SecProbe.io

CORRESP
1
filename1.htm

      November 1, 2005 Corresp for eMagin Corporation

                                                                                                October
        4, 2005

      United
        States Securities and Exchange Commission

      Division
        of Corporation Finance

      450
        Fifth
        Street, N.W.

      Washington,
        DC 20549

      Attention:     Angela
        Crane,
        Branch Chief

      Jay
        Webb,
        Reviewing Accountant

      Eric
        Atallah, Staff Accountant

      Re:    eMagin
        Corporation

      Form
        10-KSB/A for the fiscal year ended December 31, 2004

      Forms
        10-Q for the quarterly reports ended March 31, and June 30, 2005

      Forms
        10-QSB/A for the quarterly periods ended March 31, June 30, and September
        30,
        2004

      File
        No.
        001-15751

      Ladies
        and Gentlemen:

      On
        behalf
        of eMagin Corporation (“eMagin” or the "Company"), please accept this letter as
        the Company’s response to the comments of the reviewing Staff of the Securities
        and Exchange Commission (the “Commission”) as set forth in the comment letter of
        September 1, 2005.

      Form
        10-KSB for the year ended December 31, 2004 and Amended Forms 10-QSB for
        the
        Quarterly Periods Ended March 31, June 30, and September 30,
        2004

                1.

                In
                  light of the fact you indicate you corrected accounting errors
                  in your
                  interim 2004 financial statements in connection with warrant and
                  convertible debt transactions, it is unclear to us how your officers
                  concluded that the company’s disclosure controls and procedures were
                  effective at the end of each period covered by the report. Please
                  disclose
                  in reasonable detail the basis for officers’ conclusions that the
                  company’s disclosure controls and procedures were nonetheless effective
                  as
                  of the end of each period. We may have further comments after reviewing
                  your response. Revise your filings as necessary based on our
                  comment.

      Response:

      As
        stated
        in each of the filings mentioned above (the Form 10-KSB for the year ended
        December 31, 2004 and the Amended Forms 10-QSB for the Quarterly Periods
        Ended
        March 31, June 30, and September 30, 2004), the Company’s officers concluded
        that the Company’s disclosure controls and procedures were effective at the end
        of each of the relevant periods covered by the reports.

      In
        connection with the audit of the Company's annual report on Form 10-KSB for
        the
        year ended December 31, 2004, in March 2005 it was determined that (i) the
        re-pricing of certain warrants that were originally issued in an equity
        transaction that the Company had completed in January 2004 should
        have been classified as an equity transaction and therefore no expense should
        have been recorded in connection with the re-pricing of these warrants, and
        (ii)
        the conversion of the debt to equity during the first quarter should have
        been
        classified as a debt transaction and therefore an expense should have been
        recorded in connection with the conversion.

      While
        the
        Company did, in fact, amend its quarterly reports on Form 10-QSB for the
        periods
        ended March 31, June 30, and September 30, 2004 in order to make these required
        changes, the Company’s officers’ nevertheless concluded that the Company’s
        disclosure controls and procedures were nonetheless effective as of the end
        of
        each such period based upon (i) the fact that such disclosure controls and
        procedures include all of the actions which they felt are necessary to insure
        that all of the information required to be reported in its SEC filings is
        recorded, processed, and summarized, including but not limited to, (a) having
        the top three officers review all contracts, press releases, and material
        events
        in order to determine at the time of the event whether disclosure is required
        and properly accounted for and (b) seeking advisement from their outside
        counsel
        on disclosure requirements and (ii) the fact that each of the filings for
        the
        relevant periods (the Form 10-KSB for the year ended December 31, 2004 and
        the
        Amended Forms 10-QSB for the Quarterly Periods Ended March 31, June 30, and
        September 30, 2004) contained what they believe is all of the information
        required to be recorded, processed, summarized and reported, within the time
        periods specified in the Commission's rules and forms. Further, the Company’s
        officers’ concluded that the restatements to the Company’s interim 2004
        financial statements were due to interpretations of the accounting treatment
        of
        such transactions, which was subsequently determined to be incorrect. The
        Company’s officers’ do not believe that the restatements were in any way
        attributable to any deficiency in the Company’s compliance with its disclosure
        controls and procedures, and that it had appropriate controls and procedures
        in
        place for an organization of its size at the times in question. Accordingly,
        at
        the end of the periods covered by each of the relevant reports, the Company’s
        officers’ believed that the Company’s disclosure controls and procedures were
        effective.

      The
        Company understands the importance of its reporting obligations, as well
        as
        addressing appropriately complex financial issues with respect to these
        transactions and all of the Company’s other financial matters. To this end, the
        Company notes that, in June 2004, it engaged John Atherly as its Chief Financial
        Officer, and in May 2005, the Company appointed Irwin Engelman to its board
        of
        directors and it intends to appoint Mr. Engelman as the Chairman of its Audit
        Committee immediately following the completion of its upcoming annual meeting
        of
        shareholders. The Company has also taken the additional step of hiring a
        new
        Director of Finance to assist the Chief Financial Officer with the Company’s
        filing and other financial reporting obligations. These persons bring a wealth
        of experience and sophistication to the Company and enhance the Company’s
        ability to meet its financial and other reporting obligations.
        The
        Company believes that these individuals will be an integral part of the
        Company’s disclosure controls and procedures and that they add to the Company’s
        ability to meet its continued reporting obligations within the time periods
        specified in the Commission's rules and forms.

      Amended
        Forms 10-QSB for the Quarterly Periods Ended March 31, June 30, and September
        30, 2004

      Item
        1. Consolidated Financial Statements

                2.

                Please
                  revise to include a header that indicates your financial statements
                  have
                  been restated. Also, label any notes that have been
                  restated.

      Response:

      We
        have
        revised the Company’s quarterly reports on Form 10-QSB for the periods ended
        March 31, June 30, and September 30, 2004 to include a header that indicates
        the
        Company’s financial statements have been restated. In addition, we have labeled
        Notes 1, 8, and 9 to the Company’s financial statements for the period ended
        March 31, 2004 and Notes 1, 8, 9 and 13 for the periods ended June 30, 2004
        and
        September 30, 2004, respectively, as “restated”, where applicable. In addition,
        we have restated the Preliminary Notes for the periods ended March 31, June
        30,
        and September 30, 2004 (see Item 3).

      Note
        1-Accounting Policies

      Basis
        of Presentation

                3.

                Your
                  quarterly restatement footnotes do not provide investors with a
                  clear path
                  between the originally filed and restated financial statement amounts.
                  Please revise this note in each of your 2004 Form l0-QSB’s to disclose the
                  specific nature of the errors and the effect of the corrections
                  on net
                  income or loss and the related per share amounts. For reference
                  see
                  paragraph 37 of APB 20.

                Response:

      As
        requested, we have revised the Preliminary Notes to the financial statements,
        where applicable, in the Company’s quarterly reports on Form 10-QSB for the
        periods ended March 31, June 30, and September 30, 2004 to disclose the specific
        nature of the errors and the effect of the corrections on net income or loss
        and
        the related per share amounts. The Preliminary Notes will be restated as
        follows:

      Preliminary
        Note to the Company’s financial statements for the period ended March 31,
        2004:

      This
        Amended Quarterly Report on Form 10-QSB/A is being filed to provide additional
        information to clarify the corrections reported in the previously Amended
        Quarterly Report on Form 10-QSB/A filed by the Company on April 12, 2005.
        The
        Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated
        Statements of Cash Flows, and Statement of Changes in Stockholders’ Equity and
        Selected Notes to Consolidated Financial Statements are labeled as “restated”
        where applicable. The restatement was in connection with the preparation
        of the
        Company’s annual report on Form 10-KSB for the year ended December 31, 2004
        where it was determined that the unamortized debt discount and the deferred
        financing costs should have been recorded as interest expense. The restated
        statements increase additional paid-in capital by approximately $1.67 million
        representing unamortized debt discount and deferred financing costs and increase
        interest expense in relation to the March 3, 2004 debt conversion of
        approximately $8.567 million in principal and accrued interest. The following
        table presents the impact of the corrections:

                  Unaudited
                    Consolidated Statements of Operations

                  Three
                    Months Ended March 31,
                    2004

                  Originally
                    Filed

                  Restated

                  Other
                    income (expense)

                  $

                  (3,403,110

                  )

                  $

                  (5,076,082

                  )

                  Net
                    loss

                  $

                  (4,932,972

                  )

                  $

                  (6,605,944

                  )

                  Basic
                    and diluted loss per common share

                  $

                  (0.09

                  )

                  $

                  (0.13

                  )

      In
        all
        other material respects this Amended Quarterly Report on Form 10-QSB/A is
        unchanged from the Amended Quarterly Report on Form 10-QSB/A previously filed
        by
        the Company on April 12, 2005.

      Preliminary
        Note to the Company’s financial statements for the period ended June 30,
        2004:

      This
        Amended Quarterly Report on Form 10-QSB/A is being filed to provide additional
        information to clarify the corrections reported in the previously Amended
        Quarterly Report on Form 10-QSB/A filed by the Company on April 12, 2005.
        The
        Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated
        Statements of Cash Flows, and Statement of Changes in Shareholders’ Equity and
        Selected Notes to Consolidated Financial Statements are labeled as “restated”
        where applicable. The restatement was in connection with the preparation
        of the
        Company’s annual report on Form 10-KSB for the year ended December 31, 2004
        where it was determined that the unamortized debt discount and the deferred
        financing costs should have been recorded as interest expense. The restated
        statements reflect the changes made in the previous quarter ended March 31,
        2004
        filed on Form 10-QSB/A of the reclassification of approximately $1.67 million
        of
        unamortized debt discount and deferred financing costs from additional
        paid-in-capital to interest expense in relation to the March 3, 2004 debt
        conversion of approximately $8.567 million in principal and accrued interest.
        The following table presents the impact of the corrections:

                                                                                                  Unaudited
                    Consolidated Statements of
                    Operations

                  Three
                    Months Ended

                  June
                    30, 2004

                  Six
                    Months Ended

                  June
                    30, 2004

                  Originally
                    Filed

                  Restated

                  Originally
                    Filed

                  Restated

                  Other
                    income (expense)

                  $

                  8,012

                  $

                  8,012

                  $

                  (3,395,098

                  )

                  $

                  (5,068,069

                  )

                Net
                  loss

                  $

                   (1,398,722

                  )

                $
                 (1,398,722
                )
                $
                 (6,331,649
                )
                $
                 (8,004,666
                )

                  Basic
                    and diluted loss per common share

                  $

                  (0.02

                  )

                  $

                  (0.02

                  )

                  $

                  (0.11

                  )

                  $

                  (0.14

                  )

      In
        all
        other material respects this Amended Quarterly Report on Form 10-QSB/A is
        unchanged from the Amended Quarterly Report on Form 10-QSB/A previously filed
        by
        the Company on April 12, 2005.

      Preliminary
        Note to the Company’s financial statements for the period ended September 30,
        2004:

      This
        Amended Quarterly Report on Form 10-QSB/A is being filed to provide additional
        information to clarify the corrections reported in the previously Amended
        Quarterly Report on Form 10-QSB/A filed by the Company on April 12, 2005.
        The
        Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated
        Statements of Cash Flows, and Statement of Changes in Shareholders’ Equity and
        Selected Notes to Consolidated Financi