Back to GetFilings.com
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ____________ to ___________
Commission File Number 1-12031
UNIVERSAL DISPLAY CORPORATION
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2372688
- ------------------------------------------------------------- ----------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
375 Phillips Boulevard
Ewing, New Jersey 08618
- -------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 671-0980
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $0.01 per share)
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of Common Stock reported by the
Nasdaq Stock Market on March 18, 2002, was approximately $128,204,807. For the
purposes of calculation, all executive officers and directors of the Company and
all beneficial owners of more than 10% of the Company's stock (and their
affiliates) were considered affiliates.
As of March 18, 2002, the Registrant had outstanding 18,459,291 shares of Common
Stock.
Documents Incorporated by Reference
Portions of the Company's Proxy Statement to be filed with the Securities and
Exchange Commission for the Annual Meeting of Shareholders to be held on June
27, 2002 are incorporated by reference into Part III of this report.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS........................................................ 3
ITEM 2. PROPERTIES......................................................11
ITEM 3. LEGAL PROCEEDINGS...............................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............11
EXECUTIVE OFFICERS OF THE REGISTRANT............................12
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................................13
ITEM 6. SELECTED FINANCIAL DATA.........................................13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............17
ITEM 11. EXECUTIVE COMPENSATION..........................................17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.....................................................18
2
All statements in this document that are not historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, subject to risks and uncertainties that could cause actual results to
differ materially for Universal Display Corporation from those projected,
including, but not limited to, statements regarding Universal Display
Corporation's beliefs, expectations, hopes or intentions regarding the future.
Forward-looking statements in this document also include statements regarding
any financial forecasts or market growth predictions. Universal Display
Corporation expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in Universal Display Corporation's expectations
with regard thereto or any change in events, conditions, or circumstances on
which any such statements are based. It is important to note that actual
outcomes and Universal Display Corporation's actual results could differ
materially from those in such forward-looking statements. Factors that could
cause actual results to differ materially include risks and uncertainties such
as: uncertainties relating to developments and advances in display technologies,
including OLED, TOLED, FOLED, SOLED and PHOLED technology; the expansion of
applications for OLED technology; the success of Universal Display Corporation
and its research and development partners in accomplishing technological
advances; the ability of Universal Display Corporation to enter into alliances
with product manufacturers; product development, manufacturing, and marketing
acceptance; uncertainties related to cost and pricing of Universal Display
Corporation products; dependence on collaborative partners; and other
competition, risks relating to intellectual property of others and the
uncertainties of patent protection.
PART I
ITEM 1. BUSINESS
General
Universal Display Corporation (the "Company") is engaged in the research,
development and commercialization of Organic Light Emitting Diode ("OLED")
technology for use in flat panel displays and other applications. Research is
being performed by the Company, Princeton University and the University of
Southern California ("USC") (together, the "Research Partners") pursuant to a
certain Sponsored Research Agreement funded by the Company (See "Business -
Research and Development"). The Company has the exclusive right to commercialize
the technology being developed by the Research Partners pursuant to a certain
License Agreement (See "Business - Intellectual Property"). The Company is also
engaged in research, development and commercialization activities at its
headquarters in Ewing, New Jersey. The Company moved its operations to this
facility in the fourth quarter of 1999.
The Company's present commercialization strategy is to enter into licensing
arrangements, joint ventures, joint development agreements, proprietary material
evaluation licenses and other strategic alliances for the volume manufacturing
of products utilizing the Company's OLED technology. The Company does not
presently intend to become a volume manufacturer. The Company anticipates that
its OLED technology, if successfully developed, may have a variety of
applications, including full color, large area, high resolution, high
information content displays, such as laptop and notebook computer screens,
computer monitors and televisions. Other applications also include full color
small area displays, such as consumer electronic equipment, vehicular dashboard
displays, cellular phones and other telecommunication displays, computer games
and personal digital assistants, as well as transparent applications such as
head-up displays for automobile windshields.
The Company was incorporated under the laws of the Commonwealth of Pennsylvania
in April 1985 under the name Enzymatics, Inc. ("Enzymatics"). Another
corporation named "Universal Display Corporation" ("UDC") was incorporated under
the laws of the State of New Jersey in June 1994. On June 22, 1995, a wholly
owned subsidiary of Enzymatics merged with and into UDC (the "Merger"). UDC, the
surviving corporation in the Merger, became a wholly owned subsidiary of
Enzymatics and changed its name to "UDC, Inc." Simultaneously with the
consummation of the Merger, Enzymatics changed its name to "Universal Display
Corporation."
Flat Panel Display Industry
The market for flat panel displays has been driven by a number of market forces,
including, but not limited to, the increasing popularity of portable computers
and other consumer electronic devices, the increasing availability of
information and visual content of electronic formats, the proliferation of
graphical interfaces and emerging multimedia applications and the conversion of
traditional analog displays to digital or graphical displays. Existing products
that use flat panel displays include notebook and laptop computers, portable
televisions, video cameras, cellular phones, pagers, electronic organizers,
internet access devices, portable electronic devices, digital watches,
calculators, electronic games and audiovisual equipment, copiers, fax machines,
telephones and answering machines. In addition, flat panel displays have been
utilized in military applications, including missile controls, ground support
and communications equipment and avionics.
3
The Company believes that competition in this market, particularly for full
color, large area, high resolution, high information content displays, is based
upon image and color quality, range of viewing angle, power requirements, cost
and manufacturability. The dominant technology for all displays today is the
cathode ray tube ("CRT"), the type of technology in most televisions and
computer monitors. The dominant technology today for flat panel displays is
liquid crystal display ("LCD") technology, the type of technology in most laptop
computers. The Company believes LCD technology has certain limitations, such as
a limited viewing angle, limited scalability, narrow acceptable temperature
ranges, low contrast and inferior image and color quality when compared to CRT
displays. The Company believes that flat panel displays utilizing its OLED
technology, if successfully developed, will provide for flat panel displays
image and color quality, brightness, contrast, scalability and viewing angles
comparable or superior to CRT displays and superior to LCD, be manufacturable
from light weight, low cost materials and require a relatively low power source.
The Company's OLED Technology
OLED technology is an emerging technology. There are numerous companies engaged
in research, development and commercialization efforts relating to OLED
technology. Pioneer Electric Corporation of Japan is currently marketing and
selling multi-color OLED devices for applications including automotive displays,
consumer electronics equipment and cellular phones. The Company believes that
its OLED technology, if fully developed, will have the capability to address
many of the limitations of LCD and other developing technologies.
Light emitting diodes ("LEDs") are solid-state semiconductor devices that emit
light when electrical current passes through them. The color of light emitted by
LEDs depends on the band gap of the semiconductor material; narrow band gap
materials emit light in the red/orange range and wide band gap materials emit
green or blue light. Traditional LEDs are created from inorganic semiconductors.
The OLED technology currently under development by the Company and its research
partners at Princeton University and USC utilizes a new type of LED created from
organic materials.
The Company believes that flat panel displays utilizing its OLED technology, if
successfully developed, will provide for flat panel displays image and color
quality, brightness, contrast and viewing angles comparable or superior to CRT
displays and superior to LCD; will be manufacturable from lightweight, low cost
materials; will demonstrate efficiency in converting electrical power into light
and require very low voltage for operation, which will make the OLED technology
compatible for a variety of flat panel display applications which require
lightness and portability; and will be scaleable for use in large area, high
resolution, high information, full color, flat panel displays.
The Company is currently focusing its research, development and
commercialization efforts on a number of innovative technology applications for
OLEDs. One technology application is based on the fabrication of transparent
cathodes. Traditional OLEDs use a reflective metal cathode and a transparent
anode. The Company's transparent cathode technology, called TOLED(TM), for
transparent OLED, provides the ability to develop transparent and high contrast
displays using organic materials. It also provides the ability to build OLEDs on
opaque surfaces or active matrix thin film transistors (TFTs) with a greater
fill factor and aperture ratio.
A second technology application is based upon a novel, vertically stacked pixel
structure. This SOLED(TM) (Stacked OLED) application vertically stacks the red,
green and blue pixels on top of each other, rather than side by side as in CRTs
and LCD's, theoretically providing for very high image resolution, since one
pixel can occupy the same space as three or more pixels would in a side-by-side
architecture. The SOLED, which was made possible by the creation of the TOLED,
permits the independent tuning of color, grayscale and intensity and is expected
to allow an individual pixel to emit red, blue and green, either at the same
time or separately. Combinations of such colors create additional colors so that
each individual pixel will be capable of producing a full range of colors.
A third technology application is the fabrication of small molecule organic
displays on flexible substrates. Flat panel displays are commonly built on
glass. The Company believes that its research partners were the first group to
announce the deposition of small molecule OLEDs on a flexible substrate,
flexibility being a property that was previously believed to be unique to
polymer materials. The FOLED(TM) (Flexible OLED) may allow the potential for
conformable, lighter weight and thinner electronic displays. It also provides
the possibility of fabricating FOLEDs using potentially low cost "roll to roll"
processing methods.
4
A fourth technology application being researched by the Company and its Research
Partners is based upon the ability to fabricate an optically pumped organic
laser. In the September 25, 1997 issue of the scientific journal, Nature, the
researchers at Princeton University and USC announced what they believed to be
the first evidence of lasing from vacuum deposited thin films of organic
molecules. The Company believes this is a significant first step towards the
realization of an electrically pumped, solid-state laser based on organic thin
films.
A fifth technology application involves the use of novel materials and device
structures that emit light in OLEDs through the use of Electrophosphorescent
materials (PHOLED(TM)) for high efficiency OLEDs. In conventional OLEDs, the
light emission is based on the process of fluorescence. The use of
electrophosphorescent materials as dopants enables significantly higher
efficiencies for OLED displays. It is believed that the use of the Company's
PHOLED technology can be up to four times more efficient than the conventional
OLED technology. The Company has entered into a Development and License
Agreement with PPG Industries, Inc. to assist it in the development and
commercialization of OLED materials.
A sixth technology application is called Organic Vapor Phase Deposition (OVPD).
OVPD involves the use of a carrier gas stream in a hot walled reactor at low
pressure to precisely deposit the thin layers of organic materials used in OLED
displays. Conventional OLED fabrication equipment evaporates the organic
molecules at high vacuum. The Company has entered into a Development and License
Agreement with Aixtron AG, a German company that manufactures precision
semiconductor production equipment for inorganic LEDs, to further develop,
commercialize and produce manufacturing equipment for OLEDs based on this
technology.
The Company and its Research Partners are also working on technologies related
to processing, patterning, encapsulation, novel device concepts and other areas
of development for OLED technologies.
While significant advances have been made in the research and development
efforts on OLEDs being conducted by the Company and its Research Partners,
substantial additional research and development work needs to be performed
before products utilizing this technology are manufactured and sold, including
issues of operating life, reliability, the development of additional and more
fully saturated colors, integration with drive electronics and issues related to
scalability into a production environment and cost effective fabrication
technologies for transparent, flexible and full color, large area and small area
applications. The development of an electrically pumped laser is also necessary
before products based on the organic laser are manufactured and sold.
There can be no assurance that the necessary research and development work will
be successfully completed and that the Company or its licensees will
successfully commercialize any products based upon its proprietary technology.
Commercialization Strategy and Markets
The Company's approach to developing technology and penetrating the electronic
display market has three major components: (i) continuing to fund the research
and development of OLED technology with its Research Partners and at other
academic institutions; (ii) the development of reliable product and process
technologies; and (iii) licensing the technology and entering into joint
ventures or other strategic relationships with experienced manufacturers (who
may have much of the needed infrastructure already in place), suppliers and
users of display products, materials and equipment for the manufacture,
distribution and sale of OLED display products, materials or equipment using the
Company's technology. The Company does not presently intend to become a volume
manufacturer of OLED products.
The Company believes that the OLED technology under development, could have
significant applicability for displays, such as cellular phones, instrumentation
displays, consumer electronics, personal digital assistants, projection
displays, viewfinders in camcorders, video phones, hand held computers and
numerous industrial, medical and military uses. The Company also believes that
the OLED technology has potential application in large area, full color displays
such as laptop computers, desktop computers and televisions and in numerous
defense-related markets. There are also potential markets for transparent
devices, for example, as head-up displays on vehicle windshields. The Company
believes that an electrically pumped organic semiconductor laser could have
applications in a number of markets, including fiber-optic communications, audio
compact discs (CDs), CD-ROM drives, DVD Discs, DVD-ROM's, laser printers,
rewritable optical storage drives, bar code scanners and digital printing
presses.
5
There can be no assurance that the Company will be able to enter into
appropriate licensing, joint ventures or other strategic relationships, or that
the terms of such relationships, if entered into, would be favorable to the
Company.
During 2000, the Company entered into three commercial agreements.
In July 2000 the Company entered into a Development and License Agreement with
Aixtron AG, of Aachen Germany, to further develop and commercialize
manufacturing equipment for OLEDs based on a proprietary UDC technology called
Organic Vapor Phase Deposition ("OVPD"). Aixtron AG is a world leader in the
production of manufacturing equipment for LEDs using MOCVD (Metal-organic
chemical vapor deposition) technology. Under the Agreement, UDC and Aixtron are
engaging in a joint development program to commercialize OVPD equipment. Aixtron
has the exclusive license to produce and sell equipment based on this technology
and UDC will receive a royalty from the sale of the equipment. Delivery of the
Preproduction OVPD Manufacturing Equipment to UDC's pilot line facility
commenced in January 2002.
In September 2000 the Company entered into a License Agreement with Motorola,
Inc., whereby the Company obtained an exclusive license, with the sole right to
sublicense, to 72 US patents, 6 US patents pending, and certain foreign patents
of Motorola, Inc. related to OLEDs. The agreement with Motorola also includes
the opportunity to meet with their product development group, although there are
no assurances that Motorola, Inc. will purchase any products from the Company or
its licensees, or use any of the Company's technology in its products. In
connection with the rights granted to the Company under the agreement with
Motorola, the Company issued to Motorola 200,000 shares of the Company's Common
Stock, 300,000 shares of the Company's Convertible Preferred Stock, and warrants
to purchase an additional 150,000 shares of the Company's Common Stock. See Note
6 in Notes to Consolidated Financial Statements.
In October 2000, the Company entered into a five year Development and License
Agreement and a seven year Supply Agreement with PPG Industries, Inc. ("PPG"). A
team of PPG scientists and engineers are assisting the Company in developing and
commercializing the proprietary OLED materials for which the Company has
licensing rights. Based upon initial projected staffing requirements, which
provide the full time services of seven PPG employees, plus managerial services,
PPG's services were estimated at a value of approximately $11 million over the
five-year initial period of the Development and License Agreement. PPG is being
compensated in the Company's equity for services under the Development and
License Agreement. The Company issued to PPG 150,011 shares of Common Stock for
its services from the period of October 1, 2000 through December 31, 2001. The
Company also issued PPG seven year warrants to purchase 150,011 shares of the
Company's Common Stock at a per share exercise price of $24.28. In February
2002, the Company issued 344,379 shares of Common Stock to PPG for services to
be rendered in 2002. The increased number of shares was due to an additional
scientist being added to the PPG team, and a reduction in the average Common
Stock price of UDC during the year (because the average price of Common Stock
for the 90 days preceding December 31, 2001 was less than 65% of the average
Common Stock price of the Company as defined in the agreement, the price per
share for 2002 was based upon a 90-day average ending on December 31, 2001). The
Company anticipates issuing to PPG warrants to purchase approximately 344,379
shares of Common Stock in consideration of PPG's 2002 services. See Note 8 in
Notes to the Consolidated Financial Statements. PPG also has the right to
request that the Company grant royalty-bearing licenses to PPG for use of the
Company's OLED technology in certain applications. Under the Supply Agreement,
PPG will be the exclusive supplier of the Company's proprietary materials
through December 31, 2007. PPG will sell the materials to the Company, which
will resell them to OLED manufacturers.
In 2001 the Company entered into three commercial agreements.
In April 2001, the Company and Sony Corporation entered into a non-exclusive
Joint Development Agreement focusing on OLED flat panel monitors. Under this
Agreement, the parties are developing active matrix OLED displays utilizing
UDC's proprietary high efficiency electrophosphorescent material technology and
Sony's proprietary low temperature poly silicon active matrix TAC (Top emission
Adaptive Current drive) technology.
In April 2001, the Company and Luxell Technologies, Inc. entered into a
Technology Development and Cross Licensing Agreement. Under this agreement, the
parties will work together to combine UDC's Transparent Organic Light Emitting
Device (TOLED) technology with Luxell's high contrast Black Layer (TM)
technology. Luxell also obtained a royalty bearing license to UDC's TOLED
technology and high efficiency materials for their manufacturing, marketing and
sales of the combined Black Layer/TOLED displays. UDC will be the licensor of
the combined Black Layer/TOLED technology and the parties will share in the
revenues from such licensing activities.
6
In October 2001, the Company and Samsung SDI entered into a non-exclusive Joint
Development Agreement focusing on portable OLED displays. Under the agreement,
the parties are developing active matrix OLED displays utilizing UDC's high
efficiency phosphorescent materials and top-emitting device structures with
Samsung SDI's low temperature poly silicon active matrix architecture.
The Company had the following contracts for programs with agencies of the United
States Government during 2001.
In June 2001, the contract value of the Company's Prime Contract from the U.S.
Department of Defense Advanced Research Projects Agency (DARPA) for the
development of ruggedized full-color flexible OLED displays, was increased to
approximately $3.0 million from $1.5 million. The program, which commenced on
July 1, 2000, was also extended through June 2002. Pursuant to this contract,
the government will pay the Company and its subcontractors approximately $1.6
million and the team members need to supply approximately $1.4 million in goods
and services towards the objective of the contract, which is known as a cost
share. The subcontractors on the Company's team are: Princeton University; USC;
Vitex Systems, a Battelle Company; L-3 Communications Corporation; and Penn
State University. As of December 31, 2001 the Company has recognized $888,533 in
revenue related to this contract.
In June 2001, the Company was awarded a $132,009 subcontract by Princeton
University, pursuant to an 18-month, $700,000 contract Princeton received from
DARPA to develop an understanding of the long-term failure mechanisms of OLEDs
and OLED displays.
In 2001, the Company completed a two-year, $400,000 Phase II contract from the
National Science Foundation (NSF) under the Small Business Technology Transfer
Program for further development of its SOLED technology. This award followed the
successful completion by the Company of the Phase I contract. Princeton
University is a subcontractor under this contract. As of December 31, 2001, the
Company has recognized $400,000 in revenue related to this contract.
In February 2001, the Company was awarded a $729,158 Phase II contract under the
Department of Defense (DoD) Small Business Innovative Research Program (SBIR)
for the development of high efficiency phosphorescent backlights, as a result of
the success in the Phase I program. The term of the new program is from February
1, 2001 through March 31, 2003. The Company has subcontracts with Princeton
University and USC relating to this Phase II contract.
In February 2002, the Company was awarded a $69,951 Phase I contract by the
U.S. Department of the Army to demonstrate the feasibility of using three of its
proprietary OLED technologies: high-efficiency phosphorescent (PHOLED),
transparent (TOLED) and flexible OLED (FOLED) technologies for a conformable,
transparent, high resolution, low power display for the U.S. Army. The term of
the program is February 6, 2002 through December 7, 2002.
The Company is a member of the United States Display Consortium ("USDC"), a
cooperative industry/government effort aimed at developing an infrastructure to
support a North American flat panel display infrastructure. The USDC's role is
to provide a common platform for flat panel display manufacturers, developers,
users and the manufacturing equipment and supplier base. It has more than 130
members, as well as support from DARPA. The Company is one of 18 members on the
Governing Board of the USDC.
Research and Development
Research relating to the OLED technology is being conducted at Princeton
University's Advanced Technology Center for Photonics and Optoelectronic
Materials and at the USC Synthetic Materials Laboratories (on a subcontract
basis with Princeton University). In October 1997, the Company entered into a
new five year Sponsored Research Agreement (the "1997 Sponsored Research
Agreement") for research activities related to Organic Light Emitters, which
continues and expands the scope of the Sponsored Research Agreement dated August
1, 1994 (the "1994 Sponsored Research Agreement"). The Company is in process of
negotiating an extension to the 1997 Sponsored Research Agreement with Princeton
University. In October 1997, the Company, Princeton University and USC also
entered into an Amended License Agreement (the "1997 License Agreement"). See
"Business--Intellectual Property". The Company is also engaged in research,
development and commercialization activities at a 21,000 square foot facility,
which it leases in Ewing, New Jersey. The Company moved its operations to an
11,000 square foot facility in the fourth quarter of 1999 and expanded it by an
additional 10,000 square feet during 2001.
The development of commercially viable applications for the OLED technology is
principally dependent on the success of the research efforts of Dr. Stephen
Forrest and Dr. Mark Thompson (the "Principal Investigators") conducted pursuant
to such agreements. The scope and technical aspects of the research and the
resources and efforts directed to such research is subject to the control of
Princeton University and the Principal Investigators.
7
The Company paid Princeton University $758,732 in 2001 pursuant to the 1997
Sponsored Research Agreement. The 1997 Sponsored Research Agreement requires the
Company to pay up to $4.4 million to Princeton University from July 1998 through
July 2002, which period is subject to extension. From inception to December 31,
2001, the Company has paid an aggregate of $4,202,268 under all agreements with
Princeton University. The 1997 Sponsored Research Agreement provides that if Dr.
Forrest is unavailable to continue to serve as a Principal Investigator, either
because he is no longer associated with Princeton University or otherwise, and a
successor acceptable to both the Company and Princeton University is not
available, Princeton University has the right to terminate the 1997 Sponsored
Research Agreement. The Company believes that additional research and
development efforts are required for the development of products based upon the
OLED technology. See "Business--The Company's OLED Technology". Loss to the
Company of the Principal Investigators' services or termination of the 1997
Sponsored Research Agreement would have a material adverse effect on the
Company.
In December 1999, the Company and the University of California, Berkeley,
entered into a Collaboration Agreement under which the parties are engaged in
co-development activities and UDC is funding research at that University
respecting very low temperature poly silicon TFT fabrication technology
compatible with the Company's FOLED technology. That Agreement concluded in
2001.
In September 2000, the Company entered into a Collaboration Agreement with Penn
State University under which the parties are engaged in co-development
activities and UDC is funding research at that University respecting amorphous
silicon TFT technology compatible with UDC's phosphorescent materials system.
In April 2001, the Company entered into a one year Research Agreement with
Massachusetts Institute of Technology ("MIT"), under which the parties are
engaged in co-development activities and the Company is funding research at MIT
respecting High Efficiency Hybrid Organic/Inorganic Vacuum Deposited Light
Emitting Devices.
In May 2001, the Company entered into a two year Contract Research Agreement
with the Chitose Institute of Science and Technology ("CIST") of Japan relating
to High Efficiency OLED devices and materials.
Intellectual Property
The Company currently owns or has licensing rights to approximately 127 issued
US patents, 81 US patents pending and numerous foreign patents and applications.
The Company's OLED technology rights are derived principally from two sources.
One set of rights is governed by the 1997 Sponsored Research Agreement, and the
1997 License Agreement with Princeton University and USC. Pursuant to such
agreements, all patents and other intellectual property rights relating to the
OLED technology are the property of Princeton University, or USC, as applicable,
and the Company is the worldwide exclusive licensee. The other set of rights are
governed by the License Agreement with Motorola, Inc., whereby the Company
obtained the license, with the sole right to sublicense, to 78 issued and
pending US patents (and additional foreign patents) relating to OLED technology
and owned by Motorola, Inc.
Fifty-five patents have been issued to Princeton University and the University
of Southern California by the U.S. Patent and Trademark Office in connection
with the Sponsored Research. Princeton University and USC have filed
approximately 56 additional patent applications relating to the OLED technology
in the United States, and have filed for intellectual property protection
internationally. In addition, the Company has obtained an exclusive worldwide
royalty-free license from USC (the "USC License") to manufacture and market
products based on inventions claimed in a patent issued to USC in May 1994,
relating to, among other things, a method of depositing ultra-thin, very smooth,
ordered organic layers using vacuum deposition.
Under an Interinstitutional Agreement between Princeton University and USC,
Princeton University manages the intellectual property rights being developed
pursuant to the 1994 Sponsored Research Agreement and 1997 Sponsored Research
Agreement and licensed to the Company pursuant to the 1997 License Agreement,
and the Company is required to reimburse Princeton University for all costs
incurred in filing, prosecuting and maintaining patent applications and patents.
The Company has the worldwide exclusive license to manufacture and market
products based on such patents, pending patent applications and any future
patent applications and inventions conceived or discovered under the 1997
Sponsored Research Agreement, and to sublicense those rights. In circumstances
where the Company sublicenses the OLED technology (except to affiliates), or
sells products utilizing the OLED technology, the Company is required to pay to
Princeton University a royalty in the amount of 3% of the Company's net
sublicense fees or net sales of products utilizing the OLED technology. This
royalty rate is subject to upward adjustments under certain conditions.
8
Under the Motorola License Agreement, the Company obtained a license, with the
sole right to sublicense, to 78 issued and pending US patents, and certain
foreign patent rights, related to OLED technology and owned by Motorola Inc.
These patents cover many aspects of OLED technology, including mixed layer and
single layer device architectures, packaging and encapsulation, and proprietary
materials and drive circuit architectures. Motorola, Inc. received equity in the
Company in consideration for the license. The Company is also obligated to make
certain minimum royalty payments to Motorola, Inc. and pay Motorola, Inc. a
royalty on the Company's licensing revenues. See Notes 6 and 13 to Notes to
Consolidated Financial Statements.
There can be no assurance that patents applied for will be obtained or that any
such patents will afford the Company and Princeton University commercially
significant protection of its OLED technology. In addition, the patent laws of
other countries may differ from those of the United States as to the
patentability of the OLED technology and the degree of protection afforded.
Other companies and institutions may independently develop equivalent or
superior technologies and may obtain patent or similar rights with respect
thereto. There are a number of other companies and organizations that have been
issued patents and are filing additional patent applications relating to OLED
technology including Eastman Kodak Company and the companies described in
"Competition" below. There can be no assurance that the exercise of the
Company's licensing rights respecting its OLED technology being developed by
Princeton University and USC will not infringe on the patents of others. In the
event of infringement, the Company and Princeton University could, under certain
circumstances, be required to obtain a license or modify its methods or other
aspects of the OLED technology. Under the 1997 License Agreement, the Company
has the right to prosecute at its own expense any infringement of the patent
rights. Princeton is entitled to 23% of the net proceeds, if any, received from
final judgments in infringement actions respecting the patent rights.
In connection with the 1997 License Agreement and the 1997 Sponsored Research
Agreement, the Company issued to Princeton University 140,000 shares of Common
Stock and 10 year warrants to purchase 175,000 shares of Common Stock at an
exercise price of $7.25 per share. The Company also issued to USC 60,000 shares
of Common Stock and 10 year warrants to purchase 75,000 shares of Common Stock
at an exercise price of $7.25 per share. Under the 1997 License Agreement, the
Company is required to use commercially reasonable efforts to bring the OLED
technology to market. This requirement is deemed satisfied provided the Company
performs its obligations under the 1997 Sponsored Research Agreement and, upon
expiration or termination thereof, the Company invests a minimum of $800,000 per
year in research, development, commercialization or patenting efforts respecting
the OLED technology. Princeton University has the right to terminate the 1997
License Agreement in certain specified circumstances, and prior to any
termination, all disputes under the 1997 License Agreement and the 1997
Sponsored Research Agreement are subject to mediation and arbitration, except
those relating to the validity, construction or effect of patents.
The United States government, through DARPA, has provided funding to Princeton
University and the Company for research activities related to certain aspects of
its OLED technology. In the event that all or certain aspects of its OLED
technology developed (if any) from the Company's funding to Princeton University
is deemed to fall within the planned and committed activities of DARPA's
funding, the federal government, pursuant to federal law, could have certain
rights relating to the OLED technology, including a license to practice or have
practiced on its behalf any such technology and, if the federal government
determines that the Company has not taken effective steps to achieve practical
application of such technology in a field of use in a reasonable time, require
the Company to grant licenses to other parties in any such field of use. In
addition, the federal government's rights could restrict the Company's ability
to market the OLED technology to the federal government for military and other
applications which could have a material adverse effect on the Company. There
can be no assurance as to which aspects of the OLED technology the federal
government has any rights and the extent of such rights. Continued funding of
Princeton University's research activities by the federal government, which is
anticipated, may give the federal government rights to aspects of the OLED
technology developed in the future.
In order to protect Princeton University's tax exempt status, the 1997 License
Agreement provides that Princeton University may, in its sole discretion,
determine whether, pursuant to the provisions of the Tax Reform Act of 1986, it
is required to negotiate the royalties and other considerations payable to
Princeton University on products not reasonably conceivable by the parties at
the time of execution of the 1994 License Agreement. If Princeton University
reasonably concludes that the consideration payable by the Company for any such
product is not fair and competitive, Princeton University may exercise its right
to renegotiate the royalties and other consideration payable by the Company for
any such product prior to the expiration of 180 days after the first patent is
filed or other intellectual property protection is sought. The Company has the
right to commence arbitration proceedings to challenge Princeton University's
exercise of such renegotiation rights. If the parties are unable to agree to
royalties and other consideration for such products within a specified period of
time, then Princeton University is free to license third parties without
repayment of any funds provided under the 1997 Sponsored Research Agreement.
9
The Company and Princeton University may also rely on proprietary know-how and
trade secrets and employ various methods to protect concepts, ideas and
documentation of their technology. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's or Princeton
University's know-how, trade secrets, concepts, ideas and documentation.
Competition
The display industry is characterized by intense competition. CRTs currently
dominate the television and desktop computer monitor market and improvements in
CRTs have further increased display quality. Flat panel displays have been
developed and are in commercial use in certain applications where the weight,
power requirements, and bulky size of the CRT inhibit its use. Flat panel
displays have been available for a significant period of time and a variety of
advancements in flat panel displays have been made over the last several years.
However, flat panel displays with the capabilities necessary to replace CRTs in
all applications have not been developed.
The flat panel display market is currently dominated by products utilizing LCD
technology and is expected to be dominated by LCD technology for the foreseeable
future. The Company believes that LCDs have certain limitations, such as a
limited viewing angle, limited scalability, low response rate, low contrast and
inferior image and color quality when compared to CRT displays (the current
standard for display quality). LCDs are also more expensive to produce than
CRTs. However, compared to CRTs, LCD displays are smaller, have lower power
requirements (leading to longer battery life), emit no measurable radiation, are
not affected by magnetic fields generated by speakers or VCRs and have uniform
brightness throughout the screen. Numerous companies, however, are making
substantial investments in, and conducting research to improve these
characteristics of LCD technology.
Several other flat panel display technologies have recently been developed or
are being developed, such as field emissive, inorganic electroluminescent,
inorganic LED, plasma, and vacuum fluorescent displays. Field emissive displays,
which essentially employ an array of miniature CRTs, may be efficient in
converting electrical power into light at a relatively low cost, but high
voltage power sources and high temperature fabrication equipment may be
required. Inorganic electroluminescent displays offer better contrast and
broader viewing angles than LCDs and gas plasma displays, but also use more
power than LCDs and are difficult to view in bright ambient light. As plasma
displays, used in outdoor signs, some laptop computers and recently introduced
for large screen televisions are durable and reliable, have long lives and
superior video speed (useful in video applications) but have high power
requirements; dot matrix display panels on copiers, microwave ovens and video
cassette recorders, have superior brightness, are inexpensive and are capable of
providing full color, but are difficult to manufacture and have high power
requirements, making them unsuitable for portable products.
The Company believes that each of these developing technologies may have one or
more of the limitations associated with LCD technology or other limitations,
such as lack of reliability, high power requirements (restricting portability),
high production cost and/or difficulty of manufacture. The Company believes that
flat panel displays utilizing its OLED technology, if successfully developed,
will provide image and color quality, brightness, contrast, scalability and
viewing angles comparable to CRT displays, be manufacturable from light weight,
low cost materials and require a relatively low power source.
Numerous domestic and foreign companies have developed or are developing CRT,
LCD, gas plasma and other display technologies. Substantially all of these
competitors, including Sony Corporation, NEC Corporation, Matsushita
Corporation, Fujitsu Corporation, Hitachi Corporation, Toshiba Corporation and
Samsung Corporation, have greater name recognition and financial, technical,
marketing, personnel and research capabilities than the Company. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and applications that are more cost effective, have fewer display
limitations than or have other advantages as compared to its OLED technology.
In addition, a number of companies, including those mentioned above, and Eastman
Kodak Company, Pioneer Electric Corporation, Sharp Corporation, Sanyo
Corporation, TDK Corporation, Mitsubishi Chemical Corporation, Ritek
Corporation, Lite Array Corporation, Nippon Seiki Corporation, Seiko-Epson
Corporation, Dupont Displays, Cambridge Display Corporation and Idemitsu
Corporation are engaged in research, development and commercialization
activities with respect to technology using OLEDs. Pioneer Electric Corporation
is presently manufacturing products using OLED technology, and other companies
have announced plans to manufacture products based on OLEDs. Eastman Kodak and
Sanyo Corporation have formed a joint venture, SK Corporation, to manufacture
OLED displays and Eastman Kodak Company has licensed its OLED technology to
third parties. There can be no assurance that the Company will be able to
compete successfully, license its technology, or develop commercial applications
for its OLED technologies.
10
Employees
As of December 31, 2001, the Company has 37 employees, 36 of whom are full-time
employees. The Company believes that its relations with its employees are good.
Facilities
The Company's corporate offices and research facility are located at 375
Phillips Boulevard, Ewing, New Jersey.
ITEM 2. PROPERTIES
The Company currently leases approximately 21,000 square feet of space for its
operations in Ewing, New Jersey. In 1999, the Company signed a lease for 11,000
square feet. The Company entered into a new lease for an additional 10,000
square feet in the Ewing location, which commenced in April 2001. The Company
also leases approximately 900 square feet of office space in Coeur D'Alene,
Idaho.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
2001.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the Company's
executive officers:
Name Age Position
---- --- --------
Sherwin I. Seligsohn 66 Chairman, Chief Executive Officer and Director
Steven V. Abramson 50 President, Chief Operating Officer and Director
Sidney D. Rosenblatt 54 Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
Julia J. Brown 41 Vice President of Technology Development
Executive Officers are elected annually and hold office until their successors
are elected and qualified.
Sherwin I. Seligsohn has been Chairman and Chief Executive Officer of the
Company since the Company's inception. He was President of the Company until May
1996. Mr. Seligsohn founded, and since August 1991 has served as sole Director,
Chairman, President and Secretary of, American Biomimetics Corporation ("ABC"),
International Multi-Media Corporation ("IMMC"), and Wireless Unified Network
Systems Corporation ("WUNSC"). He is also Chairman and Chief Executive Officer
of Global Photonic Energy Corporation ("Global"). From June 1990 to October
1991, Mr. Seligsohn was Chairman Emeritus of InterDigital Communications, Inc.
("InterDigital"), formerly International Mobile Machines Corporation. Mr.
Seligsohn was the founder of InterDigital and from August 1972 to June 1990
served as its Chairman. Mr. Seligsohn is a member of the Advisory Board of the
Advanced Technology Center for Photonics and Optoelectronic Materials (POEM) at
Princeton University.
Steven V. Abramson joined Universal Display Corporation as President and Chief
Operating Officer in May 1996. He is also a member of the Board of Directors.
Mr. Abramson is also a member of the Board of Directors of Global. From March
1992 to May 1996 he was Vice President, General Counsel, Secretary and Treasurer
of Roy F. Weston, Inc., a worldwide environmental consulting and engineering
firm. From 1982 to 1991 he was with InterDigital, where he held various
positions, including General Counsel, Executive Vice President and General
Manager of the Technology Licensing Division. Mr. Abramson is a member of the
Advisory Board of the Advanced Technology Center for Photonics and
Optoelectronic Materials (POEM) at Princeton University and a member of the
Board of Governors of the USDC.
Sidney D. Rosenblatt has been Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company since June 1995. He has been a member of
the Board of Directors since May 1996. Mr. Rosenblatt is also Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of Global, and a
member of its Board of Directors. Mr. Rosenblatt is the owner of and served as
the President of S.Zitner Company from August 1990 through December 1998. From
May 1982 to August 1990, Mr. Rosenblatt served as the Senior Vice President,
Chief Financial Officer and Treasurer of InterDigital. Mr. Rosenblatt sits on
the Board of Directors of various non-profit organizations.
Dr. Julia J. Brown has been Vice President, Technology Development since June
1998. From November 1991 to June 1998 she was a Research Department Manager at
Hughes Research Laboratories where she directed the pilot line production of
high-speed Indium Phosphide-based integrated circuits for insertion into
advanced airborne radar and satellite communication systems. She received her
B.S. in Electrical Engineering from Cornell University in 1983 and then worked
at Raytheon Company (1983-1984) and AT&T Bell Laboratories (1984-1986) before
returning to graduate school. Dr. Brown received an M.S. (1988) and Ph.D. (1991)
in Electrical Engineering/Electrophysics at the University of Southern
California under the advisement of Professor Stephen R. Forrest. Dr. Brown has
served as an Associate Editor of Journal of Electronic Materials and as an
elected member of the Electron Device Society Technical Board. She co-founded an
IEEE-sponsored international engineering mentoring program. She is a Senior
Member of the IEEE and has served on numerous technical conference committees
and is presently a member of the Society of Information Display.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table sets forth the high and low sales prices of the Company's
Common Stock as reported by The NASDAQ National Market for the period indicated.
High Low
Close Close
2000
First Quarter $34.25 $12.63
Second Quarter 29.69 11.88
Third Quarter 31.88 19.19
Fourth Quarter 20.75 6.00
2001
First Quarter 14.13 7.03
Second Quarter 20.00 7.88
Third Quarter 16.32 6.61
Fourth Quarter 9.88 6.55
As of March 18, 2002, there were more than 300 holders of record of the
Company's Common Stock. The Company's Common Stock is listed on the Nasdaq
National Market under the symbol PANL.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data has been derived from and
should be read in conjunction with the audited consolidated financial statements
of the Company, and the notes thereto, and with "Management's Discussion and
Analysis of Results of Operations and Financial Condition", included elsewhere
herein and incorporated herein by this reference.
Fiscal Year Ended December 31,
-----------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Operating Results:
Total revenue $ 1,252,901 $ 492,756 $ 519,536 $ 368,794 $ 93,605
Research and development expense 12,385,036 7,109,205 3,171,497 1,419,394 4,207,898
General and administrative expense 3,915,854 3,261,113 2,727,856 1,933,976 1,986,628
Net loss (16,356,100) (9,529,046) (5,125,006) (2,793,842) (5,927,718)
Net loss applicable to
Common shareholders (18,873,436) (9,529,046) (5,125,006) (2,793,842) (5,927,718)
Net loss per share, basic and
diluted (1.11) (0.62) (0.42) (0.27) (0.64)
Balance Sheet Data:
Total assets $48,569,569 $ 32,079,794 $ 10,316,850 $3,078,994 $5,417,577
Current liabilities 10,464,037 1,670,016 873,761 495,320 280,240
Capital lease obligations 12,827 16,619 20,021 - -
Shareholders' equity 38,096,782 29,826,804 9,426,470 2,583,674 5,137,337
Other Financial Data:
Working capital $17,994,383 $9,252,130 $ 5,704,913 $2,429,390 $5,003,863
Capital expenditures 1,790,564 1,540,577 3,680,122 26,689 23,287
Acquired technology -- 16,924,968 -- -- --
Weighted average Common
Shares, basic and diluted 16,994,537 15,260,837 12,269,943 10,310,353 9,327,521
Shares of Common Stock
outstanding 18,093,124 16,440,286 13,714,563 10,312,943 10,302,268
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Since inception, the Company has been engaged, and for the foreseeable future
expects to continue to be engaged, exclusively in the research and development
and commercialization of its OLED technology for use in flat panel displays and
other applications. To date, the Company has generated minimal revenues and does
not expect to generate any meaningful revenues for the foreseeable future and
until such time, if ever, that it successfully demonstrates that its OLED
technology is commercially viable for one or more flat panel display and other
applications and receives revenue from license agreements, joint ventures or
strategic alliances with third parties with respect to the technology. The
Company has incurred significant losses since its inception, resulting in an
accumulated deficit of $47,101,825 at December 31, 2001.
Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
The Company had a net loss applicable to Common shareholders of $18,873,436 (or
$1.11 per share) for the year ended December 31, 2001 compared to a net loss
applicable to Common shareholders of $9,529,046 (or $.62 per share) for the year
ended December 31, 2000. The increase in net loss applicable to Common
shareholders was primarily attributed to the following: (i) the increase in cash
and non-cash research and development expenses (ii) the increase in non-cash
interest expense on convertible promissory notes and (iii) non-cash deemed
dividends associated with the private placement in 2001 (see Note 10 in Notes to
Consolidated Financial Statements).
The Company earned $1,058,571 from contract research revenue in 2001 compared to
$492,756 in 2000. The revenue was derived principally from the following: (i)
$723,034 recognized under an 24-month, $2,977,471 Phase I contract received from
the Defense Advanced Research Project Agency (DARPA), (ii) $225,079 recognized
under a two-year DoD Phase II SBIR Army Contract, and (iii) $105,536 of final
revenue were recognized under a two-year, $400,000 Phase II contract from the
National Science Foundation (NSF) under the Small Business Technology Transfer
Program, which was completed on December 31, 2001. The Company also earned
$194,330 from the sale of evaluation chemicals to potential OLED display
manufacturers. The chemicals are used to evaluate the Company's proprietary OLED
material system. The Company commenced evaluation chemical sales in the fourth
quarter of 2000. During 2001 the Company received non-refundable cash payments
of $450,000 in the aggregate in connection with joint development and technology
evaluation agreements, which it recorded as unearned revenue. In 2000, contract
revenue consisted of: (i) $20,680 recognized from the final payments under a
subcontract with Princeton University, pursuant to a three year, $3 million
contract Princeton University received from DARPA, (ii) $70,000 recognized from
the completion of a DoD SBIR Phase I program, (iii) $42,113 recognized from a
DoD SBIR Phase I Option, (iv) $194,464 recognized from an NSF Phase II program
and (v) $165,499 recognized from the DARPA Phase I program.
Research and development expenses were $12,385,036 for the year ended December
31, 2001 compared to $7,109,205 for the year ended December 31, 2000. For the
year ended December 31, 2001, research and development expenses consisted of:
(i) costs incurred in the amount of $5,287,884 for the development of and
operations in the Company's facility, (ii) costs incurred in the amount of
$940,480 for patent applications, prosecution and other intellectual property
rights, (iii) costs incurred in the amount of $833,732 to the Company's Research
Partners (see Note 5 in Notes to Consolidated Financial Statements) under the
1997 Sponsored Research Agreement, (iv) non-cash charges in the amount of
$2,283,182 incurred in connection with the PPG development agreement (see Notes
8 and 11 in Notes to Consolidated Financial Statements), (v) a non-cash charge
of $1,695,072 for the amortization of the Company's acquired technology (see
Note 6 in Notes to Consolidated Financial Statements) and (vi) non-cash charges
in the amount of $1,344,686 recorded for the warrants and options issued to
Scientific Advisory Board members (see Note 11 in Notes to Consolidated
Financial Statements). For the year ended December 31, 2000, research and
development expenses consisted of: (i) costs incurred in the amount of
$3,422,198 for the development of and operations in the Company's new facility,
(ii) costs incurred in the amount of $1,227,184 for patent applications,
prosecution and other intellectual property rights, (iii) payments in the amount
of $733,230 to the Company's Research Partners (see Note 5 in Notes to
Consolidated Financial Statements) under the 1997 Sponsored Research Agreement,
(iv) a non-cash charge in the amount of $663,111 incurred in connection with the
PPG development agreement (see Notes 8 and 11 in Notes to Consolidated Financial
Statements), (v) a non-cash charge in the amount of $602,683 recorded for the
warrants and options issued to Scientific Advisory Board members (see Notes 11
and 14 in Notes to Consolidated Financial Statements) and (vi) a non-cash charge
of $460,799 for the amortization of the Company's acquired technology (see Note
6 in Notes to Consolidated Financial Statements).
14
General and administrative expenses were $3,915,854 for the year ended December
31, 2001 compared to $3,261,113 for the year ended December 31, 2000. The
increase in general and administrative expenses is mainly due to increased costs
associated with the expansion of the Company's facility and additional
employees.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The Company had a net loss of $9,529,046 (or $.62 per share) for the year ended
December 31, 2000 compared to a net loss of $5,125,006 (or $.42 per share) for
the year ended December 31, 1999. The increase in net loss was primarily
attributable to the increase in research and development expenses.
The Company earned $492,756 from contract revenue in 2000 compared to $519,536
in 1999. In 2000, contract revenue consisted of: (i) $194,464 recognized from an
NSF Phase II program and (ii) $165,499 recognized from a DARPA Phase I program,
(iii) $70,000 recognized from the completion of a DoD SBIR Phase I program, (iv)
$42,113 recognized from a DoD SBIR Phase I Option, (v) $20,680 recognized from
the final payments under a subcontract with Princeton University, pursuant to a
three year, $3 million dollar contract Princeton University received from DARPA.
In 1999, contract revenue was derived primarily from the continuation of a
subcontract with Princeton University, pursuant to a three year, $3 million
dollar contract Princeton University received from DARPA and the initial payment
from the NSF Phase II program.
Research and development expenses were $7,109,205 for the year ended December
31, 2000 compared to $3,171,497 for the year ended December 31, 1999. For the
year ended December 31, 2000, research and development expenses consisted of:
(i) costs incurred in the amount of $3,422,198 for the development of and
operations in the Company's new facility, (ii) costs incurred in the amount of
$1,227,184 for patent applications, prosecution and other intellectual property
rights, (iii) payments in the amount of $733,230 to the Company's Research
Partners (see Note 5 in Notes to Consolidated Financial Statements) under the
1997 Sponsored Research Agreement, (iv) a non-cash charge in the amount of
$663,111 incurred in connection with the PPG development agreement (see Notes 8
and 11 in Notes to Consolidated Financial Statements), (v) a non-cash charge in
the amount of $602,683 recorded for the warrants and options issued to
Scientific Advisory Board members (see Notes 9 and 14 in Notes to Consolidated
Financial Statements) and (vi) a non-cash charge of $460,799 for the
amortization of the Company's acquired technology (see Note 6 in Notes to
Consolidated Financial Statements). Research and development expenses in 1999
consisted of (i) costs incurred in the amount of $1,772,584 for the development
and construction of and operations in the Company's new facility, (ii) payments
in the amount of $854,463 for patent applications, prosecution and other
intellectual property rights, (iii) payments in the amount of $544,450 to the
Company's Research Partners (see Note 5 in Notes to Consolidated Financial
Statements) under the 1997 Sponsored Research Agreement.
General and administrative expenses were $3,261,113 for the year ended December
31, 2000 compared to $2,727,856 for the year ended December 31, 1999. The
increase in general and administrative expenses is mainly due to the
commencement of operations in the Company's new facility.
Liquidity and Capital Resources
As of December 31, 2001, the Company had cash and cash equivalents of
$7,883,132, restricted cash of $15,162,414 and short-term investments of
$4,516,199 compared to cash and cash equivalents of $7,701,040 and short-term
investments of $2,704,220 at December 31, 2000.
During 2001, warrants and options to purchase 271,431 shares of Common stock
were exercised, resulting in net cash proceeds of $1,127,510 to the Company.
Also during 2001, the Company received non-refundable cash payments of $450,000
in the aggregate in connection with joint development and technology evaluation
agreements, which the Company recorded as unearned income.
In the fourth quarter of 2001, the Company commenced construction on the
expansion of its current location in Ewing, New Jersey. During the year, the
Company incurred costs of $1,376,737 relating to the construction and the
purchase of equipment for the expansion. Remaining construction commitments at
December 31, 2001 are approximately $844,000.
15
In August 2001, the Company sold in a private placement 5,000 shares of Series C
convertible preferred stock ("Series C") and warrants to purchase shares of the
Company's Common Stock and issued secured convertible debentures (see Note 10 in
Notes to Consolidated Financial Statements), resulting in net cash proceeds of
$4,496,477 and restricted cash proceeds of $15,000,000. The Company's obligation
under the convertible debentures ("Notes") is secured by irrevocable letters of
credit issued with a face amount equal to the outstanding principal of the
related Notes. The $15,000,000 proceeds from the sale of the Notes has been
pledged as collateral to the bank issuing the letters of credit. As the Notes
are converted or repaid, the Company has access to the funds raised from the
sale of the Notes in amounts corresponding to the portion of the Notes that are
converted or repaid.
In December 2001, the Company completed the second tranche of its August 2001
private placement by selling 5,000 shares of Series D convertible preferred
stock ("Series D") and warrants from the completion of its private placement
resulting in additional net cash proceeds of $4,640,602. In December 2001, all
shares of Series C and Series D were converted to Common Stock.
In the first quarter of 2001, the Company received additional net cash proceeds
of $1,348,984 from the completion of its December 2000 private placement issuing
an additional 158,704 units. In December 2000, the Company sold in a private
placement 631,527 units, each unit consisting of one share of the Company's
Common Stock and one warrant with an exercise price of $10.00, resulting in
proceeds of $5,367,979. The units were issued at $8.50 per unit. Also, during
2000, warrants and options to purchase 1,754,353 shares of the Company's Common
Stock were exercised, resulting in cash proceeds of $6,854,843.
Net working capital increased to $17,994,383 at December 31, 2001 from working
capital of $9,252,130 at December 31, 2000, due primarily to the proceeds
received in connection with the private placements and exercise of warrants and
options during 2001. However, the working capital would be $11,120,208 if the
restricted cash and debentures were not included. The Company's net cash used in
operating activities was $7,702,583, $6,493,590, and $4,298,026 in 2001, 2000
and 1999, respectively. Non-cash expenses related to the issuance of Common
Stock, warrants and options and the amortization of discounts relating to the
issuance of convertible debt (see Note 10 in Notes to Consolidated Financial
Statements) were $5,705,890, $1,275,794 and $507,025 in 2001, 2000 and 1999,
respectively.
The Company anticipates, based on management's internal forecasts and
assumptions relating to its operations (including assumptions regarding working
capital requirements of the Company, the progress of research and development,
the availability and amount of other sources of funding available to Princeton
University for research relating to the OLED technology and the timing and costs
associated with the preparation, filing and prosecution of patent applications
and the enforcement of intellectual property rights) that it has sufficient cash
to meet its obligations for 2002. The 1997 Sponsored Research Agreement requires
the Company to pay up to $4.4 million to Princeton University from July 1998
through July 2002, which period is subject to extension. The remaining
obligation of the Company under that agreement is $2,357,659. The Company
expects funding under this agreement in 2002 to be less than the $1.1 million
maximum per the agreement. Substantial additional funds will be required for the
research, development and commercialization of OLED technology, obtaining and
maintaining intellectual property rights, working capital and other purposes,
the timing and amount of which is difficult to ascertain. There can be no
assurance that additional funds will be available when needed, or if available,
on commercially reasonable terms.
Critical Accounting Policies
The Company believes the following represent its critical accounting policies:
Revenue recognition
Contract revenues represent reimbursements by government entities for all or a
portion of the research and development costs the Company incurs related to the
contracts. Revenues are recognized proportionally as the research and
development costs are incurred.
Development chemical revenues represent the sale of evaluation chemicals to
potential OLED display manufacturers. The chemicals are used to evaluate the
Company's proprietary OLED material system. Revenues are recognized at the time
of shipment and passage of title.
16
The Company also receives non-refundable advanced license payments in connection
with certain joint development and technology evaluation agreements it enters
into. These payments are deferred until a license agreement is executed or
negotiations have ceased and there is no likelihood of executing a license
agreement. Revenues will be recorded over the expected life of the licensed
technology, if there is an effective license agreement, or at the time the
negotiations show no likelihood of an executable license agreement.
Valuation of acquired technology
The Company continually reviews its acquired technology for events or changes in
circumstances that may indicate that the carrying value may not be recoverable.
Factors considered important which could cause impairment include significant
changes in the manner of the Company's use of its acquired patents or the
strategy of the Company's overall business and patents owned by competitors or
others in the same field of use.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments, which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto of the Company are attached hereto
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item is set forth in the Company's definitive
Proxy Statement (the "Proxy Statement") to be filed with the Securities and
Exchange Commission for the Annual Meeting of Shareholders to be held on June
27, 2002 under the headings "Nominees for Election as Directors" and "Compliance
with Section 16(a) of the Exchange Act" and is incorporated herein by reference.
Information regarding the Company's executive officers is included in Part I on
page 11 herein.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is set forth in the Proxy Statement under
the heading "Executive Management Compensation" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the ownership of securities of the Company by
certain persons is set forth in the Proxy Statement under the heading "Principal
Shareholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to transactions with management and others is set forth
in the Proxy Statement under the heading "Certain Transactions," and is
incorporated herein by reference.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this 10-K:
1. Financial Statements:
Report of Independent Public Accountants.................................F-2
Consolidated Balance Sheets..............................................F-3
Consolidated Statements of Operations....................................F-4
Consolidated Statements of Shareholders' Equity (Deficit)................F-5
Consolidated Statements of Cash Flows....................................F-6
Notes to Consolidated Financial Statements...............................F-7
2. Financial Statement Schedules:
None.
3. Exhibits:
The following is a list of exhibits filed as part of this
Annual Report on Form 10-K. Where so indicated by footnote,
exhibits which were previously filed are incorporated by
reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated
parenthetically, together with a reference to the filing
indicated by footnote.
Exhibit
Number Description
- ------ -----------
3.1 Articles of Incorporation of the Company. (1)
3.2 Articles of Amendment to the Company's Articles of Incorporation
filed with the Department of State of the Commonwealth of
Pennsylvania on July 31, 2000. (2)
3.3 Articles of Amendment to the Company's Articles of Incorporation
filed with the Department of State of the Commonwealth of
Pennsylvania on July 31, 2000. (2)
3.4 Bylaws of the Company. (1)
4.1 Specimen stock certificate representing the Common Stock. (3)
4.2 Specimen warrant certificate representing the Warrants. (3)
4.3 Form of Public Warrant Agreement. (1)
4.4 Form of Underwriter's Warrant Agreement. (1)
4.5 Statement of Designations and Preferences of Series A
Non-Convertible Preferred Stock. (3)
4.6 Statement of Designations, Preferences and Rights of Series C-1
Convertible Preferred Stock (9)
4.7 Statement of Designations, Preferences and Rights of Series D
Convertible Preferred Stock (9)
4.8 Convertible Promissory Note dated as of August 22, 2001 payable to
the order of Pine Ridge Financial Inc. (8)
4.9 Convertible Promissory Note dated as of August 22, 2001 payable to
the order of Strong River Investments, Inc. (8)
4.10 Amended and Restated Warrant of Strong River Investments, Inc.
to Purchase 78,740 Shares of Common Stock dated as of August
22, 2001 (9)
4.11 Amended and Restated Warrant of Pine Ridge Financial Inc. to
Purchase 78,740 Shares of Common Stock dated as of August 22,
2001 (9)
4.12 Amended and Restated Warrant of Strong River Investments, Inc.
to Purchase 78,740 Shares of Common Stock dated as of August
22, 2001 (9)
4.13 Amended and Restated Warrant of Pine Ridge Financial Inc. to
Purchase 78,740 Shares of Common Stock dated as of August 22,
2001 (9)
4.14 Amended and Restated Warrant of Strong River Investments, Inc.
to Purchase 214,746 Shares of Common Stock dated as of August
22, 2001 (9)
4.15 Amended and Restated Warrant of Pine Ridge Financial Inc. to
Purchase 214,746 Shares of Common Stock dated as of August 22,
2001 (9)
4.16 Warrant of Gerard Klauer Mattison & Co., Inc. to Purchase 186,114
Shares of Common Stock dated as of August 22, 2001 (8)
10.1 License Agreement dated August 1, 1994 between The Trustees of
Princeton University and American Biomimetics Corporation. (3)
10.2 Amendment to License Agreement (August 1, 1994) dated April 11, 1995
between the Trustees of Princeton University and American
Biomimetics Corporation. (3)
18
10.3 Sponsored Research Agreement dated August 1, 1994 between the
Trustees of Princeton University and American Biomimetics
Corporation. (3)
10.4 Letter Amendment dated May 5, 1995, between the Trustees of
Princeton University and American Biomimetics Corporation. (3)
10.5 Amendment to Sponsored Research Agreement (August 1, 1994) dated
April 18, 1995 between the Trustees of Princeton University and
American Biomimetics Corporation. (3)
10.6 Technology Transfer Agreement dated June 22, 1995 between American
Biomimetics Corporation and the Company. (3)
10.7 Assignment and Assumption of License dated June 22, 1995 between
American Biomimetics Corporation and the Company. (3)
10.8 Sublicense Agreement and Option dated June 22, 1995 between American
Biomimetics Corporation and the Company. (3)
10.9 Assignment and Assumption of Agreement dated August 1, 1995 between
the Trustees of Princeton University and the University of Southern
California. (3)
10.10 Subcontract No. 341-4014-1 dated August 16, 1995 between the
Trustees of Princeton University and the University of Southern
California. (3)
10.11 Assignment of 1994 Sponsored Research Agreement dated November 1,
1995 between American Biomimetics Corporation and the Company. (3)
10.12 # Stock Option Agreement dated as of June 23, 1995 between the Company
and Thomas D. Hays, III. (3)
10.13 # Stock Option Agreement dated as of June 23, 1995 between the Company
and Harvey Nachman. (3)
10.14 Registration Rights Agreement dated as of June 23, 1995 between the
Company and Thomas D. Hays, III. (3)
10.15 Registration Rights Agreement dated as of June 23, 1995 between the
Company and Harvey Nachman. (3)
10.16 Form of Registration Rights Agreement between the Company and
Certain Subscribers to Purchase Common Stock of the Company. (3)
10.17 # Form of Stock Option Agreement dated as of June 23, 1995 between the
Company and Sidney D. Rosenblatt. (3)
10.18 # 1992 Stock Option Plan. (3)
10.19 # 1995 Stock Option Plan. (3)
10.20 # Employment Agreement dated as of November 1, 1995 between the
Company and Sherwin I. Seligsohn. (3)
10.21 # Form of Services Agreement dated as of December 1, 1995 between the
Company and Dean L. Ledger. (3)
10.22 # Form of Stock Option Agreement dated as of June 23, 1995 between the
Company and Sidney D. Rosenblatt. (3)
19
10.23 # Form of Stock Option Agreement dated as of September 1, 1995 between
the Company and Stephen R. Forrest. (3)
10.24 # Form of Stock Option Agreement dated as of September 1, 1995 between
the Company and Mark E. Thompson. (3)
10.25 # Form of Stock Option Agreement dated as of September 1, 1995 between
the Company and Paul E. Burrows. (3)
10.26 License Agreement dated January 26, 1996 between the Company and
University of Southern California. (3)
10.27 Letter Agreement dated September 20, 1995 Agreeing to a Royalty Rate
between the Trustees of Princeton University and the Company. (3)
10.28 Agreement and Plan of Reorganization dated as of April 6, 1995
between Enzymatics, Inc., Enzymatics Merger Subsidiary, Inc. and the
Company. (3)
10.29 Form of Consulting Agreement between the Company and Whale
Securities Co., L.P. (3)
10.30 # Warrant Agreement dated April 25, 1996 between the Company and
Steven V. Abramson. (4)
10.31 # Warrant Agreement dated April 25, 1996 between the Company and
Sherwin Seligsohn. (4)
10.32 # Warrant Agreement dated April 25, 1996 between the Company and Dean
L. Ledger. (4)
10.33 # Warrant Agreement dated April 25, 1996 between the Company and
Sidney D. Rosenblatt. (4)
10.34 1997 Sponsored Research Agreement between the Company and Princeton
University. (5)
10.35 1997 Amended License Agreement between the Company, Princeton
University and the University of Southern California. (5)
10.36 License Agreement between the Company and Motorola, Inc. dated as of
September 29, 2000. (2)
10.37 Development and License Agreement dated as of October 1, 2000 by and
between PPG Industries, Inc. and the Company. (6)
10.38 Form of Warrant Agreement issuable by the Company to PPG Industries,
Inc. pursuant to the Development and License Agreement. (6)
10.39 Amendment Number 1 to the Development and License Agreement dated as
of March 7, 2001 by and between PPG Industries, Inc. and the
Company. (6)
10.40 # Form of Warrant Agreement dated as of April 18, 2000 between the
Company and Julia Brown. (7)
10.41 Termination, Amendment and License Agreement by and among the
Company, PD-LD, Inc., Dr. Vladimir S. Ban, and The Trustees of
Princeton University dated as of July 19, 2000. (2)
10.42 Securities Purchase Agreement dated as of August 22, 2001 among the
Company, Pine Ridge Financial Inc. and Strong River Investments,
Inc. (8)
10.43 Registration Rights Agreement dated as of August 22, 2001 among the
Company, Pine Ridge Financial Inc. and Strong River Investments,
Inc. (8)
10.44 Voting Agreement dated as of August 22, 2001 among the Company, Pine
Ridge Financial Inc. and Strong River Investments, Inc. (8)
10.45 Pledge Agreement dated as of August 22, 2001 by UDC, Inc. in favor
of First Union National Bank (8)
10.46 Control Agreement dated as of August 22, 2001 among First Union
National Bank, in its capacity as the issuer of two standby letters
of credit, UDC, Inc. and First Union National Bank, in its capacity
as custodian (8)
10.47 Guaranty and Suretyship Agreement dated as of August 22, 2001 made
by the Company in favor of First Union National Bank (8)
10.48 Irrevocable Standby Letter of Credit issued by First Union National
Bank in favor of Pine Ridge Financial Inc. (8)
10.49 Irrevocable Standby Letter of Credit issued by First Union National
Bank in favor of Strong River Investments, Inc. (8)
10.50 First Amendment to Securities Purchase Agreement dated as of
September 20, 2001 among the Company, Pine Ridge Financial Inc. and
Strong River Investments, Inc. (9)
10.51 Second Amendment to Securities Purchase Agreement dated as of
November 1, 2001 among the Company, Pine Ridge Financial Inc. and
Strong River Investments, Inc. (9)
10.52 First Amendment to Registration Rights Agreement dated as of
November 1, 2001 among the Company, Pine Ridge Financial Inc. and
Strong River Investments, Inc. (9)
10.53 Exchange Agreement dated as of November 2, 2001 among the Company,
Pine Ridge Financial Inc. and Strong River Investments, Inc. (9)
20
21 * Subsidiaries of the Registrant.
23 * Consent of Arthur Andersen LLP
99.1* Letter regarding independent public accountants
Explanation of Footnotes to Listing of Exhibits
* Filed herewith
# Management contract or compensatory plan or arrangement
(1) Filed as an Exhibit to Registration Statement (No. 33-80703) on Form
SB-2 filed with the Securities and Exchange Commission.
(2) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001 filed with the Securities and
Exchange Commission.
(3) Filed as an Exhibit to Amendment No. 1 to Registration Statement (No.
33-80703) on Form SB-2 filed with the Securities and Exchange
Commission.
(4) Filed as an Exhibit to the Annual Report on Form 10K-SB for the year
ended December 31, 1996 filed with the Securities and Exchange
Commission.
(5) Filed as Exhibit to the Annual Report on Form 10K-SB for the year
ended December 31, 1997, filed with the Securities and Exchange
Commission.
(6) Filed as an Exhibit to Amendment No. 1 to Registration Statement (No.
333-50990) on Form S-3 filed with the Securities and Exchange
Commission.
(7) Filed as an Exhibit to the Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities and Exchange
Commission.
(8) Filed as an Exhibit to the Current Report on Form 8-K filed with the
Securities and Exchange Commission September 6, 2001 and incorporated
herein by reference.
(9) Filed as an Exhibit to Registration Statement (No. 333-72846) on Form
S-3 filed with the Securities and Exchange Commission.
Note: Any of the exhibits listed in the foregoing index not included with this
Annual Report on Form 10-K may be obtained without charge by writing to Mr.
Sidney D. Rosenblatt, Corporate Secretary, Universal Display Corporation, 375
Phillips Boulevard, Ewing, New Jersey 08618.
(b) No reports were filed on Form 8-K during the fiscal quarter ended
December 31, 2001.
(c) Exhibits required to be filed by the Company pursuant to Item 601
of Regulation S-K are contained in Exhibits listed in response to Item 14(a)(3)
and are incorporated herein by reference.
(d) Financial statement schedules required to be filed by the Company
pursuant to Regulation S-X are listed in response to Item 14(a)(2) and are
incorporated herein by reference.
21
UNIVERSAL DISPLAY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, Universal Display Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized:
UNIVERSAL DISPLAY CORPORATION
By: /s/ Sherwin I. Seligsohn
-------------------------------------------------
Sherwin I. Seligsohn
Chairman of the Board and Chief Executive Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the dates indicated.
Name Title Date
---- ----- ----
/s/ Sherwin I. Seligsohn Chairman of Board and Chief Executive Officer March 29, 2002
- -----------------------------
Sherwin I. Seligsohn
/s/ Steven V. Abramson President, Chief Operating Officer and Director March 29, 2002
- ----------------------------
Steven V. Abramson
/s/ Sidney D. Rosenblatt Executive Vice President, Chief Financial Officer, March 29, 2002
- ----------------------------- Treasurer, Secretary and Director
Sidney D. Rosenblatt
/s/ Leonard Becker Director March 29, 2002
- -----------------------------
Leonard Becker
/s/ Elizabeth Gemmil Director March 29, 2002
- -----------------------------
Elizabeth Gemmil
/s/ C. Keith Hartley Director March 29, 2002
- -----------------------------
C. Keith Hartley
/s/ Lawrence Lacerte Director March 29, 2002
- -----------------------------
Lawrence Lacerte
22
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Operations................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit)............. F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Universal Display Corporation:
We have audited the accompanying consolidated balance sheets of Universal
Display Corporation (a Pennsylvania corporation in the development-stage) and
subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2001 and for the period from
inception (June 17, 1994) to December 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Universal Display
Corporation and subsidiary as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 and for the period from inception (June 17, 1994) to
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
March 5, 2002
F-2
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2001 2000
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 7,883,132 $ 7,701,040
Short-term investments 4,516,199 2,704,220
Restricted cash (Note 10) 15,162,414 --
Accounts receivable 540,855 312,076
Prepaid and other current assets 355,820 204,810
----------- -----------
Total current assets 28,458,420 10,922,146
PROPERTY AND EQUIPMENT, net 5,296,177 4,630,257
ACQUIRED TECHNOLOGY, net 14,794,847 16,489,919
DEPOSITS 20,125 37,472
----------- -----------
$48,569,569 $32,079,794
=========== ===========
LIABILITIES, REDEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Convertible promissory notes (face value of $15,000,000,
net of discounts) (Note 10) $ 8,288,239 $ --
Capital lease obligations 4,228 3,759
Accounts payable 649,100 816,131
Accrued expenses 1,072,621 850,126
Deferred license fees 450,000 --
----------- -----------
Total current liabilities 10,464,188 1,670,016
----------- -----------
CAPITAL LEASE OBLIGATIONS 8,599 12,860
----------- -----------
REDEEMABLE COMMON STOCK (Note 8) -- 570,114
----------- -----------
COMMITMENTS (Note 13)
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized,
200,000 shares of Series A Nonconvertible Preferred Stock issued and
outstanding (liquidation value of $7.50 per share or $1,500,000), 300,000
shares of Series B Convertible Preferred Stock issued and outstanding
(liquidation value of $21.48 per shares or $6,444,000), 5,000 shares of
Series C-1 Convertible Preferred Stock authorized and none outstanding, 5,000
shares of Series D Convertible
Preferred stock authorized and none outstanding 5,000 5,000
Common Stock, par value $.01 per share, 50,000,000 shares authorized,
18,093,124 and 16,440,286 shares issued and outstanding 180,931 164,403
Additional paid-in capital 85,016,601 57,885,790
Accumulated other comprehensive loss (3,925) --
Deficit accumulated during development-stage (47,101,825) (28,228,389)
----------- -----------
Total shareholders' equity $38,096,782 $29,826,804
=========== ===========
$48,569,569 $32,079,794
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
----------------------------------------------
Period from
Inception
(June 17, 1994) to
2001 2000 1999 December 31, 2001
------------ ------------ ------------ -----------------
REVENUE:
Contract research revenue $ 1,058,571 $ 492,756 $ 519,536 $ 2,533,262
Development chemicals 194,330 -- -- 194,330
------------ ------------ ------------ ------------
Total revenue 1,252,901 492,756 519,536 2,727,592
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 12,385,036 7,109,205 3,171,497 31,315,337
General and administrative 3,915,854 3,261,113 2,727,856 15,774,211
------------ ------------ ------------ ------------
Total operating expenses 16,300,890 10,370,318 5,899,353 47,089,548
------------ ------------ ------------ ------------
Operating loss (15,047,989) (9,877,562) (5,379,817) (44,361,956)
------------ ------------ ------------ ------------
INTEREST INCOME 540,031 348,516 254,811 1,625,609
INTEREST EXPENSE (1,848,142) -- -- (1,848,142)
------------ ------------ ------------ ------------
NET LOSS $(16,356,100) $ (9,529,046) $ (5,125,006) $(44,584,489)
------------ ------------ ------------ ------------
DEEMED DIVIDENDS TO PREFERRED
SHAREHOLDERS (Notes 9 and 10) (2,517,336) -- -- (2,517,336)
------------ ------------ ------------ ------------
NET LOSS APPLIABLE TO COMMON
SHAREHOLDERS $(18,873,436) $ (9,529,046) $ (5,125,006) $(47,101,825)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (1.11) $ (0.62) $ (0.42)
============ ============ ============
WEIGHTED AVERAGE SHARES USED IN
COMPUTING BASIC AND DILUTED NET
LOSS PER COMMON SHARE 16,994,537 15,260,837 12,269,943
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Series A Nonconvertible
Preferred Stock
-------------------------------
Shares Amount
------------- -------------
BALANCE, INCEPTION (JUNE 17, 1994) -- $ --
Net Loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1994 -- --
Recapitalization by issuance of Common Stock to Enzymatics, Inc. -- --
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability -- --
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements 200,000 2,000
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000 -- --
Issuance of Common Stock options -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1995 200,000 2,000
Issuance of Common Stock in Initial Public Offering on April 11, 1996 -- --
Issuance of Common Stock warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1996 200,000 2,000
Exercise of private placement warrants -- --
Issuance of Common Stock warrants -- --
Issuance of Common Stock options -- --
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement -- --
Exercise of Common Stock options and warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1997 200,000 2,000
Exercise of private placement warrants -- --
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1998 200,000 2,000
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock and warrants through private placement, net of expenses of $488,220 -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock in connection with the executive employee bonus -- --
Issuance of Common Stock options to non-employees -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1999 200,000 2,000
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock and warrants through private placement, net of expenses of $311,313 -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock options to non-employees -- --
Issuance of Redeemable Common Stock, options and warrants in connection with the Development
Agreements -- --
Issuance of Common Stock, Preferred Stock Series B, and warrants in connection with the
purchase of intangibles -- --
Issuance of Common Stock options and warrants to Scientific Advisory Board -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 2000 200,000 2,000
Exercise of Common Stock options and warrants -- --
Issuance of Convertible Preferred stock and warrants through private placement, net of
expenses of $863,021 -- --
Exchange of Series C to Series C-1 (Note 10) -- --
Issuance of Common Stock upon conversion of Convertible Preferred Stock -- --
Deemed dividends to Preferred Shareholders -- --
Issuance of Common Stock and warrants through private placement -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock options to non-employees -- --
Issuance of Common Stock, options and warrants in connection with the Development
Agreements -- --
Issuance of Common Stock options and warrants to Scientific Advisory Board -- --
Unrealized loss on available-for-sale securities -- --
Net loss -- --
------------- -------------
Comprehensive loss -- --
------------- -------------
BALANCE, DECEMBER 31, 2001 200,000 $ 2,000
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(continued)
Series B Nonconvertible
Preferred Stock
-------------------------------
Shares Amount
------------- -------------
BALANCE, INCEPTION (JUNE 17, 1994) -- $ --
Net Loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1994 -- --
Recapitalization by issuance of Common Stock to Enzymatics, Inc. -- --
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability -- --
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements -- --
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000 -- --
Issuance of Common Stock options -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1995 -- --
Issuance of Common Stock in Initial Public Offering on April 11, 1996 -- --
Issuance of Common Stock warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1996 -- --
Exercise of private placement warrants -- --
Issuance of Common Stock warrants -- --
Issuance of Common Stock options -- --
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement -- --
Exercise of Common Stock options and warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1997 -- --
Exercise of private placement warrants -- --
Exercise of Common Stock options and warrants -- --
Issuanc