Table of Contents

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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, or Report, contains forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” and elsewhere in this Report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

In particular,Important factors, among others, that may affect the future results expressed or implied by forward-looking statements in this Report include statements about:include:

changes in federal budget priorities and the timing of government funding and its potential impact on customer buying decision;

increasing competition;

our ability to satisfy the requirements and milestones imposed as conditions to the receipt of the government awards we have received and to otherwise comply with the terms of government awards we receive;

our ability to reproduce the favorable impact of reclaimed displays on our 2022 total gross profit and total gross margin in future periods;

our ability to maintain effective internal controls, including internal control over financial reporting;

the impact of any significant congressional delays or reductions in appropriations for programs our military customers participate in; and

provisions in certain of our organizational documents, commercial agreements, government awards, and our military contracts that may prevent or delay an acquisition of, partnership with, or investment in us and our ability to develop original equipment manufacturer and mass production partnerships.

The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.

In this Report, references to “eMagin Corporation,” “eMagin,” “the Company,”, “we,” “us,” and “our company” refer to eMagin Corporation and our wholly owned subsidiary, Virtual Vision, Inc. References to “Consumer Night Vision Business” refers to our former consumer night vision products business.business, which we exited in 2018.

eMagin® is a registered trademark of eMagin Corporation. dPd^TM is an unregistered trademark of eMagin. All rights reserved. All other trademarks used in this Annual Report are the property of their respective owners.

Summary of Risk Factors

We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:

Risks related to our financial position, including risks relating to:

our ability to continue as a going concern;

our ability to generate revenue or obtain financing to mitigate the going concern risk;

our ability to meet obligations and continue our current level of operations;

uncertainty regarding our ability to obtain additional capital funding; and

the impact of reclaimed displays previously written off.

Risks related to our business and industry, including risks relating to:

the impact of significant fluctuations in our operating results;

the impact of production challenges on our ability to deliver against orders or introduce new products;

dependence on critical machines and tools that can break down and impact production;

reliance on sole and limited source suppliers;

the impact of supply chain shortages and increased demand;

the impact of inflation on our production costs, revenue, and profit margins;

the impact of the COVID-19 pandemic on our business;

the impact of material requirements planning on demand and capacity;

the variability of production yields;

demand changes due to economic conditions, governmental regulations and alternative technologies;

the highly competitive nature of the display industry;

advantages our competitors have over us;

variations in cyclical demand;

product sales that are subject to lengthy OEM development periods;

the need to develop new products or enhancements to maintain or improve our profit margins;

the impact of a failure to develop and maintain relationships with companies that use our technology;

the variability of our military and commercial contract revenue and future licensing revenue;

the dependency of our AR/VR display development efforts on overall acceptance of AR/VR systems in the marketplace;

the speed of development of the market segments for consumer and commercial AR/VR systems; and

the impact of rescheduling and or/ cancellations of orders to our backlog.

Risks related to ownership of our common stock, including risks related to:

the volatility in the market price of our common stock;

share price risk related to provisions in agreements limit our ability to engage in mergers and acquisitions;

risks related to maintaining or losing our NYSE American listing;

the potential dilutive impact of future issuance of additional shares of common stock;

the expectation that we will not pay dividends in the foreseeable future;

the nature and content of public research reports about us;

the impact of anti-takeover provisions in our governing documents and under Delaware law;

the ability of Series B convertible preferred stockholders to hinder a change in control that might increase our market price;

the ability of Series B convertible preferred stockholders to block transactions that might benefit our share price;

the potential impact on our share price of sales of large blocks of our common stock held by the Series B convertible preferred stockholders; and

the impact of any failure to maintain effective internal controls and governance standards.

Risks related to our indebtedness, including risks relating to:

asset based lending, or ABL facility covenants that impose operating and financial restrictions;

risks related to repayment of ABL facility;

the potential impact of non-renewal of the ABL facility; and

the impact of variable rate provisions on our debt service obligations and interest expense.

Risks related to our intellectual property, including risks related to:

protection of our patents and technology;

intellectual property risks from conducting business in foreign jurisdictions;

changes to patent law; and

the potential impact of defending third party claims against us.

Risks related to governmental, legal or regulatory matters, including risks related to:

the impact of changes in federal budget priorities on display revenue;

the impact of changes in federal budget priorities on research and development, or R&D, contract revenue;

the impact of governmental and customer’s bid process on our revenues and profits;

our ability to obtain government funding and perform under award conditions;

the impact of compliance with U.S. government procurement laws and regulations;

the impact of compliance with economic sanctions, export control laws, and related regulations; and

compliance with environmental regulations and possible liability.

Risks related to Information Technology, including risks related to:

the reliance of our business on our Information Technology systems; and

the impact of a potential security breach on our business.

General risks, including risks relating to:

our ability to attract and retain key personnel;

economic conditions may adversely impact our business;

risks related to international transactions;

risks related to product liability claims; and

the impact of changes in accounting principle on our reported financial results.

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PART I

ITEM 1. BUSINESS

Introduction

We design, develop, manufacture and market organic light emitting diode, or OLED miniature displays, which we refer to as OLED-on-silicon microdisplays, virtual imaging products that utilize OLED microdisplays, and related products. We also perform research in the OLED field. We are one of the leading U.S. producers of OLED microdisplays and manufacture our products at our facility located in the Hudson Valley of New York State. Our virtual imaging products integrate OLED technology with silicon chips to produce high-resolution microdisplays which, when viewed through a magnifying headset, 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 in the military, consumer and commercial markets to develop and market improved or new electronic products. We believe our Direct Patterning Technology, or dPd™, could significantly transform the way the world consumes information. Since 2001, our microdisplays have been used in AR/VR, aircraft helmets, heads-up display systems, thermal scopes, night vision goggles, weapon systems and a variety of other applications.

We believe that our OLED microdisplays offer a number of significant advantages over comparable liquid crystal microdisplays, including higher contrast, greater power efficiency, less weight, more compact size, and negligible image smearing. Using our active matrix OLED technology, many computer and electronic system functions can be built directly into the OLED microdisplay silicon backplane, resulting in compact, high resolution and power efficient systems. Already proven in military and commercial systems, our product portfolio of OLED microdisplays deliver high-resolution, virtual images that perform effectively even in extreme temperatures and high-vibration conditions.

Our OEM customers incorporate our OLED displays in a variety of products including, military aviation helmets, military weapons sights and targeting systems, night vision and thermal imaging devices, training and simulation, visualization for ocular surgery, mobile ultrasound, and augmented reality applications.

We believe our technology, intellectual property portfolio and position in the marketplace give us a leadership position in OLED and OLED-on-silicon microdisplay technology. We have an intellectual property portfolio that includes 3550 issued U.S. patents and 1814 pending U.S. patent applications, (one of which have received a Notice of Allowance), and have over 20 years of manufacturing know-how and other proprietary technologies to create our high performancehigh-performance OLED microdisplays. We also have 322 issued foreign patents and 2112 pending foreign filings.patent applications. We believe that we are one of only a few companies to market and produce significant quantities of high resolution, small molecule OLED-on-silicon microdisplays.

We also believe that our direct patterning (“dPd”) technology,Consumer, commercial (in which we introduced during 2018, givesinclude the medical and industrial sectors), and military customers are increasingly turning to us an advantage over otherbecause of our technological leadership in display brightness and resolution. This leadership in brightness is further demonstrated by our proprietary dPd capability. Unlike traditional OLED microdisplays because it allows usthat produce colors by using a white source with filters that eliminate about 80% of the emitted light, with dPd we make full color displays by directly depositing each of the primary color materials on respective sub-pixels, without the use of filters. We have fabricated full color displays, including our 4kX4k and WUXGA displays using our dPd tool, which was newly upgraded and installed during 2021. In July 2021, using our dPd technology we created full color WUXGA displays with a brightness of over 10,000 cd/m2, which we demonstrated to produce microdisplays withindustry analysts in October 2021. We expect to achieve a brightness level of over 22,000 cd/m2 ready for mass production of full color displays by 2024. We achieved the highhighest monochrome brightness required for VRlevels in the market years ago and AR and certain military applications. Traditional OLED microdisplays utilize white emitting OLEDare continuing our leadership with color filtersdisplays. Display brightness is critical for AR/VR devices because of optics inefficiency and the need to eliminate motion artifacts. This is especially important for heads up displays used in bright, daylight environments. Our high resolution and small pixel pitch are also important to eliminate the “screen door” effect that lessen the intensitycomes with expanding lower resolution displays over wide fields of emitted light by as much as 80%, significantly reducing brightness. Microdisplays manufactured byview. We continue our development work for a tier-one consumer electronics company customer and are targeting similar levels of brightness on proof-of-concept displays using our full color dPd technology do not require color filters to achieve color variations and allow for the application of more efficient OLED structures which achieve higher brightness. dPd also allows for much lower power and longer life when run at the same luminance of a color filter display.process.

We derive the majority of our revenue from sales of our OLED microdisplay products. We also earn revenue from commercial, consumer product and government development contracts that may complement and support our internal research and development programs. In addition, we generate sales from optics and microdisplays combined with optics. And finally, as the technology leader in this space, we may see future opportunities to license technologies like dPd to OEMs and other global manufacturers.

We were formed in March 2000, through the merger of Fashion Dynamics Corporation, and FED Corporation, a developer and manufacturer of optical systems and microdisplays for use in the electronics industry. Simultaneous with this merger, we changed our name to eMagin Corporation. We are incorporated in the state of Delaware. 

Our common stock is traded on the NYSE:NYSE American under the symbol EMAN.

Our Industry

A microdisplay generally has a screen size that is less than two inches in diagonal. The miniature size enables microdisplays to be used in a wide variety of applications that require a screen that takes up small space, such as head‑head-mounted displays or HMDs, weapon sights, and viewfinders of digital cameras. Microdisplays are used across various industries, including the military, commercial, and consumer markets in which we operate. Microdisplays provide many advantages over other displays where small size is a requirement. Benefits include compact size, high brightness and resolution, low power consumption, and high contrast.

Our Technology Platform

Our microdisplays are based upon active matrix small molecule OLED technology, which we refer to as active matrix OLED or AMOLED. Our AMOLED technology permits us to build millions of individual low‑low-voltage light sources on low‑low-cost, silicon computer chips to produce single color, white or full‑full-color display arrays. Our technology allows many computer and video electronic system functions to be built directly into the silicon chip, under the OLED film, resulting in a compact, integrated system with lower overall system costs relative to alternative technologies.

OLEDs are thin films of stable organic materials that emit light of various colors when a voltage is applied to them. OLEDs are emissive devices, which mean that they create their own light, as opposed to liquid crystal displays, which require a separate light source. As a result, our OLED microdisplays use less power and deliver much higher contrast and fuller color than liquid crystal microdisplays. Unlike liquid crystal displays which use crossed polarizers to generate black level, OLED displays exhibit an extremely high contrast ratio which results in very vivid images. 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 some other technologies.

Our technology is based on integrating a proprietary OLED device with a specially designed silicon backplane to produce efficient and high performancehigh-performance AMOLED microdisplays. Our OLED displays incorporate a proprietary, top‑top-emitting structure for our OLED devices that enables OLED displays to be built on opaque silicon integrated circuits rather than only on glass. Our OLED microdisplays emit full visible spectrum (white) light that is isolatedsplit with color filters to create color images. Our microdisplays’ performance meets or exceeds the requirements for a typical notebook computer or cell phone and is useful for a myriad of applications. New processes and device improvements, such as our OLED‑OLED-XLS and OLED-XLE technologies, offer even better performance including brightness and efficiency.

We have developed extremelyvery bright OLED microdisplays using our patented dPd technology and have demonstrated color high resolution 2K4K x 2K4K displays and widescreen ultra extendedultra-extended graphics array, or WUXGA, microdisplays with brightness in excess of 7,50010,000 nits, which we believe is the world’s highest resolution and brightness.brightness OLED microdisplay. In addition to our AMOLED technology, we have developed compact optic and lens enhancements, which when coupled with the microdisplay, help our OEM customers provide a high qualityhigh-quality large screen appearance. In December 2022 we took delivery of an R&D chamber for our OLED deposition tool that will enable us to further enhance this dPd technology. The design process for this R&D chamber has played a key role in defining the specifications for the large production-capable dPd organic deposition tool purchased under Title III funding, that passed acceptance testing at the vendors facility and will be delivered to us in the second quarter of 2023.

We believe that our AMOLED technology provides significant advantages over other microdisplay technologies in our targeted markets. These key advantages include:

high brightness;

sharp contrast;

vivid colors;

low power consumption for improved battery life and longer system life;

high-speed performance resulting in clear video images;

compact form factor and light weight;

wide operating temperature range;

good environmental stability (vibration and humidity); and

anticipated low manufacturing cost at higher volumes.

Our Market Opportunities

We target the military, commercial (in which we include the medical and industrial sectors), and consumer markets with many of our products catering to multiple markets. Within each of these market sectors we believe that our OLED microdisplays, when combined with compact optic lenses, can become a key component for a variety of mobile electronic products.

Military

We believe eMagin is the only U.S. manufacturer of OLED microdisplays. We believe that head‑head-mounted systems incorporating our high brightness OLED microdisplays increase the user’s effectiveness by allowing hands‑hands-free operation and increased situational awareness with sufficient brightness for use in daylight, yet controllabledimmable for nighttime light security. As a COTS (commercial off‑the‑shelf) component, OLED microdisplays possess performance characteristics important to demanding military and commercial (e.g., industrial)industrial and medical) applications, including high contrast, wide dimming range, shock and vibration resistance, and insensitivity to high G‑G-forces. The design features and performance characteristics of our OLED microdisplays reduce the size, weight, and power required by current and future military systems, while also providing a wide operating temperature range. The image does not flicker or have color breakup in vibrating environments and the microdisplay’s wide viewing angle allows ease of viewing for long periods. Most important, our OLED’s low power consumption reduces battery weight and, for military applications, reduces constraints on mission length due to battery life. The OLED’s wide operating temperature range is of special interest for military applications because the display can turn on instantly at temperatures far below freezing and can operate at high temperatures such as in desert conditions. We believe that our microdisplay products provide power advantages over other microdisplay technologies, particularly liquid crystal displays which require backlights and heaters and cannot provide instant‑instant-on capabilities at low

temperatures. Incorporating OLED microdisplays into aviation helmets has been made possible in part by the high brightness, high contrast and other performance features of the OLED technology that we have developed.

Our products’ military applications primarily fall into three broad areas: (1) helmet‑helmet-mounted and handheld displays for situational awareness and data; (2) night vision/thermal imaging goggles, weapons sights, and handheld viewers; and (3) training and simulation devices. These systems are also well suited for demanding operations including; homeland defense, fire and rescue and urban security.

Situational Awareness. Our OLED microdisplays have been incorporated into a broad range of U.S. and foreign military situational awareness programs. Situational awareness products include head‑head-mounted displays that are used to display images, including digital map, sensor imagery and pilot aviation information. In addition, handheld imagers provide improved situational awareness on the battlefield, as well as in training and simulation. These products can also be combined with a weapon system to give the user the capability to select targets without direct exposure. During 2019,2022, we delivered initialreceived orders to sell displays under a program with Collins Aerospacea prime contractor to support the F-35 Lightning II helmet mounted display systems. These custom designed OLED displays are a key component in providing superiorenhanced contrast with no “green glow” inherent in the previous display. We will continueand projection of images and symbology display as compared to deliver displays throughout 2020 while working closely with Collins Aerospace to further improve the display in preparation for Limited Rate Initial Production, or LRIP.LCD technology.

Night Vision/Thermal Imaging. Night vision goggles allow the user to see in low light conditions. Most versions include two different technologies: infrared/thermal and image intensification. Third and fourth generation military devices generally use some combination of the two technologies. Thermal imagers detect infrared energy (heat) and convert it into an electronic signal. The resulting signal needs to be presented on a display. Heat sensed by an infrared camera can be very precisely quantified, or measured, allowing the user to not only monitor thermal performance, but also identify and evaluate the relative severity of heat‑heat-related problems. Thermal imaging systems can be stand‑stand-alone handheld systems or integrated as part of the aiming mechanism for a larger system. Advances in sensor technology, both in sensitivity and resolution as well as economic efficiency, have been the driving factors in the adoption of thermal technologies for military applications. We believe the power efficiency and environmental ruggedness of our products are strong competitive advantages, particularly for smaller handheld non‑non-cooled systems. Fielded products incorporating our OLED microdisplays include Enhanced Night Vision Binocular (ENVG-B), Enhanced Night Vision Goggle II, the Enhanced Night Vision Goggle III, the Enhanced Night Vision Binocular, Javelin CLU medium‑medium-range anti‑anti-tank missile system, Thermal weapons sights, Laser Targeting Locator Modules, handheld and clip on thermal imagers.

Training and Simulation. Our OLED microdisplays are purchased by OEMs for use with their simulation and training products. Our displays have been commercialized and prototyped for situational awareness and night vision/thermal imaging applications by military systems integrators.

Commercial

We believe that a wide variety of commercial markets (in which we include the medical and industrial sectors) offer significant opportunities for our products due to increasing demand for instant data accessibility in mobile workplace environments and the benefit of mobile displays to enhance visual performance. This market also includes night and thermal imaging systems for law enforcement and first responders. Examples of existing and potential microdisplay applications include enhanced visualization for ocular surgery, mobile ultrasound, mobile nondestructive testing, enhanced vision for those with visual impairments, immediate access to inventory records or maintenance and construction manuals, routine quality assurance inspection, and real‑real-time viewing of images and data for a variety of applications. As an example, a user wearing an HMD while operating test equipment, such as an oscilloscope, can view technical data while simultaneously probing printed circuit boards. Current commercial products equipped with our OLED microdisplays in these sectors include those produced by Alcon, Abbott Laboratories,AMO Wavefront, IMV (formerly BCF), Liteye, Trijicon, FLIR Systems, and Nordic NeuroLab, and VRmagic.NeuroLab.

Consumer

We believe a major driver of the longer term near‑near-eye virtual imaging microdisplay market is the growing consumer demand for mobile access to larger volumes of information and entertainment in smaller and more affordable packages. This desire for mobility and immersive content has resulted in the development of mobile video personal viewer products in three general categories:

immersive VR headset-application platforms such as accessories for gaming computers, and wearable telepresence systems;

AR glasses and personal viewers for cell phones; and

low cost thermal and low light imaging incorporated in scopes for hunting and other outdoor activities.

When we are able to manufacture our OLED displays in higher volumes at reduced costs and capitalize on our dPd technology, we believe that our products will be increasingly well positioned to compete with other microdisplays and cell phone size displays in the rapidly growing consumer market, particularly as demand expands for sophisticated mobile personal viewers offering higher resolution and better image quality for VR and AR applications. Users of VR HMDs are demanding a fully immersive experience. We believe our dPd technology addresses the critical performance parameters for next generation VR HMDs, including higher brightness, sharper resolution, lower power consumption, elimination of motion artifacts, and longer life. Our strategy for addressing the consumer mass

market includes developing partnerships with both Tier Onetier-one consumer companies and high volumehigh-volume production manufacturing companies.

Potential applications for these personal viewers include handheld personal computers and mobile devices, such as smartphones, whose small, direct view screens limit the amount of information that can be displayed but which are now capable of running more complex software applications. Examples encompass applications where hands‑hands-free viewing is desired such as entertainment and gaming video headset systems; night timenighttime or thermal imaging devices for hunting, camping, and other outdoor activities; and maintenance applications. In addition, in late 2015, we entered into a HMD technology licensing agreement with a Tier Onetier-one consumer electronics company which includes the use of our 2K × 2K displays in its consumer headsets. In first quarter 2017, we entered into an agreement with a Tier Onean additional tier-one company interested in incorporating our proprietary dPd technology into potential headset products. Also during first quarter 2017, we performed tests for a Tier Onetier-one consumer electronics company demonstrating our dPd technology as a path for AR and VR. We also entered into agreements with Tier Onetier-one companies to develop a new display design for Virtual Reality, and scale our dPd technology. During 2018, we designed a silicon backplane for this 4K design which is anticipated to have a 100 degree100-degree field of view. In late 2018 we received the first silicon wafers based on our 4K design from a foundry, and began testing and applying OLED materials to the wafers in furtherance, of our development efforts. During 2019, we demonstrated a 4K display at a major industry conference. During 2020, we entered into an agreement with another tier-one consumer company to design a display. During 2021, we demonstrated a new prototype for a widescreen ultra-extended graphics array (WUXGA) (1920x1200 pixels) that uses our dPd technology to achieve 10,000 candela per square meter (cd/m2) of maximum luminance, which we believe is the world’s brightest high-resolution, full-color OLED microdisplays. During 2022 we continued work on our dPd display roadmap and made continuing enhancements to our high-brightness XLE process.

Our Products

Our first commercial microdisplay, the super video graphics array, or SVGA+, Active Matrix OLED, was introduced in 2001. In 2008, we introduced engineering samples of our super extended graphics array, or SXGA, 120 OLED microdisplays and began selling significant quantities of the product in 2010. In 2010, we introduced the VGA microdisplay. In late 2011, we began selling pre‑pre-production samples of our WUXGA OLED microdisplay which is now qualified and in production. In 2014, we released our Digital SVGA, and in 2015, we released our smaller pixel pitch digital SXGA and SXGA096, as well as an upgrade to the SXGA120 and WUXGA.WUXGA displays. Our OLED display products are being designed in products to be manufactured by OEM customers for a wide variety of military, commercial, and consumer applications. We offer our products to OEMs and other buyers as both separate components, integrated bundles coupled with our own optics, or complete systems. We also offer engineering support to enable customers to integrate our products into their own product development programs and design customized displays with resolutions or features to meet specific customer requirements. In 2015, we announced the development of a prototype immersive headset that uses our prototype 2K × 2K display. During 2016, we demonstrated what we believe to be the world’s highest brightness (~4,500 cd/m2) and highest resolution (1920x1200 pixels) microdisplay using our proprietary dPd technology. During 2017, we developed prototype displays of our 2K x 2K display with an advanced backplane design and brightness exceeding 5,000 cd/m2. During 2018, we continued to make improvements in the features and brightness of our displays and achieved over 7,500 nits in our WUXGA displays. We have shipped sample high brightness displays fabricated using our dPd technology to numerous customers. During 2019, we shipped our dPd tool to the vendor for upgrading to enable better performance and yield. We expectFollowing the upgrade, we received the tool back from the vendor and began fabricating dPd prototypes during the second half of 2020 and have sent samples to be operational followingcustomers for evaluation. During 2021, we achieved full color brightness levels of over 10,000 cd/m2 on WUXGA displays which were demonstrated to industry analysts, and exhibited at a tradeshow in customer headsets. After receipt and qualification of an advanced dPd tool which we purchased with the help of government grants, we expect to achieve a brightness level of over 22,000 cd/m2 ready for mass production of full color displays by 2024. During 2021 we completed the manufacturing qualification process for our high-luminance and power-efficient XLE displays and began to ramp production to meet customer demand. Our current XLE displays are qualified at over 1,500 cd/m2. These displays use

eMagin’s existing backplane and are compatible with designs used by many customers, thereby providing an upgrade during second quarter 2020.in luminance levels. Several of the display types listed below are currently available in XLE luminance levels.

SVGA+ OLED Microdisplay Series (Super Video Graphics Array of 852x600)

The SVGA+ OLED Microdisplay Series is a 0.62 inch diagonal microdisplay that has a resolution of 852x600 triad pixels (1.53 million picture elements). The display also has an internal monochrome video decoder for low power night vision systems. The SVGA+ Rev3 OLED‑OLED-XL microdisplay is a power efficient OLED display solution for near‑near-eye personal viewer applications which uses less than 115 mW power in monochrome for thermal imaging applications, and lower than 175 mW at 200 cd/m2 for full color video.

Digital SVGA OLED‑OLED-XL (800x600)

The Digital SVGA or DSVGA OLED‑OLED-XL is an 800 × 600 display with 15 micron pixels and a 0.6 inch diagonal. It has all the benefits of our other digital displays, including lower power (100 mW monochrome and 135 mW color), high (10,000 to 1) contrast, and also features a digital composite signal interface, enabling a minimal physical interface for color applications.

SXGA096 OLED‑OLED-XL/XLSXLS/XLE (Super eXtended Graphics Array, 1280 x 1024)

The SXGA096 display features a 9.6‑9.6-micron color pixel and was designed with the same level of feature integration as the DSVGA microdisplay, as well as a low pin‑pin-count, high speed low voltage differential signaling, or LVDS, data interface. The compactness and high information content of the SXGA096 makes it ideal for small form factor applications such as commercial headsets and smart weapon sights. This microdisplay incorporates OLED XLS technology more than doubling the OLED XL brightness. This expands the range of optical solutions that can be used with this display to result in smaller and lighter display modules.

SXGA OLED‑OLED-XL (Super eXtended Graphics Array, 1280 x 1024)

Our SXGA OLED microdisplay with a 0.77 inch diagonal active area provides 3,932,160 sub‑sub-pixels in an active area. The display’s pixel array comprises triads of vertical sub‑sub-pixels stacked side by side to make up each 12 × 12mm color pixel. The SXGA OLED‑OLED-XL microdisplay offers digital signal processing, requiring less than 200mW under typical operation. The supported video formats are SXGA, 720p, DVGA (through 1280 × 960 pixel doubling), and both frame sequential and field sequential stereovision.

Our SXGA-120active array microdisplay is comprised of 1292 x 1036 square pixels with a 12-micron pitch and a 69% fill factor. An extra 12 columns and 12 rows (beyond the 1280 x 1024 main array) are provided to enable the active SXGA-120 display to be shifted by steps of 1 or 2 pixels in the X and Y directions for optical alignment purposes. The SXGA-120 is well suited to use in Weapon and Night Vision Systems using an FPGA and a SXGA or 720P camera source. It shares compatibility with the VGA display allowing for a common drive platform. It is also suitable for use in HMD’s requiring a balance between display size and FOV having a large pixel size making wider FOV easier to accomplish.

VGA OLED‑OLED-XL (Video Graphics Array, 640 x 480)

The VGA OLED‑OLED-XL microdisplay is our smallest (0.5 inches) and lowest powered (<60 mW monochrome/<100 mW color). The VGA OLED‑OLED-XL utilizes the same voltage pixel drive architecture and “deep black” technology as the SXGA and WUXGA designs and includes motion artifact reduction technology like the WUXGA. Also like the SXGA and WUXGA, the VGA provides a FPGA driver design for maximum flexibility and versatility. The VGA interface is 30‑30-bit digital RGB.

WUXGA OLED‑OLED-XL (Widescreen Ultra eXtended Graphics Array, 1920 x 1200)

Our WUXGA OLED‑OLED-XL microdisplay provides higher resolution than most high definition, or HD, flat screen televisions. With a triad sub‑Each full pixel structure this display is built of 7,138,360 active dots atlaid out as three 3.2 microns each.x 9.6 micron identical sub-pixels, which together form the 9.6-micron square RGB color group. The WUXGA OLED‑OLED-XL is built upon the voltage pixel drive approach first developed for the SXGA OLED‑OLED-XL, which provides improved uniformity, ultra‑ultra-high contrast (measured at greater than 100,000:1) and lower power. The advanced WUXGA design features our proprietary “deep black” architecture that ensures that off‑off-pixels are truly black, automatically optimizes contrast under all conditions, and delivers better pixel to pixel uniformity. The WUXGA OLED‑OLED-XL includes a low‑low-power LVDS, serial interface and the overall display power requirement is typically less than 350 mW running standard video. Also included is our proprietary motion enhancement technology which smooths video display and virtually eliminates unwanted artifacts. Like the SXGA, the WUXGA provides a FPGA driver design available on a separate, lower power driver board, or as source code for integration into end product electronics giving OEM developers maximum versatility and flexibility. On‑On-board circuitry ensures consistent color and brightness over a wide range of operating temperatures.

2K x 2K Display (2048 x 2048)

The 2Kx2K Reconfigurable Color OLED-XL (2K_CFXL) active array is comprised of 2072 x 2072 square color pixels with a 9.3-micron pitch and a 75% fill factor. An extra 24 columns and 24 rows (beyond the 2048 x 2048 main array) are provided to enable the 2K_CFXL display to be shifted by steps of 1 pixel in the X and Y directions for optical alignment purposes. Each full pixel is laid out as three 3.1 x 9.3 micron identical sub-pixels, which together form the 9.3-micron square RGB color group. Three primary color filter stripes are applied in alignment with the sub-pixels on a white-emissive OLED layer to form the color display. The 2K is intended for near-to-eye applications that demand high brightness, high resolution, high image quality, compact size, and low power such as virtual reality and avionics systems.

Design Reference Kits

We provide design reference 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. Additionally, we provide license-free source code for these kits (Firmware and FPGA Verilog) to enable our customer to accelerate their time to market.

Integrated Modules

We provide near‑near-eye virtual imaging modules that incorporate our OLED‑on‑OLED-on-silicon microdisplays with our lenses and electronic interfaces for integration into OEM products. We have shipped customized modules to several customers, some of which have incorporated our products into their own commercial products.

Prism Optics

We sell a high quality, large viewing angle prism optics with a wide range for eye positioning which is essential for incorporating our displays in immersive near‑near-eye systems. This is an advanced molded plastic prism lens that permits our AMOLED microdisplays to provide realistic images that can be viewed for extended periods with reduced eye‑eye-fatigue.

Night Vision Smartphone Camera AttachmentDrive Boards

Through an agreement with Bild Innovative Technology we offer its line of OLED microdisplay compact driver boards to eMagin customers. Under this arrangement, customers now have the option of purchasing eMagin OLED microdisplays together with compact drive boards, thereby streamlining their prototyping efforts. The initial boards available from eMagin will be for SXGA096, SXGA120, and Goggles

In 2016, we announced night vision products for the consumer markets and began limited salesDSVGA resolutions, with more to be added in the first quarter of 2017. During the quarter ended June 30, 2018 we made a decision to exit this business. Our decision was based on lower than anticipated sales and an assessment performed during the quarter of the anticipated level of additional engineering, marketing and financial resources necessary to modify the products for an expanded market. As a result, we concluded an impairment had occurred and wrote-down the related inventory and production tooling which are reflected in cost of revenues in the accompanying Consolidated Statements of Operations. future.

Government Contract FundingRevenues and Government Awards

We derive a portion of our revenue from funding that we receive pursuant to research contracts or subcontracts funded by various agencies of the U.S. government. In addition, we have applied for and received U.S. government awards for the purchase of capital equipment.

In 2014,June 2020, we were awardedannounced a $5$5.5 million contractaward received under the U.S. Department of Defense Industrial Base Analysis, or IBAS, Program for OLED Supply Chain Assurance. In July 2020, we announced a $33.6 million award the U.S. Department of Defense to developsustain and produce an ultra‑enhance U.S. domestic capability for high resolution, high brightness high contrast, full color OLED microdisplaymicrodisplays that will include equipment to manufacture our dPd displays. These funds are being used to purchase capital equipment over a 33-month period that will increase capacity, improve yields, and sustain operations at a low unit cost. This Defense‑wide Manufacturing Science & Technology award, also known as ManTech, is funded by the Undersecretary of Defense for Acquisition, Technology, and Logistics and is administered byour Hopewell Junction, New York headquarters.

During 2022, the U.S. Army RDECOM CERDEC Night VisionArmy’s Program Executive Office for Simulation, Training, and Electronic Sensors Directorate ScienceInstrumentation (PEO STRI) awarded us a $2.5 million, two-year development contract to secure a U.S. source for a high-performance microdisplay that provides high brightness and Technology Division. We earnedvisual acuity, even in bright daylight conditions. In 2022, we recognized $1.3 million of revenue under the initial phase of this contract, which was related to the design of a substantial portionbackplane that will allow for significantly higher luminance of our R&Ddisplays. The PEO STRI contract provides that upon completion a follow-on production agreement may be issued without the need for a competitive process.

We earn revenue in 2016 through the completion of this program during 2018 from this contract. In December 2018, we received a Defense Manufacturing Technology Achievement Award in conjunction with our work on this program.

During 2019, we made progress towards our goals of securing new U.S. military programs, broadening our presence in foreign military applications, and in commercial, including industrial and medical markets. We continue to participate in government discussions on microdisplay development for future defense aviation/mounted/dismounted programs and to position our displays as a key component of the future Soldier System 2030 technology suite for enhanced soldier performance and accelerated decision-making.  We believe we

are the only U.S. based manufacturer of OLED microdisplays, and are also working to secure additional government funding to ensure the advancement of our manufacturing capabilities in support of defense programs that may benefit from our standard and high brightness OLED microdisplays including those incorporating our dPd technology. 

Our contracts with the U.S. government, either directly or funded through contractors that require us to conduct the research effort described in the statement of work section of the contract. These contracts may be modified or terminated at the discretion of the government and are subject to authorization, appropriation and allocation of the required funding on an annual basis.

Military and Commercial Contract Funding

We also derive a portion of our revenue from funding we receive from development work we perform on behalf of customers in both the military and commercial sectors. During 2018 we were awarded contracts to design a displays for fixed and rotary wing aircraft and to develop a display suitable for use in a consumer AR VR application by one of our customers. During 2019,2022, our efforts towards consumer AR AR/VR applicationapplications continued. We were also awarded several contracts to fund our efforts to improve production yields and OLED device performance.

Our Strategy

Our strategy is to strengthen our technology leadership position and our expertise in active matrix OLED technology and silicon wafer design, including our new dPd technology. We believe we are the only U.S. OLED microdisplay manufacturer and can capitalize on our experience by supplying microdisplays and virtual imaging technology solutions for applications in military, commercial, and consumer markets, globally.   

We plan to continue our participation in U.S. government funded, and commercial contract research and development programs, which allow us to continue to advance our technology. We aim to provide microdisplays and complementary accessories to enable OEM customers serving a variety of markets, including military, and commercial and consumer, to develop and manufacture new and enhanced electronic products. The key elements of our strategy to achieve these objectives include:

Continue to be a valued supplier and partner to our military customers. Our OLED expertise has allowed us to provide displays that meet the demanding requirements of our military customers for integration into night vision and thermal systems, aviation helmets, situational awareness and training systems in service of both U.S. Armed Forces and those of our NATO and other foreign military allies. As a U.S. manufacturer of OLED microdisplays, we afford advantages to U.S. prime contractors who are restricted by military procurement regulations from buying from, or manufacturing sensitive components in China and other restricted countries. Capitalizing on this strategy, in 2020, we received U.S. Department of Defense awards to procure capital equipment to enhance our manufacturing capabilities to produce OLED microdisplays used in several key military programs.

Strengthen our technology leadership. Our advanced backplane designs, intellectual property portfolio coupled with our OLED fabrication techniques and know-how, and dPd technology allow us to produce displays that offer a competitive edge for our customers who integrate our displays into their end products. As the first to utilize AMOLED microdisplays we have a depth of knowledge and expertise, and have specialized manufacturing equipment in our in-house foundry that we believe will enable us to continue to develop performance improvements. We believe that our participation in U.S. government funded contract research and development programs, combined with our continuous investment in OLED research and development, will enable us to continue our technology leadership position.

Optimize microdisplay manufacturing efficiencies while protecting proprietary processes and partner with large volume manufacturers to bring our technology into high volume production. With the help of equipment to be provided under our U.S. government awards, we intend to reduce our production costs primarily by improving manufacturing yields, eliminate single point of failure equipment, lower fixed costs through reduced cycle time and increased automation. The U.S. government awards will also enable us to procure a dPd tool capable of producing production quantities of these high-brightness, high-resolution displays. We outsource certain portions of microdisplay production, such as chip fabrication, to minimize our costs and time to market. We intend to retain the OLED-related processes in-house, 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. We believe that this strategy will also enhance our ability to continue to optimize and customize processes and devices to meet customer needs. In order to address emerging high volume consumer electronics OLED microdisplay requirements, we are actively seeking manufacturing partners who can help us realize that objective.

Continue to build and maintain strong design capabilities. We employ in-house design capabilities supplemented by outsourced design services. Building and maintaining this capability allows us to reduce engineering costs, accelerate the design process and enhance design accuracy to respond to our customers’ needs as new markets develop. Contracting third party design support to meet demand and for specialized design skills may also remain a part of our overall long-term strategy. Given these capabilities, we continue to look for opportunities to add value to our displays to increase revenue.

Develop OEM and mass production partnerships in the consumer and commercial HMD market. As the consumer and enterprise AR/VR, market matures, we believe our technology is positioned well to address the requirements of this segment. Developing customer partners is key to establishing eMagin as the market leader for next generation displays for the consumer HMD market. Our potential channels to this market include partnering for the mass production of microdisplays and licensing our dPd technology. We believe that our dPd technology will enable next generation AR/VR hardware for the consumer and enterprise segments because the high brightness and high pixel per inch, or PPI, density afforded by the technology. Should we be successful in executing on mass production partnerships we believe it would allow us to be well positioned to meet the demands of a market predicted to experience significant growth through the 2020s.

Leverage strategic relationships. We have longstanding relationships with the U.S. military and have received technology achievement awards from the U.S. Army Communications – Electronics Research, Development and Engineering Center. We also have relationships with many U.S. and international prime military contractors. These and otherexternal relationships serve 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 help us develop new ideas and solutions. In addition, we participate in industry associations such as the Society for Information Display; SPIE, the International Society for Optics and Photonics; the Army Aviation Association of America; the Association of the United States Army, or AUSA, and the National Defense Industrial Association, among others. We believe that strategic relationships allow us to determine better the demands of the marketplace and, as a result, allow us to focus our research and development activities on satisfying our customers’ evolving requirements.

Expand into new display markets. In the future, technologies like dPd combined with our advanced backplane design capability may open the door to enabling improvements over both traditional displays outside the microdisplay market, including cell phones and other larger scale displays, as well as improving the feasibility of emerging display technologies like microLED.

Sales and Marketing

We primarily provide our OLED display and optics components to OEMs to incorporate into their branded products and sell through their own well‑well-established distribution channels. We have traditionally marketed and sold our products to customers through targeted selling, promotions, and select advertising. We identify companies with end products and applications for which we believe our products will provide a key differentiator. Marketing efforts focus on identifying prospects and communicating the product performance attributes foremost in the minds of purchasing decision‑decision-makers. We believe that this approach positions us to achieve the highest possible return on investment for our marketing expense.

We market our products in North America, Asia, and Europe directly from our sales office located at our Hopewell Junction, NYNew York facilities. We also utilize distributors in Asia and Korea.

An OEM design cycle typically requires between six6 and 36 months, depending on the uniqueness of the market, the complexity of the end product or, in the case of military OEM customers, government procurement schedules. Because our microdisplays are the main functional component that defines many of our customers’ end products, we work closely with customers to provide technical assistance throughout the product evaluation and integration process.

Another element of our marketing strategy is discussions with customers and presentations to existing and potential customers at military, industrial and consumer tradeshows. Trade shows we have exhibited at, or plan to exhibit at include; Shot Show, the largest event for the recreational hunting and shooting market, Defense and Commercial Sensing Exposition sponsored by the International Society for Optics and Photonics, Army Aviation Association of America, Special Operations Force Industry Conference, Defense and Security Equipment International, Association of the United States Army, Eurosatory-France, Land, Naval & Internal Homeland Security Systems Exhibition, the Society for Information Display, Solid State Devices and Materials conference, and the International Meeting on Information Display and OLED World Summit. A key element of our marketing is the expansion of our presence in in new, high potential markets. We are experiencing heightened interest and requests for quotation from a variety of international companies that are familiar with the performance of our microdisplays.

Customers

We sell our products directly to military contractors and OEM’s who use our displays in a diverse range of applications encompassing the military, and commercial (in which we include the medical and industrial market sectors). We classify revenues as either Military, Commercial, Consumermilitary, commercial, consumer or Multiplemultiple based on our knowledge of the customer’s products and markets served by our displays. Revenues classified as Multiplemultiple are for sales to customers that incorporate our displays in products that could be used for either military or commercial applications. We also perform funded R&D activities for both prime contractors, U.S. Governmentgovernment defense related agencies, and non-military customers, which are classified as Contract revenues. Product and Contract revenues are disclosed on the Consolidated Statements of Operations. We maintain relationships with OEMs in a diverse range of industries encompassing the military, commercial, and consumer market sectors.

The following table estimates revenues by market sectors:  

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors and the other information included herein as well as the information included in other reports and filings made with the SEC before investing in our common stock. The following factors, as well as other factors affecting our operating results and financial condition, could cause our actual future results and financial condition to differ materially from those projected. The trading price of our common stock could decline due to any of these risks, should they materialize, and you may lose part or all of your investment.

Risks Related To Our Financial Position

There is substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern, our securities will have little or no value.

Our independent registered public accounting firm has issued a report for our financial statements at December 31, 20192022 that includes an explanatory paragraph referring to our negative cash flow and recurring losses from operations, which raises substantial doubt about the Company'sour ability to continue as a going concern without additional capital becoming available. As a result of our historical losses and current financial condition, there is substantial doubt about our ability to continue as a going concern through March 31, 2021.for the twelve months from the issuance date of those financial statements. Our ability to continue as a going concern is dependent upon our uncertain ability to generate sufficient cash flows from operations, obtain equity and/or debt financing and reduce expenditures. Specifically, we have incurred substantial net losses in the past and we may incur further losses in the future. Our net losses were $4.3$1.1 million and $9.5$5.2 million for the yearyears ended December 31, 20192022 and 2018.2021, respectively. As of December 31, 2019,2022 we had an accumulated deficit of $240.6$258 million. We can give no assurances that our losses will not continue in the future or that we will be profitable in the future. Our prior losses and potential continuing or future losses have had, and wouldwill continue to have, an adverse effect on our financial condition. In order for us to achieve profitability, we must, among other things, generate sufficient cash flows and/or obtain the additional financing we need in order to continue as a going concern; generate additional revenue; manufacture our products on a timely basis and at a competitive cost; continue the progress achieved during the third and fourth quarters of 2019 in remediating theto remediate manufacturing issues that have resulted in production delays; integrate new equipment on our manufacturing line;line, including equipment provided under government awards, meet our yield improvement initiatives; and successfully reduce expenses. If we are unable to successfully take these and other necessary steps, we may never operate profitably, and, even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future. As of December 31, 2019, we2022, the Company had $4.3 million of cash, and working capital$1.0 million of $3.5 million and $8.8 million, respectively, and borrowings outstanding indebtedness and borrowing availability of $1.8 million under the Asset Based Lending Facility (“its ABL Facility”) of $2.9 million and $1.2 million, respectively. This is in comparison with cash and working capital of $3.4 million and $8.8 million, respectively, no borrowings outstanding and borrowing availability under the ABL Facility of $4.1 million at December 31, 2018.Facility.

Our cash position as of December 31, 20192022 reflects the receipt of approximately $3.5$5.8 million in net proceeds from equity raises conducted during 2019, of which $1.6 million were applied to repaymentsales of our ABL Facility. In addition, wecommon shares under an at-the-market, or ATM, facility entered into an At The Market (“ATM”) facility in November 2019 and raised approximately $0.7 million in net proceeds though February 2020. However, our2021. Our ongoing operations may require us to raise additional funds, and there are no assurances that such financing will be available on terms acceptable to us, or at all. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to reduce our expenditures or generate additional funds in the future through sales of our products, financings, government grants, loans or from other sources or transactions, we will exhaust our resources and will be unable to maintain our currently planned operations. If we cannot continue as a going concern, our stockholders would likely lose most or all of their investment in us.

Our financial condition is limited. If we are unable to generate additionalsufficient revenue or secure additional external financing when or if, required we may have to curtail our operations or cease our development plans and operations.

Our ability to continue current operations and to execute on our plans is dependent on our ability to generate sufficient cash flows from operations, the lenders continued willingness to extend credit under our ABL Facility and raise additional capital or refinance our indebtedness to meet our obligations. Although our yields improved in the third and fourth quarter of 2019, we experienced production issues in past quarters and there is a risk that a reoccurrence of these will negatively affect our products shipped, backlog, and accounts receivables for future quarters. Since the maximum amount of the borrowing base under our ABL Facility is based, in part, on our eligible accounts receivables, our borrowing ability could also be negatively impacted by any decrease in our accounts receivables. As of the December 31, 2019,2022 we had $2.9 1.0 million in borrowings outstanding, and unused borrowing availability of $1.2 1.8 million, under our ABL Facility.

We incurred net losses of $4.3$1.1 million and $9.55.2 million for the yearyears ended December 31, 20192022 and 2018,2021, respectively. Net cash used in operating activities for the years ended December 31, 20192022 and 2018 2021 was $5.1$3.5 million and $6.4$7.4 million, respectively. OnAs of December 31, 2019,2022, we had cash and cash equivalents of $3.5$4.3 million, net working capital of $8.8$17.0 million, and accounts payable of $1.3 million. This compares to $3.4 million, $8.8$2.1 million and $2.0 million, respectively, at December 31, 2018. As of December 31, 2019, we had an accumulated deficit of $240.6$258 million. If we are unable to generate sufficient revenue or secure additional external financing when required we may have to curtail our operations or cease our development plans and operations.

If we are unable to meet our obligations as they become due over the next twelve months, we may not be able to continue our current operations.

Our ability to continue current operations and to execute on our plans is dependent on our ability to generate sufficient cash flows from operations, maintain our relationships with vendors and customers, secure alternative financing or refinance our indebtedness to meet our obligations. If adequate funds are not available to us on a timely basis, or at all, we may have to reduce current operations and delay capital expenditures in order to conserve cash.

Based on our current operating plan, working capital levels, financial projections, and our ability to borrow under our ABL Facility, we anticipate being able to meet our financial obligations as they become due through the fourthfirst quarter of 2020.2024. However, there can be no assurance that our plans will be achieved.

If we do not achieve our current financial projections we will be unable to maintain our currently planned operations after the fourthfirst quarter of 2020,2024, and we may violate one or more of our financial covenants under our ABL Facility. In addition, there can be no assurance that we will be able to renew or extend our ABL Facility when it matures on December 31, 2020.2023. Although preliminary renewal discussionsrelations with the lender are positive and the Company expects the facility to be renewed upon expiration, there is no assurance the lender will renew or extend this facility or continue to make funds available during 20202023 and beyond at present availability levels, or at all. We have no additional committed external sources of funds and additional financing may not be available when we need it or on terms that are favorable to us, if at all. In addition, we may seek additional capital, or consider strategic alternatives.

We cannot provide assurance that any actions by us to raise additional funds would be successful or, if such efforts were successful, that we would generate sufficient funds to meet our financial obligations as they become due and allow us to continue current operations or that these actions would be permitted (i) under the terms of our existing or future debt agreements or (ii) by the holders of a majority of the then outstanding Series B Convertible Preferred Stock,convertible preferred stock, whose approval pursuant to the Certificate of Designations governing our Series B Convertible Preferred Stock, is required in order for us to take certain actions. If we do not have enough cash to fund our operations to profitability and if we are unable to secure additional capital, we may be required to seek strategic alternatives, including but not limited to a potential business combination, a sale of our company or our business, or a reduction and/or cessation of our operations.

We have had losses in the past and may incur losses in the future.

Our accumulated deficit is approximately $240.6 million as of December 31, 2019. We can give no assurances that we will be profitable in the future. We cannot assure you that if we become profitable that we will be able to sustain profitability or that we will not continue to incur operating losses in the future.

We may require significant additional capital funding and suchto meet our business requirements. Such capital may be difficult to obtain or may not be available to us.us at all.

In the event that our operating expenses or working capital levels are higher than anticipated, we may be required to implement contingency plans within our control to conserve and/or enhance our liquidity to meet operating needs. Such plans include implementing cost reductions and restricting our operations. Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses and increasing production and inventory levels. Our ability to meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments, the timing and amount of our operating expenses; the continued ability to raise funds under our ATM facility,additional funding, the timing and costs of working capital needs; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and any new research and development programs;programs, and any potential changes in our strategy or our planned activities. If we are unable to fund our operations without additional external financing and therefore cannot sustain future operations, we may be required to delay, reduce and/or cease our operations.

Alternatives we would consider for additional funding include additional equity or debt financings, or licensing of our technology. In addition to raising capital, weit may alsobe necessary for us to consider strategic transactions, such as partnerships or entering into a business combination, and government programs that may be available to the Company.us. If we are unable to obtain additional capital, we may not be able to sustain our future operations and may be required to reduce our headcount, sell all or a portion of our assets, delay, reduce, reorganize and/or cease our operations.operations through bankruptcy or otherwise. We cannot assure you that any necessary additional financing will be available on terms favorable to us, or at all. Additionally, even if we raise sufficient capital through additional equity or debt financings, strategic alternativestransactions or otherwise, there can be no assurance that the revenue or capital infusion will be sufficient to enable us to develop our business to a level where it will be profitable or generate positive cash flow. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. In addition, there can be no assurances that the majority holder of our Series B convertible preferred stock, will not withhold its consent for any future capital raise or strategic transaction we propose. See “The holders of shares of our Series B convertible preferred stock have exercised, and may continue to exercise, significant influence over us.”If we incur additional debt, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. The terms of any debt securities issued could also impose significant restrictions on our operations. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and may adversely impact our ability to raise additional funds.

Our 2022 total gross profit and total gross margin reflect the favorable impact of reclaimed displays that were previously written off.

Investment in our securities may involves a high degree of risk.

We have entered into a sales agreement relating to sharesOur 2022 total gross profit and total gross margin reflect the favorable impact of our common stocksuccessful qualification and sale of reclaimed displays that were previously written off because of an initial quality issue that was ultimately resolved. Total gross profit and total gross margin for 2022 do not reflect costs associated with the production of such reclaimed displays, as such costs were written off to expense in prior quarters. Such sales had a positive effect on 2022 total gross profit in the amount of approximately $1.3 million. If we exclude gross profits attributable to such previously written off products, our 2022 gross profit would have been $9.0 million and our 2022 gross margin would have been 30%. Although we expect to sell additional previously written off products in the first quarter of

2023, the gross margin and yield may offervary from 2022 levels. In the absence of such sales of reclaimed displays our future quarterly and sellfrom time to time through our sales agent. The value of our securities could decline, and investors could lose all or part of their investment. The risks and uncertainties we describe are notfiscal year gross margins may decrease, which likely would have a negative effect on the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations and tradingmarket price of our common stock. Investing in our common stock, could result in dilution to the extent of the difference between the assumed public offering price per share of our common stock

Risks Related To Our Business and the net tangible book value per share of our common stock immediately after the offering.Industry

Our operating results have significant fluctuations.fluctuations.

In addition to the variability resulting from the short‑short-term nature of commitments from our customers, other factors contribute to significant periodic quarterly fluctuations in results of operations. These factors include, but are not limited to, the following:

Our ABL Facility contains various covenants limiting demand for our products;

the discretionreceipt and timing of our management in operating our business, which could prevent us from capitalizing on business opportunitiesorders and taking some corporate actions.the timing of delivery of orders;

Our ABL Facility imposes operating and financial restrictions on us.  These restrictions limitthe amount of R&D contract or restrict, among other things, our ability to:

In addition, the ABL Facility also requires us to maintain compliance with certain financial covenants. Our ability to comply with these covenants may be affected by events beyond our control, including those described in this “Risk Factors” section. Any breach of any of the covenants contained in the ABL Facility could result in an event of default under one or more of the documents governing such obligations which would allow the lenders under the ABL Facility to prevent us from borrowing under the ABL Facility and/or declare all borrowings outstanding to be due and payable. Although relations with the lender under our ABL Facility are positive, there can be no assurance that the lender will grant a future covenant waiver or continue to lend to us at present availability levels, or at all. In the event of an acceleration of payment obligations under the ABL Facility, we would likely be unable to pay our outstanding indebtedness with our cash and cash equivalents then on hand. We could be required to seek alternative sources of funding, which may not be available on commercially reasonable terms, or terms as favorable as our current agreement or at all. If we are unable to provide alternative means of financing our operations, we may be required to reduce our operations or take other actions that are inconsistent with our current business practices or strategy.

Repayment of any outstanding indebtedness under our ABL Facility is dependent, and repayment of any future indebtedness we may incur, will be dependent upon our ability to generate cash from operations.

Our ability to make payments on our ABL Facility and to fund planned capital expenditures depends, and our ability to make payments on any additional future debt we may incur will depend, upon our ability to generate cash from our future operations. This, to a certain extent, is subject to financial, competitive, legislative, regulatory, and other factors that are beyond our control. In addition, if we cannot service the indebtedness under our ABL Facility, or any future indebtedness we may incur,nonrecurring engineering work we may have in a given year;

the inability to take actions such as selling assets, raising additional capital or reducing or delaying capital expenditures, any of which could impede the implementation of our

business strategy, prevent us from entering into transactions that would otherwise benefit our business and/or negatively affect our financial condition and results of operations.

Our ABL Facility matures on December 31, 2020, and there can be no assurance that we will be able to extend or renew the facility.

Our ABL Facility expires on December 31, 2020. While relations with the lender are positive, there is no assurance the lender will renew or extend this facility, or continue to make funds available during 2020 and beyond at present availabilityadjust expense levels or at all. We may not be able to refinance our indebtedness under our ABL Facility, or any future indebtedness we may incur, or take such other actions, if necessary, on commercially reasonable terms, or at all. Our ability to meet our obligations as they become due is dependent,delays in part, on our ability to borrow under our ABL Facility. If the ABL Facility is not renewed or extended it may impair our ability to continue current operations and to execute on our plans.

Our debt is variable rate debt, and increasesadjusting expense levels, in interest rates could adversely affect us by causing us to incur higher interest costs with respect to such variable rate debt.

The ABL Facility subjects us to interest rate risk. The rate at which we pay interest on amounts borrowed under such facility fluctuates with changes in interest rates. Accordingly, with respect to any amounts from time to time outstanding under the ABL Facility, we are and will be exposed to changes in interest rates. If we are unable to adequately manage our debt structureeither case in response to lower than expected revenues or gross margins;

the volume of orders relative to our manufacturing capacity;

manufacturing delays due to equipment failures;

changes due to quarterly fair value adjustments of our warrant liability;

product introductions and market acceptance of new products or new generations of products;

changes in the market, our interest expense could increase, which would negatively affect our financial conditioncost and resultsavailability of operations. There were $2.9 million net outstanding borrowings under the ABL Facility aslabor and components;

product mix;

variation in operating expenses; regulatory requirements and changes in duties and tariffs;

pricing and availability of December 31, 2019.competitive products and services; and

changes, whether or not anticipated, in economic conditions.

Risks Related To Manufacturing

The manufacture of activeactive matrix OLED microdisplays encompasses several complex processes resulting in irregular production schedules, including production delays and interruptions, which could adversely affect our operating results.

Our product technology and manufacturing processes are evolving which can result in production challenges and difficulties. We cannot assure you that we will be able to produce our products in sufficient quantity and quality to maintain existing customers and attract new customers. In addition, we cannot assure you that we will not experience manufacturing problems which could result in delays in delivery of orders or product introductions.

Several steps of our production processes are dependent upon certain critical machines and tools which have in the past, and could in the future, result in delivery interruptions and reduced revenues.

We currently have equipment that is critical to our manufacturing operations for which there is no redundancy. 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 in a timely manner. Interruptions in our manufacturing could be caused by equipment problems, the introduction of new equipment into the manufacturing process or delays in the delivery of new manufacturing equipment. Lead‑Lead-time for delivery, installation, testing, repair, and maintenance of manufacturing equipment can be extensive. We have experiencedWhile we are continually making improvements in production interruptions and/or delays in the past, including in the first and second quarters of fiscal 2019 andprocesses; no assurance can be given that we will not lose potential sales or be unable to meet production orders due to future production delays or interruptions in our manufacturing line. For example, in the fourth quarter of fiscal 2018 and six months ended June 30, 2019, production yields and output were negatively impacted by delays due to the failure of certain production equipment in our manufacturing line. These issues also led to a lower gross margin and reduced display revenue. Although we accelerated the implementation of remedial measures to address these issues during the in third and fourth quarters of 2019, which helped to improve revenues, yields and production throughput in the third and fourth quarters of 2019, there can be no assurance as to the continued effectiveness of the remedial measures we implemented or that yields and production volumes will remain at or above levels experienced in during such periods.

We rely on key sole source and limited source suppliers.

We depend on a number of sole source or limited source suppliers for certain raw materials, components, and services. These include silicon wafers, circuit boards, graphic integrated circuits, passive components, materials and chemicals, and equipment support. We maintain several single‑single-source supplier relationships either because alternative sources are not available or because the relationship is advantageous to us due to performance, quality, support, delivery, capacity, or price considerations (oror a combination thereof).thereof. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could materially and adversely affect our operating results. We do not manufacture the silicon integrated circuits on which we incorporate our OLED technology. Instead, we provide the design layouts to semiconductor contract manufacturers who manufacture the integrated circuits on silicon wafers. Our industry relies on a limited number of foundries to produce the silicon wafers and backplanes required by our manufacturing process. Should foundries be unable to provide the required amount of silicon wafers for production, because of either capacity constraints or natural disasters, our ability to manufacture microdisplays would be affected. Our inability to obtain sufficient quantities of components and other 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. Generally, we do not have long‑long-term contracts or written agreements with our source suppliers but instead operate on the basis of short termshort-term purchase orders.