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                                   FORM 10-K
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 For the fiscal year ended December 31, 2003

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 For the transition period from          to

                         Commission File Number 1-12031


                         UNIVERSAL DISPLAY CORPORATION
             (Exact name of registrant as specified in its charter)

               Pennsylvania                                 23-2372688
- ---------------------------------------------      ----------------------------
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                      Identification No.)

            375 Phillips Boulevard,
             Ewing, New Jersey                                08618
- ---------------------------------------------      ----------------------------
   (Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (609) 671-0980

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock (par value $0.01 per share)
                    -----------------------------------------
                                (Title of Class)

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  X  No
                                                  -----   -----

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K |_|

   Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes  X  No
                                     -----   -----

   The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of February 20, 2004, computed by
reference to the closing sale price of the registrant's common stock on the
Nasdaq National Market on June 30, 2003, was approximately $178,049,681. For
purposes of this calculation, all executive officers and directors of the
registrant and all beneficial owners of more than 10% of the registrant's
common stock (and their affiliates) were considered affiliates.

   As of February 20, 2004, the registrant had outstanding 24,781,720 shares of
common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Company's Proxy Statement to be filed with the Securities
and Exchange Commission for the Annual Meeting of Shareholders to be held on
June 16, 2004 are incorporated by reference into Part III of this report.

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                               TABLE OF CONTENTS
                                     PART I


ITEM 1.   BUSINESS .......................................................     4
ITEM 2.   PROPERTIES .....................................................    14
ITEM 3.   LEGAL PROCEEDINGS ..............................................    14
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............    14

                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS ............................................    16
ITEM 6.   SELECTED FINANCIAL DATA ........................................    17
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS ......................................    17
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....    29
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................    29
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE ...........................................    29
ITEM 9A.  CONTROLS AND PROCEDURES ........................................    29


                                    PART III


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............    30
ITEM 11.   EXECUTIVE COMPENSATION ........................................    30
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT ....................................................    30
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................    30
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES ........................    30


                                    PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
           ON FORM 8-K ...................................................    31



                                       2


                              CAUTIONARY STATEMENT
                     CONCERNING FORWARD-LOOKING STATEMENTS


   This report and the documents incorporated by reference in this report
contain some "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. They also contain information relating to us
that is based on the beliefs of our management, as well as assumptions made
by, and the information currently available to, our management. Among other
things, these statements include, but are not limited to, the statements in
this report and the documents incorporated by reference regarding:

     o  the outcomes of our ongoing and future organic light emitting diode
        (OLED) technology research and development activities;

     o  our ability to access future OLED technology developments of our
        academic and commercial research partners;

     o  our ability to form and continue strategic relationships with
        manufacturers of OLED displays;

     o  the protections afforded to us by the patents that we own or license;

     o  the anticipated success of our OLED technologies, materials and
        manufacturing equipment commercialization strategies;

     o  the potential commercial applications of our OLED technologies and
        materials, and of OLED displays in general;

     o  future demand for our OLED technologies and materials;

     o  the comparative advantages and disadvantages of our OLED technologies
        and materials versus competing technologies and materials currently on
        the market;

     o  the nature and potential advantages of any competing technologies that
        may be developed in the future;

     o  the payments that we expect to receive under our existing and future
        contracts;

     o  our future capital requirements;

     o  the amount and type of securities that we will issue in the future to
        our business partners and others; and

     o  our future OLED technology licensing and OLED material sales revenues
        and results of operations.

   In addition, when used in this report and the documents incorporated by
reference, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions involving potential future developments are
intended to identify forward-looking statements. All of these forward-looking
statements reflect our 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 by the statements, including those risks
discussed in this report.

   You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report or the documents
incorporated by reference, as the case may be. Except for special
circumstances in which a duty to update arises when prior disclosure becomes
materially misleading in light of subsequent events, we do not intend to
update any of these forward-looking statements to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.


                                       3


                                     PART I


ITEM 1. BUSINESS

Our Company

   We are a leader in the research, development and commercialization of
organic light emitting diode, or OLED, technologies for use in a variety of
flat panel display and other applications. OLEDs are thin, lightweight and
power efficient solid state devices, highly suitable for use in portable,
full-color display applications. We believe OLED displays will capture a share
of the growing flat panel display market because they offer advantages over
competing technologies with respect to brightness, power efficiency, viewing
angle, video response time and manufacturing cost. We believe that our
technology leadership and intellectual property position will enable us to
share in the revenues from OLED displays as they enter the mainstream consumer
electronics market.

   Our strategy is to further develop and license our proprietary OLED
technologies to display manufacturers for use in applications such as mobile
phones, digital cameras, laptop computers, televisions and other consumer
electronic devices. In support of this primary objective, we also sell our
OLED materials to these display manufacturers and others. Through our internal
research and development efforts and our relationships with world-class
partners such as Princeton University, the University of Southern California
and PPG Industries, Inc., we have established a significant portfolio of OLED
technologies and associated intellectual property rights. We currently own,
exclusively license or have the sole right to sublicense more than 500 patents
issued and pending worldwide. We are currently selling one of our proprietary
OLED materials to Tohoku Pioneer Corporation, have established a cross-license
agreement with DuPont Displays, Inc. and have entered into technology
development and evaluation agreements with AU Optronics Corporation, Samsung
SDI Co., Sony Corporation and Toyota Industries Corporation.

Industry Overview

   The Flat Panel Display Market

   Flat panel displays have been used for many years in a wide variety of
portable consumer electronics products, including mobile phones, personal
digital assistants, or PDAs, cameras, camcorders, electronic games and laptop
computers. Due to their narrow profile, light weight and high resolution, flat
panel displays are displacing cathode ray tube, or CRT, displays in larger
product applications such as desktop computer monitors and televisions.

   The OLED Display Market

   An OLED is a solid-state device made by placing a series of organic thin
films between two electrodes. When electrical current is applied to an OLED, a
bright light is emitted. OLEDs use red, green and blue pixels, or white light
with color filters, to generate full-color displays that exhibit a broad
spectrum of colors. Currently, there are two mechanisms through which OLEDs
emit light, phosphorescence and fluorescence. Fluorescent OLEDs emit light
from a singlet state of the emissive material and phosphorescent OLEDs emit
light from a triplet state of the emissive material. By emitting light from a
triplet state, phosphorescence offers up to four times the power efficiencies
of fluorescence.

   The initial market for OLED technologies and materials is flat panel
displays, a market currently dominated by liquid crystal displays, or LCDs.
However, OLED displays are an attractive alternative to LCDs as they offer a
number of potential advantages, including:

     o  a thinner profile and lighter weight;

     o  higher brightness and contrast ratios, leading to a sharper picture
        image and graphics;

     o  wider viewing angles;

     o  faster response times for video;

     o  higher efficiencies, thereby reducing power consumption; and


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     o  lower cost manufacturing methods and materials.

   We believe OLED displays will be adopted for use in small- to medium-sized
product applications, such as mobile phone main and sub-displays, car audio
systems, digital cameras, PDAs, DVDs, handheld TVs, notebook PCs and
industrial applications. For larger applications such as laptop computers,
desktop computer monitors and televisions, OLED displays may have advantages
over LCDs because of their sharper picture image and graphics, superior video
response time, wider viewing angle and potentially lower manufacturing cost.
All of these characteristics are qualities that are particularly important in
larger display applications.

   While the display characteristics of OLEDs and LCDs are different, they
share many similarities in terms of manufacturing technology and
infrastructure, such as those relating to active matrix backplane
technologies. These similarities may enable the conversion of existing LCD
manufacturing facilities to OLED display production with relatively low
capital investment.

   Many companies currently are engaged in efforts to develop and commercialize
OLED displays. We believe that if their efforts are successful, they could
result in flat panel displays nearly as thin as a piece of paper with
performance characteristics similar to those of CRT displays. In addition, due
to the inherent transparency of organic materials and through the use of
transparent electrode technology, OLEDs eventually may enable the production
of transparent displays for use in products such as automotive windshields and
windows with enbedded displays. Organic materials also make technically
possible the development of flexible displays for use in an entirely new set
of product applications, such as display devices that can be rolled up for
storage. Research also is being conducted on OLEDs for applications such as
energy-efficient solid-state lighting.

Our Competitive Strengths

   We believe our position as one of the leading technology developers in the
OLED industry is the direct result of our technological innovation. We have
built an extensive intellectual property portfolio around our OLED
technologies and are working diligently to enable our manufacturing partners
to adopt our technologies for commercial usage. Our key competitive strengths
include:

   Technology Leadership. We are a recognized technology leader in the OLED
industry. We and our research partners at Princeton University and the
University of Southern California pioneered the development of our
phosphorescent OLED, or PHOLED, technology, which can be used to produce OLED
displays that are up to four times as power efficient as current LCDs or
fluorescent OLED displays. We believe that our PHOLED technology is well-
suited for industry usage in the commercial production of OLED displays.
Through our relationships with companies such as PPG Industries and our
academic partners we have developed and continue to develop novel OLED
materials that we believe will facilitate the adoption of our OLED
technologies by display manufacturers.

   Relationships with Leading Display Manufacturers. We have established
relationships with well-known display manufacturers that are using, or are
evaluating, our OLED technologies and materials for commercial applications.
In August 2003, we began supplying Tohoku Pioneer with our proprietary red
phosphorescent material for its commercial production of full-color OLED
displays for mobile phones currently being sold in Japan. In addition, we have
entered into a cross-license agreement with DuPont Displays and have
established technology development and evaluation agreements with a number of
companies, including AU Optronics, DuPont Displays, Samsung SDI, Sony and
Toyota Industries.

   Broad Portfolio of Intellectual Property. We believe that our extensive
portfolio of patents, trade secrets and know-how provides us with a
competitive advantage in the OLED industry. Through our internal development
efforts and our relationships with Princeton University, the University of
Southern California and Motorola, Inc., we own, exclusively license or have
the sole right to sublicense over 500 patents issued and pending worldwide
related to our PHOLED and other OLED technologies and materials. We also
continue to accumulate valuable trade secret information and technical know-
how relating to our OLED technologies and materials.

   Business Model Focused on Technology Licensing. We have adopted an
innovative business model for the display industry in which we neither
manufacture nor sell OLED displays incorporating our technologies and
materials. Rather, we are focused on licensing our OLED technologies to
display manufacturers on a non-exclusive basis. PPG Industries currently
manufactures our proprietary OLED materials which we then qualify

                                       5


and sell to display manufacturers. We believe our business model allows us to
concentrate on our core strengths of technology development and innovation,
while at the same time providing significant operating leverage. We also
believe that this approach may reduce potential competitive conflicts between
us and our customers.

   Established U.S. Government Contracts to Fund Research and Development. We
have entered into several research and development contracts with U.S.
government agencies such as the Department of Defense Advanced Research
Projects Agency (DARPA), U.S. Army Research Laboratories, U.S. Department of
the Army and the Department of Energy. Under these contracts, the U.S.
government funds a portion of our efforts to develop next-generation OLED
technologies for applications such as flexible displays and energy-efficient
solid-state lighting. This enables us to supplement our internal research and
development budget with additional funding.

   Experienced Management and Scientific Advisory Team. Our management team has
significant experience in developing business models focused on licensing
disruptive technologies in high growth industries which serves to
differentiate us from our competitors. In addition, our management team has
assembled a Scientific Advisory Board that includes some of the leading
researchers in the OLED industry. We believe our Scientific Advisory Board,
which includes OLED researchers Dr. Stephen R. Forrest of Princeton
University, Dr. Mark E. Thompson of the University of Southern California and
Dr. Phillip C. Yu, Associate Director of Research and Development of PPG
Industries, as well as Dr. Julia J. Brown, the Chair of our Scientific
Advisory Board and our Chief Technical Officer and Dr. Michael Hack, our Vice
President of Strategic Product Development, has enhanced our reputation and
our competitive profile.

Our Business Strategy

   Our business strategy is to promote our OLED technologies and materials for
widespread use OLED displays and other product applications. We presently are
focused on the following steps to implement our business strategy:

   Target Leading Display Manufacturers. We are targeting leading display
manufacturers as potential commercial licensees of our OLED technologies and
purchasers of our OLED materials. For example, we have entered into a
relationship with Tohoku Pioneer to purchase our proprietary red
phosphorescent material for its commercial production of full-color OLED
displays and are pursuing other such relationships. We provide technical
assistance and support to display manufacturers evaluating our OLED
technologies and materials because we believe that successful incorporation of
our technologies and materials in commercial applications may place
competitive pressure on other industry participants to adopt them.

   Enhance Our Portfolio of Existing OLED Technologies. We believe that a
strong portfolio of OLED technologies is critical to our success in the
display industry. Consequently, we are continually seeking to expand this
portfolio through our internal development efforts, our collaborative
relationships and other strategic opportunities. Our primary focus is to
develop additional red, green, blue and white PHOLED materials, with increased
efficiencies, enhanced color gamut and extended lifetimes that would allow
them to be used in a broader array of OLED display products, such as
televisions. Currently, our red material is in production with one
manufacturer, our red and green materials are being evaluated by a number of
manufacturers and our blue and white materials are still under development.

   Expand Development of Next-Generation Technologies. We currently are
conducting research activities relating to next-generation OLED technologies.
For example, our present OLED initiatives include applications involving
flexible displays, transparent displays and energy-efficient solid-state
lighting. We also are conducting research with our partners on the use of
organic thin-film technology in applications such as lasers, transistors,
photo detectors, memories and other related devices. Our focus on next-
generation technologies is designed to enable us to continue our position as a
leading provider of OLED technologies as new markets emerge.

Our Phosphorescent OLED Technologies

   Phosphorescent OLEDs, or PHOLEDs, our key proprietary technology, utilize
novel materials and device structures that allow OLEDs to emit light through a
process known as phosphorescence. Conversely, fluorescent OLEDs emit light
through an inherently less efficient process. Testing has demonstrated that
PHOLEDs exhibit device efficiencies up to four times higher than those
exhibited by fluorescent OLEDs. This substantially reduces

                                       6


the power requirements of an OLED and is potentially useful for hand-held
devices, such as mobile phones, where battery power is often a limiting
factor. Phosphorescence also may be important for large-area displays such as
televisions, where higher efficiency may enable longer product lifetimes.
Through our commercial relationships with PPG Industries and several display
manufacturers, as well as through research we are sponsoring with our academic
partners, we are conducting research and development work directed towards
both improving our existing PHOLED technologies and materials and developing
new PHOLED technologies and materials. A significant portion of this work
involves the evaluation and qualification of PHOLED materials for possible use
in the commercial production of OLED displays.

   OLEDs can be manufactured using different processing methods. Currently, the
most common method is through vacuum thermal evaporation, or VTE. Another
method involves preparing solutions of the various organic materials in an
OLED that can be solution processed by techniques such as spin coating or
inkjet printing onto the substrate. Solution processing methods, and inkjet
printing in particular, have the potential to be lower cost approaches to OLED
manufacturing and scalable to large area displays. Others have demonstrated
that solution processing methods can be used to produce OLEDs containing
polymer-based organic materials, and we are developing printable PHOLEDs, or
P2OLEDs, to demonstrate that these methods can be used with our PHOLEDs
technologies. We currently are conducting this work on P2OLEDs under our Joint
Development Agreement with DuPont Displays.

Our Additional Proprietary OLED Technologies

   We currently are focusing our research, development and commercialization
efforts on a number of OLED device and manufacturing technologies, including
the following:

   Transparent OLEDs (TOLEDs). We are developing a technology based on the
production of OLEDs that have transparent cathodes. Conventional OLEDs use a
reflective metal cathode and a transparent anode. In contrast, TOLEDs use a
transparent cathode and either a transparent, or reflective or opaque metal
anode. TOLEDs utilizing transparent cathodes and reflective metal anodes are
known as "top-emission" OLEDs. In a "top-emission" active matrix OLED, light
is emitted without having to travel through much of the device electronics
where a substantial portion of it is absorbed. This is expected to result in
OLED displays having image qualities and lifetimes superior to those of
conventional active matrix OLEDs. TOLEDs utilizing cathodes and anodes that
are both transparent may be useful in novel flat panel display applications
requiring semi-transparency or transparency, such as graphical displays in
automotive windshields. We have agreements with several display manufacturers
that have expressed interest in evaluating our TOLED technology for possible
use in the commercial production of OLED displays.

   Flexible OLEDs (FOLEDs). We are developing a technology that involves the
fabrication of small molecule OLEDs on flexible substrates. Most OLED and
other flat panel displays are built on rigid substrates such as glass. FOLEDs
are OLEDs built on non-rigid substrates such as plastic or metal foil. FOLEDs
are expected to be conformable to specific shapes, able to withstand repeated
bending or flexing, and eventually capable of being rolled into a cylinder,
similar to a window shade. These features create the possibility of new flat
panel display product applications that do not exist today, such as a
portable, roll-up Internet connectivity and communications device. FOLEDs also
may be amenable to being produced using more efficient continuous, or roll-to-
roll, processing methods. We currently are conducting research and development
on FOLEDs under several of our U.S. government programs.

   Organic Vapor Phase Deposition (OVPD). The standard approach for
manufacturing a small molecule OLED, including a PHOLED, is based on a process
known as vacuum thermal evaporation. In VTE, the thin layers of organic
material in an OLED are deposited in a high-vacuum environment. An alternate
approach for manufacturing a small molecule OLED is based on OVPD. In contrast
to the VTE process, the OVPD process utilizes a carrier gas stream in a hot
walled reactor in a low pressure environment to deposit the layers of organic
material in an OLED. The OVPD process may offer advantages over the VTE
process through the reduction of material waste and by being more readily
scalable to the production of large-area OLED displays. Furthermore, the OVPD
process may offer advantages in OLED performance by enhanced deposition
control. We currently are working with Aixtron AG, a leading manufacturer of
metal-organic chemical vapor deposition equipment, to develop and qualify a
tool for the fabrication of OLED displays utilizing an OVPD process.


                                       7


Our Strategic Relationships with Display Manufacturers

   We have established evaluation, joint development, technical assistance,
licensing, supply and other similar relationships with numerous display
manufacturers. These relationships generally are directed towards tailoring
our proprietary OLED technologies and materials for use by the display
manufacturers. Our ultimate objective is to license our OLED technologies and
sell our OLED materials to these manufacturers for their commercial production
of OLED displays. Our key relationships with display manufacturers include:

   Tohoku Pioneer. In August 2003, we entered into an arrangement to provide
our proprietary red PHOLED material to Tohoku Pioneer Corporation, a
subsidiary of Pioneer Corporation, for the commercial production of its
passive matrix OLED displays on glass substrates. Under this arrangement, we
receive payments from Tohoku Pioneer for the PHOLED material and license fees
for allowing Tohoku Pioneer to use this material in the production of passive
matrix OLED displays. Tohoku Pioneer sells these displays to one of its
customers who uses them as the exterior sub-display for a mobile phone
currently being sold in Japan.

   DuPont Displays. In December 2002, we entered into a Joint Development
Agreement with DuPont Displays, Inc. and its parent E.I. DuPont de Nemours and
Company (DuPont) for the development of novel phosphorescent materials and
device structures for solution processed OLEDs (our P2OLEDs). Under the Joint
Development Agreement, we have the exclusive right to sublicense any
intellectual property developed under the program for use with solution
processed OLED displays on rigid glass substrates.

   We also entered into a Cross-License Agreement and a Developed Device
Additional Payment Agreement with DuPont in December 2002. Under these
agreements, we granted DuPont a non-exclusive license under our background
phosphorescent emission, transparent cathode and inkjet printing patents, and
under any intellectual property developed by us under our joint development
program with DuPont, to make and sell solution processed OLED displays on
rigid glass substrates. DuPont paid us an up-front license fee and agreed to
pay us running royalties on its sales of these displays. DuPont has the option
to reduce the royalty rates on these sales if it elects to make a cash payment
to us by January 2005. DuPont had a similar right to reduce these royalty
rates by making a cash payment to us by January 2004, but it did not elect to
do so. As of December 31, 2003, DuPont had not commenced commercial sales of
P2OLED displays and had not paid us royalties under either of these
agreements.

   Sony. We entered into a new Joint Development and Evaluation Agreement with
Sony Corporation effective February 2003. This agreement is directed towards
tailoring our proprietary PHOLED materials for use in Sony's OLED device
structures. This follows an earlier agreement with Sony under which we
assisted Sony in its development of active matrix OLED displays utilizing our
high-efficiency PHOLED technology and materials. We continue to sell our
proprietary PHOLED materials to Sony in support of its work under this new
agreement.

   Samsung SDI. In July 2001, we entered into a Joint Development Agreement
with Samsung SDI Co. The original focus of our agreement with Samsung SDI was
the joint development of a prototype portable, low-power OLED display for use
in mobile phones and other devices. We continue to work with Samsung SDI under
this agreement and are selling our proprietary PHOLED materials to Samsung SDI
in support of this work.

   Toyota Industries. In October 2002, we entered into an OLED Technology
Development and Evaluation Agreement with Toyota Industries Corporation. Under
this agreement, we are conducting development activities with Toyota
Industries relating to the use of our proprietary PHOLED technology and
materials to produce sources of white light.

   AU Optronics. In May 2003, we announced that AU Optronics Corporation had
fabricated a low-power consumption, full-color active matrix OLED display
combining its proprietary amorphous silicon backplane technology with our
proprietary PHOLED technology. The display was showcased at the 2003 Society
for Information Display International Symposium and was the subject of a
scientific paper presented jointly by us and AU Optronics at the symposium.
This work stemmed from a joint development agreement we have had in place with
AU Optronics since October 2001.


                                       8


Our OLED Materials Supply Business

   In support of our primary objective of licensing our OLED technologies, we
supply our OLED materials to display manufacturers and others. We device
qualify our materials before shipment in order to ensure the materials meet
the specifications we agree upon with our customers.

   In October 2000, we entered into a Supply Agreement and a Development and
License Agreement with PPG Industries. Under the Supply Agreement, we
appointed PPG Industries as the exclusive supplier of OLED materials
proprietary to us that are intended for use in the commercial production of
OLEDs. PPG Industries sells these OLED materials to us and we, in turn, resell
them to display manufacturers. Under the Development and License Agreement,
PPG Industries, among other things, supplies us with OLED materials that we
resell to display manufacturers and others for evaluation purposes. The
current term of the Development and License Agreement extends through 2005 and
the current term of the Supply Agreement extends through 2007.

   In August 2003, we commenced commercial sales of our proprietary red PHOLED
material to Tohuko Pioneer. Tohuko Pioneer is currently using this material in
the commercial production of its passive matrix OLED displays on glass
substrates. Tohuko Pioneer sells these displays to one of its customers who
uses them as the exterior sub-display for a mobile phone currently being sold
in Japan.

Research and Development

   Our research and development activities are focused on the advancement of
our OLED technologies and materials. We conduct this research and development
both internally and through various relationships with our commercial business
partners and academic institutions.

   Internal Development Efforts

   We conduct a substantial portion of our OLED development activities at our
state-of-the-art development and pilot-line facility in Ewing, New Jersey.
Built in 1999 and expanded in 2001, this facility is designed to perform
technology development including device and process optimization, prototype
fabrication, manufacturing scale-up studies, process and product testing, and
characterization and reliability studies. The pilot line is designed to
produce several hundred 6" x 6" OLED plates per month, and contains substrate
patterning, organic material deposition, display packaging, module assembly,
and extensive test equipment in Class 100 and 100,000 clean rooms and opto-
electronic test laboratories. The facility also serves as a technology
transfer site for work with our business partners. We also are in the process
of qualifying a new OLED deposition system at this facility that will enhance
our OLED product testing pilot production capabilities.

   As of December 31, 2003, we employed a team of 28 research scientists,
engineers and laboratory assistants at our Ewing, New Jersey facility. This
team includes chemists, physicists, engineers with electrical, chemical and
mechanical backgrounds, and highly-trained experimentalists.

   University Sponsored Research

   We have long-standing relationships with Princeton University and the
University of Southern California for the conduct of research relating to our
OLED and other organic thin-film technologies and materials for applications
such as displays and lighting. This research is performed at Princeton
University's Advanced Technology Center for Photonics and Optoelectronic
Materials (POEM) under the direction of Dr. Stephen R. Forrest and at the
University of Southern California's Synthetic Materials Laboratories under the
direction of Dr. Mark E. Thompson.

   We fund the research conducted at Princeton University and the University of
Southern California under a Research Agreement we executed with the Trustees
of Princeton University in October 1997. The University of Southern California
conducts its portion of this research under a subcontract between it and
Princeton University. In April 2002, we extended the term of our Research
Agreement with Princeton University through July 2007. Under the Research
Agreement, we incurred costs to Princeton University of $933,156 in 2003,
$859,339 in 2002 and $758,732 in 2001. Our maximum funding commitment under
the Research Agreement for the period from August 2002 through July 2007 is
$1,495,599 per year. We have exclusive license rights to all patents arising
out

                                       9


of the research conducted by Princeton University and the University of
Southern California under the Research Agreement.

   In May 2001, we entered into a Contract Research Agreement with the Chitose
Institute of Science and Technology of Japan (CIST), under which we funded
research at CIST relating to high-efficiency OLED materials and device
structures. This relationship ran through April 2003, and we are currently
negotiating an agreement to renew our collaborative work with CIST.

   PPG Industries

   Under our Development and License Agreement with PPG Industries, a team of
approximately eight PPG Industries' scientists and engineers are assisting us
in developing and commercializing various OLED materials in which we have a
proprietary interest. PPG Industries receives shares of our common stock and
warrants to purchase shares of our common stock as compensation for this work,
though under limited circumstances PPG Industries has the right to demand
payment in cash in lieu of stock. In January 2003, we amended this agreement
with PPG Industries to cover the supply of OLED materials for purposes of
development and manufacturing qualification at our facilities and the
facilities of our customers.

   Aixtron

   In July 2000, we entered into a Development and License Agreement with
Aixtron AG of Aachen, Germany to jointly develop and commercialize equipment
for the manufacture of OLEDs using the OVPD process. A pre-production OVPD
manufacturing tool was delivered to our Ewing, New Jersey facility in January
2002. We continue to work with Aixtron to upgrade and qualify this tool for
the production of OLEDs.

   Under the Development and License Agreement, we granted Aixtron an exclusive
license to produce and sell equipment used to manufacture OLEDs and other
devices using our proprietary OVPD process. Aixtron is required to pay us
royalties on its sales of this equipment. Purchasers of the equipment also
must obtain rights to use our proprietary OVPD process to manufacture OLEDs
and other devices, which they may do through us or Aixtron. If these rights
are granted through Aixtron, Aixtron is required to make additional payments
to us.

   U.S. Government-Funded Research

   We have entered into several U.S. government contracts and subcontracts to
fund a portion of our efforts to develop next-generation OLED technologies for
applications such as flexible displays and energy-efficient solid-state
lighting. These include, among others, Small Business Innovation Research
(SBIR) Phase I program contracts for the demonstration of technical merit and
feasibility and SBIR Phase II program contracts for the development of well-
defined prototypes. On contracts for which we are the prime contractor, we
subcontract portions of the work to various entities and institutions,
including Princeton University, the University of Southern California,
Pennsylvania State University, Kyung Hee University in South Korea, L-3
Communications Corporation and Vitex Systems. All of our government contracts
and subcontracts are subject to termination at the election of the contracting
governmental agency. Our government contracts include, among others, the
following:

     o  Roll-Up OLED Displays in Handheld Devices. In October 2002, we were
        awarded a two-year $1,761,465 cooperative agreement by the U.S. Army
        Research Laboratories (ARL) to develop technology for flexible, low-
        power consumption OLED displays and communication components for use
        in next-generation mobile communication devices. An example of such a
        device is a pen-like unit that functions as a portable computer with
        an OLED display that rolls up into the device. ARL has an option to
        extend the program for a third-year, for which ARL would provide us
        with additional funding of $2,000,000 and we and our subcontractors
        would make additional contributions through cost sharing.

     o  Conformable OLED Displays for Head-Mounted Devices. In January 2003,
        we were awarded a two-year, $729,996 SBIR Phase II program contract by
        the U.S. Department of the Army to further its development of
        conformable and transparent displays for use in helmets and other
        head-mounted devices. In February 2002, we completed our Phase I work
        on this program.


                                       10


     o  OLED Displays on Metal Foil. In November 2003, we were awarded a two-
        year $730,000 SBIR Phase II program contract by the U.S. Department of
        the Army to build a prototype of a rugged, light-weight active matrix
        OLED display on durable metal foil. This award followed our completion
        of Phase I work on this program.

     o  OLEDs for White Lighting. In June 2003, we were awarded a two-year
        $750,000 SBIR Phase II program contract by the U.S. Department of
        Energy to demonstrate the feasibility of our proprietary PHOLED and
        FOLED technologies for high-performance lighting applications. This
        award followed our completion of Phase I work on two earlier programs.
        One of these earlier programs was designed to demonstrate a broadband
        white light source derived from the combination of red, green and blue
        PHOLED stripes; the other was intended to demonstrate an innovative
        PHOLED structure that emits light simultaneously from monomer and
        aggregate energy states.

   The United States Display Consortium

   We are a member of the United States Display Consortium (USDC), a
cooperative industry and governmental effort aimed at developing an
infrastructure to support North American flat panel display manufacturing. The
USDC's role is to provide a common platform for flat panel display
manufacturers, developers, users and the manufacturing equipment and supplier
base. It has more than 90 members, as well as support from ARL. We are one of
12 members on the Governing Board of the USDC and we actively participate on
its Technical Council.

Intellectual Property

   Along with our personnel, our primary assets are intellectual property. This
includes numerous U.S. and foreign patents and patent applications that we
own, exclusively license or have the sole right to sublicense. It also
includes a substantial body of trade secrets and technical know-how that we
have accumulated over time.

   Our Patents

   Our research and development activities, conducted both internally and
through collaborative programs with our partners, have resulted in the filing
of a substantial number of patent applications relating to our OLED
technologies and materials. As of December 31, 2003, we owned 34 issued and
pending patents in the U.S., together with numerous counterparts filed in
various foreign countries. These patents will start expiring in 2020.

   Patents We License from Princeton University and the University of Southern
   California

   We exclusively license the bulk of our patent rights under an Amended
License Agreement we executed with the Trustees of Princeton University and
the University of Southern California in October 1997. As of December 31,
2003, these licensed patent rights included 143 issued and pending patents in
the U.S., together with numerous counterparts filed in various foreign
countries. These patents will start expiring in 2014.

   Under the Amended License Agreement, Princeton University and the University
of Southern California granted us a worldwide, exclusive license to specified
patents and patent applications relating to OLED technologies and materials.
This license grant also extends to any patent rights arising out of the
research conducted under our Research Agreement with Princeton University. We
are free to sublicense to third parties all or any portion of our patent
rights under the Amended License Agreement. The term of the Amended License
Agreement is perpetual, though it is subject to termination for an uncured
material breach or default by us, or if we become bankrupt or insolvent.

   Princeton University is responsible for the filing, prosecution and
maintenance of all patent rights licensed to us under the Amended License
Agreement pursuant to an Interinstitutional Agreement between Princeton
University and the University of Southern California. However, we participate
closely in this process and have the right to instruct patent counsel on
additional matters to be covered in any patent applications filed by Princeton
University. We are required to bear all costs associated with the filing,
prosecution and maintenance of these patent rights.


                                       11


   We are required under the Amended License Agreement to pay Princeton
University royalties for licensed products sold by us or our sublicensees.
These royalties amount to 3% of the net sales price for licensed products sold
by us and 3% of the revenues we receive for licensed products sold by our
sublicensees. These royalty rates are subject to renegotiation for products
not reasonably conceivable as arising out of the Research Agreement if
Princeton University reasonably determines that the royalty rates payable with
respect to these products are not fair and competitive. Princeton University
shares a portion of these royalties with the University of Southern California
under their Interinstitutional Agreement.

   We paid Princeton University minimum royalties under the Amended License
Agreement in the amounts of $100,000 for 2003, $100,000 for 2002 and $75,000
for 2001. For 2004 and thereafter, this minimum royalty obligation is $100,000
per year. We also are required under the Amended License Agreement to use
commercially reasonable efforts to bring the licensed OLED technology to
market. However, this requirement is deemed satisfied if we perform our
obligations under the Research Agreement and, when that agreement ends, if we
invest a minimum of $800,000 per year in research, development,
commercialization or patenting efforts respecting the patent rights licensed
to us under the Amended License Agreement.

   Patents We License from Motorola

   In September 2000, we entered into a License Agreement with Motorola whereby
Motorola granted us perpetual license rights to what are now 74 issued U.S.
patents relating to Motorola's OLED technologies, together with numerous
foreign counterparts in various countries. These patents will start expiring
in 2014. We have the right to freely sublicense these patents to third parties
and, with limited exceptions, Motorola has agreed not to license these patents
to others in the OLED industry.

   Motorola remains responsible for the filing, prosecution and maintenance of
all patent rights licensed to us under the License Agreement, including all
associated costs. Motorola is obligated to keep us informed as to the status
of these activities.

   We are required under the License Agreement to pay Motorola royalties on
gross revenues received by us on account of our sales of OLED products or
components, or from our sublicensees on account of 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. We have the
option to pay these royalties to Motorola in either all cash or 50% cash and
50% shares of our common stock. We also have minimum royalty obligations to
Motorola of $500,000 in cash or cash and stock for the 2003-2004 period and
$1,000,000 in cash or cash and stock for the 2005-2006 period. Thereafter, we
have no minimum royalty obligations to Motorola.

   In connection with our execution of the License Agreement, in 2000 we issued
to Motorola 200,000 shares of our common stock, 300,000 shares of our Series B
Convertible Preferred Stock, and immediately vesting seven-year warrants to
purchase an additional 150,000 shares of our common stock at an exercise price
of $21.60 per share. As of December 31, 2003, 225,000 shares of the Series B
Convertible Preferred Stock were convertible into 343,916 shares of our common
stock. The remaining 75,000 shares of the Series B Convertible Preferred Stock
will vest and all shares of Series B Convertible Preferred Stock will
automatically convert into shares of our common stock in September 2004.

   Intellectual Property Developed under Our Government Contracts

   We and our subcontractors have developed and may continue to develop
patentable OLED technology inventions under our various U.S. government
contracts and subcontracts. Under these arrangements, we or our subcontractors
generally can elect to take title to any patents on these inventions, and to
control the manner in which these patents are licensed to third parties.
However, the U.S. government reserves the right to utilize, and to permit
others to utilize, these inventions and any associated technical data for
government purposes, and, in some cases, for unlimited purposes. In addition,
if the U.S. government determines that we or our subcontractors have not taken
appropriate steps to achieve practical application of these inventions, it may
require that we or our subcontractors license these inventions to third
parties.


                                       12


   Trade Secrets and Technical Know-How

   We have accumulated, and continue to accumulate, a substantial amount of
valuable trade secret information and technical know-how relating to OLED
technologies and materials. Where practicable, we share portions of this
information and know-how with display manufacturers and other business
partners on a confidential basis. We also employ various methods to protect
this information and know-how from unauthorized use or disclosure, although no
such methods can afford complete protection. Moreover, because we derive some
of this information and know-how from academic institutions such as Princeton
University and the University of Southern California, there is an increased
potential for public disclosure.

Competition

   The display industry in which we operate is highly competitive. We compete
against existing flat panel display technologies, dominated by LCDs, as well
as emerging OLED technologies.

   Flat Panel Display Competitors

   Numerous domestic and foreign companies have developed or are developing LCD
and other flat panel display technologies that will compete with our OLED
display technologies. These include plasma, field emissive and vacuum
fluorescent display technologies. Companies pursuing these technologies,
include, among others, Sony, Pioneer Corporation, Sharp Corporation, Toshiba
Matsushita Display Technology Co., Ltd., Fujitsu, Ltd., Hitachi Displays,
Ltd., NEC Corporation, Sanyo Electric Co., Ltd., Samsung Electronics Co.,
Ltd., Samsung SDI, LG Electronics, Ltd., AU Optronics, Chi Mei Optoelectronics
Corporation, RiTdisplay Corporation, Chunghwa Picture Tubes, Ltd., TECO
Optronics Corporation, Toppoly Optoelectronics Corporation and HannStar
Display Corporation. Many of these competitors have greater name recognition
and more extensive financial, marketing and research resource capabilities
than we do.

   We believe that OLED display technologies ultimately may be able to overcome
certain existing limitations of LCD and other flat panel display technologies,
such as high power consumption, costly manufacturing methods, poor contrast
ratios and limited viewing angles, for many product applications. However,
other companies, including those listed above, may succeed in improving these
competing display technologies, or in developing new display technologies,
that are superior to OLED display technologies in various respects. We cannot
predict the timing or extent to which such improvements or developments may
occur.

   OLED Competitors

   Eastman Kodak Company has licensed its competing fluorescent OLED technology
and other patents for passive matrix OLED display applications to a number of
display manufacturers, including several of those with whom we have been
working. In addition, Eastman Kodak and Sanyo Electric through a joint venture
known as SK Display Corporation, Samsung NEC Mobile Display Co., Ltd.,
RiTdisplay and Pioneer are presently manufacturing OLED products using
technologies different from ours. Eastman Kodak and other competitors of ours,
such as Covion Organic Semiconductors GmbH and Idemitsu Kosan Co., are selling
OLED materials that compete with our proprietary PHOLED materials. Another
OLED industry participant, Cambridge Display Technology, Ltd., has licensed
and is working with a number of display manufacturers on its competing polymer
OLED technology.

   A number of companies, including many of our flat panel display competitors,
together with Seiko Epson Corporation, Fuji Film Co., Ltd., Canon, Inc., Dow
Chemical Corporation, Dupont Displays, Toyo Ink Mfg. Co., Ltd., Sumitomo
Chemical Co., Ltd., Mitsubishi Chemical Corporation, Covion Organic
Semiconductors and Idemitsu Kosan, are engaged in research, development and
commercialization activities with respect to OLED technologies and materials.
Many of these competitors have greater name recognition and more extensive
financial, marketing and research resource capabilities than we do.

   Our existing business relationships with Tohoku Pioneer and other display
manufacturers suggest that our OLED technologies and materials, particularly
our PHOLED technologies and materials, may be adopted by other manufacturers
for use in the production of commercial OLED displays. However, Eastman Kodak,
Cambridge Display Technology and others may succeed in improving their
competing OLED technologies and

                                       13


materials so as to render them superior to ours. We cannot be sure of the
extent to which display manufacturers ultimately may adopt our OLED
technologies and materials for the production of commercial OLED displays.

Employees

   As of December 31, 2003, we had 45 full-time employees and one part-time
employee, none of whom are unionized. We believe that relations with our
employees are good.

Our Company History

   Our corporation was organized under the laws of the Commonwealth of
Pennsylvania in April 1985. Our business was commenced in June 1994 by a
company then-known as Universal Display Corporation, which had been
incorporated under the laws of the State of New Jersey. On June 22, 1995, a
wholly-owned subsidiary of ours merged with and into this New Jersey
corporation. The surviving corporation in this merger became a wholly-owned
subsidiary of ours and changed its name to UDC, Inc. Simultaneously with the
consummation of this merger, we changed our name to Universal Display
Corporation. UDC, Inc. now functions as an operating subsidiary of ours and
has overlapping officers and directors.

Our Compliance with Environmental Protection Laws

   We are not aware of any current federal, state or local environmental
compliance regulations that have a material effect on our business activities.
We have not expended material amounts to comply with any environmental
protection statutes and do not anticipate having to do so in the foreseeable
future.

Our Internet Site

   Our Internet website can be found at www.universaldisplay.com. Through our
website, free of charge, you can access our Annual Report on Form 10-K, our
Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any
amendments to those reports that we may file with or furnish to the SEC.

ITEM 2. PROPERTIES

   Our main corporate offices and our research and development facility are
located at 375 Phillips Boulevard in Ewing, New Jersey. We currently lease
approximately 21,000 square feet of space at this facility. In September 2003,
we extended the term of this lease through December 31, 2008. At the same time
we secured the right, exercisable by us at any time on or after July 1, 2004,
to purchase the building in which our offices and research and development
facility are located for a fixed price. Should we exercise this purchase
option, we would need to lease back a portion of the building space to the
current landlord on terms substantially the same as those of our current lease
agreement.

ITEM 3. LEGAL PROCEEDINGS

   We are not currently a party to any legal proceedings of a material nature.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

   We submitted no matters to a vote of our security holders in the fourth
quarter of 2003.


                                       14


                      EXECUTIVE OFFICERS OF THE REGISTRANT

   The following table sets forth certain information with respect to our
executive officers:


Name                          Age                Position
- ----                          ---      ------------------
Sherwin I. Seligsohn           68      Chairman of the Board and Chief
                                       Executive Officer
Steven V. Abramson             52      President, Chief Operating Officer
                                       and Director
Sidney D. Rosenblatt           56      Executive Vice President, Chief
                                       Financial Officer,
                                       Treasurer, Secretary and Director
Julia J. Brown, Ph.D.          42      Vice President and Chief Technical
                                       Officer


   Our Board of Directors has appointed these executive officers to hold office
until their successors are duly appointed.

   Sherwin I. Seligsohn has been our Chief Executive Officer and Chairman of
the Board since June 1995. He also served as our President from June 1995
through May 1996. Mr. Seligsohn founded and since has served as the sole
Director, President and Secretary of American Biomimetics Corporation,
International Multi-Media Corporation, and Wireless Unified Network Systems
Corporation. He is also Chairman of the Board and Chief Executive Officer of
Global Photonic Energy Corporation. From June 1990 to October 1991, Mr.
Seligsohn was Chairman Emeritus of InterDigital Communications, Inc.
(InterDigital), formerly International Mobile Machines Corporation. He founded
InterDigital and from August 1972 to June 1990 served as its Chairman of the
Board. Mr. Seligsohn is a member of the Advisory Board of the Advanced
Technology Center for Photonics and Optoelectronic Materials (POEM) at
Princeton University.

   Steven V. Abramson has been our President and Chief Operating Officer and a
member of our Board of Directors since May 1996. From March 1992 to May 1996,
he was Vice President, General Counsel, Secretary and Treasurer of Roy F.
Weston, Inc., a worldwide environmental consulting and engineering firm. From
December 1982 to December 1991, he held various positions at InterDigital,
including General Counsel, Executive Vice President and General Manager of the
Technology Licensing Division. Mr. Abramson is a member of the Advisory Board
of the Advanced Technology Center for Photonics and Optoelectronic Materials
(POEM) at Princeton University and is also a member of the Board of Governors
of the United States Display Consortium.

   Sidney D. Rosenblatt has been our Executive Vice President, Chief Financial
Officer, Treasurer and Secretary since June 1995, and has been a member of our
Board of Directors since May 1996. Mr. Rosenblatt is the owner of and served
as the President of S. Zitner Company from August 1990 through December 1998.
From May 1982 to August 1990, Mr. Rosenblatt served as the Senior Vice
President, Chief Financial Officer and Treasurer of InterDigital.

   Julia J. Brown, Ph.D. has been our Vice President and Chief Technical
Officer since June 2002. She joined us in June 1998 as our Vice President of
Technology Development. From November 1991 to June 1998, Dr. Brown was a
Research Department Manager at Hughes Research Laboratories where she directed
the pilot line production of high-speed Indium Phosphide-based integrated
circuits for insertion into advanced airborne radar and satellite
communication systems. Dr. Brown received an M.S. and Ph.D. in Electrical
Engineering/Electrophysics at the University of Southern California under the
advisement of Professor Stephen R. Forrest. Dr. Brown has served as an
Associate Editor of the Journal of Electronic Materials and as an elected
member of the Electron Device Society Technical Board. She co-founded an
international engineering mentoring program sponsored by the Institute of
Electrical and Electronics Engineers and is a Senior Member of the IEEE. Dr.
Brown has served on numerous technical conference committees and is presently
a member of the Society of Information Display.


                                       15


                                    PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   Our common stock is quoted on the Nasdaq National Market under the symbol
"PANL," and listed on the Philadelphia Stock Exchange under the symbol "PNL."
The following table sets forth, for the periods indicated, the high and low
closing prices of our common stock as reported on the Nasdaq National Market.

                                                           High      Low
                                                          Close     Close
                                                          ------   ------
2003
   First Quarter......................................    $ 8.70   $ 6.33
   Second Quarter.....................................     10.80     8.22
   Third Quarter......................................     10.74     8.17
   Fourth Quarter.....................................     15.45    10.30
2002
   First Quarter......................................    $11.78   $ 8.17
   Second Quarter.....................................     11.80     8.30
   Third Quarter......................................      8.30     4.95
   Fourth Quarter.....................................     11.60     5.76


   Based on a review of our most recent proxy tabulation and security position
listing reports, there were in excess of 400 holders of record of our common
stock as of February 20, 2004.

   We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings for the operation and expansion
of our business. We do not anticipate declaring or paying cash dividends on
our common stock in the foreseeable future. Any future payment of cash
dividends on our common stock will be at the discretion of our Board of
Directors and will depend upon our results of operations, earnings, capital
requirements, contractual restrictions and other factors deemed relevant by
our Board of Directors.


                                       16


ITEM 6. SELECTED FINANCIAL DATA

   The following selected condensed consolidated financial data has been
derived from, and should be read in conjunction with, our audited consolidated
financial statements and the notes thereto, and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere in this report and incorporated herein by reference.




                                                                                Fiscal Year Ended December 31,
                                                           ------------------------------------------------------------------------
                                                               2003           2002            2001           2000           1999
                                                           ------------   ------------    ------------    -----------   -----------
                                                                                                         
Operating Results:
Total revenue..........................................    $  6,593,193   $  2,484,948    $  1,252,901    $   492,756   $   519,536
Research and development expense.......................      17,897,522     15,804,267      12,310,036      7,109,205     3,171,497
General and administrative expense.....................       5,766,761      4,754,850       3,915,854      3,261,113     2,727,856
Net loss...............................................     (17,353,205)   (31,019,201)    (16,356,100)    (9,529,046)   (5,125,006)
Net loss attributable to Common shareholders...........     (18,387,507)   (32,972,680)    (18,873,436)    (9,529,046)   (5,125,006)
Net loss per share, basic and diluted..................           (0.82)         (1.71)          (1.11)         (0.62)        (0.42)
Balance Sheet Data:
Total assets...........................................    $ 46,201,646   $ 39,639,216    $ 48,569,569    $32,079,794   $10,316,850
Current liabilities....................................       4,194,776      2,866,759      10,464,188      1,670,016       873,761
Capital lease obligations..............................           3,886          8,599          12,827         16,619        20,021
Shareholders' equity...................................      38,906,870     33,668,571      38,096,782     29,826,804     9,426,470
Other Financial Data:
Working capital........................................    $ 23,679,705   $ 18,541,596    $ 17,994,232    $ 9,252,130   $ 5,704,913
Capital expenditures...................................         957,328      1,169,945       1,790,564      1,540,577     3,680,122
Acquired technology....................................              --             --              --     16,924,968            --
Weighted average Common Shares, basic and diluted......      22,428,219     19,227,697      16,994,537     15,260,837    12,269,943
Shares of Common Stock
  outstanding..........................................      24,196,765     21,525,412      18,093,124     16,440,286    13,714,563



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

   The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the section entitled
"Selected Financial Data" in this report and our consolidated financial
statements and related notes to this report. This discussion and analysis
contains forward-looking statements based on our current expectations,
assumptions, estimates and projections. These forward-looking statements
involve risks and uncertainties. Our actual results could differ materially
from those indicated in these forward-looking statements as a result of
certain factors, as more fully discussed in the section below entitled "Risk
Factors."

Overview

   We are a leader in the research, development and commercialization of
organic light emitting diode, or OLED, technologies for use in a variety of
flat panel display and other applications. Since 1994, we have been
exclusively engaged, and expect to continue to be exclusively engaged, in
funding and performing research and development activities relating to OLED
technologies and materials, and in attempting to commercialize these
technologies and materials. Our revenues are generated through contract
research, sales of development and commercial chemicals, development and
technology evaluation agreements and license fees.

   During 2003, we recognized our first commercial chemical sales and license
fee revenues. Also in 2003, we entered into an expanded technology development
contract with a longstanding partner and recognized revenue from that and
other similar contracts. Although these events show the progress we have made
in introducing our OLED technologies and materials into the marketplace, there
can be no certainty that these trends will continue. We have incurred
significant losses since our inception, resulting in an accumulated deficit of
$98,462,012 as of

                                       17


December 31, 2003. Moreover, we expect our losses to continue for the
foreseeable future and until such time, if ever, as we are able to achieve,
from the commercial licensing of our OLED technologies and the sale of our
OLED materials, sustained licensing and chemical sales revenues that are
sufficient to support our ongoing research and development activities and
other operations.

   We anticipate fluctuations in our annual and quarterly results of operations
for the foreseeable future due to uncertainty regarding:

     o  the timing of our receipt of license fees and fees for future
        technology development and evaluation;

     o  the timing and volume of sales of our OLED materials for both
        commercial usage and evaluation purposes;

     o  the timing and magnitude of expenditures we may incur in connection
        with our ongoing research and development activities; and

     o  the timing and financial consequences of our formation of new business
        relationships and alliances.

Critical Accounting Policies and Estimates

   The discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates
and judgments that affect our reported assets and liabilities, revenues and
expenses, and other financial information. Actual results may, under different
assumptions and conditions, differ significantly from our estimates.

   We believe that our accounting policies related to revenue recognition and
deferred license fees, valuation of acquired technology and stock-based
compensation as described below, are our "critical accounting policies" as
contemplated by the Securities and Exchange Commission. These policies are
discussed in greater detail below.

   Revenue Recognition and Deferred License Fees

   Contract research revenues represent reimbursements by the U.S. government
for all or a portion of the research and development expenses we incur related
to our government contracts. Revenues are recognized proportionally as
research and development expenses are incurred or as defined milestones are
achieved. In order to ascertain the revenues associated with these contracts
for a period, we estimate the proportion of related research and development
expenses incurred and whether defined milestones have been achieved. Different
estimates would result in different revenues for the period.

   We also receive non-refundable advance payments under certain of our
development and technology evaluation agreements. These payments are deferred
until a license agreement is executed or negotiations have ceased and there is
no likelihood of executing a license agreement with the other party. If a
license agreement is executed, these revenues will be recorded over the
expected life of the licensed technology; otherwise, they will be recorded at
the time negotiations with the other party show no further likelihood of
success. If we estimate differently the expected life of this licensed
technology, reported revenue during the relevant period will differ. To date,
no deferred license fees have been recognized as revenue. As of December 31,
2003, $4,366,667 was recorded as deferred revenue.

   Valuation of Acquired Technology

   We regularly review our acquired OLED technologies for events or changes in
circumstances that might indicate the carrying value of these technologies may
not be recoverable. Factors considered important that could cause impairment
include, among others, significant changes in our anticipated future use of
these technologies and our overall business strategy as it pertains to these
technologies, particularly in light of patents owned by others in the same
field of use. As of December 31, 2003, we believe that no revision of the
remaining useful lives or write-down of our acquired technology was required
for 2003, nor was such a revision needed in 2002 or 2001. If such a write-down
is required in the future, it could be for up to $11,404,703, the net book
value of the acquired technology as of December 31, 2003.


                                       18


   Valuation of Stock-Based Compensation

   We account for our stock-based compensation (see Note 11 of the Notes to
Consolidated Financial Statements) under Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost is recognized for options issued to employees at fair market
value on the date of grant. In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," as amended by SFAS No. 148. SFAS 123
establishes a fair value-based method of accounting for stock-based
compensation plans. SFAS 123 requires that a company's financial statements
include certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for the plan. We account
for our stock option and warrant grants to non-employees in exchange for goods
or services in accordance with SFAS 123 and Emerging Issues Task Force No. 96-
18 (EITF 96-18). SFAS 123 and EITF 96-18 require that we account for our
option and warrant grants to non-employees based on the fair value of the
options and warrants granted.

   We use the Black-Scholes option-pricing model to estimate the fair value of
options we have granted for purposes of making the disclosure required by SFAS
123. In order to calculate the fair value of the options, assumptions are made
for certain components of the model, including risk-free interest rate,
volatility, expected dividend yield rate and expected option life. Although we
use available resources and information when setting these assumptions,
changes to the assumptions could cause significant adjustments to the
valuation.

Results of Operations

   Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

   We had a net loss attributable to holders of our common stock of $18,387,507
(or $0.82 per share) for the year ended December 31, 2003, compared to a net
loss attributable to holders of our common stock of $32,972,680 (or $1.71 per
share) for the year ended December 31, 2002. The decrease in net loss
attributable to holders of our common stock was primarily due to:

     o  an increase in total revenue, as described below; and

     o  a decrease of non-cash expense relating to the debt conversion and
        extinguishment of convertible promissory notes we issued in August
        2001, and a decrease in non-cash interest expense (see Note 10 of the
        Notes to Consolidated Financial Statements).

   Our revenues were $6,593,193 for the year ended December 31, 2003, compared
to $2,484,948 for the year ended December 31, 2002. The increase was primarily
due to:

     o  additional payments under technology development and evaluation
        agreements and additional purchases of materials by our development
        partners; and

     o  providing OLED material to a customer for its use in the manufacture
        of commercial OLED displays under an arrangement entered into in 2003.

   We earned $2,295,009 from sales of our OLED materials for evaluation
purposes for the year ended December 31, 2003, compared to $833,194 for the
year ended December 31, 2002. The increase was mainly due to an increased
volume of OLED materials purchased for evaluation by potential OLED display
manufacturers, including our current development partners.

   We entered into an arrangement in the third quarter of 2003 under which we
began supplying one of our proprietary OLED materials to a customer for use in
the manufacture of commercial passive matrix OLED displays. As a result, we
earned $68,160 in commercial chemical revenue and $159,040 in license fees in
connection with this arrangement for the year ended December 31, 2003. There
were no such arrangements in effect during 2002.

   We recognized $2,650,000 in technology development revenue for the year
ended December 31, 2003, compared to $182,796 for the year ended December 31,
2002. The increase related to new and continuing technology development and
evaluation agreements in 2003.


                                       19


   We earned $1,420,984 in contract research revenue from the U.S. government
for the year ended December 31, 2003, compared to $1,468,958 for the year
ended December 31, 2002. The dollar value and the number of our government
contracts remained relatively constant during 2002 and 2003, and several of
these contracts are expected to continue into 2005.

   We incurred research and development expenses of $17,897,522 for the year
ended December 31, 2003, compared to $15,804,267 for the year ended December
31, 2002. The increase was primarily a result of:

     o  an increase of $973,657 in non-cash operating expense associated with
        our Development and License Agreement with PPG Industries, due to the
        increased price of our common stock;

     o  an increase of $312,919 in costs associated with the increased number
        of patents filed in 2003 as compared to 2002;

     o  an increase of $641,451 in costs for the further development and
        operation of our facility in Ewing, New Jersey; and

     o  stock performance bonuses of $356,311 to research and development
        employees. No such bonuses were awarded in 2002.

   The increase was offset by a $289,900 decrease in costs associated with our
Scientific Advisory Board, due to the timing of payments.

   We incurred general and administrative expenses of $5,766,761 for the year
ended December 31, 2003, compared to $4,754,850 for the year ended December
31, 2002. The increase was a result of an increase of $1,125,887 in costs
associated with new and existing personnel and stock performance bonuses of
$661,775 awarded to employees. There were no such stock performance bonuses
issued in 2002.

   In September 2002, $7,000,002 of the $15,000,000 in convertible promissory
notes that we had issued in August 2001 (the Notes) were converted into shares
of our common stock, with the remaining amount being repaid in cash. As of the
date of conversion and repayment, the $15,000,000 face value of the Notes
exceeded their then-carrying value due to an unamortized original issuance
discount (OID) and beneficial conversion feature (BCF) on the Notes. As a
result, upon the conversion and repayment of the Notes, we recognized a non-
cash debt conversion and extinguishment expense of $10,011,780 related to the
unamortized portion of the OID and BCF and the intrinsic value of the Notes
repurchased. During 2003, there were no such expenses (see Note 10 of the
Notes to Consolidated Financial Statements).

   We had no interest expense for the year ended December 31, 2003, compared to
$3,298,589 for the year ended December 31, 2002. The decrease was primarily
due to the retirement and conversion of the Notes in September 2002 and the
fact that there was no debt in 2003, which compares to 2002 in which we
recorded the amortization of OID and BCF of the Notes (see Note 10 of the
Notes to Consolidated Financial Statements).

   In September 2003, the conversion price of the Series B Convertible
Preferred Stock we issued to Motorola, Inc. in September 2000 was adjusted in
accordance with the Certificate of Designations for this stock. We accounted
for this adjustment as a contingent beneficial conversion feature (CBCF). As a
result, we recorded the CBCF as a deemed dividend in the amount of $487,680.
In 2002, the adjustment resulted in a deemed dividend of $1,953,479 (see Note
9 of the Notes to Consolidated Financial Statements).

   In August 2003, we completed an offering that was deemed dilutive under the
terms of certain warrants we had previously issued and resulted in a reduction
of the exercise prices of some of these warrants and an increase in the number
of shares issuable under certain of these warrants. We treated and recorded
this occurrence as a deemed dividend in the amount of $546,622. No such
dividends were recorded in 2002. The weighted-average anti-dilution provisions
of these warrants will be triggered in the future if we issue additional
shares below the various exercise prices of these warrants.

   Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

   We had a net loss attributable to holders of our common stock of $32,972,680
(or $1.71 per share) for the year ended December 31, 2002, compared to a net
loss attributable to holders of our common stock of $18,873,436 (or $1.11 per
share) for the year ended December 31, 2001. The increase was primarily due
to:


                                       20


     o  an increase in cash and non-cash research and development expenses, as
        described below; and

     o  an increase in non-cash interest expense on the Notes we issued in
        August 2001, as well as our incurring non-cash expense relating to the
        conversion and extinguishment of the Notes (see Note 10 of the Notes
        to Consolidated Financial Statements).

   Our revenues were $2,484,948 for the year ended December 31, 2002, compared
to $1,252,901 for the year ended December 31, 2001. We earned $1,468,958 in
contract research revenue from the U.S. government in 2002, compared to
$1,058,571 in 2001. The increase was primarily due to our commencement of work
under six new government contracts in 2002, with work under four of these
contracts beginning in the third and fourth quarters of 2002. In 2001,
contract revenue was derived from three government contracts, one of which was
completed in the third quarter of 2001.

   We earned $833,194 from our sales of OLED materials for evaluation purposes
in 2002, compared to $194,330 in 2001. The increase was mainly due to an
increased volume of OLED materials purchased for evaluation by potential OLED
display manufacturers, including our technology development and evaluation
partners. We commenced sales of OLED materials for evaluation purposes in
2001.

   During 2002, we received non-refundable cash payments of $4,266,667 in the
aggregate in connection with our technology development and evaluation and
license agreements, compared to $400,000 in similar cash payments we received
in 2001. Of the cash payments we received in 2002, we recognized revenues of
$182,796 as fees for technology development and evaluation, with the remainder
being recorded as unearned revenue. The increase in cash payments received
resulted from our entering into new technology development and evaluation and
license agreements in 2002, as well as from our receiving additional payments
under agreements of this nature that were in place during 2001.

   During 2002, we sold approximately $3 million of our state-related income
tax net operating losses (NOLs) to New Jersey under the Technology Tax
Certificate Transfer Program. We received $225,657 for the sale of these NOLs
and recorded it as other revenue. We did not sell any of our NOLs prior to
2002, but may do so in the future.

   We incurred research and development expenses of $15,804,267 for the year
ended December 31, 2002, compared to $12,310,036 for the year ended December
31, 2001. The increase was mainly attributable to the following:

     o  an increase of $901,754 in costs associated with increased salaries
        and costs incurred in connection with, and as a result of, the
        expansion of our facility in Ewing, New Jersey;

     o  an increase of $342,323 in costs associated with an increased number
        of patents filed in 2002 as compared to 2001; and

     o  an increase of $3,204,333 in non-cash charges in connection with our
        Development and License Agreement with PPG Industries (see Note 8 of
        the Notes to Consolidated Financial Statements).

   The increase was offset by a $1,054,786 decrease in costs associated with
our Scientific Advisory Board, relating to the valuation of warrants received
for compensation.

   General and administrative expenses were $4,754,850 for the year ended
December 31, 2002, compared to $3,915,854 for the year ended December 31,
2001. The increase was mainly due to increased salaries and costs incurred in
connection with, and as a result of, the expansion of our facility in Ewing,
New Jersey. We also experienced an increase in marketing costs, including
costs relating to public relations and shareholder services.

   In September 2002, $7,000,002 of the $15,000,000 in Notes that we had issued
were converted into shares of our common stock, with the remaining amount
being repaid by us in cash. As of the date of conversion and repayment, the
$15,000,000 face value of the Notes exceeded their then-carrying value due to
an unamortized OID and BCF on the Notes. As a result, upon the conversion and
repayment of the Notes, we recognized a non-cash debt conversion and
extinguishment expense of $10,011,780 related to the unamortized portion of
the OID and BCF and the intrinsic value of the Notes repurchased. In the same
period in 2001, there were no such expenses (see Note 10 of the Notes to
Consolidated Financial Statements).


                                       21


   Our interest expense was $3,298,589 for the year ended December 31, 2002,
compared to $1,848,142 for the year ended December 31, 2001. The increase was
primarily due to amortization of the OID and BCF of the Notes (see Note 10 of
the Notes to Consolidated Financial Statements).

   In September 2002, the conversion price of the Series B Convertible
Preferred Stock we issued to Motorola in September 2000 was adjusted in
accordance with the Certificate of Designations for this stock. We accounted
for this adjustment as a CBCF. As a result, we recorded the CBCF as a deemed
dividend in the amount of $1,953,479.

Liquidity and Capital Resources

   As of December 31, 2003, we had cash and cash equivalents of $14,070,207,
short-term investments of $12,811,704 and investments in certificates of
deposit and other liquid instruments with an original maturity of more than
one year of $3,255,574. This compares to cash and cash equivalents of
$15,905,416, short-term investments of $4,662,898 and investments in
certificates of deposit and other liquid instruments with an original maturity
of more than one year of $379,753, as of December 31, 2002. The increase in
cash and cash equivalents and short-term and long-term investments of
$9,189,418 was primarily due to an increase in funds from our registered
direct offering in 2003, less cash used in operations, as detailed below.

   During 2003, cash used in operating activities was $5,797,609, as compared
to $4,764,265 in 2002. The increase was mainly due to a decrease in non-
refundable cash payments received in 2003 as compared to 2002. In 2003, we
received $3,000,000 in the aggregate in connection with our new and existing
technology development and evaluation and license agreements, of which
$2,655,000 was recognized as revenue in 2003. This compares to $4,266,667 in
aggregate payments that we received in 2002 in connection with similar
agreements, of which $182,796 was recognized as revenue in 2002. This decrease
was offset in part by an increase in accounts payable and accrued expenses.

   In August 2003, we completed a registered direct offering of 2,012,500
shares of our common stock at a price of $8.00 per share. The offering
resulted in proceeds to us of $14,829,357, net of $1,270,643 in costs
associated with completion of the offering.

   In August 2002, we completed a registered direct offering of 1,277,014
shares of our common stock at a price of $5.09 per share. In September 2002,
we completed a subsequent registered direct offering of 383,452 shares of our
common stock at a price of $5.41 per share. These offerings resulted in
aggregate proceeds to us of $8,055,186, net of $519,288 in costs associated
with completion of the offerings.

   Working capital increased to $23,679,705 as of December 31, 2003, from
working capital of $18,541,596 as of December 31, 2002. The net increase was
due primarily to the completion of the August 2003 registered direct offering
of our common stock. Our net cash used in operating activities was $5,797,609
in 2003 and $4,764,265 in 2002. Non-cash expenses related to the issuance of
our common stock, warrants and options to purchase our common stock, and the
amortization of discounts relating to the issuance, conversion and repayment
of convertible debt (see Note 10 of the Notes to Consolidated Financial
Statements) were $6,450,016 in 2003 and $19,162,516 in 2002.

   We anticipate, based on our internal forecasts and assumptions relating to
our operations (including, among others, assumptions regarding our working
capital requirements, the progress of our research and development efforts,
the availability of sources of funding for our research and development work,
and the timing and costs associated with the preparation, filing, prosecution,
maintenance and enforcement of our patents and patent applications), that we
have sufficient cash, cash equivalents and short-term investments to meet our
obligations into 2005. We believe that potential additional financing sources
for us include long-term and short-term borrowings, public and private sales
of our equity and debt securities and the receipt of cash upon the exercise of
warrants and options. We have an effective shelf registration statement that
would enable us to offer, from time to time, up to $75,325,524 of our common
stock, preferred stock, debt securities and other securities, subject to
market conditions and other factors. It should be noted, however, that
substantial additional funds will be required in the future for research,
development and commercialization of our OLED technologies and materials, to
obtain and maintain patents respecting these technologies and materials, and
for working capital and other purposes, the timing and amount of which are
difficult to ascertain. For example, under our 1997 Research Agreement with

                                       22


Princeton University, we are required to pay Princeton University $1,495,599
per year through July 2007. There can be no assurance that additional funds
will be available to us when needed, on commercially reasonable terms or at
all.

Contractual Obligations

   As of December 31, 2003, we had the following contractual commitments:




                                                                                            Payments Due by Period
                                                                           --------------------------------------------------------
                                                                           Less than
Contractual Obligations
- -----------------------                                        Total        1 year       1-3 years    3-5 years   More than 5 years
                                                             ----------   ----------    ----------    ---------   -----------------
                                                                                                   
Long-term debt...........................................    $       --   $       --    $       --    $     --     $             --
                                                             ----------   ----------    ----------    --------     ----------------
Operating lease obligations..............................     1,483,217      302,207       887,010     294,000                   --
                                                             ----------   ----------    ----------    --------     ----------------
Capital lease obligations................................         3,886        3,886            --          --                   --
                                                             ----------   ----------    ----------    --------     ----------------
Purchase obligations.....................................            --           --            --          --                   --
                                                             ----------   ----------    ----------    --------     ----------------
Other long-term liabilities reflected on the balance
  sheet under GAAP.......................................            --           --            --          --                   --
                                                             ----------   ----------    ----------    --------     ----------------
Other Obligations:
 Sponsored research obligation...........................     5,359,230    1,495,599     3,863,631          --                   --
                                                             ----------   ----------    ----------    --------     ----------------
 Minimum royalty obligation..............................     2,100,000(1)   600,000     1,300,000     200,000     $100,000/year(1)
                                                             ----------   ----------    ----------    --------     ----------------
Total....................................................    $8,946,333(1)$2,401,692    $6,050,641    $494,000     $100,000/year(1)
                                                             ----------   ----------    ----------    --------     ----------------


- ---------------
(1) Under our Amended License Agreement with Princeton University and the
    University of Southern California, we are obligated to pay Princeton
    University minimum royalties of $100,000 per year until such time as the
    agreement is no longer in effect.

Off-Balance Sheet Arrangements

   As of December 31, 2003, we had no off-balance sheet arrangements in the
nature of guarantee contracts, retained or contingent interests in assets
transferred to unconsolidated entities (or similar arrangements serving as
credit, liquidity or market risk support to unconsolidated entities for any
such assets), or obligations (including contingent obligations) arising out of
variable interests in unconsolidated entities providing financing, liquidity,
market risk or credit risk support to us, or that engage in leasing, hedging
or research and development services with us.

Recently Issued Accounting Pronouncements

   The adoption of SFAS Nos. 145, 146, 148 and 150 and FASB Interpertation Nos.
45 and 46 did not have a material impact on our 2003 consolidated financial
statements.

   The EITF 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. We believe the
adoption of EITF Issue No. 00-21 will not have a material impact on our
financial position, results of operations, or liquidity.

         FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

   The following factors, as well as other factors affecting our operating
results and financial condition, could cause our actual future results and
financial condition to differ materially from those projected.

We do not expect to be profitable in the foreseeable future, and may never be
profitable.

   Since inception, we have generated limited revenues while incurring
significant losses. We expect to incur losses for the foreseeable future and
until such time, if ever, as we are able to achieve sufficient levels of
revenue from the commercial exploitation of our OLED technologies and
materials to support our operations. You should note, however, that:

     o  OLED technologies may never become commercially viable;


                                       23


     o  markets for flat panel displays utilizing OLED technologies may be
        limited; and

     o  we may never generate sufficient revenues from the commercial
        exploitation of our OLED technologies and materials to become
        profitable.

   Even if we find commercially viable applications for our OLED technologies
and materials, we may never recover our research and development expenses.

If we do not receive additional financing in the future, we might not be able
to continue the research, development and commercialization of our OLED
technologies and materials.

   Our capital requirements have been and will continue to be significant.
Substantial additional funds will be required in the future for research,
development and commercialization of our OLED technologies and 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. Our cash on hand may
not be sufficient to meet all of our future needs. When we need additional
funds, such funds may not be available on commercially reasonable terms or at
all. If we cannot obtain more money when needed, our business might fail.
Additionally, if we attempt to raise money in an offering of shares of our
common stock, preferred stock, warrants or depositary shares, or if we engage
in acquisitions involving the issuance of such securities, the issuance of
these shares will dilute our then-existing shareholders.

If our OLED technologies and materials are not feasible for broad-based
product applications, we may never generate revenues sufficient to support
ongoing operations.

   Before display manufacturers will agree to utilize our OLED technologies and
materials for wide-scale commercial production, they will likely require us to
demonstrate to their satisfaction that our OLED technologies and materials are
feasible for broad-based product applications. This, in turn, will require
substantial advances in our research and development efforts in a number of
areas, including:

     o  device reliability;

     o  the development of long-lived OLED materials for full color OLED
        displays; and

     o  issues related to scalability and cost-effective fabrication
        technologies for product applications.

   Our efforts may never demonstrate the feasibility of our OLED technologies
and materials for broad-based product applications.

   Our research and development efforts remain subject to all of the risks
associated with the development of new products based on emerging and
innovative technologies, including, without limitation, unanticipated
technical or other problems and the possible insufficiency of funds for
completing development of these products. Technical problems may result in
delays and cause us to incur additional expenses that would increase our
losses. If we cannot complete research and development of our OLED
technologies and materials successfully, or if we experience delays in
completing research and development of our OLED technologies and materials for
use in potential commercial applications, particularly after incurring
significant expenditures, our business may fail.

Even if our OLED technologies are technically feasible, they may not be
adopted by display manufacturers.

   The potential size, timing and viability of market opportunities targeted by
us are uncertain at this time. Market acceptance of our OLED technologies will
depend, in part, upon these technologies providing benefits comparable to
cathode ray tube, or CRT, display and LCD technologies (the current standard
display technologies) at an appropriate cost, and the adoption of these
technologies by consumers, neither of which has been achieved. Also, there may
be a number of additional technologies that display manufacturers need to
utilize to be used in conjunction with our OLED technologies in order to bring
OLED displays and products containing them to the market. Many potential
licensees of our OLED technologies manufacture flat panel displays utilizing
competing technologies, and may, therefore, be reluctant to redesign their
products or manufacturing processes to incorporate our OLED technologies.
Moreover, even if our OLED technologies are a viable alternative to competing
technologies, if additional technologies are required to be used in
conjunction with our OLED

                                       24


technologies to bring OLED displays and products containing them to the market
and display manufacturers are unable to obtain access to these technologies,
they may not utilize our OLED technologies.

There are numerous potential alternatives to OLEDs for flat panel displays,
which may limit our ability to commercialize our OLED technologies and
materials.

   The flat panel display market is currently, and will likely continue to be
for some time, dominated by displays based on LCD technology. Numerous
companies are making substantial investments in, and conducting research to
improve characteristics of, LCDs. Several other flat panel display
technologies have been, or are being, developed, including technologies for
the production of field emission, inorganic electroluminescence, gas plasma
and vacuum fluorescent displays. Advances in LCD technology or any of these
technologies may overcome their current limitations and permit them to become
the leading technologies for flat panel displays, either of which could limit
the potential market for flat panel displays utilizing our OLED technologies
and materials. This, in turn, would cause display manufacturers to avoid
entering into commercial relationships with us, or to terminate or not renew
their existing relationships with us.

Other OLED technologies may be more successful than ours.

   Our competitors have developed OLED technologies that differ from or compete
with our OLED technologies. These competing OLED technologies entered the
marketplace prior to ours and may become entrenched in the flat panel industry
before our OLED technologies have a chance to become widely utilized.
Moreover, our competitors may succeed in developing new OLED technologies that
are more cost-effective or have fewer display limitations than our OLED
technologies. If our OLED technologies, and particularly our phosphorescent
OLED technology, are unable to capture a substantial portion of the OLED
display market, our business strategy may fail.

Many of our competitors have greater resources, and it may be difficult to
compete against them.

   The flat panel display industry is characterized by intense competition.
Many of our competitors have better name recognition and greater financial,
technical, marketing, personnel and research capabilities than us. Because of
these differences, we may never be able to compete successfully in the OLED
display market.

The flat panel display industry has historically experienced significant
downturns, which may adversely affect the demand for and pricing of our OLED
technologies and materials.

   The flat panel display industry has experienced significant periodic
downturns, often in connection with, or in anticipation of, declines in
general economic conditions. These downturns have been characterized by lower
product demand, production overcapacity and erosion of average selling prices.
Our business strategy is dependent on display manufacturers building and
selling displays that incorporate our OLED technologies and materials.
Industry-wide fluctuations and downturns in the demand for flat panel
displays, and OLED displays in particular, could cause significant harm to our
business.

If our research partners fail to make advances in their research, or if they
terminate or elect not to renew their relationships with us, we might not
succeed in commercializing our OLED technologies and materials.

   Research and development of commercially viable applications for our OLED
technologies and materials depend substantially on the success of the work
conducted by our research partners. We cannot be certain that our research
partners will make additional advances in the research and development of
these technologies and materials. Moreover, although we fund OLED technology
research, the scope of and technical aspects of this research and the
resources and efforts directed to this research are in large part subject to
the control of our research partners.

   Our most significant research and development relationships are with
Princeton University and the University of Southern California. Our Research
Agreement with Princeton University expires in July 2007 and both this
agreement and our Amended License Agreement with Princeton University and the
University of Southern California (the agreement under which we license our
key OLED technology patents) can be terminated for various reasons. For
example, the Research Agreement provides that if Dr. Stephen R. Forrest, the
principal investigator for our research program with Princeton University, is
unavailable to continue to serve in this

                                       25


capacity, because he is no longer associated with Princeton University or for
any other reason, and a successor acceptable to both us and Princeton
University is not available, Princeton University has the right to terminate
the Research Agreement without impacting the Amended License Agreement.
Termination of the Research Agreement or the Amended License Agreement would
materially and adversely affect our ability to research, develop and
commercialize our OLED technologies and materials.

If we cannot form and maintain lasting business relationships with OLED
display manufacturers, our business strategy will fail.

   Our business strategy ultimately depends upon our development and
maintenance of commercial licensing and material supply relationships with
high-volume manufacturers of OLED displays. As of December 31, 2003, we had
entered into only two such relationships, one with Dupont Displays, Inc. and
one with Tohoku Pioneer Corporation. All of our other relationships with
display manufacturers currently are limited to technology development and the
evaluation of our OLED technologies and materials for possible use in
commercial production. Some or all of these relationships may not succeed or,
even if they are successful, may not result in the display manufacturers
entering into commercial licensing and material supply relationships with us.

   Under our existing technology development and evaluation agreements, we are
working with display manufacturers to incorporate our technologies into their
products for the commercial production of OLED displays. However, these
technology development and evaluation agreements typically last for limited
periods of time, such that our relationships with the display manufacturers
will expire unless they continually are renewed. The display manufacturers may
not agree to renew their relationships with us on a continuing basis. In
addition, we regularly continue working with display manufacturers evaluating
our OLED technologies and materials after our existing agreements with them
have expired while we are attempting to negotiate contract extensions or new
agreements with them. Should our relationships with the display manufacturers
not continue or be renewed, our business would suffer.

   Our ability to enter into additional commercial licensing and material
supply relationships, or to maintain our existing technology development and
evaluation relationships, may require us to make financial or other
commitments. We might not be able, for financial or other reasons, to enter
into or continue these relationships on commercially acceptable terms, or at
all. Failure to do so would have a material adverse effect on us.

We rely solely on PPG Industries to manufacture the OLED materials we use and
sell to display manufacturers.

   Our business prospects depend significantly on our ability to obtain
proprietary OLED materials for our own use and for sale to display
manufacturers. Our current Development and License Agreement with PPG
Industries, Inc. provides us with a source for these materials for research,
development and evaluation purposes, and our current Supply Agreement with PPG
Industries provides us with a source for these materials for commercial
purposes. However, the Development and License Agreement expires at the end of
2005 and the Supply Agreement expires at the end of 2007. Our inability to
continue obtaining these OLED materials from PPG Industries or another source
would have a material adverse effect on our revenues from sales of these
materials, as well as on our ability to perform research and development work
and to support those display manufacturers currently evaluating our OLED
technologies and materials for possible commercial use.

If we cannot obtain and maintain appropriate patent and other intellectual
property rights protection for our OLED technologies and materials, our
business will suffer.

   The value of our OLED technologies and materials is dependent on our ability
to secure and maintain appropriate patent and other intellectual property
rights protection. Although we own or license many patents respecting our OLED
technologies and materials that have already been issued, there can be no
assurance that additional patents applied for will be obtained, or that any of
these patents, once issued, will afford commercially significant protection
for our OLED technologies and materials, or will be found valid if challenged.
Moreover, we have not obtained patent protection for some of our OLED
technologies and materials in all foreign countries in which OLED displays or
materials might be manufactured or sold. In any event, the patent laws of
other countries may differ from those of the United States as to the
patentability of our OLED technologies and materials and the degree of
protection afforded.


                                       26


   We may become engaged in litigation to protect or enforce our patent and
other intellectual property rights, or in International Trade Commission
proceedings to abate the importation of goods that would compete unfairly with
those of our licensees. In addition, we may have to participate in
interference or reexamination proceedings before the U.S. Patent and Trademark
Office, or in opposition, nullity or other proceedings before foreign patent
offices, with respect to our patents or patent applications. All of these
actions would place our patents and other intellectual property rights at risk
and may result in substantial costs to us as well as a diversion of management
attention. Moreover, if successful, these actions could result in the loss of
patent or other intellectual property rights protection for the key OLED
technologies and materials on which our business depends.

If our OLED technologies or materials are found to infringe the rights of
others, we may not be able to commercially license or sell them.

   Other companies and institutions may independently develop OLED technologies
and materials that are equivalent or superior to ours, and may obtain patent
or similar rights with respect to these technologies. There are a number of
other companies and organizations that have been issued patents and are filing
additional patent applications relating to OLED technologies and materials,
including Eastman Kodak Company, Fuji Film Co., Ltd., Canon, Inc., Pioneer
Corporation, Semiconductor Energy Laboratories Co. and Mitsubishi Chemical
Corporation, all of whom have patent rights related to OLED technologies and
materials. There can be no assurance that the utilization of our OLED
technologies or the sale of our OLED materials, including technologies and
materials developed by or licensed from Princeton University, the University
of Southern California, PPG Industries or Motorola, Inc., will not infringe on
the patent or other intellectual property rights of others. In this event, we
or our partners may be required to obtain licenses, pay damages, modify our
products or methods of operation, or be prohibited from making, using, selling
or offering to sell some or all of our OLED materials or products
incorporating our OLED technologies. We also might not have the financial or
other resources necessary to enforce or defend a patent infringement action,
and the licensors of our licensed patents might not enforce or defend such an
action in a timely manner. If our OLED materials or products incorporating our
OLED technologies are found to infringe on the patent or other intellectual
property rights of others, it could have a material adverse effect on us by
limiting our ability to license our OLED technologies or to sell our OLED
materials to display manufacturers.

The U.S. government has rights to our OLED technologies that might prevent us
from realizing the benefits of these technologies.

   The U.S. government, through various government agencies, has provided and
continues to provide funding to us, Princeton University and the University of
Southern California for research activities related to certain aspects of our
OLED technologies. Because we have been provided with this funding, the
government has rights to these OLED technologies that could restrict our
ability to market them to the government for military and other applications,
or to third parties for commercial applications. Moreover, if the government
determines that we have not taken effective steps to achieve practical
application of these OLED technologies in any field of use in a reasonable
time, the government could require us to grant licenses to other parties in
that field of use. Any of these occurrences would limit our ability to obtain
the full benefits of our OLED technologies.

If we cannot keep our key employees or hire other talented persons as we grow,
our business might not succeed.

   Our performance is substantially dependent on the continued services of
senior management and other key personnel, and on our ability to offer
competitive salaries and benefits to our employees. We do not have employment
agreements with any of our management or other key personnel. Additionally,
competition for highly skilled technical, managerial and other personnel is
intense. We might not be able to attract, hire, train, retain and motivate the
highly skilled managers and employees we need to be successful. If we fail to
attract and retain the necessary technical and managerial personnel, our
business will suffer and might fail.

We can issue shares of preferred stock that may adversely affect your rights
as a shareholder of our common stock.

   Our Articles of Incorporation authorize us to issue up to 5,000,000 shares
of preferred stock with designations, rights and preferences determined from
time-to-time by our Board of Directors. Accordingly, our Board of Directors is
empowered, without shareholder approval, to issue preferred stock with
dividend,

                                       27


liquidation, conversion, voting or other rights superior to those of
shareholders of our common stock. For example, an issuance of shares of
preferred stock could:

     o  adversely affect the voting power of the shareholders of our common
        stock;

     o  make it more difficult for a third party to gain control of us;

     o  discourage bids for our common stock at a premium; or

     o  otherwise adversely affect the market price of our common stock.

   Our Board of Directors has designated and issued two series of preferred
stock that were outstanding as of December 31, 2003: (a) 200,000 shares of
Series A Nonconvertible Preferred Stock, all of which are held by an entity
controlled by members of the family of Sherwin Seligsohn, our Chairman of the
Board and Chief Executive Officer; and (b) 300,000 shares of Series B
Convertible Preferred Stock that are held by Motorola. As of December 31,
2003, 225,000 shares of the Series B Convertible Preferred Stock were
convertible into 343,916 shares of our common stock. The remaining 75,000
shares of the Series B Convertible Preferred Stock will vest and all shares of
Series B Convertible Preferred Stock will automatically convert into shares of
our common stock in September 2004. We may issue additional shares of
authorized preferred stock at any time in the future.

If the price of our common stock goes down, we may have to issue more shares
than are presently anticipated to be issued under our agreement with PPG
Industries.

   Under our Development and License Agreement with PPG Industries, we are
required to issue to PPG Industries shares of our common stock for services
rendered by it. If, at the time of issuance, the price of our common stock has
declined materially since the date of the Development and License Agreement,
we would be required to issue to PPG Industries more shares of our common
stock than were initially anticipated. This increase in the number of shares
available for public sale could cause people to sell our common stock,
including in short sales, which could drive down the price of our common
stock, thus reducing its value and perhaps hindering our ability to raise
additional funds in the future. In addition, such an increase in the number of
outstanding shares of our common stock would further dilute existing holders
of this stock.

Our executive officers and directors own a large percentage of our common
stock and could exert significant influence over matters requiring shareholder
approval, including takeover attempts.

   Our executive officers and directors, their respective affiliates and the
adult children of Sherwin Seligsohn, our Chairman of the Board and Chief
Executive Officer beneficially own as of February 20, 2004, approximately
25.5% of the outstanding shares of our common stock. Moreover, Pine Ridge
Financial Inc. and First Investors Holding Co., Inc., as successor to Strong
River Investments, Inc., assigned to our management their rights to vote the
shares of our common stock they received or are entitled to receive upon
conversion of warrants, notes and preferred stock issued in an August 2001
private placement transaction, of which warrants to purchase 744,452 shares
remain outstanding as of February 20, 2004. Accordingly, these shareholders
and members of management may, as a practical matter, be able to exert
significant influence over matters requiring approval by our shareholders,
including the election of directors and the approval of mergers or other
business combinations. This concentration also could have the effect of
delaying or preventing a change in control of us.

The market price of our common stock might be highly volatile.

   The market price of our common stock might be highly volatile, as has been
the case with our common stock in the past as well as the securities of many
companies, particularly other small and emerging-growth companies. We have
included a section in this report entitled "Market for Registrant's Common
Equity and Related Stockholder Matters" that contains a table indicating the
high and low closing prices of our common stock as reported on the Nasdaq
National Market for the periods indicated. Factors such as the following may
have a significant impact on the market price of our common stock in the
future:

     o  our expenses and operating results;

     o  announcements by us or our competitors of technological developments,
        new product applications or license arrangements; and

     o  other factors affecting the flat panel display and related industries
        in general.


                                       28


The issuance of additional shares of our common stock could drive down the
price of our stock.

   The price of our common stock can be expected to decrease if:

     o  other shares of our common stock that are currently subject to
        restriction on sale become freely salable, whether through an
        effective registration statement or based on Rule 144 under the
        Securities Act of 1933; or

     o  we issue additional shares of our common stock that might be or become
        freely salable, including shares that would be issued upon conversion
        of our preferred stock or the exercise of outstanding warrants and
        options.

Our past use of Arthur Andersen LLP as our independent auditor limits the
ability of shareholders to seek potential recoveries from them related to
their work.

   On July 30, 2002, we announced that we had appointed KPMG LLP to replace
Arthur Andersen LLP (Arthur Andersen) as our independent public auditor. Our
consolidated financial statements as of and for each of the years ended
December 31, 1999 through 2001 were audited by Arthur Andersen. After
reasonable efforts, we were unable to obtain Arthur Andersen's consent to the
incorporation by reference into this document of its report with respect to
our financial statements. Under these circumstances, Rule 437a under the
Securities Act of 1933 allowed us to file this document without a written
consent from Arthur Andersen.

   The absence of this consent may limit recovery on certain claims by
investors in our common stock on certain claims. In particular, and without
limitation, investors will not be able to assert claims against Arthur
Andersen under Section 11 of the Securities Act of 1933. In addition, the
ability of Arthur Andersen to satisfy any claims (including claims arising
from Arthur Andersen's provision of auditing and other services to us) will be
limited as a practical matter due to events regarding Arthur Andersen. This
means that if an investor in our common stock were to assert a claim under
Section 11 of the Securities Act relating to its investment, that investor
would not be able to seek damages from Arthur Andersen. Thus, as compared to a
hypothetical investor in the stock of another company whose inclusion of
financial statements in its annual report was consented to by that company's
independent auditor, an investor in our common stock would have fewer
alternatives in seeking damages relating to its investment.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We do not utilize financial instruments for trading purposes and hold no
derivative financial instruments, other financial instruments or derivative
commodity instruments that could expose us to significant market risk. Our
primary market risk exposure with regard to financial instruments is to
changes in interest rates, which would impact interest income earned on
investments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   Our consolidated financial statements and the relevant notes to those
statements are attached to this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   None.

ITEM 9A. CONTROLS AND PROCEDURES

   Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that
our disclosure controls and procedures, as of the end of the period covered by
this report, are functioning effectively to provide reasonable assurance that
information required to be disclosed by us in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.


                                       29


   There have been no changes in our internal control over financial reporting
that occurred during our last fiscal quarter and that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Information with respect to this item is set forth in our definitive Proxy
Statement (the Proxy Statement) to be filed with the SEC for our Annual
Meeting of Shareholders to be held on June 16, 2004, under the headings
"Nominees for Election as Directors," "Compliance with Section 16(a) of the
Exchange Act" and "Code of Ethics," and is incorporated herein by reference.
Information regarding our executive officers is included at the end of Part I
of this report.

ITEM 11. EXECUTIVE COMPENSATION

   Information with respect to this item is set forth in our Proxy Statement
under the heading "Executive Management Compensation," and is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Information with respect to the ownership of our securities by certain
persons is set forth in our Proxy Statement under the headings "Principal
Shareholders" and "Equity Compensation Plans," and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Information with respect to transactions with our managers and other related
parties is set forth in our Proxy Statement under the heading "Certain
Transactions," and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

   Information with respect to principal accounting fees and services is set
forth in our Proxy Statement under the heading "Information Regarding
Independent Public Accountants," and is incorporated herein by reference.


                                       30


                                    PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a) The following documents are filed as part of this report:

   (1) Financial Statements:


      Independent Auditors' Report. .................................   F-2

      Consolidated Balance Sheets ...................................   F-4

      Consolidated Statements of Operations .........................   F-5

      Consolidated Statements of Shareholders' Equity (Deficit) .....   F-6

      Consolidated Statements of Cash Flows .........................   F-9

      Notes to Consolidated Financial Statements ....................   F-10


   (2) Financial Statement Schedules:

      None.

   (3) Exhibits:

   The following is a list of the exhibits filed as part of this report. Where
so indicated by footnote, exhibits that were previously filed are incorporated
by reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filing is indicated parenthetically, together with a
reference to the filing indicated by footnote.



Exhibit
Number                                                               Description
- ------                                                               -----------
               
3.1*              Amended and Restated Articles of Incorporation of the Company
3.2*              Bylaws of the Company
4.1               Certificate of Designations for Series B Convertible Preferred Stock (8)
4.2               Amended and Restated Warrant of First Investors Holding, Co., as assignee from Strong River Investments, Inc., to
                  purchase 78,740 shares of common stock, dated as of August 22, 2001 (7)
4.3               Amended and Restated Warrant of Pine Ridge Financial Inc. to purchase 78,740 shares of common stock, dated as of
                  August 22, 2001 (7)
4.4               Amended and Restated Warrant of First Investors Holding, Co., as assignee from Strong River Investments, Inc., to
                  purchase 78,740 shares of common stock, dated as of August 22, 2001 (7)
4.5               Amended and Restated Warrant of Pine Ridge Financial Inc. to purchase 78,740 shares of common stock, dated as of
                  August 22, 2001 (7)
4.6               Amended and Restated Warrant of First Investors Holding, Co., as assignee from Strong River Investments, Inc., to
                  purchase 214,746 shares of common stock, dated as of August 22, 2001 (7)
4.7               Amended and Restated Warrant of Pine Ridge Financial Inc. to purchase 214,746 shares of common stock, dated as of
                  August 22, 2001 (7)
4.8               Warrant of Midtown Holdings, LLC, as assignee from Gerard Klauer Mattison & Co., Inc., to purchase 186,114 shares
                  of common stock, dated as of August 22, 2001 (6)
4.9               Warrant of SG Cowen Securities Corporation to purchase 50,313 shares of common stock, dated as of August 28, 2003
                  (12)
10.1#             Warrant Agreement dated as of April 25, 1996 between the registrant and Sherwin Seligsohn (1)
10.2#             Warrant Agreement dated as of April 25, 1996 between the registrant and Steven V. Abramson (1)
10.3#             Warrant Agreement dated as of April 25, 1996 between the registrant and Sidney D. Rosenblatt (1)




                                       31





Exhibit
Number                                                               Description
- ------                                                               -----------
               
10.4#             Warrant Agreement dated as of April 18, 2000 between the registrant and Julia J. Brown (5)
10.5*#            Amendment No. 1 to Warrant Agreement between the registrant and Julia J. Brown, dated as of April 18, 2000
10.6#             Change in Control Agreement dated as of April 28, 2003, between the registrant and Sherwin I. Seligsohn (10)
10.7#             Change in Control Agreement dated as of April 28, 2003, between the registrant and Steven V. Abramson (10)
10.8#             Change in Control Agreement dated as of April 28, 2003, between the registrant and Sidney D. Rosenblatt (10)
10.9#             Change in Control Agreement dated as of April 28, 2003, between the registrant and Julia J. Brown (10)
10.10             Stock Option Plan dated as of September 1, 1995 (3)
10.11             Amended and Restated Stock Option Plan (renamed the Equity Compensation Plan), dated as of April 24, 2003 (10)
10.12             1997 Research Agreement between the registrant and The Trustees of Princeton University (2)
10.13             Amendment #1 to the 1997 Research Agreement between the registrant and the Trustees of Princeton University,
                  dated as of November 14, 2000 (13)
10.14             Amendment #2 to the 1997 Research Agreement between the registrant and the Trustees of Princeton University,
                  dated as of April 11, 2002 (13)
10.15             1997 Amended License Agreement among the registrant, The Trustees of Princeton University and the University of
                  Southern California (2)
10.16             Amendment #1 to the Amended License Agreement among the registrant, the Trustees of Princeton University and the
                  University of Southern California, dated as of August 7, 2003 (13)
10.17             Termination, Amendment and License Agreement by and among the registrant, PD-LD, Inc., Dr. Vladimir S. Ban, and
                  The Trustees of Princeton University dated as of July 19, 2000 (8)
10.18             Development and License Agreement dated as of October 1, 2000, between the registrant and PPG Industries, Inc.
                  (4)
10.19             Form of Warrant Agreement issuable by the registrant to PPG Industries, Inc. pursuant to the Development and
                  License Agreement (4)
10.20             Amendment Number 1 to the Development and License Agreement between the registrant and PPG Industries, Inc.,
                  dated as of March 7, 2001 (4)
10.21             Amendment Number 2 to the Development and License Agreement between the registrant and PPG Industries, Inc.,
                  dated as of October 15, 2002 (9)
10.22             Amendment Number 3 to the Development and License Agreement between the registrant and PPG Industries, Inc.,
                  dated as of January 21, 2003 (9)
10.23             Amendment Number 4 to the Development and License Agreement between the registrant and PPG Industries, Inc.,
                  dated as of April 11, 2003 (11)
10.24             License Agreement between the registrant and Motorola, Inc., dated as of September 29, 2000 (8)
10.25             Lease Agreement between the registrant and Gesipa Real Estate Partners, dated as of October 12, 1998 (13)
10.26             First Amendment of Lease Agreement between the registrant and Gesipa Real Estate Partners, dated as of January
                  11, 2001 (13)
10.27             Second Amendment of Lease Agreement between the registrant and Gesipa Real Estate Partners, dated as of September
                  22, 2003 (13)
21*               Subsidiaries of the Registrant
23.1*             Consent of KPMG LLP
31.1*             Certifications of Sherwin I. Seligsohn, Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)




                                       32





Exhibit
Number                                                               Description
- ------                                                               -----------
               
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.)
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.)


- ---------------
Explanation of Footnotes to Listing of Exhibits:
*   Filed herewith.
**  Furnished herewith.
#   Management contract or compensatory plan or arrangement.

(1)  Filed as an Exhibit to the Annual Report on Form 10K-SB for the year
     ended December 31, 1996, filed with the SEC on March 31, 1997.

(2)  Filed as an Exhibit to the Annual Report on Form 10K-SB for the year
     ended December 31, 1997, filed with the SEC on March 31, 1998.

(3)  Filed as an Exhibit to Registration Statement (No. 333-92649) on Form S-8
     filed with the SEC on December 13, 1999.

(4)  Filed as an Exhibit to Amendment No. 1 to Registration Statement (No.
     333-50990) on Form S-3 filed with the SEC on March 7, 2001.

(5)  Filed as an Exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 2000, filed with the SEC on March 29, 2001.

(6)  Filed as an Exhibit to the Current Report on Form 8-K filed with the SEC
     on September 6, 2001.

(7)  Filed as an Exhibit to Registration Statement (No. 333-72846) on Form S-3
     filed with the SEC on November 6, 2001.

(8)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter
     ended September 30, 2000, filed with the SEC on November 20, 2001.

(9)  Filed as an Exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 2002, filed with the SEC on March 31, 2003.

(10) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter
     ended March 31, 2003, filed with the SEC on May 13, 2003.

(11) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter
     ended June 30, 2003, filed with the SEC on August 13, 2003.

(12) Filed as an Exhibit to the Current Report on Form 8-K filed with the SEC
     on August 25, 2003.

(13) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter
     ended September 30, 2003, filed with the SEC on November 10, 2003.

Note: Any of the exhibits listed in the foregoing index not included with this
report may be obtained, without charge, by writing to Mr. Sidney D.
Rosenblatt, Corporate Secretary, Universal Display Corporation, 375 Phillips
Boulevard, Ewing, New Jersey 08618.

   (b) No reports were filed on Form 8-K during the fiscal quarter ended
December 31, 2003. On November 12, 2003, we furnished to the SEC a report on
Form 8-K reporting under Item 12 that we had issued a press release

                                       33


announcing our financial results for the quarter ended September 30, 2003, and
attached that press release as an exhibit to the report.

   (c) The exhibits required to be filed by us with this report are listed
above and are incorporated in this report by reference.

   (d) The financial statement schedules required to be filed by us with this
report are listed above and are incorporated in this report by reference.


                                       34


                                   SIGNATURES


   Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, Universal Display Corporation has duly caused this
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized:


                           UNIVERSAL DISPLAY CORPORATION

                           By: /s/ Sidney D. Rosenblatt
                             -----------------------------------------
                             Sidney D. Rosenblatt
                             Executive Vice President, Chief Financial
                             Officer,
                             Treasurer and Secretary
                           Date: March 1, 2004
                               -

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.




         Name                            Title                          Date
         ----                            -----                          ----
                                                                

/s/ Sherwin I. Seligsohn    Chairman of Board and Chief Executive     March 1, 2004
 -----------------------    Officer
 Sherwin I. Seligsohn


/s/ Steven V. Abramson      President, Chief Operating Officer and    March 1, 2004
 -----------------------    Director
  Steven V. Abramson

/s/ Sidney D. Rosenblatt    Executive Vice President, Chief           March 1, 2004
 -----------------------    Financial Officer,
 Sidney D. Rosenblatt       Treasurer, Secretary and Director

/s/ Leonard Becker          Director                                  March 1, 2004
 -----------------------
Leonard Becker

/s/ Elizabeth H. Gemmill    Director                                  March 1, 2004
 -----------------------
 Elizabeth H. Gemmill

/s/ C. Keith Hartley        Director                                  March 1, 2004
 -----------------------
C. Keith Hartley

/s/ Lawrence Lacerte       Director                                   March 1, 2004
 --------------------
   Lawrence Lacerte




                                       35


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Financial Statements:

 Reports of Independent Auditors ...................................    F-2

 Consolidated Balance Sheets .......................................    F-4

 Consolidated Statements of Operations .............................    F-5

 Consolidated Statements of Shareholders' Equity (Deficit) .........    F-6

 Consolidated Statements of Cash Flows .............................    F-9

 Notes to Consolidated Financial Statements ........................   F-10



                                      F-1


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Universal Display Corporation:

We have audited the accompanying consolidated balance sheets of Universal
Display Corporation and subsidiary (a development stage company) as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the years then
ended, and for the period from June 17, 1994 (inception) through December 31,
2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
financial statements of Universal Display Corporation and subsidiary as of
December 31, 2001 and for the year ended December 31, 2001, and for the period
from June 17, 1994 (inception) through December 31, 2003 to the extent related
to the period from June 17, 1994 (inception) through December 31, 2001, were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those consolidated financial statements in their
report dated March 5, 2002. Our opinion on the consolidated statements of
operations, shareholders' equity (deficit) and cash flows, insofar as it
relates to the amounts included for the period from June 17, 1994 (inception)
through December 31, 2001, is based solely on the report of the other
auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
2003 and 2002 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Universal Display
Corporation and subsidiary (a development stage company) as of December 31,
2003 and 2002, and the results of their operations and their cash flows for
the years then ended, and for the period from June 17, 1994 (inception)
through December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

                                     /s/ KPMG LLP

Philadelphia, Pennsylvania
February 24, 2004


                                      F-2


The following report is a copy of a previously issued Arthur Andersen LLP
("Andersen") report, and the report has not been reissued by Andersen. The
Andersen report refers to the consolidated balance sheets as of December 31,
2001 and 2000 and the consolidated statements of operations, cash flows and
shareholders' equity (deficit) for the years ended December 31, 2000 and 1999,
which are no longer included in the accompanying consolidated financial
statements.

To Universal Display Corporation:

We have audited the accompanying consolidated balance sheets of Universal
Display Corporation (a Pennsylvania corporation in the development-stage) and
subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 2001 and for the
period from inception (June 17, 1994) to December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Universal
Display Corporation and subsidiary as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 and for the period from inception (June
17, 1994) to December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

                                     /s/ ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania
March 5, 2002


                                      F-3


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)

                          CONSOLIDATED BALANCE SHEETS





                                                     December 31,   December 31,
                                                         2003           2002
                                                     ------------   ------------
                                                              
                      ASSETS
CURRENT ASSETS:
 Cash and cash equivalents ......................    $ 14,070,207   $ 15,905,416
 Short-term investments .........................      12,811,704      4,662,898
 Accounts receivable ............................         805,602        662,822
 Inventory ......................................          33,044             --
 Other current assets ...........................         153,924        177,219
                                                     ------------   ------------
   Total current assets..........................      27,874,481     21,408,355
PROPERTY AND EQUIPMENT, net .....................       3,532,115      4,617,570
ACQUIRED TECHNOLOGY, net ........................      11,404,703     13,099,775
INVESTMENTS .....................................       3,255,574        379,753
OTHER ASSETS ....................................         134,773        133,763
                                                     ------------   ------------
                                                     $ 46,201,646   $ 39,639,216
                                                     ============   ============
       LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Capital lease obligations ......................    $      3,886   $      4,713
 Accounts payable ...............................         436,809        388,286
 Accrued expenses ...............................       2,020,210      1,084,889
 Deferred license fees ..........................       1,266,667      1,066,667
 Deferred revenue ...............................         467,204        322,204
                                                     ------------   ------------
   Total current liabilities.....................       4,194,776      2,866,759
CAPITAL LEASE OBLIGATIONS .......................              --          3,886
DEFERRED LICENSE FEES ...........................       3,100,000      3,100,000
                                                     ------------   ------------
                                                        7,294,776      5,970,645
COMMITMENTS (Note 13) ...........................              --             --
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share,
  5,000,000 shares authorized, 200,000 shares of
  Series A Nonconvertible Preferred Stock issued
  and outstanding (liquidation value of $7.50 per
  share or $1,500,000), 300,000 shares of Series
  B Convertible Preferred Stock issued and
  outstanding (liquidation value of $21.48 per
  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 $0.01 per share,
  50,000,000 shares authorized, 24,196,765 and
  21,525,412 shares issued and outstanding.......         241,968        215,254
Additional paid-in-capital ......................     137,160,751    113,541,408
Accumulated other comprehensive loss ............         (38,837)       (18,586)
Deficit accumulated during development-stage ....     (98,462,012)   (80,074,505)
                                                     ------------   ------------
   Total shareholders' equity....................      38,906,870     33,668,571
                                                     ------------   ------------
                                                     $ 46,201,646   $ 39,639,216
                                                     ============   ============



The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-4


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)


                     CONSOLIDATED STATEMENTS OF OPERATIONS




                                                                                                                     Period from
                                                                                                                      Inception
                                                                             Year Ended December 31,             (June 17, 1994) to
                                                                   -------------------------------------------      December 31,
                                                                      2003            2002            2001              2003
                                                                  ------------    ------------    ------------   ------------------
                                                                                                     
REVENUE:
 Contract research revenue ....................................   $  1,420,984    $  1,468,958    $  1,058,571      $  5,423,204
 Development chemicals ........................................      2,295,009         833,194         194,330         3,322,533
 Commercial chemicals .........................................         68,160              --              --            68,160
 License fees .................................................        159,040              --              --           159,040
 Technology development revenue ...............................      2,650,000         182,796              --         2,832,796
                                                                  ------------    ------------    ------------      ------------
   Total revenue...............................................      6,593,193       2,484,948       1,252,901        11,805,733
                                                                  ------------    ------------    ------------      ------------
OPERATING EXPENSES:
 Cost of chemicals sold .......................................        110,503          39,676              --           150,179
 Research and development .....................................     17,897,522      15,804,267      12,310,036        65,127,040
 General and administrative ...................................      5,766,761       4,754,850       3,915,854        26,110,908
 Royalty expense ..............................................        350,000         250,000          75,000           675,000
                                                                  ------------    ------------    ------------      ------------
   Total operating expenses....................................     24,124,786      20,848,793      16,300,890        92,063,127
                                                                  ------------    ------------    ------------      ------------
   Operating loss..............................................    (17,531,593)    (18,363,845)    (15,047,989)      (80,257,394)
                                                                  ------------    ------------    ------------      ------------
INTEREST INCOME ...............................................        162,356         429,356         540,031         2,217,321
INTEREST EXPENSE ..............................................             --      (3,298,589)     (1,848,142)       (5,146,731)
DEBT CONVERSION AND
EXTINGUISHMENT EXPENSE ........................................             --     (10,011,780)             --       (10,011,780)
OTHER REVENUE .................................................         16,032         225,657              --           241,689
                                                                  ------------    ------------    ------------      ------------
NET LOSS ......................................................    (17,353,205)    (31,019,201)    (16,356,100)      (92,956,895)
                                                                  ------------    ------------    ------------      ------------
DEEMED DIVIDENDS TO PREFERRED
SHAREHOLDERS (Notes 9 and 11) .................................     (1,034,302)     (1,953,479)     (2,517,336)       (5,505,117)
                                                                  ------------    ------------    ------------      ------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ..................   $(18,387,507)   $(32,972,680)   $(18,873,436)     $(98,462,012)
                                                                  ============    ============    ============      ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE ..................................................   $      (0.82)   $      (1.71)   $      (1.11)
                                                                  ============    ============    ============
WEIGHTED AVERAGE SHARES USED IN COMPUTING BASIC AND DILUTED
NET LOSS PER COMMON SHARE .....................................     22,428,219      19,227,697      16,994,537
                                                                  ============    ============    ============





The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-5


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)


           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)




                                                             Series A            Series B           Series C          Series C-1
                                                          Nonconvertible       Convertible         Convertible        Convertible
                                                         Preferred Stock     Preferred Stock     Preferred Stock    Preferred Stock
                                                         ----------------    ----------------    ---------------    ---------------
                                                         Shares    Amount    Shares    Amount   Shares    Amount    Shares   Amount
                                                        -------    ------   -------    ------   ------    ------    ------   ------
                                                                                                     
BALANCE, INCEPTION (JUNE 17, 1994) ..................        --    $   --        --    $   --       --     $ --         --    $ --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 1994 ..........................        --        --        --        --       --       --         --      --
 Recapitalization by issuance of Common Stock to
  Enzymatics, Inc....................................        --        --        --        --       --       --         --      --
 Issuance of Common Stock options to former sole
  director of Enzymatics, Inc. to satisfy an
  Enyzmatics, Inc. liability.........................        --        --        --        --       --       --         --      --
 Issuance of Series A Nonconvertible Preferred Stock
  in connection with assignment of research and
  license agreements.................................   200,000     2,000        --        --       --       --         --      --
 Issuance of Common Stock through Private Placement,
  net of expenses of $50,000.........................        --        --        --        --       --       --         --      --
 Issuance of Common Stock options ...................        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 1995 ..........................   200,000     2,000        --        --       --       --         --      --
 Issuance of Common Stock in Initial Public Offering
  on April 11, 1996..................................        --        --        --        --       --       --         --      --
 Issuance of Common Stock warrants ..................        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 1996 ..........................   200,000     2,000        --        --       --       --         --      --
 Exercise of private placement warrants .............        --        --        --        --       --       --         --      --
 Issuance of Common Stock warrants ..................        --        --        --        --       --       --         --      --
 Issuance of Common Stock options ...................        --        --        --        --       --       --         --      --
 Issuance of Common Stock and warrants in connection
  with 1997 Sponsored Research Agreement.............        --        --        --        --       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 1997 ..........................   200,000     2,000        --        --       --       --         --      --
 Exercise of private placement warrants .............        --        --        --        --       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Issuance of Common Stock warrants ..................        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 1998 ..........................   200,000     2,000        --        --       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Issuance of Common Stock through private placement,
  net of issuance expenses of $488,220...............        --        --        --        --       --       --         --      --
 Issuance of Common Stock for purchase of equipment .        --        --        --        --       --       --         --      --
 Issuance of Common Stock in connection with the
  executive employee bonus...........................        --        --        --        --       --       --         --      --
 Issuance of Common Stock options to non-employees ..        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 1999 ..........................   200,000     2,000        --        --       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Issuance of Common Stock through private placement,
  net of issuance expenses of $311,313...............        --        --        --        --       --       --         --      --
 Issuance of Common Stock for purchase of equipment .        --        --        --        --       --       --         --      --
 Issuance of Common Stock options to non-employees ..        --        --        --        --       --       --         --      --
 Issuance of Redeemable Common Stock, options and
  warrants in connection with the Development
  Agreements.........................................        --        --        --        --       --       --         --      --
 Issuance of Common Stock, Preferred Stock Series B,
  and warrants in connection with the purchase of
  intangibles........................................        --        --   300,000     3,000       --       --         --      --
 Issuance of Common Stock options and warrants to
  Scientific Advisory Board..........................        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 2000 ..........................   200,000     2,000   300,000     3,000       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Issuance of Convertible Preferred Stock and
  warrants through private placement, net of expenses
  of $863,021........................................        --        --        --        --    5,000       50         --      --
 Exchange of Series C to Series C-1 (Note10) ........        --        --        --        --   (5,000)     (50)     5,000      50
 Issuance of Common Stock upon conversion of
  Convertible Preferred Stock........................        --        --        --        --       --       --     (5,000)    (50)
 Deemed dividends to Preferred Shareholders .........        --        --        --        --       --       --         --      --
 Issuance of Common Stock and warrants through
  private placement..................................        --        --        --        --       --       --         --      --
 Issuance of Common Stock for purchase of equipment .        --        --        --        --       --       --         --      --
 Issuance of Common Stock options to non-employees ..        --        --        --        --       --       --         --      --
 Issuance of Common Stock, options and warrants in
  connection with the Development Agreements.........        --        --        --        --       --       --         --      --
 Issuance of Common Stock options and warrants to
  Scientific Advisory Board..........................        --        --        --        --       --       --         --      --
 Unrealized loss on available-for-sale securities ...        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
 Comprehensive loss .................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 2001 ..........................   200,000     2,000   300,000     3,000       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Issuance of Common Stock through direct offerings,
  net of expenses of $519,288........................        --        --        --        --       --       --         --      --
 Reduction of conversion price of convertible notes .        --        --        --        --       --       --         --      --
 Deemed dividends to Preferred Shareholders .........        --        --        --        --       --       --         --      --
 Issuance of Common Stock in connection with the
  executive employee bonus...........................        --        --        --        --       --       --         --      --
 Issuance of Common Stock options to non-employees ..        --        --        --        --       --       --         --      --
 Issuance of Common Stock, options and warrants in
  connection with the Development Agreements.........        --        --        --        --       --       --         --      --
 Issuance of Common Stock upon conversion of
  Convertible Notes..................................        --        --        --        --       --       --         --      --
 Issuance of Common Stock in connection with License
  Agreement..........................................        --        --        --        --       --       --         --      --
 Unrealized loss on available-for-sale securities ...        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
 Comprehensive loss .................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 2002 ..........................   200,000     2,000   300,000     3,000       --       --         --      --
 Exercise of Common Stock options and warrants ......        --        --        --        --       --       --         --      --
 Issuance of Common Stock through direct offerings,
  net of expenses of $1,270,643......................        --        --        --        --       --       --         --      --
 Deemed dividends to Preferred Shareholders .........        --        --        --        --       --       --         --      --
 Issuance of Common Stock to employees ..............        --        --        --        --       --       --         --      --
 Issuance of Common Stock and options to non-
  employees..........................................        --        --        --        --       --       --         --      --
 Issuance of Common Stock, options and warrants in
  connection with the Development Agreements.........        --        --        --        --       --       --         --      --
 Unrealized loss on available-for-sale securities ...        --        --        --        --       --       --         --      --
 Net loss ...........................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
 Comprehensive loss .................................        --        --        --        --       --       --         --      --
                                                        -------    ------   -------    ------   ------     ----     ------    ----
BALANCE, DECEMBER 31, 2003 ..........................   200,000    $2,000   300,000    $3,000       --     $ --         --    $ --
                                                        =======    ======   =======    ======   ======     ====     ======    ====



The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-6


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)





                                                                               Series D
                                                                             Convertible
                                                                           Preferred Stock         Common Stock         Additional
                                                                           ---------------     ---------------------      Paid-in
                                                                           Shares   Amount      Capital      Amount       Capital
                                                                           ------   ------    ----------    --------   ------------
                                                                                                        
BALANCE, INCEPTION (JUNE 17, 1994).....................................        --    $ --      6,000,000    $  6,000   $         --
 Net loss..............................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 1994.............................................        --      --      6,000,000       6,000             --
 Recapitalization by issuance of Common Stock to Enzymatics, Inc.......        --      --        523,268      59,233       (243,393)
 Issuance of Common Stock options to former sole director of
  Enzymatics, Inc. to satisfy an Enyzmatics, Inc. liability............        --      --             --          --        140,000
 Issuance of Series A Nonconvertible Preferred Stock in connection with
  assignment of research and license agreements........................        --      --             --          --        348,000
 Issuance of Common Stock through Private Placement, net of expenses of
  $50,000..............................................................        --      --      1,114,000      11,140      2,166,860
 Issuance of Common Stock options......................................        --      --             --          --          9,950
 Net loss..............................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 1995.............................................        --      --      7,637,268      76,373      2,421,417
 Issuance of Common Stock in Initial Public Offering on April 11, 1996.        --      --      1,300,000      13,000      5,492,928
 Issuance of Common Stock warrants.....................................        --      --             --          --         25,000
 Net loss..............................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 1996.............................................        --      --      8,937,268      89,373      7,939,345
 Exercise of private placement warrants................................        --      --      1,124,000      11,240      3,929,560
 Issuance of Common Stock warrants.....................................        --      --             --          --        528,985
 Issuance of Common Stock options......................................        --      --             --          --        216,000
 Issuance of Common Stock and warrants in connection with 1997
  Sponsored Research Agreement.........................................        --      --        200,000       2,000      3,118,329
 Exercise of Common Stock options and warrants.........................        --      --         41,000         410         80,590
 Net loss..............................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 1997.............................................        --      --     10,302,268     103,023     15,812,809
 Exercise of private placement warrants................................        --      --            675           7          2,356
 Exercise of Common Stock options and warrants.........................        --      --         10,000         100          2,800
 Issuance of Common Stock warrants.....................................        --      --             --          --        234,916
 Net loss..............................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 1998.............................................        --      --     10,312,943     103,130     16,052,881
 Exercise of Common Stock options and warrants.........................        --      --      1,687,586      16,876      6,220,104
 Issuance of Common Stock through private placement, net of issuance
  expenses of $488,220.................................................        --      --      1,414,034      14,140      4,778,657
 Issuance of Common Stock for purchase of equipment....................        --      --        100,000       1,000        430,000
 Issuance of Common Stock in connection with the executive employee
  bonus................................................................        --      --        200,000       2,000        421,220
 Issuance of Common Stock options to non-employees.....................        --      --             --          --         83,805
 Net loss                                                                      --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 1999.............................................        --      --     13,714,563     137,146     27,986,667
 Exercise of Common Stock options and warrants.........................        --      --      1,754,353      17,544      6,837,299
 Issuance of Common Stock through private placement, net of issuance
  expenses of $311,313.................................................        --      --        631,527       6,315      5,050,351
 Issuance of Common Stock for purchase of equipment....................        --      --         89,843         898        386,325
 Issuance of Common Stock options to non-employees.....................        --      --             --          --         10,000
 Issuance of Redeemable Common Stock,options and warrants in connection
  with the Development
  Agreements...........................................................        --      --             --          --         92,997
 Issuance of Common Stock, Preferred Stock Series B, and warrants in
  connection with the purchase of
  intangibles..........................................................        --      --        250,000       2,500     16,919,468
 Issuance of Common Stock options and warrants to Scientific Advisory
  Board................................................................        --      --             --          --        602,683
 Net loss..............................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 2000.............................................        --      --     16,440,286     164,403     57,885,790
 Exercise of Common Stock options and warrants.........................        --      --        271,431       2,714      1,124,796
 Issuance of Convertible Preferred Stock and warrants through private
  placement, net of expenses of $863,021...............................     5,000      50             --          --      9,136,979
 Exchange of Series C to Series C-1 (Note 10)..........................        --      --             --          --             --
 Issuance of Common Stock upon conversion of Convertible Preferred
  Stock................................................................    (5,000)    (50)     1,064,804      10,648        (10,548)
 Deemed dividends to Preferred Shareholders............................        --      --             --          --     10,918,798
 Issuance of Common Stock and warrants through private placement.......        --      --        158,704       1,587      1,347,397
 Issuance of Common Stock for purchase of equipment....................        --      --         10,157         101         43,675
 Issuance of Common Stock options to non-employees.....................        --      --            750           8        388,313
 Issuance of Common Stock, options and warrants in connection with the
  Development Agreements...............................................        --      --        146,992       1,470      2,836,715
 Issuance of Common Stock options and warrants to Scientific Advisory
  Board................................................................        --      --             --          --      1,344,686
 Unrealized loss on available-for-sale securities......................        --      --             --          --             --
 Net loss..............................................................        --      --             --          --             --
 Comprehensive loss....................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 2001.............................................        --      --     18,093,124     180,931     85,016,601
 Exercise of Common Stock options and warrants.........................        --      --         22,533         225        104,007
 Issuance of Common Stock through direct offerings, net of expenses of
  $519,288.............................................................        --      --      1,660,466      16,605      8,038,581
 Reduction of conversion price of convertible notes....................        --      --             --          --      7,441,547
 Deemed dividends to Preferred Shareholders............................        --      --             --          --      1,953,479
 Issuance of Common Stock in connection with the executive employee
  bonus................................................................        --      --          2,000          20         16,130
 Issuance of Common Stock options to non-employees.....................        --      --             --          --        461,899
 Issuance of Common Stock, options and warrants in connection with the
  Development Agreements...............................................        --      --        364,043       3,641      5,380,019
 Issuance of Common Stock upon conversion of Convertible Notes.........        --      --      1,375,246      13,752      5,057,409
 Issuance of Common Stock in connection with License Agreement.........        --      --          8,000          80         71,736
 Unrealized loss on available-for-sale securities......................        --      --             --          --             --
 Net loss..............................................................        --      --             --          --             --
 Comprehensive loss....................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 2002.............................................        --      --     21,525,412     215,254    113,541,408
 Exercise of Common Stock options and warrants.........................        --      --        317,302       3,173      1,197,879
 Issuance of Common Stock through direct offerings, net of expenses of
  $1,270,643...........................................................        --      --      2,012,500      20,125     14,809,232
 Deemed dividends to Preferred Shareholders............................        --      --             --          --      1,034,302
 Issuance of Common Stock to employees.................................        --      --         19,141         191        261,330
 Issuance of Common Stock and options to non-employees.................        --      --             50           1         83,912
 Issuance of Common Stock, options and warrants in connection with the
  Development Agreements...............................................        --      --        322,360       3,224      6,232,688
 Unrealized loss on available-for-sale securities......................        --      --             --          --
 Net loss..............................................................        --      --             --          --             --
 Comprehensive loss....................................................        --      --             --          --             --
                                                                           ------    ----     ----------    --------   ------------
BALANCE, DECEMBER 31, 2003.............................................        --    $ --     24,196,765    $241,968   $137,160,751
                                                                           ======    ====     ==========    ========   ============


The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-7


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)




                                                                                       Deficit
                                                                                     Accumulated     Accumulated
                                                                                       During           Other
                                                                                     Development    Comprehensive        Total
                                                                                        Stage           Loss        Equity/(Deficit
                                                                                    ------------    -------------   ---------------
                                                                                                           
BALANCE, INCEPTION (JUNE 17, 1994)..............................................    $         --      $     --        $      6,000
 Net loss.......................................................................         (11,121)           --             (11,121)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 1994......................................................         (11,121)           --              (5,121)
 Recapitalization by issuance of Common Stock to Enzymatics, Inc................              --            --            (184,160)
 Issuance of Common Stock options to former sole director of Enzymatics, Inc. to
  satisfy an Enyzmatics, Inc. liability.........................................              --            --             140,000
 Issuance of Series A Nonconvertible Preferred Stock in connection with
  assignment of research and license agreements.................................              --            --             350,000
 Issuance of Common Stock through Private Placement, net of expenses of $50,000.              --            --           2,178,000
 Issuance of Common Stock options...............................................              --            --               9,950
 Net loss.......................................................................      (3,072,661)           --          (3,072,661)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 1995......................................................      (3,083,782)           --            (583,992)
 Issuance of Common Stock in Initial Public Offering on April 11, 1996..........              --            --           5,505,928
 Issuance of Common Stock warrants..............................................              --            --              25,000
 Net loss.......................................................................      (1,768,995)           --          (1,768,995)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 1996......................................................      (4,852,777)           --           3,177,941
 Exercise of private placement warrants.........................................              --            --           3,940,800
 Issuance of Common Stock warrants..............................................              --            --             528,985
 Issuance of Common Stock options...............................................              --            --             216,000
 Issuance of Common Stock and warrants in connection with 1997 Sponsored
  Research Agreement............................................................              --            --           3,120,329
 Exercise of Common Stock options and warrants..................................              --            --              81,000
 Net loss.......................................................................      (5,927,718)           --          (5,927,718)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 1997......................................................     (10,780,495)           --           5,137,337
 Exercise of private placement warrants.........................................              --            --               2,363
 Exercise of Common Stock options and warrants..................................              --            --               2,900
 Issuance of Common Stock warrants..............................................              --            --             234,916
 Net loss.......................................................................      (2,793,842)           --          (2,793,842)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 1998......................................................     (13,574,337)           --           2,583,674
 Exercise of Common Stock options and warrants..................................              --            --           6,236,980
 Issuance of Common Stock through private placement, net of issuance expenses of
  $488,220......................................................................              --            --           4,792,797
 Issuance of Common Stock for purchase of equipment.............................              --            --             431,000
 Issuance of Common Stock in connection with the executive employee bonus.......              --            --             423,220
 Issuance of Common Stock options to non-employees..............................              --            --              83,805
 Net loss.......................................................................      (5,125,006)           --          (5,125,006)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 1999......................................................     (18,699,343)           --           9,426,470
 Exercise of Common Stock options and warrants..................................              --            --           6,854,843
 Issuance of Common Stock through private placement, net of issuance expenses of
  $311,313......................................................................              --            --           5,056,666
 Issuance of Common Stock for purchase of equipment.............................              --            --             387,223
 Issuance of Common Stock options to non-employees..............................              --            --              10,000
 Issuance of Redeemable Common Stock, options and warrants in connection with
  the Development Agreements....................................................              --            --              92,997
 Issuance of Common Stock, Preferred Stock Series B, and warrants in connection
  with the purchase of intangibles..............................................              --            --          16,924,968
 Issuance of Common Stock options and warrants to Scientific Advisory Board.....              --            --             602,683
 Net loss.......................................................................      (9,529,046)           --          (9,529,046)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 2000......................................................     (28,228,389)           --          29,826,804
 Exercise of Common Stock options and warrants..................................              --            --           1,127,510
 Issuance of Convertible Preferred Stock and warrants through private placement,
  net of expenses of $863,021...................................................              --            --           9,137,079
 Exchange of Series C to Series C-1 (Note 10)...................................              --            --                  --
 Issuance of Common Stock upon conversion of Convertible Preferred Stock........              --            --                  --
 Deemed dividends to Preferred Shareholders.....................................      (2,517,336)           --           8,401,462
 Issuance of Common Stock and warrants through private placement................              --            --           1,348,984
 Issuance of Common Stock for purchase of equipment.............................              --            --              43,776
 Issuance of Common Stock options to non-employees..............................              --            --             388,321
 Issuance of Common Stock, options and warrants in connection with the
  Development Agreements........................................................              --            --           2,838,185
 Issuance of Common Stock options and warrants to Scientific Advisory Board.....              --            --           1,344,686
 Unrealized loss on available-for-sale securities...............................              --        (3,925)             (3,925)
 Net loss.......................................................................     (16,356,100)           --         (16,356,100)
 Comprehensive loss.............................................................              --            --         (16,360,025)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 2001......................................................     (47,101,825)       (3,925)         38,096,782
 Exercise of Common Stock options and warrants..................................              --            --             104,232
 Issuance of Common Stock through direct offerings, net of expenses of $519,288.              --            --           8,055,186
 Reduction of conversion price of convertible notes.............................              --            --           7,441,547
 Deemed dividends to Preferred Shareholders.....................................      (1,953,479)           --                  --
 Issuance of Common Stock in connection with the executive employee bonus.......              --            --              16,150
 Issuance of Common Stock options to non-employees..............................              --            --             461,899
 Issuance of Common Stock, options and warrants in connection with the
  Development Agreements........................................................              --            --           5,383,660
 Issuance of Common Stock upon conversion of Convertible Notes..................              --            --           5,071,161
 Issuance of Common Stock in connection with License Agreement..................              --            --              71,816
 Unrealized loss on available-for-sale securities...............................              --       (14,661)            (14,661)
 Net loss.......................................................................     (31,019,201)           --         (31,019,201)
                                                                                    ------------      --------        ------------
 Comprehensive loss.............................................................              --            --         (31,033,862)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 2002......................................................     (80,074,505)      (18,586)         33,668,571
 Exercise of Common Stock options and warrants..................................              --            --           1,201,052
 Issuance of Common Stock through direct offerings, net of expenses of
  $1,270,643....................................................................              --            --          14,829,357
 Deemed dividends to Preferred Shareholders.....................................      (1,034,302)           --                  --
 Issuance of Common Stock to employees..........................................              --            --             261,521
 Issuance of Common Stock and options to non-employees..........................              --            --              83,913
 Issuance of Common Stock, options and warrants in connection with the
  Development Agreements........................................................              --            --           6,235,912
 Unrealized loss on available-for-sale securities...............................              --       (20,251)            (20,251)
 Net loss.......................................................................     (17,353,205)           --         (17,353,205)
                                                                                    ------------      --------        ------------
 Comprehensive loss.............................................................              --            --         (17,373,456)
                                                                                    ------------      --------        ------------
BALANCE, DECEMBER 31, 2003......................................................    $(98,462,012)     $(38,837)       $ 38,906,870
                                                                                    ============      ========        ============



The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-8


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                                                     Period from
                                                                                                                      Inception
                                                                              Year Ended December 31,              (June 17, 1994)
                                                                    -------------------------------------------           to
                                                                       2003            2002            2001       December 31, 2003
                                                                   ------------    ------------    ------------   -----------------
                                                                                                      
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss .......................................................   $(17,353,205)   $(31,019,201)   $(16,356,100)     $(92,956,895)
Non-cash charges to statement of operations:
 Depreciation ..................................................      2,042,783       1,848,552       1,124,644         5,729,863
 Amortization of intangibles ...................................      1,695,072       1,695,072       1,695,072         5,546,015
 Amortization of discounts on Convertible Promissory Notes .....             --      13,044,467       1,689,701        14,734,168
 Amortization of premium on investments ........................         61,090              --              --            61,090
 Issuance of Common Stock to employees .........................        267,593              --              --           267,593
 Issuance of Common Stock options and warrants for
   services.....................................................         77,842         542,568         388,321         1,688,402
 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 Common Stock, options and warrants in
   connection with Development Agreement........................      6,104,581       5,487,515       2,283,182        14,538,389
 Issuance of Common Stock options and warrants for Scientific
   Advisory Board...............................................             --              --       1,344,686         1,947,369
 Issuance of Common Stock in connection with License Agreement .             --          71,816              --            71,816
 Acquired in-process technology ................................             --              --              --           350,000
(Increase) decrease in assets:
   Accounts receivable..........................................       (142,780)       (121,967)       (228,779)         (805,602)
   Inventory....................................................        (33,044)             --              --           (33,044)
   Other current assets.........................................         23,295          97,932        (151,010)          153,924
   Other assets.................................................         (1,010)       (113,638)         17,347          (134,773)
Increase (decrease) in liabilities:
   Accounts payable and accrued expenses........................      1,115,174        (352,402)         40,353         2,448,237
   Deferred license fees........................................        200,000       3,766,667         400,000         4,366,667
   Deferred revenue.............................................        145,000         272,204          50,000           467,204
                                                                   ------------    ------------    ------------      ------------
   Net cash used in operating activities........................     (5,797,609)     (4,764,265)     (7,702,583)      (37,999,878)
                                                                   ------------    ------------    ------------      ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
 Purchases of equipment and leasehold improvements .............       (957,328)     (1,169,945)     (1,746,788)       (8,379,957)
 Purchase of intangibles .......................................             --              --              --           (25,750)
 Purchases of investments ......................................    (19,219,160)     (6,900,698)     (7,099,904)      (52,085,765)
 Proceeds from sale of investments .............................      8,113,192       6,359,585       5,284,000        35,918,560
 Restricted cash ...............................................             --      15,162,414     (15,162,414)               --
                                                                   ------------    ------------    ------------      ------------
 Net cash (used in) provided by investing activities ...........    (12,063,296)     13,451,356     (18,725,106)      (24,572,912)
                                                                   ------------    ------------    ------------      ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
 Net proceeds from issuance of Common Stock ....................     14,829,357       8,055,186       1,348,984        45,861,294
 Proceeds from issuance of Preferred Stock .....................             --              --       9,137,079         9,137,079
 Proceeds from issuance of Convertible Promissory Notes and
   equity instruments...........................................             --              --      15,000,000        15,000,000
 Payments for Convertible Promissory Notes .....................             --      (8,819,997)             --        (8,819,997)
 Proceeds from the exercise of Common Stock options and
   warrants.....................................................      1,201,052         104,232       1,127,510        15,480,756
 Principal payments on capital lease ...........................         (4,713)         (4,228)         (3,792)          (16,135)
                                                                   ------------    ------------    ------------      ------------
 Net cash provided by (used in) financing activities ...........     16,025,696        (664,807)     26,609,781        76,642,997
                                                                   ------------    ------------    ------------      ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...............     (1,835,209)      8,022,284         182,092        14,070,207
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................     15,905,416       7,883,132       7,701,040                --
                                                                   ------------    ------------    ------------      ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................   $ 14,070,207    $ 15,905,416    $  7,883,132      $ 14,070,207
                                                                   ============    ============    ============      ============
 Cash paid for interest ........................................   $         --    $    281,106    $     51,944      $    484,800
                                                                   ============    ============    ============      ============



The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-9


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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") 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 (Note 3).

   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 5). 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 5). 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. In September 2003, the Company renewed its lease
for this facility for an additional five years through the end of 2008. In
connection with renewing this lease, the Company negotiated an option to
purchase the entire facility at a fixed price, exercisable at any time on or
after July 1, 2004.

2.  LIQUIDITY:

   As of December 31, 2003, the Company had an accumulated deficit of
$98,462,012. In addition, the Company has incurred losses since its inception
and is subject to those risks associated with companies in the early stages of
development. The completion of the commercialization of the Company's
technologies may require funds substantially greater than the Company
currently has available. Management believes that its cash and cash
equivalents and short-term investments as of December 31, 2003 are sufficient
to fund its operations into 2005.


                                      F-10



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.  MERGER, RECAPITALIZATION AND PUBLIC OFFERING:

   On June 22, 1995, a wholly-owned subsidiary of the Company merged into UDC
pursuant to an Agreement and Plan of Reorganization by and among Enzymatics,
UDC and this subsidiary (the "Merger Agreement"). At the time of the merger,
UDC was engaged in the business currently being conducted by the Company.
Enzymatics was an inactive corporation at the time of the merger, having sold
substantially all of its assets to a third party on June 30, 1994. Prior to
that time, Enzymatics was engaged in the business of developing, manufacturing
and marketing quantitative diagnostic medical devices. Management of UDC
concluded that merging with a former publicly traded company, and acquiring
access to its shareholder base, would facilitate its ability to raise
additional capital in the private or public markets. Management also
determined that such additional capital would be necessary to fulfill UDC's
financial obligations under the Transfer Agreement (as herein defined),
pursuant to which UDC had both acquired certain rights and assumed certain
obligations relating to specified OLED technology, and obtained funds to
commercialize this OLED technology, acquire additional OLED technologies and
fund working capital.

   As of the date of the merger, Enzymatics had 523,268 shares issued and
outstanding (after giving effect to a reverse stock split of 10.9672), which
were not being actively traded. Pursuant to the Merger Agreement, the former
Enzymatics shareholders received 523,268 shares of the merged entity's common
stock. Additionally, Nachman, Hays & Associates (NHA), a consulting firm,
received options to purchase 84,234 shares of the merged entity's common stock
at an exercise price of $.29 per share (Note 11) as payment of NHA's
consulting services in connection with the wind-down of Enzymatics. These
options were issued to satisfy a liability, which was reflected on the balance
sheet of Enzymatics on the date of the merger. The sole director of Enzymatics
was also a principal of NHA.

   The merger was treated, for accounting purposes, as a recapitalization of
UDC whereby UDC issued 523,268 shares of common stock to the Enzymatics
shareholders and assumed Enzymatics shareholders' deficit of $184,160. The
assets and liabilities of both companies have been recorded at their
historical book values in these financial statements. The assets of Enzymatics
consisted of cash and its liabilities consisted of payables related to the
merger and other professional fees. Upon consummation of the merger, UDC's
shareholders collectively owned approximately 92% of the outstanding shares of
the merged entity, with the former Enzymatics shareholders retaining the
balance of approximately 8%. UDC was the surviving corporation in the merger,
changed its name to UDC, Inc., and, as a result of the merger, became a
wholly-owned subsidiary of Enzymatics. At the effective time of the merger,
Enzymatics changed its name to Universal Display Corporation.

   Contemporaneous with the merger, the Company and American Biomimetics
Corporation ("ABC") entered into a Technology Transfer Agreement dated June
22, 1995 (the "Transfer Agreement") pursuant to which, among other things, ABC
(a) assigned the 1994 License Agreement to the Company and (b) granted to the
Company an exclusive worldwide sublicense in the field of display technology
to specified patent rights licensed to ABC under a License Agreement between
ABC and the Trustees of Princeton University dated October 22, 1993 (the "1993
License Agreement"), and to any patents claiming inventions in the field of
display technology that were developed under a Sponsored Research Agreement
between ABC and the Trustees of Princeton University dated October 22, 1993
(the "1993 Sponsored Research Agreement"). In exchange for this assignment and
sublicense, the Company agreed to (i) pay ABC $500,000 and reimburse ABC
$674,000 for its scheduled payments and expenses previously made to Princeton
University under the 1993 Sponsored Research Agreement, both of which amounts
were charged as research and development expenses; (ii) assume ABC's
obligation to pay all future scheduled payments under the 1994 Sponsored
Research Agreement, which were approximately $1,610,000, plus expenses related
thereto that were estimated to be $500,000, for a total of $2,110,000; and
(iii) issue ABC 200,000 shares of the Company's Series A Nonconvertible
Preferred Stock (Note 9), which stock had a fair value of $350,000.

   Also, contemporaneous with the merger, the Company sold 781,500 units
("Units") at a price of $2.00 per Unit, in a private placement, which
generated proceeds of $1,513,000, net of offering expenses in the amount of


                                      F-11


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

3.  MERGER, RECAPITALIZATION AND PUBLIC OFFERING: -- (Continued)

$50,000. Each Unit consisted of one share of the Company's common stock and
one warrant to purchase one share of the Company's common stock at an exercise
price of $3.50 per share. Additionally, 125,000 Units with a fair value of
$250,000, based upon the price of the Units, were transferred to a non-
affiliate debt holder of ABC to satisfy $250,000 of ABC's outstanding debt.
Therefore, the Company had a receivable of this amount from ABC and ABC netted
this $250,000 receivable against the Company's payable to related parties. The
Company sold an additional 207,500 Units, which generated gross proceeds of
$415,000, on July 17, 1995.

   On April 11, 1996, the Company consummated a public offering of 1,300,000
shares of common stock at a price of $5.00 per share and redeemable warrants
to purchase 1,495,000 shares of common stock at an exercise price of $3.50 per
share, at a price of $.10 per warrant. The Company received net cash proceeds
of $5,282,665 from this public offering (excluding $223,263 representing a
portion of the offering expenses previously charged to general and
administration expenses).

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

   The consolidated financial statements include the accounts of Universal
Display Corporation and its wholly owned subsidiary, UDC, Inc. (Note 3). All
intercompany transactions and accounts have been eliminated.

Management's Use of Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. The Company
classifies its existing marketable securities 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 securities are carried at fair market value, with unrealized gains and
losses reported in shareholders' equity as a component of other comprehensive
loss. Gains or losses on securities sold are based on the specific
identification method. The Company reported accumulated unrealized holding
losses of $38,837 and $18,586 at December 31, 2003 and 2002, respectively.
Comprehensive loss, which includes the net loss and change in unrealized
holding losses, was $17,373,456 and $31,033,862 for the year ended December
31, 2003 and 2002, respectively. The gross proceeds from sales and maturities
of investments were $8,113,192 and $6,359,585 for the years ended December 31,
2003 and 2002, respectively. Gross realized gains and losses for the years
ended December 31, 2003 and 2002 were not material.

Fair Value of Financial Instruments

   Cash and cash equivalents, accounts receivable, prepaid and other current
assets, accounts payable and accrued expenses are reflected in the
accompanying financial statements at fair value due to the short-term nature
of those instruments. Short-term and long-term investments are recorded at
fair market value. The carrying amount of capital lease obligations
approximate fair value at the balance sheet dates.



                                      F-12


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)

Property and Equipment

   Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful life of three to seven years for office and
lab equipment, furniture and fixtures, and the lesser of the lease term or
useful life for leasehold improvements and capital leases. Equipment under
capital leases are stated at the present value of the minimum lease payments.
Repair and maintenance costs are charged to expense as incurred. Additions and
betterments are capitalized.

   Property and equipment consist of the following:




                                                             December 31,
                                                       -------------------------
                                                          2003           2002
                                                       -----------   -----------
                                                               
Office and lab equipment ..........................    $ 6,670,220   $ 5,718,178
Furniture and fixtures ............................        222,106       215,675
Leasehold improvements ............................      2,058,670     2,058,670
Construction-in-progress ..........................        206,628       256,197
                                                       -----------   -----------
                                                         9,157,624     8,248,720
Less: Accumulated depreciation ....................     (5,625,509)   (3,631,150)
                                                       -----------   -----------
Property and Equipment, net .......................    $ 3,532,115   $ 4,617,570
                                                       ===========   ===========



   Depreciation expense was $2,042,783, $1,848,552 and $1,124,644 for the years
ended December 31, 2003, 2002 and 2001, respectively.

   Construction-in-progress consists of costs incurred for the expansion of the
Company's current leased space and for the acquisition of lab equipment for
the Company's facility. Upon completion of construction or commencement of
operation of the lab equipment, the cost associated with such assets will be
depreciated over their estimated useful lives.

Acquired Technology

   Acquired technology consists of acquired license rights for patents and
know-how obtained from PD-LD, Inc. and Motorola, Inc. (Note 6). These
intangible assets consist of the following:



                                                                      December 31,
                                                               -------------------------
                                                                  2003           2002
                                                               -----------   -----------
                                                                       
        PD-LD, Inc. .......................................    $ 1,481,250   $ 1,481,250
        Motorola, Inc. ....................................     15,469,468    15,469,468
                                                               -----------   -----------
                                                                16,950,718    16,950,718
        Less: Accumulated amortization ....................     (5,546,015)   (3,850,943)
                                                               -----------   -----------
        Acquired Technology, net ..........................    $11,404,703   $13,099,775
                                                               ===========   ===========



   Acquired technology is amortized on a straight-line basis over its estimated
useful life of ten years. Amortization expense was $1,695,072 for each of the
years ended December 31, 2003, 2002 and 2001, respectively. For each of the
five succeeding fiscal years, amortization expense will be $1,695,072.

Impairment of Long-Lived Assets

   In accordance with SFAS 144, "Accounting for Impairment or Disposal of Long-
Lived Assets," management continually evaluates whether events or changes in
circumstances might indicate that the remaining estimated useful life of long-
lived assets may warrant revision, or that the remaining balance may not be



                                      F-13


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)

recoverable. When factors indicate that long-lived assets should be evaluated
for possible impairment, the Company uses an estimate of the related
undiscounted cash flows in measuring whether the long-lived asset should be
written down to fair value. Measurement of the amount of impairment would be
based on generally accepted valuation methodologies, as deemed appropriate. As
of December 31, 2003, management of the Company believed that no revision to
the remaining useful lives or write-down of the Company's long-lived assets
was required, and no such revisions were required in 2002 and 2001.

Net Loss Per Common Share

   Basic net loss per common share is computed by dividing the 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 years ended December 31, 2003, 2002 and
2001, the effects of the exercise of outstanding stock options and warrants
were excluded from the calculation of diluted EPS as the impact would be
antidilutive.

Revenue Recognition and Deferred License Fees

   Contract revenues represent reimbursements by government entities for all or
a portion of the research and development costs the Company incurs in relation
to its government contracts. Revenues are recognized proportionally as
research and development costs are incurred, or as defined milestones are
achieved.

   Development chemical revenues represent revenues from sales of OLED
materials to display manufacturers for evaluation and product development
purposes. Revenues are recognized at the time of shipment and passage of
title. The customer does not have the right to return the materials.

   Commercial chemical revenues represent sales of OLED materials to display
manufacturers. These revenues are recognized at the time of shipment, or at
time of delivery and passage of title, depending upon the contractual
agreement between the parties.

   The Company receives non-refundable advanced payments in connection with
certain technology development and evaluation and license agreements it enters
into. Certain of these payments are creditable against future amounts payable
under commercial license agreements that the parties may subsequently enter
into and are deferred until such license agreements are executed or
negotiations have ceased and there is no likelihood of executing a license
agreement. Revenues would then be recorded over the expected life of the
licensed technology, if there is an effective license agreement, or at the
time the negotiations show no likelihood of an executable license agreement.
Advanced payments under these agreements that are received under technology
evaluation agreements and are not creditable against license fees are deferred
and revenue is recognized over the term of the agreement as technology
development revenue.



                                      F-14


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)

Research and Development

   Expenditures for research and development are charged to operations as
incurred. Research and development expenses consist of the following:




                                                                                                    Year Ended December 31,
                                                                                           ----------------------------------------
                                                                                               2003          2002           2001
                                                                                           -----------    -----------   -----------
                                                                                                               
Development and operations in the Company's facility...................................    $ 7,187,400    $ 6,189,638   $ 5,287,884
Patent application expenses............................................................      1,595,722      1,282,803       940,480
Costs incurred to Princeton University and USC under the 1997 Research Agreement (Note
  5)...................................................................................        958,156        859,339       758,732
PPG Development and License Agreement (Note 8).........................................      6,461,172      5,487,515     2,283,182
Amortization of intangibles............................................................      1,695,072      1,695,072     1,695,072
Scientific Advisory Board Compensation (Note 11).......................................             --        289,900     1,344,686
                                                                                           -----------    -----------   -----------
                                                                                           $17,897,522    $15,804,267   $12,310,036
                                                                                           ===========    ===========   ===========



Recent Accounting Pronouncements

   In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The Statement updates, clarifies and simplifies existing
accounting pronouncements relating to gains and losses from extinguishment of
debt and certain lease modifications. Certain provisions of SFAS No. 145 are
effective for fiscal years beginning after May 15, 2002, while other
provisions are effective for transactions occurring after May 15, 2002. The
Company adopted SFAS No. 145 early, and as a result, the debt conversion and
extinguishment expense (Note 6), has been classified within continuing
operations.

   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 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 November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," which elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees issued. The Interpretation also clarifies
that a guarantor is required to recognize, at inception of a guarantee, a
liability for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and did not have an
effect on the Company's financial statements. The disclosure requirements are
effective for financial statements in interim or annual periods ending after
December 15, 2002.

   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. Certain
of the disclosure modifications are required for fiscal years ending after
December 15, 2002.



                                      F-15


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)

   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 did not have an effect on the Company's financial
statements.

   The EITF 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 Company
believes the adoption of EITF Issue No. 00-21 will not have a material 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", as amended, established
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. The adoption of SFAS No. 150 had no impact on the Company's
financial statements.

Statement of Cash Flow Information

   The following non-cash investing and financing activities occurred:




                                                                                                     Year Ended December 31,
                                                                                              -------------------------------------
                                                                                                 2003          2002         2001
                                                                                              ----------    ----------   ----------
                                                                                                                
Common Stock issued for the purchase of equipment.........................................    $       --    $       --   $   43,776
Unrealized loss on available-for-sale securities..........................................        20,251        14,661        3,925
Reclassification of Redeemable Common Stock (Note 8)......................................            --            --      570,114
Conversion of Series C and D Preferred Stock into Common Stock............................            --            --       10,648
Deemed dividends to Preferred shareholders (Note 10)......................................     1,034,302     1,953,479    2,517,336
Warrants issued for expenses on registered direct offering................................       314,112            --           --
Reclassification of accrued expenses to additional paid-in-capital for warrants earned in
  2000 and issued in 2001.................................................................            --            --      (15,111)
Reduction of conversion price of Convertible Notes (Note 10)..............................            --     7,441,547           --



Income Taxes

   The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities. Deferred tax assets or liabilities at the end
of each period are determined using the tax rate expected to be in effect when
taxes are actually paid or recovered.

Stock Options

   The Company accounts for its stock option plans (Note 11) under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," under which no compensation cost is 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


                                      F-16


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)

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.

   As allowed by SFAS 123, the Company has elected to continue to account for
its employee stock-based compensation plans under APB Opinion No. 25, and
adopted only the disclosure requirements of SFAS No. 123 as amended by SFAS
No. 148. Had the Company recognized compensation cost for its stock based
compensation plans consistent with the provisions of SFAS 123, the Company's
net loss and net loss per share would have been increased to the following pro
forma amounts:




                                                                                                  Year Ended December 31,
                                                                                        -------------------------------------------
                                                                                            2003            2002           2001
                                                                                        ------------    ------------   ------------
                                                                                                              
Net loss applicable to Common shareholders:
 As reported........................................................................    $(18,387,507)   $(32,972,680)  $(18,873,436)
 Add stock-based employee compensation expense included in reported net income, net
   of tax...........................................................................       1,018,086              --             --
 Deduct total stock-based employee compensation expense determined under fair-value-
   based method for all rewards, net of tax.........................................      (3,325,377)     (3,056,777)    (6,642,246)
                                                                                        ------------    ------------   ------------
 Pro forma..........................................................................     (20,694,798)    (36,029,457)   (25,515,682)
                                                                                        ============    ============   ============
Basic and diluted net loss per share:
 As reported........................................................................    $      (0.82)   $      (1.71)  $      (1.11)
 Pro forma..........................................................................           (0.92)          (1.87)         (1.50)



   The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions:



                                                                                               2003       2002       2001
                                                                                             --------   --------    -------
                                                                                                           
        Risk-free interest rate .........................................................    2.6-3.8%   3.3-5.0%       4.6%
        Volatility ......................................................................         94%        94%        94%
        Expected dividend yield .........................................................          0%         0%         0%
        Expected option life ............................................................     7 years    7 years    7 years



   Because the SFAS 123 method of accounting has not been applied to options
and warrants granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of cost to be expected in future
years.

Reclassifications

   Certain prior year amounts have been reclassified to conform to the current
year presentation.



                                      F-17


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

5.  RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY:

   The Company paid Princeton University $4,481,641 under the 1994 Sponsored
Research Agreement and the 1997 Research Agreement through the period ending
on July 31, 2002. In April 2002, the Company amended the 1997 Research
Agreement with Princeton 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.

   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
renegotiation for products not reasonably conceivable as arising out of the
Research Agreement if Princeton University reasonably determines that the
royalty rates payable with respect to these products are not fair and
competitive.

   The Company is obligated under the 1997 Amended License Agreement to pay to
Princeton University minimum annual royalties. The minimum royalty payment was
$75,000 in 2001 and $100,000 in 2002 and thereafter. 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 immediately vesting 10-year warrants to
purchase an additional 175,000 shares of the common stock at an exercise price
of $7.25 per share. The Company also issued to USC 60,000 shares of the common
stock and immediately vesting 10-year warrants to purchase an additional
75,000 shares of the common stock at an exercise price of $7.25 per share.

6.  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 4).

   On September 29, 2000, the Company entered into a License Agreement with
Motorola, Inc. ("Motorola"). Pursuant to this agreement, the Company licensed
from Motorola what are now 74 issued U.S. patents and corresponding 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
display 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 (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


                                      F-18


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

6.  ACQUIRED TECHNOLOGY: -- (Continued)

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 is 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 4).

   The Company is required under the License Agreement to pay Motorola 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 (Note 13). 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. Since
the minimum royalty exceeded the actual royalties for the year ended December
31, 2003, the Company accrued $250,000 in royalty expense. For the two-year
period ending on December 31, 2002, the Company issued to Motorola 8,000
shares of the Company's common stock, valued at $71,816, and paid Motorola
$78,184 in cash to satisfy the minimum royalty obligation of $150,000.

7.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

   Accrued expenses consist of the following:



                                                                       December 31,
                                                                 -----------------------
                                                                    2003         2002
                                                                 ----------   ----------
                                                                        
        Accrued professional fees ...........................    $  160,203   $  223,988
        Compensation ........................................     1,169,818      523,658
        Research and development agreements .................       133,715      131,329
        Accrued minimum royalties ...........................       350,000      100,000
        Other ...............................................       206,474      105,914
                                                                 ----------   ----------
                                                                 $2,020,210   $1,084,889
                                                                 ==========   ==========



8.  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.


                                      F-19


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8.  COMMON STOCK AND WARRANTS ISSUED UNDER THE PPG DEVELOPMENT AND
    LICENSE AGREEMENT: -- (Continued)

   On November 11, 2000, in consideration for PPG's services under the
Development and License Agreement through December 31, 2000, the Company
issued to PPG 26,448 of Redeemable Common Shares and an 11.5% promissory note
in the amount of $535,300. The note was payable if the Redeemable Common
Shares issued were not registered with the SEC by May 31, 2001. The amount of
the note was based on the fair market value of the services rendered by PPG
through December 31, 2000, and the Company recorded a charge to research and
development expense of $535,300 in 2000. On May 11, 2001, the required
registration statement for the Redeemable Common Shares was declared effective
by the SEC. Accordingly, the promissory note was settled and the Redeemable
Common Shares were reclassified as common stock and additional paid-in-
capital.

   As required under the Development and License Agreement, the Company issued
1,720 shares of common stock to PPG on January 31, 2001. These additional
shares were issued to PPG based on a final accounting for actual costs
incurred by PPG under the agreement through December 31, 2000. The promissory
note was also increased to reflect actual costs incurred through December 31,
2000. Accordingly, the Company accrued $34,814 of additional research and
development expense as of December 31, 2000, for these additional shares.

   During the first quarter of each of 2003, 2002 and 2001, the Company issued
to PPG 305,715, 344,379 and 118,824 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, 2002 and 2001, respectively. During
2003, 2002 and 2001, the Company recorded the issuance of these shares as a
charge of $3,176,565, $2,858,063 and $1,314,640 to research and development
expense based on the fair value of the common stock as it was earned. The
Company issued an additional 9,746, 16,645 and 3,019 shares of its common
stock to PPG on February 15, 2004, 2003 and 2002, based on a final accounting
for actual costs incurred by PPG in 2003, 2002 and 2001, respectively.
Accordingly, the Company accrued $133,715, $131,329 and $27,473 of additional
research and development expense as of December 31, 2003, 2002 and 2001,
respectively, based on the fair value of 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 recorded charges to research and
development expense of $2,692,418, $2,263,737, and $804,988 during the years
ended December 31, 2003, 2002 and 2001, respectively. These charges were
recorded based on the estimated fair value of warrants that were earned by PPG
during each of 2003, 2002 and 2001. As a result, PPG earned warrants to
acquire 315,461, 361,024, and 121,843 shares of the Company's common stock at
exercise prices of $10.39, $10.14, and $24.28, respectively. The warrants vest
immediately and each have a contractual term of seven years. The warrants were
issued on February 15, 2004, 2003 and 2002, respectively. The Company
determined the fair value of the warrants earned during each of 2003, 2002 and
2001 using the Black-Scholes option-pricing model with the following
assumptions: (1) risk free interest rate of 3.0-3.8%, 3.3%-5.4%, and 4.5%-
5.6%, (2) no expected dividend yield, (3) expected life of seven years, and
(4) expected volatility of 94%, 94% and 70%-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.

   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 2002
and 2001 respectively, the Company recorded $176,779 and $7,977 in research
and development expense related to these options.


                                      F-20



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8.  COMMON STOCK AND WARRANTS ISSUED UNDER THE PPG DEVELOPMENT AND
    LICENSE AGREEMENT: -- (Continued)

   On September 23, 2002, the Company granted options 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 2003 and 2002
respectively, the Company recorded $229,355 and $57,607 in research and
development expense related to these options.

   On December 23, 2003, the Company granted options to PPG employees to
acquire 21,000 shares of the Company's common stock at an exercise price of
$13.92 per share. During 2003, the Company recorded charges of $6,244 to
research and development expense for the fair market value of these options,
as determined in accordance with the Black-Scholes option-pricing model.

   The Company determined the fair value of the options earned during 2003,
2002 and 2001, respectively, using the Black-Scholes option-pricing model with
the following assumptions: (1) risk free interest rate of 3.7%-4.3%, 3.7%-3.8%
and 5.4%, (2) no expected dividend yield, (3) expected life of 10 years, and
(4) expected volatility of 94%, respectively. Subject to certain
contingencies, all of these options vest one year from the date of grant and
expire 10 years from the date of issuance.

9.  SERIES A NONCONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE
    PREFERRED STOCK:

Series A Nonconvertible Preferred Stock

   In 1995, the Company issued 200,000 shares of Series A Nonconvertible
Preferred Stock ("Series A") to ABC (Note 3). The Series A shares have a
liquidation value of $7.50 per share. Series A shareholders, as a single
class, have the right to elect two of the Company's Board of Directors.
Holders of the Series A shares are entitled to one vote per share on matters
which shareholders are generally entitled to vote. The Series A shareholders
are not entitled to any dividends. The Series A shares were valued at $1.75
per share, which was based upon an independent appraisal.

Series B Convertible Preferred Stock

   In 2000, the Company issued 300,000 shares of Series B Convertible Preferred
Stock ("Series B") to Motorola (Note 6). The Series B shares rank senior to
the common stock and any other capital stock of the Company ranking junior to
the Series B as to dividends and upon liquidation, dissolution or winding up.
There are no restrictions upon the Company to create any other class of stock
ranking equivalent or senior to the Series B shares. The Series B shares have
a liquidation value of $21.48 per share, plus accrued and unpaid dividends.
Holders of Series B shares are entitled to that number of votes equal to the
largest of whole shares of common stock into which the Series B shares could
be converted on matters which shareholders are generally entitled to vote. The
Series B shareholders are entitled to dividends that are declared or paid to
holders of the common stock.

   Each share of the Series B is convertible, at the option of the holder, into
such number of fully paid and nonassessable shares of common stock as is
determined by dividing the original purchase price by the conversion price
applicable to such share determined on the date the certificate is surrendered
for conversion. Of the 300,000 shares of the Series B, 75,000 shares become
convertible on each of September 29, 2001, 2002, 2003 and 2004, with all
outstanding shares of the Series B being converted automatically into shares
of the Company's common stock on September 29, 2004. The conversion price for
the Series B shares is initially the original issuance price per share of the
common stock, but is subject to change if the average price of the common
stock falls below $12.00 for the 30 trading days ending two business days
prior to the relevant conversion date, regardless of prior changes to the
conversion price. The Company has the option to pay Series B shareholders an
amount of cash equal to the difference between $12.00 and the average price of
the common stock, multiplied by the number of shares of common stock into
which the Series B shares would be convertible. Two business days prior to the



                                      F-21


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

9.  SERIES A NONCONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE
    PREFERRED STOCK: -- (Continued)


September 29, 2003, 2002 and 2001 conversion dates, the Company's average
stock price for the preceding 30 trading days was $9.27, $5.50 and $10.81,
respectively. As such, the original conversion price was adjusted in
accordance with the conversion terms of the Series B, the conversion prices
were reduced to $16.59, $9.85 and $19.35, respectively, resulting in an
additional 22,107, 88,553 and 8,256 shares of common stock being issuable to
Motorola upon conversion. The incremental shares issuable upon conversion were
accounted for as a contingent beneficial conversion feature ("CBCF") in
accordance with EITF No. 00-27. The CBCF was measured by multiplying the
incremental shares by the fair value of the Company's common stock on the
commitment date of September 29, 2000, which was $22.06. Accordingly, the
Company recorded a CBCF in an amount of $487,680, $1,953,479 and $182,127 in
2003, 2002 and 2001, respectively. The CBCF was treated as a deemed dividend
to the Series B shareholders.

10.  RESTRICTED CASH, CONVERTIBLE PROMISSORY NOTES, CONVERTIBLE PREFERRED
     STOCK AND WARRANTS TO PURCHASE COMMON STOCK:

   On August 22, 2001, the Company closed on a private placement financing
transaction with two investors whereby the Company sold two Convertible
Promissory Notes ("Notes"), Series C Convertible Preferred Stock ("Series C"),
and warrants to purchase the Company's common stock for a total of
$20,000,000. The Company accounted for this financing transaction as a package
sale and allocated the cash proceeds received to the Notes, the Series C
shares and the warrants to acquire common stock based on the relative fair
value of each instrument.

Notes

   The Company issued two $7,500,000 Notes, each with a maturity date of August
22, 2004. 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.

   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
conversion and repayment of the Notes, the $15,000,000 in cash proceeds plus
accrued but unpaid interest was classified as restricted cash on the
accompanying consolidated balance sheet as of December 31, 2001.

   In accordance with APB No. 14, "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants" ("APB No. 14"), the Company allocated the
proceeds from the private placement financing transaction to the Series C
shares, the Notes and the warrants based on their relative fair values as of
the commitment date. The fair value of the Notes was determined based on a
three-year discounted cash flow analysis using a risk-adjusted interest rate
of 11%. The Company determined the relative fair value of the Notes to be
$9,857,006. The resulting original issuance discount ("OID") of $5,142,994 was
amortized as interest expense, using the effective interest method, over the
maturity period of three years. During the years ended December 31, 2002 and
2001, the Company recognized non-cash charges to interest expense of
$1,819,989 and $1,015,418, respectively, 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 that the Notes contained a 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 a $3,258,468 BCF as a debt
discount on the commitment date. The BCF debt discount was being amortized as
interest expense, using


                                      F-22


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10.  RESTRICTED CASH, CONVERTIBLE PROMISSORY NOTES, CONVERTIBLE PREFERRED
     STOCK AND WARRANTS TO PURCHASE COMMON STOCK: -- (Continued)


the effective interest method, over the maturity period of three years. During
the years ended December 31, 2002 and 2001, the Company recognized non-cash
charges to interest expense of $1,212,697 and $674,283, respectively, for
amortization of the BCF.

   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
per share. In accordance with EITF No. 98-5, this reduction in the conversion
price resulted in a CBCF of $7,441,547 that was recorded as additional debt
discount to be amortized over the remaining term of the Notes.

   In September 2002, $7,000,002 in principal amount of the Notes was converted
into 1,375,246 shares of common stock and the remaining $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. As of the date of conversion
and repayment of the Notes in September 2002, the $15,000,000 face value of
the Notes exceeded their then-carrying value as a result of the unamortized
OID,BCF and CBCF by $9,611,781 and the intrinsic value of the Notes
repurchased by $1,508,841. As a result, the Company recognized a non-cash debt
conversion and extinguishment expense of $10,011,780 upon conversion and
repayment of the Notes.

   A reconciliation of the face amount of the Notes and the carrying value at
December 31, 2002 is as follows:

                                                                          
        Original value of Convertible Notes ..............................   $15,000,000
        Less:
          OID.............................................................     5,142,994
          BCF.............................................................     3,258,468
                                                                             -----------
        Carrying value on date of issuance ...............................     6,598,538
        Add:
          2001 amortization of OID treated as interest expense............     1,015,418
          2001 amortization of BCF treated as interest expense............       674,283
                                                                             -----------
        Notes carrying value at December 31, 2001 ........................   $ 8,288,239
        Less:
          CBCF............................................................     7,441,547
        Add:
          2002 amortization of OID treated as interest expense............     1,819,989
          2002 amortization of BCF treated as interest expense............     1,212,697
          Unamortized OID,BCF and CBCF charged to interest expense upon
           conversion ....................................................     9,611,781
          Intrinsic value of the Notes repurchased through and charged to
           APIC ..........................................................     1,508,841
        Less:
          Conversion of debt..............................................     7,000,002
          Repayment of debt...............................................     7,999,998
                                                                             -----------
        Notes carrying value at December 31, 2002 ........................   $        --
                                                                             ===========


                                      F-23



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10.  RESTRICTED CASH, CONVERTIBLE PROMISSORY NOTES, CONVERTIBLE PREFERRED
     STOCK AND WARRANTS TO PURCHASE COMMON STOCK: -- (Continued)


Series C

   The Company issued 5,000 shares of Series C on August 22, 2001, and received
proceeds of $4,496,477, net of $503,523 in cash offering costs. Holders of
Series C shares are not entitled to voting rights except as is required by
law. Each share of the Series C has a stated value of $1,000, which increased
by $4.16 for each month during which such share of Series C was outstanding.
There are no dividends payable on the Series C shares.

   The number of shares of common stock issuable upon conversion of a share of
Series C is obtained by dividing the stated value of one share of Series C by
the conversion price then in effect. The initial conversion price of the
Series C shares was $12.70, subject to certain anti-dilution and other
adjustments.

   In accordance with APB No. 14, the Company allocated the proceeds from the
Notes, the Series C shares, and the warrants based on their relative fair
values. The fair value of the Series C shares was based on the fair value of
the common stock that would be issuable on a converted basis. As a result, the
Company allocated $4,146,678 to the Series C shares.

   In accordance with EITF No. 00-27 and EITF No. 98-5, and after considering
the allocation of the proceeds to the Series C shares, the Company determined
that a BCF existed on the Series C shares. The BCF existed at the commitment
date due to the fact that the carrying value of the Series C shares, after the
initial allocation of the proceeds, was less than the fair market value of the
common stock that was issuable upon conversion of these shares. Accordingly,
the Company recorded a BCF of $616,793 immediately as the Series C shares were
convertible on the commitment date. The BCF was recorded in a manner similar
to a dividend for the year ended December 31, 2001.

   In accordance with EITF No. 00-27 and EITF No. 98-5, as a result of the
monthly increase in the stated price of the Series C shares, a CBCF existed on
the commitment date of August 22, 2001. The monthly increase in stated price
reduces the conversion price of the Series C shares so long as these shares
are outstanding. In 2001, the CBCF was recorded based upon the increase in the
stated price, which results in additional shares of common stock being
issuable upon conversion of the Series C shares. The Company recorded a CBCF
of $163,749, which was treated as a deemed dividend to preferred shareholders
in the Consolidated Statement of Operations for the year ended December 31,
2001.

   In November 2001, the Company reduced the conversion price of the Series C
shares from $12.70 to $9.45. Under the terms of the original conversion
privileges, holders of the Series C shares were entitled to receive 393,701
shares of common stock upon conversion of these shares. As a result of the
reduced conversion price, the Series C shareholders are entitled to an
additional 135,400 shares of common stock upon conversion. The incremental
shares issuable upon conversion were measured using the $8.30 fair value of
the common stock on the date of the reduction in the conversion price. As a
result of this, on December 5, 2001 (the conversion date) the Company recorded
a deemed dividend in the amount of $1,123,808 for the reduced conversion
price.

   On December 5, 2001, the holders converted all 5,000 shares of the Series C
into the Company's common stock. This was done at the new $9.45 conversion
price per share. Upon conversion, the Company issued 535,704 shares of common
stock to the Series C shareholders.

Series D

   On December 3, 2001, the Company issued 5,000 shares of Series D Preferred
Stock ("Series D") with a conversion price of $9.45 and warrants to acquire
the Company's common stock for an aggregate price of $5,000,000. The terms of
the Series D, regarding voting rights, stated value, increase in stated value
and dividends, were the same as those of the Series C.


                                      F-24


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10.  RESTRICTED CASH, CONVERTIBLE PROMISSORY NOTES, CONVERTIBLE PREFERRED
     STOCK AND WARRANTS TO PURCHASE COMMON STOCK: -- (Continued)


   In accordance with APB No. 14, the Company allocated the proceeds from the
Series D shares and the warrants based on their relative fair values. The fair
value of the Series D shares was based on the fair value of the common stock
that would be issuable on a converted basis. As a result, the Company
allocated $3,874,931 to the Series D shares and $1,125,070 to the warrants.

   In accordance with EITF No. 00-27 and EITF No. 98-5 and after considering
the allocation of the proceeds to the Series D shares, the Company determined
that, as a result of the monthly increase in the stated price, a CBCF existed
on the Series D shares. The monthly increase in stated price reduced the
conversion price of the Series D shares, so long as the Series D shares were
outstanding. Since the Series D was convertible on the commitment date, the
Company recorded a CBCF of $98,614 as a deemed dividend to preferred
shareholders in the Consolidated Statement of Operations for the year ended
December 31, 2001.

   On December 5, 2001, the Series D shareholders converted all 5,000 shares of
the Series D into the Company's common stock. This was done at a $9.45
conversion price per share. Upon conversion, the Company issued 529,100 shares
of common stock to the Series D shareholders.

Warrants

   In connection with the private placement financing transaction, the Company
issued the following warrants to purchase shares of the Company's common
stock:




                 Original       Original          Original       Relative Fair
Series            Number     Exercise Price    Expiration date       Value
- ------------     --------    --------------    ---------------   -------------
                                                     
I                 157,480        $15.24        August 22, 2006     $1,186,012
II                157,480         15.24        August 22, 2006      1,125,070
III               429,492         15.24        August 22, 2006      3,234,590
IV                186,114         15.24        August 22, 2008      1,575,714



   The Series I, III and IV warrants were exercisable immediately by their
holders. The Series II warrants were exercisable as of December 3, 2001.
Series I, II and III warrants cannot be exercised to the extent a holder would
then own, together with its affiliates, more than 9.99% of the Company's
common stock then outstanding. The warrants listed above have been recorded
based on their relative fair values. Using the Black-Scholes option-pricing
model, the Company allocated $7,121,386 of the cash proceeds received in the
private placement transaction to the warrants. In this regard, the Company
used the following assumptions:




                                                     Series
                                     ---------------------------------------
                                       I          II         III        IV
                                    -------    --------    -------   -------
                                                         
Risk free interest rate                4.6%        5.1%       4.6%      4.9%
Volatility                              94%         94%        94%       94%
Expected dividend yield                  0%          0%         0%        0%
Expected option life                5 Years    10 Years    5 Years   7 Years



   The warrants were recorded as additional paid-in-capital in the accompanying
consolidated balance sheet as of December 31, 2001. The Series IV warrants
were issued as a placement agent's fee.

   Effective November 5, 2001, the Company and the investors agreed to amend
the terms of the private placement transaction by, among other things,
reducing the exercise prices on the Series I and II warrants to $9.93 per
share and extending the expiration date on the Series I, II and III warrants
to August 22, 2011. This represented a new measurement date and the Company
revalued the warrants as of this date. The difference between the original
fair value and the new fair value of the warrants was recorded as a one-time
dividend of $332,245. The new fair value of the Series I, II and III warrants
were determined using the Black-Scholes option-


                                      F-25


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10.  RESTRICTED CASH, CONVERTIBLE PROMISSORY NOTES, CONVERTIBLE PREFERRED
     STOCK AND WARRANTS TO PURCHASE COMMON STOCK: -- (Continued)


pricing model with the following assumptions: (1) risk free interest rate of
4.5%, (2) no expected dividend yield, (3) expected life of 10 years, and (4)
expected volatility of 94%.

   In December 2001, the Company also established a new class of Convertible
Preferred Stock, Series C-1 ("Series C-1"). All of the outstanding shares of
the Series C were exchanged for Series C-1 shares. As the term, rights and
preferences of the Series C-1 shares were substantially similar to those of
the Series C, the Company recorded the exchange based upon the carrying value
of the Series C shares.

   A summary of the deemed dividends recorded as a result of this financing
transaction are as follows:


                                                                           
        BCF recorded for Series C                                             $  616,793
        Reduced conversion price of Series C                                   1,123,808
        CBCF recorded for Series C                                               163,749
        CBCF recorded for Series D                                                98,614
        Change in the fair value of the Warrants due to the change in
          exercise price and extension of life                                   332,245
                                                                              ----------
                                                                              $2,335,209
                                                                              ==========



11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS:

Shareholders' Equity

   In May 1999, the Company completed a private placement and issued 1,414,034
units, each consisting of one share of common stock and one warrant, resulting
in net proceeds to the Company of $4,792,797. The units were issued at $3.75
per unit. The shares of common stock and the warrants were valued at $2.27 and
$1.48, respectively, based on their relative fair values. The warrants were
issued with an exercise price ranging from $4.28 to $4.31, which was 120% of
the approximate fair value as of the grant date.

   On July 19, 2000, the Company issued 50,000 shares of unregistered common
stock to PD-LD, in accordance with the Termination, Amendment and License
Agreement among the Company, PD-LD, its president Vladimir Ban and The
Trustees of Princeton University (Note 6). These shares were recorded at the
fair market value of the common stock on the date of issuance. Accordingly,
the Company recorded an intangible asset of $1,481,250.

   On September 29, 2000, the Company issued to Motorola 200,000 shares of the
Company's common stock, 300,000 shares of Series B and a warrant to purchase
150,000 shares of common stock in accordance with the License Agreement
between the Company and Motorola (Note 6). The Company also issued a warrant
to an unaffiliated third party to purchase 150,000 shares of common stock as a
finder's fee in connection with this transaction. The warrants were valued
using the Black Scholes option-pricing model. Accordingly, the Company
recorded an intangible asset of $15,469,468 (Note 6).

   In December 2000, the Company sold 631,527 units in a private placement,
each unit consisting of one share of common stock and one warrant, resulting
in gross proceeds to the Company of $5,367,979. Costs of raising the capital
were $311,313. The units were issued at $8.50 per unit and the shares of
common stock and warrants were valued at $4.66 and $3.84, respectively, based
on their relative fair values. The warrants vested immediately, have an
exercise price of $10.00 and expire five year from the date of issuance. In
connection with the private placement, the Company issued an additional
161,000 warrants as finders' fees, which vested immediately, have an exercise
price of $10.00 and expire five years from the date of issuance. The warrants
were collectively valued at $890,722 using the Black-Scholes option-pricing
model, with this amount being recorded as a component of additional paid-in
capital. The Company used the following assumptions in determining the value
of the warrants


                                      F-26


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: -- (Continued)


under the Black-Scholes option-pricing model: (1) 5.2% risk-free interest
rate, (2) expected life of five years(a contractual term), (3) 70% expected
volatility, and (4) zero expected dividend yield.

   During January 2001, the December 2000 private placement was completed and
the Company issued an additional 158,704 units, each consisting of one share
of common stock and one warrant, resulting in additional net proceeds to the
Company of $1,348,984. In connection with the completion of this private
placement, the Company issued warrants to purchase an additional 22,500 shares
of common stock as finders' fees. All of these warrants vested immediately,
have an exercise price of $10.00 and expire five years from the date of
issuance. The warrants were valued at $551,645 using the Black-Scholes option-
pricing model, with this amount being recorded as a component of additional
paid-in capital. The Company used the following assumptions in determining the
value of the warrants under the Black-Scholes option-pricing model: (1) 4.9%
risk-free interest rate, (2) expected life of five years (a contractual term),
(3) 70% expected volatility, and (4) zero expected dividend yield.

   In 2000, the Company granted warrants to purchase shares of common stock to
members of the Company's Scientific Advisory Board. The Company recorded a
charge of $556,612 to research and development expense for the year ended
December 31, 2001 for the vesting of these warrants during this period. These
warrants became fully vested in December 2001.

   In August and September 2002, the Company completed registered direct
offerings (the "Offerings") of 1,277,014 and 383,452 shares, respectively, of
common stock at $5.09 and $5.41 per share, respectively. The completion of the
Offerings resulted in aggregate proceeds to the Company of $8,055,186, net of
$519,288 in costs associated with the completion of the Offerings.

   In August 2003, the Company sold 2,012,500 shares of the Company's common
stock in a registered direct offering, resulting in gross proceeds of
$16,100,000. Costs of raising the capital were $1,270,643. The common stock
was issued at $8.00 per share. In addition, the Company issued a warrant to
purchase 50,313 shares of the Company's common stock, with a fair value of
$314,112, to the placement agent. The offering was deemed dilutive under the
terms of certain warrants the Company has previously issued and resulted in
the reduction of the exercise price of those warrants and increases in the
number of shares issuable under certain of those warrants. The Company
accounted for the change as a deemed dividend of $546,622.

Enzymatics 1992 Stock Option Plan

   Stock options granted by Enzymatics prior to the merger (Note 1) under the
1992 Stock Option Plan were assumed by the Company and converted into options
to purchase 20,538 shares of the Company's common stock at exercise prices
ranging from $11.74 to $29.61 per share. In 1999, 11,992 of such options
expired. The remaining 8,546 options expired during 2001.

1995 Stock Option Plan (now the Equity Compensation Plan)

   In 1995, the Board of Directors of the Company adopted the 1995 Stock Option
Plan (the "1995 Plan"), under which options to purchase a maximum of 500,000
shares of the Company's common stock were authorized to be granted at prices
not less than the fair market value of the common stock on the date of the
grant, as determined by the Compensation Committee of the Board of Directors.
Through 2003, the Company's shareholders have approved increases in the number
of shares of reserved for issuance under the 1995 Plan to 4,600,000. The 1995
Plan was also amended and restated in 2003 and is now called the Equity
Compensation Plan. The 1995 Plan provides for the granting of both incentive
and nonqualified stock options, stock, stock appreciation rights and
performance units to employees, directors and consultants of the Company.
Stock options are exercisable over periods determined by the Compensation
Committee, but for no longer than ten years from the grant date.


                                      F-27


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: -- (Continued)

Option Activity

   The following table summarizes the stock option activity from inception
through December 31, 2003 for all grants under the 1995 Plan:




                          Exercise      Year of
Year        Granted       Price       Expiration   Exercised    Forfeited    Exercisable   Outstanding
- ----        ---------   -----------    ----------   ---------    ---------    -----------   -----------
                                                                       
2003          337,625   $6.65-13.92       2013           250           --        166,375       337,375
2002          606,750    5.45-11.17       2012        19,750           --        569,000       587,000
2001          824,833    8.56-13.90       2011         7,800        3,000        770,033       814,033
2000          430,250    9.44-24.38       2010         9,500        2,500        390,750       418,250
1999          479,250    3.38- 9.63       2009        77,817       17,000        384,433       384,433
1998          303,000    3.75- 6.22       2008        21,000       42,000        240,000       240,000
1997          274,500    4.06- 5.25       2007        39,147           --        235,353       235,353
1996           30,000          4.12       2006        14,000        8,000          8,000         8,000
1995          315,000     0.01-4.00       2005       230,000           --         85,000        85,000
            ---------                                -------       ------      ---------     ---------
Totals      3,601,208                                419,264       72,500      2,848,944     3,109,444
            =========                                =======       ======      =========     =========



   The following tables summarize the stock options grant activity for each
year from inception through December 31, 2003 for grants under the 1995 Plan:

   2003 grants and activity through December 31, 2003:




                                      Exercise     Year of
   Grantee                 Granted     Price     Expiration    Exercised    Exercisable   Outstanding
   -------                 -------    --------   ----------    ---------    -----------   -----------
                                                                        
Employees                   50,000     $ 8.09       2013           --          10,000        50,000
Employees and Officers       1,750       6.65       2013          250           1,500         1,500
Employees                      500       7.00       2013           --             500           500
Employees                   28,750       9.60       2013           --           8,750        28,750
Employees                    4,750       9.21       2013           --           4,750         4,750
Employees                   43,250      13.33       2013           --           9,250        43,250
Employees                  186,125      13.92       2013           --         130,125       186,125
Employees                      500      13.66       2013           --             500           500
Consultant                     250       7.00       2013           --             250           250(A)
Consultant                     500       9.60       2013           --             500           500(A)
Consultant                     250      13.92       2013           --             250           250(A)
PPG                         21,000      13.92       2013           --              --        21,000(B)
                           -------                                ---         -------       -------
Totals                     337,625                                250         166,375       337,375
                           =======                                ===         =======       =======



(A)  The Company recorded charges of $5,789 to research and development
     expense and $6,192 to general and administrative expense in 2003 for
     options granted to consultants. These charges represent the fair value of
     the options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 3.1%-4.3%,
     (2) no expected dividend yield, (3) expected life of 10 years, and (4)
     expected volatility of 94%.

(B)  See Note 8.

                                      F-28



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)


   2002 grants and activity through December 31, 2003:




                                               Exercise     Year of
     Grantee                        Granted     Price     Expiration    Exercised    Exercisable   Outstanding
     -------                        -------    --------   ----------    ---------    -----------   -----------
                                                                                 
Employees                               500      8.39        2012             --           500           500
Employees                             5,000      9.24        2012             --         2,000         5,000
Employees                            10,000      9.66        2012             --         4,000        10,000
Employees                             5,000      9.94        2012             --         5,000         5,000
Employees                            10,000     11.17        2012             --         4,000        10,000
Employees and Officers                6,000      9.10        2012             --         3,000         6,000
Employees, Officers and Board       448,500      5.45        2012         19,750       428,750       428,750
Scientific Advisory Board            60,000      5.45        2012             --        60,000        60,000(A)
Consultant                           10,500      5.45        2012             --        10,500        10,500(B)
Consultant                           11,000      9.94        2012             --        11,000        11,000(B)
Consultant                           10,000      9.50        2012             --        10,000        10,000(B)
Consultant                              250      8.39        2012             --           250           250(B)
PPG                                  30,000      5.45        2012             --        30,000        30,000(C)
                                    -------                               ------       -------       -------
Totals                              606,750                               19,750       569,000       587,000
                                    =======                               ======       =======       =======



(A)  The Company recorded a charge of $289,900 to research and development
     expense in 2002 for options granted to members of the Company's
     Scientific Advisory Board. The charge represents the fair value of these
     options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 3.7%, (2)
     no expected dividend yield, (3) expected life of 10 years, and (4)
     expected volatility of 94%.

(B)  The Company recorded charges of $224,954 to research and development
     expense and $2,416 to general and administrative expense in 2002 for
     options granted to consultants. These charges represent the fair value of
     the options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 3.7%-4.9%,
     (2) no expected dividend yield, (3) expected life of 7-10 years, and (4)
     expected volatility of 94%.

(C)  See Note 8.


                                      F-29


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: -- (Continued)


   2001 grants and activity through December 31, 2003:




                                              Exercise     Year of
     Grantee                        Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
     -------                        -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                          
Employees                            28,750    $10.38        2011           --           --         18,750        28,750
Employees and Officers              116,622     10.31        2011           --           --         96,622       116,622
Employees                             2,000     13.90        2011           --           --          2,000         2,000
Employees                            12,500     12.00        2011        4,500        3,000          3,000         5,000
Employees and Officers              111,932      8.56        2011        3,300           --        106,932       108,632
Employees and Officers               10,000     10.38        2011           --           --         10,000        10,000
Employees and Officers               63,378     10.31        2011           --           --         63,378        63,378
Employees and Officers                  500     13.90        2011           --           --            500           500
Employees, Officers and Board       301,818      8.56        2011           --           --        301,818       301,818
Scientific Advisory Board            40,000     10.31        2011           --           --         40,000        40,000(A)
Scientific Advisory Board            60,000      8.56        2011           --           --         60,000        60,000(A)
Consultant                           25,000     10.31        2011           --           --         15,000        25,000(B)
Consultant                           10,000      9.44        2011           --           --         10,000        10,000(C)
Consultant                           10,000     12.00        2011           --           --         10,000        10,000(C)
Consultant                              250     10.38        2011           --           --            250           250(C)
Consultant                              250     13.90        2011           --           --            250           250(C)
Consultant                            5,500      8.56        2011           --           --          5,500         5,500(C)
PPG                                  26,333      8.56        2011           --           --         26,333        26,333(D)
                                    -------                              -----        -----        -------       -------
Totals                              824,833                              7,800        3,000        770,033       814,033
                                    =======                              =====        =====        =======       =======



(A)  The Company recorded a charge of $788,074 to research and development
     expense in 2001 for options granted to members of the Company's
     Scientific Advisory Board. The charge represents the fair value of the
     options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 5.0%-5.4%,
     (2) no expected dividend yield, (3) expected life of 10 years, and (4)
     expected volatility of 70%-94%.

(B)  The Company recorded charges of $65,176, $25,299 and $110,371 to research
     and development expense in 2003, 2002 and 2001, respectively, related to
     options granted to a consultant in 2001, which vest over five years.
     These charges represent the fair value of the options earned as
     determined in accordance with SFAS No. 123. The Company determined the
     fair value using the Black-Scholes option-pricing model with the
     following assumptions: (1) risk free interest rate of 5.0% and 4.8%-5.6%,
     (2) no expected dividend yield, (3)expected life of 10 years, and (4)
     expected volatility of 70% and 70%-94%, in 2002 and 2001, respectively.

(C)  The Company recorded charges of $43,213 to research and development
     expense and $188,639 to general and administrative expense in 2001 for
     options granted to consultants. These charges represent the fair value of
     the options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 5.0%-5.5%,
     (2) no expected dividend yield, (3) expected life of 10 years, and (4)
     expected volatility of 70%-94%.

(D)  See Note 8.



                                      F-30


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)

   2000 grants and activity through December 31, 2003:




                                            Exercise     Year of
       Grantee                    Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
       -------                    -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                        
Employees                          20,000    $14.12        2010           --        2,500         15,500        17,500
Employees                          60,000     18.13        2010        2,000           --         46,000        58,000
Employees                          62,500     24.38        2010           --           --         54,000        62,500
Employees                           5,000     21.69        2010           --           --          4,000         5,000
Employees                           5,000     16.38        2010           --           --          5,000         5,000
Employees, Officers and Board     229,250      9.44        2010        7,500           --        218,250       221,750
Consultant                          2,000     24.38        2010           --           --          2,000         2,000
Consultant                            500      9.44        2010           --           --             --           500
Scientific Advisory Board          20,000      9.44        2010           --           --         20,000        20,000(A)
PPG                                26,000      9.44        2010           --           --         26,000        26,000(B)
                                  -------                              -----        -----        -------       -------
Totals                            430,250                              9,500        2,500        390,750       418,250
                                  =======                              =====        =====        =======       =======



(A)  The Company recorded a charge of $140,036 to research and development
     expense in 2000 for options granted to members of the Company's
     Scientific Advisory Board. The charge represents the fair value of the
     options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 5.3%, (2)
     no expected dividend yield, (3) expected life of 10 years, and (4)
     expected volatility of 60%.

(B)  See Note 8.

     1999 grants and activity through December 31, 2003:




                                           Exercise     Year of
         Grantee                 Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
         -------                 -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                       
Employees                         51,000     $4.19        2009        14,000       12,000        25,000        25,000
Employees                         20,000      3.75        2009         2,000           --        18,000        18,000
Employees                          5,000      9.63        2009         4,000           --         1,000         1,000
Employees, Officers and Board    280,750      3.88        2009        30,817        5,000       244,933       244,933
Scientific Advisory Board         40,000      4.19        2009            --           --        40,000        40,000
Scientific Advisory Board         55,000      3.88        2009            --           --        55,000        55,000
Consultant                        25,000      3.38        2009        25,000           --            --            --(A)
Consultant                         1,000      4.19        2009         1,000           --            --            --(A)
Consultant                         1,500      3.88        2009         1,000           --           500           500(A)
                                 -------                              ------       ------       -------       -------
Totals                           479,250                              77,817       17,000       384,433       384,433
                                 =======                              ======       ======       =======       =======



(A)  The Company recorded a charge of $2,956 to general and administrative
     expense and $50,849 to research and development expense in 1999 for
     options issued to consultants. These charges represent the fair value of
     the options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using Black-Scholes option-pricing model with
     the following assumptions: (1) risk free interest rate of 4.7%, (2) no
     expected dividend yield, (3) expected life of five to seven years, and
     (4) expected volatility of 81.48%.


                                      F-31


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)

   1998 grants and activity through December 31, 2003:




                                                Exercise     Year of
                  Grantee             Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
                  -------             -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                            
Employees                               5,000     $6.22        2008            --           --         5,000         5,000
Employees                              50,000      5.88        2008            --           --        50,000        50,000
Employees                              40,000      3.75        2008            --       40,000            --            --
Employees, Officers and Board         153,000      4.50        2008        21,000        2,000       130,000       130,000
Scientific Advisory Board              55,000      4.50        2008            --           --        55,000        55,000
                                      -------                              ------       ------       -------       -------
Totals                                303,000                              21,000       42,000       240,000       240,000
                                      =======                              ======       ======       =======       =======



   1997 grants and activity through December 31, 2003:




                                               Exercise     Year of
          Grantee                    Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
          -------                    -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                           
Employees, Officers and Board         42,000     $4.06        2007        16,600         --          25,400        25,400
Employees and Officers               137,235      5.25        2007        17,047         --         120,188       120,188
Employees and Officers                10,500      4.06        2007         5,500         --           5,000         5,000
Employees and Officers                29,765      5.25        2007            --         --          29,765        29,765
Principal Investigators               10,000      4.06        2007            --         --          10,000        10,000(A)
Principal Investigators               45,000      5.25        2007            --         --          45,000        45,000(A)
                                     -------                              ------        ---         -------       -------
Totals                               274,500                              39,147         --         235,353       235,353
                                     =======                              ======        ===         =======       =======



(A)  The Company recorded a charge of $216,000 to general and administrative
     expense in 1997 for options issued to principal investigators of
     Princeton University. This charge represents the fair value of the
     options as determined in accordance with SFAS No. 123. The Company
     determined the fair value using the Black-Scholes option-pricing model
     with the following assumptions: (1) risk free interest rate of 4.3%, (2)
     no expected dividend yield, (3) expected life of 10 years, and (4)
     expected volatility of 70%.

   1996 grants and activity through December 31, 2003:




                                  Exercise     Year of
        Grantee         Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
        -------         -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                              
Employees               20,000      $4.12        2006         4,000       8,000         8,000         8,000
Consultant              10,000       4.12        2006        10,000          --            --            --
                        ------                               ------       -----         -----         -----
Totals                  30,000                               14,000       8,000         8,000         8,000
                        ======                               ======       =====         =====         =====



                                      F-32



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)

   1995 grants and activity through December 31, 2003:




                                         Exercise     Year of
         Grantee               Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
         -------               -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                     
Officer of the Company          70,000     $2.00        2005        70,000         --             --             --
Officer of the Company           5,000      0.01        2005         5,000         --             --             --(A)
Scientific Advisory Board      240,000      4.00        2005       155,000         --         85,000         85,000
                               -------                             -------        ---         ------         ------
Totals                         315,000                             230,000         --         85,000         85,000
                               =======                             =======        ===         ======         ======



(A)  The Company recorded a charge of $9,950 to general and administrative
     expense in 1995 for options issued to an officer of the Company. This
     charge represents the difference between the deemed value of the common
     stock, for accounting purposes, and the exercise price of the options on
     the date of the grant.

Other Options

   In connection with NHA's services relative to consummation of the merger
discussed in Note 3, in June 1995, the Company granted to NHA options to
purchase 84,234 shares of the Company's common stock at an exercise price of
$.29 per share. These options were used to satisfy a liability reflected on
the balance sheet of Enzymatics on the date of the merger. These options
vested immediately on the date of the grant and options to purchase 59,234 of
these shares have been exercised through December 31, 2002. Accordingly, as of
December 31, 2003, options to purchase 25,000 additional shares remain
exercisable. These options expire in 2005.

   The following table summarizes all stock option activity for 2003, 2002 and
2001:




                                                        2003                    2002                    2001
                                                --------------------    --------------------    --------------------
                                                            Weighted                Weighted                Weighted
                                                            Average                  Average                 Average
                                                            Exercise                Exercise                Exercise
                                                 Shares      Price       Shares       Price      Shares       Price
                                               ---------    --------   ---------    --------    ---------   --------
                                                                                          
Outstanding at beginning of year               3,014,019     $ 7.25    2,422,769     $ 7.58     1,665,599    $ 6.57
Granted                                          337,625      12.49      606,750       5.87       824,833      9.29
Exercised                                       (214,200)      3.73      (15,500)      4.67       (56,617)     3.83
Forfeited                                         (3,000)     12.00           --         --       (11,046)    19.70
                                               ---------    --------   ---------    --------    ---------   --------
Outstanding at end of year                     3,134,444       8.05    3,014,019       7.25     2,422,769      7.58
                                               =========    ========   =========    ========    =========   ========
Exercisable at end of year                     2,873,944       6.22    2,814,499       6.88     2,177,106      6.94
                                               =========    ========   =========    ========    =========   ========
Available for future grant                     1,052,101                 605,937                  128,433
                                               =========               =========                =========
Weighted average fair value of
  options granted                                            $10.37                  $ 4.69                  $ 6.94
                                                             ======                  ======                  ======



   The weighted average remaining contractual life for options outstanding as
of December 31, 2003, 2002 and 2001 was seven, seven and eight years,
respectively.


                                      F-33



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)

Common Stock Warrants

   The following table summarizes all of the warrant activity from inception
through December 31, 2003:




                                               Year of
 Year           Granted     Exercise Price    Expiration   Exercised    Forfeited    Exercisable   Outstanding
 ----           ----------   --------------    ----------   ---------    ---------    -----------   -----------
                                                                              
2003              411,337     $8.00-10.14     2008-2010           --          --        411,337       411,337
2002              121,843           24.28          2007           --          --        121,843       121,843
2001            1,156,938      9.52-24.28     2006-2011           --       8,000      1,148,938     1,148,938
2000            1,657,657      9.50-21.60     2005-2010       58,732          --      1,598,925     1,598,925
1999            1,602,701       4.28-4.53          2004    1,465,586       8,055        129,060       129,060
1998              525,000       6.38-7.25          2008           --      75,000        450,000       450,000
1997              450,000       4.80-7.25     2002-2007      246,461         829        202,710       202,710
1996            3,278,000       3.50-8.25     1999-2006    2,114,156      89,344      1,074,500     1,074,500
1995            1,114,000            3.50          1997    1,114,000          --             --            --
               ----------                                  ---------     -------      ---------     ---------
Totals         10,317,476                                  4,998,935     181,228      5,137,313     5,137,313
               ==========                                  =========     =======      =========     =========



Warrant Activity

   The following tables summarize the warrant activity for each year from
inception through December 31, 2003:

   2003 grants and activity through December 31, 2003:




                                            Exercise     Year of
      Grantee                     Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
      -------                     -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                        
PPG                               361,024    $10.14        2010           --          --         361,024       361,024(A)
Private Placement Agent fees       50,313      8.00        2008           --          --          50,313        50,313
                                  -------                                ---         ---         -------       -------
Totals                            411,337                                 --          --         411,337       411,337
                                  =======                                ===         ===         =======       =======



(A)  See Note 8.

   2002 grants and activity through December 31, 2003:




                           Exercise     Year of
   Grantee      Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
   -------      -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                      
PPG             121,843    $24.28        2007          --           --         121,843       121,843(A)
                =======                               ===          ===         =======       =======



(A)  See Note 8.


                                      F-34



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)

   2001 grants and activity through December 31, 2003:




                                                     Exercise      Year of
               Grantee                  Granted       Price       Expiration   Exercised    Forfeited    Exercisable   Outstanding
               -------                 ---------   -----------    ----------   ---------    ---------    -----------   -----------
                                                                                                 
Private Placement                       163,704   $     10.00       2006           --        8,000         155,704       155,704(A)
Private Placement finder's fees          34,500         10.00       2006           --           --          34,500        34,500
PPG                                      28,168         24.28       2008           --           --          28,168        28,168(B)
Private Placement                       744,452    9.52-13.75       2011           --           --         744,452       744,452
Private Placement finder's fees         186,114         12.46       2011           --           --         186,114       186,114
                                      ---------                                   ---        -----       ---------     ---------
Totals                                1,156,938                                    --        8,000       1,148,938     1,148,938
                                      =========                                   ===        =====       =========     =========



(A)  Forfeited due to cancellation of warrants.

(B)  See Note 8.

   2000 grants and activity through December 31, 2003:




                                                  Exercise       Year of
               Grantee                Granted       Price       Expiration   Exercised    Forfeited    Exercisable   Outstanding
               -------               ---------   ------------    ----------   ---------    ---------    -----------   -----------
                                                                                                 
Scientific Advisory Board              227,988   $      12.39       2010            --         --          227,988       227,988(A)
Employee                                90,000          16.75       2010            --         --           90,000        90,000
Acquired Technology                    331,605    17.84-21.60       2007            --         --          331,605       331,605(B)
Agents' fees from 99
  Private Placement                    224,537     9.50-10.00       2005        52,850         --          171,687       171,687
Private Placement                      634,527          10.00       2005         5,882         --          628,645       628,645
Private Placement finder's fees        149,000          10.00       2005            --         --          149,000       149,000
                                     ---------                                  ------        ---        ---------     ---------
Totals                               1,657,657                                  58,732         --        1,598,925     1,598,925
                                     =========                                  ======        ===        =========     =========



(A)  The Company recorded charges of $556,612 and $461,090 to research and
     development expenses, in 2001 and 2000 for the vesting of these warrants.
     The warrants became fully vested on December 31, 2001. The charges
     represent the fair value of the warrants earned as determined in
     accordance with SFAS No. 123. The Company determined the fair value using
     the Black-Scholes option-pricing model with the following assumptions:
     (1) risk free interest rate of 4.8%-5.6% and 5.3%-6.6%, respectively, (2)
     no expected dividend yield, (3) expected life of 10 years and (4)
     expected volatility of 60%.

(B)  See Note 6.

   1999 grants and activity through December 31, 2003:




                                           Exercise      Year of
      Grantee                   Granted      Price      Expiration   Exercised    Forfeited    Exercisable   Outstanding
      -------                  ---------   ----------    ----------   ---------    ---------    -----------   -----------
                                                                                         
Private Placement              1,414,034   $4.28-4.31       2004      1,298,581      7,953        107,500       107,500
Agents' and finders' fees        188,667    4.28-4.53       2004        167,005        102         21,560        21,560
                               ---------                              ---------      -----        -------       -------
Totals                         1,602,701                              1,465,586      8,055        129,060       129,060
                               =========                              =========      =====        =======       =======



                                      F-35



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)


   1998 grants and activity through December 31, 2003:




     Grantee                           Exercise     Year of
     -------                Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
                            -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                  
Employees and Officers      400,000     $6.38        2008           --            --         400,000       400,000
Consultant                  100,000      7.00        2008           --        75,000          25,000        25,000(A)
Consultant                   25,000      7.25        2008           --            --          25,000        25,000(B)
                            -------                                ---        ------     -----------   -----------
Totals                      525,000                                 --        75,000         450,000       450,000
                            =======                                ===        ======     ===========   ===========



(A)  Of the 100,000 warrants granted, 25,000 vested immediately and the
     remaining 75,000 vest based upon the Company's successful entrance into
     the Taiwanese market. The Company determined the fair value of these
     options on the date of the granted to be $107,559, of which amount the
     Company recorded a charge of $26,890 to general and administrative
     expenses. This charge represented the fair value of the 25,000 vested
     warrants and the remaining unamortized portion of the $80,669 was
     recorded as a prepaid consulting fee on the accompanying Consolidated
     Balance Sheets. The Company determined the fair value using the Black-
     Scholes option-pricing model with the following assumptions: (1) risk
     free interest rate of 5.6%, (2) no expected dividend yield, (3) expected
     life of seven years, and (4) expected volatility of 81.48%. In 2002, the
     75,000 unearned warrants were forfeited and the prepaid amount of $80,669
     was reversed.

(B)  In connection with the granting of these warrants, the Company recorded a
     charge of $127,357 to general and administrative expenses, which
     represented the fair value of the warrants as determined in accordance
     with SFAS No. 123. The Company determined the fair value using the Black-
     Scholes option-pricing model with the following assumptions: (1) risk
     free interest rate of 5.5%, (2) no expected dividend yield, (3) expected
     life of seven years, and (4) expected volatility of 81.48%.

   1997 grants and activity through December 31, 2003:




                                        Exercise     Year of
      Grantee                 Granted     Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
      -------                 -------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                    
Princeton University
 and USC under 1997
 Research Agreement           250,000     $7.25        2007        46,461        829         202,710       202,710(A)
Consultants                   200,000      4.80        2002       200,000         --              --            --(B)
                              -------                             -------        ---         -------       -------
Totals                        450,000                             246,461        829         202,710       202,710
                              =======                             =======        ===         =======       =======



   (A) The grantees forfeited these warrants as a result of a cashless
exercise.

   (B) The Company recorded charges in 2000, 1999 and 1998 in the amounts of
$76,329, $176,328 and $176,328, respectively, related to warrants issued to
consultants, which vested over three years. The Company determined the fair
value using the Black-Scholes option-pricing model with the following
assumptions: (1) risk free interest rate of 6.2%, (2) no expected dividend
yield, (3) expected life of 10 years, and (4) expected volatility of 81.48%.

                                      F-36


                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

11.  SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS: --
     (Continued)


   1996 grants and activity through December 31, 2003:




                                               Exercise     Year of
     Grantee                        Granted      Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
     -------                       ---------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                           
Public Offering                    1,495,000    $3.500        1999      1,495,000          --             --            --
Underwriter of Public Offering       130,000     8.250        2001         74,753      55,247             --            --(A)
Underwriter of Public Offering       130,000     3.675        2001         97,650      32,350             --            --(A)
Third Parties                        578,000     4.125        2006        374,613       1,387        202,000       202,000(A)
Employees                            925,000     4.125        2006         52,140         360        872,500       872,500(A)
Consultant                            20,000     6.000        2006         20,000          --             --            --(B)
                                   ---------                            ---------      ------      ---------     ---------
Totals                             3,278,000                            2,114,156      89,344      1,074,500     1,074,500
                                   =========                            =========      ======      =========     =========



(A)  The grantees forfeited these warrants as a result of a cashless exercise.

(B)  In connection with the granting of these warrants, the Company recorded a
     charge of $25,000 to general and administrative expense in 1996, which
     represented the fair value of the warrants as determined in accordance
     with SFAS No. 123. The Company determined the fair value using the Black-
     Scholes option-pricing model with the following assumptions: (1) risk
     free interest rate of 6.6%, (2) no expected dividend yield, (3) expected
     life of 10 years, and (4) expected volatility of 70%.

   1995 grants and activity through December 31, 2003:




                                       Exercise     Year of
       Grantee             Granted      Price     Expiration   Exercised    Forfeited    Exercisable   Outstanding
       -------             ---------   --------    ----------   ---------    ---------    -----------   -----------
                                                                                  
Private Placement         1,114,000     $3.50        1997      1,114,000        --            --            --
                          =========                            =========       ===           ===           ===



12.  RESEARCH CONTRACTS:

   Contract research revenue consists of the following:




                                                                                                           December 31,
                                                                                              -------------------------------------
                                                                                                 2003          2002         2001
                                                                                              ----------    ----------   ----------
                                                                                                                
Department of Defense Advanced Research Projects Agency (DARPA)...........................    $       --    $  827,468   $  720,079
U.S. Army Small Business Innovative Research (SBIR).......................................       610,885       468,618      232,957
Army Research Laboratory (ARL)............................................................       594,789       129,320           --
Department of Energy (DoE) SBIR...........................................................       215,310        43,552           --
National Science Foundation (NSF).........................................................            --            --      105,535
                                                                                              ----------    ----------   ----------
                                                                                              $1,420,984    $1,468,958   $1,058,571
                                                                                              ==========    ==========   ==========



                                      F-37



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

13.  COMMITMENTS:

Lease Commitments


   The Company has several operating lease arrangements for office space and
equipment. Total rent expense was $356,071, $411,300 and $415,952, for the
years ended December 31, 2003, 2002 and 2001, respectively. During 1999, the
Company entered into one capital lease. Minimum future rental payments for
operating and capital leases as of December 31, 2003 are as follows:


                                                   Operating    Capital
        Year                                         Lease       Lease
        ----                                       ----------   -------
        2004 ..................................    $  302,207    $4,065
        2005 ..................................       297,565        --
        2006 ..................................       295,445        --
        2007 ..................................       294,000        --
        2008 and thereafter ...................       294,000        --
                                                   ----------    ------
                                                   $1,483,217     4,065
                                                   ==========
        Less amount representing interest .....                    (179)
        Present value of capital lease ........                  $3,886
                                                                 ======


Other Commitments

   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 $1,495,599 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, $75,000 in 2001, and is $100,000 in 2002 and
each year thereafter.


                                      F-38



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


14.  INCOME TAXES:

   The components of income taxes are as follows:




                                                                       December 31,
                                                         ----------------------------------------
                                                             2003          2002           2001
                                                         -----------    -----------   -----------
                                                                             
Current..............................................    $        --    $        --   $        --
Deferred.............................................     (6,911,806)    (9,916,555)   (6,354,493)
                                                         -----------    -----------   -----------
                                                          (6,911,806)    (9,916,555)   (6,354,493)
Increase in valuation allowance......................      6,911,806      9,916,555     6,354,493
                                                         -----------    -----------   -----------
                                                         $        --    $        --   $        --
                                                         ===========    ===========   ===========



   The difference between the Company's federal statutory income tax rate and
its effective income tax rate is due to non-deductible expenses and the
valuation allowance.

   As of December 31, 2003, the Company had federal net operating loss
carryforwards of approximately $35,814,000, which will begin to expire in 2011,
and state net operating loss carryforwards of approximately $33,460,000, which
will begin to expire in 2004. The net operating loss carryforwards differ from
the accumulated deficit principally due to the timing of the recognition of
certain expenses. In accordance with the Tax Reform Act of 1986, the utilization
of the net operating loss carryforwards could be subject to certain limitations
as a result of certain ownership changes.

   Significant components of the Company's deferred tax assets and liabilities
are as follows:




                                                            December 31,
                                                     ---------------------------
                                                         2003           2002
                                                     ------------   ------------
                                                              
Gross deferred tax assets:
 Net operating loss carryforwards ...............    $ 14,187,288   $ 11,296,842
 Capitalized start-up costs .....................       9,735,652      7,618,801
 Capitalized technology license .................       2,414,778      1,737,767
 Stock options and warrants .....................       3,331,769      2,691,536
 Accruals and reserves ..........................         325,867        135,139
 Deferred revenue ...............................       1,930,648      1,792,855
 Other ..........................................         407,883        149,139
                                                     ------------   ------------
                                                       32,333,885     25,422,079
Valuation allowance .............................     (32,333,885)   (25,422,079)
                                                     ------------   ------------
Net deferred tax asset ..........................    $         --   $         --
                                                     ============   ============



   During 2002, the Company sold approximately $3 million of its net operating
losses (NOLs) to New Jersey under the Technology Tax Certificate Transfer
Program. The Company received $225,657 for the sale of the NOLs and recorded
it as other revenue.

   A valuation allowance was established for all of the net deferred tax assets
because the Company has incurred substantial operating losses since inception
and expects to incur additional losses in 2004. The Company's management has
concluded that the realizability of these deferred tax assets is uncertain.

15.  DEFINED CONTRIBUTION PLAN:

   During 2000, the Company adopted the Universal Display Corporation 401(k)
Plan (the "Plan") in accordance with the provisions of Section 401(k) of the
Internal Revenue Code (the "Code"). The Plan covers substantially all full-
time employees of the Company. Participants may contribute up to 15% of their
total


                                      F-39



                  UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
                         (a development-stage company)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

15.  DEFINED CONTRIBUTION PLAN: -- (Continued)


compensation to the Plan, not to exceed the limit as defined in the Code, with
the Company matching 50% of theparticipant's contribution, limited to 6% of the
participant's total compensation. For the years ending December 31, 2003, 2002
and 2001, the Company contributed $112,023, $91,043 and $83,611 to the Plan,
respectively.

16.  QUARTERLY SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):

   The following tables present certain unaudited consolidated quarterly
financial information for each of the eight quarters in the period ended
December 31, 2003. In the opinion of management, this quarterly information
has been prepared on the same basis as the consolidated financial statements
and includes all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the information for the periods presented. The
results of operations for any quarter are not necessarily indicative of the
results for the full year or for any future period.

   Year ended December 31, 2003:




                                                                                              Three Months Ended
                                                                            -------------------------------------------------------
                                                                             March 31       June 30      September 30   December 31
                                                                           -----------    -----------    ------------   -----------
                                                                                                            
Revenue ................................................................   $ 1,180,947    $ 1,349,956    $ 2,140,335    $ 1,921,955
Net loss ...............................................................    (3,868,746)    (4,092,994)    (3,657,885)    (5,733,580)
Deemed dividends to Preferred shareholders .............................            --             --             --             --
Net loss attributable to Common shareholders ...........................    (3,868,746)    (4,092,994)    (4,692,187)    (5,733,580)
Basic and diluted loss per share .......................................         (0.18)         (0.19)         (0.21)         (0.24)



   Year ended December 31, 2002:




                                                                                              Three Months Ended
                                                                            -------------------------------------------------------
                                                                             March 31       June 30      September 30   December 31
                                                                           -----------    -----------    ------------   -----------
                                                                                                            
Revenue ................................................................   $   534,926    $   455,026    $    612,689   $   882,307
Net loss ...............................................................    (5,298,809)    (5,577,787)    (14,989,910)   (5,152,695)
Deemed dividends to Preferred shareholders .............................            --             --      (1,953,479)           --
Net loss attributable to Common shareholders ...........................    (5,298,809)    (5,577,787)    (16,943,389)   (5,152,695)
Basic and diluted loss per share .......................................        (0.29)          (0.31)          (0.78)        (0.24)



                                      F-40