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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
--------------
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-12031
UNIVERSAL DISPLAY CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2372688
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
375 Phillips Boulevard
Ewing, New Jersey 08618
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(609) 671-0980
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 7, 2003, the registrant had outstanding
21,864,710 shares of Common Stock.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................................................................... 3
Consolidated Balance Sheets - March 31, 2003 (unaudited) and December 31, 2002................. 3
Consolidated Statements of Operations - Three months ended March 31, 2003
and 2002 and inception to March 31, 2003 (unaudited)..................................... 4
Consolidated Statements of Cash Flows - Three months ended March 31, 2003
and 2002 and inception to March 31, 2003 (unaudited)..................................... 5
Notes to Consolidated Financial Statements (unaudited)......................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................... 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................... 14
ITEM 4. CONTROLS AND PROCEDURES............................................................................ 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................. 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................................................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................ 14
ITEM 5. OTHER INFORMATION.................................................................................. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................... 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 2003
(unaudited) December 31, 2002
--------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 11,049,558 $ 15,905,416
Short-term investments 6,114,304 4,662,898
Accounts receivable 880,965 662,822
Prepaids and other current assets 113,931 177,219
-------------- --------------
Total current assets 18,158,758 21,408,355
PROPERTY AND EQUIPMENT, net 4,441,336 4,617,570
AQUIRED TECHNOLOGY, net 12,676,007 13,099,775
INVESTMENTS 1,146,021 379,753
OTHER ASSETS 134,773 133,763
-------------- --------------
$ 36,556,895 $ 39,639,216
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligations $ 4,853 $ 4,713
Accounts payable 329,810 388,286
Accrued expenses 927,028 1,084,889
Deferred license fees 1,166,667 1,066,667
Deferred revenue 67,204 322,204
-------------- --------------
Total current liabilities 2,495,562 2,866,759
-------------- --------------
CAPITAL LEASE OBLIGATIONS 2,615 3,886
DEFERRED LICENSE FEES 3,100,000 3,100,000
-------------- --------------
Total liabilities 5,598,177 5,970,645
SHAREHOLDERS' EQUITY
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized,
200,000 shares Series A Nonconvertible Preferred Stock issued and
Outstanding (liquidation value of $7.50 per share or $1,500,000),
300,000 shares Series B Convertible Preferred Stock issued and
outstanding (liquidation value of $21.48 per share or $6,444,000),
5,000 shares of Series C-1 Convertible Preferred Stock authorized and
none outstanding, 5,000 shares of Series D Convertible Preferred Stock
authorized and none outstanding 5,000 5,000
Common Stock, par value $.01 per share, 50,000,000
shares authorized, 21,611,994 and 21,525,412 shares
issued and outstanding, respectively 216,120 215,254
Additional paid-in capital 114,702,569 113,541,408
Accumulated other comprehensive loss (21,720) (18,586)
Deficit accumulated during development-stage (83,943,251) (80,074,505)
-------------- --------------
Total shareholders' equity 30,958,718 33,668,571
-------------- --------------
$ 36,556,895 $ 39,639,216
============== ==============
The accompanying notes are an integral part of these statements
-3-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31, Period from Inception
------------------------------------ (June 17, 1994) to
2003 2002 March 31, 2003
------------ ------------ -------------------
REVENUE:
Contract research revenue $ 369,147 $ 447,083 $ 4,371,367
Development chemicals 561,800 87,843 1,549,648
Technology development revenue 250,000 -- 432,796
------------ ------------ --------------
Total revenue 1,180,947 534,926 6,353,811
------------ ------------ --------------
OPERATING EXPENSES:
Research and development 3,927,551 3,849,548 51,157,069
General and administrative 1,098,981 957,856 21,443,128
Royalty expense 87,500 -- 412,500
------------ ------------ --------------
Total operating expenses 5,114,032 4,807,404 73,012,697
------------ ------------ ------------
Operating loss (3,933,085) (4,272,478) (66,658,886)
INTEREST INCOME 59,563 128,362 2,114,528
INTEREST EXPENSE (224) (1,154,693) (5,146,955)
DEBT CONVERSION AND EXTINGUISHMENT EXPENSE -- -- (10,011,780)
OTHER INCOME 5,000 -- 230,657
------------ ------------ --------------
NET LOSS (3,868,746) (5,298,809) (79,472,436)
DEEMED DIVIDEND TO PREFERRED
SHAREHOLDERS -- -- (4,470,815)
------------ ------------ --------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ (3,868,746) $ (5,298,809) $ (83,943,251)
============ ============ ==============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.18) $ (0.29)
============ ============
WEIGHTED AVERAGE SHARES USED
IN COMPUTING BASIC AND DILUTED
NET LOSS PER COMMON SHARE 21,543,505 18,435,253
============ ============
The accompanying notes are an integral part of these statements.
-4-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Period from Inception
March 31, (June 17, 1994) to
2003 2002 March 31, 2003
----------- ----------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,868,746) $(5,298,809) $(79,472,436)
Non-cash charges to statement of operations:
Depreciation 514,510 358,952 4,201,590
Amortization of intangibles 423,768 423,768 4,274,711
Amortization of discounts on Convertible
Promissory Note -- 1,091,782 14,734,168
Issuance of Common Stock options and warrants
for services 12,506 1,709 1,623,066
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 -- -- 439,370
Issuance of redeemable Common Stock, Common Stock
options and warrants in connection with
development agreement 990,051 1,542,951 9,423,859
Issuance of Common Stock options and warrants for
Scientific Advisory Board -- -- 1,947,369
Issuance of Common Stock in connection with
License Agreement -- -- 71,816
Acquired in-process technology -- -- 350,000
(Increase) decrease in assets:
Accounts receivable (218,143) 48,398 (880,965)
Other current assets 63,288 (10,793) 234,385
Other assets (1,010) (13,000) (134,773)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (85,007) (315,119) 957,588
Payable to related parties -- -- 250,000
Deferred license fees 100,000 666,667 4,266,667
Deferred revenue (255,000) -- 67,204
----------- ----------- ------------
Net cash used in operating activities (2,323,783) (1,503,494) (34,526,052)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (338,276) (780,460) (7,760,905)
Purchase of intangibles -- -- (25,750)
Purchases of investments (3,085,000) (1,446,492) (35,951,605)
Proceeds from sale of investments 864,192 1,352,000 28,669,560
Restricted cash -- 20,090 --
----------- ----------- ------------
Net cash used in investing activities (2,559,084) (854,862) (15,068,700)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock -- -- 31,031,937
Proceeds from issuance of Preferred Stock -- -- 9,137,079
Proceeds from issuance of Convertible Promissory
Notes and equity instruments -- -- 15,000,000
Repayment of Convertible Promissory Notes -- -- (8,819,997)
Proceeds from the exercise of Common Stock
options and warrants 28,140 -- 14,307,844
Principal payments on capital lease (1,131) (1,015) (12,553)
----------- ----------- ------------
Net cash provided by (used in) financing activities 27,009 (1,015) 60,644,310
----------- ----------- ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,855,858) (2,359,371) 11,049,558
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,905,416 7,883,132 --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $11,049,558 $ 5,523,761 $ 11,049,558
=========== =========== ============
The accompanying notes are an integral part of these statements.
-5-
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BACKGROUND:
Universal Display Corporation (the "Company"), a development-stage company, is
engaged in the research and development and commercialization of organic light
emitting device ("OLED") technologies and materials for potential flat panel
display and other applications.
The Company, formerly known as Enzymatics, Inc. ("Enzymatics"), was incorporated
under the laws of the Commonwealth of Pennsylvania on April 24, 1985, and
commenced its current business activities on August 1, 1994. The New Jersey
corporation formerly known as Universal Display Corporation and now known as
UDC, Inc. ("UDC") was incorporated under the laws of the State of New Jersey on
June 17, 1994.
The Company also sponsors substantial OLED technology research being conducted
at the Advanced Technology Center for Photonics and Optoelectronic Materials at
Princeton University and at the University of Southern California ("USC") (on a
subcontract basis with Princeton University), pursuant to a Research Agreement
between the Company and the Trustees of Princeton University dated October 9,
1997 (as amended, the "1997 Research Agreement") (Note 3). The Company
previously sponsored OLED technology research conducted at Princeton University
under a Sponsored Research Agreement between the Trustees of Princeton
University and American Biomimetics Corporation ("ABC") dated August 1, 1994 (as
amended, the "1994 Sponsored Research Agreement"). ABC, a privately held
Pennsylvania corporation that is affiliated with the Company, assigned its
rights and obligations under the 1994 Sponsored Research Agreement to the
Company in October 1995.
Pursuant to a License Agreement between the Trustees of Princeton University and
ABC dated August 1, 1994 (as amended, the "1994 License Agreement"), Princeton
University granted the Company a worldwide exclusive license, with rights to
sublicense, to make, have made, use, lease and/or sell products and to practice
processes based on a pending patent application of Princeton University relating
to OLED technology. Under the 1994 License Agreement, Princeton University
further granted ABC similar license rights with respect to patent applications
and issued patents arising out of work performed by Princeton University under
the 1994 Sponsored Research Agreement. ABC assigned its rights and obligations
under the 1994 License Agreement to the Company in June 1995. On October 9,
1997, the Company and Princeton University entered into an Amended License
Agreement that amended and restated the 1994 License Agreement (as amended, the
"1997 Amended License Agreement") (Note 3). Under the 1997 Amended License
Agreement, Princeton University granted the Company corresponding license rights
with respect to patent applications and issued patents arising out of work
performed by Princeton University and USC under the 1997 Research Agreement.
The Company conducts a substantial portion of its OLED technology development
activities at its technology development and transfer facility in Ewing, New
Jersey. The Company moved its operations to this facility in the fourth quarter
of 1999 and expanded the facility from 11,000 square feet to 21,000 square feet
in 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of March 31,
2003, and the results of operations and cash flows for the three months ended
March 31, 2003 and 2002. While management believes that the disclosures
presented are adequate to make the information not misleading, these unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto in the Company's latest
year-end financial statements, which were included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
Principles of Consolidation
The consolidated financial statements include the accounts of Universal Display
Corporation and its wholly owned subsidiary, UDC, Inc. All significant
intercompany transactions and accounts have been eliminated.
-6-
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
Cash and cash equivalents are defined as cash and highly liquid investments with
original maturities of less than three months. At March 31, 2003, cash and cash
equivalents included cash on hand, cash in banks, money market accounts and
certificate of deposits.
The Company classifies its investments as available-for-sale in accordance with
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." These
investments are carried at fair market value, with unrealized gains and losses
reported in shareholders' equity as a component of other comprehensive income
(loss). Gains or losses on securities sold are based on the specific
identification method. Investments classified as current have maturity dates of
greater then three months but less than one year. Investments classified as
long-term have maturity dates greater than one year.
The Company reported unrealized holding losses of $21,720 and $18,586 at March
31, 2003 and December 31, 2002, respectively. Comprehensive loss, which includes
the net loss and change in unrealized holding losses, was $3,871,880 and
$5,300,050 for the three months ended March 31, 2003 and 2002, respectively.
Fair Value of Financial Instruments
Cash and cash equivalents, short-term investments, 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. The carrying amount of capital lease obligations
approximate fair value at the balance sheet dates.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful life of 3 to 7 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.
Acquired Technology
Acquired technology consists of acquired license rights for patents and know-how
obtained from PD-LD, Inc. and Motorola, Inc. (Note 4). These intangible assets
consist of the following:
March 31, 2003 December 31, 2002
-------------- -----------------
PD-LD, Inc. $ 1,481,250 $ 1,481,250
Motorola 15,469,468 15,469,468
----------- -----------
16,950,718 16,950,718
Less: Accumulated amortization (4,274,711) (3,850,943)
----------- -----------
Acquired Technology, net $12,676,007 $13,099,775
=========== ===========
Acquired technology is amortized on a straight-line basis over its estimated
useful life of ten years.
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
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 March 31, 2003 and December 31, 2002, 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.
-7-
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss attributable to
Common Stock shareholders by the weighted-average number of shares of Common
Stock outstanding for the period. Diluted net loss per common share reflects the
potential dilution from the exercise, or conversion of securities into Common
Stock. For the three months ended March 31, 2003 and 2002, the effects of the
exercise of 8,196,174 and 7,278,203 outstanding stock options and warrants,
respectively, 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
OLED 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.
The Company receives non-refundable advanced payments in connection with certain
joint development, technology evaluation and license agreements it enters into.
Certain of these payments are creditable against future license fees 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 are
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 a technology evaluation agreement and are not creditable
against license fees are deferred and revenue is recognized over the term of the
agreement as technology development revenue.
Research and Development
Expenditures for research and development are charged to operations as incurred.
Recent Accounting Pronouncements
In July 2002, the FASB Issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses the financial accounting and
reporting of expenses related to restructurings initiated after 2002, and
applies to costs associated with an exit activity (including a restructuring) or
with a disposal of long-lived assets. Those activities can include eliminating
or reducing product lines, terminating employees and contracts, and relocating
plant facilities or personnel. Under SFAS No. 146, a company will record a
liability for a cost associated with an exit or disposal activity when the
liability is incurred and can be measured at fair value. The provisions of SFAS
No. 146 are effective prospectively for exit or disposal activities initiated
after December 31, 2002. The adoption of this statement had no effect on the
Company's financial statements.
In 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 were applicable to guarantees issued or
modified after December 31, 2002 and had no impact on the Company's financial
statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation- Transition and Disclosure," which amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," which addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable interest
entities created after January 31, 2003, and to variable interests in variable
interest entities obtained after January 31, 2003. The application of this
Interpretation had no effect on the Company's financial statements.
The EITF recently reached a consensus on EITF Issue No. 00-21, which provides
accounting guidance for customer solutions where delivery or performance of
products, services and/or performances may occur at different points in time or
over different periods of time. Companies are required to adopt this consensus
for fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No.
00-21 is not expected to have a significant impact on the Company's financial
position, results of operations, or liquidity.
-8-
In April 2003, the FASB Issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement is effective for contracts entered into or modified
after June 30, 2003, except for certain instruments involving the purchase or
sale of certain securities. The Company is still evaluating what effect this
Amendment will have on the Company's consolidated financial statements.
Statement of Cash Flow Information
The following non-cash investing and financing activities occurred:
Three months ended March 31,
-----------------------------
2003 2002
------ ------
Unrealized loss on investments $3,134 $1,241
Stock Options
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25)
under which no compensation cost has been recognized for options issued to
employees at fair market value on the date of grant. In 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 established a fair value based method of accounting
for stock-based compensation plans. SFAS No. 123 requires that a company's
financial statements include certain disclosures about stock-based employee
compensation arrangement regardless of the method used to account for the plan.
The Company accounts for its stock option and warrant grants to non-employees in
exchange for goods or services in accordance with SFAS No. 123 and Emerging
Issues Task Force No. 96-18 ("EITF 96-18"). SFAS 123 and EITF 96-18 require that
the Company account for its option and warrant grants to non-employees based on
the fair value of the options and warrants granted.
SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as
expense the fair value of stock-based awards, or (ii) continue to apply the
provisions of APB No. 25, and provide pro forma net income and earnings per
share disclosures for employee stock option grants as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company continues to apply
the provisions of APB No. 25 and provide the pro forma disclosures in accordance
with the provisions of SFAS Nos. 123 and 148 to its stock option plans. Under
APB No. 25, the Company has not recorded any stock-based employee compensation
cost associated with the Company's stock option plan, as all options granted
under the plan had an exercise price equal to the market value of the underlying
common stock on the date of grant.
The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
its stock option plans:
Three months ended March 31,
----------------------------
2003 2002
----------- -----------
Net loss applicable to Common shareholders:
As reported $(3,868,746) $(5,298,809)
Add stock-based employee compensation
expense included in reported net income -- --
Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all rewards (252,636) (271,403)
----------- -----------
Pro forma (4,121,382) (5,570,212)
=========== ===========
Basic and diluted net loss per share:
As reported $ (0.18) $ (0.29)
Pro forma (0.19) (0.30)
-9-
3. RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY:
In April 2002, the Company amended the 1997 Research Agreement with Princeton
University providing, among other things, for an additional five-year term. The
Company is obligated to pay Princeton University up to $7,477,993 under the 1997
Research Agreement from July 31, 2002 through July 31, 2007. Payments to
Princeton University under this agreement are charged to research and
development expenses when they become due. As of March 31, 2003, the Company has
funded $1,212,052 of this agreement and is obligated to fund an additional
$6,265,941 through July 2007.
Under the 1997 Amended License Agreement, the Company is required to pay
Princeton University royalties for licensed products sold by the Company or its
sublicensees. For licensed products sold by the Company, the Company is required
to pay Princeton University 3% of the net sales price of these products. For
licensed products sold by the Company's sublicensees, the Company is required to
pay Princeton University 3% of the revenues received by the Company from these
sublicensees. These royalty rates are subject to upward adjustments under
certain conditions.
The Company is obligated under the 1997 Amended License Agreement to pay to
Princeton University minimum annual royalties. The minimum royalty payment was
$25,000 in 1999, $50,000 in 2000, $75,000 in 2001, and $100,000 in 2002 and
thereafter. Accordingly, the Company accrued $25,000 of royalty expense for the
three months ended March 31, 2003. These royalties are charged to research and
development expense in the year they become due.
The Company also is required under the 1997 Amended License Agreement to use
commercially reasonable efforts to bring the licensed OLED technology to market.
However, this requirement is deemed satisfied provided the Company performs its
obligations under the 1997 Research Agreement and, when that agreement ends, the
Company invests a minimum of $800,000 per year in research, development,
commercialization or patenting efforts respecting the patent rights licensed to
the Company.
In connection with executing the Research Agreement and the Amended License
Agreement, in 1997 the Company issued to Princeton University 140,000 shares of
the Company's Common Stock and 10 year warrants to purchase an additional
175,000 shares of the Common Stock at an exercise price of $7.25 per share
vesting immediately. The Company also issued to USC 60,000 shares of the Common
Stock and 10 year warrants to purchase an additional 75,000 shares of the Common
Stock at an exercise price of $7.25 per share vesting immediately.
4. ACQUIRED TECHNOLOGY:
On July 19, 2000, the Company, PD-LD, Inc. ("PD-LD"), its president Dr. Vladimir
Ban and the Trustees of Princeton University entered into a Termination,
Amendment and License Agreement whereby the Company acquired all PD-LD's rights
to certain issued and pending OLED technology patents in exchange for 50,000
shares of the Company's Common Stock. Pursuant to this transaction, these
patents were included in the patent rights exclusively licensed to the Company
under the 1997 Amended License Agreement. The acquisition of these patents had a
fair value of $1,481,250 (Note 2).
On September 29, 2000, the Company entered into a License Agreement with
Motorola, Inc. ("Motorola"). Pursuant to this agreement, the Company licensed
from Motorola 72 U.S. patents, 6 U.S. patent applications and additional foreign
patents relating to OLED technologies. These patents expire between 2012 and
2018. The Company has the sole right to sublicense these patents to OLED
manufacturers. As consideration for this license, the Company issued to Motorola
200,000 shares of the Company's Common Stock (valued at $4,412,500), 300,000
shares of the Company's Series B Convertible Preferred Stock (valued at
$6,618,750), and a warrant to purchase 150,000 shares of the Company's Common
Stock at $21.60 per share. This warrant became exercisable on September 29,
2001, and will remain exercisable until September 29, 2008. The warrant was
recorded at a fair market value of $2,206,234 based on the Black-Scholes
option-pricing model, and was recorded as a component of the cost of the
acquired technology. The Company also issued a warrant to an unaffiliated third
party to acquire 150,000 shares of Common Stock as a finder's fee in connection
with this transaction. This warrant was granted with an exercise price of $21.60
per share and was exercisable immediately and will remain exercisable until
September 29, 2007. This warrant was accounted for at its fair value based on
the Black-Scholes option pricing model and $2,206,234 was recorded as a
component of the cost of the acquired technology. The Company used the following
assumptions in the Black-Scholes option pricing model for the 300,000 warrants
issued in connection with this transaction: (1) 6.3% risk-free interest rate,
(2) expected life of 7 years, (3) 60% volatility, and (4) zero expected dividend
yield. In addition, the Company incurred $25,750 of direct cash transaction
costs that have been included in the cost of the acquired technology. In total,
the Company recorded an intangible asset of $15,469,468 for the technology
acquired from Motorola (Note 2).
The Company is required under the License Agreement to pay Motorola on gross
revenues earned by the Company for its sales of OLED products or components, or
from its sublicensees for their sales of OLED products or components, whether or
not these products or components are based on inventions claimed in the patent
rights licensed from Motorola. Moreover, the Company is required to pay Motorola
minimum royalties of $150,000 for the two-year period ending on December 31,
2002, $500,000 for the two-year period ending on December 31, 2004, and
$1,000,000 for the two-year period ending on December 31, 2006. All royalty
payments may be made, at the Company's discretion, in either all cash or 50%
cash and 50% in shares of the Company's Common Stock. The number of shares of
Common Stock used to pay the stock portion of the royalty is equal to 50% of the
royalty due divided by the average daily closing price per share of the
Company's Common Stock over the 10 trading days ending two business days prior
to the date the Common Stock is issued. Accordingly, the Company accrued $62,500
of royalty expense for the three months ended March 31, 2003.
-10-
5. COMMON STOCK AND WARRANTS ISSUED UNDER THE PPG DEVELOPMENT AND LICENSE
AGREEMENT:
On October 1, 2000, the Company entered into a five-year Development and License
Agreement with PPG Industries, Inc. ("PPG") to leverage the Company's OLED
technologies with PPG's expertise in the development and manufacturing of
organic materials. A team of PPG scientists and engineers are assisting the
Company in developing and commercializing its proprietary OLED materials. In
consideration for PPG's services under the agreement, the Company is required to
issue shares of its Common Stock and warrants to acquire its Common Stock to PPG
on an annual basis over the period from January 1, 2001 through December 31,
2005. The amount of securities the Company is required to issue is subject to
adjustment under certain circumstances, as defined in the agreement. In January
2003, the Company amended the Development and License Agreement, providing for
additional consideration to PPG for services provided under the agreement, which
are to be paid for in cash. The Company records these expenses to research and
development as they are incurred.
During the first quarter of each of 2003 and 2002, the Company issued to PPG
305,715 and 344,379 shares of the Company's Common Stock as consideration for
services required to be provided by PPG under the Development and License
Agreement in 2003 and 2002, respectively. During the three months ended March
31, 2003 and 2002, respectively, the Company recorded a charge of $523,005 and
$820,368 to research and development expense for the portion of the shares
issued that were earned during the period the services were provided. The charge
was determined based on the fair value of the Common Stock earned by PPG as of
March 31, 2003 and 2002.
As required under the Development and License Agreement, the Company issued
16,645 shares of Common Stock to PPG in February 2003. The additional shares
were issued to PPG based on a final accounting for actual costs incurred by PPG
under the agreement through December 31, 2002. Accordingly, the Company accrued
$131,329 of additional research and development expense as of December 31, 2002,
for these additional shares.
In further consideration of the services performed by PPG under the Development
and License Agreement, the Company is required to issue warrants to PPG to
acquire shares of the Company's Common Stock. The number of warrants earned and
issued is based on the number of shares of Common Stock earned by, and issued
to, PPG by the Company during each calendar year of the term of the agreement.
Accordingly, the Company issued warrants to PPG to acquire 361,024 shares of the
Company's Common Stock as part of the consideration for services performed by
PPG during 2002. The warrants were earned and charged to research and
development expenses during 2002, but were not issued until February 2003. The
Company will similarly issue warrants to PPG for services performed during 2003
in the first quarter of 2004 and charge the related fair value of the warrants
to research and development in 2003 as they are earned.
During the three months ended March 31, 2003 and 2002, the Company recorded
charges to research and development expense of $410,987 and $672,220,
respectively, for the portion of the warrants that were earned by PPG during
these periods. These charges were recorded based on the estimated fair value of
the warrants earned. The Company determined the fair value of the warrants
earned during each such period using the Black-Scholes option-pricing model with
the following assumptions: (1) risk free interest rate of 3.350% and 5.443%, (2)
no expected dividend yield, (3) expected life of 7 years, and (4) expected
volatility of 94%, respectively.
The Company is required to grant options to purchase the Company's Common Stock
to PPG employees performing services for the Company under the Development and
License Agreement. Subject to certain contingencies, all of these options vest
one-year from the date of grant and expire 10 years from the date of grant.
On December 17, 2001, the Company granted to PPG employees performing services
under the agreement options to purchase 26,333 shares of the Company's Common
Stock at an exercise price of $8.56 per share. During the three months ended
March 31, 2002, the Company recorded $50,363 in research and development costs
related to these options.
On September 23, 2002, the Company granted to PPG employees performing services
under the agreement options to purchase 30,000 shares of the Company's Common
Stock at an exercise price of $5.45. During the three months ended March 31,
2003, the Company recorded $56,059 in research and development costs related to
these options.
The Company determined the fair value of the options earned during the three
months ended March 31, 2003 and 2002, respectively, using the Black-Scholes
option-pricing model with the following assumptions: (1) risk free interest rate
of 3.70% and 5.443%, (2) no expected dividend yield, (3) expected life of 10
years, and (4) expected volatility of 94%, respectively.
6. RESTRICTED CASH AND CONVERTIBLE PROMISSORY NOTES:
In an August 2001 private placement transaction, the Company issued two
$7,500,000 notes, each with a maturity date of August 22, 2004 (the "Notes").
The Notes were convertible into shares of the Company's Common Stock at an
initial conversion price of $13.97 per share, with such conversion price subject
to change based on anti-dilution provisions and other adjustments.
-11-
In August 2002, the Company completed a registered direct offering of Common
Stock to institutional investors that was deemed dilutive under the terms of the
Notes. As a result, the conversion price of the Notes was reduced to $5.09. In
September 2002, $7,000,002 in principal amount of the Notes was converted into
1,375,246 shares of Common Stock and $7,999,998 in principal amount of the Notes
was repaid, together with a prepayment premium, established under the Notes, of
$400,000 in cash.
The Company's obligations under the Notes were secured by irrevocable letters of
credit issued with face amounts equal to the outstanding principal of the
related Notes. The $15,000,000 in proceeds from the sale of the Notes was
pledged as collateral to the bank issuing the letters of credit. Prior to the
conversion and repayment of the Notes, the $15,000,000 in cash proceeds plus
accrued but unpaid interest had been classified as restricted cash.
In accordance with APB No. 14, "Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants" ("APB No. 14"), the Company determined in August
2001 the relative fair value of the Notes to be $9,857,006. The resulting
original issuance discount ("OID") of $5,142,994 was being amortized as interest
expense, using the effective interest method, over the original maturity period
of three years. During the three months ended March 31, 2002, the Company
recognized a non-cash charge to interest expense of $660,121 for amortization of
the OID.
In accordance with Emerging Issues Task Force ("EITF") No. 00-27, "Application
of Issue No. 98-5 to Certain Convertible Instruments" ("EITF No. 00-27"), and
EITF No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" ("EITF No. 98-5"), and
after considering the allocation of the proceeds to the Notes, the Company
determined in August 2001 that the Notes contained an initial beneficial
conversion feature ("BCF"). The BCF existed at the commitment date due to the
fact that the carrying value of the Notes, after the initial allocation of the
proceeds, was less than the fair market value of the Common Stock that was
issuable upon conversion. Accordingly, the Company recorded $3,258,468 of BCF in
August 2001 as a debt discount. The BCF debt discount was being amortized as
interest expense, using the effective interest method, over the original
maturity period of three years. During the three months ended March 31, 2002,
the Company recognized a non-cash charge to interest expense of $431,661 for
amortization of the BCF.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS
All statements in this document that are not historical, such as financial or
product forecasts and market growth predictions, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Often, though not always, these statements are accompanied by the words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions. You are cautioned not to place undue reliance on any
forward-looking statements in this document, as they reflect Universal Display
Corporation's current views with respect to future events and are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated. These include, but are not limited to, the following:
the feasibility and market acceptance of OLEDs for use in commercial product
applications; the success of Universal Display Corporation and its research and
development partners in accomplishing advances in OLED technologies, including
Universal Display Corporation's TOLED, FOLED, PHOLED, P2OLED and Organic Vapor
Phase Deposition (OVPD) technologies; the ability of Universal Display
Corporation to enter into licensing and other strategic alliances with
manufacturers of OLEDs and OLED-containing products; Universal Display
Corporation's ability to obtain patent protection for its OLED technologies and
to assert these patents against others; and future developments and advances by
Universal Display Corporation's competitors in OLED and other display
technologies. These and other risks and uncertainties are discussed in greater
detail in Universal Display Corporation's periodic reports on Form 10-K and Form
10-Q filed with the Securities and Exchange Commission, including, in
particular, the section entitled "Factors that May Affect Future Results and
Financial Condition" in Universal Display Corporation's annual report on Form
10-K for the year ended December 31, 2002. Universal Display Corporation
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement contained in this document
to reflect events or circumstances after the date hereof, or to reflect the
occurrence of unanticipated events.
General
Since inception, the Company has been exclusively engaged, and for the
foreseeable future expects to continue to be exclusively engaged, in funding and
performing research and development activities related to OLED technologies and
associated materials, and in attempting to commercialize these technologies and
materials. The Company has incurred significant losses since its inception,
resulting in an accumulated deficit of $83,943,251 as of March 31, 2003. The
rate of loss is expected to increase as the Company's activities increase, and
losses are expected to continue for the foreseeable future and until such time,
if ever, as the Company is able to achieve, from the commercial licensing of its
OLED technologies and sale of its OLED materials, revenues that are sufficient
to support its operations.
-12-
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
The Company had a net loss of $ 3,868,746 (or $0.18 per share) for the quarter
ended March 31, 2003, compared to a net loss of $5,298,809 (or $0.29 per share)
for the same period in 2002. The decrease in net loss is primarily attributed to
the following:
o an increase in revenues; and
o a decrease in interest expense as a result of the conversion and
repayment of convertible promissory notes in September 2002, which is
described in greater detail in Note 6 of the Notes to Consolidated
Financial Statements.
The Company earned $369,147 in contract research revenue from the U.S.
Government in the quarter ended March 31, 2003, compared to $447,083 for the
same period in 2002. In the quarter ended March 31,2003, the Company had five
existing government contracts and one new government contract, four of which
were in the early stages of performance. In the first quarter of 2002, 50% of
the contract revenue was generated from one contract, which was completed in
December 2002. In the quarter ended March 31, 2003, contract research revenue
was mainly derived from the following government contracts:
o $105,412 recognized under a 24-month, $729,158 SBIR Phase II contract
received from the Department of Defense ("DoD"), which commenced in
February 2001 and was completed in February 2003,
o $158,007 recognized under a 24-month, $2,013,725 cooperative agreement
received from the U.S. Army Research Laboratories ("ARL"), which
commenced in August 2002, and
o $49,889 recognized under a $49,889 Option to Extend an SBIR Phase I
contract received from the U.S. Department of the Army.
The Company earned $561,800 from its sales of OLED materials for evaluation
purposes in the quarter ended March 31, 2003, compared to $87,843 for the same
period in 2002. The increase in this amount is mainly due to an increased volume
of OLED materials purchased for evaluation by potential OLED manufacturers,
including the Company's current joint development partners.
The Company recognized $250,000 in technology development revenue from deferred
revenue in connection with a technology and development evaluation agreement,
which commenced in October 2002. There were no such agreements in effect for the
same period in 2002.
The Company incurred research and development expenses of $3,927,551 for the
quarter ended March 31, 2003, compared to $3,849,548 for the same period 2002.
The increase in these expenses was primarily a result of further development and
operation of the Company's facility in Ewing, New Jersey.
General and administrative expenses for the Company were $1,098,981 for the
quarter ended March 31, 2003, compared to $957,856 for same period in 2002. The
increase in these expenses is mainly due to increased salaries, the hiring of an
additional employee and increased costs of operations, including increases in
shareholder services, corporate and employee insurance premiums and
depreciation.
The Company's interest expense was $224 for the quarter ended March 31, 2003,
compared to $1,154,693 for the same period in 2002. The decrease is a result of
the conversion and repayment of convertible promissory notes in September 2002.
For further discussion, see Note 6 of the Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
As of March 31, 2003, the Company had cash and cash equivalents of $11,049,558,
short-term investments of $6,114,304 and long-term investments of $1,146,021.
This compares to cash and cash equivalents of $15,905,416, short-term
investments of $4,662,898 and long-term investments of $379,753 as of December
31, 2002.
In the quarter ended March 31, 2003, the cash used in operating activities was
$2,323,783 as compared to $1,503,494 for the same period in 2002. The increased
use of cash in operating activities is mainly due to an increase in accounts
receivable and a decrease in deferred revenue. In the quarter ended March 31,
2003, the Company received no non-refundable cash payments in connection with
its joint development and technology evaluation agreements. For the same period
in 2002, the Company received non-refundable cash payments of $666,667. All
amounts received under these agreements have been recorded as unearned revenue.
Working capital decreased to $15,663,196 at March 31, 2003 from working capital
of $18,541,596 at December 31, 2002. The net decrease is due primarily to the
use of cash in operating activities and the investment of cash in long term
investments.
-13-
The Company anticipates, based on management's internal forecasts and
assumptions relating to its operations (including assumptions regarding working
capital requirements of the Company, the progress of research and development,
the availability and amount of other sources of funding available to Princeton
University for research relating to the OLED technology and the timing and costs
associated with the preparation, filing and prosecution of patent applications
and the enforcement of intellectual property rights), that it has sufficient
cash, cash equivalents and short term investments to meet its obligations into
2004. Management believes that potential additional financing sources for the
Company include long-term and short-term borrowings, public and private sales of
the Company's equity and debt securities and receipt of cash upon the exercise
of warrants. It should be noted, however, that substantial additional funds will
be required in the future for research, development and commercialization of the
Company's OLED technologies and OLED materials, to obtain and maintain patents
and other intellectual property rights in these technologies and materials, and
for working capital and other purposes, the timing and amount of which are
difficult to ascertain. For example, under the Company's Research Agreement with
Princeton University, the Company is required to pay Princeton University up to
$1,495,599 per year through July 2007. There can be no assurance that additional
funds will be available to the Company when needed, on commercially reasonable
terms or at all.
Critical Accounting Policies
Refer to the Company's Annual Report on Form 10-K for the year ended December
31, 2002 for a discussion of critical accounting policies. During the three
months ended March 31, 2003, there were no material changes to these policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments that could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates, which would impact
interest income earned on investments.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this report, that the Company's disclosure controls and procedures have
functioned effectively so as to provide those officers the information necessary
to evaluate whether:
(i) this report contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report, and
(ii) the financial statements and other financial information included
in this report fairly present, in all material respects, the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report.
There have been no significant changes in the Company's internal controls or
other procedures since the date of the Chief Executive Officer's and the Chief
Financial Officer's evaluation that could significantly affect these internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings of a material
nature.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of its security holders in
the first quarter of 2003.
-14-
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following is a list of the exhibits filed as part of this report.
For exhibits incorporated by reference, the location of the exhibit in
the previous filing is indicated by footnote.
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation of the Company
10.42 Equity Compensation Plan (1)
10.43# Change in Control Agreement between the Company and Sherwin I.
Seligsohn dated as of April 28, 2003
10.44# Change in Control Agreement between the Company and Steven V.
Abramson dated as of April 28, 2003
10.45# Change in Control Agreement between the Company and Sidney D.
Rosenblatt dated as of April 28, 2003
10.46# Change in Control Agreement between the Company and Julia J.
Brown dated as of April 28, 2003
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
______________
Explanation of Footnotes to Listing of Exhibits:
# Management contract or compensatory plan or arrangement
(1) Incorporated by reference to Appendix B to the Company's Proxy
Statement for the Annual Meeting of Shareholders, filed with
the SEC on April 28, 2003.
(b) Reports on Form 8-K:
Current Report on Form 8-K, filed with the SEC on March 31, 2003,
reporting Items 7 and 12, and containing, as an exhibit, a press
release announcing the Company's 2002 year-end results.
-15-
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL DISPLAY CORPORATION
Date: May 13, 2003 By: Sidney D. Rosenblatt
--------------------------------
Sidney D. Rosenblatt
Executive Vice President and
Chief Financial Officer
-16-
CERTIFICATION
I, Sherwin I. Seligsohn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Display
Corporation (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 By: Sherwin I. Seligsohn
--------------------------------
Sherwin I. Seligsohn
Chairman of the Board and
Chief Executive Officer
-17-
CERTIFICATION
I, Sidney D. Rosenblatt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Display
Corporation (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 By: Sidney D. Rosenblatt
--------------------------------
Sidney D. Rosenblatt
Executive Vice President and
Chief Financial Officer
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