Paul Campbell - Chief Financial Officer Andrew Sculley - President and Chief Executive Officer

Shawn Lockman - Piper Jaffray Tom McGuire - Private Investor Brian Horey - Aurelian Management Aram Fuchs - Fertilemind Capital Dennis Van Zelfden - Brazos Research Eugene Conroy - Private Investor

Welcome to the Q2 2013 eMagin Corporation earnings conference call (Operator Instructions) I'll now turn the call over to Paul Campbell, Chief Financial Officer.

Good afternoon, everyone, and welcome to our second quarter ended June 30 conference call. Andrew Sculley and I are here today in our Santa Clara office, and we look forward to discussing the quarter with you. First, as always, I need to read the statement about forward-looking statement, then we will get started. During today's call, we may make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties. Such statements include reference to projections of future revenues, plans for product development and production, the company's ability to ramp up production at its manufacturing facilities, future contracts and commercial arrangements, future product benefits, future operations, liquidity and capital resources as well as statements containing words like believes, expects, estimates, plans, target, will, intend, could and other similar expressions. Risk factors are included in the company's Form 10-K for 2012 which is on file with the Securities and Exchange Commission. Except where required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events and changes in circumstances or any other reasons. With that said, I'd like to turn the call over to Andrew Sculley, President and CEO of eMagin.

Thanks, Paul, and thank you everyone for participating in our conference call. I'll give some brief introductory remarks, Paul will then go through the financial results, and then I'll go through detail of our operations, et cetera. Then we'll open up the call to questions. Our revenues for the quarter, second quarter 2013, were $7 million, reflecting both ongoing constraints in U.S. government R&D spending and to some extent additional challenges in bringing up the SNU OLED deposition to full operation and further improving yield. And again, I'll speak about that later. Although second quarter revenue did not meet our objectives, we still expect year-over-year revenue growth, which will be driven by significant increase in display shift. Increased shipment should more than offset lower R&D contract revenue. We also remain optimistic that yield on the new SNU tool, which is now about equal to the yield on the Satella machine will continue to improve. And now, I'd like to turn the call over to Paul, for his remarks on our financial results. And then again, I'll give you an update on our performance.

Thanks, Andrew. eMagin second quarter financial results reflect some other challenges we faced as an R&D provider, primarily for the U.S. government and as a leader in the developing worldwide OLED microdisplay market. Although total revenues year-to-date increased 5.5% and product revenue, mainly displays, has increased 15% year-to-date in 2013 over 2012. In second quarter 2013, overall revenues were lower than Q2 last year. This is primarily due to a $1.2 million decrease in R&D contract revenue. We receive most of our R&D contract revenue from U.S. government agencies, and we believe that R&D contract activity is down this year due at least impart to the U.S. governments sequester and budget issues. We do have a significant contract we are working with now there, the U.S. Navy, a high brightness display for avionics. Product revenue was down just $350,000 from Q2 last year. So the bulk of the change in revenue was due to the R&D contract revenue. On a sequential basis, total revenue was down $1.5 million from our revenue record setting Q1 of 2013. If you recall, Q1 revenue was $8.5 million and it was the highest revenue for the first quarter in our history. The lower number in Q2 was primarily the result of a lower average selling price than in Q1 due to the mix of products sold in the two quarters. The number of displays sold in the two quarters was about the same. The number of microdisplay shipped in Q2 decreased from Q2 last year due to some of the manufacturing challenges that we faced, including the time and resources directed toward improving yield on the new OLED deposition tool and increased labor requirements for some of our displays. In Q2 almost half of the OLED deposition for our displays was accomplished using the new deposition tool. We are continuing to apply personnel and other resources to further optimize the tool to increase yield and outlook. Currently the yield on our new OLED deposition tool is about level with older Satella deposition tool. However, as you know, we expect to continue to improve the yield on the new tool and will continue to utilize additional resources if necessary to meet those goals. These efforts combined with lower sales volume in the quarter resulted in a lower gross margin. Gross margin of 34% was 19 points lower than Q2 last year, and this is due to the higher cost and lower volume, which increased the cost per unit sold. Year-to-date, gross margin is 9 points less than last year. This is the lowest margin quarter we've had in quite some time. Going forward, we certainly expect gross margin to return to prior levels, in the 50% to 60% gross margin range, as output increases and as the sales mix balances out. Manufacturing cost increased due to increased manufacturing labor, the cost incurred in improving this performance as a new deposition tool, the mix of products produced in the quarter, and some increased depreciation due to the new equipment we purchased and put in, primarily the new OLED deposition tool. And also to cost of running both OLED deposition tools concurrently during the quarter, as opposed to just the older Satella deposition tool last year. Operating expenses for the second quarter of 2013 were $3.5 million versus $3.6 million for second quarter 2012. Operating expenses are comprised of R&D expenses and selling, general and administrative expense or SG&A. The R&D portion of these expenses increased 15% versus a year ago to 20% of revenues in the second quarter. Since we had fewer R&D contracts this year, we were unable to allocate as much R&D expense to cost of goods sold for R&D revenue. SG&A expense improved, decreasing to $2.1 million versus $2.3 million in the same quarter last year. So bottomline on the operating expenses is we continue to control them very well and at the same time we continue to invest in additional R&D. Net loss for the second quarter of 2013 was $1 million or $0.04 per diluted share versus net income of $577,000 or $0.02 per diluted share for the second quarter of 2012. EBITDA was a negative $400,000 compared to $1.6 million a year ago. However, year-to-date, we have generated about $700,000 in positive EBITDA. I'll talk a minute about the backlog. At June 30, 2012, our backlog was approximately $12.2 million. However, we just received recently a large order on our new project for $3.5 million, which would bring that backlog up to approximately $15.7 million. As always, when we talk about the backlog, you have to know that it includes display or display module orders only. There are no R&D contract numbers in there. And the backlog consists primarily of short cycle time non-binding Pos, that when we receive the timing of which can be very inconsistent. Some customers give us orders with more lead time than others and some order more frequently during the year than others. So the backlog fluctuates quite a bit, and at any point in time it's not really a great predictor of our future revenues. At June 30, 2013, the company had approximately $13.4 million of cash, cash equivalents and investments in CDs and corporate bonds, so essentially cash. And we had the same number at December 31, 2012, at the end of last year. For fiscal year 2013, we expect revenue growth over 2012, driven by a significant increase in display shift, which will more than offset a decrease in R&D contract revenue. However, based on our Q2 results and our current visibility, we have lowered our guidance for the year to total revenue in the range of $32 million to $35 million from $34 million to $39 million. As a reminder, our revenue for fiscal 2012 totaled $30.6 million. I will now turn the call back over to Andrew for his comments on manufacturing products and programs.

Thanks, Paul. To achieve our 2013 goals and our future expectations beyond, we know we must improve our manufacturing output yield. We have encountered challenges in increasing our production output and completing the optimization of the new OLED deposition machine. However, we've made significant progress and we're confident that our team will make further progress needed to meet our expectations. I'd like to discuss, where we are and talk about the process that is taking place in our facilities to make this happen. The optimization of the new tool has been more difficult than we expected. If I give you some details on what the tool is, there are two main issues in the tool. The first issue is that the chambers have a mask alignment system that has to align with the wafer. And that system was causing us great difficulty. We've now spent a significant amount of time optimizing that, and we now know exactly how it has to go. However, the issue is the system is that the tool now doesn't have the precision we need, to make sure we can hit that alignment each and every time. So we're working on building some additional equipment in the tool. This is relatively minor that will ensure that we hit that alignment to same each and every time. That has taken a significant amount of time, but the good news is that we have significant yield improvement, because of that. The second area that we've encountered problems is that in one of the chambers, we've had to run it at half the production capacity that we're capable of. It was generating many particles, and as you know, the more particles you generate, we have cosmetic problems with the displays, but also the particles can break through the seal, and without the seal the OLED doesn't work. So we've taken some steps there to run it at half production output. However, we've done is electronic arrangement that we believe would make the tool operate appropriately. We've asked SNU, because we didn't want to spend any more time at our tool here. We've asked SNU to verify that in Korea. They've run it in the same chamber in Korea. They've run it at full rate. The rate that we need as well as it also succeeded in cutting the particles down significantly. So the particle problem is done and the rate is where it needs to be. Next, we'll install this in our new tool and optimize the running conditions. This, of course, the tool will go down for a week, but it will double its output and reduce particle generation. In addition, we're adding some equipment that it will allow the engineers and technician on the tool to quickly take periodic measurements. This is going to allow us to monitor things more quickly and further our yield improvement. Our engineering and manufacturing team's emphasis on our yield improvement program has been very productive, finding these issues and a way to fix them. We're continuing these efforts to improve the yield further. As we said right now, we're at the Satella level, but we need to go further. And we're at the Satella level on an apples-to-apples basis based on how well we have done in the past. We've also applied more personnel to ensure both deposition tools are manned and also as we have more volume to do and more difficult products to do, we have the people in the backend to handle that as well. Beyond manufacturing, we've continued to do the R&D necessary for future success. We've made some great strides in the development of more complex sophisticated microdisplays that deliver higher brightness, better color, and require less power. During the second quarter we have reaffirmed our technological leadership in developing OLED microdisplays. In this industry, we are the leader. We announced we have developed, what we believe is the world's brightest OLED microdisplay, the OLED-XLS. This display can deliver 1,000 nits. Now, for comparison, your TV may run at 350 to 400 or so nits. The OLED-XLS has received positive reviews from our customers and is being qualified for full production. The other outstanding advantage that this technology has is at more normal luminance it runs at one-half the power with a longer life. Clearly for mobile applications that at times have to fight with outside light, high brightness is necessary. But also running at more normal luminance, for example indoors, the power and life is also necessary. Now, this technology is applicable to all of our resolutions. So every display we make, we can put this technology on. And that's what's so exciting for us. An example, so that everyone I know can relate to as a cell phone display today. You take your cell phone outside, it needs to fight with the sunlight. A good display will actually run about 5,000 nits, but indoors it runs at a much lower brightness, and therefore it can run with reduced power. Today, the OLED cell phones, if any of you have them, do not meet this need, they don't run, they run maybe at 300 nits. So that brightness and that power efficiency that our display has makes it an outstanding display for mobile headset applications. In addition, we are investing and developing additional new technology that will enable even higher brightness displays. These are important for aircraft cockpits, that's the NAVAIR programs really wants us to deliver color displays for their applications, and it's also applicable as I mentioned to personal headsets. We also made further progress in bringing the color gamut of our new XGA display up towards meeting the levels requested by the camera manufacture. The second quarter financial results were driven primarily by continued activity under the large defense related program in our business portfolio. I'd like to highlight just a few of these programs. We continue to shift large numbers of Display Beam Combiner Assembly, DBCAs, which is an assembly comprised of our SVGA display, combined with an optic, to our customer Exelis Geospatial Systems for the enhanced Night Vision Goggle II program, that's ENVG II. Exelis was also awarded funding for production year three for ENVG II. We expect deliveries to continue into 2014. Building and selling these modules represent a new line of business, and we are interested in doing more of this type of work in the future to expand our future revenue opportunities. This program represented about 18% of our total product revenue in Q2. We continued our work, designing and building a high brightness 2000 x 2000 pixel display for NAVAIR, that's the U.S. Navy program, again. It's targeted for avionic head-mounted displays and high performance portable visual goggle systems. Additionally, we continue to ship displays under programs like, the FELIN; Soldier Modernization in France; also to FLIR in Sweden, for three industrial thermal camera electronic viewfinders, to BCF industries in Scotland, for the BUG binocular ultrasound goggles; and for the completion of the RED-1 Thermal Weapon Sight Remote Viewer program for the U.S. Army. I'd like to stop here, and open up the call to questions.

(Operator Instructions) And we have we Shawn Lockman from Piper Jaffray. Shawn Lockman - Piper Jaffray: Wanting to start with the new contract you mentioned that went into backlog recently. What can you tell us about the contract and is it another contract in line, so your military contracts as well?

It is a military contract that's using a different display and it's one of the things that has stringent conditions to us. We spend long time negotiating with the customers to make sure that we can manufacture them and we have to do a little more inspection. But it is a big program and its one that we didn't had before. Shawn Lockman - Piper Jaffray: Do you guys anticipate that there could be follow-ons after this order as well?

Yes. We clearly expect follow-ons.

This order is for the next, not even 12 months and usually these orders come down in annual increments, so yes, we'd expect another award before this time next year for sure, if not sooner. Shawn Lockman - Piper Jaffray: And Paul, can you give us, sort of, a sense of, you know, after a tough quarter with margins, how we should think about the margin trajectory for second half of the year and possibly into 2014? Anything you can tell us there would be helpful.

Well our margins is depended on two main factors as well as many others, but just total volume of output is a major factor in margin for us, because still overall our output is fairly small and we have a lot of fixed cost in our percentage of fixed cost, in the cost of our display. So if when our volume increases, and you can see this in our history, the margin goes up pretty dramatically just on volume as we spread our cost over more displays. So that was one of the issues we have here in Q2 is we didn't have the volume, and therefore the margin suffered. The other thing that's in our favor going forward is we expect to be improving the issues we've had on the new OLED deposition tool, and therefore increasing the yield going forward and maybe reducing some of the cost that we're incurring right now. And as those cost go down and as the yield goes up combined with the greater output, this would give us much, much better gross margin. So going forward, we see margin more in the 50% to 60% range, where we've been for several years. In fact, we had a couple of quarters where we're over 60%. But we think that's where it will be 50% to 60% over the time horizon in the future. Shawn Lockman - Piper Jaffray: And can you tell us a little bit about any, sort of, update on markets that are perhaps not exposed to sequestration and any headway you're making there?

So certainly our industrial markets are fine and growing. And I think we've mentioned in the past, we've talked to a number of more consumer type markets, the electronic viewfinder. We plan to take the new display that we have for electronic viewfinders again to countries in Asia to talk to the camera manufactures and we have some interest in them. I think we said that before, but I think now there is a good chance for us to get in. Now, that's a growth of the market, but it is a potential growth for us. The other markets on the consumer side would be things that we've talked with many companies about and those I'll leave for a future discussion.

And we have Tom McGuire on line with a question. Tom McGuire - Private Investor: Given the challenges that you've had with the new machine, how long do you think it will take in order for you to get to full optimization?

Well, as I said, we said earlier would be to the same year as Satella now, I mean, sometime this year, and we are now. So that's good news. We're ahead of where we expected to be, but it took us a lot of the second quarter to do that work. In the terms of the other problems that I've mentioned in the other chamber, and this is a double edge sword, we have to take the machine down, let's say, we plan to do it over a weekend in August. And then we have to run the chamber to make sure we had it right. That it would be a week out production, but then doubling the output would be where we need to be. So sometime after August, it's near the end of the quarter we'll be in a good shape with the machine. And actually, I would expect a running to be much better spending more time with the tool as opposed to fixing the yield. So full optimization, remember, we said we would be 10 times better than the Sattela. We don't need that capacity at the moment, but I think we'll be in good shape after we make this next fix in August.

And we have Brian Horey from Aurelian Management online with a question. Brian Horey - Aurelian Management: You mentioned needing to I think you said add some equipment or something to fix the alignment problem on the tool, what's the schedule for getting that implemented?

In this case we can guess at it and get it right, but then we have to monitor it significantly to make sure it's not going awry and I'd like to do away with that. The measuring equipment is relatively simple mechanical equipment. And I see that going over, be in sometime at the end of August. Brian Horey - Aurelian Management: I thought you said the machine itself doesn't have the precision to hit the targets that you wanted to. I mean, is there some retrofit that's needed in order to get it there? Or is this going to be a process of kind of constantly tweaking it to overcome that shortcoming?

Right now, what we've done is, we've done it as best as the tool can do it, but we'd like a little better alignment in that. Every once in a while, if you don't hit it right, the first wafers that come out aren't high yielding. So what our plan is during one of the downtimes is to put a device in that will measure the parallelism of the mask for the wafer as well as the distance much more accurately. The tool does this, but not as accurately as we would like. So we can run the tool now, but I want to hit it exactly right, every time, in a short time, and that's what we can do it today. Brian Horey - Aurelian Management: So I was going back through some of the prior calls and looking at the discussion of the progress and the tool and the original schedule was to have samples in hand to customers basically in June, I think of last year. And we've encountered a bunch of different problems with the tool over the last year. And I mean, if this were a car, you know, I think it'd be safe to say we'd call it a lemon at this point. And I'm just trying to, you know, get some perspective on whether the design spec was too aggressive, whether the vendor doesn't really have the skills to deliver what we need? How many more bumps in the road are there going to be, we've been working on it for a year and we're still not there. So what does the roadmap look like going forward do you think?

Yes, I understand your question. Actually, though, just to make sure everybody on the call knows that we have not only samples, but we've produced actual product that our customers are using. And so the machine does produce good product.

And then the machine did more or almost half of our OLED deposition, total OLED deposition in the quarter. So it is operating and producing displays. We're just trying to get more out of it than we're getting right now. Brian Horey - Aurelian Management: I understand that. But I mean, I think in November, we were talking about, hopefully, leaving the Satella behind or leaving the Satella for basically non-production types of uses. And now it's seven or eight months later. And we're still trying to tweak it. And there's discussion about having people, kind of, constantly manning the machine to make sure it doesn't get out of spec and so forth. And it doesn't sound like we're getting the leverage that we thought we're going to get out of the investment. And so I'm just raising the question, as to whether, is there a plan B that needs to be considered? Or are we realistically with insight of getting this thing to do what we want and providing the leverage that we need from an economic standpoint as well as just not having you guys spend all of your time worrying about how to get it to work?

I agree. I think I am bald from pulling out my hair now on this. But the team has done a nice job. And by the way, we do have a technician and an engineer nearby when we're running the tool, no matter, which one it is. So it's not that we're doing extra. And I did mentioned equipments to be near it, so that we can measure it and optimize it. It will help on our yield improvement going forward. We do see the light at the end of the tunnel. There're two problems I mentioned were very perplexing to us. And the fact that we've found them and found and fixed them is very good news. So we need to put it in the new electronics in the one system, to one chamber. And then I think we'll look much, much better. The other thing to mention, we have been running the Satella, of course, for two reasons. One of them is some of our customers have to re-qualify even for a simple switch from one tool to the other and there are two notably that have to do that. So we need to keep pushing them to get them off of the Satella. The other thing that we mentioned to you on the SNUs, that it has been a very positive thing for us, is this changing from one product to the other. There is no way with our product mix today. It is very different from last year with the number of different products we make. And there is no way we could have produce them if they were all on the Satella. So it's good to have that new tool. It's not very good that it took us so long to get it to where it needs to be, but the product coming off of it and into our customers' hands, it looks very good. And the other thing don't forget, at least the uniformity is much better than the Satella. But I'm looking forward to the end of this, I can assure you and I see the light.

And we have Aram Fuchs on line with the question. Aram Fuchs - Fertilemind Capital: The camera viewfinder project, if you can just give me a little more detail, I thought that was suppose to be in production in the summer, is that not true?

We had two opportunities. One of them was an external viewfinder. And that one the company decided, we weren't far enough longer than color gamut to go with this. Although, we are ahead of the LCD that they are using in the camera that's about 67% color gamut using 1953 NTSC, sorry for the detail, but there is two different standards. And we are at 75% today. So we are working to get into camera near the end of the yea, and we'd like to be in an internal viewfinder. And that's still a possibility for us. Aram Fuchs - Fertilemind Capital: When you say the company you're referencing the customer or you, eMagin?

In this case, when I was talking about the color gamut it was the decision by the customer that the external viewfinder they went for the LCD display as opposed to ours. Our color gamut, however, is better than that one. So we will hope to get into an internal viewfinder with a customer near the end of this year and next year for production. That's our goal. Aram Fuchs - Fertilemind Capital: And the drop in the gross margins, is that emblematic of your belief that you're going to get production up this quarter, i.e. did you have people effectively just sitting around waiting to work on the new tool or if not, but what exactly is the decline in gross margin?

As I have tried to explain before the gross margin is highly dependent on the volume of the output, so our volume of output in Q2 was not as we like and that had a profound effect on the gross margin. The other thing is the yield is not where we would like it to be. And yield is improving, but still not where we'd like to be. And then the third thing on gross margin is the cost of the extra labor and bringing OLED deposition tool up to where we need it to be, and also some of the extra labor that we have to do for some of these customers that have special requirements. So we can cover that as long as we have the volume. If we have a good volume quarter the margins will return up to 50% to 60%. Even with some of these additional costs that we're incurring, if we continue to incur those, so that's why we can see that when we make the calculations and we can also see it when you analyze our history. So that's what we're going on when we have that expectation of gross margin increasing back to those levels.

And Dennis Van Zelfden, he is online with the question. Dennis Van Zelfden - Brazos Research: You mentioned that roughly half of the revenue this quarter came from products produced by the new machine and roughly half came from products produced by the old machine. So let's call it roughly $3.3 million in revenue each. Yet I look back at last June, when you did $7 million and correct me if I'm wrong, you only had the old machine last year. So does that imply that the old machine is not producing nearly what it used to produce?

Well, there are two things. One if them is the difference in mix, so the old machine couldn't handle it. It would be good take the old machine down for maintenance, because it is taking a long time, after replenishment of material to pump the vacuum down and get it ready to run again. So when the new machine is, after we finish going through all of this yield work that we feel comfortable, we can take the old machine down, we'll do that. So it's a product mix as well. We could never have done this product mix last year. Dennis Van Zelfden - Brazos Research: And one last question, have any of your current or potential customers expressed concern or have any of your current or potential customers actually gone away because of your inability to ramp up production?

No one has gone away that I can think of at this point, because of that particular thing. We have had obviously some customer issues that we've worked through with them. So we feel pretty good about our customer relationship, and also the customers feel very comfortable with our products. When you look at our competition, I think you would have to say that we have the best products as well as the largest portfolio of products.

And we have Tom McGuire on line with the question. Tom McGuire - Private Investor: Just one follow-up, in terms of yields, Andrew and Paul, I know you don't like to give numbers, so I'm not going to ask you for numbers. But I'm trying to figure out what the yield on the Satella is? I kind of have a range and correct me if I'm wrong, but if the new machine is at the Satella's yield, does that still leave room for improvement of maybe a 100%, in other words, is the Satella yielding less than 50%?

We've said this before when we're talking only about the Satella that there is plenty of room for improvement. So that new machine being at the Satella yield has plenty of room for improvement. And we think we can make significant gains in that. Tom McGuire - Private Investor: And then, is the yield a function to a large degree on production, i.e. does the yield peak when the production peaks, the output can peak, does it have to get up producing 10 times the Satella?

No, that's unnecessary. To get the yield upward my direction to the manufacturing is when the machine is running well, don't shut it off until you have to replenish. And I think when the machine is running well, to keep it running, this answers partly one of the questions someone answered or asked earlier, when it's running well, then you should keep it going and it says that the yield that you're getting will more likely maintain. So we do have the ways to go in yield and it doesn't require 10 extra volumes, if we could get the weekly production done in three days that would be fine with me, until of course, we work to fill the machines capacity.

And Tom, it was just a recently that the new machine became almost equal to the Satella in yield, so for most of quarter two that was not the case. Tom McGuire - Private Investor: With the two problems that Andrew outlined with the chambers and you're saying that you see a light at the end of tunnel come, I think the end of August or whatever, but I just think we should see a step up in yield if those fix is hold, correct?

Yes. Tom McGuire - Private Investor: A significant step up?

Two things will occur, one is the step-up in yield and the other is it will allow us to run the SNU with a more reasonable pace. So a step-up and output is really, probably the primary beneficiary of getting the other target going.

Few things, one of them, I mentioned the shadow masks and the wafer, the alignment of that, precision distance away and also the levelness. And the other thing I mentioned is the electronics configuration of one of the chambers. And that electronic configuration, we've been running at half speed, because of their configuration problem. We had generated too many particles and therefore very low yield. So those two things, I would hope to have the fix of the electronics in August, that's our plan. And have the machine running much better by the end of that month, so September will be our test. Tom McGuire - Private Investor: Well, do what you need to do, we're all waiting for it.

So are we, you bet. I'm really excited.

And our last question comes from Eugene Conroy. Eugene Conroy - Private Investor: I had two questions, one on the EVF and one on direct patterning. I think it was in the 2010 ASM or something when you first said that if you told us the name of the big camera customer "it would be a name we would all recognize." And my question is will you ever be able to tell us or is it written in the NDA that eMagin must remain permanently silent because it appears that might have happened already with another customer.

The NDA, of course, does say things like that and usually what happens that also it's true for a military business like Exelis, but when we get the order and we're in, we therefore go back to Exelis, and as you know we were able to announce it. So that's the type of thing that we'll attempt to do with this camera manufacturer. Eugene Conroy - Private Investor: So as of right now, you can't ever say anything, but you might be able to, when it's announced or when it goes in the production or when it's shipped or hopefully, when someone has torn the camera down and found an eMagin chip inside of it?

Actually, that's a good one. We're going to look to you to do that. Eugene Conroy - Private Investor: Well, in other words, I guess, my question is will we ever see a light at the end of this tunnel or is it no end of the tunnel?

Well, in that case we will plead with the customer to allow us to announce it and they may or may not do that. We do have some customers that never want us to say a word. I'll give you one example. We had our displays in electronic viewfinder for a cinema camera, and that customer didn't allow us to announce it. Eugene Conroy - Private Investor: That's the one I was referring to, I think.

That one, I don't know that they ever will, but you'll note that there is an OLED display in the cinema camera, and I'll leave it to you to guess. Eugene Conroy - Private Investor: Well, everybody seems to think it's an eMagin display, but as you said you've never been able to officially announce it?

Yes. And that's one of those companies that, some of them are just very private, they don't want to give the hint at all about what they are doing.

But we do have a display in our cinema camera, that's the fact. We just can't say whose it is. Eugene Conroy - Private Investor: But you think there is big one, whose name we'd all recognize that sooner or later you will be able to tell us who it is?

Well, I would hope that. That company is probably very closed mouthed too, so we'll see. It's a much bigger company. Eugene Conroy - Private Investor: I was a little confused on the answer to previous question, I thought you had said at the last conference call that one company had two projects, an internal one that started at the beginning of the year, but wasn't due to finish until the end. And this August external one, which you had said that eMagin couldn't do, but I understood that the internal one was still on track. But your answer to a previous question implied to some uncertainty about whether you had the internal project still?

The external one we're hoping we could get and we did not. And the internal one, which would be a next year full production, is one that we're still going out after and the company is still very interested in us. Eugene Conroy - Private Investor: But it's not an actual commitment yet?

No. I don't think we'll see a commitment until they've actually brought our display. Eugene Conroy - Private Investor: My other question was on direct patterning. On November 6, 2012 and June 15 reconfirming it on 2013, the OLED info site reported that eMagin had said it hopes to have direct emission prototype chips available by the end of 2013. Did I miss this statement or are those reports incorrect?

What we'll have at the end of 2013, beginning of 2014 there is a demonstration chip that shows that we can pattern. It will be probably a bigger display like the size of our WUXGA, but only a VGA resolution. It's still will show that a patterning capability that no one else can do today. Our dots per inch on our 9.6 micron pixel picture about 9,400. You might know that a regular display that Samsung would put OLED on comes nowhere near that, one-tenth of that at best. Eugene Conroy - Private Investor: But that means then that if the production tool, the full production for products doesn't come till spring of 2014, if it takes as long as a SNU tool did, you aren't going to be really producing direct pattern products till 2016, I guess?

Well, first our goal is to demonstrate and then actually we have a precision alignment tool that we are purchasing now to help us out. You can't pattern without alignment, no matter what method you'd use. And that that will produce product sometime in first half of next year like the second quarter, I would look to it. Eugene Conroy - Private Investor: So you don't see another two year delay like you had with the SNU tool?

No, in this case we'll be able to sell a small volumes off of that, but I think the ones most interesting or interested in that in the beginning will be the avionics because they help fund it, we need to satisfy them.

I would now like to turn the call over to Andrew Sculley for closing remark.

Well, I want to thank everyone for being on the call and thank you for the questions. A thank you belongs to the eMagin engineering and manufacturing team, who have worked like mad to a find out what the problems where with the tool and find fixes. I am looking forward to that team putting them in and getting them operational during this quarter, and therefore having a better output out of the machine and also better yield. So the entire eMagin team worked very hard to get to where we are now, even though I know it's a disappointing quarter to us and you. And I look forward to looking towards the third quarter conference call, where we can give you the results of our improvements to manufacturing. So thanks for being on the call. And please don't hesitate to send us any suggestions you have and if you see any of our people thank them for the good effort. Thank you, folks.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. And you may now disconnect.