                                    [Images]

A leader and  innovator in near-eye  virtual  imaging,  eMagin  integrates  high
resolution  OLED displays,  magnifying  optics,  and systems  technologies.  Our
products  deliver a virtual  image - one that  appears  comparable  to that of a
computer  monitor,  a large-screen  television,  and a theater-like  experience.
Microdisplay  systems are expected to enable new commercial and consumer markets
for wearable personal computers,  wireless Internet  appliances,  personal video
players,  digital cameras and camcorders,  and other emerging  applications  for
consumer, industrial, homeland security, and military applications.

eMagin  has  developed   unique   technology  for  producing  high   performance
OLED-on-silicon  microdisplays  and related  optical  systems.  We are the first
company to demonstrate,  produce and deliver in commercial quantities full-color
active matrix OLED-on-silicon microdisplays.  eMagin developed the award-winning
SVGA+ and SVGA 3D microdisplays,  the world's first single-chip color video OLED
microdisplay and embedded controller for advanced virtual imaging.




[LOGO]

To our Shareowners, Employees, and Friends,

2003 was a  turning  point in  eMagin's  development.  As the  economy  began to
recover and our virtual  imaging  business began to accelerate,  we restructured
our debt,  streamlined  our  manufacturing  process,  began  growing sales to an
ever-increasing  number  of  customers,   and  established  additional  business
relationships that hold great promise for the future.

Our restructuring  resulted in cutting  liabilities by more than 50%, from $14.4
million to less than $7 million, and paying off major equipment leases,  thereby
eliminating  most of our prior  fixed  costs.  We  completed  private  placement
financings  that totaled more than $10 million between January 2003 and February
2004. We eliminated  approximately  $8 million in remaining  secured debt, which
was converted to equity in early 2004, leaving eMagin virtually debt free. As we
strengthened our financial position, we also expanded our leadership in OLED and
virtual imaging technologies, securing several important patents.

2003  saw  initial  commercial  orders  from  Sage  Technologies,  Night  Vision
Equipment  Corp.,  and Total Fire Group for  thermal  imaging  systems  for fire
fighting,  homeland  defense,  and military  applications;  incorporation of our
displays in VRmagic's EYESI(TM) surgical training  equipment;  and the extension
of our SXGA OLED  development  work for the U.S. Air Force.  Other customers are
building  prototypes  or  readying   commercialization  of   eMagin-equipped(TM)
products across an array of exciting applications for consumer,  industrial, and
military markets. We are pleased with the readiness of so many partners to adopt
our technologies.  Their enthusiasm and willingness to work closely with us bode
well for our future.

As our business expanded, we welcomed three members to our Board - Paul Cronson,
a Managing Director of Larkspur Capital; Jill Wittels, Corporate Vice President,
Business  Development,  L-3  Communications;  and Admiral  Thomas  Paulsen,  USN
(ret.),  with  extensive  experience  in military  command and  control,  and in
commercial  telecommunications.  In addition, we have begun to fill key rolls in
product development, business development, finance, and marketing.

The   commitment  of  so  many  people  has   encouraged  us  to  realize  these
accomplishments,  and will spur us to achieve  even  more.  We are  opening  new
markets in virtual  imaging,  a technology  that will become  ubiquitous  due in
large part to the power provided by our unique OLED display  engines.  We relish
the  challenge of enabling new markets  with our  products.  Our efforts of 2003
have laid the  groundwork  to  address  this  challenge.  So we thank  you,  our
investors  and  friends,  for your  faith and your  encouragement  as we work to
deliver on the  potential of eMagin and to create  greatly  increased  value for
you, our employees, our customers and those who use our products.


Sincerely,
/s/ GARY W. JONES
Gary W. Jones
Chairman, Chief Executive Officer, and President
gwjones@emagin.com


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

                   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
                          COMMISSION FILE NO. 000-24757

                               eMagin Corporation
                 (Name of Small Business Issuer in Its Charter)

            Delaware                                     56-1764501
------------------------------------     ---------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization)

 2070 Route 52, Hopewell Junction, New York                       12533
 ---------------------------------------------------------    --------------
   (Address of Principal Executive Offices)                     (Zip Code)

                                 (845) 838-7900
                (Issuer's Telephone Number, Including Area Code)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE

      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                     Common Stock, $.001 Par Value Per Share

Check  whether  the Issuer:  (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 [X] No [ ]

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B contained  herein,  and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Our revenues for our most recent fiscal year were $ 2,587,599.

There are  62,996,760  shares  outstanding  as of March 30, 2003.  The aggregate
market  value  of  the  voting  stock  held  by  non-affiliates  of  eMagin  was
$56,393,778  as of March 30,  2004,  based upon the  closing  sales price of the
Registrant's common stock as quoted on the AMEX of $2.07.

There were 42,695,412  shares of common stock  outstanding,  $.001 par value per
share, issued as of December 31, 2003.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the registrant's definitive proxy statement to be filed
with the  Securities  and  Exchange  Commission  pursuant to  Regulation  14A in
connection  with the  registrant's  2004  Annual  Meeting  of  Stockholders  are
incorporated  herein by  reference  into Part III of this Annual  Report on Form
10-KSB.


                                   FORM 10-KSB
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                      INDEX

                                     PART I

                                                                          Page

Item 1.  Description of Business...........................................  4
Item 2.  Description of Property........................................... 21
Item 3.  Legal Proceedings................................................. 22
Item 4.  Submission of Matters to a Vote of Security Holders............... 22

                                     PART II

Item 5.  Market for the Registrant's Common Equity and
         Related Stockholder Matters........................................22
Item 6.  Management's Discussion and Analysis or Plan of Operation..........24
Item 7.  Financial Statements...............................................37
Item 8.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure................................58
Item 8A. Controls and Procedures............................................58

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(A) of the Exchange Act.................59
Item 10. Executive Compensation.............................................61
Item 11. Security Ownership of Certain Beneficial Owners and Management.....61
Item 12. Certain Relationships and Related Transactions.....................61
Item 13. Principal Accountant Fees and Services.............................61

                                     PART IV

Item 14. Exhibits and Reports on Form 8-K...................................62

                                   SIGNATURES

                                        2

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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  "Business,"
"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  "Risk  Factors,"  that may cause our or our  industry's  actual
results,  levels of  activity,  performance  or  achievements  to be  materially
different  from  any  future  results,   levels  of  activity,   performance  or
achievements  expressed  or  implied  by such  forward-looking  statements.  For
example,  assumptions  that could cause actual results to vary  materially  from
future  results  include,  but are not limited  to: our ability to  successfully
develop and market our products to customers;  our ability to generate  customer
demand for our products in our target  markets;  the  development  of our target
markets and market  opportunities;  our ability to manufacture suitable products
at competitive cost; 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 US federal  securities laws
or  other   applicable   laws,  we  do  not  intend  to  update  or  revise  any
forward-looking statements.

                                       3

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Introduction

     eMagin Corporation  designs,  develops,  manufactures,  and markets virtual
imaging  products  which  utilize  OLEDs,  or  organic  light  emitting  diodes,
OLED-on-silicon  microdisplays and related information technology solutions.  We
integrate  OLED  technology  with  silicon  chips  to  produce   high-resolution
microdisplays  smaller than one-inch  diagonally  which,  when viewed  through a
magnifier,  create  virtual  images that appear  comparable in size to that of a
computer monitor or a large-screen television.  Our products enable our original
equipment manufacturer,  or OEM, customers to develop and market improved or new
electronic  products.  We believe that virtual  imaging will become an important
way for increasingly mobile people to have quick access to high resolution data,
work, and experience new more immersive forms communications and entertainment.

     Our first commercial product, the SVGA+ (Super Video Graphics Array plus 52
added columns of data) OLED microdisplay was first offered for sampling in 2001,
and our first SVGA-3D  (Super Video  Graphics  Array plus built-in  stereovision
capability)  OLED  microdisplay  was first  shipped in early  2002.  We have now
accepted   purchase   agreements   for  larger   quantities  of  our  commercial
microdisplay products and virtual imaging subsystems which combine displays with
lenses.  These products are being applied or considered for near-eye and headset
applications in products such as  entertainment  and gaming  headsets,  handheld
Internet and telecommunication  appliances,  viewfinders, and wearable computers
to be  manufactured  by OEM  customers for military,  medical,  industrial,  and
consumer  applications.  We market our products in North American,  Europe,  and
Asia.

     Our OLED-on-silicon microdisplays offer a number of advantages over current
liquid  crystal  microdisplays,  including  increased  brightness,  lower  power
requirements, less weight and wider viewing angles. Using our active matrix OLED
technology,  many computer and video  electronic  system  functions can be built
directly into the  OLED-on-silicon  microdisplay,  resulting in compact  systems
with expected  lower  overall  system costs  relative to alternate  microdisplay
technologies.  We have developed our own  technology to create high  performance
OLED-on-silicon  microdisplays  and related optical systems and we have licensed
certain  fundamental  OLED  and  display  technology  from  Eastman  Kodak.  The
worldwide market for OLED displays amounted to $91 million in 2002, $249 million
in 2003,  and will grow to $3.1 billion in 2009,  for a compound  annual  growth
rate of 56 percent from 2003 to 2009,  according to  iSuppli/Stanford  Resources
research as of March 2004.

     As the first to exploit OLED  technology  for  microdisplays,  and with the
support of our partners and the  development of our  intellectual  property,  we
believe that we enjoy a significant  advantage in the  commercialization of this
display  technology  for virtual  imaging.  We are the only company to announce,
publicly show and sell full-color active matrix OLED-on-silicon microdisplays.

     Our wholly owned  subsidiary,  Virtual Vision,  Inc.,  provides added value
services to our customers by providing  custom  engineering  support for virtual
imaging  subsystem design and prototyping,  as well as by creating  standardized
optical and electronics  interfaces for our displays that accelerate the time to
market for products offered by our new potential customers.

     Our website is located at www.emagin.com. We make available on our website,
free of charge,  our  annual  report on Form  10KSB,  our proxy  statement,  our
quarterly  reports on Form 10QSB, our current reports on Form 8K,  amendments to
reports filed under the  Securities and Exchange Act,  earnings press  releases,
and other business-related press releases. We also intend to post on our website
the  charters  of  our  Audit,  Compensation,   and  Governance  and  Nominating
committees,  our Codes of Ethics and any  amendments of or waiver to those codes
of  ethics,  and  other  corporate  governance  materials   recommended  by  the
Securities and Exchange Commission and the American Stock Exchange.

Industry Overview

     The overall  flat panel  display  industry is predicted to grow to over $69
billion in 2005, according to market research by DisplaySearch.  Within the flat
panel industry there are various sizes and  applications of flat panel displays,
ranging from wall size signage to calculator and viewfinder  displays.  Displays
are sold as  independent  products

                                       4

(such as flat TVs) or as components of other systems (such as laptop computers).
Our  products  target one segment of the flat panel  industry  which is known as
near-to-the-eye or near-eye microdisplays because they are viewed through a lens
rather than directly,  such as desktop computer screens which are know as direct
view displays.

     Near-eye  virtual imaging using  microdisplays  are used in small optically
magnified  devices such as video  headsets,  camcorders,  viewfinders  and other
portable devices.  Microdisplays are typically of such high resolution that they
are only practically  viewed with magnifying  optics.  Although the displays are
typically  physically smaller than a postage stamp, they can provide a magnified
viewing area similar to that of a full size computer screen.  For example,  when
magnified through a lens, a high-resolution 0.6-inch diagonal display can appear
comparable to a 19 to 21-inch diagonal  computer screen at about 2 feet from the
viewer or a 60-inch TV screen at about 6 feet.  One  version of our  display and
optic recreates the virtual  imaging viewing and sound  experience of sitting in
the middle seat of a typical movie theater.

     The  microdisplay  market,  according to McLaughlin  Consulting  Group in a
report  issued in November  2002, is expected to grow on a unit basis at 20% per
year,  from a base of less than $1 billion in 2002 to more than $1.4  billion by
2006.  Another leading  industry market  research  organization,  DisplaySearch,
projects  that the  overall  microdisplay  market  is  expected  to grow to a $3
billion per year rate by the end of 2005.

     We believe that the most significant driver of the near-eye virtual imaging
microdisplay  market is growing  consumer  demand  for  mobile  access to larger
volumes of information and  entertainment in smaller  packages.  This desire for
mobility has resulted in the  development of near-eye  microdisplay  products in
two  general  categories:  (i) an  established  market  for  electronic  viewers
incorporated  in products  such as  viewfinders  for  digital  cameras and video
cameras  which may  potentially  also be developed as personal  viewers for cell
phones and (ii) an  emerging  market  for  headset-application  platforms  which
include  accessories  for  mobile  devices  such as  notebook  and  sub-notebook
computers, portable DVD systems, electronic games, and other entertainment,  and
wearable computers.

     Until now,  near-eye  virtual imaging  microdisplay  technologies  have not
simultaneously met all of the requirements for high resolution,  full color, low
power consumption,  brightness,  lifetime,  size and cost which are required for
successful  commercialization in OEM consumer products.  We believe that our new
OLED-on-silicon  microdisplay  product line meets these requirements better than
alternative  products  and will help to enable  virtual  imaging to emerge as an
important display industry segment.

Our Approach: OLED-on-Silicon Microdisplays and Optics

     There are two basic  classes  of organic  light  emitting  diode,  or OLED,
technology,  dubbed single molecule or small molecule (monomer) and polymer. Our
microdisplays  are currently based upon active matrix molecular OLED technology,
which we call OLED-on-silicon  because we build the displays directly on silicon
chips. Our  OLED-on-silicon  technology  uniquely permits millions of individual
low-voltage  light sources to be built on low-cost,  silicon  computer  chips to
produce  single color,  white,  or full-color  display  arrays.  OLED-on-silicon
microdisplays   offer  a  number  of  advantages  over  current  liquid  crystal
microdisplays,  including increased brightness,  lower power requirements,  less
weight and wider viewing angles.  Using our OLED  technology,  many computer and
video  electronic  system functions can be built directly into the silicon chip,
under the OLED film, resulting in very compact,  integrated systems with lowered
overall system costs relative to alternative technologies.

     We have  developed our own  proprietary  and patented  technology to create
high performance  OLED-on-silicon  microdisplays and related optical systems and
we license  fundamental OLED technology from Eastman Kodak.  (See  "Intellectual
Property" and "Strategic Relationships").  We expect that the integration of our
OLED-on-silicon  microdisplays  into mobile  electronic  products will result in
lower overall system costs to our OEM customers.

     We  believe  that our  OLED-on-silicon  microdisplays  will  initiate a new
generation of virtual imaging  products that will have a profound impact on many
industries.  Headsets providing virtual screens surrounding the user in a sphere
of data  become a  practical  reality  with  our  displays  and a low cost  head
tracker.  Because our  microdisplays  generate and emit light, they have a wider
viewing angle than competing liquid crystal microdisplays, and because they have
the same high brightness at all forward viewing angles, our microdisplays permit
a large field-of-view and superior optical image.

                                       5

The wider viewing angle of our display results in the following superior optical
characteristics:

     o    the user does not need to as  accurately  position  the  head-wearable
          display to the eye;

     o    the image will  change  minimally  with eye  movement  and appear more
          natural; and

     o    the display can be placed further from the eye and not cut off part of
          the image.

     In addition, our OLED-on-silicon  microdisplays offer faster response times
and use much less power than competitive  liquid crystal  microdisplay  systems.
Our subsystem-level  power consumption is so low that two SVGA, full color, full
speed motion video computer  displays can easily be run in stereovision  off the
power from a single USB port on a portable computer. Battery life is extended or
weight is greatly reduced in systems using our products.

     Our OLED microdisplay  stores all the color and luminance value information
at each of the more  than 1.5  million  picture  elements,  or  pixels,  between
refresh  cycles in the display array,  eliminating  the flicker or color breakup
seen  by  most  other  high-resolution  microdisplay  technologies.  Even  power
efficient  frame  rates as low as 30 Hz can usually be used  effectively.  Power
consumption at the system level is expected to be the lowest of any  full-color,
full-video SVGA resolution  range,  large view  microdisplay on the market.  The
OLED's  ability to emit light at wide angles  allows  customers  to create large
field of view  (approx.  40 degrees),  wide image capture range images from very
compact, low-cost,  one-piece optical systems. The display contains the majority
of the electronics  required for connection to the RGB (red, green, blue signal)
port of a portable  computer  imbedded in its silicon  chip  backplane,  thereby
eliminating many other components required by other display technologies such as
D-A converters, application-specific integrated circuits (ASICs), light sources,
multiple optical elements, and other components.  We believe that these features
will enable our new class of  microdisplay  to  potentially be the most compact,
highest image  quality,  and lowest cost solution for high  resolution  near-eye
applications, once they are in full production.

     We have commercialized two OLED microdisplay products, our SVGA+ resolution
microdisplay,   which   contains  1.53  million   picture   elements,   and  our
stereovision-capable  SVGA-3D microdisplay,  which contains 1.44 million picture
elements.  We are  currently  developing  a  military  and  industrial  oriented
ultra-high-luminance   monochrome  SXGA  integrated   circuit,   which  contains
1280x1024 picture elements,  that is now due for completion in mid-2004. We sell
our OLED-on-silicon  microdisplays for use as components by customers who prefer
to design and build  their own lenses or coupled  with our own  optics.  We also
plan to offer OLED processing on our customers' integrated circuits to some OEMs
who design their own  integrated  circuits.  We provide  Developer  Kits,  which
include a  microdisplay  and  associated  electronics  to help OEMs evaluate our
microdisplay products and to assist their efforts to build and test new products
incorporating our microdisplays.

Our Product Lines

     We offer  our  products  to OEMs and  other  large  volume  buyers  as both
separate  components  and  integrated  bundles in a  three-tiered  platform.  We
believe that our strategy of offering our products  both as separate  components
and as integrated bundles that include microdisplays and lenses will allow us to
address the needs of the largest number of potential customers.

     (1)  OLED-on-silicon  microdisplays  for integration  into near-eye virtual
imaging OEM products for consumer, industrial, and military markets;

     (2)  Microviewer(TM)  near-eye virtual imaging modules that incorporate our
OLED-on-silicon  microdisplays with compact lenses and electronic interfaces for
integration into OEM products for consumer, industrial, and military markets. We
have shipped customized microviewer modules to several customers,  some of which
have incorporated our products into their own commercially available products;

     (3)  Head-wearable  near-eye  virtual  imaging  display  systems  that will
incorporate  our  Microviewers(TM)  for consumer and industrial  markets.  These
products have been prototyped and are planned.

                                       6

     We also  offer  engineering  support  and a variety  of  support  products,
including  developer kits and PC interface kits, to enable  customers to quickly
integrate our products into their own product development programs.

Our Products

     (1) OLED Microdisplay Products

     We serve as a  component  manufacturer  by  supplying  our  OLED-on-silicon
microdisplays  for  those  customers  who have  their own  lenses or  integrated
circuits.  Our first  commercial  microdisplay  products  are based on our "SVGA
series" OLED microdisplays. We expect to offer our SXGA OLED microdisplay during
2004. The table below provides a partial listing of the display products,  or in
the late stages of development.

OLED Microdisplays:

Microdisplay      Description                   Resolution    Color   Size
Product Numbers                                 (pixels)              (diagonal)

EMA-100080        SVGA+ OLED microdisplay       852x3x600     color   0.62 inch
EMA-100100        SVGA+ OLED microdisplay       852x3x600     white   0.62 inch
EMA-100116        SVGA+ OLED microdisplay       852x3x600     yellow  0.62 inch
EMA-100110        SVGA+ OLED microdisplay       852x3x600     green   0.62 inch
EMA-100052        SVGA 3D OLED microdisplay     800x3x600     color   0.59 inch

     0.62-inch  Diagonal SVGA+ (Super Video Graphics Array plus 52 added columns
of data) for  Consumer  OEMs.  This  display has a  resolution  of 852 x 3 x 600
pixels,  and was dubbed  "SVGA+"  because it has 52 more display  columns than a
standard SVGA display.  The design permits users to run either (1) standard SVGA
(800 x 600 pixels) to interface to the analog output of many portable  computers
or (2) 852 x 480,  using all the data available from a DVD player in a 16:9 wide
screen entertainment format. The SVGA+ can be made as a full-color or monochrome
microdisplay primarily for high-performance and large-view consumer OEM products
such as games, video/data head-wearable displays, digital cameras, video cameras
and other portable  electronics  applications.  The display also has an internal
NTSC monochrome  video decoder for low power night vision systems.  This product
is designed to interface with most portable personal computers.

     0.59-inch  Diagonal  SVGA-3D  (Super  Video  Graphics  Array plus  built-in
stereovision capability) for Consumer OEMs. This display has a resolution of 800
x 3 x 600  pixels.  The  SVGA-3D  can be  made  as a  full-color  or  monochrome
microdisplay primarily for high-performance and large-view consumer OEM products
such as personal computer games and video/data  head-wearable  displays,  but is
also  designed to be  applicable  for digital  cameras,  video cameras and other
portable  electronics  applications since the 3D feature is optional. A built-in
circuit provides compatibility with single channel frame sequential stereoscopic
vision without additional external  components.  In high volumes, the SVGA-3D is
priced  lower than the SVGA+,  so it is likely to be selected  whenever  the OEM
customer does not need monochrome NTSC or the extra columns of resolution.

     0.98-inch   Diagonal  SXGA  (Super   Extended  Video  Graphics  Array)  for
Industrial, Medical and Military Applications. We are developing an introductory
SXGA microdisplay product as a personal  computer-compatible headset display for
military,   medical,  high-end  commercial,  and  industrial  applications.   We
anticipate  that this display  will become  available  for sampling  sometime in
2004. This product will have 1280 x 1024 monochrome pixels and will be adaptable
to color  VGA  resolution.  The  display  will have a  capability  for very high
luminance.  We expect that this  display  will be able provide over 30,000 Cd/m2
luminance.  For reference, a typical notebook computer operates at 80 Cd/m2 peak
luminance.  This digital video and data  interface  product is being designed to
exhibit  a  wide  dimming  range  and  high   luminance  for  special   military
applications.  Even  though this SXGA is not  expected  to be a high  production
quantity product, we anticipate that the performance features of this SXGA, such
as  high-speed  digital  video and 256 gray  levels  with super  high  luminance
capability  and a very large imaging area for a silicon chip,  has the potential
to serve as a catalyst for the development of new applications.

OLED Microdisplay Kits:

                                       7



Kit Product Number      Description                                        Available colors

                                                                         
EMA-100119              SVGA+ Monocular Developer Kit                      Color, white, yellow, green
EMA-100120              SVGA+ Binocular Developer Kit                      Color, white, yellow, green
EMA 100125              SVGA 3D Monocular Developer Kit                    Color, white, yellow, green
EMA-100126              SVGA 3D Binocular Developer Kit                    Color, white, yellow, green
EMA-100121 HB           High Bright Monocular Developer Kit                Yellow
EMA-100135              SVGA Series Monocular PC Interface Kit             Color, white, yellow, green
EMA-100136              SVGA Series Binocular PC Interface Kit             Color, white, yellow, green


     Developer Kit. The multi-functional Developer Kit provides a menu selection
of resolution, frequency, image flip, monochrome operation, gain, and offset. It
also provides NTSC RS-170 video composite input for SVGA+ (monochrome  only). An
optional  serial-to-I2C  adapter  provides direct loading and  interrogation  of
display registers located on the display chip.

     The PC Interface  Kit provides a simple RGB interface  with image  flipping
for SVGA+ and SVGA-3D displays,  and automatic  stereovision  signal recognition
for SVGA-3D displays.  Interface kits can be provided configured with or without
displays.

     (2) Microviewer(TM) Products Incorporating Lenses

     By providing an  integrated  solution of a complete  microdisplay  and lens
assembly to integrate into OEM customers' end product design,  OEM customers can
avoid incurring  expensive  optics design and tooling costs.  Different lens and
microdisplay  specifications  can be mixed and matched to be adapted to many end
products.

     We have developed  advanced lens  technology for several  applications  and
believe  we hold  key  patents  on  certain  low  cost,  high  performance  lens
technology  for  microdisplay  applications.  Our lens  technology  permits  our
OLED-on-silicon  microdisplays to provide large field of view images that can be
viewed for extended periods with reduced eye-fatigue.

     We intend to sell  Microviewer(TM)  modules  to OEMs for  integration  with
their branded  products,  or incorporated  into eGlass(TM)  Personal  Viewer(TM)
head-wearable  displays to be supplied by our subsidiary,  Virtual Vision,  Inc.
Some of our potential  customers have stated a preference  for  Microviewers(TM)
over microdisplays since  Microviewers(TM)  incorporate lenses which save OEMs a
step in their manufacturing  process and can save them the long time required to
develop a high performance lens system. Custom microviewer products incorporated
into specially designed modules are currently being sold to OEMs, including Sage
Technologies and Total Fire Group.

     Low cost molded plastic lenses are in development under eMagin direction to
help our commercial and consumer OEM customers obtain better quality, large area
virtual   images  using  our  displays  at  relatively  low  cost  to  alternate
approaches.

     (3) eGlass(TM) Personal Viewer(TM) Head-Wearable Systems

     Personal Viewer(TM)  head-wearable systems, such as our eGlass(TM) Personal
Viewer(TM), give users the ability to work with their hands while simultaneously
viewing information or video on the display.  Our head-wearable  displays enable
more versatile portable  computing,  capable of delivering an image that appears
comparable to that of a 19-inch  monitor at 22 to 24 inches from the eye using a
0.59-inch  diagonal  microdisplay  (SVGA-3D).  We believe that  Personal  Viewer
head-wearable  displays  will  fill  the  increasing  demand  for  instant  data
accessibility in mobile workplaces. We expect to sell the head-wearable displays
primarily to OEM systems and equipment  customers  through  direct sales and our
e-commerce website which is under development.

                                       8

Prior Product and Technology Awards

         o    Dual Use Technology Achievement Award

     March 2002. eMagin and the US Air Force Armstrong Laboratory received First
Place recognition for the US Air Force with a Second Annual Dual Use Science and
Technology  Achievement Award. eMagin's technology was also recognized as one of
the best  dual  use  technologies  in 2001  across  all  branches  of the  Armed
Services.  The award,  presented  by the Deputy  Under  Secretary  for  Defense,
Charles J.  Holland,  recognizes  the best dual use  programs  and honors  those
responsible  for  developing  and  implementing  technology  beneficial  to both
military and commercial sectors.

         o    2001 Product of the Year

     January 17, 2001.  eMagin  received a 2001  Product-of-the-Year  Award from
Electronic  Products  Magazine,  honoring  eMagin  for  the  development  of its
first-of-class high-resolution active matrix OLED-on-silicon microdisplay, based
on significant advances in technology.

         o    2001 U.S. Army Phase II Quality Award

     August  21,  2001.  eMagin  received  a 2001 US Army SBIR  (Small  Business
Innovation   Research)   Phase  II  Quality   Award  for  the   development   of
high-resolution active matrix OLED microdisplays for incorporation into military
head-mounted  displays. The annual Quality Awards Program recognizes top quality
Army Phase II projects for their technical achievement, contribution to the Army
and potential for commercial use. Selected by a distinguished  panel of Army and
industry  experts,  eMagin's  project was among only five  selected to receive a
2001 U.S. Army SBIR Phase II Quality Award through the rigorous  Quality  Awards
competition.

         o    Display of the Year 2000 Gold Award

     June 6, 2001.  eMagin was honored by The Information  Display  Magazine and
Society  Information  Display  with the  Display  of the Year Gold Award for its
OLED-on-Silicon  microdisplay.  The Display of the Year Award was established in
1995 to recognize outstanding products chosen for their innovation and potential
impact on current and future  display  markets.  An  international  committee of
distinguished  display technologists and leading editors in a four-month process
of nominations and voting made the selection.

Our Market Opportunity

     The growth  potential  of our selected  target  market  segments  have been
investigated using information gathered from key industry market research firms,
including DisplaySearch,  Frost and Sullivan,  Fuji-Chimera,  International Data
Corporation,  Nikkei, SEMI, Stanford Resources-iSuppli and others. Such data was
obtained using published reports and data obtained at industry symposia. We have
also relied substantially on market projections obtained privately from industry
leaders, industry analysts, and potential customers.

     We  believe  that  the  consumer   oriented,   virtual-imaging   market  is
characterized  by about 20 large OEMs that,  collectively,  dominate  90% of the
market.  The  non-consumer  market  consists  of niches -  industrial,  medical,
military, arcade games, 3-D CAD/Virtual Reality, and wearable computers.  Within
each of these market sectors,  we believe that our microdisplays,  when combined
with compact  optic  lenses,  will become a key component for a number of mobile
electronic products. We are targeting the following applications:

     (1) Near-Eye Viewers for Digital Cameras, Camcorders and Hand-held Internet
and Telecommunications Appliances

     We believe that our microdisplays will enhance near-eye applications in the
     following groups of products:

     o    Digital  cameras  and  camcorders,  which  typically  use direct  view
          displays  at low  resolution,  offer a  small  visual  image,  and are
          difficult  to see on sunny  days.  According  to  Display  Search,  41
          million digital  cameras and 13 million  camcorders are expected to be
          sold in 2005. Some of these products may incorporate  microdisplays as
          high-resolution  viewfinders  which would  permit  individuals  to see

                                       9

          enlarged,  high-resolution proofs immediately upon taking the picture,
          giving them the opportunity to retake a poor shot.

     o    Mobile  phones and other  hand-held  Internet  and  telecommunications
          appliances  which will enable  users to access full web and fax pages,
          data lists and maps in a  pocket-sized  device.  According to the Fuji
          Chimera Research Institute,  an industry market research organization,
          by 2005 the cellular  phone and handheld  portable  digital  assistant
          markets  will  grow  to  655  million  units  and  20  million  units,
          respectively.  Some of these products may eventually  incorporate  our
          microdisplays.    In   order   for   the   high-resolution    wireless
          telecommunications  market to develop,  Generation  3 (G3)  high-speed
          data transmission  must become widely available.  The current cost and
          limited availability of broadband services has impeded the development
          of this market, but several telecommunication companies have prototype
          programs in progress which incorporate our microdisplay products.

     For each of  these  applications,  we  anticipate  that our  microdisplays,
combined with compact optic lenses,  will offer higher  resolution,  lower power
and system cost and achieve  larger images than are  currently  available in the
consumer market.  As a result, we believe that we can obtain a sizeable share of
the market for the display components of these mobile electronic products.

     (2) Head-wearable Display Platforms

     Head-wearable   displays  incorporate   microdisplays   mounted  in  or  on
eyeglasses,  goggles,  simple  headbands,  helmets,  or hardhats,  and are often
referred to as head-mounted displays (HMDs) or headsets.  Head-wearable displays
may block out surroundings for a fully immersive  experience,  or be designed as
"see-through" or "see-around" to the user's  surroundings.  They may contain one
(monocular) or two (binocular) displays.  Some of the increased current interest
is due  to  accelerating  the  timetable  to  adapt  such  systems  to  military
applications such as night vision and fire and rescue  applications.  These have
military, commercial, and consumer applications.

Military

     Military  demand for  head-wearable  displays is  currently  being met with
microdisplay  technologies that we believe to be inferior to our OLED-on-silicon
products.  The new generation of soldiers will be highly mobile,  and will often
need to carry highly computerized  communications and surveillance equipment. To
enable  interaction with the digital  battlespace,  rugged,  yet lightweight and
energy  efficient  technology  is  required.  Currently  available  microdisplay
technologies do not meet the  requirements  for low power,  hands-free,  day and
night-viewable   displays.  Our  OLED  microdisplays   demonstrate   performance
characteristics  important  to  military  and  other  demanding  commercial  and
industrial  applications including high brightness and resolution,  wide dimming
range, wider temperature  operating ranges,  shock and vibration  resistance and
insensitivity to high G-forces.  The image does not suffer from flicker or color
breakup in vibrating  environments,  and the  microdisplay's  wide viewing angle
allows  ease of  viewing  for long  periods of time.  The OLED's  very low power
consumption reduces battery weight and increases allowed mission length Our high
brightness SXGA display,  under  development,  is expected to provide  luminance
levels  in  excess of 30,000  Cd/m2,  will  have a number  of  imbedded  control
features, and is expected to use a small fraction of the power required for LCDs
(liquid crystal  displays) or CRTs (cathode ray tubes) run at similar  luminance
levels,  and will  permit  the use of more  compact  optical  systems.  Properly
implemented,   we  believe   that   head-mounted   systems   incorporating   our
microdisplays will increase  effectiveness by allowing hands-free  operation and
increasing  situational awareness with enough brightness to be used in daylight,
yet controllable for nighttime light security. The OLED's wide temperature range
is especially of interest for military applications because the display can turn
on instantly  at  temperatures  far below  freezing and can operate at very high
temperatures in desert conditions.

     Our OLED  microdisplays  were  selected for several  aircraft  vehicles and
soldier  applications,  including the US Army Land Warrior 1.0 and 2.0 programs,
and Stryker  Interoperative,  and the US Air Force Joint Strike  Fighter and Lil
Hal Digital Kneeboard,  among others. Land Warrior, a core program in the Army's
drive  to  digitize  the  battlefield,  is an  integrated  digital  system  that
incorporates computerized  communication,  navigation,  targeting and protection
systems  for  use  by  the  twenty-first   century  infantry   soldier.   Kaiser
Electro-Optics,  a Rockwell Collins company and the principal contractor for the
US Army's  Land  Warrior HMD  system,  and eMagin  will apply  their  respective
expertise in HMD and imaging  technology to develop rugged,  yet lightweight and
energy efficient products meeting the requirements of tomorrow's soldier. The US
Army expects to initially equip more than 40,000

                                       10

soldiers with the Land Warrior system.  The current overall redesign of the Land
Warrior system by General  Dynamics and Rockwell  Collins has delayed  increased
volume use of displays  beyond small  quantities for that program until a future
date to be determined. Our display is also used in Kaiser Electro-Optics, Inc.'s
commercially  available  ProView S035  Monocular  HMD.  Night  Vision  Equipment
Corporation's  HelmetIR-50(TM),  a lightweight,  military helmet mounted thermal
imager,  which provides  hands-free  operation and allows viewers to see through
total  darkness,   battlefield  obscurants,  and  even  foliage,  is  the  first
OLED-equipped  product to be listed on the US Government's GSA schedule.  The US
Air Force has selected our OLED microdisplay  technology for incorporation  into
the  Strike  Helmet 21  system.  The  Strike  Helmet 21 system is  targeted  for
integration into F-15E aircraft in 2004-2005 time periods. We have been informed
by the US Air Force that our SXGA resolution OLED microdisplay,  currently under
development,  is planned to be used in  programs  such as  Integrated  Panoramic
Night Vision Goggles in avionics helmets and the Lil HAL digital  kneeboard.  We
cannot assure that the Government  will remain on schedule.  Similar systems are
of interest for other military  applications  as well as for related  operations
such as fire and rescue.

Commercial, Industrial, and Medical

     We believe that a wide variety of commercial and  industrial  markets offer
significant   opportunities   due  to   increasing   demand  for  instant   data
accessibility in mobile workplaces.  Some examples of microdisplay  applications
include:  immediate  access  to  inventory  such as parts,  tools and  equipment
availability;  instant  accessibility  to maintenance or  construction  manuals;
routine quality assurance inspection;  endoscopic surgery; and real-time viewing
of images and data for a variety of applications.  As one potential  example,  a
user wearing a HMD while using test equipment,  such as oscilloscopes,  can view
technical data while simultaneously  probing printed circuit boards.  Commercial
products in these  sectors  include Sage  Technologies,  Ltd.'s  Helmet Vue (TM)
Thermal Imaging System and Liteye's 500,  developed as an upcoming  accessory to
Antelope  Technologies' MCC Wearable Computing system,  which incorporates IBM's
wearable PC  technology.  VRmagic GmbH, a leading  developer of virtual  reality
simulators,  is using our OLED  microdisplays in their EYESI(TM) Virtual Reality
Surgical Simulator,  which provides real-time  simulation of ophthalmic surgery,
high  performance  biomechanical  tissue  simulation,  precision  tracking,  and
realistic  stereo imaging.  Sensics has  incorporated our OLED displays in their
immersive  SkyVizor (TM) virtual  reality  headset to serve as the "eyes" of the
Robonaut,  a humanoid  robot being  developed  by NASA and DARPA.  The  Robonaut
system  can work side by side with  humans,  or alone in  high-risk  situations.
Telepresence  uses virtual  reality display  technology to visually  immerse the
operator into the robot's workspace, facilitating operation and interaction with
the  Robonaut,  and  potentially  reducing the number of  dangerous  space walks
required of real astronauts.

Consumer

     We  believe  that our  head-wearable  display  products  will  enhance  the
following consumer products:

     o    Entertainment   and  gaming  video  headset   systems,   which  permit
          individuals to view  television,  including HDTV,  video CDs, DVDs and
          video  games on  virtual  large  screens  or  stereovision  in private
          without  disturbing  others.  Even  though  entertainment  and  gaming
          headsets  represent an emerging  product  class,  we are seeing demand
          from OEMs.  Headset  game  systems for  portable  computers  with head
          tracking  and/or  stereovision  appears  to be  our  predominant  high
          quantity  near  term  market   opportunity,   with  several  customers
          indicating an interest in large production quantities of our displays.
          Our current SVGA-3D display was designed specifically for this market.
          We believe  that these new headset  game systems can provide a game or
          telepresence  experience not otherwise  practical  using  conventional
          direct view display technology. We expect low cost to be important for
          success in this field, and expect our product cost to decrease in high
          quantity  production.  At the 2004 Consumer  Electronics Show, Leadtek
          Research Inc.  (Taiwan)  announced that it was planning to introduce a
          consumer HMD using eMagin SVGA-3D displays.

     o    Notebook  computers,  which can use  head-wearable  devices  to reduce
          power as well as expand the apparent screen size and increase privacy.
          Current notebook computers do not use microdisplays.  Our products can
          apply  not  only to new  models  of  notebook  computers,  but also as
          aftermarket  attachments to older  notebooks still in use. The display
          can be easily used as a second monitor on notebook  computers for ease
          of editing multiple  documents to provide multiple screens or for data
          privacy while traveling.  It can also be

                                       11

          used to provide larger screen  capability for viewing  spreadsheets or
          complex  computer  aided design  (CAD) files.  We expect to market our
          head-wearable  displays  to  be  used  as  plug-in  peripherals  to be
          compatible with most notebook  computers.  We believe that the SVGA-3D
          microdisplay  is well  suited  for  most  portable  PC  headsets.  Our
          microdisplays  can be  operated  using  the USB  power  source of most
          portable computers.  This eliminates added power supplies,  batteries,
          and rechargers and reduces system complexity and cost.

     o    Handheld  personal  computers,  whose  small,  direct view screens are
          often  limitations,  but which are now  capable  of  running  software
          applications  that would benefit from a larger display.  Microdisplays
          can be built  into  handheld  computers  to display  more  information
          content on virtual  screens without  forfeiting  portability or adding
          the cost a larger direct view screen.  Microdisplays are not currently
          used in this  market.  We believe  that GPS  viewers  and other  novel
          products are likely to develop as our displays become more available.

     o    Highly compact wearable computers and personal digital assistants,  or
          PDAs  using  video  headsets  as  screens  can  be  made  possible  by
          high-resolution  microdisplays. A lightweight pocketsize computer that
          is less than one  pound  can  potentially  be  created  with a foldout
          keyboard,  compact input device, or voice actuation and a headset that
          provides a near-desktop personal computer experience.

     The combination of power  efficiency,  high  resolution,  low systems cost,
brightness and compact size offered by our OLED-on-silicon microdisplays has not
been made  available to makers and  integrators  of existing  entertainment  and
gaming video headset  systems,  notebook  computers and handheld  computers.  We
believe  that our  microdisplays  will  catalyze  the growth of new products and
applications such as lightweight wearable computer systems.


Selected Applications by Market Sector
------------------------------------------- -------------------------------------------------
                                             
Sector                                       Representative Applications
------------------------------------------- -------------------------------------------------
Portable Computer Peripheral        |X|      Notebook and SuperSubnotebook computer headsets
                                    |X|      Miniature data viewers
------------------------------------------- -------------------------------------------------
Entertainment                       |X|      Games
                                    |X|      Headset Television/DVDs
------------------------------------------- -------------------------------------------------
Industrial, Medical, &              |X|      Surgery and Dentistry
Administration                      |X|      Industrial Control and Safety
                                    |X|      Emergency Services
                                    |X|      Inventory and Retail
                                    |X|      Institutional Control
                                    |X|      Maintenance (Industry & Consumer)
                                    |X|      Communications
                                    |X|      Finance
                                    |X|      Education and Training
------------------------------------------- -------------------------------------------------
Military                            |X|      Communications
                                    |X|      Targeting and Enhanced Vision
                                    |X|      Night Vision
                                    |X|      Handheld & Headmount Equipment
                                    |X|      Body worn displays
                                    |X|      Avionics (Helmet mount)
                                    |X|      Ground and Water Vehicles
                                    |X|      Maintenance & Training
                                    |X|      Special Applications
------------------------------------------- -------------------------------------------------
Telecommunications, Handheld,       |X|      Cell Phones/Headset phones
and Small Instruments               |X|      Handheld & Portable Internet Viewers
                                    |X|      Smart Appliances & Instruments
------------------------------------------- -------------------------------------------------
Advanced Computer                   |X|      CAD/CAM
Applications                        |X|      Virtual Reality and Simulations
                                    |X|      Ultra-High Resolution
                                    |X|      Telepresence
------------------------------------------- -------------------------------------------------


                                       12

Our Strategy

     Our  strategy  is to  establish  and  maintain a  leadership  position as a
worldwide supplier of microdisplays and virtual imaging technology solutions for
applications in high growth segments of the electronics industry by capitalizing
on our  leadership in both  OLED-on-silicon  technology  and  microdisplay  lens
technology.  We aim to provide  microdisplay  and  complimentary  accessories to
enable OEM  customers to develop and  manufacture  new and  enhanced  electronic
products.  Some key elements of our strategy to achieve these objectives include
the following:

     o    Leverage  our  superior  technology  to  establish  a  leading  market
          position. As the first to exploit  OLED-on-silicon  microdisplays,  we
          believe  that we  enjoy  a  significant  advantage  in  bringing  this
          technology to market.

     o    Develop products for large consumer markets via key relationships with
          OEMs. Our  relationships  with OEMs whose  products use  microdisplays
          have  allowed  us to  identify  initial  microdisplay  products  to be
          produced for entertainment,  industrial,  and military headsets, to be
          followed by other applications such as digital cameras, camcorders and
          hand-held  Internet  and  telecommunications   appliances.  We  target
          markets which we believe to have long-term growth potential.

     o    Optimize  manufacturing  efficiencies by outsourcing  while protecting
          proprietary  processes.  We intend to  outsource  certain  portions of
          microdisplay  production,  such as chip fabrication,  to minimize both
          our costs and time to market. We intend to retain the OLED application
          and OLED sealing processes  in-house.  We believe that these areas are
          where we have a core competency and manufacturing  expertise.  We also
          believe that by keeping  these  processes  under tight  control we can
          better protect our proprietary  technology and process know-how.  This
          strategy  will also  enhance our  ability to continue to optimize  and
          customize  processes and devices to meet customer needs. By performing
          the processes  in-house we can continue to directly make  improvements
          in the  processes,  which will  improve  device  performance.  We also
          retain the ability to customize certain aspects such as color balance,
          which is known  as  chromaticity,  as well as  specialized  boards  or
          interfaces,  and to adjust other parameters at the customer's request.
          In the area of lenses and head-wearable  displays,  we intend to focus
          on design and  development,  while  working with third parties for the
          manufacture  and  distribution  of  finished  products.  We  intend to
          prototype  new  optical  systems,  provide  customization  of  optical
          systems,  and manufacture  limited volumes at our subsidiary,  Virtual
          Vision, but intend to outsource high volume manufacturing  operations.
          There are numerous potential plastics,  PC Board, and assembly service
          companies globally that provide these outsource services.

     o    Build  and  maintain  strong  internal  design  capabilities.  As more
          circuitry  is added to  OLED-on-silicon  devices,  the cost of the end
          product  using the  display  can be  decreased;  therefore  integrated
          circuit design capability will become increasingly important to us. To
          meet  these  requirements,   we  intend  to  develop  in-house  design
          capabilities.  Building and maintaining this capacity will allow us to
          reduce  engineering  costs,  accelerate the design process and enhance
          design  accuracy  to respond to our  customers'  needs as new  markets
          develop.  In  addition,  we intend to maintain a product  design staff
          capable of rapidly developing prototype products for our customers and
          strategic  partners.  Contracting  third party design  support to meet
          demand and for  specialized  design  skills will also remain a part of
          our overall long term strategy.

                                       13

Our Strategic Relationships

     Strategic  relationships  have been an  important  part of our research and
development efforts to date and are an integral part of our plans for commercial
product  launch.  We have  forged  strategic  relationships  with major OEMs and
strategic suppliers.  We believe that strategic relationships allow us to better
determine the demands of the marketplace and, as a result, allow us to focus our
future  research  and  development  activities  to  better  meet our  customer's
requirements.  Moreover, we expect to provide microdisplays and Microviewers(TM)
to some of these partners,  thereby taking advantage of established distribution
channels for our products.

     Eastman Kodak is a technology partner in OLED development,  OLED materials,
and a potential  future  customer for both specialty  market display systems and
consumer  market  microdisplays.  We  license  Eastman  Kodak's  OLED and optics
technology portfolio.  We have a nonexclusive,  perpetual,  worldwide license to
use Eastman Kodak patented OLED technology and associated  intellectual property
in the development,  use,  manufacture,  import and sale of  microdisplays.  The
license covers emissive active matrix microdisplays with a diagonal size of less
than 2 inches for all OLED display technology  previously developed by Kodak. An
annual  minimum  royalty is paid at the  beginning of each  calendar year and is
fully  creditable  against the  royalties  we are  obligated to pay based on net
sales  throughout  the year.  Eastman  Kodak and eMagin have engaged in numerous
discussions regarding potential product applications for eMagin's  microdisplays
by Eastman Kodak.

     We are working in cooperation with the US Air Force,  Ball Aerospace,  ITT,
and Kaiser  Electro-optics,  a  subsidiary  of  Rockwell  Collins,  to  complete
development and  characterization  of our high brightness SXGA microdisplay.  We
are working  cooperatively  with the US Army and with several system integrators
to  further   characterize   operation  of  our  displays  in  rugged   military
environments.

     We  have  recently  announced  the  execution  of an  agreement  with  Rohm
Corporation  of Japan to develop two new  products:  an enhanced  version of our
SVGA-3D  microdisplay  with new  imbedded  features  for  consumer  head-mounted
displays  and high  resolution  games,  and a new  QVGA  and/or  VGA  viewfinder
microdisplay for camcorder and digital cameras, web phones, and low end games.

     We are a member of the United  States  Display  Consortium,  a  cooperative
agency of display  and  related  technology  manufacturers  whose  charter is to
support  continued  progress of the display  industry.  We intend to continue to
establish additional strategic relationships in the future.

Our Technology Platforms

OLED-on-Silicon Technology

     Scientists  working at Eastman  Kodak  invented  OLEDs in the early  1980s.
OLEDs are thin  films of stable  organic  materials  that emit  light of various
colors when a voltage is  impressed  across them.  OLEDs are  emissive  devices,
which means they create their own light, as opposed to liquid crystal  displays,
which require a separate light source. As a result,  OLED devices use less power
and can be capable of higher  brightness  and fuller  color than liquid  crystal
microdisplays.  Because the light they emit is  Lambertian,  which means that it
appears equally bright from most forward directions,  a moderate movement in the
eye  does not  change  the  image  brightness  or  color as it does in  existing
technologies. OLED films may be coated on computer chips, permitting millions of
individual  low-voltage light sources to be built on silicon integrated circuits
to produce single color,  white, or full-color display arrays. Many computer and
video  electronic  system  functions  can  be  built  directly  into  a  silicon
integrated  circuit as part of the OLED display,  resulting in an  ultra-compact
system. We believe these features,  together with the  well-established  silicon
integrated circuit fabrication  technology of the semiconductor  industry,  make
our OLED-on-silicon microdisplays attractive for numerous applications.

     We believe our technology  licensing agreement with Eastman Kodak,  coupled
with our own intellectual property portfolio,  gives us a leadership position in
OLED and OLED-on-silicon  microdisplay  technology.  Eastman Kodak provides OLED
technology and we provide additional  technology  advancements that have enabled
us to coat the silicon integrated circuits with OLEDs.

     We have developed numerous and significant  enhancements to OLED technology
as well as key silicon circuit designs to effectively  incorporate the OLED film
on a silicon  integrated  circuit.  For  example,  we have  developed  a unique,
up-emitting structure for our OLED-on-silicon devices that enables OLED displays
to be built on opaque silicon integrated circuits rather than only on glass. Our
OLED devices can emit full visible spectrum

                                       14

light that can be isolated with color  filters to create full color images.  Our
microdisplay  prototypes  have a  brightness  that can be greater than that of a
typical  notebook  computer and can have a potential  useful life of over 50,000
operating hours, in certain applications.  New materials and device improvements
in  development   offer  future  potential  for  even  better   performance  for
brightness,   efficiency,   and   lifespan.   Additionally,   we  have  invested
considerable work over several years to develop unique  electronics  control and
drive designs for OLED-on-silicon microdisplays.

     In addition to our  OLED-on-silicon  technology,  we have developed compact
optic and lens enhancements  which, when coupled with the microdisplay,  provide
the high quality large screen  appearance that we believe a large  proportion of
the marketplace demands.

Advantages of OLED Technology

     We  believe  that  our  OLED-on-silicon   technology  provides  significant
advantages  over existing  solutions in our targeted  microdisplay  markets.  We
believe these key advantages will include:

     o    Low manufacturing cost;

     o    Low cost system solutions;

     o    Wide angle light emission resulting in large apparent screen size;

     o    Low power  consumption  for improved  battery  life and longer  system
          life;

     o    High brightness for improved viewing;

     o    High-speed performance resulting in clear video images;

     o    Wide operating temperature range; and

     o    Good environmental stability (vibration and humidity).

     Low manufacturing cost. Many OLED-on-silicon  microdisplays can be built on
an  8-inch  silicon  wafer  using  existing  automated  OLED  and  color  filter
processing tools. The level of automation used lowers labor costs. Only a minute
amount of OLED  material is used in each  OLED-on-silicon  microdisplay  so that
material costs,  other than the integrated circuit itself, are small. The number
of  displays  per  silicon  wafer may be higher on OLEDs than on liquid  crystal
displays,  or LCDs, because OLEDs do not require a space-wasting  perimeter seal
band.

     Low cost  systems  solutions.  In  general,  an OEM  using  OLED-on-silicon
microdisplays  will not need to purchase and  incorporate  lighting  assemblies,
color converter related Applications  Specific Integrated Circuits, or ASICs, or
beam splitter lenses as is the case in liquid crystal microdisplays,  which also
require  illumination.  Many important  display-related  system functions can be
incorporated into an OLED-on-silicon microdisplay, reducing the size and cost of
the   system.   Non-polarized   light   from  OLEDs   permit   lenses  for  many
OLED-on-silicon  applications that are made of a single piece of molded plastic,
which  reduces size,  weight and assembly  cost when compared to the  multipiece
lens  systems used for liquid  crystal  microdisplays.  System cost  relative to
liquid crystal and liquid crystal on silicon,  or LCOS  competitive  products is
thus reduced.  Because our displays are power efficient,  they typically require
less  power at the  system  level than  other  display  technologies  at a given
display size and brightness.

     Wide-angle light emission simplifies optics for large apparent screen size.
OLEDs emit light at most forward  directions  from each pixel.  This permits the
display  to be placed  close to the lens in  compact  optical  systems.  It also
provides  the added  benefit of less  angular  dependence  on the image  quality
relative to pupil and eye position  when  showing a large field of view,  unlike
reflective  LCOS  microdisplays.  This  results in less eye fatigue and makes it
relatively easy to Low power  consumption  for improved  battery life and longer
system life. OLEDs emit light rather than transmitting it, so no power-consuming
backlight or frontlight,  as required for liquid crystal displays,  is required.
OLEDs can be energy efficient because of their high efficiency light generation.

                                       15

Furthermore,OLEDs conserve power by powering only those pixels that are on while
liquid  crystal on  silicon  requires  light at all  pixels  all the time.  Most
optical systems used for our OLEDs are highly efficient,  permitting over 80% of
the  light to reach  the eye,  whereas  reflective  technologies  such as liquid
crystal on silicon require  multiple beam splitters to get light to the display,
and then into the optical system.  This results in typically less than 25% light
throughput efficiency in reflective  microdisplay systems. Most important, we do
not need a  power-hungry  video frame  buffer,  as  required  in liquid  crystal
frame-sequential color systems. Battery life can therefore be long.

     High brightness for improved viewing. This feature can be of great value to
military applications,  where there is a need to see the computer image overlaid
onto brightly lit real-life  backgrounds such as desert sand, water  reflections
or sunlit clouds.  The OLED can be operated over a large luminance range without
loss of gray level  control,  permitting  the  displays to be used in a range of
dark environments to very bright ambient applications. Since military simulation
and situation awareness applications,  including night vision, typically require
large fields of view, the OLED's Lambertian optical  characteristics  make it an
excellent choice.

     High-speed  performance  resulting in clear video images.  The OLEDs switch
much more rapidly than liquid  crystals or most cathode ray tubes, or CRTs. This
results in smear-free video rate imagery and provides improved image quality for
DVD  playback  applications.  This  eliminates  visible  image  smear  and makes
practicable  three-dimensional  stereo  imaging  using a split frame rate.  This
advantage of our  OLED-on-silicon is very important for 3-D stereovision  gaming
applications.

     Flicker-free  and no color  breakup.  Because  the  OLED-on-silicon  stores
brightness and color  information at each pixel,  the display can be run with no
noticeable flicker and no color sequential breakup, even at low refresh rates. A
lower refresh rate not only helps reduce power, but it also  facilitates  system
integration.  Color sequential  breakup occurs in systems such as liquid crystal
on silicon and some liquid  crystal  display  microdisplays  when red, green and
blue frames are  sequentially  imaged in time for the eye to combine.  Since the
different  color  screens occur at different  times,  movement of the eye due to
vibration or just fast pupil movement can create color bands at each  dark-light
edge, making the image unpleasant to view and making text difficult to read. For
example, the liquid crystal on silicon display needs to run at least three times
the  "normal"  frame rate or speed to produce  color  sequential  images,  which
wastes  power and makes  for a  difficult  technological  challenge  as  display
resolutions increase.

     Wide operating  temperature  range.  Our OLEDs offer much less  temperature
sensitivity at both high and low  temperatures  than LCDs.  LCDs are sluggish or
non-operative  much below  freezing  unless  heaters are added and lose contrast
above 50 degrees  Celsius,  while our OLEDs turn on  instantly  and can  operate
between -55 degrees Celsius and 130 degrees Celsius.  We specify a smaller range
on most  products  to  accommodate  low  cost  packaging.  This is an  important
characteristic  for many  portable  products  that may be used  outdoors in many
varying  environmental  conditions.  It is  especially  important  for  military
customers.  Insensitivity  to vibration,  shock, and pressure are also important
environmental control attributes.

Complementary Lens and System Technologies

     We have developed a wide range of  technologies  which  complement our core
OLED and lens  technologies  and which will enhance our competitive  position in
the microdisplay and head-wearable display markets. These include:

     Lens   technology.   We  have  developed   advanced  lens   technology  for
microdisplays  and  head-wearable  display systems and hold key patents in these
areas. Our lens technology permits our OLED-on-silicon  microdisplays to provide
large field of view images that can be viewed for extended  periods with reduced
eye-fatigue.  We have  engaged  a firm to  manufacture  our  lenses  in order to
provide them in larger  quantities to our customers,  assuming the final version
of the  production  lens  becomes  available  and moves into  production  by our
manufacturing partner.

         We believe that the key advantages of our lens technology include:

     o    Can be very low cost,  with  minimal  assembly.  A one  piece,  molded
          plastic  optic  attached to the  microdisplay  can serve many consumer
          end-product  markets.  Since our process is plastic  molding,  our per
          unit production costs are low;

                                       16

     o    Allows a compact and lightweight  lens system that can greatly magnify
          a microdisplay to produce a large field of view;

     o    Can use single-piece  molded  microdisplay lenses to permit high light
          throughput  making the display image brighter or permitting the use of
          less power for an acceptable brightness;

     o    Can be  designed  to provide  focusing  to enable  users with  various
          eyesight qualities to view images clearly; and

     o    Can  optionally   provide  focal  plane  adjustment  for  simultaneous
          focusing of computer images and real world objects. For example,  this
          characteristic  is  beneficial  for  word  processing  or  spreadsheet
          applications where a person is typing data in from reference material.
          This  feature  can make it easier  for  people  with  moderately  poor
          accommodation   to  use  a   head-wearable   display   as  a  portable
          computer-viewing accessory.

     Head-wearable display technology.  We have developed ergonomic technologies
that  make   head-wearable   displays  easier  to  use  in  a  wide  variety  of
applications.  For  example,  the use of our patented  rotatable  Eyeblocker(TM)
provides a sharp image without  requiring  most users to squint.  The Eyeblocker
can  also be  moved  to  create  an  effective  see-through  appearance.  To our
knowledge,  we have  made the  lightest  weight,  high-resolution  head-wearable
display  with  an  over  35  degree   diagonal   field  of  view  ever  publicly
demonstrated.

     Wireless video  technology.  We have developed power efficient,  miniature,
video and stereo sound, radio frequency transmitter-receiver  technology as part
of a  government  program.  This could allow  consumers to watch  wireless  high
quality video from most  locations in their home using  existing  entertainment,
such as DVD or cable/satellite  systems, or data systems. If commercialized,  we
expect this capability to greatly  increase the available  market and demand for
video and data head-wearable displays and we are considering this technology for
use in low cost consumer applications. Commercialization of this technology will
be considered in the future.

Sales and Marketing

     We primarily provide display components and  Microviewer(TM)  display-optic
modules for OEMs to  incorporate  into their  branded  products and sell through
their  own  well-established  distribution  channels.  In  addition,  we  market
head-wearable  displays  directly to various vertical market  channels,  such as
medical, industrial, and government customers. A typical buyer is a manufacturer
of a product requiring a specific resolution of visual display or viewfinder for
insertion into a product such as a portable DVD headset, a PC-gaming headset, or
an instrument.

     We market our services primarily in North America, Asia, and Europe through
direct  technical  sales  from our  headquarters.  Regular  purchase  orders are
processed by our Customer Service Coordinator and technical questions related to
product purchases or product applications are processed by our Technical Support
Coordinator.  Additional  sales are generated  through our  subsidiary,  Virtual
Vision,  and through our sales office located in Japan. We are in the process of
selecting worldwide distributors.

     As a market-driven  company,  we assess customer needs both  quantitatively
and qualitatively,  through market research and direct  communications.  Because
our  microdisplays  are the main  functional  component that defines many of our
customers' end products,  we work closely with potential customers to define our
products   to   optimize   the   final    design,    typically   on   a   senior
engineer-to-engineer basis.

     We identify  companies  with end  products  and  applications  for which we
believe that our products will provide a system level solution and for which our
products can be a key  differentiator.  We target both market leaders and select
early adopter companies;  their acceptance validates our technology and approach
in the market. We believe successful  marketing will require  relationships with
recognized consumer brand companies.

     We are now  shipping  monochrome  and full color  versions of our first two
commercial microdisplay products. Our SVGA+ resolution OLED microdisplay,  which
contains 1.53 million picture  elements,  was specifically  designed to meet the
needs of several military,  industrial, and medical customers based on marketing

                                       17

information  obtained  prior to the design  phase of the  display  and was first
offered  for   sampling  in  April  2001.   Our   stereovision-capable   SVGA-3D
microdisplay,  which contains 1.44 million picture  elements,  was designed with
the input of  multiple  customers  to  principally  target the  mobile  personal
computer and PC games  markets,  and was first shipped in February  2002. We are
currently  developing a military and  industrial  oriented  ultra-high-luminance
SXGA resolution integrated circuit, which contains 3.9 million picture elements,
that is due for  completion in 2004, and we have shipped  limited  quantities of
prototypes of our eGlass headsets.

     Near term sales efforts have been focused on our military,  industrial, and
medical customers.  We have received  production orders and design wins for both
the SVGA+ and SVGA 3D displays. To date, we have shipped products and evaluation
kits to more than 100 OEM  customers.  An OEM design  cycle  typically  requires
between 6 and 24  months,  depending  on the  uniqueness  of the  market and the
complexity  of the end  product.  New product  development  may require  several
design iterations prior to commercialization. Some of our initial customers have
completed  their initial  evaluation  cycle and we are now  receiving  follow-on
orders and notification of product purchase  decisions.  Several  customers have
indicated  their  intent  to  incorporate   potentially   high  volumes  of  our
microdisplays  into consumer  products  beginning in 2004 through 2006,  pending
successful  completion of their own product  development  efforts.  We have also
received  notification  that our  microdisplays  will be used as  components  in
versions 1.0 and 2.0 of the US Army Land Warrior program and in the US Air Force
Joint  Strike  Fighter   program,   among  other  programs.   (See  "Our  Market
Opportunity: Military; Commercial, Industrial, and Medical; and Consumer")

Customers

     Customers  for our products  include both large  multinational  and smaller
OEMs.  We  maintain  relationships  with OEMs in a diverse  range of  industries
encompassing  the military,  industrial,  medical,  and consumer market sectors.
During 2003,  70% of our sales were to firms based in the United  States and 30%
were  to   international   firms,   compared  to  74%  domestic  sales  and  26%
international  sales during 2002. In 2003, three customers  accounted for 37% of
sales.  One customer  represented  21% of sales and the other two represented 8%
each. In 2002, our customer base included two customers who accounted for 32% of
sales.  One customer  represented 18% and the other customer  represented 14% of
sales.  We anticipate  that  international  sales will continue to increase as a
percentage of our sales.

Backlog

     As of  December  31,  2003  we had a  backlog  of  purchase  agreements  of
approximately  $30  million.  The  majority of our backlog  consists of purchase
agreements  for  delivery  over the next 24  months.  Most  purchase  orders are
subject to  rescheduling  or  cancellation  by the  customer  with no or limited
penalties.  Because of the possibility of customer changes in delivery schedules
or cancellations and potential delays in product shipments,  our backlog as of a
particular  date may not be indicative of net sales for any  succeeding  period.
Lack of working  capital  through the early part of 2003  delayed our ability to
ship the full quantity of purchase  agreements and purchase  orders on hand, and
has required negotiations with customers for delays in product launch schedules.
Some  customers  have  experienced  delays  in  their  expected  product  launch
schedules due to their own product  development  delays not directly  related to
our microdisplays. Some new eMagin products such as PC interfaces and cables may
help customers begin their  production  more quickly,  but there is no guarantee
that this will occur.  eMagin's  deliveries of wafers and other  supplies  could
play a negative roll in our 2004 shipments due to capacity and technical  issues
at our suppliers, such as TSMC in Taiwan.

Research and Development

     Near-to-the-eye  virtual  imaging and OLED  technology  are  relatively new
technologies  that  have  considerable  room  for  substantial  improvements  in
luminance, life, power efficiency,  voltage swing, design compactness,  field of
view, optical range of visibility, and many other parameters. We also anticipate
that  achieving  reductions in  manufacturing  costs will require new technology
developments. We anticipate that improving the performance,  capability and cost
of our  products  will provide an  important  competitive  advantage in our fast
moving,  high  technology  marketplace.  Past and  current  research  activities
include  development of improved OLED and display device structures,  developing
and/or  evaluating  new  materials  (including  the  synthesis  of  new  organic
molecules),  manufacturing equipment and process development, electronics design
methodologies  and new  circuits

                                       18

and the development of new lenses and related  systems.  During 2002 and 2003 we
focused  primarily  on near-term  product  development  projects  related to our
transition  from  research to  manufacturing.  For example we  developed a glass
cover plate to ruggedize our displays to facilitate  easier  handling by our OEM
customers.  We also  developed  a new high  luminance,  high  efficiency  yellow
monochrome  OLED  and  adapted  to  our  SVGA+  display  for  see-through  optic
applications  and began  sampling the yellow  monochrome  product in early 2003.
However, in order to improve customer  satisfaction and simultaneously  maximize
our  margins,  as well as to  maintain  competitive  technology  advantages,  we
believe that it is  important  to continue to engage in  long-term  research and
development.  During the past eight years, we have spent, net of U.S. government
funding,  approximately  $34 million on research and  development.  In 2001,  we
spent  approximately $13 million,  and in 2002 we spent approximately $7 million
on research  and  development.  During  1998-2002 we received  approximately  $4
million in funding  from US  government  under  research  and  development  cost
sharing arrangements. Currently, eMagin is almost entirely focused on production
ramping, but contract R&D is expected to eventually resume at moderate levels.

     External   relationships  play  an  important  role  in  our  research  and
development efforts.  Suppliers,  equipment vendors,  government  organizations,
contract  research  groups,  external design  companies,  customer and corporate
partners,  consortia,  and  university  relationships  all  enhance  the overall
research  and  development  effort  and  bring  us  new  ideas  (See  "Strategic
Relationships").

Manufacturing Facilities

     We are located at IBM's  Microelectronics  Division facility,  known as the
Hudson Valley  Research  Park,  located about 70 miles north of New York City in
Hopewell Junction,  New York. We lease approximately 40,000 square feet of space
housing our own equipment for OLED microdisplay fabrication and for research and
development plus additional space for assembly and  administrative  offices.  We
believe  that our lease  agreement  with IBM for a 16,300  square  foot class 10
clean room space,  along with additional,  lower level clean room space, and the
associated   acquisition  of  substantial  amounts  of  advanced   manufacturing
equipment  is  at  a  favorable  cost,  representing  a  substantial  asset  and
competitive advantage.

     Our lease  expired in March of 2004.  As a result we  currently  occupy the
same space on a month to month basis for approximately $69,000 per month. We are
currently in negotiations for a new lease.

     Facilities services provided by IBM include our cleanroom, pure gases, high
purity  de-ionized  water,  compressed  air,  chilled water  systems,  and waste
disposal support. This infrastructure provided by our lease with IBM provides us
with many of the resources of a larger  corporation  without the added  overhead
costs.  It further  allows us to focus our  resources  more  efficiently  on our
product  development  and  manufacturing  goals. We believe that our facility is
anticipated to be capable of producing over 50,000 SVGA+ or SVGA-3D displays per
month once we are manufacturing around the clock on a 24 hours a day, 7 days per
week basis, with ample supplies and a fully loaded manufacturing line.

     We lease additional non-cleanroom facilities for chemical mixing, cleaning,
chemical systems, and glass/silicon  cutting.  OLED chemicals can be purified in
our  facility  with our own  equipment,  permitting  the company to evaluate new
chemicals in pilot  production that are not yet available in suitable purity for
OLED applications on the market.

     Our display  fabrication  process starts with the silicon  wafer,  which is
manufactured by a semiconductor foundry using conventional CMOS process. After a
device is designed by a  combination  of internal  and external  designers  with
customer participation, we outsource wafer fabrication.

     Our manufacturing process for OLED-on-silicon  microdisplays has three main
components:  organic film deposition,  organic film encapsulation (also known as
sealing),   and  color   filter   processing.   All  steps  are   performed   in
semi-automated,  hands-free environment suitable for high volume throughput.  An
automated cluster tool provides all OLED deposition steps in a highly controlled
environment  that  is the  centerpiece  of our  OLED  fabrication.  After  wafer
processing,  each part is inspected using an automated  inspection system, prior
to  shipment.  We  have  electrical  and  optical  instrumentation  required  to
characterize  the  performance of our displays  including  photometric and color
coordinate analysis. We are also equipped for integrated circuit and electronics
design and display testing.

                                       19

     Our system  development  effort at Virtual Vision  operates out of a leased
facility in Redmond,  Washington.  The  facilities are well suited for designing
and  building  limited  volume  prototypes  and  small  quantity  industrial  or
government  products.  Cables  and  electronic  interfaces  have  recently  been
produced to permit our OEM customers to more rapidly create products and shorten
their  time-to-market.  We plan to  outsource  medium to high  volume  subsystem
production to low cost  plastics,  lenses,  and assembly  manufacturers.  We are
currently using outside manufacturers  including manufacturers in Asia and other
locations, plus we are investigating new outsource opportunities.

     We believe that manufacturing efficiency is an important factor for success
in the consumer markets.  We believe that high yield and maximum  utilization of
our equipment set will be key for profitability. We believe that all of the main
components  for  manufacturing  success  are  in  place,  but  we  will  require
additional  capital  to:  (i)  staff  and  train  employees  for round the clock
operation,  (ii) build suitable  inventory of integrated  circuits and other raw
materials, and (iii) properly maintain and continue to upgrade the equipment set
from time to time. The equipment required for initial  profitable  production is
in place.  Some equipment will be added when our production  volume increases or
as needed.  We will initially ramp  production  primarily by adding  multi-shift
staff and increasing inventory.

     We intend to outsource certain  capital-intensive  portions of microdisplay
production  to minimize  both our costs and time to market.  Joint  ventures are
being  considered for higher  quantity OLED production off shore should suitable
resources  not be available  for US  expansion.  We currently  outsource all our
integrated   circuit   fabrication   while  retaining  the  final  metal,   OLED
application,   color  filter,  OLED  sealing,  and  sample  packaging  processes
in-house.

Intellectual Property

     We have developed a significant intellectual property portfolio of patents,
trade secrets and know-how,  supported by our license from Eastman Kodak and our
current patent portfolio.

     Our  license  from  Eastman  Kodak  gives us the right to use in  miniature
displays a portfolio in organic light emitting diode and optics technology, some
of which  are  fundamental.  Our  agreement  with  Eastman  Kodak  provides  for
perpetual  access to the OLED technology for our  OLED-on-silicon  applications,
provided we remain active in the field and meet our contractual  requirements to
Eastman  Kodak.  We also  generate  intellectual  property  as a  result  of our
internal research and development activities.

     Our patents and patent applications cover a wide range of materials, device
structures,   processes,   and  fabrication  techniques,   such  as  methods  of
fabricating full color OLEDs. We believe that our patent  applications  relating
to up-emitting structures on opaque substrates such as silicon wafers, which are
critical  for OLED  microdisplays,  and  applications  relating to the  hermetic
sealing of such structures are particularly important.

          Our patents are concentrated in the following areas:

     o    OLED Materials, Structures, and Processes;

     o    Display Color Processing and Sealing;

     o    Active Matrix Circuit Methodologies and Designs;

     o    Field Emission and General Display Technologies;

     o    Lenses and Tracking (Eye and Head);

     o    Ergonomics and Industrial Design; and

     o    Wearable Computer Interface Methodology

                                       20

     We also rely on proprietary technology,  trade secrets, and know-how, which
are not  patented.  To  protect  our  rights  in these  areas,  we  require  all
employees,  and  where  appropriate,   contractors,  consultants,  advisors  and
collaborators to enter into confidentiality and noncompetition agreements. There
can be no assurance,  however,  that these  agreements  will provide  meaningful
protection for our trade secrets,  know-how or other proprietary  information in
the event of any unauthorized use,  misappropriation or disclosure of such trade
secrets, know-how or other proprietary information.

     We believe  that our  intellectual  property  portfolio,  coupled  with our
strategic relationships and accumulated experience in the OLED field gives us an
advantage over potential competitors.

Competition

     We may  face  competition  in the  OLED and  microdisplay  industry  from a
variety of companies and technologies.  We believe that our key competition will
come from  liquid  crystal  on  silicon  microdisplays,  or LCOS,  also known as
reflective  liquid  crystal  displays.  While we  believe  that  OLED-on-silicon
provides  comparatively  lower optics cost, larger apparent image size,  reduced
electronics  cost and complexity,  enhanced color, and improved power efficiency
advantages over liquid crystal on silicon  microdisplays,  there is no assurance
that  these  benefits  will  be  realized  or that  liquid  crystal  on  silicon
manufacturers  will not suitably improve these  parameters.  Companies  pursuing
liquid  crystal on  silicon  technology  include  Microdisplay  Corporation  and
Brillian Corporation, among others, although most of the companies are primarily
focusing on  projection  microdisplays,  which do not compete  directly with the
company.  In certain  markets,  we may also face  competition from developers of
transmissive liquid crystal displays, such as those developed by Kopin, or laser
scanning systems, such as those developed by Microvision Corporation.

     To our knowledge,  the only other company that has publicly stated plans to
develop OLED microdisplays for near-eye  applications is MicroEmissive  Displays
in Britain.  We may also compete with potential  licensees of Universal  Display
Corporation, Cambridge Display Corporation, and Uniax Corporation, each of which
license OLED technology  portfolios.  Even though we could  potentially  license
technology from these developers,  potential  competitors could also obtain such
licenses and may do so at more  favorable  royalty rates.  However,  should they
decide to embark on  developing  microdisplays  on silicon,  we believe that our
progress to date in this area gives us a substantial head start.

     Our microdisplays and head-wearable display systems may face competition on
a price and performance  basis from major  manufacturers  such as Sony and Seiko
Epson.  However,   these  companies  use  first  generation  liquid  crystal  on
polysilicon  technology and therefore,  we believe that they may incorporate our
technology into their products when it becomes available.

Employees

     As of March  5,  2004,  we had a total  of 47 full  time,  part  time,  and
temporary staff,  including 6 employees at Virtual Vision. None of our employees
are represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good.

ITEM 2. DESCRIPTION OF PROPERTY

     Our  principal  executive  offices are located at: 2070 Route 52,  Hopewell
Junction,  New York 12533.  We lease  approximately  40,000 square feet of space
from IBM,  all of which is located in the same  industrial  park.  Approximately
30,000  square  feet of space  houses our own  equipment  for OLED  microdisplay
fabrication, and for research and development plus additional space for assembly
operations and storage. There are space reductions planned as we look to improve
efficiency  and costs.  Approximately  10,000  square  feet of space is used for
administrative offices.

     Our lease  expired in March of 2004.  As a result we  currently  occupy the
same space on a month to month basis for approximately $69,000 per month. We are
currently in negotiations for a new lease.

     Our  lenses and  system  development  operation  at  Virtual  Vision  lease
approximately 7,000 square feet of space in Redmond,  Washington.  The lease for
this facility runs until December 2004.

                                       21

     During  March 2004 we upgraded  our  telecommunication  system to a digital
system,  and our  phone  and fax  numbers  changed.  eMagin  Corporation's  main
telephone  number is (845)  838-7900 and our main fax number is (845)  838-7901.
Our website address is www.emagin.com.

ITEM 3. LEGAL PROCEEDINGS

         We are not a party to any material legal proceedings.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

         None
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's  Common Stock has traded on the American Stock Exchange under
the symbol "EMA" since March 17, 2000.  From November 18, 1997 to March 16, 2000
our common stock had been quoted on the OTC Bulletin  Board under our prior name
"Fashion  Dynamics Corp." under the symbol "FSHD." Prior to January 2000,  there
had been no public trading of FSHD.

     As of March 30, 2004, there were 480 holders of record of 62,996,760 shares
of Common Stock.  This does not reflect those shares held  beneficially or those
shares held in "street" name.

     The Company has never  declared or paid cash dividends on the Common Stock.
The Company  currently  anticipates  that it will retain all future  earnings to
fund the operation of its business and does not anticipate  paying  dividends on
the Common Stock in the foreseeable future.

     The table below sets fort the high and low closing  prices per share of the
common stock for each full quarterly period in the last two fiscal years and the
year to date as reported on the  American  Stock  Exchange  and the OTC Bulletin
Board.  With  respect  to  OTC  Bulletin  Board  quotes,  these  prices  reflect
inter-dealer prices, without retail mark-up, markdown or commissions and may not
represent actual transactions.


                                                                                 High           Low
       ------------------------------------------------------------------- ----------------- ----------
                                                                                          
       2002
       ------------------------------------------------------------------- ----------------- ----------
              First Quarter                                                  $    1.75        $  0.42
       ------------------------------------------------------------------- ----------------- ----------
              Second Quarter                                                 $    0.89        $  0.20
       ------------------------------------------------------------------- ----------------- ----------
              Third Quarter                                                  $    0.54        $  0.20
       ------------------------------------------------------------------- ----------------- ----------
              Fourth Quarter                                                 $    0.40        $  0.17
       ------------------------------------------------------------------- ----------------- ----------

       ------------------------------------------------------------------- ----------------- ----------
       2003
       ------------------------------------------------------------------- ----------------- ----------
              First Quarter                                                  $    1.00        $  0.33
       ------------------------------------------------------------------- ----------------- ----------
              Second Quarter                                                 $    0.85        $  0.50
       ------------------------------------------------------------------- ----------------- ----------
              Third Quarter                                                  $    1.99        $  0.51
       ------------------------------------------------------------------- ----------------- ----------
              Fourth Quarter                                                 $    1.74        $  1.15
       ------------------------------------------------------------------- ----------------- ----------

       ------------------------------------------------------------------- ----------------- ----------
       2004
       ------------------------------------------------------------------- ----------------- ----------
           Through March 31, 2004                                            $    3.15        $  1.40
       ------------------------------------------------------------------- ----------------- ----------


On March 31, 2004, the last sale price for the Common Stock was $2.09.

Equity Compensation Plan Information

                                       22



------------------------------------ ------------------------ ---------------------- ------------------------
           Plan category              Number of securities      Weighted average      Number of securities
                                        to be issued upon       exercise price of    remaining available for
                                           exercise of        outstanding options,       future issuance
                                      outstanding options,     warrants and rights
      As of December 31, 2003          warrants and rights

------------------------------------ ------------------------ ---------------------- ------------------------
                                               (a)                    (b)                      (c)
------------------------------------ ------------------------ ---------------------- ------------------------
                                                                                   
Equity compensation plans approved         12,148,570            $    0.53                  2,091,437
by security holders

Equity compensation plans not                   0                      0.0                      0
approved by security holders
------------------------------------ ------------------------ ---------------------- ------------------------
Total                                      12,148,570            $    0.53                  2,091,437
==================================== ======================== ====================== ========================

                                       23

         Recent Issuances of Unregistered Securities.

         None for the fourth quarter of the fiscal year ended December 31, 2003.

         The following issuances occurred subsequent to December 31, 2003:

     On January 9, 2004, we entered into a Securities  Purchase  Agreement  with
several  accredited  institutional  and private investors whereby such investors
purchased  an  aggregate  of  3,333,364  shares of common stock for an aggregate
purchase price of $4,200,039.

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

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

     In February  2004, we entered into an agreement  whereby the holders of our
Secured Convertible Notes (the "Notes"),  which are due in November 2005, agreed
to an early  conversion of 100% of the $7.825  million  principal  amount of the
Notes,  together  with the  $742,424  of accrued  interest  on the  Notes,  into
11,394,621 shares of common stock of eMagin.  The listing of the shares issuable
pursuant to such  agreement was approved by the American Stock Exchange on March
3, 2004.

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

     The issuance of the shares and the  warrants  was exempt from  registration
requirements  of the  Securities  Act of 1933  pursuant to Section  4(2) of such
Securities  Act  and  Regulation  D  promulgated   thereunder   based  upon  the
representations  of each of the Investors that it was an  "accredited  investor"
(as defined  under Rule 501 of  Regulation  D) and that it was  purchasing  such
securities  without a present view toward a distribution of the  securities.  In
addition,  there was no general  advertisement  conducted in connection with the
sale of the securities.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

INTRODUCTION

     The  following  discussion  of our  financial  condition and results of our
operations should be read in conjunction with the Financial Statements and Notes
thereto.  Our fiscal year ends  December  31.  This  document  contains  certain
forward-looking  statements including,  among others,  anticipated trends in our
financial  condition and results of operations and our business  strategy.  (See
"Factors Which May Affect Future Results"). These forward-looking statements are
based largely on our current  expectations  and are subject to a number of risks
and   uncertainties.   Actual  results  could  differ   materially   from  these
forward-looking  statements.  Important  factors to

                                       24

consider in evaluating such  forward-looking  statements  include (i) changes in
external factors or in our internal  budgeting process which might impact trends
in our results of operations;  (ii) unanticipated  working capital or other cash
requirements;  (iii) changes in our business strategy or an inability to execute
our strategy due to unanticipated changes in the industries in which we operate;
and (iv)  variouscompetitive  market  factors that may prevent us from competing
successfully in the marketplace.

Overview

     We  design  and  manufacture  miniature  displays,  which  we  refer  to as
OLED-on-silicon-microdisplays,  and  microdisplay  modules for virtual  imaging,
primarily  for   incorporation   into  the  products  of  other   manufacturers.
Microdisplays  are typically  smaller than many postage stamps,  but when viewed
through a  magnifier  they can  contain all of the  information  appearing  on a
high-resolution  personal  computer screen.  Our microdisplays use organic light
emitting diodes, or OLEDs,  which emit light themselves when a current is passed
through the device. Our technology permits OLEDs to be coated onto silicon chips
to produce high resolution OLED-on-silicon microdisplays.

     We  believe  that  our  OLED-on-silicon  microdisplays  offer a  number  of
advantages  in near to the eye  applications  over  other  current  microdisplay
technologies,  including lower power requirements, less weight, fast video speed
without flicker, and wider viewing angles. In addition,  many computer and video
electronic  system  functions  can be built  directly  into the  OLED-on-silicon
microdisplay,  resulting in compact  systems with lower expected  overall system
costs relative to alternate microdisplay technologies.

     Since our  inception in 1996,  we derived the majority of our revenues from
fees paid to us under  research and  development  contracts,  primarily with the
U.S.  federal  government.   We  have  devoted  significant   resources  to  the
development and commercial launch of our products.  We commenced limited initial
sales of our SVGA+  microdisplay in May 2001 and commenced  shipping  samples of
our SVGA-3D  microdisplay  in February  2002.  As of December 31,  2003,  we had
recognized  an  aggregate  of  approximately  $4.3  million  from  sales  of our
products,  and have a backlog of more than $30 million in  products  ordered for
delivery  through  2005.  These  products are being  applied or  considered  for
near-eye and headset  applications in products such as entertainment  and gaming
headsets, handheld Internet and telecommunication  appliances,  viewfinders, and
wearable computers to be manufactured by original  equipment  manufacturer (OEM)
customers.  We have also shipped a limited number of prototypes of our eGlass II
Head-wearable   Display  systems.  In  addition  to  marketing   OLED-on-silicon
microdisplays  as  components,  we also  offer  microdisplays  as an  integrated
package,  which we call Microviewer that includes a compact lens for viewing the
microdisplay and electronic interfaces to convert the signal from our customer's
product  into a viewable  image on the  microdisplay.  Through our wholly  owned
subsidiary,  Virtual Vision, Inc., we are also developing head-wearable displays
that incorporate our Microviewer.

     We  license  our  core  OLED  technology  from  Eastman  Kodak  and we have
developed  our  own  technology  to  create  high  performance   OLED-on-silicon
microdisplays and related optical systems.  We believe our technology  licensing
agreement  with  Eastman  Kodak,  coupled  with  our own  intellectual  property
portfolio,   gives  us  a  leadership   position  in  OLED  and  OLED-on-silicon
microdisplay  technology.  We are the only company to  demonstrate  publicly and
market full-color OLED-on-silicon microdisplays.

Company History

     Our history has been as a  developmental  stage  company.  As of January 1,
2003,  we were no longer  classified  as a development  stage  company.  We have
transitioned to manufacturing  our product and intend to significantly  increase
our  marketing,  sales,  and research and  development  efforts,  and expand our
operating  infrastructure.  Most of our operating expenses are fixed in the near
term. If we are unable to generate significant  revenues,  our net losses in any
given period could be greater than expected.

CRITICAL ACCOUNTING POLICIES

     The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require  application  of  management's  most  difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the  effect of matters  that are  inherently  uncertain  and may change in
subsequent periods.

                                       25


     Not all of the accounting  policies  require  management to make difficult,
subjective or complex judgments or estimates.  However,  the following  policies
could be deemed to be critical within the SEC definition.

Revenue and Cost Recognition

     Revenue on product  sales is  recognized  when  persuasive  evidence  of an
arrangement  exists,  such as when a purchase order or contract is received from
the customer,  the price is fixed, title to the goods has changed and there is a
reasonable  assurance of collection  of the sales  proceeds.  We obtain  written
purchase  authorizations from our customers for a specified amount of product at
a  specified  price  and  consider  delivery  to have  occurred  at the  time of
shipment.  Revenue  is  recognized  at  shipment  and we  record a  reserve  for
estimated  sales  returns,  which is  reflected as a reduction of revenue at the
time of revenue recognition.

     Revenues  from  research  and  development   activities  relating  to  firm
fixed-price  contracts are generally recognized on the  percentage-of-completion
method of accounting as costs are incurred  (cost-to-cost basis).  Revenues from
research and development activities relating to cost-plus-fee  contracts include
costs  incurred  plus a  portion  of  estimated  fees or  profits  based  on the
relationship of costs incurred to total estimated costs.  Contract costs include
all direct  material and labor costs and an  allocation  of  allowable  indirect
costs as defined by each contract,  as periodically  adjusted to reflect revised
agreed upon rates. These rates are subject to audit by the other party.  Amounts
can be  billed  on a  bi-monthly  basis.  Billing  is based on  subjective  cost
investment factors.

Use of estimates:

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  as well as the  reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.  These  estimates  and  assumptions  relate to recording net revenue,
collectibility of accounts receivable, and the realizability of other intangible
assets,  accruals,  income  taxes,  inventory  realization  and  other  factors.
Management  has  exercised  reasonable  judgment  in deriving  these  estimates;
however, actual results could differ from these estimates.  Consequently, change
in conditions could affect our estimates.

Fair value of financial instruments:

     We have various  financial  instruments,  including cash, cash equivalents,
accounts  receivable,  accounts payable and capitalized  lease  obligations.  We
believe the carrying  values of our  financial  instruments  approximate  their
values.  The carrying amount of the short- and long-term debt  approximates fair
value at  December  31, 2003 based on interest  rates  available  to us and debt
instruments with similar terms.

Results of Operations

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues
Revenues increased by $0.5 million to a total of $2.6 million for the year ended
December  31,  2003 from $2.1  million  for the year ended  December  31,  2002,
representing  an  increase  of  21%.  This  increase  was due  primarily  to the
transitioning from research and development to product  manufacturing and sales.
Our contract  revenue  decreased  approximately  $0.5 million  while our product
revenue increased approximately $1.0 million.

Cost of Goods  Sold
Cost of goods sold includes direct and indirect costs associated with production
and  inventory  losses.  In  the  year  ended  December  31,  2003  we  recorded
approximately  $5.1 million in cost of goods sold which resulted in a gross loss
of $2.6 million.  We expect to prorate a gross profit as we make improvements to
our  production  line and production  staff and increase the  utilization of our
production  line. In 2003  production was running at a very small portion of our
fabrication line's capacity.  We have no relevant  production amounts to compare
to, as in 2002 production was at a sampling level.

                                       26

Research and Development Expenses
Gross research and development  expenses decreased by $7.3 million to a total of
$19 thousand for the year ended December 31, 2003 from $7.3 million for the year
ended  December 31, 2002,  representing a 100%  decrease.  Of these amounts,  we
received $0 in cost sharing from the U.S. government for the year ended December
31,  2003,  and $0.3  million for the year ended  December  31,  2002.  The $7.3
million  decrease in R&D expenses for the year ended  December 31, 2003 reflects
reduction in staffing and reduction in expenditures  related to significant cost
reduction measures undertaken by the company in 2002 and 2003.

Amortization of Purchased Intangibles
Amortization of purchased  intangibles expense decreased by $1.0 million to $0.3
million  for the year ended  December  31,  2003 from $1.3  million for the year
ended December 31, 2002. The decrease is the result of our purchase  intangibles
being fully amortized as of March 2003.

Gain on Debt Restructuring
In 2003 we were  successful in negotiating  with our creditors to reduce amounts
currently owed to them and future  contractual  obligations.  For the year ended
December 31, 2003 we recorded ($4.6) million in gain on debt  restructuring.  We
also negotiated our lease payments down from  approximately $0.3 million a month
to approximately $10 thousand a month.

Non-Cash Stock Based Compensation
Non-cash stock based compensation for the year ended December 31, 2003 increased
$0.6 million to a total of $2.2 million as compared to $1.6 million for the year
ended  December  31, 2002.  This  increase is  primarily  due to the  difference
between the strike  price of the options set at the market price when granted in
October  2002 and the  price of the  Company's  stock on July 2,  2003  when the
options granted in October 2002 were issued under the 2003 Employee Stock Option
Plan. Non-cash stock-based  compensation costs are the result of amortization of
the  intrinsic  value  ascribed for the issuance of stock options at the time of
grant. The amortization is done over the vesting period of such options.

Selling, General and Administrative Expenses
General and administrative expenses decreased by $1.4 million to a total of $3.1
million  for the year ended  December  31,  2003 from $4.5  million for the year
ended  December 31, 2002.  The decrease in selling,  general and  administrative
expenses was due primarily to reductions in personnel costs, patent filings, and
legal fees. We expect marketing,  general and administrative expense to increase
in future periods as we add to our sales staff and make  additional  investments
in marketing activities.

Other Income (Expense)
Other  expenses  decreased by $1.2 million to a total of ($1.1)  million for the
year ended December 31, 2003 from ($2.3) million for the year ended December 31,
2002. The decrease was due primarily to decreased beneficial  conversion of debt
recorded as interest expense.

     The following  provides a reconciliation of information used in calculating
the per share amounts for the year ended December 31, 2003 and 2002.

                    Loss attributable to common shareholders

                     (In thousands except per share amounts)

                                                   2003               2002
                                                   ----               ----
  Net loss                                       $ (4,723)           $ (14,913)
                                            =============== ====================

  Weighted average shares outstanding              35,998               29,417
                                            =============== ====================

  Basic and diluted loss per common share         $ (0.13)             $(0.51)
                                            =============== ====================

                                       27

Balance Sheet Data as of December 31, (In thousands)
                                         2003                2002
----------------------------------- ------------------ ------------------
Cash and cash equivalents                    $  1,054           $     83
----------------------------------- ------------------ ------------------
Working capital (deficit)                        (106)           (13,601)
----------------------------------- ------------------ ------------------
Total assets                                    3,749              1,834
----------------------------------- ------------------ ------------------
Total liabilities                               8,516             14,642
----------------------------------- ------------------ ------------------
Total capital deficiency                     $ (4,767)          $(12,808)
----------------------------------- ------------------ ------------------

Liquidity and Capital Resources

Current Financial Position

In April 2003,  we closed on a $6.0  million  financing  and in January  2004 we
closed on a $4.2  million  financing.  We  estimate  that these are the  minimum
amount of funds that we require  to  support us until we begin  realizing  sales
from production in sufficient  amount to become  profitable  through  production
alone.  As of March 30, 2004 we  currently  have  approximately  $4.7 million in
cash-on-hand.  We have  made  strategic  purchases  of raw  materials  and hired
additional  production  personnel  to  support  our  continued  ramp  up of  our
production line. We believe with these  investments,  our continued  increase of
sales and marketing  effort,  and cash flow from the  exercising of warrants and
options,  we are in a strong  position  to  complete  our plan to meet our sales
goals.

We currently  anticipate that we will continue to experience  significant growth
in our  operating  expenses for the  foreseeable  future and that our  operating
expenses will be the principal  use of our cash. In  particular,  we expect that
salaries for employees engaged in production  operations,  purchase of inventory
and expenses of increased  sales and  marketing  efforts  would be the principle
uses of cash. We expect that our cash  requirements over the next 12 months will
be met by our cash on hand and funds  generated by operations.  In addition,  we
hope to continue to devote substantial resources to manufacturing, marketing and
selling our products.

We have  received  purchase  agreements  for our  products to be  delivered  now
through 2004 and into early 2005.  Management  believes  that the  prospects for
growth of product revenue remain high.

We are currently  ramping up our  production,  which progress was impeded by our
cash position earlier in the year.  Anticipated increased shipments in the first
quarter were delayed,  primarily due to our inability to purchase raw materials.
As a result,  our customer  schedules  had been pushed out due to our  financing
issues, but these shipments were renegotiated once the funding was committed. We
were able to produce  quantities  in the late third  quarter of 2003.  We do not
currently  anticipate any significant  loss of business as a result of our prior
financing  related  product  ramp  delays,  other  than the  shift  in  delivery
schedules. We have been increasing supplies and staffing quickly and efficiently
to meet the anticipated shipping schedules.

Our cash requirements  depend on numerous factors,  including  completion of our
new product  development  activities,  ability to  commercialize  our  products,
timely market acceptance of our products and our customer's  product,  and other
factors.  We expect to  carefully  devote  capital  resources  to  continue  our
development  programs  directed at  commercializing  our  products in our target
markets,  hire and train additional  staff,  expand our research and development
activities,  develop and expand our manufacturing  capacity and begin production
activities.  Any delays could change the cash requirements of the company. While
we believe that we are in position to handle a significant  production increase,
there can be no assurance  that we will not experience  some issues  relating to
yield and throughput  risk, as well as supply delivery risk that could result in
production delays.

                                       28

Subsequent Events

January 2004 - Equity Financing

In January 2004, we entered into a Securities  Purchase  Agreement  with several
accredited institutional investors  (collectively,  the "Investors") whereby the
Investors  agreed to purchase an  aggregate  of  approximately  $4.2  million in
exchange for an aggregate of approximately 3.3 million shares of common stock.

The purchased  shares were priced at a 20% discount to the average closing price
of the stock from December 30, 2003 to January 6, 2004,  which ranged from $1.38
to $1.94 per share  during the  period  for a purchase  price of $1.26 per share
after the 20% discount. In addition, the investors received warrants to purchase
an aggregate of 2.0 million  shares of common  stock  (subject to  anti-dilution
adjustments)  exercisable at a price of $1.74 per share for a period of five (5)
years. The warrants were priced at a 10% premium to the average closing price of
the stock for the period.

In connection with the private placement,  we also issued additional warrants to
the investors to acquire 2.3 million shares of common stock. 1.2 million of such
warrants  are  exercisable,  within 6  months  from  the  effective  date of the
registration statement covering these securities,  at a price of $1.74 per share
(a 10% premium to the average  closing  price of the stock for the period),  and
1.1 million of such warrants are exercisable within 12 months from the effective
date of the  registration  statement  covering these  securities,  at a price of
$1.90 per share (a 20% premium to the average closing price of the stock for the
period).

At December  31,  2003,  we had  $1,118,753  and  $511,796 of  unamortized  debt
discount and beneficial  conversion  feature in connection  with the Notes.  The
beginning balance at the conversion date will be charged to operations.

In connection  with the  completion  of the  transactions  under the  Securities
Purchase  Agreement,  we also entered into a Registration Rights Agreement dated
as of January 9, 2004 providing the Investors with certain  registration  rights
under the  Securities  Act of 1933,  as amended,  with respect to the  Company's
common stock issued and the common stock issuable upon exercise of the Warrants.

February 2004 - Conversion of April 2003 Notes

In  February  2004,  we entered  into an  agreement  whereby  the holders of our
Secured Convertible Notes (the "Notes"),  which are due in November 2005, agreed
to an early  conversion of 100% of the principal  amount of the Notes,  together
with all of the accrued interest on the Notes,  into 11,394,621 shares of common
stock of eMagin.  The listing of the shares issuable  pursuant to such agreement
was approved by the American Stock Exchange on March 3, 2004.  This debt, net of
the unamortized portion of debt discount and the beneficial feature, is shown as
a long-term liability in the consolidated balance sheet.

The principal amount of the Notes,  which were all issued pursuant to the Global
Restructuring  and Secured Note Purchase  Agreement  dated as of April 25, 2003,
was $7.825  Million.  This amount  included  $6.0 Million of new notes issued in
April 2003 and $1.825 million of amended and restated notes that were originally
between  November 2001 and June 2002. In addition,  the accrued  interest on the
Notes totaled $742,424. The conversion prices for the Notes were set at the time
of their initial issuance.

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

                                       29

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


EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In  November  2002,  the EITF  reached a consensus  on Issue  00-21  ("EITF
00-21"),  "Multiple-Deliverable  Revenue Arrangements." EITF 00-21 addresses how
to account for  arrangements  that may involve the  delivery or  performance  of
multiple products, services, and/or rights to use assets. The consensus mandates
how to  identify  whether  goods or  services  or both that are to be  delivered
separately in a bundled  sales  arrangement  should be accounted for  separately
because  they are  separate  units of  accounting.  The  guidance can affect the
timing of revenue  recognition  for such  arrangements,  even though it does not
change  rules  governing  the  timing  or  pattern  of  revenue  recognition  of
individual  items  accounted  for  separately.   The  final  consensus  will  be
applicable to agreements entered into in fiscal periods beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted to
apply the  consensus  guidance to all existing  arrangements  as the  cumulative
effect of a change in accounting  principle in  accordance  with APB Opinion No.
20,  "Accounting  Changes." Upon adoption of EIFT 00-21,  there was no effect on
its financial position, cash flows or results of operations.

In January 2003,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
interpretation  No.  46R  ("FIN  46R"),   "Consolidation  of  Variable  Interest
Entities."  Until this  interpretation,  a company  generally  included  another
entity in its consolidated financial statements only if it controlled the entity
through  voting  interests.  FIN 46R  requires a variable  interest  entity,  as
defined,  to be  consolidated  by a company  if that  company  is  subject  to a
majority of the risk of loss from the variable interest  entity's  activities or
is entitled  to receive a majority of the  entity's  residual  returns.  Certain
provisions of FIN46R were deferred until the period ending after March 15, 2004.
The adoption of FIN 46R for  provisions  effective  during 2003 has no impact on
the Company's financial position, cash flows or result of operations.

     On April 30,  2003,  the FASB issued  Statement  No. 149 ("SFAS No.  149"),
"Amendment of Statement 133 on Derivative  Instruments and Hedging  Activities."
SFAS No.  149  amends  and  clarifies  accounting  for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities  under  Statement  No. 133. In  particular,  this  statement
clarifies  under what  circumstances  a contract with an initial net  investment
meets the  characteristic of a derivative as discussed in Statement No. 133, and
it clarifies  when a derivative  contains a financing  component  that  warrants
special  reporting in the statement of cash flows. SFAS No. 149 is effective for
contracts  entered  into or  modified  after  June  30,  2003  and  for  hedging
relationships designated after June 30, 2003 and is to be applied prospectively.
Upon adoption of SFAS No. 149,  there was no effect on its  financial  position,
cash flows or results of operations.

     On May 15,  2003,  the FASB  issued  Statement  No.  150 ("FAS  No.  150"),
Accounting  for  Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities  and Equity.  FAS No. 150  establishes  standards  for how an issuer
classifies and measures certain financial  instruments with  characteristics  of
both  liabilities  and equity.  It requires that an issuer  classify a financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances).  FAS No. 150 affects the issuer's  accounting for three types of
freestanding financial instruments.

     o    mandatorily  redeemable shares, which the issuing company is obligated
          to buy back in exchange for cash or other assets

     o    instruments  that do or may require the issuer to buy back some of its
          shares in exchange for cash or other assets;  includes put options and
          forward purchase contracts

     o    obligations  that can be settled  with shares,  the monetary  value of
          which is fixed,  tied solely or  predominantly to a variable such as a
          market  index,  or varies  inversely  with the  value of the  issuers'
          shares.

     FAS No. 150 does not apply to features  embedded in a financial  instrument
that is not a derivative in its entirety. Most of the guidance in FAS No. 150 is
effective for all financial  instruments  entered into or modified after

                                       30

May 31, 2003,  and  otherwise is effective at the beginning of the first interim
period  beginning  after June 15, 2003. Upon adoption of SFAS No. 150, there was
no effect on its financial position, cash flows or results of operations.

Factors Which May Affect Future Results

     In evaluating our business,  prospective  investors and shareholders should
carefully consider the risks factors, any of which could have a material adverse
impact on our business,  operating results and financial condition and result in
a complete loss of your investment.

RISKS RELATED TO OUR FINANCIAL RESULTS

IF WE DO NOT OBTAIN  ADDITIONAL  CASH TO OPERATE OUR BUSINESS,  WE MAY NOT BE
ABLE TO EXECUTE OUR BUSINESS PLAN AND MAY NOT ACHIEVE PROFITABILITY

In the event that cash flow from operations is less than  anticipated and we are
unable to secure additional funding to cover our expenses,  in order to preserve
cash, we would be required to further  reduce  expenditures  and effect  further
reductions  in our  corporate  infrastructure,  either  of  which  could  have a
material  adverse  effect  on our  ability  to  continue  our  current  level of
operations. To the extent that operating expenses increase or we need additional
funds to make  acquisitions,  develop  new  technologies  or  acquire  strategic
assets,  the need for additional  funding may be accelerated and there can be no
assurances that any such additional  funding can be obtained on terms acceptable
to us, if at all. If we are not able to generate sufficient capital, either from
operations or through  additional debt or equity financing,  to fund our current
operations,  we will be  forced to  significantly  reduce or delay our plans for
continued  research and  development  and  expansion.  This could  significantly
reduce the value of our  securities,  which could result in our de-listing  from
the American Stock Exchange and cause investment losses for our shareholders.

WE MAY NOT BE ABLE TO SATISFY THE AMERICAN STOCK EXCHANGE'S CONTINUED LISTING
REQUIREMENTS.

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

     We will be  subject  to  periodic  review  by the  AMEX  staff  during  the
extension  period.  During this time, we must make progress  consistent with the
terms of the plan or maintain  compliance with the continued listing  standards.
Other as yet  unidentified  issues  may arise that  could  adversely  affect the
financial or the potential listing status of the company.

WE HAVE A HISTORY OF LOSSES SINCE OUR INCEPTION AND MAY INCUR LOSSES FOR THE
FORESEEABLE FUTURE.

     Accumulated losses excluding non-cash transactions as of December 31, 2003,
were $34.4 million and acquisition  related  non-cash  transactions  were $101.9
million,  which  resulted  in an  accumulated  net loss of $136.3  million,  the
majority  of which was  related  to the March  2000  merger  and the  subsequent
write-down  of  our  goodwill.   The  non-cash  losses  were  dominated  by  the
amortization and write-down of goodwill and purchased intangibles and write-down
of  acquired  in  process  research  and  development  related to the March 2000
acquisition,  and also included some non-cash stock-based compensation.  We have
not  yet  achieved  profitability  and we can  give no  assurances  that we will
achieve  profitability  within the  foreseeable  future as we fund operating and
capital  expenditures in areas such as  establishment  and expansion of markets,
sales and marketing, operating equipment and

                                       31

research and  development.  We cannot assure investors that we will ever achieve
or sustain  profitability  or that our operating losses will not increase in the
future.

WE WERE PREVIOUSLY PRIMARILY DEPENDENT ON U.S. GOVERNMENT CONTRACTS.

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

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

     We rely on our license  agreement with Eastman Kodak for the development of
our products, and the termination of this license,  Eastman Kodak's licensing of
its OLED technology to others for microdisplay applications, or the sublicensing
by Eastman Kodak of our OLED technology to third parties,  could have a material
adverse impact on our business.

     Our principal  products under  development  utilize OLED technology that we
license from Eastman  Kodak.  We rely upon Eastman  Kodak to protect and enforce
key patents held by Eastman Kodak, relating to OLED display technology.  Eastman
Kodak's patents expire at various times in the future.  Our license with Eastman
Kodak could  terminate if we fail to perform any material term or covenant under
the license  agreement.  Since our license from Eastman Kodak is  non-exclusive,
Eastman Kodak could also elect to become a competitor  itself or to license OLED
technology  for  microdisplay  applications  to others who have the potential to
compete  with us. The  occurrence  of any of these  events could have a material
adverse impact on our business.

WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS.

     We rely on a combination  of patents,  trade secret  protection,  licensing
agreements  and other  arrangements  to  establish  and protect our  proprietary
technologies.  If we fail to  successfully  enforce  our  intellectual  property
rights,  our competitive  position could suffer,  which could harm our operating
results.  Patents may not be issued for our current patent  applications,  third
parties  may  challenge,  invalidate  or  circumvent  any  patent  issued to us,
unauthorized  parties  could  obtain  and  use  information  that we  regard  as
proprietary  despite  our  efforts to protect  our  proprietary  rights,  rights
granted under patents issued to us may not afford us any competitive  advantage,
others  may  independently  develop  similar  technology  or design  around  our
patents,  our  technology  may be available to licensees of Eastman  Kodak,  and
protection of our intellectual property rights may be limited in certain foreign
countries.  We may be required to expend  significant  resources  to monitor and
police our intellectual property rights. Any future infringement or other claims
or  prosecutions  related  to our  intellectual  property  could have a material
adverse effect on our business. Any such claims, with or without merit, could be
time  consuming  to defend,  result in costly  litigation,  divert  management's
attention  and  resources,  or  require us to enter  into  royalty or  licensing
agreements.  Such  royalty or  licensing  agreements,  if  required,  may not be
available  on terms  acceptable  to us, if at all.  Protection  of  intellectual
property has  historically  been a large yearly expense for eMagin.  We have not
been  in a  financial  position  to  properly  protect  all of our  intellectual
property,  and may not be in a position to properly protect our position or stay
ahead  of  competition  in new  research  and the  protecting  of the  resulting
intellectual property.

RISKS RELATED TO THE MICRODISPLAY INDUSTRY

THE COMMERCIAL SUCCESS OF THE MICRODISPLAY INDUSTRY DEPENDS ON THE WIDESPREAD
MARKET ACCEPTANCE OF MICRODISPLAY SYSTEMS PRODUCTS.

     The market for  microdisplays  is  emerging.  Our  success  will  depend on
consumer   acceptance   of   microdisplays   as  well  as  the  success  of  the
commercialization of the microdisplay market. As an OEM supplier, our customer's
products must also be well  accepted.  At present,  it is difficult to assess or
predict with any assurance the

                                       32

potential size, timing and viability of market  opportunities for our technology
in this market.  The viewfinder  microdisplay  market sector is well established
with entrenched competitors with whom we must compete.

THE MICRODISPLAY SYSTEMS BUSINESS IS INTENSELY COMPETITIVE.

     We do business in intensely  competitive  markets that are characterized by
rapid technological change,  changes in market requirements and competition from
both other suppliers and our potential OEM customers. Such markets are typically
characterized by price erosion. This intense competition could result in pricing
pressures,  lower sales, reduced margins, and lower market share. Our ability to
compete successfully will depend on a number of factors, both within and outside
our control. We expect these factors to include the following:

     o    our success in designing,  manufacturing  and delivering  expected new
          products,  including those  implementing  new technologies on a timely
          basis;

     o    our ability to address the needs of our  customers  and the quality of
          our customer services;

     o    the  quality,  performance,  reliability,  features,  ease  of use and
          pricing of our products;

     o    successful expansion of our manufacturing capabilities;

     o    our  efficiency of  production,  and ability to  manufacture  and ship
          products on time;

     o    the  rate  at  which  original   equipment   manufacturing   customers
          incorporate our product solutions into their own products;

     o    the market acceptance of our customers' products; and

     o    product or technology introductions by our competitors.

     Our  competitive  position  could be damaged if one or more  potential  OEM
customers decide to manufacture their own microdisplays, using OLED or alternate
technologies.  In  addition,  our  customers  may  be  reluctant  to  rely  on a
relatively  small  company  such as eMagin for a critical  component.  We cannot
assure  you that we will be able to compete  successfully  against  current  and
future  competition,  and the failure to do so would have a  materially  adverse
effect upon our business, operating results and financial condition.

THE DISPLAY INDUSTRY IS CYCLICAL.

     The display  industry  is  characterized  by  fabrication  facilities  that
require  large  capital  expenditures  and long lead times for  supplies and the
subsequent  processing time,  leading to frequent  mismatches between supply and
demand. The OLED microdisplay sector may experience overcapacity if and when all
of the  facilities  presently  in the  planning  stage come on line leading to a
difficult market in which to sell our products.

COMPETING PRODUCTS MAY GET TO MARKET SOONER THAN OURS.

     Our competitors are investing  substantial resources in the development and
manufacture  of  microdisplay  systems using  alternative  technologies  such as
reflective   liquid   crystal   displays   (LCDs),    LCD-on-Silicon    ("LCOS")
microdisplays, active matrix electroluminescence and scanning image systems, and
transmissive active matrix LCDs.

OUR COMPETITORS HAVE MANY ADVANTAGES OVER US.

     As the  microdisplay  market  develops,  we  expect to  experience  intense
competition   from   numerous   domestic   and   foreign   companies   including
well-established  corporations possessing worldwide manufacturing and production
facilities,  greater name  recognition,  larger  retail bases and  significantly
greater financial,  technical,  and marketing resources than us, as well as from
emerging companies  attempting to obtain a share of the various markets in which
our microdisplay products have the potential to compete.

                                       33

OUR PRODUCTS ARE SUBJECT TO LENGTHY OEM DEVELOPMENT PERIODS.

     We plan to sell most of our microdisplays to OEMs who will incorporate them
into products they sell. OEMs determine during their product  development  phase
whether they will  incorporate  our products.  The time elapsed  between initial
sampling of our  products  by OEMs,  the custom  design of our  products to meet
specific  OEM  product  requirements,  and  the  ultimate  incorporation  of our
products into OEM consumer products is significant. If our products fail to meet
our OEM customers' cost,  performance or technical requirements or if unexpected
technical  challenges arise in the integration of our products into OEM consumer
products,  our operating results could be significantly and adversely  affected.
Long  delays  in  achieving  customer  qualification  and  incorporation  of our
products could adversely affect our business.

OUR PRODUCTS WILL LIKELY EXPERIENCE RAPIDLY DECLINING UNIT PRICES.

     In the  markets  in which we  expect  to  compete,  prices  of  established
products  tend to decline  significantly  over time.  In order to  maintain  our
profit margins over the long term, we believe that we will need to  continuously
develop product  enhancements and new  technologies  that will either slow price
declines of our  products or reduce the cost of  producing  and  delivering  our
products. While we anticipate many opportunities to reduce production costs over
time,  there  can be no  assurance  that  these  cost  reduction  plans  will be
successful  nor is there any assurance  that our costs can be reduced as quickly
as any reduction in unit prices.  We may also attempt to offset the  anticipated
decrease in our average  selling price by introducing  new products,  increasing
our sales volumes or adjusting our product mix. If we fail to do so, our results
of operations would be materially and adversely affected.

RISKS RELATED TO MANUFACTURING

WE EXPECT  TO  DEPEND ON  SEMICONDUCTOR  CONTRACT  MANUFACTURERS  TO SUPPLY  OUR
SILICON INTEGRATED CIRCUITS AND OTHER SUPPLIERS OF KEY COMPONENTS, MATERIALS AND
SERVICES.

     We  do  not  manufacture  the  silicon  integrated  circuits  on  which  we
incorporate  our OLED  technology.  Instead,  we expect to  provide  the  design
layouts  to  semiconductor  contract  manufacturers  who  will  manufacture  the
integrated  circuits on silicon wafers. We also expect to depend on suppliers of
a variety of other components and services,  including  circuit boards,  graphic
integrated circuits, passive components,  materials and chemicals, and equipment
support.  Our inability to obtain sufficient  quantities of high quality silicon
integrated  circuits or other necessary  components,  materials or services on a
timely  basis  could  result  in  manufacturing  delays,   increased  costs  and
ultimately in reduced or delayed sales or lost orders which could materially and
adversely affect our operating results.

THE MANUFACTURE OF  OLED-ON-SILICON  IS NEW AND OLED MICRODISPLAYS HAVE NOT BEEN
PRODUCED IN SIGNIFICANT QUANTITIES.

     If we are unable to produce our products in sufficient quantity, we will be
unable to attract  customers.  In  addition,  we cannot  assure you that once we
commence  volume  production we will attain yields at high  throughput that will
result in profitable gross margins or that we will not experience  manufacturing
problems  which  could  result  in  delays in  delivery  of  orders  or  product
introductions.

WE ARE DEPENDENT ON A SINGLE MANUFACTURING LINE.

     We initially  expect to manufacture our products on a single  manufacturing
line.  If we  experience  any  significant  disruption  in the  operation of our
manufacturing facility or a serious failure of a critical piece of equipment, we
may be unable to supply  microdisplays to our customers.  For this reason,  some
OEMs  may  also  be  reluctant  to  commit  a  broad  line  of  products  to our
microdisplays  without a second production  facility in place.  Interruptions in
our  manufacturing  could be caused by  manufacturing  equipment  problems,  the
introduction  of new equipment into the  manufacturing  process or delays in the
delivery of new manufacturing equipment. Lead-time for delivery of manufacturing
equipment  can be  extensive.  No  assurance  can be given that we will not lose
potential  sales  or be  unable  to meet  production  orders  due to  production
interruptions in our manufacturing line. In order to

                                       34

meet the requirements of certain OEMs for multiple  manufacturing sites, we will
have to expend capital to secure  additional sites and may not be able to manage
multiple sites successfully.

RISKS RELATED TO OUR BUSINESS

OUR SUCCESS  DEPENDS ON ATTRACTING  AND RETAINING  HIGHLY  SKILLED AND QUALIFIED
TECHNICAL AND CONSULTING PERSONNEL.

     We must  hire  highly  skilled  technical  personnel  as  employees  and as
independent  contractors in order to develop our products.  The  competition for
skilled  technical  employees  is  intense  and we may not be able to  retain or
recruit such  personnel.  We must compete with  companies  that possess  greater
financial  and other  resources  than we do, and that may be more  attractive to
potential employees and contractors.  To be competitive, we may have to increase
the  compensation,  bonuses,  stock options and other fringe benefits offered to
employees in order to attract and retain such personnel.  The costs of retaining
or attracting new personnel may have a materially adverse affect on our business
and our operating  results.  In addition,  difficulties  in hiring and retaining
technical personnel could delay the implementation of our business plan.

OUR SUCCESS DEPENDS IN A LARGE PART ON THE CONTINUING SERVICE OF KEY PERSONNEL.

     Changes in management could have an adverse effect on our business.  We are
dependent upon the active  participation  of several key  management  personnel,
including  Gary W. Jones,  our chief  executive  officer.  This is especially an
issue  while  the  company  staffing  is small.  We will  also  need to  recruit
additional  management in order to expand according to our business plan. We are
currently  recruiting  a chief  financial  officer.  The  failure to attract and
retain  additional  management or personnel could have a material adverse effect
on our operating results and financial performance.

OUR BUSINESS DEPENDS ON NEW PRODUCTS AND TECHNOLOGIES.

     The market for our products is  characterized  by rapid changes in product,
design and manufacturing  process  technologies.  Our success depends to a large
extent on our ability to develop and manufacture  new products and  technologies
to match the varying requirements of different customers in order to establish a
competitive  position  and  become  profitable.  Furthermore,  we must adopt our
products and processes to technological  changes and emerging industry standards
and practices on a  cost-effective  and timely basis.  Our failure to accomplish
any of the above could harm our business and operating results.

WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS.

     Our business is operated on the basis of short-term  purchase orders and we
cannot  guarantee  that we will be able to obtain  long-term  contracts for some
time.  Our current  purchase  agreements  can be  cancelled  or revised  without
penalty,  depending on the circumstances.  In the absence of a backlog of orders
that can only be  canceled  with  penalty,  we plan  production  on the basis of
internally generated forecasts of demand, which makes it difficult to accurately
forecast revenues.  If we fail to accurately  forecast  operating  results,  our
business may suffer and the value of your investment in the Company may decline.

OUR  BUSINESS  STRATEGY  MAY  FAIL  IF WE  CANNOT  CONTINUE  TO  FORM  STRATEGIC
RELATIONSHIPS  WITH  COMPANIES  THAT  MANUFACTURE  AND USE  PRODUCTS  THAT COULD
INCORPORATE OUR OLED-ON-SILICON TECHNOLOGY.

     Our  prospects  will be  significantly  affected  by our ability to develop
strategic   alliances  with  OEMs  for  incorporation  of  our   OLED-on-silicon
technology  into  their  products.  While we intend  to  continue  to  establish
strategic  relationships  with  manufacturers of electronic  consumer  products,
personal  computers,   chipmakers,   lens  makers,  equipment  makers,  material
suppliers and/or systems assemblers,  there is no assurance that we will be able
to continue to establish and maintain  strategic  relationships  on commercially
acceptable  terms,  or that the  alliances we do enter in to will realize  their
objectives.  Failure  to do so  would  have a  material  adverse  effect  on our
business.

OUR BUSINESS DEPENDS TO SOME EXTENT ON INTERNATIONAL TRANSACTIONS.

                                       35

     We purchase  needed  materials  from  companies  located  abroad and may be
adversely  affected by political and currency  risk,  as well as the  additional
costs of doing business with a foreign entity. Some customers in other countries
have longer  receivable  periods or warranty periods.  In addition,  many of the
OEMs that are the most likely  long-term  purchasers  of our  microdisplays  are
located  abroad  exposing us to additional  political and currency  risk. We may
find it necessary to locate manufacturing  facilities abroad to be closer to our
customers which could give expose us to various risks, including management of a
multi-national organization, the complexities of complying with foreign laws and
customs,  political  instability  and the  complexities  of taxation in multiple
jurisdictions.

OUR BUSINESS MAY EXPOSE US TO PRODUCT LIABILITY CLAIMS.

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

OUR BUSINESS IS SUBJECT TO  ENVIRONMENTAL  REGULATIONS  AND  POSSIBLE  LIABILITY
ARISING FROM POTENTIAL EMPLOYEE CLAIMS OF EXPOSURE TO HARMFUL SUBSTANCES USED IN
THE DEVELOPMENT AND MANUFACTURE OF OUR PRODUCTS.

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

RISKS RELATED TO OUR STOCK

THE  SUBSTANTIAL  NUMBER OF SHARES THAT ARE OR WILL BE  ELIGIBLE  FOR SALE COULD
CAUSE OUR COMMON STOCK PRICE TO DECLINE EVEN IF THE COMPANY IS SUCCESSFUL.

     Sales of significant  amounts of common stock in the public market,  or the
perception that such sales may occur,  could materially  affect the market price
of our common  stock.  These sales might also make it more  difficult  for us to
sell equity or equity-related  securities in the future at a time and price that
we deem  appropriate.  As of March 30, 2004, we have  outstanding (i) options to
purchase 7,242,824 shares; (ii) warrants to purchase 16,178,411 shares of common
stock; and (iii) 0 shares of common stock underlying convertible securities.

WE HAVE A STAGGERED BOARD OF DIRECTORS AND OTHER ANTI-TAKEOVER PROVISIONS, WHICH
COULD INHIBIT POTENTIAL INVESTORS OR DELAY OR PREVENT A CHANGE OF CONTROL THAT
MAY FAVOR YOU.

     Our Board of Directors is divided into three  classes and our Board members
are elected for terms that are staggered.  This could  discourage the efforts by
others  to  obtain  control  of  the  company.  Some  of the  provisions  of our
certificate  of  incorporation,  our bylaws and Delaware law could,  together or
separately,  discourage  potential  acquisition  proposals or delay or prevent a
change in control. In particular,  our board of directors is authorized to issue
up to  10,000,000  shares of  preferred  stock (less any  outstanding  shares of
preferred  stock) with rights and privileges  that might be senior to our common
stock, without the consent of the holders of the common stock.

                                       36

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENT INDEX



                                                                                                      Page
                                                                                                      
Independent auditor's report...........................................................................F-2

Independent auditor's report...........................................................................F-3

Consolidated Balance Sheet as of December 31, 2003.....................................................F-4

Consolidated Statement of Operations for the years ended December 31, 2003 and 2002....................F-5

Consolidated Statements of Capital Deficiency for the years ended December 31,

      2003 and 2002....................................................................................F-6

Consolidated Statement of Cash Flows for the years ended December 31, 2003 and 2002....................F-7

Notes to the Consolidated Financial Statements.........................................................F-8


                                       37

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
eMagin Corporation
Hopewell Junction, New York

We  have  audited  the  accompanying   consolidated   balance  sheet  of  eMagin
Corporation  and  subsidiary  (the  "Company") as of December 31, 2003,  and the
related consolidated statements of operations, capital deficiency and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of eMagin Corporation
and  subsidiary  as of December 31, 2003 and the  consolidated  results of their
operations  and  their  consolidated  cash  flows  for the  year  then  ended in
conformity with accounting principles generally accepted in the United States of
America.


/s/
Eisner LLP
New York, New York
February 13, 2004

With respect to Notes F(b) and O
March 3, 2004

                                       38

                          INDEPENDENT AUDITORS' REPORT


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders of eMagin Corporation:

We  have  audited  the  accompanying   consolidated  statements  of  operations,
shareholders'  equity  (deficit)  and  cash  flows  of  eMagin  Corporation  and
subsidiaries  for the year ended December 31, 2002.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  statement  presentation.  We  believe  that our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  results  of  operations  and cash flows of eMagin
Corporation and subsidiaries in conformity with accounting  principles generally
accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 of the
consolidated  financial  statements on Form 10-K for the year ended December 31,
2002, the Company's  recurring  losses from  operations  since inception and the
working capital deficit raised  substantial  doubt about its ability to continue
as a going  concern.  Management's  plans  concerning  these  matters  were also
described in Note 1 of the  consolidated  financial  statements on Form 10-K for
the year ended December 31, 2002. The consolidated  financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.


/s/ Grant Thornton LLP
----------------------
    Grant Thornton LLP
    New York, New York

April 11, 2003
                                       39



                               eMagin Corporation
                           Consolidated Balance Sheet
                                December 31, 2003


                                                                                                   
       ASSETS
       Current assets:
          Cash and cash equivalents                                                                $     1,053,895
          Trade and contract receivables                                                                   768,537
          Unbilled costs and estimated profits on contracts in progress                                     75,359
          Prepaid expenses and other current assets                                                        287,957
          Inventory                                                                                        275,417
                                                                                               -----------------------
             Total current assets                                                                        2,461,165

       Equipment and leasehold improvements, net of accumulated depreciation of $2,149,991               1,200,939

       Other long-term assets                                                                               86,907

                                                                                               -----------------------
             Total assets                                                                          $     3,749,011
                                                                                               =======================
       LIABILITIES
       Current liabilities:
          Accounts payable                                                                         $       234,869
          Accrued payroll and benefits                                                                     952,850
          Other accrued expenses, net dividends                                                            988,569
          Advanced payments                                                                                122,362
          Current portion of long-term debt                                                                 38,184
          Other current liabilities                                                                         18,008
                                                                                               -----------------------
             Total current liabilities                                                                   2,354,842

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

       Commitments and contingencies

       CAPITAL DEFICIENCY
          Preferred Stock - authorized: 10,000,000 shares, none issued                                           -
          Common Stock - $.001 par value, authorized 200,000,000 shares,
            Issued and outstanding 42,695,412 shares                                                        42,694
          Paid-in surplus                                                                              131,598,910
          Deferred compensation                                                                            (87,565)
          Accumulated deficit                                                                         (136,320,578)
                                                                                               -----------------------
             Total capital deficiency                                                                   (4,766,539)

                                                                                               -----------------------
             Total liabilities and capital deficiency                                              $     3,749,011
                                                                                               =======================

                 See notes to consolidated financial statements


                                       40

                               eMagin Corporation
                      Consolidated Statements of Operations


                                                                          Year Ended December 31,
                                                                          2003              2002
                                                                  ------------------- ----------------
                                                                                      
           Revenue:
             Product revenue                                      $        2,213,290  $     1,314,193
             Contract revenue                                                364,809          840,658
             Sales returns and allowances                                          -          (27,191)
                                                                  ------------------- ----------------
               Total Revenue                                               2,578,099        2,127,660

           Cost of goods sold:
             Costs of goods sold                                           5,141,448                -
                                                                  ------------------- ----------------
           Gross (loss) profit                                            (2,563,349)       2,127,660
                                                                  ------------------- ----------------
           Costs and expenses:
           Research and development, net of funding under cost
             sharing arrangements of $0 and $331,956,
             respectively                                                     18,810        7,254,996
           Amortization of purchased intangibles                             331,442        1,325,796
           Stock based compensation                                        2,183,418        1,646,917
           Selling, general and administrative                             3,197,605        4,506,321
                                                                  ------------------- ----------------
               Total costs and expenses, net                               5,731,275       14,734,030
                                                                  ------------------- ----------------

           Other income (expense):
             Gain on on debt settlement                                    4,637,993                -
             Interest expense                                             (1,283,254)      (2,329,452)
             Other income (expense), net                                     216,570           23,111
                                                                  ------------------- ----------------
           Other income (expense)                                          3,571,309       (2,306,341)
                                                                  ------------------- ----------------
               Net loss                                           $       (4,723,315) $   (14,912,711)
                                                                  =================== ================
           Basic and diluted loss per common share                $            (0.13) $         (0.51)
                                                                  =================== ================
           Weighted average outstanding common stock                      35,998,435       29,416,838
                                                                  =================== ================


                 See notes to consolidated financial statements

                                       41



                               eMagin Corporation
                  Consolidated Statements of Capital Deficiency

                                 ----------------------------------------------------------------------------------
                                   Common       Common     Deferred       Paid-in     Accumulated       Total
                                   Shares        Stock   Compensation     Surplus       Deficit
                                 ----------------------------------------------------------------------------------
                                                                                      
Balance - December 31, 2001         25,171,183  $ 25,171  $(2,277,367) $ 114,058,560   $(116,684,552) $ (4,878,188)
                                 -------------- --------- ------------ -------------- --------------- -------------
Shares issued for financing
round                                4,899,179     4,899                   3,475,619                     3,480,518
Buyout of debt financing               500,000       500                      89,632                        90,132
Warrants issued                                                              140,387                       140,387
Stock issued for consideration          80,000        80                      55,570                        55,650
Stock options exercised                  2,125         2                         885                           887
Stock options issued                                                          35,329                        35,329
Options forfeited                                           1,075,193     (1,075,193)                            -
Finders fee on financing                                                     (35,000)                      (35,000)
Beneficial conversion on
financing                                                                    783,691                       783,691
Original issue discount on
financing                                                                    672,682                       672,682
Issuance of common stock for
services                               202,493       202                     146,716                       146,918
Amortization of deferred
compensation                                                  739,191                                      739,191
Stock based compensation                                                     872,399                       872,399
Net loss for period                                                                      (14,912,711)  (14,912,711)
                                 -------------- --------- ------------ -------------- --------------- -------------
Balance - December 31, 2002         30,854,980    30,854     (462,983)   119,221,276    (131,597,263)  (12,808,115)

Conversion of debt to equity         6,101,972     6,102            -      4,447,996               -     4,454,098
Debt settlement                      1,997,840     1,998            -      1,409,971               -     1,411,969
Exercise of warrants                 1,479,900     1,480            -      1,136,595               -     1,138,075
Cashless exercise of warrants          270,910       271            -           (271)              -             -
Original issue discount on
financing                                    -         -            -      1,383,203               -     1,383,203
Beneficial conversion on
financing                                    -         -            -        616,797               -       616,797
Stock issued for services              656,435       656            -        561,302               -       561,958
Options exercised                      846,793       847            -        279,199               -       280,046
Issuance of equity for interest
and penalties                          486,582       486            -        734,841               -       735,327
Amortization of deferred
compensation                                 -         -      375,418              -               -       375,418
Stock option compensation                    -         -            -      1,808,000               -     1,808,000
Net loss for period                          -         -            -              -      (4,723,315)   (4,723,315)
                                 -------------- --------- ------------ -------------- --------------- -------------
Balance - December 31, 2003         42,695,412  $ 42,694   $  (87,565) $ 131,598,910  $ (136,320,578)  $(4,766,539)
                                 ============== ========= ============ ============== =============== =============

                 See notes to consolidated financial statements

                                       42

                               eMagin Corporation
                      Consolidated Statements of Cash Flows


                                                                                Year Ended December 31,
                                                                               2003                 2002
                                                                       --------------------- --------------------
                                                                                               
Cash flows from operating activities:
Net loss                                                                     $   (4,723,315)        $(14,912,711)
Adjustments to reconcile net loss to net cash used in operating
 activities:
   Depreciation and amortization                                                    552,849            1,842,480
   Amortization of purchased intangibles                                            331,442                    -
   Amortization of financing fees                                                    37,244                    -
   Debt discount amortization and charge for beneficial conversion
   feature                                                                          340,466              783,692
   Stock based compensation                                                       2,183,418            1,646,917
   Interest related charges                                                         915,325            1,446,654
   Related to issuance of warrants                                                        -              140,387
   Gain on debt settlement                                                       (4,637,993)                   -
   Stock issued for services                                                        561,958               25,050
  Changes in:                                                                             -                    -
       Trade receivables                                                           (528,401)             593,300
       Unbilled costs and estimated profits on contracts in progress                 50,000              125,359
       Costs and estimated profits in excess of billings on contracts                     -             (326,291)
       Inventory                                                                    (24,419)             341,718
       Prepaid expenses and other current assets                                   (276,109)             196,371
       Other long-term assets                                                       112,500              139,033
       Advanced payments                                                            122,362             (398,343)
       Deferred revenue                                                             (30,400)              30,400
       Accounts payable, accrued expenses and accrued payroll                      (185,776)           2,738,847
       Other current liabilities                                                     (5,497)                   -
                                                                       --------------------- --------------------
             Net cash used in operating activities                               (5,204,346)          (5,587,137)
                                                                       --------------------- --------------------

Cash flows from investing activities:
   Purchase of equipment                                                         (1,120,256)             (84,745)

Cash flows from financing activities:
   Proceeds from sales of common stock, net of issuance costs                             -            3,475,621
   Proceeds from exercise of stock options and warrants                           1,418,121              141,272
   Proceeds from long- and short-term debt                                        6,000,000            1,443,478
   Payments of long- and short-term debt                                           (122,775)             (43,880)
                                                                       --------------------- --------------------
             Net cash provided by financing activities                            7,295,346            5,016,491
                                                                       --------------------- --------------------


Net increase (decrease) in cash and cash equivalents                                970,944             (655,391)
Cash and cash equivalents - beginning of year                                        82,951              738,342
                                                                       --------------------- --------------------
Cash and cash equivalents - end of year                                      $    1,053,895         $     82,951
                                                                       ===================== ====================

Cash paid for interest                                                       $       15,649

Non-cash transactions:
Conversion of debt to equity                                                 $    4,454,098
Issuance of equity for penalties and interest                                $      735,327
Issuance of equity for settlement of accounts payable                        $    1,411,969




                 See notes to consolidated financial statements

                                       43

                               eMAGIN CORPORATION
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002

Note A - NATURE OF BUSINESS

Fashion  Dynamics  Corporation  ("FDC") was organized on January 23, 1996, under
the laws of the State of Nevada.  FDC had no active  business  operations  other
than to acquire an interest in a business.  On March 16, 2000,  FDC acquired FED
Corporation  ("FED")  (the  "Merger").  The merged  company  changed its name to
eMagin  Corporation  (the  "Company"  or  "eMagin").  eMagin is a developer  and
manufacturer  of optical  systems and  microdisplays  for use in the electronics
industry.  eMagin's wholly-owned  subsidiary,  Virtual Vision Inc., develops and
markets  microdisplay  systems and optics technology for commercial,  industrial
and military  applications.  Following the Merger, the business conducted by the
Company is the business conducted by FED prior to the Merger.

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

Note B - SIGNIFICANT ACCOUNTING POLICIES

[1] Principles of consolidation:

The accompanying consolidated financial statements of eMagin Corporation include
the assets,  liabilities,  revenues and expenses of its wholly owned subsidiary.
Inter-company transactions and balances are eliminated in consolidation.

[2] Revenue and cost recognition:

Revenue is recognized when products are shipped to customers,  net of allowances
for anticipated  returns.  The Company's  revenue-earning  activities  generally
involve  delivering  products and revenues are  considered to be earned when the
Company has  completed  the  process by which it is  entitled to such  revenues.
Revenue  is  recognized  when  persuasive  evidence  of an  arrangement  exists,
delivery has occurred,  selling price is fixed or determinable and collection is
reasonably  assured.

The Company also earns  revenues from certain of eMagin's R&D  activities  under
both  firm  fixed-price  contracts  and  cost-type  contracts,   including  some
cost-plus-fee  contracts.  Revenues  relating to firm fixed-price  contracts are
generally  recognized  on the  percentage-of-completion  method of accounting as
costs are incurred  (cost-to-cost  basis).  Revenues on cost-plus-fee  contracts
include costs  incurred plus a portion of estimated fees or profits based on the
relationship of costs incurred to total estimated costs.  Contract costs include
all direct  material and labor costs and an  allocation  of  allowable  indirect
costs as defined by each contract,  as periodically  adjusted to reflect revised
agreed upon rates. These rates are subject to audit by the other party.  Amounts
can be  billed  on a  bi-monthly  basis.  Billing  is based on  subjective  cost
investment factors.

[3] Research and development costs:

R&D costs are  expensed as  incurred.  To date,  activities  of the Company have
included the performance of R&D under cooperative  agreements with United States
Government agencies. Funding from such R&D contracts is

                                       44

recognized as a reduction in operating  expenses  during the period in which the
services are performed and related direct expenses are incurred.

The Company has incurred research and development costs and earned funding under
these agreements during the year ended December 31, 2003 as follows:

         Unfunded research and development             $   7,244,820
         Research and development costs                      331,956
         Funding received                                   (331,956)


[4] Cash and cash equivalents:

We consider all highly  liquid  instruments  with an original  maturity of three
months or less at the date of purchase to be cash equivalents.

[5] Accounts receivable:

The majority our commercial  accounts receivable are due from Original Equipment
Manufacturers  ("OEM"s).  Credit is extended based on evaluation of a customers'
financial  condition  and,  generally,  collateral  is  not  required.  Accounts
receivable are payable in U.S. dollars, are due within 30-90 days and are stated
at amounts due from  customers  net of an allowance for doubtful  accounts.  Any
account outstanding longer than the contractual payment terms is considered past
due. The Company  determines  the allowance by  considering a number of factors,
including the length of time trade accounts  receivable  are past due,  eMagin's
previous loss history, the customer's current ability to pay its obligation, and
the  condition of the general  economy and the industry as a whole.  The Company
writes off  accounts  receivable  when they become  uncollectable,  and payments
subsequently received on such receivables are reported as income in the year the
payment is received

[6] Inventory:

Inventory is stated at the lower of cost or market. Cost is determined using the
first-in  first-out  method.  The Company reviews the value of its inventory and
reduces the inventory  value to its net realized value based upon current market
prices and contracts for future sales.

[7] Equipment and leasehold improvements:

Equipment  and  leasehold  improvements  are  stated  at cost.  Depreciation  on
equipment is calculated  using the  straight-line  method of  depreciation  over
its  estimated  useful  life.   Amortization  of  leasehold  improvements  is
calculated by using the straight-line method over the shorter of their estimated
useful  lives or lease  terms.  Expenditures  for  maintenance  and  repairs are
charged to expense as incurred.

In accordance  with SFAS No. 144,  "Accounting for the Impairment or Disposal of
Long-Lived  Assets," eMagin performs  impairment tests on its long-lived assets,
when circumstances  indicate that their carrying amounts may not be recoverable.
If  required,  recoverability  is  tested  by  comparing  the  estimated  future
undiscounted  cash  flows of the  asset or asset  group to its  carrying  value.
Impairment  losses,  if any, are  recognized  based on the excess of the assets'
carrying amounts over their fair values.

[8] Income taxes:

Deferred  income taxes are recorded by applying  enacted  statutory tax rates to
temporary  differences  between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. At December 31, 2003 and 2002, the
Company has net deferred  tax assets of  approximately  $56.7  million and $29.5
million,  respectively,  primarily  resulting from the future tax benefit of net
operating loss carryforwards  discussed below and timing differences relating to
amortization  of goodwill  and other  intangible  assets.  Such net deferred tax
assets are fully offset by valuation  allowances  due to the  uncertainty  as to
their realizability.

At December 31, 2003, the Company has net operating loss carryforwards  totaling
approximately $ 86.4 million,  inclusive of the net operating losses acquired as
part of the  acquisition of FED, which expire through 2023,  available to offset
future federal taxable income.  Pursuant to Section 382 of the Internal  Revenue
Code,  the  usage of a portion  of these net  operating  loss  carryforwards  is
limited due to changes in ownership that have occurred.

[9] Loss per common share:

In accordance with SFAS No. 128, "Earnings Per Share," net loss per common share
amounts ("basic EPS") were computed by dividing net loss by the weighted average
number of common shares  outstanding and excluding any potential  dilution.  Net
loss per common share amounts assuming dilution ("diluted EPS") were computed by

                                       45

reflecting  potential  dilution from the exercise of stock options and warrants.
Common  equivalent shares have been excluded from the computation of diluted EPS
for all  periods  presented  as their  effect  is  antidilutive.  The  Company's
computation of dilutive loss per share for the year ended December 31, 2003 does
not include options and warrants to purchase  21,725,607 common shares, as their
effect would be antidilutive.

[10] Comprehensive income (loss):

The  Company   complies  with  the  provisions  of  SFAS  No.  130,   "Reporting
Comprehensive  Income," which requires companies to report all changes in equity
during  a  period,   except  those  resulting  from  investment  by  owners  and
distributions  to  owners,   for  the  period  in  which  they  are  recognized.
Comprehensive  income  (loss) is the total of net  income  (loss)  and all other
non-owner  changes  in equity  (or other  comprehensive  income  (loss)  such as
unrealized  gains or  losses on  securities  classified  as  available-for-sale,
foreign  currency   translation   adjustments  and  minimum  pension   liability
adjustments.  Comprehensive  income  (loss)  must be reported on the face of the
annual financial  statements.  The Company's operations did not give rise to any
material items includable in comprehensive income (loss), which were not already
in  net  income  (loss)  for  the  years  ended  December  31,  2003  and  2002.
Accordingly,  the Company's  comprehensive  income (loss) is the same as its net
income (loss) for all periods presented.

[11] Stock-based compensation:

eMagin applies Accounting Principals Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees,"  and related  Interpretations  in accounting for its
stock-based compensation plans. Accordingly, eMagin records expense for employee
stock  compensation  plans  equal  to the  excess  of the  market  price  of the
underlying eMagin shares at the date of grant over the exercise price.

As of  December  31,  2003,  the  Company  has  outstanding  options to purchase
12,148,570  shares.  The Company has elected to follow APB No. 25, in accounting
for its employee  stock  options.  Under APB No. 25, when the exercise  price of
employee stock options  equals the market price of the  underlying  stock on the
date of grant  no  compensation  expense  is  recorded.  The  Company  discloses
information  relating to the fair value of  stock-based  compensation  awards in
accordance with Statement of Financial  Accounting  Standards  No.123 ("SFAS No.
123"),   "Accounting   for  Stock-Based   Compensation."   The  following  table
illustrates  the  effect  on net loss and loss per share as if the  Company  had
applied the fair value recognition  provision of SFAS No. 123. The fair value of
each option  grant is  estimated  on the date of grant  using the  Black-Scholes
option-pricing model with the following  assumptions used for grants in 2003 and
2002,  respectively:  (1)  average  expected  volatility  of 100% and 150%,  (2)
average  risk-free  interest rates of 3.52% and 6.00%, and (3) expected lives of
7-10 years and 5-8 years and (4) dividends of 0% and 0%.

The pro forma amounts that are disclosed in accordance with SFAS No. 123 reflect
the portion of the  estimated  fair values of awards that were earned during the
years ended December 31, 2003 and 2002.


                                                                                           2003           2002
                                                                                           -------------------
                                                                                              (in thousands)
                                                                                                
Net loss applicable to common stockholders, as reported                                 $ (4,723)     $ (14,913)
Stock-based employee compensation expense included in reported net loss                    2,183              -
Stock-based employee compensation expense determined under fair value method              (3,748)        (1,226)
                                                                                        ----------    ----------
     Pro forma net loss                                                                 $ (6,288)     $ (16,139)
                                                                                        ==========    ==========
Net loss per share:
     Basic and diluted, as reported                                                     $  (0.13)     $   (0.51)
     Basic and diluted, pro forma                                                       $  (0.17)     $   (0.55)
     Weighted average fair value per option                                             $   0.76      $    0.74

                                       46

[12] Fair value of financial instruments:

The Company has various financial instruments, including cash, cash equivalents,
accounts   receivable,   accounts  payable  and  short  and  capitalized   lease
obligations.   The  Company  believes  the  carrying  values  of  its  financial
instruments approximate their fair values. The carrying amount of the short- and
long-term  debt  approximates  fair value at December 31, 2003 based on interest
rates available to the Company and debt instruments with similar terms.

[13] Use of estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  as well as the  reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.  These  estimates  and  assumptions  relate to recording net revenue,
collectibility of accounts receivable, and the realizability of other intangible
assets,  accruals,  income  taxes,  inventory  realization  and  other  factors.
Management  has  exercised  reasonable  judgment  in deriving  these  estimates;
however, actual results could differ from these estimates.  Consequently, change
in conditions could affect eMagin's estimates.

[14] Reclassifications:

Certain  amounts in the 2002  financial  statements  have been  reclassified  to
conform to the 2003 presentation.

Note C - RECEIVABLES

Receivables at December 31, 2003 consist of the following:

         Trade receivables                         $   899,174
         Contract receivables                          173,809
         Unbilled receivables                           75,359
                                                   ------------
           Total                                     1,148,342

         Less allowance for doubtful accounts         (304,446)
                                                   ------------
           Net receivables                         $   843,896
                                                   ============
Note D - Inventory

The components of inventories as of December 31, 2003 are as follows:

         Raw materials              $    20,416
         Work in process                 43,750
         Finished goods                 211,251
                                    -----------
           Total Inventory          $   275,417
                                    ===========

Note E - EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements and their estimated lives are as follows at
December 31, 2003:
                                               Useful
                                               Lives
Computer hardware and software                   3                  $   328,758
Lab and factory equipment                        3                    2,547,165
Furniture, fixtures and office equipment        10                      145,268
Leasehold improvements                          (a)                     329,739
                                                                    ------------
Total Fixed Assets                                                    3,350,930
Less accumulated depreciation                                        (2,149,991)
                                                                    ------------
  Total Net Book Value                                              $ 1,200,939
                                                                    ============
(a) The shorter of either the life of the lease, or the useful life

                                       47

Note F - DEBT

The debt consisted of the following as of December 31, 2003:

         a     Current portion of long term debt            $    38,184
         b     Restructuring Agreement                        4,456,973
         c     Original Secured Notes                         1,667,478
         d     Capitalized lease obligations                     36,257
                                                     -------------------
         e       Total debt                                 $ 6,198,892
                                                     ===================

(a) This amount  includes  (i) $12,213 due to Citicorp  Leasing over the next 12
months in lease  payments  for  equipment;  and (ii) $25,971 due to IBM over the
next 12 months for  leasehold  improvements.  The  remaining  balance  under the
Citicorp lease is due in 2005.

(b) On April 25, 2003,  eMagin entered into a Global  Restructuring  and Secured
Note Purchase Agreement  ("Restructuring  Agreement") dated as of April 25, 2003
(the  "Closing  Date")  with a group of  several  accredited  institutional  and
individual investors whereby the investors agreed to lend the Company $6,000,000
in exchange for (i) the issuance of  $6,000,000  principal  amount of 9% secured
convertible  promissory  notes  due and  payable  on  November  1, 2005 and (ii)
warrants to purchase an aggregate of 7,749,921  shares of common stock of eMagin
(subject to certain  customary  anti-dilution  adjustments).  Such  warrants are
exercisable for a period of three (3) years from the issue date.

Interest is payable on the notes at a rate of 9% per annum and, at the Company's
option, may be paid through the delivery of shares of the Company's common stock
in lieu of cash interest payments on the maturity date of the loan,  November 1,
2005. Subject to certain limitations,  the notes may be converted, at the option
of the holder,  in whole or in part, into common shares with a conversion  price
of  $0.7742,  an amount  equal to 105% of the  volume  weighted  average  of the
closing  price of  eMagin's  common  shares as reported  on The  American  Stock
Exchange by the Wall Street  Journal,  New York City  edition,  for the five (5)
trading days  immediately  preceding the closing date. The exercise price of the
warrants on a per share basis is $.8110,  an amount  equal to 110% of the volume
weighted  average of eMagin's  closing price of our common shares as reported on
The American Stock Exchange by the Wall Street  Journal,  New York City edition,
for the five (5) trading days immediately preceding the closing date.

As of December  31, 2003 the Company had  received  the entire  $6,000,000.  The
Company  recorded  $1,289,575  for  the  debt  discount  and  $510,425  for  the
beneficial  conversion  as paid-in  surplus,  which is being  amortized  through
November 1, 2005. For the year ended  December 31, 2003,  $256,973 was amortized
to interest expense.

The terms of the notes contain certain revisions,  including financial and other
covenants,  which  covenants  relate to  expenses,  direct  cost of goods  sold,
revenues  and  quarterly  revenues.  In the  event  that the  Company  is not in
compliance  with these  covenants,  50% or more of the  holders of the notes (in
terms of the  aggregate  dollar value of the  principal of the notes then issued
and  outstanding  under the note  purchase  agreement)  would be able to call an
event of default.  As of December  31,  2003,  the Company was in  violation  of
certain  financial  covenants.  The  notes  have not been  included  in  current
liabilities  because they were  converted  into shares of the  Company's  common
stock on March 3, 2004 (see Note O).

                                       48

(c)This amount includes secured convertible loans aggregating  $1,625,000 issued
under the secured  note  purchase  agreements  executed  from  November 27, 2001
through January 14, 2002 ("Original Secured Notes").  The Original Secured Notes
accrue  interest  at a rate of 9.00% per  annum  and were due on June 30,  2003.
Terms of the notes issued included a fixed  conversion into the Company's shares
of common  stock at the rate of $0.5264  per share.  The  Company  also  granted
warrants  purchasing  921,161  shares of common stock with an exercise  price of
$0.5468 per share to the note  holders.  Such warrants are  exercisable  through
January 2005.

The total of the intrinsic  value of the warrants issued to the note holders and
the  incremental  intrinsic value of the repriced  warrants of certain  existing
note  holders of  approximately  $480,000  has been  recorded as original  issue
discount,  resulting  in a reduction  in the  carrying  value of this debt.  The
original issue  discount was amortized  into interest  expense over the original
period of the debt.

In addition,  based on the terms of the Original  Secured Notes,  the conversion
terms of the debt provide for a beneficial  conversion feature.  The total value
of the  beneficial  feature of the debt and the  incremental  value of the reset
conversion  feature of the existing debt of approximately  $780,000 was recorded
at January 14, 2002 as non-cash interest expense.

In connection with the April 2003 financing  described  above,  the note holders
agreed to (a) amend the secured note issued to them,  (b) terminate the security
agreement  dated November 27, 2001 that was entered into in connection  with the
purchase of the Original  Secured Notes and allow the note holders to enter into
a new security  agreement with them on a pari passu basis in order for eMagin to
continue its operations as a developer of virtual  imaging  technology,  and (c)
simultaneously  participate  in the new  financing.  The amendments to the notes
included  (i)  extending  the  maturity  dates of the note from June 30, 2003 to
November 1, 2005,  and (ii) revising and  clarifying  certain of the other terms
and  conditions  of the note,  including  provisions  relating  to  default  and
assignment of the note.

On June 20, 2002, the Company  entered into a $0.2 million Secured Note Purchase
Agreement with an investor.  The secured note accrues  interest at 11% per annum
and was due to  mature  on June 30,  2003  and was  amended  as a result  of the
financing  the  Company  completed  in April  2003.  The  Company  also  granted
warrants,  exercisable for a period of five years, to purchase 300,000 shares of
common  stock  with an  exercise  price of  $0.4257  per share to the  investor,
provided,  however,  that this  warrant may not be  exercised by the investor so
long as the investor is the beneficial  owner,  directly or indirectly,  of more
than ten percent  (10%) of the common stock of eMagin for purposes of Section 16
of the Securities  Exchange Act 1934.  The fair value of the warrants  issued to
this investor,  which approximated  $84,000, has been recorded as original issue
discount,  resulting  in a reduction  in the  carrying  value of this debt.  The
original issue  discount was amortized into interest  expense over the period of
the debt.  Pursuant to the April 2003 financing  described  above,  the investor
agreed to (a) amend the secured note issued to them,  (b) terminate the security
agreement  dated June 20,  2002 that was  entered  into in  connection  with the
purchase of the Original  Secured  Notes and allow the investors to enter into a
new  security  agreement  with them on a pari passu basis in order for eMagin to
continue its operations as a developer of virtual  imaging  technology,  and (c)
simultaneously  participate  in the new  financing.  The  amendments to the note
included (i) amending the note issued on June 20, 2002 so as to provide that the
note shall be convertible and will have the same  conversion  price as the notes
issued  pursuant  to the  April  2003  secured  note  purchase  agreement,  (ii)
extending the maturity dates of the note from June 30, 2003 to November 1, 2005,
and (iii) revising and  clarifying  certain of the other terms and conditions of
the note,  including  provisions  relating  to interest  payments,  conversions,
default and assignment of the note. Due to the amendment to a convertible  note,
the Company  recorded a $106,372  beneficial  conversion  discount and a $93,628
original debt  discount,  to be amortized  through  November  2005. For the year
ended  December  31,  2003,  the  Company  has  amortized a total of $42,478 for
original debt discount and for beneficial conversion discount.

                                       49

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

In September 2003, in accordance with the agreement, the Company was required to
convert two Series B Convertible  Debentures in the amount of $121,739 each into
1,468,382  share of the  Company's  common stock at a conversion  price from the
original note purchase agreement of $0.18 per share.

Note G - DEBT SETTLEMENT

In connection with the April 2003 Financing, the Company entered into settlement
or restructuring  agreements with certain of eMagin's other creditors,  pursuant
to which the creditors  agreed to accept shares of eMagin's common stock in full
or partial  satisfaction of the amount owed to them, or which allow us to either
make  discounted  payments  to them or to make  payments  under  more  favorable
payment terms than previously were in place.

The Company  converted the $1,000,000 loan plus interest to Travelers  Insurance
Company  ("Travelers") into 2,137,757 shares of the Company's common shares at a
conversion price from the original  agreement of approximately  $0.53 per share,
based on the  market  value of  eMagin's  common  stock on the date the  Company
entered into the agreement.  The Company also converted the $3,000,000 loan plus
interest to SK Corporation  into 2,495,833  shares of the Company's common stock
at a conversion  price from the original  agreement of  approximately  $1.28 per
share,  based on the  market  value  of  eMagin's  common  stock on the date the
Company  entered  into  the  agreement.  There  was no gain  recorded  on  these
transactions.

During 2003, the Company issued  1,997,840  shares of common stock with a market
value of  $1,411,969  in partial  payment  of  accounts  payable  and debt which
resulted in a $1,575,087 gain on debt settlement.

In the third  quarter  of 2003,  the  Company  exercised  several  lease  buyout
provisions.  The  Company  purchased  for cash,  $950,000  of  equipment,  which
resulted in a reduction  of $598,493 in prepaid  interest  and a  write-down  of
$3,062,906 in long- and short-term debt.

As a result of the above transactions, the Company recorded $4,637,993 as a gain
on settlement of debt for the year ended December 31, 2003.

Note H - INCOME TAXES

The  difference  between the statutory  federal income tax rate on the Company's
pre-tax  income and the  Company's  effective  income tax rate is  summarized as
follows:

                                                                    2003
                                                                   -----
     U.S. Federal income tax provision (benefit)
        at federal statutory rate                                  (35)%
     Change in valuation allowance                                  35 %
                                                                   -----
                                                                     - %
                                                                   =====

Significant  components of eMagin's  deferred tax assets as of December 31, 2003
are as follows:


                         Net operating losses                 $  34,580,000
                         Goodwill and other intangibles          21,700,000
                         Allowance for doubtful accounts            121,778
                         Deferred payroll                           195,010
                         Accrued vacation pay                        70,401
                                                              --------------
                           Total                                 56,667,189
                         Less valuation allowance               (56,667,189)
                                                              --------------
                           Net Deferred Tax Asset             $           -
                                                              ==============

As of  December  31,  2003,  eMagin has  federal  and state net  operating  loss
carryforwards  of  approximately  $86.4 million that will be available to offset
future taxable  income,  if any,  through  December 2023. The utilization of net

                                    50

operating  losses is subject to a  substantial  limitation  due to the change of
ownership  provisions under Section 382 of the Internal Revenue Code and similar
state  provisions.  Such  limitation  may  result in the  expiration  of the net
operating  losses  before  their  utilization.  A valuation  allowance  has been
established  to  reserve  for the  deferred  tax  assets  arising  from  the net
operating  losses and other temporary  differences  due to the uncertainty  that
their benefit will be realized in the future.

In 2003, in connection with the  restructuring of its indebtedness (see Note G),
the Company  realized  income of  $4,637,993.  Under Section 108 of the Internal
Revenue Code,  this income is excludable  for federal income tax purposes to the
extent  that the  amount of the  Company's  liabilities  immediately  before the
restructuring  exceeds the fair market value of its assets as a going concern at
such time. The Company  estimates the entire $4,637,993 is excludable under this
exception.

Pursuant  to Section 108 of the  Internal  Revenue  Code,  the  excluded  income
reduces the Company's tax  attributes as of January 1, 2004.  Such  reduction is
first applied to reduce net operating loss carryforwards.

Note I - STOCKHOLDERS' EQUITY

As of December 31, 2002, the authorized  number of shares of common stock of the
Company consisted of 100,000,000 shares with a par value of $0.001 per share. On
July 2, 2003 the shareholders approved an increase to 200,000,000 shares.

In January 2002, the Company  negotiated  settlement of amounts due to a related
party for services  previously rendered via issuance of 192,493 shares of common
stock.  As  such,  the  Company  recorded  the  fair  value  of  the  shares  of
approximately  $135,000 in selling,  general and administrative  expenses in the
accompanying consolidated statements of operations.

On February 27, 2002,  the Company  completed a private  placement of securities
with several  institutional  and  individual  investors  of 3,617,128  shares of
common  stock at a price per share of  $0.6913,  generating  gross  proceeds  of
approximately  $2,500,000,  less issuance  costs of  approximately  $35,000.  In
connection with the financing  arrangement,  the Company issued to the investors
warrants  to  purchase  1,446,852  shares of common  stock of the  Company at an
exercise price of $0.7542 per share.  Also, the Company issued to an institution
warrants to purchase 36,164 shares of common stock in connection with a finder's
fee  arrangement  entered  into  between  the two  parties.  Such  warrants  are
exercisable  through  February  2005.  The Company  entered into a  registration
rights agreement  providing for the registration of shares to be issued pursuant
to a  conversion  of the  Original  Secured  Notes  and the  shares to be issued
pursuant to the  exercise of the  warrants  issued  thereunder.  The Company was
currently in default of this filing requirement. As a result of the default, the
Company has accrued $87,362 in interest and penalties in 2002.

On March 4, 2002,  the Company  entered into an equity line of credit  agreement
with a private equity fund (the "Fund") whereby the Company has the option,  but
not the obligation,  to sell shares of common stock to the Fund for a three-year
period at a price per share,  as defined.  The  agreement  provided  for certain
minimum  and  maximum  monthly  amounts up to a maximum of $15  million  and, in
certain circumstances, up to $20 million.

On March 4, 2002 the Company and the Fund entered into an agreement  whereby the
Company issued 50,000 shares and the Fund agreed to extend the  agreement.  This
agreement  was  terminated  in December  2002 whereby the investor  retained its
warrants,  the Company agreed to issue 500,000 shares of common stock and to pay
the sum of $25,000 upon the completion of specific financing.

In connection  with the equity line of credit,  the Company issued 30,000 shares
of common stock to the Fund as  compensation  for certain  services  rendered in
connection with the closing of the line of credit. As such, the Company recorded
the fair value of the shares of  approximately  $31,000 in selling,  general and
administrative  expenses for the year ended December 31, 2002. Also, the Company
granted warrants  purchasing up to 150,000 shares of common stock of the Company
at an exercise price of $0.8731 per share. Such warrants are exercisable through
September 2005. The intrinsic value of said warrants of  approximately  $140,000
is included in selling,  general and  administrative  expenses in the year ended
December 31, 2002.

In April 2002, the Company  announced a strategic  investment  from ROHM Company
LTD ("Rohm").  ROHM purchased  1,282,051  shares of eMagin common stock at $0.78
per share as well as warrants to purchase an additional 512,820 shares of common
stock at a conversion  price of $0.85 per share for an investment of $1,000,000.
The fair value of each  warrant  was  estimated  on the date of grant  using the
Black-Scholes  option-pricing model. Such warrants are exercisable through April
2005.

In 2002 the Company issued a third party 192,493  shares for consulting  fees in
lieu of cash.

In April of 2003,  the Company  converted  a  $1,000,000  loan plus  interest to
Travelers in common  shares  totaling  2,137,757 at a conversion  price from the
original  agreement of approximately  $0.53 per share, based on the market value
of our common stock on the date the agreement was entered into (see Note G).

                                       51

The Company also converted a $3,000,000  loan plus interest to SK Corporation in
common  shares  totaling  2,495,833  at a  conversion  price  from the  original
agreement  of  approximately  $1.28 per share,  based on the market value of our
common  stock on the date the  agreement  was  entered  into (see  Note G).

In September 2003, the Company converted two Series B Convertible  Debentures in
the amount of $121,739 each into 1,468,382  share of the Company's  common stock
at a conversion  price from the original  note  purchase  agreement of $0.18 per
share.  This  transaction  included a write-down of the  unamortized  beneficial
conversion feature at the time of conversion.

In 2003,  the Company  received  approximately  $1.1 million for the exercise of
1,479,900  warrants to purchase shares of common stock.  The Company also issued
270,910 common shares in cashless  exercises of warrants in exchange for 579,329
warrant shares.

In 2003,  the  Company  negotiated  settlements  of amounts  due and amounts for
future  services,  rendered via issuance of 656,435  shares of common stock.  As
such,  the  Company  recorded  the  fair  value  of the  services  received  and
receivable  in the future of  $561,958 in  selling,  general and  administrative
expenses, prepaid expenses and reduction of accounts payable.

During  2003,  the  Company  received  $280,046  for the  exercise of options to
purchase 846,793 shares of common stock.

The Company's April 25, 2003 Registration  Rights  Agreement,  which was entered
into in connection with the Company's April 2003 financing, required the Company
to file a registration  statement with the Securities and Exchange Commission no
later than 30 calendar days after the closing of the April 2003  financing.  The
Company  was not able to file the  registration  statement  within the  required
period and caused a default under the Registration Rights Agreement. As a result
of this default,  the Company was required to issue an additional 486,582 common
shares for penalties and interest pursuant to the Registration Rights Agreement.
For the year ended December 31, 2003, the Company  recorded a charge to earnings
of $735,324 for the penalties and interest.  The Company filed its  registration
statement in July of 2003.

In connection with the April 2003 financing,  eMagin issued 387,496 warrants for
expenses related to the offering. These warrants were issued to Larkspur Capital
Corporation,  a company in which one of the Company's  directors is the managing
director.

Note J - STOCK COMPENSATION

[1] Stock option plans:

In 1994, the Company  established  the 1994 Stock Plan (the "1994 Plan"),  which
has been  assumed by eMagin.  The plan  provided  for the granting of options to
purchase an aggregate of 1,286,000  shares of the common stock to employees  and
consultants of FED.

In 2000, the Company  established  the 2000 Stock Option Plan (the "2000 Plan"),
which has been assumed by eMagin. On July 16, 2001, the shareholders approved an
increase  in the  aggregate  number  of  shares of the  Company's  common  stock
reserved for issuance  under the 2000 Plan from  3,900,000 to 5,900,000  shares.
The Plan permits the granting of options and stock purchase  rights to employees
and consultants of the Company.  The 2000 Plan allows for the grant of incentive
stock options meeting the  requirements  of Section 422 of the Internal  Revenue
Code of 1986 (the "Code") or non-qualified  stock options which are not intended
to meet the requirements Section 422 of the Code.

In 2003,  eMagin  established the 2003 Stock Option Plan (the "2003 Plan").  The
2003 Plan  provided  for the  granting of options to purchase  an  aggregate  of
9,200,000  shares of the common stock to employees and  consultants.  On July 2,
2003,  the  shareholders  approved  the plan and the 2003 Plan was  subsequently
amended  by the  Board of  Directors  on July 2, 2003 to  reduce  the  number of
additional  shares  that may be  provided  for  issuance  under the  "evergreen"
provisions  of the 2003 Plan.  The amended 2003 Plan provides for an increase of
2,000,000  shares in January  2004 and an annual  increase  on January 1 of each
year for a period of nine (9) years  commencing  on January 1, 2005 of 3% of the
diluted shares outstanding.

Vesting terms of the options range from immediate  vesting to a ratable  vesting
period of 10 years.  Option  activity for the years ended  December 31, 2003 and
2002 are summarized as follows:

                                       52



                                                                                      Weighted
                                                                                       Average
                                                                       Shares       Exercise Price
                                                                     ------------    ------------
                                                                             
                    Outstanding at December 31, 2001                   3,544,721     $   2.41
                        Options granted                                4,788,722         0.40
                        Options canceled                              (2,440,358)        2.11
                                                                     ------------    ------------
                    Outstanding at December 31, 2002                   5,893,085         0.75
                        Options granted                                7,528,676         0.42
                        Options exercised                               (859,993)        0.33
                        Options canceled                                (413,198)        2.14
                                                                     ------------    ------------
                    Outstanding at December 31, 2003                  12,148,570     $   0.53
                                                                     ============    ============

At December 31, 2003,  there were 2,091,437 shares available for grant under the
2003 Plan, 2000 Plan and the 1994 Plan.

In October  2002,  the  Company's  Board of  Directors  approved the issuance of
5,185,000 options to employees,  officers and directors.  These options were not
issued at the time of the Board of  Directors'  approval  because there were not
enough options  available to be issued.  Pursuant to the Company's  Stock Option
Plans,  these options were issued  concurrent with the approval of the 2003 Plan
at the July  2003  shareholders'  meeting.  The  Company  recorded  a charge  of
$1,808,000 in the year ended  December 31, 2003 for the change in value of these
options from the original Board approval date in October 2002 to the shareholder
approval date in July 2003.

The following table summarizes  information  about stock options  outstanding at
December 31, 2003:


                                            Options Outstanding                          Options Exercisable
                          ---------------------------------------------------   -----------------------------------
                                                 Weighted
                                                 Average          Weighted                            Weighted
                                                Remaining         Average                             Average
                               Number          Contractual        Exercise           Number         Exercisable
Range of Exercise Prices   Outstanding       Life (In Years)       Price           Exercisable         Price
------------------------  -----------------  ----------------  --------------    ----------------  ----------------
                                                                                          
$   0.18 - $1.02             10,616,901              4.23            $ 0.37        10,078,176            $ 0.35
$   1.25 - $1.72              1,401,169              6.62              1.56         1,204,335              1.57
$   2.25 - $6.30                130,500              4.67              2.47           119,750              2.40
                             ----------                              ------        ----------            -------
                             12,148,570                              $ 0.53        11,402,261            $ 0.50
                             ==========                              ======        ==========            =======


[2] Stock based compensation:

Non-cash  stock-based  compensation  expense represents expenses associated with
stock option grants to the Company's officers and employees at below fair market
value as  additional  compensation  for their  services  and to  induce  them to
lock-up their options for a longer time than would  normally be specified  under
the Company's standard option grant. Deferred compensation is amortized over the
remaining vesting period of the underlying options.

[3] Warrants:

At December 31, 2003, 12,336,289 warrants to purchase shares of common stock are
issued,  outstanding  and  exercisable at exercise  prices ranging from $0.53 to
$1.93.

Note K - RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
interpretation  No.  46R  ("FIN  46R"),   "Consolidation  of  Variable  Interest
Entities."  Until this  interpretation,  a company  generally  included  another
entity in its consolidated financial statements only if it controlled the entity
through  voting  interests.  FIN 46R  requires a variable  interest  entity,  as
defined,  to be  consolidated  by a company  if that  company  is  subject  to a
majority of the risk of loss from the variable interest  entity's  activities or
is entitled  to receive a majority of the  entity's  residual  returns.  Certain
provisions  of FIN 46R were  deferred  until the period  ending  after March 15,
2004. The adoption of FIN 46R for provisions  effective during 2003 did not have
a material impact on the Company's financial position,  cash flows or results of
operations.

                                       53

In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative  Instruments and Hedging  Activities."  (SFAS No. 149),  which amends
SFAS  133 for  certain  decisions  made by the FASB  Derivatives  Implementation
Group.  In  particular,  SFAS 149:  (1)  clarifies  under what  circumstances  a
contract  with  an  initial  net  investment  meets  the   characteristic  of  a
derivative,  (2) clarifies when a derivative contains a financing component, (3)
amends the  definition  of an  underlying  financial  component to conform it to
language  used  in FASB  Interpretation  No.  45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others," and (4) amends certain other existing  pronouncements..
This  statement is effective for contracts  entered into or modified  after June
30,  2003 and for  hedging  relationships  designated  after June 30,  2003.  In
addition,  most  provisions  of SFAS 149 are to be  applied  prospectively.  The
adoption  of this  standard  did not have a  material  impact  on the  Company's
financial position, cash flows or results of operations.


In May 2003,  the FASB issued SFAS No. 150 , "Accounting  for Certain  Financial
Instruments with  Characteristics  of Both Liabilities and Equity" ("SFAS 150").
FAS No. 150 changes the accounting for certain financial  instruments that under
previous  guidance  issuers could be accounted  for as equity.  It requires that
those  instruments be classified as liabilities in balance sheets.  The guidance
in SFAS No. 150 is generally  effective  for all financial  instruments  entered
into or modified after May 31, 2003, and otherwise is effective on July 1, 2003.
The  adoption  of SFAS No. 150 did not have a material  impact on the  Company's
financial position, cash flows or results of operations.

Note L - COMMITMENTS AND CONTINGENCIES

[1] Royalty payments:

The  Company,  in  accordance  with a royalty  agreement,  is  obligated to make
minimum annual royalty payments to a corporation commencing January 1, 2001. The
minimum annual royalty of $31,500 per year due under this agreement commences in
the first year of the agreement,  and increases to minimum  royalty  payments of
$125,000 in 2006. Under this agreement,  the Company must pay to the corporation
a certain  percentage of net sales of certain  products,  which  percentages are
defined in the agreement.  The  percentages  are on a sliding scale depending on
the  amount of sales  generated.  Any  minimum  royalties  paid may be  credited
against the amounts due based on the percentage of sales. The royalty  agreement
terminates upon the expiration of the last-to-expire issued patent.

For the years ended December 31, 2003 and 2002, royalty expense of approximately
$115,000  and $61,000  respectively,  is included in general and  administrative
expense.

[2] Operating leases:

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

                        Year ending December 31,

                            2004                    $   257,999
                            2005                         18,372
                            2006                         18,372
                            2007                          6,124
                            2008                              -
                                                   -------------
                              Total                 $   300,867
                                                   =============


                                       54

Rent expense for the years ended  December  31, 2003 and 2002 was  approximately
$839,738 and $1,107,000,  respectively. eMagin's lease with IBM expires in March
2004.  The Company is currently  in the process of renewing the lease.  eMagin's
lease with Redson  Building  Partners has been paid in advance with common stock
valued at $48,000 for the 2004 rent.

[3] Employment benefit plans:

eMagin has a defined contribution plan (the 401(k) Plan) under Section 401(k) of
the  Internal  Revenue  Code,  which  is  available  to all  employees  who meet
established  eligibility  requirements.  Employee  contributions  are  generally
limited  to 15% of the  employee's  compensation.  Under the  provisions  of the
401(k)Plan,   eMagin  may  match  a  portion  of  the  participating  employees'
contributions.  There was no  matching  to the 401(k)  Plan for the years  ended
December 31, 2003 and 2002.

[4] Legal proceedings

The Company is subject to various claims and  proceedings in the ordinary course
of  business.  The  Company  believes  that  none of  these  current  claims  or
proceedings  individually  or in the  aggregate,  will have a  material  adverse
impact on the Company; results of operations, cash flows or financial condition,
although it can make no assurances in this regard.

Note M - Related Party Transactions

On February  27,  2002,  eMagin  Corporation  and a group of several  accredited
institutional  and  individual  investors  entered  into a  Securities  Purchase
Agreement  providing  for  the  issuance  and  sale to the  investors  of (i) an
aggregate of  approximately  3.6 million  shares of our common  stock,  and (ii)
warrants  exercisable  for a period of three (3) years from the Closing Date for
an  aggregate  of  approximately  1.4 million  shares of eMagin's  common  stock
(subject to certain customary  anti-dilution  adjustments) (see Note I). Rainbow
Gate Corporation, a corporation in which Mortimer D.A. Sackler is the investment
manager,  invested  $500,000 in the Company  under the  agreement  and  received
pursuant to such  investment  (i) 723,275 shares of eMagin's  common stock,  and
(ii) warrants  exercisable  for 289,310  shares of eMagin's  common  stock.  Mr.
Sackler  is  currently  a  beneficial  owner of more  than five  percent  of the
outstanding shares of eMagin's common stock.

On June 20, 2002, the Company  entered into a $0.2 million Secured Note Purchase
Agreement with Mortimer D.A.  Sackler (the "Bridge  Note")(see  Note F(c)).  The
secured note accrues  interest at 11% per annum and was originally due to mature
on June 30,  2003 and was  amended as a result of a financing  we  completed  in
April 2003. The Company also granted warrants,  exercisable for a period of five
years,  to purchase  300,000  shares of common  stock with an exercise  price of
$0.4257 per share to the investor,  provided,  however,  this warrant may not be
exercised  by the  investor  so long as the  investor is the  beneficial  owner,
directly or  indirectly,  of more than ten percent  (10%) of the common stock of
eMagin for purposes of Section 16 of the Securities  Exchange Act 1934. The fair
value of the warrants issued to this Investor,  which approximated  $84,000, has
been  recorded as  original  issue  discount,  resulting  in a reduction  in the
carrying  value of this debt.  The original  issue  discount was amortized  into
interest  expense  over the  period of the  debt.  Pursuant  to the  April  2003
financing  described below,  the investor agreed,  to (a) amend the secured note
issued to them,  (b) terminate the security  agreement  dated June 20, 2002 that
was entered into in connection  with the purchase of the original  secured notes
and allow the  investors  to enter into a new security  agreement  with him on a
pari passu basis in order for eMagin to continue its  operations  as a developer
of virtual imaging  technology,  and (c)  simultaneously  participate in the new
financing.  The  amendments to the note included (i) amending the note issued on
June 20, 2002 so as to provide that the note shall be convertible  and will have
the same conversion price as the notes issued pursuant to the April 2003 secured
note purchase agreement, (ii) extending the maturity dates of the note from June
30, 2003 to November 1, 2005, and (iii)  revising and clarifying  certain of the
other  terms  and  conditions  of the note,  including  provisions  relating  to
interest payments, conversions, default and assignment of the note.

On  April  25,  2003,  eMagin  Corporation  and a group  of  several  accredited
institutional and individual investors  (collectively,  the "Investors") entered
into  a  Restructuring   Agreement  whereby  Investors  agreed  to  lend  eMagin
$6,000,000  in exchange for (i) the issuance of $6,000,000  principal  amount of
9.00% Secured Convertible Promissory Notes due on November 1, 2005 (the "Secured

                                       55

Notes") and (ii) Warrants (the "Warrants") to purchase an aggregate of 7,749,921
shares of common  stock of eMagin  (subject to certain  customary  anti-dilution
adjustments),  which Warrants are  exercisable  for a period of three (3) years.
Mr.  Rivkin,  who at the time of the  transaction  was a member  of our Board of
Directors,  participated as an investor in the transaction and invested $125,000
in the Company. In return for such investment, Mr. Rivkin received (i) a Secured
Convertible  Promissory Note in an aggregate  principal amount of $125,000,  and
(ii) warrants  exercisable  for 161,456  shares of eMagin's  common  shares.  In
addition,  Stillwater LLC, an entity  controlled by Mr.  Mortimer D.A.  Sackler,
agreed to invest an  aggregate  of  $2,600,000  under the  transaction  and will
receive (i)  Secured  Convertible  Promissory  Notes in an  aggregate  principal
amount of $2,600,000,  and (ii) warrants exercisable for 3,358,300 of our common
shares. As part of the transactions,  Messrs.  Sackler and Rivkin,  who were the
holders of an aggregate of  $1,325,000  principal  amount of secured  notes that
were purchased  pursuant to a secured note purchase agreement entered into as of
November 27, 2001 (collectively, the "Original Secured Notes"), and Mr. Sackler,
who additionally was the holder of a $200,000  principal Bridge Note,  agreed to
(a) amend  their  respective  Original  Secured  Notes and Bridge Note issued to
them,  (b) terminate  the Security  Agreement  dated  November 20, 2001 that was
entered into in connection  with the purchase of the Original  Secured Notes and
the Security Agreements dated June 20, 2002 that were entered into in connection
with the purchase of the Bridge Note and allow the new investors to enter into a
New  Security  Agreement  (as defined  below) with them on a pari passu basis in
order for the  Company to continue  its  operations  as a  developer  of virtual
imaging technology. The amendments to the Original Secured Notes and Bridge Note
included  (i)  amending  the Bridge  Note so as to provide  that the Bridge Note
shall be convertible and will have the same conversion price as the Notes issued
pursuant to the Secured Note  Purchase  Agreement,  (ii)  extending the maturity
dates of the  Original  Secured  Notes and  Bridge  Note  from June 30,  2003 to
November 1, 2005, and (iii)  revising and clarifying  certain of the other terms
and  conditions  of the  Original  Secured  Notes  and  Bridge  Note,  including
provisions relating to interest payments,  conversions,  default and assignments
of the Original  Secured Notes and Bridge Note. On April 25, 2003,  Mr.  Sackler
transferred  all of his  holdings  in the Company to  Stillwater  LLC, a limited
liability company in which Mr. Sackler is the sole member.

eMagin is party to a financial  advisory and investment  banking  agreement with
Larkspur Capital  Corporation.  Paul Cronson, a director of eMagin, is a founder
and shareholder of Larkspur Capital  Corporation.  Larkspur Capital  Corporation
received as compensation for financial  advisory and investment banking services
in  connection  with the January 2004 private  placement a cash fee of 6 3/4% of
the funds raised and warrants to purchase eMagin shares of common stock equal to
2.5% of the cash netted to eMagin.  $283,503 and 43,651  common  stock  purchase
warrants  exercisable at $2.41 per share which expire in January 2009, were paid
under the terms of the agreement.

Note - N Concentrations

For the year ended December 31, 2003, one company represented  approximately 21%
of sales.  For the year ended  December 31, 2002,  two  customers  accounted for
approximately 32% of sales.

For the year ended December 31, 2003,  approximately  69% of the Company's sales
were  made to  customers  in the  United  States  and  approximately  31% of the
Company's  sales  were  made to  international  customers.  For the  year  ended
December  31,  2002,  74% of the  Company's  sales were made to customers in the
United  States  and  26% of the  Company's  sales  were  made  to  international
customers.

The Company also purchases principally all of its wafers from a single supplier.

Note O - Subsequent Events

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

                                       56

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

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

In February 2004, the Company and all of the holders of the Secured  Convertible
Notes (the "Notes"),  which were due in November 2005, entered into an agreement
whereby  the  holders  agreed to an early  conversion  of 100% of the  principal
amount of the Notes aggregating $7.825 million, together with all of the accrued
interest of approximately $74,000 on the Notes, into 11,394,621 shares of common
stock of eMagin.  The listing of the shares issuable  pursuant to such agreement
was approved by the American Stock  Exchange.  This debt, net of the unamortized
portion  of debt  discount  and the  beneficial  feature,  have been  shown as a
long-term liability in the consolidated balance sheet.

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

At December  31, 2003,  the Company had  approximately  $1,189,000  and $512,000
unamortized debt discount and beneficial  conversion feature,  respectively,  in
connection  with  the  Notes.  The  remaining  unamortized  balance  as  of  the
conversion date will be charged to operations.

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

                                       57

    ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

     In September 2002, eMagin announced that it had appointed Grant Thornton as
its independent auditor for fiscal year 2002,  replacing Arthur Andersen LLP. On
December 29, 2003, eMagin  Corporation,  (the "Company") notified Grant Thornton
LLP of its  decision  to  terminate  its  business  relationship  with them.  On
December 30, 2003, the Company engaged Eisner LLP as independent auditors of the
Company for the fiscal  year  ending  December  31,  2003.  The action to engage
Eisner LLP was taken upon the unanimous  approval of the Audit  Committee of the
Board of Directors of the Company.

     During the last fiscal year ended  December  31, 2002 and through  December
29, 2003, (i) there were no disagreements between the Company and Grant Thornton
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure  or  auditing  scope  or  procedure  which,  if not  resolved  to the
satisfaction  of  Grant  Thornton  would  have  caused  Grant  Thornton  to make
reference to the matter in its reports on the  Company's  financial  statements,
and (ii) Grant  Thornton's  reports  did not  contain  an  adverse  opinion or a
disclaimer  of opinion,  or was qualified or modified as to  uncertainty,  audit
scope, or accounting principles.  During the last fiscal year ended December 31,
2002 and through December 29, 2003, there were no reportable  events as the term
described in Item  304(a)(1)(iv) of Regulation S-B. Grant Thornton's  opinion in
its report on the Company's financial statements for the year ended December 31,
2002, included an explanatory paragraph that described  uncertainties  regarding
the Company's ability to continue as a going concern.

During the two most recent fiscal years and through December 29, 2003, the
Company has not consulted with Eisner LLP regarding either:

     1.  the application of accounting principles to any specified transaction,
         either completed or proposed, or the type of audit opinion that might
         be rendered on the Company's financial statements, and neither a
         written report was provided to the Company nor oral advice was provided
         that Eisner LLP concluded was an important factor considered by the
         Company in reaching a decision as to the accounting, auditing or
         financial reporting issue; or
     2.  any matter that was either subject of disagreement or event, as defined
         in Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
         to Item 304 of Regulation S-B, or a reportable event, as that term is
         explained in Item 304(a)(1)(iv)(A) of Regulation S-B.

ITEM 8A. CONTROLS AND PROCEDURES

     Evaluation  of  disclosure  controls  and  procedures.  An  evaluation  was
performed under the supervision  and with the  participation  of our management,
including  the chief  executive  officer,  or CEO,  who is also the acting chief
financial  officer,  or CFO, of the effectiveness of the design and operation of
our disclosure procedures.  Based on management's evaluation as of as of the end
of the period covered by this Annual Report, our principal executive officer and
acting  principal  financial  officer has  concluded  that  eMagin's  disclosure
controls and procedures (as defined in Rules  13a-14(c) and 15d-14(c)  under the
Securities  Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act"))  were
sufficiently  effective to ensure that the information  required to be disclosed
by eMagin  in the  reports  that we file  under the  Exchange  Act is  gathered,
analyzed and disclosed with adequate timeliness, accuracy and completeness.

     Changes in internal controls. There have been no significant changes in our
internal  controls or in other  factors  that could  significantly  affect these
controls  subsequent to the date of the evaluation  referred to above,  nor were
there any significant  deficiencies or material  weaknesses in eMagin's internal
controls. Accordingly, no corrective actions were required or undertaken.

                                       58

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

Our executive officers and directors, and their ages and positions are:


Name                                                   Age      Position
                                                          
Gary W. Jones                                          48       Chairman, Chief Executive Officer, President and
                                                                Acting Chief Financial Officer
Dr. K. C. Park                                         66       President, Virtual Vision, Inc.
Susan K. Jones                                         52       Chief Marketing and Strategy Officer, Secretary
Claude Charles (1)                                     66       Director
Paul Cronson (1)                                       46       Director
Jacob (Jack) Goldman (2*) (3)                          81       Director
Rear Admiral Thomas Paulsen, USN (Ret.) (2)            67       Director
Jack Rivkin (1*) (3*)                                  63       Director
Dr. Jill Wittels (2)                                   54       Director

(1) Audit Committee
(2) Governance and Nominating Committee
(3) Compensation Committee
(*) Committee chairman

     Gary W.  Jones  has  served  as  Chairman,  Chief  Executive  Officer,  and
President of eMagin  since 1992,  and as Acting Chief  Financial  Officer  since
August  2002.  Mr.  Jones has over 20 years of  experience  in both  public  and
private   companies   in  the  areas  of  business   development,   high  volume
manufacturing,  product development,  research, and marketing. Prior to founding
FED Corporation/eMagin  Corporation,  Mr. Jones served as Director of the Device
Development and Processing division at MCNC Center for Microelectronics in North
Carolina  from  1985  to  1992.  From  1977  to  1985  Mr.  Jones  managed  both
semiconductor  manufacturing  and  research  and  development  programs at Texas
Instruments.  Mr. Jones  received a B.S. in electrical  engineering  and physics
from  Purdue  University.  Mr.  Jones has  served  as a member of the  Executive
Committee of the Board of the United States Display Consortium.

     Dr. K.C. Park was named President of our wholly owned  subsidiary,  Virtual
Vision,  Inc.,  in  2002  after  serving  as our  Executive  Vice  President  of
International  Operations since 1998.  During his twenty-seven  year tenure with
IBM he managed flat panel display and  semiconductor  programs at the IBM Watson
Research  Center,  directed the corporate  display programs at the IBM Corporate
Headquarters,  and established  Technical  Operations in IBM Korea and served as
Senior  Managing  Director.  Dr. Park joined LG Electronics in 1993 as Executive
Vice President and initiated and led  corporate-wide  efforts to shift the major
emphasis of the  corporation  into  multimedia.  Dr. Park holds a B.S.  from the
University of Minnesota,  an M.S. from MIT, and a Ph.D. in Solid State Chemistry
from the University of Minnesota and an MBA from New York University.

     Susan K. Jones has served as Executive Vice  President and Secretary  since
1992,  and assumed  responsibility  of Chief  Marketing and Strategy  Officer in
2001.  Ms.  Jones  has 25  years  of  industrial  experience,  including  senior
research,  management, and marketing assignments at Texas Instruments and Merck,
Sharp,  & Dohme  Pharmaceuticals.  Ms.  Jones  serves  on the  boards  or chairs
committees for industry  organizations  including IEEE, SPIE, and SID. Ms. Jones
served as a director of eMagin  Corporation  from 1993 to 2000 and is a director
of Virtual Vision, Inc. Ms. Jones graduated from Lamar University with a B.S. in
chemistry and biology,  holds more than a dozen  patents,  and has authored more
than 100 papers and talks.

     Claude  Charles has served as a director  since April of 2000.  Mr. Charles
has served as President of Great Tangley  Corporation  since 1999.  From 1996 to
1998 Mr.  Charles was  Chairman of Equinox  Group  Holdings  in  Singapore.  Mr.
Charles has also served as a director  and in senior  executive  positions at SG
Warburg and Co.  Ltd.,  Peregrine  Investment  Holdings,  Trident  International
Finance Ltd., and Dow Banking Corporation. Mr. Charles

                                       59

holds  a B.S.  in  economics  from  the  Wharton  School  at the  University  of
Pennsylvania and a M.S. in international finance from Columbia University.

     Paul Cronson has served as a director  since July of 2003.  Mr.  Cronson is
Managing  Director of Larkspur  Capital  Corporation,  which he founded in 1992.
Larkspur is a broker  dealer  that is a member of the  National  Association  of
Securities  Dealers and advises  companies  seeking  private equity or debt. Mr.
Cronson's career in finance began in 1979 at Laidlaw, Adams Peck where he worked
in asset management and corporate finance. From 1983 to 1985, Mr. Cronson worked
with Samuel Montagu Co., Inc. in London,  where he marketed eurobond issuers and
structured  transactions.  Subsequently  from 1985 to 1987,  he was  employed by
Chase  Investment Bank Ltd., where he structured  international  debt securities
and he developed "synthetic asset" products using derivatives.  Returning to the
U.S.,  he joined  Peter  Sharp Co.,  where he managed a real  estate  portfolio,
structured  financings and assisted with capital market  investments  from until
1992.  Mr.  Cronson  received his BA from Columbia  College in 1979, and his MBA
from Columbia University School of Business Administration in 1982. He is on the
Board of Umbanet,  in New York City,  a private  company  specializing  in email
based distributed applications and secure messaging.

     Dr. Jack Goldman  joined our board of  directors  in February of 2003.  Dr.
Goldman is the retired senior vice-president for R&D and chief technical officer
of the Xerox Corporation. While at Xerox, he founded and directed the celebrated
Xerox PARC laboratory.  Prior to joining Xerox, Dr. Goldman was Director of Ford
Motor Company's Scientific Research Laboratory. He also served as Visiting Edwin
Webster  Professor  at MIT.  Dr.  Goldman  presently  serves  on the  Boards  of
Directors of Umbanet Inc. and Medis  Technologies Inc., and he has served on the
Boards  of  Xerox,  General  Instrument  Corp.,  United  Brands,  Intermagnetics
General,  GAF and Bank  Leumi USA.  He has also been  active in  government  and
professional  advisory  roles  including  service  on the US Dept.  of  Commerce
Technical  Advisory  Board,  chairman of  Statutory  Visiting  Committee  of The
National Bureau of Standards  (National  Institute of Standards and Technology),
vice-president  of the American  Association  for the Advancement of Science and
president of the Connecticut Academy of Science and Engineering.

     Admiral Thomas  Paulsen has served as a director  since July 2003.  Admiral
Thomas  Paulsen  served  for over 34 years  in the US Navy in  Command  Control,
Communications  and  Intelligence  (C3I),  Telecommunications,  Network  Systems
Operations,  Computers and Computer  Systems  Operations until his retirement in
1994 as a Rear Admiral. He then served as Chief Information Officer for Williams
Telecommunications. Admiral Paulsen has served as a director Umbanet, Inc. since
2002.  Since 2000,  Admiral  Paulsen has served on the Board of Governors of the
Institute of Knowledge Management,  George Washington University. Since 1994, he
has served as the Chairman of the Advisory  Board and President  Emeritus of the
Center for Advanced  Technologies  (CAT) and a Managing  Partner on the National
Knowledge and  Intellectual  Property  Management  Taskforce,  a  not-for-profit
company  headquartered  in  Dallas,  Texas,  and is a  member  of the  Board  of
Governors for the Japanese American National Museum, Los Angeles, California.

     Jack  Rivkin  has served as a director  since June of 1996.  Mr.  Rivkin is
Executive Vice President and Chief  Investment  Officer of Neuberger  Berman,  a
Lehman  Brothers  Company.  He previously  served as Executive Vice President of
Citigroup Investments Inc., through which the Travelers Group investments in the
Company were  managed.  He also served as Vice  Chairman and a director of Smith
Barney,  and held  positions  at Procter and Gamble,  Mitchell  Hutchins,  Paine
Webber and Lehman Brothers. Mr. Rivkin holds an engineering degree in metallurgy
from the Colorado School of Mines and an MBA from Harvard University.

     Dr. Jill Wittels has served as a director  since July 2003.  Since February
2001, Dr. Wittels has been the Corporate Vice  President,  Business  Development
for L-3  Communications,  a merchant supplier of intelligence,  surveillance and
reconnaissance systems and products, secure communications systems and products,
avionics and ocean products, training devices and services, microwave components
and telemetry, instrumentations,  space and navigation products. Dr. Wittels has
over 25 years of management, engineering and leadership experience. Prior to L-3
Communications,  Dr.  Wittels  worked  for 21  years  with BAE  Systems  and its
predecessor  companies,  including  Lockheed Martin,  Loral and Honeywell.  Most
recently,  she served as vice  president  and  general  manager of BAE  Systems'
Information  and  Electronic  Warfare   Systems/Infrared   and  Imaging  Systems
division. Dr. Wittels began her career as a systems engineer and has also served
as a  Congressional  Fellow  for  the  American  Physical  Society,  a  research
associate  at  Massachusetts  Institute  of  Technology  and a  senior  visiting
scientist for the National Academy of Sciences.  Dr. Wittels received a Bachelor
of Science degree in Physics from MIT in 1970 and received a PhD in Physics from
MIT in 1975. She serves on the Board of Overseers for the Department of Energy's
Fermi National

                                       60

Accelerator  Lab, is a member of the American  Physical  Society and a member of
the American Astronomical Society. Dr. Wittels presently serves on the Boards of
Directors of Innovative Micro Technology Inc. and of Millivision Inc.

     General  Information  Concerning  the  Board  of  Directors.  The  Board of
Directors of eMagin is classified into three classes: Class A, Class B and Class
C. Each Class A director  will hold office until the 2005 Annual  Meeting of our
stockholders.  Currently,  Mr.  Gary Jones and Mr.  Jack  Rivkin are the Class A
directors. Each Class B director will hold office until the 2006 Annual Meeting.
Mr. Paul  Cronson  and Admiral  Thomas  Paulsen are Class B  directors.  Class C
directors will hold office until the 2004 Annual Meeting.  Currently, Mr. Claude
Charles,  Dr. Jill Wittels and Dr. Jacob  Goldman are the Class C directors.  In
each case, each director will hold office until his successor is duly elected or
appointed and qualified in the manner provided in eMagin's  Amended and Restated
Certificate  of  Incorporation  and  our  Amended  and  Restated  Bylaws,  or as
otherwise provided by applicable law.

     Additional  information  required by this item will be contained  under the
captions  "Election of Class C Directors,"  "Section 16(a) Beneficial  Ownership
Reporting Compliance" and "Executive  Compensation" in eMagin's definitive proxy
statement  with respect to our 2004 Annual Meeting of  Stockholders  to be filed
with the SEC (the "Proxy Statement"), and is hereby incorporated by reference.

Code of Ethics

     We have  adopted a Code of Business  Conduct and Ethics that applies to all
of our  directors,  officers and  employees,  including our principal  executive
officer,  principal financial officer and principal accounting officer. The Code
of   Business   Conduct   and   Ethics   will  be  posted  on  our   website  at
http://www.emagin.com/investors.

     We intend to satisfy the disclosure  requirement  under Item 10 of Form 8-K
regarding an amendment  to, or waiver from, a provision of this Code of Business
Conduct and Ethics by posting such  information  on our website,  at the address
and  location  specified  above  and,  to the  extent  required  by the  listing
standards of the American Stock Exchange, by filing a Current Report on Form 8-K
with the SEC, disclosing such information.

ITEM 10. EXECUTIVE COMPENSATION

     Information  required by this item will be contained in the Proxy Statement
under  the  caption  "Executive  Compensation,"  and is hereby  incorporated  by
reference thereto.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The other information  required by this Item will be contained in the Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is hereby incorporated by reference thereto.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information  required by this item will be contained in the Proxy Statement
under  the  caption  "Certain  Transactions,"  and  is  hereby  incorporated  by
reference thereto.

ITEM 13. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Information  required by this item will be contained in the Proxy Statement
under the caption  "Auditors'  Fees," and is hereby  incorporated  by  reference
thereto.

                                       61

                                    PART IV.

ITEM 14. EXHIBITS, LIST, AND REPORTS ON FORM 8-K

(a) Index to Exhibits



Exhibit
Number     Description

                        
2.1    Agreement and Plan of Merger between Fashion  Dynamics  Corp.,  FED Capital
       Acquisition  Corporation and FED Corporation dated March 13, 2000, as filed
       in the  Registrant's  Form 8-K/A Report (file no.  001-15751)  incorporated
       herein by reference.

3.1    Amended  and  Restated   Articles  of   Incorporation,   as  filed  in  the
       Registrant's Proxy dated June 14, 2001, incorporated herein by reference.

3.2    Amended Articles of Incorporation, as filed in the Registrant's Proxy dated
       June 13, 2003, incorporated herein by reference.

3.3    Bylaws,   as  filed  in  the  Registrant's   Proxy  dated  June  14,  2001,
       incorporated herein by reference.

4.1    Form of Warrant  dated as of April 25, 2003 filed April 28, 2003,  as filed
       in the Registrant's Form 8-K incorporated herein by reference.

4.2    Form of Series A Common Stock Purchase Warrant dated as of January 9, 2004.
       Incorporated herein by reference to our January 9, 2004 Form 8-K.

4.3    Form of Series B Common Stock Purchase Warrant dated as of January 9, 2004.
       Incorporated herein by reference to our January 9, 2004 Form 8-K.

4.4    Form of Series C Common Stock Purchase Warrant dated as of January 9, 2004.
       Incorporated herein by reference to our January 9, 2004 Form 8-K.

4.5    Form of Series D Warrant.

4.6    Form of Series E Warrant.

10.1   2000 Stock Option  Plan,  as filed in the  Registrant's  Form S-8 (file no.
       333-32474) incorporated herein by reference.

10.2   2003 Stock Option Plan, as filed in the  Registrant's  Proxy dated June 13,
       2003, incorporated herein by reference.

10.3   Nonexclusive Field of Use License Agreement relating to OLED Technology for
       miniature,  high resolution  displays between the Eastman Kodak Company and
       FED  Corporation  dated March 29, 1999, as filed in the  Registrant's  Form
       10-K/A for the year ended  December  31,  2000  incorporated  by  reference
       herein.

10.4   Amendment  Number  1 to the  Nonexclusive  Field of Use  License  Agreement
       relating to the OLED  Technology for miniature,  high  resolution  displays
       between the Eastman Kodak Company and FED Corporation dated March 16, 2000,
       as filed in the  Registrant's  Form 10-K/A for the year ended  December 31,
       2000 incorporated by reference herein.

                                       62

10.5   Amendment  Number 1 to the Lease between  International  business  Machines
       Corporation  and FED  Corporation  dated  July 9,  1999,  as  filed  in the
       Registrant's  Form 10-K/A for the year ended December 31, 2000 incorporated
       by reference herein.

10.6   Lease  between   International   Business  Machines   Corporation  and  FED
       Corporation  dated May 28, 1999, as filed in the  Registrant's  Form 10-K/A
       for the year ended December 31, 2000 incorporated by reference herein.

10.7   Amendment  Number 2 to the Lease between  International  Business  Machines
       Corporation  and FED  Corporation  dated  January 29, 2001, as filed in the
       Registrant's  Form 10-K/A for the year ended December 31, 2000 incorporated
       by reference herein.

10.8   Secured Note  Purchase  Agreement  entered into as of November 27, 2001, by
       and among eMagin Corporation and certain investors named therein,  as filed
       in the Registrant's Form 8-K dated December 18, 2001 incorporated herein by
       reference.

10.9   Securities  Purchase  Agreement  dated as of April  25,  2003 by and  among
       eMagin and the investors  identified on the signature pages thereto,  filed
       April 28, 2003, as filed in the Registrant's  Form 8-K incorporated  herein
       by reference.

10.10  Registration  Rights  Agreement  dated as of April  25,  2003 by and  among
       eMagin and certain  initial  investors  identified on the  signature  pages
       thereto  filed  April  28,  2003,  as  filed in the  Registrant's  Form 8-K
       incorporated herein by reference.

10.11  Securities  Purchase  Agreement  dated as of  January  9, 2004 by and among
       eMagin and the investors  identified on the signature pages thereto,  filed
       January 9, 2004, as filed in the Registrant's Form 8-K incorporated  herein
       by reference.

10.12  Registration  Rights  Agreement  dated as of  January  9, 2004 by and among
       eMagin and certain  initial  investors  identified on the  signature  pages
       thereto. Incorporated herein by reference to our January 9, 2004 Form 8-K.

10.13  Master  Amendment  Agreement  dated as of  February  17,  2004 by and among
       eMagin and the investors  identified on the signature pages thereto,  filed
       March 4, 2004, as filed in the Registrant's Form 8-K incorporated  herein
       by reference.

10.14  Registration  Rights  Agreement  dated as of February 17, 2004 by and among
       eMagin and certain  initial  investors  identified on the  signature  pages
       thereto,  filed  March 4, 2004.

10.15  Letter Agreement amending the Master Amendment  Agreement dated as of March
       1,  2004 by and  among  eMagin  and the  parties  to the  Master  Amendment
       Agreement,  filed  March 4, 2004,, as filed in the  Registrant's  Form 8-K
       incorporated herein by reference.

21.1   Subsidiaries of the Registrant.

23.1   Consent of Independent Certified Public Accountant.

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

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


                                       63

(B) Reports on Form 8-K

     The  Company  filed  eight (8)  reports  on form 8-K  during the year ended
December 31, 2003. Information regarding the items reported on is as follows:

January 15, 2003    Disclosed  that  eMagin and  Travelers  agreed to extend the
                    maturity  date  of  the  Convertible  Promissory  Note  from
                    December 31, 2002 to January 31, 2003.

                    Disclosed that eMagin and Mr.  Mortimer D.A.  Sackler agreed
                    to extend the maturity date of the Secured  Convertible Note
                    December 31, 2002 to January 31, 2003.

                    Disclosed  that eMagin and Ginola  Limited  agreed to extend
                    the  maturity  date of the  Secured  Convertible  Note  from
                    December 31, 2002 to January 31, 2003.

                    Disclosed  that eMagin and Jack Rivkin  agreed to extend the
                    maturity date of the Secured  Convertible Note from December
                    31, 2002 to January 31, 2003.

February 7, 2003    Disclosed  that  eMagin and  Travelers  agreed to extend the
                    maturity  date  of  the  Convertible  Promissory  Note  from
                    January 31, 2003 to February 28, 2003.

                    Disclosed that eMagin and Mr.  Mortimer D.A.  Sackler agreed
                    to extend the maturity date of the Secured  Convertible Note
                    January 31, 2003 to March 31, 2003.

                    Disclosed  that eMagin and Ginola  Limited  agreed to extend
                    the  maturity  date of the  Secured  Convertible  Note  from
                    January 31, 2003 to March 31, 2003.

                    Disclosed  that eMagin and Jack Rivkin  agreed to extend the
                    Maturity date of the Secured  Convertible  Note from January
                    31, 2003 to March 31, 2003.

March 7, 2003       Disclosed  that  eMagin and  Travelers  agreed to extend the
                    maturity  date  of  the  Convertible  Promissory  Note  from
                    February 28, 2003 to June 30, 2003.

                    Disclosed that eMagin and Mr.  Mortimer D.A.  Sackler agreed
                    to extend the maturity date of the Secured  Convertible Note
                    March 31, 2003 to June 30, 2003.

                    Disclosed  that eMagin and Ginola  Limited  agreed to extend
                    the maturity date of the Secured Convertible Note from March
                    31, 2003 to June 30, 2003.

April 28, 2003      Disclosed  that eMagin had completed a $6 million  financing
                    as  of  April  25,  2003,   and  that  the  holders  of  its
                    Convertible  Promissory Note and Secured  Convertible  Notes
                    that were set to mature on June 30,  2003 had either  agreed
                    to  convert  their  debt into  equity of the  Company or had
                    agreed  to  extend  the  maturity  date of  their  Notes  to
                    November 1, 2005.

                    Disclosed that eMagin entered into a registration  agreement
                    with the above investors.

June 11, 2003       Gary  W.  Jones,  President  and CEO of  eMagin  Corporation
                    entered into a written  trading plan  relating to the future
                    sales of part of his shares of eMagin's  common stock.  This
                    plan is intended  to enable Mr.  Jones to sell shares over a
                    period of time without  unduly  affecting  the market.  This
                    plan has a term of six months and  expires on  December  12,
                    2003.

                                       64

June 23, 2003       Gary W.  Jones  terminated  his  trading  plan from June 11,
                    2003.

July 3, 2003        The  Company  announced  the  results  of  the  2003  Annual
                    Meeting.

                    The  Board  of  Directors  approved  two  amendments  to the
                    Companies  2003 Stock Option Plan;  (i) reduce the number of
                    shares that may be provided under the "evergreen" provisions
                    and (ii) require  shareholder  approval  for any  subsequent
                    increase.

December 29, 2003   On December  29, 2003,  eMagin  Corporation  notified  Grant
                    Thornton  LLP of its  decision  to  terminate  its  business
                    relationship  with them.  On December 30, 2003,  the Company
                    engaged  Eisner LLP as  independent  auditors of the Company
                    for the fiscal year ending December 31, 2003.


                                       65

SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

EMAGIN CORPORATION

BY:         /s/ Gary Jones
            --------------
            Gary Jones
            CHIEF EXECUTIVE OFFICER,
            PRESIDENT AND ACTING CHIEF
            FINANCIAL OFFICER

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


            NAME                      TITLE                                               DATE

                                                                                          
/s/ Gary Jones                    President, Chief Executive Officer, and                  April 12, 2004
---------------------------       Acting Chief Financial Officer and Director
    Gary Jones                    (Principal Executive Officer)

/s/ Claude Charles                Director                                                 April 12, 2004
---------------------------
    Claude Charles

/s/ Paul Cronson                  Director                                                 April 12, 2004
---------------------------
    Paul Cronson

/s/ Jack Goldman                  Director                                                 April 12, 2004
---------------------------
Dr. Jacob E Goldman

/s/ Thomas Paulsen                Director                                                 April 12, 2004
-------------------------
    Thomas Paulsen

/s/ Jack Rivkin                   Director                                                 April 12, 2004
---------------------------
    Jack Rivkin

/s/ Jill Wittels                  Director                                                 April 12, 2004
---------------------------
    Jill Wittels



                                       66





                                                                                
                                          BOARD OF DIRECTIONS                         STOCK LISTING

                                          Gary W. Jones (Chairman)                    eMagin Corporation is listed on the

                                          Claude Charles                              American Stock Exchange under

                                          Paul Cronson                                the Symbol "EMA"

                                          Dr. Jacob Goldman
                                                                                      TRANSFER AGENT
                                          Admiral Tom Paulsen, RADM USN (Ret)
                                                                                      Continental Stock Transfer & Trust
                                          Jack Rivkin
                                                                                      17 Battery Place
                                          Dr. Jill Wittels
                                                                                      New York, New York 10004-1123

(LOGO)                                    OFFICERS & SENIOR MANAGEMENT
                                                                                      INVESTOR RELATIONS
CORPORATE HEADQUARTERS                    Gary W. Jones
                                                                                      eMagin Corporation
eMagin Corporation                        Chairman of Board of Directors,
                                                                                      Investor Relations
2070 Route 52                             President, and Chief Executive
                                                                                      2070 Route 52
Hopewell Junction, New York 12533
                                          Dr. K.C. Park                               Hopewell Junction, New York 12533

tel: 845.838.7900                         Executive Vice President                    info@emagin.com

fax: 845.838.7901                         President, Virtual Vision, Inc.
                                                                                      Stockholders of eMagin Corporation
email: info@emagin.com
                                          Susan K. Jones                              automatically receive the company's annual
Investor Relations: 845.838.7936
                                          Executive Vice President                    report and proxy solicitation material

SEATTLE                                   Chief Marketing Officer, Chief Strategy     enabling them to vote at the Annual Meeting.

Virtual Vision, Inc.                      Officer, Secretary of the Board             The 2003 Annual Report, 10K and investor

7659 178th Place N.E.                                                                 information can also be viewed online at
                                          Richard J. Haug
Redmond, WA 98052                                                                     www.emagin.com/investrel.htm
                                          Vice President, Manufacturing Operations

tel: 425.882.7878                                                                     ANNUAL MEETING
                                          Olivier Prache
fax: 425.882.7373                                                                     eMagin Corporation's 2004 Annual Meeting
                                          Vice President, Display Development
                                                                                      of Share Owners will be held on
JAPAN
                                          Patricia Lynn                               Tuesday, June 15, 2004 at the
eMagin Corporation
                                          Controller                                  Board Room of the American stock Exchange
1-16-2-405 Yurigaoka
                                                                                      in New York, New York.
Asao-Ku                                   LEGAL COUNSEL

Kawasaki-Shi, 215-0011 Japan              Sichenzia Ross Friedman Ference LLP         eMAGIN ON THE INTERNET

                                          1065 Avenue of the Americas                 For current information about eMagin visit:
tel: 81.44.959.4501
                                          21st Floor                                  www.emagin.com
fax: 81.44.952.3338
                                          New York, New York 10018
email: virtualjp@aol.com                                                              For press releases visit:
                                          tel; 212.930.9700
                                                                                      http//www.eMagin.com/pressreleases.htm

                                          INDEPENDENT AUDITORS
                                                                                      For information about exhibitions or other
                                          Eisner LLP
                                                                                      events eMagin will be participating in visit:
                                          750 Third Avenue
                                                                                      http://www.emagin.com/conferences.htm
                                          New York, New York 10017-2703

                                          tel; 212.891.6078                           To receive up to date information from

                                                                                      eMagin electronically, sign up at

                                                                                      http://www.emagin.com/investalert.htm

                                                                                      or send email to info@emagin.com