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, 2009
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)
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Pennsylvania
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23-2372688
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation
or organization)
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375
Phillips Boulevard
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Ewing,
New Jersey
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08618
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (609) 671-0980
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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer ___
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Accelerated
filer X
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Non-accelerated
filer ___ (Do not check if a smaller reporting
company)
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Smaller
reporting company ___
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes No X
As of May
1, 2009, the registrant had outstanding 36,390,290 shares of common
stock.
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ITEM
1.
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CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
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March
31,
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December
31,
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|||||||
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2009
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2008
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|||||||
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ASSETS
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||||||||
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CURRENT
ASSETS:
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||||||||
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Cash
and cash equivalents
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$ | 6,064,487 | $ | 28,321,581 | ||||
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Short-term
investments
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66,116,518 | 49,132,619 | ||||||
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Accounts
receivable
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1,813,358 | 2,450,444 | ||||||
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Inventory
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2,209 | 2,209 | ||||||
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Other
current assets
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483,896 | 462,908 | ||||||
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Total
current assets
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74,480,468 | 80,369,761 | ||||||
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PROPERTY
AND EQUIPMENT, net
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12,437,957 | 12,859,628 | ||||||
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ACQUIRED
TECHNOLOGY, net
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2,505,576 | 2,929,344 | ||||||
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OTHER
ASSETS
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83,491 | 69,772 | ||||||
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TOTAL
ASSETS
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$ | 89,507,492 | $ | 96,228,505 | ||||
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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||||||||
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CURRENT
LIABILITIES:
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||||||||
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Accounts
payable
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$ | 1,311,724 | $ | 1,585,015 | ||||
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Accrued
expenses
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3,498,595 | 5,296,433 | ||||||
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Deferred
license fees
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6,148,267 | 6,148,267 | ||||||
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Deferred
revenue
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2,350,723 | 2,739,790 | ||||||
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Total
current liabilities
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13,309,309 | 15,769,505 | ||||||
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DEFERRED
LICENSE FEES
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3,236,637 | 3,407,037 | ||||||
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DEFERRED
REVENUE
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300,000 | 337,500 | ||||||
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STOCK
WARRANT LIABILITY
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2,515,868 | — | ||||||
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Total
liabilities
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19,361,814 | 19,514,042 | ||||||
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COMMITMENTS
AND CONTINGENCIES (Note 8)
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||||||||
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SHAREHOLDERS’
EQUITY:
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||||||||
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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)
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2,000 | 2,000 | ||||||
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Common
Stock, par value $0.01 per share, 50,000,000 shares authorized,
36,328,665 and 36,131,981 shares issued and outstanding at March 31,
2009 and December 31, 2008, respectively
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363,287 | 361,320 | ||||||
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Additional
paid-in capital
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251,812,110 | 256,696,849 | ||||||
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Unrealized
gain on available-for-sale securities
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141,265 | 126,497 | ||||||
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Accumulated
deficit
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(182,172,984 | ) | (180,472,203 | ) | ||||
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Total
shareholders’ equity
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70,145,678 | 76,714,463 | ||||||
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TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
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$ | 89,507,492 | $ | 96,228,505 | ||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three
Months Ended March 31,
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||||||||
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2009
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2008
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|||||||
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REVENUE:
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||||||||
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Commercial
revenue
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$ | 1,369,137 | $ | 1,555,065 | ||||
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Developmental
revenue
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1,464,721 | 1,161,754 | ||||||
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Total
revenue
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2,833,858 | 2,716,819 | ||||||
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OPERATING
EXPENSES:
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||||||||
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Cost
of chemicals sold
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170,987 | 195,476 | ||||||
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Research
and development
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5,219,062 | 4,440,139 | ||||||
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Selling,
general and administrative
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2,622,945 | 2,373,546 | ||||||
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Patent
costs
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731,531 | 711,385 | ||||||
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Royalty
and license expense
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82,931 | 103,185 | ||||||
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Total
operating expenses
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8,827,456 | 7,823,731 | ||||||
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Operating
loss
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(5,993,598 | ) | (5,106,912 | ) | ||||
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INTEREST
INCOME
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253,400 | 919,194 | ||||||
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INTEREST
EXPENSE
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(2,643 | ) | (5,667 | ) | ||||
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GAIN
ON STOCK WARRANT LIABILITY
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173,242 | — | ||||||
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NET
LOSS
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$ | (5,569,599 | ) | $ | (4,193,385 | ) | ||
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BASIC
AND DILUTED NET LOSS PER COMMON SHARE
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$ | (0.15 | ) | $ | (0.12 | ) | ||
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WEIGHTED
AVERAGE SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER COMMON
SHARE
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36,299,967 | 35,770,641 | ||||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three
Months Ended March 31,
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||||||||
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2009
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2008
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|||||||
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$ | (5,569,599 | ) | $ | (4,193,385 | ) | ||
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Non-cash
charges to statement of operations:
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||||||||
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Depreciation
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517,472 | 445,937 | ||||||
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Amortization
of intangibles
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423,768 | 423,768 | ||||||
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Amortization
of premium and discount on investments, net
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(144,887 | ) | (438,296 | ) | ||||
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Stock-based
employee compensation
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551,489 | 534,767 | ||||||
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Stock-based
non-employee compensation
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1,998 | 4,119 | ||||||
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Non-cash
expense under a Development Agreement
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309,375 | 241,901 | ||||||
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Stock-based
compensation to Board of Directors and Scientific Advisory
Board
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71,524 | 116,628 | ||||||
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Gain
on stock warrant liability
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(173,242 | ) | — | |||||
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(Increase)
decrease in assets:
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||||||||
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Accounts
receivable
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637,086 | 80,648 | ||||||
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Other
current assets
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(20,988 | ) | 90,525 | |||||
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Other
assets
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(13,719 | ) | 2,500 | |||||
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Increase
(decrease) in liabilities:
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||||||||
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Accounts
payable and accrued expenses
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(498,481 | ) | 285,687 | |||||
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Deferred
license fees
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(170,400 | ) | (128,711 | ) | ||||
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Deferred
revenue
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(426,567 | ) | (111,371 | ) | ||||
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Net
cash used in operating activities
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(4,505,171 | ) | (2,645,283 | ) | ||||
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Purchase
of property and equipment
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(95,801 | ) | (219,578 | ) | ||||
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Purchase
of short-term investments
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(36,479,245 | ) | (30,074,485 | ) | ||||
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Proceeds
from sale of short-term investments
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19,655,000 | 10,922,000 | ||||||
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Net
cash used in investing activities
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(16,920,046 | ) | (19,372,063 | ) | ||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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||||||||
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Proceeds
from the exercise of common stock options and warrants
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— | 1,575,848 | ||||||
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Payment
of withholding taxes related to stock-based employee
compensation
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(831,877 | ) | (727,118 | ) | ||||
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Net
cash (used in) provided by financing activities
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(831,877 | ) | 848,730 | |||||
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DECREASE
IN CASH AND CASH EQUIVALENTS
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(22,257,094 | ) | (21,168,616 | ) | ||||
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CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
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28,321,581 | 33,870,696 | ||||||
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CASH
AND CASH EQUIVALENTS, END OF PERIOD
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$ | 6,064,487 | $ | 12,702,080 | ||||
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The
following non-cash activities occurred:
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||||||||
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Unrealized
gain on available-for-sale securities
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$ | 14,768 | $ | 83,589 | ||||
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Common
stock issued to Board of Directors and Scientific Advisory Board that was
earned in a previous period
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309,802 | 299,968 | ||||||
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Common
stock issued to employees that was earned in a previous
period
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845,745 | 904,939 | ||||||
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Common
stock issued for royalties that was earned in a previous
period
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81,954 | 66,403 | ||||||
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Common
stock issued to non-employee that was earned in a previous
period
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— | 991 | ||||||
The
accompanying notes are an integral part of these statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1.
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BACKGROUND
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Universal
Display Corporation (the “Company”) is engaged in the research, development and
commercialization of organic light emitting diode (“OLED”) technologies and
materials for use in flat panel display, solid-state lighting and other product
applications. The Company’s primary business strategy is to develop and license
its proprietary OLED technologies to product manufacturers for use in these
applications. In support of this objective, the Company also develops new OLED
materials and sells those materials to product manufacturers. Through internal
research and development efforts and relationships with entities such as
Princeton University (“Princeton”), the University of Southern California
(“USC”), the University of Michigan (“Michigan”), Motorola, Inc. (“Motorola”)
and PPG Industries, Inc. (“PPG”), the Company has established a significant
portfolio of proprietary OLED technologies and materials (Note 4 and
5).
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2.
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BASIS
OF PRESENTATION
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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,
2009, the results of operations and cash flows for the three months ended March
31, 2009 and 2008. 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 are included in the Company’s Annual Report on Form
10-K/A for the year ended December 31, 2008. The results of
Company’s operations for any interim period are not necessarily indicative of
the results of operations for any other interim period or for the full
year.
Management’s
Use of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent
Accounting Pronouncements
In
April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”), which amends the list of factors an
entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under Statement of
Financial Accounting Standard (“SFAS”)
No. 142, Goodwill and
Other Intangible Assets. The new guidance applies to (1) intangible
assets that are acquired individually or with a group of other assets and
(2) intangible assets acquired in both business combinations and asset
acquisitions. Under FSP 142-3, entities estimating the useful life of a
recognized intangible asset must consider their historical experience in
renewing or extending similar arrangements or, in the absence of historical
experience, must consider assumptions that market participants would use about
renewal or extension. This FSP shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The adoption of FSP 142-3 did not have any
impact on the Company’s results of operations or financial
position.
In June
2008, the Emerging Issues Task Force (“EITF”) issued EITF Issue 07-5, Determining Whether an
Instrument(or Embedded
Feature) Is Indexed to
an Entity's Own Stock (“EITF 07-5”), to address concerns regarding the
meaning of “indexed to an entity’s own stock” contained in SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. This issue relates to the
determination of whether a freestanding equity-linked instrument should be
classified as equity or debt. If an instrument is classified as debt, it is
valued at fair value, and this value is remeasured on an ongoing basis, with
changes recorded on the statement of operations in each reporting
period. EITF 07-5 is effective for financial statements for fiscal years
beginning after December 15, 2008. At January 1, 2009, the Company
had warrants to purchase 838,446 shares of common stock outstanding containing a
“down-round” provision that did not qualify for the scope of exception from the
provisions of SFAS 133. In accordance with EITF 07-5, the fair value
of these warrants is required to be reported as a liability, with the
changes of fair value recorded on the statement of operations. As such, on
January 1, 2009, the fair value of these warrants of $2,689,110 was reclassified
from equity to a liability. As a result of the
change, the original fair
value of the warrants at the date of issuance of $6,557,928 was recorded as a
reduction to additional paid-in capital. In addition, accumulated
deficit, as of January 1, 2009, decreased from $180,472,203 to $176,603,385 to
reflect the cumulative effect of the adoption of EITF 07-5. The change in fair
value of these warrants resulted in a $173,242 gain on the statement of
operations for the three months ended March 31, 2009. The Company will
continue to report the warrants as a liability, with changes in fair value
recorded in the statement of operations, until such time as these warrants are
exercised or expire.
In
November 2008, the FASB ratified EITF Issue 08-7, Accounting for Defensive Intangible
Assets (“EITF 08-7”). EITF 08-7 applies to defensive intangible assets,
which are acquired intangible assets that the acquirer does not intend to
actively use but intends to hold to prevent its competitors from obtaining
access to them. As these assets are separately identifiable, EITF 08-7 requires
an acquiring entity to account for defensive intangible assets as a separate
unit of accounting which should be amortized to expense over the period the
intangible asset will directly or indirectly affect the entity’s cash flows.
Defensive intangible assets must be recognized at fair value in accordance with
SFAS No. 141R, Business
Combinations and SFAS No. 157, Fair Value Measurements. EITF
08-7 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The Company does not expect EITF 08-7 will have an
impact on its result of operations or financial position.
Correction
of Prior Year Consolidated Financial Amounts
Management
has determined that the shares withheld to cover employee payroll taxes on
stock-based compensation should have been recorded as a cash outflow from
financing activity in the 2008 consolidated cash flow statement. The
immaterial error correction results in a decrease in net cash used in operating
activities and a decrease in net cash provided by financing activities of
$727,118 for the three months ended March 31, 2008. This correction did not
change any amounts on the consolidated balance sheet or statement of
operations. Management believes that the effects of the corrections
are not material to the Company’s financial position, results of operations or
liquidity for any period presented.
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3.
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CASH,
CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS
|
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company classifies
its existing marketable securities as available-for-sale. These securities are
carried at fair market value, with unrealized gains and losses reported in
shareholders’ equity. Gains or losses on securities sold are based on the
specific identification method.
Short-term
investments at March 31, 2009 and December 31, 2008 consist of the
following:
|
Amortized
|
Unrealized
|
Aggregate
Fair
|
||||||||||||||
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Investment
Classification
|
Cost
|
Gains
|
(Losses)
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Market
Value
|
||||||||||||
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March
31, 2009 –
|
||||||||||||||||
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Certificates
of deposit
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$ | 12,196,897 | $ | 37,335 | $ | (7,640 | ) | $ | 12,226,592 | |||||||
|
U.S.
Government bonds
|
53,778,356 | 111,723 | (153 | ) | 53,889,926 | |||||||||||
| $ | 65,975,253 | $ | 149,058 | $ | (7,793 | ) | $ | 66,116,518 | ||||||||
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December
31, 2008 –
|
||||||||||||||||
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Certificates
of deposit
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$ | 10,318,000 | $ | 35,577 | $ | (3,323 | ) | $ | 10,350,254 | |||||||
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U.S.
Government bonds
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38,688,122 | 96,121 | (1,878 | ) | 38,782,365 | |||||||||||
| $ | 49,006,122 | $ | 131,698 | $ | (5,201 | ) | $ | 49,132,619 | ||||||||
All
short-term investments held at March 31, 2009 will mature within one
year.
The FASB
issued SFAS No. 157, Fair
Value Measurements (“SFAS 157”), which clarified the definition of fair
value, established a framework for measuring fair value and expanded disclosures
on fair value measurements.
SFAS 157
established a valuation hierarchy for disclosure of the inputs to valuations
used to measure fair value. This hierarchy prioritizes the inputs into three
broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities. Level 2 inputs are quoted prices
for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on management’s own
assumptions used to measure assets and liabilities at fair value. A financial
asset or liability’s classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value
measurement.
The
following table provides the assets and liabilities carried at fair value
measured on a recurring basis as of March 31, 2009:
|
Fair
Value Measurements, Using
|
||||||||||||||||
|
Total
carrying value as of March 31, 2009
|
Quoted
prices in active markets (Level 1)
|
Significant
other observable inputs
(Level
2)
|
Significant
unobservable inputs
(Level
3)
|
|||||||||||||
|
Investments
|
$ | 66,116,518 | $ | 66,116,518 | $ | — | $ | — | ||||||||
|
4.
|
RESEARCH
AND LICENSE AGREEMENTS WITH PRINCETON, USC AND
MICHIGAN
|
The
Company funded OLED technology research at Princeton and, on a subcontractor
basis, at USC, for 10 years under a Research Agreement executed with Princeton
in August 1997 (the “1997 Research Agreement”). The Principal
Investigator conducting work under the 1997 Research Agreement transferred to
Michigan in January 2006. Following this, the 1997 Research Agreement
was allowed to expire on July 31, 2007.
As a
result of the transfer, the Company entered into a new Sponsored Research
Agreement with USC to sponsor OLED technology research at USC and, on a
subcontractor basis, Michigan. This new Research Agreement (the “2006
Research Agreement”) was effective as of May 1, 2006, and has a term of
three years. The 2006 Research Agreement supersedes the 1997 Research
Agreement with respect to all work being performed at USC and
Michigan. Under the 2006 Research Agreement, the Company is obligated
to pay USC up to $4,936,296 for work actually performed during the period from
May 1, 2006 through April 30, 2009. Payments under the 2006
Research Agreement are made to USC on a quarterly basis as actual expenses are
incurred. Through March 31, 2009, the Company had incurred $2,061,720
in research and development expense under the 2006 Research Agreement. The
Company is currently negotiating a further extension with the
universities.
On
October 9, 1997, the Company, Princeton and USC entered into an Amended
License Agreement (as amended, the “1997 Amended License Agreement”) under which
Princeton and USC granted the Company worldwide, exclusive license rights, with
rights to sublicense, to make, have made, use, lease and/or sell products and to
practice processes based on patent applications and issued patents arising out
of work performed by Princeton and USC under the 1997 Research
Agreement. Under this agreement, the Company is required to pay
Princeton 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 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 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 1997
Research Agreement if Princeton 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 minimum annual royalties. The minimum royalty payment is
$100,000 per year. The Company has accrued $44,363 of royalty expense
in connection with the agreement for the three months ended March 31,
2009.
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 if 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 entering into the 2006 Research Agreement, the Company amended
the 1997 Amended License Agreement to include Michigan as a party to that
agreement effective as of January 1, 2006. Under this amendment,
Princeton, USC and Michigan have 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 patent applications and issued
patents arising out of work performed under the 2006 Research
Agreement. The financial terms of the 1997 Amended License Agreement
were not impacted by this amendment.
|
5.
|
EQUITY
AND CASH COMPENSATION UNDER THE PPG
AGREEMENTS
|
On
October 1, 2000, the Company entered into a five-year Development and
License Agreement (“Development Agreement”) and a seven-year Supply Agreement
(“Supply Agreement”) with PPG. Under the Development Agreement, a
team of PPG scientists and engineers assisted the Company in developing its
proprietary OLED materials and supplied the Company with these materials for
evaluation purposes. Under the Supply Agreement, PPG supplied the
Company with its proprietary OLED materials that were intended for resale to
customers for commercial purposes.
On
July 29, 2005, the Company entered into an OLED Materials Supply and
Service Agreement with PPG (the “OLED Materials Agreement”). The OLED
Materials Agreement superseded and replaced in their entireties the Development
Agreement and Supply Agreement effective as of January 1, 2006, and
extended the term of the Company’s relationship with PPG through
December 31, 2008. Under the OLED Materials Agreement, PPG
continues to assist the Company in developing its proprietary OLED materials and
supplying the Company with those materials for evaluation purposes and for
resale to its customers. On January 4, 2008, the term of the OLED
Materials Agreement was extended for an additional three years, through December
31, 2011.
Under the
OLED Materials Agreement, the Company compensates PPG on a cost-plus basis for
the services provided during each calendar quarter. The Company is
required to pay for some of these services in all cash and for other of the
services through the issuance of shares of the Company’s common
stock. Up to 50% of the remaining services are payable, at the
Company’s sole discretion, in cash or shares of the Company’s common stock, with
the balance payable in all cash. The actual number of shares of
common stock issuable to PPG is determined
based on the average closing price for the Company’s common stock during a
specified number of days prior to the end of each calendar half-year period
ending on March 31 and September 30. If, however, this average
closing price is less than $6.00, the Company is required to compensate PPG in
all cash.
The
Company issued 36,826 and 17,331 shares of the Company’s common stock to PPG as
consideration for services provided by PPG under the OLED Materials Agreement
during the three months ended March 31, 2009 and 2008, respectively. For these
shares, the Company recorded $309,375 and $241,901 to research and development
expense for the three months ended March 31, 2009 and 2008, respectively. The
Company also recorded $313,788 and $231,681 to research and development expense
for the cash portion of the work performed by PPG during the three months ended
March 31, 2009 and 2008, respectively. Of the shares earned in the three
months ended March 31, 2009, 36,491 shares were issued in April
2009.
The
Company is also required under the OLED Materials Agreement to reimburse PPG for
its raw materials and conversion costs for all development chemicals produced on
behalf of the Company. The Company recorded $535,052 and $1,191 to research and
development expense for this activity during the three months ended March 31,
2009 and 2008, respectively.
|
6.
|
SHAREHOLDERS’
EQUITY
|
|
Unrealized
|
||||||||||||||||||||||||||||||||
|
Preferred
Stock,
|
Additional
|
Gain
on
|
||||||||||||||||||||||||||||||
|
Series
A
|
Common
Stock
|
Paid-In
|
Available-for-
|
Accumulated
|
Total
|
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Sale
Securities
|
Deficit
|
Equity
|
|||||||||||||||||||||||||
|
BALANCE,
JANUARY 1, 2009
|
200,000 | $ | 2,000 | 36,131,981 | $ | 361,320 | $ | 256,696,849 | $ | 126,497 | $ | (180,472,203 | ) | $ | 76,714,463 | |||||||||||||||||
|
Cumulative
effect of the adoption of EITF 07-5, see Note 2
|
- | - | - | - | (6,557,928 | ) | - | 3,868,818 | (2,689,110 | ) | ||||||||||||||||||||||
|
Stock-based
employee compensation, net of shares withheld for taxes
(A)
|
- | - | 138,924 | 1,389 | 1,205,675 | - | - | 1,207,064 | ||||||||||||||||||||||||
|
Stock-based
non-employee compensation
|
- | - | 360 | 4 | 1,994 | - | - | 1,998 | ||||||||||||||||||||||||
|
Issuance
of common stock to Board of Directors and Scientific Advisory Board
(B)
|
- | - | 45,050 | 451 | 380,875 | - | - | 381,326 | ||||||||||||||||||||||||
|
Issuance
of common stock in connection with Development and License Agreements
(C)
|
- | - | 12,350 | 123 | 84,645 | - | - | 84,768 | ||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | (5,569,599 | ) | (5,569,599 | ) | ||||||||||||||||||||||
|
Unrealized
gain on available-for-sale securities
|
- | - | - | - | - | 14,768 | - | 14,768 | ||||||||||||||||||||||||
|
Comprehensive
loss
|
(5,554,831 | ) | ||||||||||||||||||||||||||||||
|
BALANCE,
MARCH 31, 2009
|
200,000 | $ | 2,000 | 36,328,665 | $ | 363,287 | $ | 251,812,110 | $ | 141,265 | $ | (182,172,984 | ) | $ | 70,145,678 | |||||||||||||||||
|
(A)
|
Includes
$845,745 that was earned in a previous period and charged to expense when
earned, but issued in 2009.
|
|
(B)
|
Includes
$309,802 that was earned in a previous period and charged to expense when
earned, but issued in 2009.
|
|
(C)
|
The
Company was required to pay Motorola royalties of $163,916 for the year
ended December 31, 2008. As of March 2009, the Company
issued to Motorola 12,015 shares of the Company’s common stock,
valued at $81,954, and paid Motorola $81,962 in cash to satisfy the
royalty obligation.
|
|
7.
|
STOCK-BASED
COMPENSATION
|
SFAS
No. 123(R), Share-Based
Payment (“SFAS 123(R)”), addresses all forms of share-based payment
awards, including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. It requires companies
to recognize in the statement of operations the grant-date fair value of stock options and other equity-based
compensation issued to employees and directors.
The
grant-date fair value of stock options is determined using the Black-Scholes
valuation model. The fair value of share-based awards is recognized as
compensation expense on a straight-line basis over the requisite service period,
net of estimated forfeitures. The Company relies primarily upon
historical experience to estimate expected forfeitures and recognizes
compensation expense on a straight-line basis from the date of the
grant. The Company issues new shares upon the exercise or vesting of
share-based awards.
Equity
Compensation Plan
In 1995,
the Board of Directors of the Company adopted a 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 March 31, 2009, the
Company’s shareholders have approved increases in the number of shares reserved
for issuance under the 1995 Plan to 7,000,000, and have extended the term of the
plan through 2015. The 1995 Plan was also amended and restated in
2003, and is now called the Equity Compensation Plan. The Equity
Compensation Plan provides for the granting of incentive and nonqualified stock
options, shares of common 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 10 years from the grant date.
During
the three months ended March 31, 2008, the Company granted to employees options
to purchase 3,750 shares of common stock. These stock options vested
immediately and had exercise prices equal to the closing market price of the
Company’s common stock on the date of grant. The fair value of the
options granted during the three months ended March 31, 2008 was
$31,561. For the three months ended March 31, 2009 and 2008,
compensation expense related to the vesting of all employee stock options was a
credit of $3,796 and a charge of $108,678, respectively.
In
addition, during the three months ended March 31, 2009 and 2008, the Company
granted a total of 141,150 and 74,557 shares of restricted stock to employees,
respectively. These shares of restricted stock had a fair value of
$1,428,438 and $1,367,376, respectively, on the date of grant and vest in equal
increments annually over three years from the date of grant, provided that the
grantee is still an employee of the Company on the applicable vesting
date. For the three months ended March 31, 2009 and 2008, the Company
recorded as compensation charges related to the vesting of all restricted stock
awards to employees a general and administrative expense of $241,636 and
$154,821, respectively, and a research and development expense of $116,702 and
$81,455, respectively. During the three months ended March 31, 2009 and 2008,
the Company also granted 1,890 and 720 shares of common stock to employees,
respectively, which were fully vested at the date of grant, and had a fair value
of $10,490 and $11,880, respectively, that was charged to research and
development expense. In connection with these shares, 669 and 262 shares,
with a fair value of $3,713 and $4,322, were withheld in satisfaction of tax
withholding obligations, respectively.
During
the three months ended March 31, 2009 and 2008, the Company issued
5,568 and 5,276 shares of common stock to members of its Board of Directors
as partial compensation for services performed, respectively. The
fair value of the shares issued was $58,830 and $106,126, respectively, of
which $49,025 and $106,126 was recorded as general and administrative expense
for the three months ended March 31, 2009 and 2008, respectively and $9,805 was
recorded as general and administrative expense for the year ended December 31,
2008, respectively.
During
the three months ended March 31, 2009 and 2008, the Company granted a total of
23,714 and 13,086 shares of restricted stock to certain members of its
Scientific Advisory Board, respectively. These shares of restricted
stock will vest in equal increments annually over three years from the date of
grant, provided that the grantee is still engaged as a consultant of the Company
on the applicable vesting date. For the three months ended
March 31, 2009 and 2008, the Company recorded a charge to research and
development expenses of $22,499 and $10,502 for the vesting of all
restricted stock awards to these members of the Scientific Advisory Board,
respectively.
During
the three months ended March 31, 2009, the Company also granted to non-employees
360 shares of unrestricted stock. The fair value the shares issued to
non-employees was $1,998, which was charged to research and development
expense for the three months ended March 31, 2009.
Net
Loss Per Common Share
Basic net
loss per common share is computed by dividing the net loss 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, 2009 and 2008, the
effects of the exercise of the combined outstanding stock options and warrants
of 4,429,182 and 5,005,667, respectively, were excluded from the calculation of
diluted EPS as the impact would have been antidilutive.
|
8.
|
COMMITMENTS
AND CONTINGENCIES
|
Commitments
Under the
2006 Research Agreement with USC, the Company is obligated to make certain
payments to USC based on work performed by USC under that agreement, and by
Michigan under its subcontractor agreement with USC. See Note 4 for
further explanation.
Under the
terms of the 1997 Amended License Agreement, the Company is required to make
minimum royalty payments to Princeton. See Note 4 for further
explanation.
The
Company is required under a license agreement with Motorola to pay royalties on
gross revenues earned by the Company from its sales of OLED products or
components, or from its OLED technology licensees, whether or not these revenues
relate specifically to inventions
claimed
in the patent rights licensed from Motorola. All royalty payments are
payable, at the Company’s discretion, in either all cash or up to 50% in shares
of the Company’s common stock and the remainder in cash. The number
of shares of common stock used to pay the stock portion of the royalty payment
is calculated by dividing the amount to be paid in stock 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 stock is issued. For the three
months ended March 31, 2009, the Company recorded a royalty expense of $36,067
related to this license agreement.
Notice
of Opposition to European Patent No. 0946958
On
December 8, 2006, Cambridge Display Technology, Ltd. (“CDT”), which was acquired
in 2007 by Sumitomo Chemical Company (“Sumitomo”), filed a Notice of Opposition
to European Patent No. 0946958 (the “EP ‘958 patent”). The EP ‘958
patent, which was issued on March 8, 2006, is a European counterpart patent to
U.S. patents 5,844,363, 6,602,540, 6,888,306 and 7,247,073. These
patents relate to the Company’s FOLED technology. They are
exclusively licensed to the Company by Princeton, and under the license
agreement the Company is required to pay all legal costs and fees associated
with this proceeding.
The
European Patent Office (the “EPO”) set a date of May 12, 2007 for the Company to
file a response to the facts and arguments presented by CDT in its Notice of
Opposition. The response was timely filed. The opponents
then filed their reply to the Company’s response on December 7,
2007. The Company decided that there was no need to file another
response before the oral hearing date was set. On March 31, 2009, the
EPO issued a Summons for an Oral Hearing on October 6, 2009. The
Summons included a preliminary, non-binding opinion from the opposition division
of the EPO.
At this
late stage of the proceeding, Company management still cannot make a firm
prediction as to the probable outcome of this opposition. However,
based on an analysis of the evidence presented to date, including the
preliminary opinion of the opposition division of the EPO, Company management
continues to believe there is a substantial likelihood that the patent being
challenged will be declared valid, and that all or a significant portion of its
claims will be upheld.
Notices
of Opposition to European Patent No. 1449238
On March
8, 2007, Sumation Company Limited (“Sumation”), a joint venture between Sumitomo
and CDT, filed a first Notice of Opposition to European Patent No. 1449238 (the
“EP ‘238 patent”). The EP ‘238 patent, which was issued on November
2, 2006, is a European counterpart patent, in part, to U.S. patents 6,830,828,
6,902,830, 7,001,536 and 7,291,406, and to pending U.S. patent application
11/879,379, filed on July 16, 2007. These patents and this patent
application relate to the Company’s PHOLED technology. They are
exclusively licensed to the Company by Princeton, and under the license
agreement the Company is required to pay all legal costs and fees associated
with this proceeding.
Two other
parties filed additional oppositions to the EP ‘238 patent just prior to the
August 2, 2007 expiration date for such filings. On July 24,
2007, Merck Patent GmbH, of Darmstadt, Germany, filed a second Notice of
Opposition to the EP ‘238 patent, and on July 27, 2007, BASF Aktiengesellschaft,
of Mannheim, Germany, filed a third Notice of Opposition to the EP ‘238
patent. The EPO combined all three oppositions into a single
opposition proceeding.
The EPO
set a January 6, 2008 due date for the Company to file its response to the
opposition. The Company requested a two-month extension to file this
response, and the Company subsequently filed its response in a timely
manner. The Company is currently waiting for the EPO to notify it of
the date of the oral hearing. The Company is also waiting to see
whether the other parties in the opposition file any additional documents, to
which the Company may respond.
At this
time, Company management cannot make any prediction as to the probable outcome
of the opposition. However, based on an analysis of the evidence
presented to date, Company management continues to believe there is a
substantial likelihood that the patent being challenged will be declared valid,
and that all or a significant portion of its claims will be upheld.
|
9.
|
CONCENTRATION
OF RISK
|
Contract
research revenue, which is included in developmental revenue in the accompanying
statement of operations, of $895,586 and $885,967 for the three months ended
March 31, 2009 and 2008, respectively, has been derived from contracts with
United States government agencies. One non-government customer accounted
for 36% and 44% of consolidated revenue for the three months ended March 31,
2009 and 2008, respectively. Accounts receivable from this customer
were $481,100 at March 31, 2009. Revenues from outside of North
America represented 66% and 65% of consolidated revenue for the three months
ended March 31, 2009 and 2008, respectively.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes above.
CAUTIONARY
STATEMENT
CONCERNING
FORWARD-LOOKING STATEMENTS
This
discussion and analysis contains some “forward-looking statements.”
Forward-looking statements concern our possible or assumed future results of
operations, including descriptions of our business strategies and customer
relationships. These statements often include words such as “believe,” “expect,”
“anticipate,” “intend,” “plan,” “estimate,” “seek,” “will,” “may” or similar
expressions. These statements are based on assumptions that we have made in
light of our experience in the industry, as well as our perceptions of
historical trends, current conditions, expected future developments and other
factors we believe are appropriate in these circumstances.
As you
read and consider this discussion and analysis, you should not place undue
reliance on any forward-looking statements. You should understand that these
statements involve substantial risk and uncertainty and are not guarantees of
future performance or results. They depend on many factors that are discussed
further in the section entitled “Risk Factors” in our Annual Report on Form
10-K/A for the year ended December 31, 2008, as supplemented by any
disclosures in Item 1A of Part II below. Changes or developments in
any of these areas could affect our financial results or results of operations,
and could cause actual results to differ materially from those contemplated in
the forward-looking statements.
All
forward-looking statements speak only as of the date of this report or the
documents incorporated by reference, as the case may be. We do not undertake any
duty 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.
OVERVIEW
We are a
leader in the research, development and commercialization of organic light
emitting diode, or OLED, technologies for use in flat panel display, solid-state
lighting 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, technology development and evaluation agreements and
license fees and royalties. In the future, we anticipate that revenues from
licensing our intellectual property will become a more significant part of our
revenue stream.
While we
have made significant progress over the past few years developing and
commercializing our family of OLED technologies (PHOLED, TOLED, FOLED, etc.) and
materials, we have incurred significant losses and will likely continue to do so
until our OLED technologies and materials become more widely adopted by product
manufacturers. We have incurred significant losses since our inception,
resulting in an accumulated deficit of $182,172,984 as of March 31,
2009.
We
anticipate fluctuations in our annual and quarterly results of operations due to
uncertainty regarding, among other factors:
|
·
|
the
timing of our receipt of license fees and royalties, as well as fees for
future technology development and evaluation;
|
|
·
|
the
timing and volume of sales of our OLED materials for both commercial usage
and evaluation purposes;
|
|
·
|
the
timing and magnitude of expenditures we may incur in connection with our
ongoing research and development activities; and
|
|
·
|
the
timing and financial consequences of our formation of new business
relationships and alliances.
|
RESULTS
OF OPERATIONS
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
We had a
net loss of $5,569,599 (or $0.15 per basic and diluted share) for the quarter
ended March 31, 2009, compared to a net loss of $4,193,385 (or $0.12 per basic
and diluted share) for the same period in 2008. The increase in net loss was
primarily due to:
|
·
|
an
increase in operating expenses of $1,003,725, and
|
|
·
|
a
decrease in interest income of $665,794,
|
|
·
|
offset
to some extent by an increase in revenues of $117,039 and a gain on stock
warrant liability of $173,242.
|
Our
revenues were $2,833,858 for the quarter ended March 31, 2009, compared to
$2,716,819 for the same period in 2008. Commercial revenue decreased to
$1,369,137 from $1,555,065 for the same period in 2008. Commercial revenue
relates to the incorporation our OLED technologies and materials into our
customers’ commercial products, and includes commercial chemical revenue,
royalty and license revenues, and commercialization assistance revenue.
Developmental revenue increased to $1,464,721 for the quarter ended March 31,
2009, compared to $1,161,754 for the same period in 2008. Developmental revenue
relates to OLED technology and material development activities for which we are
paid, and includes contract research revenue, development chemical revenue and
technology development revenue.
Our
commercial chemical revenue and our royalty and license revenues for the quarter
ended March 31, 2009 were $686,165 and $516,074, respectively, compared to
$985,560 and $569,505, respectively, for the corresponding period in
2008.
For the
quarter ended March 31, 2009, the majority of our commercial chemical revenue
was from sales of our proprietary OLED materials to Samsung Mobile Display Co.,
Ltd. (“Samsung SMD”). We also sold small quantities of our proprietary OLED
materials to another customer during the first quarter of 2009. In accordance
with our agreement with that customer, we recorded commercial chemical revenue
and license revenue on account of the sales. For the corresponding period in
2008, the majority of our commercial chemical revenue was from Samsung SDI Co.,
Ltd. (“Samsung SDI”), whose OLED business was transferred to Samsung SMD in
September 2008 (Samsung SDI and Samsung SMD collectively referred to as
“Samsung”). We also sold small quantities of our proprietary OLED materials to
two other customers during the first quarter of 2008. In accordance with our
agreements with those customers, we recorded commercial chemical revenue and
license revenue on account of the sales. The decrease in commercial chemical
revenue from the first quarter of 2008 to the first quarter of 2009 resulted
primarily from a lower volume of OLED material sales to Samsung. We cannot
accurately predict how long our material sales to Samsung or other customers
will continue, as they frequently update and alter their product offerings in
response to market demands. Continued sales of our OLED materials to these
customers will depend on several factors, including, pricing, availability,
continued technical improvement and competitive product offerings.
We
recorded royalty revenue of $278,179 for the quarter ended March 31, 2009,
compared to $267,565 for the same period in 2008. This revenue primarily
represents royalties received under our patent license agreement with Samsung,
which we entered into in April 2005. Under this agreement, we receive
royalty reports at a specified period of time after the end of the quarter
during which royalty-bearing products are sold by Samsung. Royalty revenue for
these sales is recognized when the report is received. Consequently, our royalty
revenues from Samsung for the three months ended March 31, 2009 and 2008
represent royalties for licensed products sold by Samsung during the fourth
quarter of 2008 and 2007, respectively. For the quarter ended March 31, 2008, we
also received a small amount of royalties from AIXTRON AG for the sale of an
OVPD tool. No such royalties were earned for the same period in
2009.
License
revenue for the quarters ended March 31, 2009 and 2008 included license fees of
$237,895 and $301,940, respectively. These revenues were received under our
patent license agreement with Samsung, as well as a cross-license agreement we
executed with DuPont Displays, Inc. (“DuPont”) in December 2002. License
revenue for the quarter ended March 31, 2009 also included amounts received
under a patent license agreement we entered into with Konica Minolta Holdings,
Inc. (“Konica Minolta”) in August 2008, and a joint development agreement we
previously entered into with a subsidiary of Konica Minolta. Under our
agreements with Samsung, DuPont and Konica Minolta, we received upfront payments
that have been classified as deferred license fees and deferred revenue. The
deferred license fees are being recognized as license revenue over the term of
the agreement with Samsung and, based on current assumptions, over 10 years
with DuPont and Konica Minolta.
Commercial
revenue for the quarter ended March 31, 2009 also included $166,898 in
commercialization assistance revenue that we received under a business support
agreement executed during the fourth quarter of 2008. We received no such
revenue for the quarter ended March 31, 2008.
We earned
$895,586 in contract research revenue from agencies of the U.S. Government for
the quarter ended March 31, 2009, compared to $885,967 in corresponding revenue
for the same period in 2008. The overall value of our government contracts
remained relatively constant during both quarters.
We earned
$280,298 in development chemical revenue for the quarter ended March 31, 2009,
compared to $253,099 in corresponding revenue for the same period in 2008. The
number of customers we sold development chemicals to was larger during the first
quarter of 2009, compared to the same period in 2008. We cannot accurately
predict the timing and frequency of development chemical purchases by our
customers due to participants in the OLED industry having differing OLED
technology development and product launch strategies, which are subject to
change at any time.
We
recognized $288,837 in technology development revenue for the quarter ended
March 31, 2009, compared to $22,688 in corresponding revenue for the same period
in 2008. Technology development revenue for the first quarter of 2009 included
amounts received under two joint development agreements that we entered into
during the second half of 2008. Technology development revenue for the first
quarter of 2009 also included amounts received for a technical assistance
program that began in the fourth quarter of 2008. Payments received under these
agreements are being classified as deferred revenue and will be recognized over
the life of the applicable agreement. The amount and timing of our receipt of
fees for technology development and similar services is difficult to predict due
to participants in the OLED industry having different technology development
strategies, which are subject to change at any time.
Total
operating expenses were $8,827,456 for the quarter ending March 31, 2009,
compared to $7,823,731 for the same period in 2008.
We
incurred research and development expenses of $5,219,062 for the quarter ended
March 31, 2009, compared to $4,440,139 for the same period in 2008. The increase
was mainly due to an increase of $683,445 in costs under our OLED Materials and
Supply and Service Agreement with PPG Industries, which increase resulted from
the scale up and acquisition of long-lead time raw materials for our OLED
materials supply business.
Selling,
general and administrative expenses were $2,622,945 for the quarter ended March
31, 2009, compared to $2,373,546 for the same period in 2008. Selling, general
and administrative expenses remained relatively consistent over the
corresponding periods.
Interest
income decreased to $253,400 for the quarter ended March 31, 2009, compared to
$919,194 for the same period in 2008. The decrease was mainly attributable to
decreased rates of return on investments during the quarter, compared to rates
for the same period in 2008. Due to current market conditions, we anticipate
that these lower rates of return will continue for the foreseeable
future.
At
January 1, 2009, the Company had warrants to purchase 838,446 shares of common
stock outstanding containing a “down-round” provision that did not qualify for
the scope of exception from the provisions of SFAS 133. On January 1, 2009, the
fair value of these warrants was $2,689,110 and was reclassified from equity to
a liability upon the adoption of EITF 07-5. The change in fair value
of these warrants resulted in a $173,242 gain on the statement of operations for
the three months ended March 31, 2009. There was no such gain for the same
period of 2008. The Company will continue to report the warrants as a
liability, with changes in fair value recorded in the statement of
operations, until such time as these warrants are exercised or
expire.
Liquidity
and Capital Resources
As of
March 31, 2009, we had cash and cash equivalents of $6,064,487 and short-term
investments of $66,116,518, for a total of $72,181,005. This compares to cash
and cash equivalents of $28,321,581 and short-term investments of $49,132,619,
for a total of $77,454,200, as of December 31, 2008. The decrease in cash and
cash equivalents and short-term investments of $5,273,195 was primarily due to
the usage of cash in operating activities.
Cash used
in operating activities was $4,505,171 for the three months ended March 31,
2009, compared to $2,645,283 for the same period in 2008. The increase in cash
used in operating activities was due mainly to an increased loss for the first
quarter of 2009, compared to the same period in 2008. In addition, cash used in
operating activities increased as a result of reducing accounts payable and
accrued expenses during the first quarter of 2009.
Cash used
in investing activities was $16,920,046 for the three months ended March 31,
2009. For the same period in 2008, cash used in investing activities was
$19,372,063. The decrease in cash used in investing activities was due to the
timing of purchases and the fact that the Company’s investment portfolio
contains instruments with longer periods to maturity than in the
past.
Cash used
in financing activities was $831,877 for the three months ended March 31, 2009.
For the same period in 2008, cash provided by financing activities was $848,730.
In the first quarter of 2008, we received proceeds of $1,575,848 from the
exercise of options and warrants to purchase shares of our common stock. There
were no such stock option or warrant exercises in the first quarter in
2009.
Working
capital was $61,171,159 as of March 31, 2009, compared to working capital of
$64,600,256 as of December 31, 2008. Working capital decreased primarily due to
the use of cash in operating activities. 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, defense and enforcement of our
patents and patent applications), that we have sufficient cash, cash equivalents
and short-term investments to meet our obligations for at least the next 12
months.
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. It
should be noted, however, that additional funding may be required in the future
for research, development and commercialization of our OLED technologies and
materials, to obtain, maintain and enforce patents respecting these technologies
and materials, and for working capital and other purposes, the timing and
amount
of which
are difficult to ascertain. There can be no assurance that additional funds will
be available to us when needed, on commercially reasonable terms or at all, particularly in the current
economic environment.
Critical
Accounting Policies
Refer to
our Annual Report on Form 10-K for the year ended December 31, 2008 as
amended, for a discussion of our critical accounting policies. There
have been no changes in critical accounting policies to date in
2009.
Contractual
Obligations
Refer to
our Annual Report on Form 10-K for the year ended December 31, 2008 as
amended, for a discussion of our contractual obligations. There have
been no significant changes in contractual obligations to date in
2009.
Off-Balance
Sheet Arrangements
Refer to
our Annual Report on Form 10-K for the year ended December 31, 2008 as
amended, for a discussion of off-balance sheet arrangements. As of
March 31, 2009, we had no off-balance sheet arrangements.
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 other than our
short-term investments disclosed in Note 3 to the consolidated financial
statements included herein. We invest in investment grade financial instruments
to reduce our exposure. 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
4.
|
Evaluation
of Disclosure 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 of March 31, 2009. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer 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 the information required to be
disclosed by us in reports filed or submitted under the Securities Exchange Act
of 1934, as amended, is (i) recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and
(ii) accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosure. However, a controls system, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
ITEM
1.
|
Notice
of Opposition to European Patent No. 0946958
On
December 8, 2006, Cambridge Display Technology, Ltd. (“CDT”), which was acquired
in 2007 by Sumitomo Chemical Company (“Sumitomo”), filed a Notice of Opposition
to European Patent No. 0946958 (the “EP ‘958 patent”). The EP ‘958
patent, which was issued on March 8, 2006, is a European counterpart patent to
U.S. patents 5,844,363, 6,602,540, 6,888,306 and 7,247,073. These
patents relate to our FOLED technology. They are exclusively licensed
to us by Princeton, and under the license agreement we are required to pay all
legal costs and fees associated with this proceeding.
The
European Patent Office (the “EPO”) set a date of May 12, 2007 for us to file a
response to the facts and arguments presented by CDT in its Notice of
Opposition. The response was timely filed. The opponents
then filed their reply to our response on December 7, 2007. We
decided that there was no need to file another response before the oral hearing
date was set. On March 31, 2009, the EPO issued a Summons for an Oral
Hearing on October 6, 2009. The Summons included a preliminary,
non-binding opinion from the opposition division of the EPO.
At this
late stage of the proceeding, we still cannot make a firm prediction as to the
probable outcome of this opposition. However, based on an analysis of
the evidence presented to date, including the preliminary opinion of the
opposition division of the EPO, we continue to believe there is a substantial
likelihood that the patent being challenged will be declared valid, and that all
or a significant portion of its claims will be upheld.
Notices
of Opposition to European Patent No. 1449238
On March
8, 2007, Sumation Company Limited (“Sumation”), a joint venture between Sumitomo
and CDT, filed a first Notice of Opposition to European Patent No. 1449238 (the
“EP ‘238 patent”). The EP ‘238 patent, which was issued on November
2, 2006, is a European counterpart patent, in part, to U.S. patents 6,830,828,
6,902,830, 7,001,536 and 7,291,406, and to pending U.S. patent application
11/879,379, filed on July 16, 2007. These patents and this patent
application relate to our PHOLED technology. They are exclusively
licensed to us by Princeton, and under the license agreement we are required to
pay all legal costs and fees associated with this proceeding.
Two other
parties filed additional oppositions to the EP ‘238 patent just prior to the
August 2, 2007 expiration date for such filings. On July 24,
2007, Merck Patent GmbH, of Darmstadt, Germany, filed a second Notice of
Opposition to the EP ‘238 patent, and on July 27, 2007, BASF Aktiengesellschaft,
of Mannheim, Germany, filed a third Notice of Opposition to the EP ‘238
patent. The EPO combined all three oppositions into a single
opposition proceeding.
The EPO
set a January 6, 2008 due date for us to file our response to the
opposition. We requested a two-month extension to file this response,
and we subsequently filed our response in a timely manner. We are
currently waiting for the EPO to notify us of the date of the oral
hearing. We are also waiting to see whether the other parties in the
opposition file any additional documents, to which we may respond.
At this
time, we cannot make any prediction as to the probable outcome of the
opposition. However, based on an analysis of the evidence presented
to date, we continue to believe there is a substantial likelihood that the
patent being challenged will be declared valid, and that all or a significant
portion of its claims will be upheld.
|
ITEM
1A.
|
There
have been no material changes to the risk factors previously discussed in Part
I, Item 1A “Risk Factors” in our Annual Report on Form 10-K/A for the year ended
December 31, 2008.
Withholding
of Shares to Satisfy Tax Withholding Obligations
As
illustrated in the following table, during the quarter ended March 31, 2009 we
acquired 567 shares of common stock through a transaction related to the vesting
of a restricted share award previously granted to an employee. Upon
vesting, the employee turned in shares of common stock in an amount sufficient
to pay the employee’s minimum statutory tax withholding at rates required by the
relevant tax authorities.
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced
Program
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the
Program
|
||||||||||||
|
January
1 – January 31
|
-- | $ | -- | n/a |
--
|
|||||||||||
|
February
1 – February 28
|
-- | -- | n/a | -- | ||||||||||||
|
March
1 – March 31
|
567 | 6.57 | n/a | -- | ||||||||||||
|
Total
|
567 | $ | 6.57 | n/a | -- | |||||||||||
|
ITEM
3.
|
None.
None.
|
ITEM
5.
|
None.
|
ITEM
6.
|
The
following is a list of the exhibits included as part of this
report. Where so indicated by footnote, exhibits that were previously
included 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
|
||
|
10.1*+
|
Amendment
No. 1 to the OLED Technology License and Technical Assistance Agreement
between the registrant and Kyocera Corporation, dated as of January 22,
2009
|
||
|
10.2*+
|
Amendment
No. 1 to the Commercial OLED Material Supply Agreement between the
registrant and Kyocera Corporation, dated as of January 22,
2009
|
||
|
10.3*
|
Agreement
and Consent to Assignment and Assumption of Patent License Agreement
between the registrant and Samsung SDI Co., Ltd., dated as of February 4,
2009
|
||
|
10.4*
|
Amendment
No. 1 to the Commercial Supply Agreement between the registrant and Chi
Mei EL Corporation, dated as of March 16, 2009
|
||
|
10.5*+
|
Amendment
No. 1 to the Settlement and License Agreement between the registrant and
Seiko Epson Corporation, dated as of March 31, 2009
|
||
|
31.1*
|
Certifications
of Steven V. Abramson, Chief Executive Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
|
||
|
31.2*
|
Certifications
of Sidney D. Rosenblatt, Chief Financial Officer, as required
by Rule 13a-14(a) or Rule 15d-14(a)
|
||
|
32.1**
|
Certifications
of Steven V. Abramson, 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.)
|
||
|
*
|
Filed
herewith.
|
|
|
**
|
Furnished
herewith.
|
|
|
+
|
Confidential
treatment has been requested as to certain portions of this exhibit
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
|
|
|
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.
|
SIGNATURES
Pursuant
to the requirements 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 7, 2009
|
By: /s/ Sidney D.
Rosenblatt
|
|
Sidney
D. Rosenblatt
|
|
|
Executive
Vice President and Chief Financial
Officer
|