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| PANL > SEC Filings for PANL > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
Quarterly Report
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.
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:
· 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.
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