U.S. 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 September 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File No. 1-12031
UNIVERSAL DISPLAY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
PENNSYLVANIA 23-2372688
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
375 PHILLIPS BOULEVARD, EWING, NJ 08618
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(609) 671-0980
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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____
--
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 10, 2000, the
registrant had outstanding 15,853,967 shares of common stock, par value $0.01
per share. Transitional Small Business Disclosure Format (check one):
Yes___ No X
--
INDEX PAGE
- ----- ----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets September 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations - Three months
Ended September 30, 2000 and 1999, and inception to September 30, 2000 (unaudited) 4
Consolidated Statements of Operations - Nine months
Ended September 30, 2000 and 1999 and inception to September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows - Nine months
ended September 30, 2000 and 1999, and inception to September 30, 2000 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-12
Part II - Other Information 13
Item 2. Changes in Securities/Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2000
(unaudited) December 31, 1999
------------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents (See Note 2) $ 4,240,915 $ 1,558,473
Short-term investments (See Note 2) 1,901,228 4,300,060
Contract research receivables 167,480 267,423
Prepaid other current assets 254,267 452,718
------------- -----------
Total current assets 6,563,890 6,578,674
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $556,800 and
$123,600 4,680,052 3,679,965
ACQUIRED TECHNOLOGY, net of
accumulated amortization of $37,031 and $0 16,913,687 -
DEPOSITS 39,347 58,211
------------- ------------
Total assets $ 28,196,976 $ 10,316,850
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 870,560 $ 870,359
CAPITAL LEASES 17,504 20,021
SHAREHOLDERS' EQUITY
Preferred Stock, par value $0.01 per share, 5,000,000
shares authorized, 200,000 shares designated Series A
Nonconvertible Preferred Stock, 200,000 issued and
outstanding (liquidation value of $1,500,000), 300,000
shares designated Series B convertible Preferred Stock,
300,000 issued and outstanding. 5,000 2,000
Common Stock, par value $0.01 per share,
25,000,000 shares authorized, 15,691,909 and
13,714,563 issued and outstanding 156,919 137,146
Additional paid-in capital 51,625,928 27,986,667
Deficit accumulated during development-stage (24,478,935) (18,699,343)
------------- ------------
Total shareholders' equity 27,308,912 9,426,470
------------- ------------
Total liabilities and shareholders' equity $ 28,196,976 $ 10,316,850
============= ============
The accompanying notes are an integral part of these statements.
3
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Period from Inception
Three Months Ended (June 17, 1994) to
September 30, September 30, 2000
----------------------------- ----------------------
2000 1999
----------- ----------
REVENUE:
Contract research revenue $ 124,812 $ 145,532 $ 1,239,402
----------- ---------- -------------
OPERATING EXPENSES:
Research and development
(See Note 3) 1,324,125 700,929 15,800,769
General and administrative 738,531 550,576 10,909,467
----------- ---------- -------------
Total operating expenses 2,062,656 1,251,505 26,710,236
----------- ---------- -------------
Operating loss (1,937,844) (1,105,973) (25,470,834)
----------- ---------- -------------
INTEREST INCOME 113,581 118,748 991,899
----------- ---------- -------------
NET LOSS $(1,824,263) $ (987,225) $ (24,478,935)
=========== ========== =============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.12) $ (.07)
----------- ----------
WEIGHTED AVERAGE SHARES
USED IN COMPUTING BASIC
AND DILUTED NET LOSS PER
COMMON SHARE 15,357,309 13,176,754
----------- ----------
The accompanying notes are an integral part of these statements.
4
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Period from Inception
Nine Months Ended (June 17, 1994) to
September 30, September 30, 2000
----------------------------- --------------------
2000 1999
----------- ----------
REVENUE:
Contract research revenue $ 257,467 $ 332,497 $ 1,239,402
----------- ---------- ------------
OPERATING EXPENSES:
Research and development
(See Note 3) 3,979,673 1,552,369 15,800,769
General and administrative 2,312,223 2,220,158 10,909,467
----------- ---------- ------------
Total operating expenses 6,291,896 3,772,527 26,710,236
----------- ---------- ------------
OPERATING LOSS (6,034,429) (3,440,030) (25,470,834)
----------- ---------- ------------
INTEREST INCOME 254,837 180,945 991,899
----------- ---------- ------------
NET LOSS $(5,779,592) (3,259,085) $(24,478,935)
============ =========== ============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.39) $ (.27)
----------- ----------
WEIGHTED AVERAGE SHARES
USED IN COMPUTING BASIC
AND DILUTED NET LOSS PER
COMMON SHARE 14,993,520 11,913,789
----------- ----------
The accompanying notes are an integral part of these statements.
5
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Period from Inception
Nine Months Ended (June 17, 1994) to
September 30, September 30, 2000
-------------------------------- ---------------------
2000 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (5,779,592) $(3,259,085) $(24,478,935)
Depreciation 433,200 44,897 556,800
Amortization 37,031 -- 37,031
Issuance of Common Stock options and warrants 10,000 30,000 775,330
Issuance of Common Stock and warrants in connection
with amended research and license agreements -- -- 3,120,329
Issuance of Common Stock in connection with
executives' compensation -- 423,220 423,220
Acquired in-process technology -- -- 350,000
Adjustments to reconcile net loss to net cash used
in operating activities:
(Increase) decrease in assets:
Contract research receivables 99,943 (128,176) (167,480)
Other current assets 198,452 76,980 79,060
Deposits 18,864 39,862 (39,347)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 199 (203,001) 870,258
Payable to related parties -- -- 250,000
------------ ----------- ------------
Net cash used in operating activities (4,981,903) (2,975,303) (18,223,734)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (1,046,063) (1,603,665) (4,398,607)
Purchases of Intangibles (25,750) -- (25,750)
Purchases of short-term investments (2,217,628) (4,745,938) (17,715,010)
Proceeds from sale of short-term investments 4,616,461 288,000 15,813,783
------------ ----------- ------------
Net cash provided by (used in) investing activities 1,327,020 (6,061,603) (6,325,584)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock -- 9,156,419 16,259,788
Proceeds from warrant & option exercise 6,339,842 -- 12,532,962
Principal payments on Capital Lease (2,517) -- (2,517)
------------ ----------- ------------
Net cash provided by financing activities 6,337,325 9,156,419 28,790,233
------------ ----------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,682,442 119,513 4,240,915
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,558,473 1,828,381 --
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,240,915 $ 1,947,894 $ 4,240,915
============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Issuance of Convertible Preferred Stock,
Common Stock, and warrants to acquire
Common Stock for acquired technology $ 16,924,968 $ -- $ 16,924,968
Issuance of Common Stock for equipment 279,474 107,750 387,224
============ =========== ============
The accompanying notes are an integral part of these statements.
6
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. - BACKGROUND
Universal Display Corporation (the "Company"), a development-stage company, is
engaged in the research and development and commercialization of organic light
emitting diode ("OLED") technology for flat panel display 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. UDC Inc., a
wholly-owned subsidiary of the Company and a New Jersey corporation, formerly
known as Universal Display Corporation ("UDC"), was incorporated under the laws
of the State of New Jersey on June 17, 1994.
Research and development of the OLED technology is 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 Sponsored Research
Agreement dated August 1, 1994, as amended (the "1994 Sponsored Research
Agreement"), originally between the Trustees of Princeton University ("Princeton
University") and American Biomimetics Corporation ("ABC"), a privately held
Pennsylvania corporation and affiliate of the Company. In October 1997, the
Company entered into a new 5-year Sponsored Research Agreement (the "1997
Sponsored Research Agreement") for OLED technology (see Note 3). Pursuant to a
license agreement dated August 1, 1994 (the "1994 License Agreement") between
Princeton University and ABC, assigned to the Company by ABC in June 1995, the
Company has a worldwide exclusive license to manufacture and market products
based on Princeton University's pending patent application relating to the OLED
technology and the right to obtain a similar license to inventions conceived or
discovered under the 1994 Sponsored Research Agreement and to sublicense such
rights. In October 1997, the Company amended the 1994 License Agreement (the
"1997 Amended License Agreement") in which certain terms were modified
(see Note 3).
The Company is also engaged in research, development and commercialization
activities at its 11,000 sq. ft. facility, which is leased in Ewing, NJ. The
Company moved its operations to this facility in the fourth quarter of 1999.
On July 19, 2000, the Company acquired license rights with respect to certain
patent and patent applications from PD-LD, Inc. In consideration, the Company
issued 50,000 shares of its unregistered Common Stock. The acquisition of these
patents has a fair value of $1,481,250. As a result of this acquisition, on July
25, 2000, the Company entered into a development and license agreement with
AIXTRON AG of Aachen, Germany, the leading manufacturer of precision
semiconductor production equipment for LEDs, to develop and fabricate OLED
production equipment. The Company and AIXTRON will develop the production
equipment together which will be sold exclusively by AIXTRON under royalty
bearing licenses from the Company.
On September 29, 2000, the Company entered into a license agreement with
Motorola, Inc. ("Motorola"). Pursuant to the license agreement, the Company
licensed from Motorola 67 US patents, 7 US patent applications, and additional
foreign patents. The Company has the sole right to sublicense these Motorola
patents to manufacturers. In addition, pursuant to the agreement, the Company
has the opportunity to meet with their product development group, although there
are no assurances that Motorola will purchase any products from UDC or its
licensees. As consideration for the licenses, the Company issued to Motorola
200,000 shares of its Common Stock ($4,412,500), 300,000 shares of its Series B
Convertible Preferred Stock ($6,618,750) (which are convertible into shares of
Common Stock based upon a formula set forth in the Company's Articles of
Incorporation) and a warrant to purchase 150,000 shares of its Common Stock at
$21.60 per share which becomes exercisable on September 29, 2001 and will remain
exercisable until September 29, 2008. The warrants were recorded at their fair
market value ($2,206,234) based on the Black-Scholes option pricing model and
has been recorded as a component of the cost of the acquired technology. The
Company issued a warrant to acquire 150,000 shares of Common Stock as a finders'
fee in connecton with this transaction. The warrant was granted with an exercise
price of $21.60 per share. The warrant is exercisable immediately and will
remain exercisable until September 29, 2007. This warrant was accounted for at
its fair value ($2,206,234) based on the Black-Scholes option pricing model and
has been recorded as a component of the cost of the acquired technology. In
addition, the Company incurred $25,750 of direct cash transaction costs that
have been included in the cost of the acquired technology. The Company accounted
for the issuance of the shares and warrants based on the fair market value of
the shares and warrants issued. As a result, the Company recorded an intangible
asset of $15,469,468 million for the technology acquired from Motorola during
the quarter ended September 30, 2000. In addition, the Company will pay to
Motorola a royalty based on future sales of products incorporating OLED
technology, a portion of which may be paid in shares of its Common Stock.
The Company is a development-stage entity with no significant operating activity
to date. Expenses incurred have primarily been in connection with research and
development funding, obtaining financing and administrative
7
activities. The developmental nature of the activities is such that significant
inherent risks exist in the Company's operations. Completion of the
commercialization of the Company's technology will require funds substantially
greater than the Company currently has available. There can be no assurance that
such financing will be available to the Company when needed, on commercially
reasonable terms or at all. The Company anticipates, based on management's
internal forecasts and assumptions relating to its operations, that it has
sufficient cash and cash equivalents to meet its current fiscal year
obligations. To the extent that Princeton University's research efforts do not
result in the development of commercially viable applications for the OLED
technology, the Company will not have any meaningful operations. Even if a
product incorporating the OLED technology is developed and introduced into the
marketplace, additional time and funding may be necessary before significant
revenues are realized. While the Company funds the OLED technology research, the
scope of 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. Accordingly, the Company's success is dependent on
the efforts of Princeton University and the principal investigators. The 1997
Sponsored Research Agreement provides that if certain of the principal
investigators are unavailable to continue to serve as a principal investigator,
because such person is no longer associated with Princeton University or
otherwise, and a successor acceptable to both the Company and Princeton
University is not available, the 1997 Sponsored Research Agreement will
terminate.
NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY FINANCIAL
INFORMATION AND RESULTS OF OPERATIONS
INTERIM FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited Consolidated Financial
Statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 2000, the results of operations for the three months and nine months ended
September 30, 2000 and 1999, and the cash flows for the nine months ended
September 30, 2000 and 1999. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and the notes in the Company's latest year end
financial statements, which were included in the Company's Annual Report Form
10-K for the year ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
its wholly-owned subsidiary, UDC, Inc. All significant intercompany transactions
and accounts have been eliminated.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Investments
are carried at market value, and at September 30, 2000 and December 31, 1999
are classified as short-term investments. At September 30, 2000 and December 31,
1999, all of the Company's investments are classified as available for sale
pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," (SFAS 115). Therefore, any
unrealized holding gains or losses should be presented as a separate component
of shareholders' equity. At September 30, 2000 and December 31, 1999, unrealized
holding gains or losses were not material.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis over 3-7 years for office and lab equipment, furniture and fixtures, and
the lease term for leasehold improvements. Repair and maintenance costs are
charged to expense as incurred. Additions and betterments are capitalized.
8
NET LOSS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share", which supersedes APB Opinion No. 15, "Earnings
per Share." SFAS 128 requires dual presentation of basic and diluted earnings
per share (EPS) for complex capital structures on the face of the Statement of
Operations. Basic EPS is computed by dividing income by the weighted-average
number of Common Shares outstanding for the period. Diluted EPS reflects the
potential dilution from the exercise or conversion of securities into Common
Stock.
Options and warrants to purchase Common Stock outstanding during the three month
and nine month periods ended September 30, 2000 and 1999 are not included in the
computation of diluted net loss per share because they are antidilutive.
RESEARCH AND DEVELOPMENT
Expenditures for research and development expense are charged to operations as
incurred.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires the reporting of comprehensive income in addition to net income from
operations. The Company has reviewed SFAS 130 and has determined that for the
three months and nine months ended September 30, 2000 and 1999, no items meeting
the definition of comprehensive income as specified in SFAS 130 existed in the
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB101"). The Bulletin draws on existing accounting rules and provides
specific guidance on how those accounting rules should be applied. SAB 101 is
effective for fiscal years beginning after December 15, 1999. The Company is
evaluating SAB 101 and the effect it may have on its financial statements. At
this time, the Company believes that SAB 101 will not have a material impact on
its financial position or results of operations.
ACQUIRED TECHNOLOGY
Acquired technology consists of acquired license rights for patents and know-how
obtained from PD-LD, Inc. and Motorola (see Note 1). The Company recorded the
intangible acquired in the two license transactions as follows:
September 30,
2000
--------------
PD-LD, Inc. $ 1,418,250
Motorola 15,469,468
-----------
16,950,718
Less: Accumulated
amortization (37,031)
-----------
Acquired technology, net $16,913,687
===========
Acquired technology is amortized on a straight-line basis over its estimated
useful life of ten years.
LONG-LIVED ASSETS
The Company has adopted SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". The Company continually
evaluates the recoverability of its long-lived assets, including Property and
Equipment and Acquired Technology. As of September 30, 2000 and December 31,
1999 management has determined that no impairment existed.
9
RECLASSIFICATIONS
Certain reclassifications have been made for consistent presentation.
NOTE 3. - SPONSORED RESEARCH AGREEMENT WITH PRINCETON UNIVERSITY
On October 9, 1997, the Company entered into a new 5-year Sponsored Research
Agreement (the "1997 Sponsored Research Agreement"), with Princeton University
and entered into an Amended License Agreement with Princeton University and USC
which amended its 1994 License Agreement with Princeton University (the "1997
Amended License Agreement"). The 1997 Sponsored Research Agreement continues and
expands the sponsored research which commenced in 1994 (the "1994 Sponsored
Research Agreement") under which the Company funds additional research and
development work at Princeton University (and at USC under a subcontract with
Princeton University) in OLED technology. The 1997 Sponsored Research Agreement
requires the Company to pay up to $4.4 million commencing on July 31, 1998
through July 31, 2002, which period is subject to extension. The amounts due to
Princeton University will be expensed when paid by the Company. Under the 1997
Amended License Agreement, the Company has the exclusive worldwide license to
manufacture and market products, and to sublicense those rights, based on
Princeton University's and USC's fifteen issued patents pending patent
applications relating to the OLED technology and conceived under the 1994
Sponsored Research Agreement, and to inventions conceived or discovered under
the 1997 Sponsored Research Agreement. The Company is required to pay Princeton
University a royalty in the amount of 3% of the Company's net sales of products
utilizing the OLED technology. In circumstances where the Company sublicenses
the OLED technology (except to affiliates), the royalty required to be paid by
the Company was reduced from 50% to 3%. These royalty rates are subject to
upward adjustments under certain conditions. In connection with the 1997 Amended
License Agreement and 1997 Sponsored Research Agreement, in October 1997, the
Company issued 140,000 shares of Common Stock and 175,000 warrants to purchase
Common Stock to Princeton University as well as 60,000 shares of Common Stock
and 75,000 warrants to purchase Common Stock to USC.
NOTE 4. - SUBSEQUENT EVENTS
Effective October 1, 2000, the Company entered into a strategic alliance with
PPG Industries, Inc. (PPG) to leverage the Company's OLED flat panel display
technology with PPG's expertise in organized materials development and
manufacturing. For these services, the Company issued approximately 550,000
shares of its Common Stock and warrants to purchase an additional 550,000 shares
of its Common Stock over the five year initial term of the agreement. PPG's
services have an estimated value of approximately $11 million.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to forecasts regarding the Company's future working capital needs and
the extension of agreements relating to the Company's intellectual property, as
well as information contained elsewhere in this Report where statements are
preceded by, followed by or include the words "believes", "expects",
"anticipates", "potential" or similar expressions. For such statements, the
Company claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Actual events
or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including without limitation, those
discussed elsewhere herein.
GENERAL
Since inception, the Company has been engaged, and for the foreseeable future
expects to continue to be engaged, exclusively in funding and performing
research and development activities related to the OLED technology and
attempting to commercialize such technology. To date, the Company has not
generated any significant revenues and does not expect to generate any
meaningful revenues for the foreseeable future and until such time, if ever, as
it successfully demonstrates that the OLED technology is commercially viable for
one or more flat panel display applications and enters into license agreements
with third parties with respect to the OLED technology. The Company has incurred
significant losses since its inception, resulting in an accumulated deficit of
$24,478,935 at September 30, 2000. The rate of loss is expected to increase as
the Company's activities increase and losses are expected to continue for the
foreseeable future and until such time, if ever, as the Company is able to
achieve sufficient levels of revenue from the commercial exploitation of the
OLED technology to support its operations.
10
On July 19, 2000, the Company acquired license rights with respect to certain
patent and patent applications from PD-LD, Inc. In consideration, the Company
issued 50,000 shares of its unregistered Common Stock. The acquisition of these
patents has a fair value of $1,481,250. As a result of this acquisition, on July
25, 2000, the Company entered into a development and license agreement with
AIXTRON AG of Aachen, Germany, the leading manufacturer of precision
semiconductor production equipment for LEDs, to develop and fabricate OLED
production equipment. The Company and AIXTRON will develop the production
equipment together which will be sold exclusively by AIXTRON under royalty
bearing licenses from the Company.
On September 29, 2000, the Company entered into a license agreement with
Motorola, Inc. ("Motorola"). Pursuant to the license agreement, the Company
licensed from Motorola 67 US patents, 7 US patent applications, and additional
foreign patents. The Company has the sole right to sublicense these Motorola
patents to manufacturers. In addition, pursuant to the agreement, the Company
has the opportunity to meet with their product development group, although there
are no assurances that Motorola will purchase any products from UDC or its
licensees. As consideration for the licenses, the Company issued to Motorola
200,000 shares of its Common Stock ($4,412,500), 300,000 shares of its Series B
Convertible Preferred Stock ($6,618,750) (which are convertible into shares of
Common Stock based upon a formula set forth in the Company's Articles of
Incorporation) and a warrant to purchase 150,000 shares of its Common Stock at
$21.60 per share which becomes exercisable on September 29, 2001 and will remain
exercisable until September 29, 2008. The warrants were recorded at their fair
market value ($2,206,234) based on the Black-Scholes option pricing model and
has been recorded as a component of the cost of the acquired technology. The
Company issued a warrant to acquire 150,000 shares of Common Stock as a finders'
fee in connecton with this transaction. The warrant was granted with an exercise
price of $21.60 per share. The warrant is exercisable immediately and will
remain exercisable until September 29, 2007. This warrant was accounted for at
its fair value ($2,206,234) based on the Black-Scholes option pricing model and
has been recorded as a component of the cost of the acquired technology. In
addition, the Company incurred $25,750 of direct cash transaction costs that
have been included in the cost of the acquired technology. The Company accounted
for the issuance of the shares and warrants based on the fair market value of
the shares and warrants issued. As a result, the Company recorded an intangible
asset of $15,469,468 million for the technology acquired from Motorola during
the quarter ended September 30, 2000. In addition, the Company will pay to
Motorola a royalty based on future sales of products incorporating OLED
technology, a portion of which may be paid in shares of its Common Stock.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
The Company had a net loss of $1,824,263 (or $.12 per share) for the quarter
ended September 30, 2000 compared to a loss of $987,225 or ($.07 per share) for
the same period in 1999. The increase in the net loss was attributed to
increased research and development costs. The Company earned $124,811 from
contract research revenue in the quarter ended September 30, 2000 compared to
$145,532 for the same period in 1999. The revenue was derived from the
following: (1) $10,694 was derived from a subcontract under a 3 year, $3 million
contract Princeton University received from the Defense Advanced Research
Projects Agency (DARPA), which was completed on September 30, 2000, (2) $43,838
was derived from a National Science Foundation (NSF) - Phase II contract, (3)
$27,331 was derived from a Small Business Innovation Research (SBIR) Army -
Phase I contract which was completed as of September 30, 2000, (4) $1,333 was
derived from SBIR Army Phase I Option contract, and (5) $41,615 was derived from
a new DARPA contract commencing on June 15, 2000. In the same period in 1999,
revenue included only the DARPA revenue earned from the Princeton subcontract.
11
Research and development costs were $1,324,125 for the quarter ended September
30, 2000 compared to $700,929 for the same period in 1999. Research and
development costs were higher in 2000 compared to 1999 primarily because of the
commencement of research and development activities and operations performed at
the Company's new facility and the expansion of the Company's research and
development team. The increase in research and development costs is also
attributed to the increase in patent expense. In 1999, research and development
consisted primarily of research being performed at Princeton University by
employees of the Company and patent expenses. General and administrative
expenses were $738,531 for the quarter ended September 30, 2000 compared to
$550,576 for the same period in 1999, which was caused by increased expenses
associated with the commencement of operation performed at the Company's new
facility and the additional employees hired by the Company.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
The Company had a net loss of $5,779,592 (or $.39 per share) for the nine months
ended September 30, 2000, compared to $3,259,085 (or $.27 per share) for the
same period in 1999. The increase is primarily attributed to increased research
and development expenses.
Research and development expenses were $3,979,673 for the nine months ended
September 30, 2000 compared to $1,552,369 for the same period in 1999. Research
and development costs were higher in 2000 compared to 1999 primarily because of
the commencement of research and development activities and operations performed
at the Company's new facility and the expansion of the Company's research and
development team. The increase in research and development costs is also
attributed to the increase in patent expense. In 1999, research and development
consisted primarily of research being performed at Princeton University by
employees of the Company and patent expenses. General and administrative
expenses were $2,312,223 for the nine months ended September 30, 2000 compared
to $2,220,158 for the same period in 1999. The increase was due to the
commencement of operation performed at the Company's new facility. Also in 1999,
general and administrative expenses included an equity grant to executives of
the Company. In 2000, no such equity grants were made.
Liquidity and Capital Resources
As of September 30, 2000, the Company had cash and cash equivalents of
$4,240,915 and short-term investments of $1,901,228 compared to cash and cash
equivalents of $1,558,473 and short-term investments of $4,300,060 at December
31, 1999. In 2000, warrants and options to purchase shares of the Company's
Common Stock were exercised resulting in net cash proceeds of $6,339,842 to the
Company. In 1999, publicly traded warrants to purchase shares of the Company's
Common Stock were exercised, resulting in net cash proceeds of $4,345,689 to the
Company. The remaining warrants expired unexercised. In May 1999, the Company
completed a private placement, and issued 1,414,034 shares of Common Stock and
warrants resulting in net proceeds of $4,810,730.
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 the current fiscal year. Management believes
that additional financing sources for the Company include long-term and
short-term borrowings, public and private equity and the exercise of warrants.
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. 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.
12
PART II. - OTHER INFORMATION
ITEM 1. NONE
ITEM 2. Changes in Securities/Use of Proceeds
(a) None
(b) None
(c) None
(d) None
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit Number
- --------------
3.1 Articles of Amendment to the Registrant's Articles of Incorporation
filed with the Department of State of the Commonwealth of Pennsylvania
on July 31, 2000.*
3.2 Articles of Amendment to the Registrant's Articles of Incorporation
filed with the Department of State of the Commonwealth of Pennsylvania
on July 31, 2000.*
10.1 License Agreement between the Registrant and Motorola, Inc. dated as
of September 29, 2000.*
27 Financial Data Schedule
- ----------------
* To be filed by amendment.
(B) REPORTS ON FORM 8-K:
None to report
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVERSAL DISPLAY CORPORATION
/s/ Sidney D. Rosenblatt
Date: November 14, 2000 --------------------------
Sidney D. Rosenblatt
(Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary)
13