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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
[ ] TRANSITION REPORT UNDER 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 (I.R.S. Employer Identification No.)
incorporation or organization)
375 Phillips Boulevard
Ewing, New Jersey 08618
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(609) 671-0980
---------------------------------------------------
(Registrant's telephone number, including area code)
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 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of August 11, 2003, the registrant had outstanding 21,953,265 shares of
Common Stock.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 2003 (unaudited) and December 31, 2002 3
Consolidated Statements of Operations - Three months ended June 30,
2003 and 2002 and inception to June 30, 2003 (unaudited) 4
Consolidated Statements of Operations - Six months ended June 30, 2003
and 2002 and inception to June 30, 2003 (unaudited) 5
Consolidated Statements of Cash Flows - Six months ended June 30, 2003
and 2002 and inception to June 30, 2003 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
ITEM 4. CONTROLS AND PROCEDURES 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
-i-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2003 December 31, 2002
(unaudited)
------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 7,676,427 $ 15,905,416
Short-term investments 5,933,951 4,662,898
Accounts receivable 616,020 662,822
Prepaids and other current assets 336,533 177,219
------------- --------------
Total current assets 14,562,931 21,408,355
PROPERTY AND EQUIPMENT, net 4,125,910 4,617,570
AQUIRED TECHNOLOGY, net 12,252,239 13,099,775
INVESTMENTS 3,819,799 379,753
OTHER ASSETS 134,773 133,763
------------- --------------
$ 34,895,652 $ 39,639,216
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligations $ 4,931 $ 4,713
Accounts payable 819,659 388,286
Accrued expenses 982,876 1,084,889
Deferred license fees 1,166,667 1,066,667
Deferred revenue 317,204 322,204
------------- --------------
Total current liabilities 3,291,337 2,866,759
------------- --------------
CAPITAL LEASE OBLIGATIONS 1,376 3,886
DEFERRED LICENSE FEES 3,100,000 3,100,000
------------- --------------
Total liabilities 6,392,713 5,970,645
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized,
200,000 shares Series A Nonconvertible Preferred Stock issued and
Outstanding (liquidation value of $7.50 per share or $1,500,000),
300,000 shares Series B Convertible Preferred Stock issued and
outstanding (liquidation value of $21.48 per share 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, 21,767,404 and 21,525,412 shares issued and
outstanding, respectively 217,674 215,254
Additional paid-in capital 116,331,806 113,541,408
Accumulated other comprehensive loss (15,296) (18,586)
Deficit accumulated during development-stage (88,036,245) (80,074,505)
------------- --------------
Total shareholders' equity 28,502,939 33,668,571
------------- --------------
$ 34,895,652 $ 39,639,216
============= ==============
The accompanying notes are an integral part of these statements.
-1-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Period from Inception
------------------------------- (June 17, 1994) to
2003 2002 June 30, 2003
------------ ------------- ---------------------
REVENUE:
Contract research revenue $ 468,206 $ 364,976 $ 4,839,573
Development chemicals 631,750 90,050 2,181,398
Technology development revenue 250,000 -- 682,796
------------ ------------ -------------
Total revenue 1,349,956 455,026 7,703,767
------------ ------------ -------------
OPERATING EXPENSES:
Research and development 4,180,697 3,762,970 55,337,766
General and administrative 1,239,481 1,320,303 22,682,609
Royalty expense 87,500 -- 500,000
----------- ------------ -------------
Total operating expenses 5,507,678 5,083,273 78,520,375
------------ ------------ -------------
Operating loss (4,157,722) (4,628,247) (70,816,608)
INTEREST INCOME 53,890 118,936 2,168,418
INTEREST EXPENSE (194) (1,068,476) (5,147,149)
DEBT CONVERSION AND EXTINGUISHMENT EXPENSE -- -- (10,011,780)
OTHER INCOME 11,032 -- 241,689
------------ ------------ -------------
NET LOSS (4,092,994) (5,577,787) (83,565,430)
DEEMED DIVIDEND TO PREFERRED
SHAREHOLDERS -- -- (4,470,815)
------------- ------------ -------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(4,092,994) $ (5,577,787) $(88,036,245)
============= ============ =============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.19) $ (0.31)
============= ============
WEIGHTED AVERAGE SHARES USED
IN COMPUTING BASIC AND DILUTED
NET LOSS PER COMMON SHARE 21,654,133 18,183,254
============= ============
The accompanying notes are an integral part of these statements.
-2-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30, Period from Inception
--------------------------------- (June 17, 1994) to
2003 2002 June 30, 2003
------------ ------------ ---------------------
REVENUE:
Contract research revenue $ 837,353 $ 812,059 $ 4,839,573
Development chemicals 1,193,550 177,893 2,181,398
Technology development revenue 500,000 -- 682,796
------------ ------------ -------------
Total revenue 2,530,903 989,952 7,703,767
------------ ------------ -------------
OPERATING EXPENSES:
Research and development 8,108,248 7,616,797 55,337,766
General and administrative 2,338,462 2,273,539 22,682,609
Royalty expense 175,000 -- 500,000
------------ ------------ -------------
Total operating expenses 10,621,710 9,890,336 78,520,375
------------ ------------ -------------
Operating loss (8,090,807) (8,900,384) (70,816,608)
INTEREST INCOME 113,453 247,298 2,168,418
INTEREST EXPENSE (418) (2,223,510) (5,147,149)
DEBT CONVERSION AND EXTINGUISHMENT EXPENSE -- -- (10,011,780)
OTHER INCOME 16,032 -- 241,689
------------ ------------ -------------
NET LOSS (7,961,740) (10,876,596) (83,565,430)
DEEMED DIVIDEND TO PREFERRED
SHAREHOLDERS -- -- (4,470,815)
------------ ------------ -------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ (7,961,740) $(10,876,596) $ (88,036,245)
============ ============ =============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.37) $ (0.60)
============ ============
WEIGHTED AVERAGE SHARES USED
IN COMPUTING BASIC AND DILUTED
NET LOSS PER COMMON SHARE 21,595,360 18,181,230
============ ============
The accompanying notes are an integral part of these statements.
-3-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, Period from Inception
-------------------------------- (June 17, 1994) to
2003 2002 June 30, 2003
------------ ------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,961,740) $ (10,876,596) $ (83,565,430)
Non-cash charges to statement of operations:
Depreciation 1,039,833 823,605 4,726,913
Amortization of intangibles 847,536 847,536 4,698,479
Amortization of discounts on Convertible Promissory Note -- 2,096,442 14,734,168
Issuance of Common Stock options and warrants for services 25,254 91,022 1,635,814
Issuance of Common Stock and warrants in connection
with amended research and license agreements -- -- 3,120,329
Issuance of Common Stock in connection with
executive compensation -- 16,150 439,370
Issuance of redeemable Common Stock, Common Stock options and
warrants in connection with development agreement 2,294,468 2,852,777 10,728,276
Issuance of Common Stock options and warrants for
Scientific Advisory Board -- -- 1,947,369
Issuance of Common Stock in connection with License Agreement -- -- 71,816
Acquired in-process technology -- -- 350,000
(Increase) decrease in assets:
Accounts receivable 46,802 90,263 (616,020)
Other current assets (159,314) (60,849) 11,783
Other assets (1,010) (19,851) (134,773)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 460,690 (580,560) 1,503,285
Payable to related parties -- -- 250,000
Deferred license fees 100,000 -- 4,266,667
Deferred revenue (5,000) 616,667 317,204
------------ ------------- --------------
Net cash used in operating activities (3,312,481) (4,103,394) (35,514,750)
------------ ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (548,173) (974,659) (7,970,802)
Purchase of intangibles -- -- (25,750)
Purchases of investments (7,410,000) (2,511,506) (40,276,605)
Proceeds from sale of investments 2,702,192 4,051,585 30,507,560
Restricted cash -- 42,633 --
------------ ------------- --------------
Net cash (used in) provided by investing activities (5,255,981) 608,053 (17,765,597)
------------ ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock -- -- 31,031,937
Proceeds from issuance of Preferred Stock -- -- 9,137,079
Proceeds from issuance of Convertible Promissory
Notes and equity instruments -- -- 15,000,000
Repayment of Convertible Promissory Notes -- -- (8,819,997)
Proceeds from the exercise of Common Stock options and warrants 341,765 17,750 14,621,469
Principal payments on capital lease (2,292) (2,057) (13,714)
------------ ------------- --------------
Net cash provided by financing activities 339,473 15,693 60,956,774
------------ ------------- --------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,228,989) (3,479,648) 7,676,427
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,905,416 7,883,132 --
------------ ------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,676,427 $ 4,403,484 $ 7,676,427
============ ============= ==============
The accompanying notes are an integral part of these statements.
-4-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BACKGROUND:
Universal Display Corporation (the "Company"), a development-stage company, is
engaged in the research and development and commercialization of organic light
emitting device ("OLED") technologies and materials for potential flat panel
display and other applications.
The Company, formerly known as Enzymatics, Inc. ("Enzymatics"), was incorporated
under the laws of the Commonwealth of Pennsylvania on April 24, 1985, and
commenced its current business activities on August 1, 1994. The New Jersey
corporation formerly known as Universal Display Corporation and now known as
UDC, Inc. ("UDC") was incorporated under the laws of the State of New Jersey on
June 17, 1994.
The Company also sponsors substantial OLED technology research being conducted
at the Advanced Technology Center for Photonics and Optoelectronic Materials at
Princeton University and at the University of Southern California ("USC") (on a
subcontract basis with Princeton University), pursuant to a Research Agreement
between the Company and the Trustees of Princeton University dated October 9,
1997 (as amended, the "1997 Research Agreement") (Note 3). The Company
previously sponsored OLED technology research conducted at Princeton University
under a Sponsored Research Agreement between the Trustees of Princeton
University and American Biomimetics Corporation ("ABC") dated August 1, 1994 (as
amended, the "1994 Sponsored Research Agreement"). ABC, a privately held
Pennsylvania corporation that is affiliated with the Company, assigned its
rights and obligations under the 1994 Sponsored Research Agreement to the
Company in October 1995.
Pursuant to a License Agreement between the Trustees of Princeton University and
ABC dated August 1, 1994 (as amended, the "1994 License Agreement"), Princeton
University granted the Company a worldwide exclusive license, with rights to
sublicense, to make, have made, use, lease and/or sell products and to practice
processes based on a pending patent application of Princeton University relating
to OLED technology. Under the 1994 License Agreement, Princeton University
further granted ABC similar license rights with respect to patent applications
and issued patents arising out of work performed by Princeton University under
the 1994 Sponsored Research Agreement. ABC assigned its rights and obligations
under the 1994 License Agreement to the Company in June 1995. On October 9,
1997, the Company and Princeton University entered into an Amended License
Agreement that amended and restated the 1994 License Agreement (as amended, the
"1997 Amended License Agreement") (Note 3). Under the 1997 Amended License
Agreement, Princeton University granted the Company corresponding license rights
with respect to patent applications and issued patents arising out of work
performed by Princeton University and USC under the 1997 Research Agreement.
The Company conducts a substantial portion of its OLED technology development
activities at its technology development and transfer facility in Ewing, New
Jersey. The Company moved its operations to this facility in the fourth quarter
of 1999 and expanded the facility from 11,000 square feet to 21,000 square feet
in 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
2003, and the results of operations and cash flows for the three and six months
ended June 30, 2003 and 2002. While management believes that the disclosures
presented are adequate to make the information not misleading, these unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto in the Company's latest
year-end financial statements, which were included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents are defined as cash and highly liquid investments with
original maturities of less than three months. At June 30, 2003, cash and cash
equivalents included cash on hand, cash in banks, money market accounts and
certificate of deposits.
The Company classifies its investments as available-for-sale in accordance with
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." These
investments are carried at fair market value, with unrealized gains and losses
reported in shareholders' equity as a component of other comprehensive income
(loss). Gains or losses on securities sold are based on the specific
identification method. Investments classified as current have maturity dates of
greater then three months but less than one year. Investments classified as
long-term have maturity dates greater than one year.
-5-
The Company reported unrealized holding losses of $15,296 and $18,586 at June
30, 2003 and December 31, 2002, respectively. Comprehensive loss, which includes
the net loss and change in unrealized holding losses, was $7,958,450 and
$10,874,162 for the six months ended June 30, 2003 and 2002, respectively and
$4,086,320 and $5,574,113 for the three months ended June 30, 2003 and 2002,
respectively.
Acquired Technology
Acquired technology consists of acquired license rights for patents and know-how
obtained from PD-LD, Inc. and Motorola, Inc. (Note 4). These intangible assets
consist of the following:
June 30, 2003 December 31, 2002
-------------- -----------------
PD-LD, Inc. $ 1,481,250 $ 1,481,250
Motorola 15,469,468 15,469,468
------------ ------------
16,950,718 16,950,718
Less: Accumulated amortization (4,698,479) (3,850,943)
------------ ------------
Acquired Technology, net $ 12,252,239 $ 13,099,775
============ ============
Acquired technology is amortized on a straight-line basis over its estimated
useful life of ten years.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss attributable to
Common Stock shareholders by the weighted-average number of shares of Common
Stock outstanding for the period. Diluted net loss per common share reflects the
potential dilution from the exercise, or conversion of securities into Common
Stock. For the three and six months ended June 30, 2003 and 2002, the effects of
the exercise of 8,120,924 and 7,303,703 outstanding stock options and warrants,
respectively, were excluded from the calculation of diluted EPS as the impact
would be antidilutive.
Research and Development
Expenditures for research and development are charged to operations as incurred.
Recent Accounting Pronouncements
In July 2002, the FASB Issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses the financial accounting and
reporting of expenses related to restructurings initiated after 2002, and
applies to costs associated with an exit activity (including a restructuring) or
with a disposal of long-lived assets. Those activities can include eliminating
or reducing product lines, terminating employees and contracts, and relocating
plant facilities or personnel. Under SFAS No. 146, a company will record a
liability for a cost associated with an exit or disposal activity when the
liability is incurred and can be measured at fair value. The provisions of SFAS
No. 146 are effective prospectively for exit or disposal activities initiated
after December 31, 2002. The adoption of this statement had no effect on the
Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation- Transition and Disclosure," which amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements. As such, the
disclosure requirements have been incorporated in the Company's financial
statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," which addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable interest
entities created after January 31, 2003, and to variable interests in variable
interest entities obtained after January 31, 2003. The application of this
Interpretation had no effect on the Company's financial statements.
-6-
The EITF recently reached a consensus on EITF Issue No. 00-21, which provides
accounting guidance for customer solutions where delivery or performance of
products, services and/or performances may occur at different points in time or
over different periods of time. Companies are required to adopt this consensus
for fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No.
00-21 is not expected to have a significant impact on the Company's financial
position, results of operations, or liquidity.
In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" was issued establishing
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify certain financial instruments within its scope as a
liability. Some of the provisions of this Statement are consistent with the
current definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of the Statement are consistent
with the Board's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own equity
shares, depending on the nature of the relationship established between the
holder and the issuer. The Company has not yet determined the impact on the
Company's financial statements.
Stock Options
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25)
under which no compensation cost has been recognized for options issued to
employees at fair market value on the date of grant. In 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 established a fair value based method of accounting
for stock-based compensation plans. SFAS No. 123 requires that a company's
financial statements include certain disclosures about stock-based employee
compensation arrangement regardless of the method used to account for the plan.
The Company accounts for its stock option and warrant grants to non-employees in
exchange for goods or services in accordance with SFAS No. 123 and Emerging
Issues Task Force No. 96-18 ("EITF 96-18"). SFAS 123 and EITF 96-18 require that
the Company account for its option and warrant grants to non-employees based on
the fair value of the options and warrants granted.
SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as
expense the fair value of stock-based awards, or (ii) continue to apply the
provisions of APB No. 25, and provide pro forma net income and earnings per
share disclosures for employee stock option grants as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company continues to apply
the provisions of APB No. 25 and provide the pro forma disclosures in accordance
with the provisions of SFAS No. 123 and 148 to its stock option plans. Under APB
No. 25, the Company has not recorded any stock-based employee compensation cost
associated with the Company's stock option plan, as all options granted under
the plan had an exercise price equal to the market value of the underlying
common stock on the date of grant.
The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
its stock option plans:
Three months ended June 30,
---------------------------
2003 2002
----------- -----------
Net loss applicable to Common shareholders:
As reported $(4,092,994) $(5,577,787)
Add stock-based employee compensation
expense included in reported net income -- --
Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all rewards (239,229) (274,887)
----------- -----------
Pro forma $(4,332,223) $(5,852,674)
=========== ===========
Basic and diluted net loss per share:
As reported $ (0.19) $ (0.31)
Pro forma (0.20) (0.32)
-7-
Six months ended June 30,
--------------------------
2003 2002
----------- -----------
Net loss applicable to Common shareholders:
As reported $(7,961,740) $(10,876,596)
Add stock-based employee compensation
expense included in reported net income -- --
Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all rewards (491,865) (546,290)
------------ -------------
Pro forma $(8,453,605) $(11,422,886)
============ =============
Basic and diluted net loss per share:
As reported $ (0.37) $ (0.60)
Pro forma (0.39) (0.63)
3. RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY:
In April 2002, the Company amended the 1997 Research Agreement with Princeton
University providing, among other things, for an additional five-year term. The
Company is obligated to pay Princeton University up to $7,477,993 under the 1997
Research Agreement from July 31, 2002 through July 31, 2007. Payments to
Princeton University under this agreement are charged to research and
development expenses when they become due. As of June 30, 2003, the Company has
funded $1,504,855 of this agreement and is obligated to fund an additional
$5,973,138 through July 2007.
Under the 1997 Amended License Agreement, the Company is required to pay
Princeton University royalties for licensed products sold by the Company or its
sublicensees. For licensed products sold by the Company, the Company is required
to pay Princeton University 3% of the net sales price of these products. For
licensed products sold by the Company's sublicensees, the Company is required to
pay Princeton University 3% of the revenues received by the Company from these
sublicensees. These royalty rates are subject to upward adjustments under
certain conditions.
The Company is obligated under the 1997 Amended License Agreement to pay to
Princeton University minimum annual royalties. The minimum royalty payment was
$25,000 in 1999, $50,000 in 2000, $75,000 in 2001, and $100,000 in 2002 and
thereafter. Accordingly, the Company accrued $50,000 of royalty expense for the
six months ended June 30, 2003. These royalties are charged to research and
development expense in the year they become due.
The Company also is required under the 1997 Amended License Agreement to use
commercially reasonable efforts to bring the licensed OLED technology to market.
However, this requirement is deemed satisfied provided the Company performs its
obligations under the 1997 Research Agreement and, when that agreement ends, the
Company invests a minimum of $800,000 per year in research, development,
commercialization or patenting efforts respecting the patent rights licensed to
the Company.
In connection with executing the Research Agreement and the Amended License
Agreement, in 1997 the Company issued to Princeton University 140,000 shares of
the Company's Common Stock and 10 year warrants to purchase an additional
175,000 shares of the Common Stock at an exercise price of $7.25 per share
vesting immediately. The Company also issued to USC 60,000 shares of the Common
Stock and 10 year warrants to purchase an additional 75,000 shares of the Common
Stock at an exercise price of $7.25 per share vesting immediately.
4. ACQUIRED TECHNOLOGY:
On July 19, 2000, the Company, PD-LD, Inc. ("PD-LD"), its president Dr. Vladimir
Ban and the Trustees of Princeton University entered into a Termination,
Amendment and License Agreement whereby the Company acquired all PD-LD's rights
to certain issued and pending OLED technology patents in exchange for 50,000
shares of the Company's Common Stock. Pursuant to this transaction, these
patents were included in the patent rights exclusively licensed to the Company
under the 1997 Amended License Agreement. The acquisition of these patents had a
fair value of $1,481,250 (Note 2).
-8-
On September 29, 2000, the Company entered into a License Agreement with
Motorola, Inc. ("Motorola"). Pursuant to this agreement, the Company licensed
from Motorola 72 U.S. patents, 6 U.S. patent applications and additional foreign
patents relating to OLED technologies. These patents expire between 2012 and
2018. The Company has the sole right to sublicense these patents to OLED
manufacturers. As consideration for this license, the Company issued to Motorola
200,000 shares of the Company's Common Stock, valued at $4,412,500, 300,000
shares of the Company's Series B Convertible Preferred Stock ("Series B"),
valued at $6,618,750, and a warrant to purchase 150,000 shares of the Company's
Common Stock at $21.60 per share. This warrant became exercisable on September
29, 2001, and will remain exercisable until September 29, 2008. The warrant was
recorded at a fair market value of $2,206,234 based on the Black-Scholes
option-pricing model, and was recorded as a component of the cost of the
acquired technology. The Company also issued a warrant to an unaffiliated third
party to acquire 150,000 shares of Common Stock as a finder's fee in connection
with this transaction. This warrant was granted with an exercise price of $21.60
per share and was exercisable immediately and will remain exercisable until
September 29, 2007. This warrant was accounted for at its fair value based on
the Black-Scholes option pricing model and $2,206,234 was recorded as a
component of the cost of the acquired technology. The Company used the following
assumptions in the Black-Scholes option pricing model for the 300,000 warrants
issued in connection with this transaction: (1) 6.3% risk-free interest rate,
(2) expected life of 7 years, (3) 60% volatility, and (4) zero expected dividend
yield. In addition, the Company incurred $25,750 of direct cash transaction
costs that have been included in the cost of the acquired technology. In total,
the Company recorded an intangible asset of $15,469,468 for the technology
acquired from Motorola (Note 2).
The Company is required under the License Agreement to pay Motorola royalties on
gross revenues earned by the Company for its sales of OLED products or
components, or from its sublicensees for their sales of OLED products or
components, whether or not these products or components are based on inventions
claimed in the patent rights licensed from Motorola. Moreover, the Company is
required to pay Motorola minimum royalties of $150,000 for the two-year period
ending on December 31, 2002, $500,000 for the two-year period ending on December
31, 2004, and $1,000,000 for the two-year period ending on December 31, 2006.
All royalty payments may be made, at the Company's discretion, in either all
cash or 50% cash and 50% in shares of the Company's Common Stock. The number of
shares of Common Stock used to pay the stock portion of the royalty is equal to
50% of the royalty due divided by the average daily closing price per share of
the Company's Common Stock over the 10 trading days ending two business days
prior to the date the Common Stock is issued. Accordingly, the Company accrued
$125,000 of royalty expense for the six months ended June 30, 2003.
5. COMMON STOCK AND WARRANTS ISSUED UNDER THE PPG DEVELOPMENT AND LICENSE
AGREEMENT:
On October 1, 2000, the Company entered into a five-year Development and License
Agreement with PPG Industries, Inc. ("PPG") to leverage the Company's OLED
technologies with PPG's expertise in the development and manufacturing of
organic materials. A team of PPG scientists and engineers are assisting the
Company in developing and commercializing its proprietary OLED materials. In
consideration for PPG's services under the agreement, the Company is required to
issue shares of its Common Stock and warrants to acquire its Common Stock to PPG
on an annual basis over the period from January 1, 2001 through December 31,
2005. The amount of securities the Company is required to issue is subject to
adjustment under certain circumstances, as defined in the agreement. In January
2003, the Company amended the Development and License Agreement, providing for
additional consideration to PPG for services provided under the agreement, which
are to be paid for in cash. The Company records these expenses to research and
development as they are incurred.
During each respective first quarter of 2003 and 2002, the Company issued to PPG
305,715 and 344,379 shares of the Company's Common Stock as consideration for
services required to be provided by PPG under the Development and License
Agreement in 2003 and 2002, respectively. During the six months ended June 30,
2003 and 2002, respectively, the Company recorded a charge of $1,212,508 and
$1,529,977 to research and development expense for the portion of the shares
issued that were earned during the period the services were provided. The charge
was determined based on the fair value of the Common Stock earned by PPG.
As required under the Development and License Agreement, the Company issued
16,645 shares of Common Stock to PPG in February 2003. The additional shares
were issued to PPG based on a final accounting for actual costs incurred by PPG
under the agreement through December 31, 2002. Accordingly, the Company accrued
$131,329 of additional research and development expense as of December 31, 2002,
for these additional shares.
In further consideration of the services performed by PPG under the Development
and License Agreement, the Company is required to issue warrants to PPG to
acquire shares of the Company's Common Stock. The number of warrants earned and
issued is based on the number of shares of Common Stock earned by, and issued
to, PPG by the Company during each calendar year of the term of the agreement.
Accordingly, the Company issued warrants to PPG to acquire 361,024 shares of the
Company's Common Stock as part of the consideration for services performed by
PPG during 2002. The warrants were earned and charged to research and
development expenses during 2002, but were not issued until February 2003. The
Company will similarly issue warrants to PPG for services performed during 2003
in the first quarter of 2004 and charge the related fair value of the warrants
to research and development in 2003 as they are earned.
-9-
During the six months ended June 30, 2003 and 2002, the Company recorded charges
to research and development expense of $956,932 and $1,238,847, respectively,
for the portion of the warrants that were earned by PPG during these periods.
These charges were recorded based on the estimated fair value of the warrants
earned. The Company determined the fair value of the warrants earned during each
such period using the Black-Scholes option-pricing model with the following
assumptions: (1) risk free interest rate of 3.030-3.350% and 4.520-5.443%, (2)
no expected dividend yield, (3) expected life of 7 years, and (4) expected
volatility of 94%, respectively.
The Company is required to grant options to purchase the Company's Common Stock
to PPG employees performing services for the Company under the Development and
License Agreement. Subject to certain contingencies, all of these options vest
one-year from the date of grant and expire 10 years from the date of grant.
On December 17, 2001, the Company granted to PPG employees performing services
under the agreement options to purchase 26,333 shares of the Company's Common
Stock at an exercise price of $8.56 per share. During the six months ended June
30, 2002, the Company recorded $83,954 in research and development costs related
to these options.
On September 23, 2002, the Company granted to PPG employees performing services
under the agreement options to purchase 30,000 shares of the Company's Common
Stock at an exercise price of $5.45. During the six months ended June 30, 2003,
the Company recorded $125,029 in research and development costs related to these
options.
The Company determined the fair value of the options earned during the six
months ended June 30, 2003 and 2002, respectively, using the Black-Scholes
option-pricing model with the following assumptions: (1) risk free interest rate
of 3.70% and 4.520-5.443%, (2) no expected dividend yield, (3) expected life of
10 years, and (4) expected volatility of 94%, respectively.
6. RESTRICTED CASH AND CONVERTIBLE PROMISSORY NOTES:
In an August 2001 private placement transaction, the Company issued two
$7,500,000 notes, each with a maturity date of August 22, 2004 (the "Notes").
The Notes were convertible into shares of the Company's Common Stock at an
initial conversion price of $13.97 per share, with such conversion price subject
to change based on anti-dilution provisions and other adjustments.
In August 2002, the Company completed a registered direct offering of Common
Stock to institutional investors that was deemed dilutive under the terms of the
Notes. As a result, the conversion price of the Notes was reduced to $5.09. In
September 2002, $7,000,002 in principal amount of the Notes was converted into
1,375,246 shares of Common Stock and $7,999,998 in principal amount of the Notes
was repaid, together with a prepayment premium, established under the Notes, of
$400,000 in cash.
The Company's obligations under the Notes were secured by irrevocable letters of
credit issued with face amounts equal to the outstanding principal of the
related Notes. The $15,000,000 in proceeds from the sale of the Notes was
pledged as collateral to the bank issuing the letters of credit. Prior to the
conversion and repayment of the Notes, the $15,000,000 in cash proceeds plus
accrued but unpaid interest had been classified as restricted cash.
In accordance with APB No. 14, "Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants" ("APB No. 14"), the Company determined in August
2001 the relative fair value of the Notes to be $9,857,006. The resulting
original issuance discount ("OID") of $5,142,994 was being amortized as interest
expense, using the effective interest method, over the original maturity period
of three years. During the six months ended June 30, 2002, the Company
recognized a non-cash charge to interest expense of $1,270,675 for amortization
of the OID.
In accordance with Emerging Issues Task Force ("EITF") No. 00-27, "Application
of Issue No. 98-5 to Certain Convertible Instruments" ("EITF No. 00-27"), and
EITF No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" ("EITF No. 98-5"), and
after considering the allocation of the proceeds to the Notes, the Company
determined in August 2001 that the Notes contained an initial beneficial
conversion feature ("BCF"). The BCF existed at the commitment date due to the
fact that the carrying value of the Notes, after the initial allocation of the
proceeds, was less than the fair market value of the Common Stock that was
issuable upon conversion. Accordingly, the Company recorded $3,258,468 of BCF in
August 2001 as a debt discount. The BCF debt discount was being amortized as
interest expense, using the effective interest method, over the original
maturity period of three years. During the six months ended June 30, 2002, the
Company recognized a non-cash charge to interest expense of $825,767 for
amortization of the BCF.
7. SHAREHOLDERS' EQUITY
The following table summarizes the shareholders' equity activity from January 1,
2003 through June 30, 2003:
-10-
Preferred Stock,
Series A & Series B Common Stock Additional Accumulated
------------------- ------------------- Paid-In Deficit and Other
Shares Amount Shares Amount Capital Comprehensive Loss Total Equity
--------- --------- ----------- --------- ------------- ------------------ -----------
BALANCE, JANUARY 1, 2003 500,000 $5,000 21,525,412 $215,254 113,541,408 $(80,093,091) $33,668,571
Exercise of Common Stock
options and warrants -- -- 83,500 835 340,930 -- 341,765
Issuance of Common Stock
options to non-employees -- -- -- -- 25,254 -- 25,254
Issuance of Common Stock,
options and warrants in
connection with Development
Agreements -- -- 158,492 1,585 2,424,214 -- 2,425,799 (A)
Unrealized gain on available-
for-sales securities -- -- -- -- -- 3,290 3,290
Net loss -- -- -- -- -- (7,961,740) (7,961,740)
--------- -------- ----------- ---------- ------------- ------------------ -------------
BALANCE, JUNE 30, 2003 500,000 $ 5,000 21,767,404 $ 217,674 $116,331,806 $(88,051,541) $28,502,939
========= ======== =========== ========== ============= ================== =============
(A) As in accordance with the PPG Development Agreement (See Note 5), the
Company issued Common Stock, warrants and options to PPG for the six
months ended June 30, 2003.
8. COMMITMENTS AND CONTINGENCIES
Under the terms of the Company's License Agreement with Motorola (Note 6), the
Company agreed to make minimum royalty payments. To the extent that the
royalties otherwise payable to Motorola under this agreement are not sufficient
to meet the minimums, the Company is required to pay the shortfall, at its
discretion, in all cash or in 50% cash and 50% Common Stock within 90 days after
the end of each two-year period specified below in which the shortfall occurs.
For the two-year period ending December 31, 2002, the Company issued to Motorola
8,000 shares of the Company's Common Stock, valued at $71,816, and paid $78,184
in cash as a result of the minimum royalty due of $150,000. Future required
minimum royalty payments are as follows:
January 1, 2003 - December 31, 2004 $ 500,000
January 1, 2005 - December 31, 2006 $1,000,000
In accordance with the amendment to the 1997 Research Agreement with the
Princeton University, the Company is required to pay annually to Princeton
University up to $1,495,999 from July 31, 2002 through July 31, 2007.
Under the terms of the 1997 Amended License Agreement (Note 5), the Company is
required to pay Princeton University minimum royalty payments. To the extent
that the royalties otherwise payable to Princeton University under this
agreement are not sufficient to meet the minimums for the relevant calendar
year, the Company is required to pay Princeton University the difference between
the royalties paid and the minimum royalty. The minimum royalty was $25,000 in
1999, $50,000 in 2000 and $75,000 in 2001, and is $100,000 in 2002 and each year
thereafter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS
All statements in this document that are not historical, such as financial or
product forecasts and market growth predictions, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Often, though not always, these statements are accompanied by the words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions. You are cautioned not to place undue reliance on any
forward-looking statements in this document, as they reflect Universal Display
Corporation's current views with respect to future events and are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated. These include, but are not limited to, the following:
the feasibility and market acceptance of OLEDs for use in commercial product
applications; the success of Universal Display Corporation and its research and
development partners in accomplishing advances in OLED technologies, including
Universal Display Corporation's TOLED(TM), FOLED(TM), PHOLED(TM), P(2)OLED(TM)
and Organic Vapor Phase Deposition (OVPD) technologies; the ability of Universal
Display Corporation to enter into licensing and other strategic alliances with
manufacturers of OLEDs and OLED-containing products; Universal Display
Corporation's ability to obtain patent protection for its OLED technologies and
to assert these patents against others; and future developments and advances by
Universal Display Corporation's competitors in OLED and other display
technologies. These and other risks and uncertainties are discussed in greater
detail in Universal Display Corporation's periodic reports on Form 10-K and Form
10-Q filed with the Securities and Exchange Commission, including, in
particular, the section entitled "Factors that May Affect Future Results and
Financial Condition" in Universal Display Corporation's annual report on Form
10-K for the year ended December 31, 2002. Universal Display Corporation
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement contained in this document
to reflect events or circumstances after the date hereof, or to reflect the
occurrence of unanticipated events.
-11-
General
Since inception, the Company has been exclusively engaged, and for the
foreseeable future expects to continue to be exclusively engaged, in funding and
performing research and development activities related to OLED technologies and
associated materials, and in attempting to commercialize these technologies and
materials. The Company has incurred significant losses since its inception,
resulting in an accumulated deficit of $88,036,245 as of June 30, 2003. Losses
are expected to continue for the foreseeable future and until such time, if
ever, as the Company is able to achieve, from the commercial licensing of its
OLED technologies and sale of its OLED materials, revenues that are sufficient
to support its operations.
Results of Operations
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
The Company had a net loss of $4,092,994 (or $0.19 per share) for the quarter
ended June 30, 2003, compared to a net loss of $5,577,787 (or $0.31 per share)
for the same period in 2002. The decrease in net loss is primarily attributed to
the following:
o an increase in revenues; and
o a decrease in interest expense as a result of the conversion and repayment
of convertible promissory notes in September 2002, which is described in
greater detail in Note 6 of the Notes to Consolidated Financial
Statements.
The Company earned $468,206 in contract research revenue from the U.S.
Government in the quarter ended June 30, 2003, compared to $364,976 for the same
period in 2002. In the quarter ended June 30, 2003, contract revenue was
generated from four existing government contracts, two of which were completed
in the second quarter, as well as one new government contract. In the second
quarter of 2002, approximately 60% of the contract revenue was generated from
one contract, which was completed in December 2002. In the quarter ended June
30, 2003, contract research revenue was mainly derived from the following
government contracts:
o $153,317 recognized under two 11-month SBIR Phase I grants, totaling
$200,000 received from the Department of Energy, which commenced in July
2002 and were completed in June 2003,
o $109,846 recognized under a 24-month, $1,963,725 cooperative agreement
received from the U.S. Army Research Laboratories ("ARL"), which commenced
in August 2002 and,
o $156,768 recognized under a $729,997 SBIR Phase II contract received from
the U.S. Department of the Army, which commenced in January 2003.
The Company earned $631,750 from its sales of OLED materials for evaluation
purposes in the quarter ended June 30, 2003, compared to $90,050 for the same
period in 2002. The increase in this amount is mainly due to an increased volume
of OLED materials purchased for evaluation by potential OLED manufacturers,
including the Company's current joint development partners.
The Company recognized $250,000 in technology development revenue from deferred
revenue in connection with a technology and development evaluation agreement,
which commenced in October 2002. There were no such agreements in effect for the
same period in 2002.
The Company incurred research and development expenses of $4,180,697 for the
quarter ended June 30, 2003, compared to $3,762,970 for the same period 2002.
The increase in these expenses was primarily a result of the following:
o increased expenses incurred to Princeton University, under the amended
1997 Research Agreement (see Note 3),
o increased expenses relating to patent and other related costs, and
o the further development and operation of the Company's facility in Ewing,
New Jersey.
The Company's interest expense was $194 for the quarter ended June 30, 2003,
compared to $1,068,476 for the same period in 2002. The decrease is a result of
the conversion and repayment of convertible promissory notes in September 2002.
For further discussion, see Note 6 of the Notes to Consolidated Financial
Statements.
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
The Company had a net loss of $7,961,740 (or $0.37 per share) for the six months
ended June 30, 2003, compared to a net loss of $10,876,596 (or $0.60 per share)
for the same period in 2002. The decrease in net loss is primarily attributed to
the following:
-12-
o an increase in revenues; and
o a decrease in interest expense as a result of the conversion and repayment
of convertible promissory notes in September 2002, which is described in
greater detail in Note 6 of the Notes to Consolidated Financial
Statements.
The Company earned $837,353 in contract research revenue from the U.S.
Government in the six months ended June 30, 2003, compared to $812,059 for the
same period in 2002. In the six months ended June 30, 2003, contract revenue was
derived form six existing government contracts and options, of which four were
completed by the end of the second quarter and two new contracts awarded in the
first and second quarters. For the same period in 2002, over 60% of the contract
revenue was generated from one contract, which was completed in December 2002.
In the six months ended June 30, 2003, contract research revenue was mainly
derived from the following government contracts:
o $105,412 recognized under a 24-month, $729,158 SBIR Phase II contract
received from the Department of Defense ("DoD"), which commenced in
February 2001 and was completed in February 2003,
o $173,868 recognized under two 11-month SBIR Phase I grants, totaling
$200,000 received from the Department of Energy, which commenced in July
2002 and were completed in June 2003,
o $267,853 recognized under a 24-month, $1,963,725 cooperative agreement
received from the U.S. Army Research Laboratories ("ARL"), which commenced
in August 2002,
o $156,768 recognized under a $729,997 SBIR Phase II contract received from
the U.S. Department of the Army, which commenced in January 2003.
o $58,208 recognized under a $69,850 SBIR Phase I contract received from the
U.S Department of the Army, which commenced in February 2003.
The Company earned $1,193,550 from its sales of OLED materials for evaluation
purposes in the six months ended June 30, 2003, compared to $177,893 for the
same period in 2002. The increase in this amount is mainly due to an increased
volume of OLED materials purchased for evaluation by potential OLED
manufacturers, including the Company's current joint development partners.
The Company recognized $500,000 in technology development revenue from deferred
revenue in connection with a technology and development evaluation agreement,
which commenced in October 2002. There were no such agreements in effect for the
same period in 2002.
The Company incurred research and development expenses of $8,108,248 for the six
months ended June 30, 2003, compared to $7,616,797 for the same period 2002. The
increase in these expenses was primarily a result of:
o increased expenses incurred to Princeton University, under the amended
1997 Research Agreement (see Note 3),
o increased expenses relating to patent and other related costs, and
o the further development and operation of the Company's facility in Ewing,
New Jersey.
The Company's interest expense was $418 for the six months ended June 30, 2003,
compared to $2,223,510 for the same period in 2002. The decrease is a result of
the conversion and repayment of convertible promissory notes in September 2002.
For further discussion, see Note 6 of the Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
As of June 30, 2003, the Company had cash and cash equivalents of $7,676,427,
short-term investments of $5,933,951 and long-term investments of $3,819,799,
for a total of $17,430,177. This compares to cash and cash equivalents of
$15,905,416, short-term investments of $4,662,898 and long-term investments of
$379,753, for a total of $20,948,067, as of December 31, 2002.
In the six months ended June 30, 2003, the cash used in operating activities was
$3,312,481 as compared to $4,103,394 for the same period in 2002. The decreased
use of cash in operating activities is partly due to a decrease in the net loss
for the six months ended June 30, 2003. In addition, accounts payable and
accrued expenses increased in the six months ended June 30, 2003 as compared to
the same period in 2002. In the six months ended June 30, 2003, the Company
received $100,000 cash payments in connection with its joint development and
technology evaluation agreements. For the same period in 2002, the Company
received non-refundable cash payments of $666,667. All amounts received under
these agreements have been recorded as unearned revenue.
-13-
Working capital decreased to $11,271,594 at June 30, 2003 from working capital
of $18,541,596 at December 31, 2002. The net decrease is due primarily to the
use of cash in operating activities and the investment of cash in long term
investments.
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, cash equivalents and short term investments to meet its obligations into
2004. Management believes that potential additional financing sources for the
Company include long-term and short-term borrowings, public and private sales of
the Company's equity and debt securities and receipt of cash upon the exercise
of warrants. It should be noted, however, that substantial additional funds will
be required in the future for research, development and commercialization of the
Company's OLED technologies and OLED materials, to obtain and maintain patents
and other intellectual property rights in these technologies and materials, and
for working capital and other purposes, the timing and amount of which are
difficult to ascertain. For example, under the Company's Research Agreement with
Princeton University, the Company is required to pay Princeton University up to
$1,495,599 per year through July 2007. There can be no assurance that additional
funds will be available to the Company when needed, on commercially reasonable
terms or at all.
Critical Accounting Policies
Refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2002 for a discussion of critical accounting policies. During the six months
ended June 30, 2003, there were no material changes to these policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments that could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates, which would impact
interest income earned on investments.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted as of the end of the period covered
by this report, that the Company's disclosure controls and procedures have
effectively achieved their designed purpose of ensuring that information
required to be disclosed by the Company in its reports filed or submitted under
the Exchange Act is:
(i) recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms,
and
(ii) accumulated and communicated to the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
There have been no significant changes in the Company's internal control over
financial reporting that occurred during the Company's last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings of a material
nature.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-14-
(a) The Company held its 2003 Annual Meeting of Shareholders on June 26, 2003.
(b) Per Instruction 3 to Item 4 of Form 10-Q, no response is required.
(c) The number of votes represented at the annual meeting, in person or by
proxy, was 21,599,585. In determining this number, abstentions and shares held
by brokers who have notified the Company that they lack voting authority with
respect to any matter (referred to herein as "broker non-votes") were deemed
present. The matters voted upon at the annual meeting and the results of the
vote on each such matter are set forth below:
1. Election of Directors. The result of the vote tabulated at the
meeting for the election of seven directors is set forth as follows, opposite
their respective names:
Percentage FOR of Total
Name Number of Votes FOR Number of Votes WITHHELD Votes Cast*
- ------------------------ ----------------- ------------------- -----------------
Steven V. Abramson 19,811,289 1,014,732 95
Leonard Becker 19,805,033 1,020,988 95
Elizabeth H. Gemmill 19,805,033 1,020,988 95
C. Keith Hartley 19,805,033 1,020,988 95
Lawrence Lacerte 20,095,333 730,688 96.4
Sidney D. Rosenblatt 19,811,289 1,014,732 95
Sherwin I. Seligsohn 19,811,289 1,014,732 95
* Broker non-votes are not considered votes "cast" with respect to the election
of directors.
2. Proposal to Amend and Restate the Company's Stock Option Plan. The
result of the vote tabulated at the meeting for the ratification and approval of
the aforementioned proposal was as follows:
Percentage FOR of Total
Number of Votes FOR Number of Votes AGAINST Number of ABSTENTIONS Votes Cast*
------------------- ----------------------- --------------------- -----------------------
18,631,011 2,077,836 117,174 89.4
* Abstentions with respect to this proposal have the effect of a negative vote.
Broker non-votes are not considered votes "cast" with respect to this proposal.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following is a list of the exhibits filed as part of this report.
Exhibit
Number Description
------ -----------
10.47* Amendment Number 4 to the Development and License Agreement between PPG Industries, Inc. and the
Company, dated as of April 11, 2003.
31.1* Certifications of Sherwin I. Seligsohn, Chief Executive Officer, as required by Rule 13a-14(a) or Rule
15d-14(a).
31.2* Certifications of Sidney D. Rosenblatt, Chief Financial Officer, as required by Rule 13a-14(a) or Rule
15d-14(a).
32.1* Certifications of Sherwin I. Seligsohn, Chief Executive Officer, as required by Rule 13a-14(b) or Rule
15d-14(b), and by 18 U.S.C. Section 1350. (This exhibit shall not be deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability
of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.)
-15-
32.2* Certifications of Sidney D. Rosenblatt, Chief Financial Officer, as required by Rule 13a-14(b) or Rule
15d-14(b), and by 18 U.S.C. Section 1350. (This exhibit shall not be deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability
of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.)
- -----------
* Filed herewith.
(b) Reports on Form 8-K:
Current Report on Form 8-K, furnished to the SEC on May 13, 2003, reporting
Items 7 and 9, and containing, as an exhibit, a press release announcing the
Company's financial results for the quarter ended March 31, 2003.
-16-
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL DISPLAY CORPORATION
Date: August 13, 2003 By: Sidney D. Rosenblatt
----------------------------------
Sidney D. Rosenblatt
Executive Vice President and Chief
Financial Officer
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