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UNXL > SEC Filings for UNXL > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for UNI-PIXEL

Form 10-Q for UNI-PIXEL


7-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This report, including the documents that we incorporate by reference, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Forward-looking statements in or incorporated by reference in this report include, without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements include, but are not limited to, the rate and degree of market acceptance of our products, our ability to develop and market new and enhanced products, our ability to obtain financing as and when we need it, competition from existing and new products and our ability to effectively react to other risks and uncertainties described from time to time in our SEC filings, such as fluctuation of quarterly financial results, reliance on third party manufacturers and suppliers, litigation or other proceedings, government regulation and stock price volatility.

In some cases, you can identify forward-looking statements by terminology such as ''may,'' ''will,'' ''should,'' ''could,'' ''expects,'' ''plans,'' ''intends,'' ''anticipates,'' ''believes,'' ''estimates,'' ''predicts,'' ''potential,'' or ''continue'' or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. We do not undertake any obligation to publicly update or revise any forward-looking statement.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/(loss) and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, income taxes, and long-lived assets, have the greatest impact on our condensed consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2012, as compared to the critical accounting policies and estimates disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on March 8, 2012.

Recent Accounting Pronouncements

See Note 2 of our accompanying condensed consolidated financial statements for a full description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.

Revenue Recognition: We recognize revenue over the period the service is performed or when the product is delivered, depending on shipping method. In general, this requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured.


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Advance payments are deferred until shipment.

Revenue from licenses and other up-front fees are recognized on a ratable basis over the term of the respective agreement.

Cost of Revenues, Selling, General and Administrative Expenses and Research and Development Expenses: The primary purpose of our facility in The Woodlands, Texas is to conduct research on the development, testing and delivery of our prototype devices, and the commercialization of our products.

If, in the future, the purposes for which we operate our facility in The Woodlands, Texas, or any new facilities we open, changes, the allocation of the costs incurred in operating that facility between cost of sales and research and development expenses could change to reflect such operational changes.

Research and Development Expenses: Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors for research, development and manufacturing of materials and devices, and a portion of facilities cost. Prototype development costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual costs may differ in some cases from estimated costs and are adjusted for in the period in which they become known.

Stock-Based Compensation: We measure stock-based compensation expense for all share-based awards granted based on the estimated fair value of those awards at grant-date. The fair values of stock option awards are estimated using a Black-Scholes valuation model. The compensation costs are recognized net of any estimated forfeitures on a straight-line basis over either the employee's requisite service period, or other such vesting requirements as are stipulated in the stock option award agreements. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Forfeiture rates are estimated at grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates.

RESULTS OF OPERATIONS

Comparison of the nine months ending September 30, 2012 and 2011

REVENUES. During the first quarter of 2010, we began to manufacture, market and sell our thin film product.

Revenues were $74,124 for the nine months ended September 30, 2012 as compared to $190,297 for the nine months ended September 30, 2011, a decrease of $116,173, or 61%. The revenue for these periods was primarily related to engineering services and the sale of our thin film product. The primary reason for the decrease in revenue is due to a decrease in engineering services revenue. We anticipate that, as we further develop and improve upon UniBoss, we will earn additional non-recurring engineering revenue in the fourth quarter of 2012 and the first quarter of 2013. We expect to sell the finished products to OEMs in 2013. We do not believe that our research and development fixed assets are impaired or that the useful lives of these assets should be adjusted.

COST OF REVENUES. Cost of revenues includes all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues was $25,479 for the nine months ended September 30, 2012 and $44,447 for the nine months ended September 30, 2011. Cost of revenues decreased as a result of the decrease in revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by 20% or approximately $646,000, to $2,647,501 for the nine months ended September 30, 2012 as compared to $3,293,677 for the nine months ended September 30, 2011. Selling, general and administrative expenses were higher during the nine months ended September 30, 2011 due to the issuance of stock options to employees and the related increase in stock compensation expense. The major changes to selling, general and administrative expenses were as follows:


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a) Salaries and benefits decreased by approximately $542,000 to $1,643,000 for the nine months ended September 30, 2012 compared to $2,185,000 for the nine months ended September 30, 2011 primarily because stock compensation expense decreased to $946,000 for the nine months ended September 30, 2012 compared to $1,709,000 for the nine months ended September 30, 2011;

b) Legal expense increased by approximately $53,000 to $210,000 for the nine months ended September 30, 2012 compared to $157,000 for the nine months ended September 30, 2011 primarily due to increased patent filings;

c) Accounting expense increased by approximately $11,000 to $66,000 for the nine months ended September 30, 2012 compared to $55,000 for the nine months ended September 30, 2011;

d) Office expense decreased by approximately $9,000 to $6,000 for the nine months ended September 30, 2012 compared to $15,000 for the nine months ended September 30, 2011;

e) Travel expense decreased by approximately $23,000 to $51,000 for the nine months ended September 30, 2012 compared to $74,000 for the nine months ended September 30, 2011;

f) Depreciation and amortization expense increased by approximately $74,000 to $379,000 for the nine months ended September 30, 2012 compared to $305,000 for the nine months ended September 30, 2011.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $23,000 during the nine months ended September 30, 2012 to $3,533,805 from $3,556,515 for the nine months ended September 30, 2011. The major changes to research and development expenses were as follows:

a) Salaries and benefits attributable to research and development decreased by approximately $588,000 to $2,211,000 for the nine months ended September 30, 2012 compared to $2,799,000 for the nine months ended September 30, 2011. Salaries and benefits were higher during the nine months ended September 30, 2011 primarily due to stock compensation expense, which decreased to $900,000 for the nine months ended September 30, 2012 compared to $1,696,000 for the nine months ended September 30, 2011;

b) Consulting expense attributable to research and development decreased by approximately $21,000 to $66,000 for the nine months ended September 30, 2012 compared to $87,000 for the nine months ended September 30, 2011;

c) Lab expense increased by approximately $572,000 to $1,018,000 for the nine months ended September 30, 2012 compared to $466,000 for the nine months ended September 30, 2011 primarily due to increased services related to prototype development; and

d) Travel expense attributable to research and development increased by $14,000 to $63,000 for the nine months ended September 30, 2012 compared to $49,000 for the nine months ended September 30, 2011.

OTHER INCOME (EXPENSE).

Interest income, net, decreased to income of $5,274 for the nine months ended September 30, 2012 as compared to income of $10,080 for the nine months ended September 30, 2011, primarily due to a decrease in the average cash on hand during the nine months ended September 30, 2012.

NET LOSS. Net loss was $6,127,387 for the nine months ended September 30, 2012, as compared to a net loss of $6,694,262 for the nine months ended September 30, 2011.

Comparison of the three months ending September 30, 2012 and 2011

REVENUES. During the first quarter of 2010, we began to manufacture, market and sell our thin film product.


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Revenues were $0 for the three months ended September 30, 2012 as compared to $731 for the three months ended September 30, 2011, a decrease of $731, or 100%. We anticipate that, as we further develop and improve upon UniBoss, we will earn additional non-recurring engineering revenue in the fourth quarter of 2012 and the first quarter of 2013. We expect to sell the finished products to OEMs in 2013. We do not believe that our research and development fixed assets are impaired or that the useful lives of these assets should be adjusted.

COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues was $0 for the three months ended September 30, 2012 and $440 for the three months ended September 30, 2011. Cost of revenues decreased as a result of the decrease in revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by 2% or approximately $16,000, to $829,628 for the three months ended September 30, 2012 from $845,675 for the three months ended September 30, 2011. The major changes to selling, general and administrative expenses are as follows:

a) Salaries and benefits increased by approximately $119,000 to $557,000 for the three months ended September 30, 2012 compared to $438,000 for the three months ended September 30, 2011 due to an increase in salaries to $227,000 for the three months ended September 30, 2012 compared to $151,000 for the three months ended September 30, 2011, and due to an increase in stock compensation expense to $330,000 for the three months ended September 30, 2012 compared to $287,000 for the three months ended September 30, 2011;

b) Contract labor expense decreased by approximately $43,000 to $14,000 for the three months ended September 30, 2012 compared to $57,000 for the three months ended September 30, 2011;

c) Legal expense decreased by approximately $25,000 to $52,000 for the three months ended September 30, 2012 compared to $77,000 for the three months ended September 30, 2011 primarily due to decreased patent filings;

d) Accounting expense decreased by approximately $4,000 to $13,000 for the three months ended September 30, 2012 compared to $17,000 for the three months ended September 30, 2011;

e) Office expense decreased by approximately $2,000 to $3,000 for the three months ended September 30, 2012 compared to $5,000 for the three months ended September 30, 2011;

f) Travel expense decreased by approximately $8,000 to $16,000 for the three months ended September 30, 2012 compared to $24,000 for the three months ended September 30, 2011;

g) Depreciation and amortization expense decreased by approximately $8,000 to $126,000 for the three months ended September 30, 2012 compared to $134,000 for the three months ended September 30, 2011.

RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $186,000, or 18%, during the three months ended September 30, 2012 to $1,216,464 from $1,030,349 for the three months ended September 30, 2011. The primary reason for the increase in research and development expense is due to increased lab expense related to prototype development. The major changes to research and development expenses are as follows:

a) Salaries and benefits attributable to research and development increased by approximately $20,000 to $731,000 for the three months ended September 30, 2012 compared to $711,000 for the three months ended September 30, 2011 due to an increase in salaries to $450,000 for the three months ended September 30, 2012 compared to $418,000 for the three months ended September 30, 2011. Stock compensation expense decreased to $282,000 for the three months ended September 30, 2012 compared to $293,000 for the three months ended September 30, 2011;

b) Consulting expense attributable to research and development decreased by approximately $9,000 to $4,000 for the three months ended September 30, 2012 compared to $13,000 for the three months ended September 30, 2011;


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c) Lab expense increased by approximately $142,000 to $386,000 for the three months ended September 30, 2012 compared to $244,000 for the three months ended September 30, 2011 primarily due to increased services related to prototype development; and

d) Travel expense increased by approximately $7,000 to $23,000 for the three months ended September 30, 2012 compared to $16,000 for the three months ended September 30, 2011.

OTHER INCOME (EXPENSE).

Interest income, net, decreased to income of $2,448 for the three months ended September 30, 2012 as compared to income of $2,637 for the three months ended September 30, 2011, primarily due to a decrease in the average cash on hand during the three months ended September 30, 2012.

NET INCOME (LOSS). Net loss was $2,043,644 for the three months ended September 30, 2012, as compared to a net loss of $1,873,096 for the three months ended September 30, 2011.

Off-Balance Sheet Transactions

We do not engage in material off-balance sheet transactions.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations primarily through the issuance of equity and debt securities and by relying on other commercial financing. During the remainder of 2012, and for the foreseeable future, we will be highly dependent on our net product revenue to supplement our current liquidity and fund our operations and highly dependent on financing from third parties. We may in the future elect to supplement this with further debt or equity offerings or commercial borrowing.

Operating Activities

Cash used in operating activities during the nine months ended September 30, 2012 increased to $4,092,358 as compared to $3,189,693 used for the nine months ended September 30, 2011.

Investing Activities

Cash used for investing activities during the nine months ended September 30, 2012 was $25,571 as compared to $1,438,186 of cash used for the nine months ended September 30, 2011. The significant use of cash for investing activities during the nine months ended September 30, 2011 was primarily attributable to the purchase of equipment related to our research and development activities and for anticipated production.

Financing Activities

Historically, we have financed our operating and investing activities primarily from the proceeds of private placements and public offerings of common stock, convertible investor notes, and a preferred stock offering.

During the nine months ended September 30, 2012, the total net cash provided by financing activities was $12,271,995, which represented the net proceeds from the issuance of 2,520,585 shares of common stock. The proceeds from this offering will be used for general corporate purposes and to fund our research and development activities. During the nine months ended September 30, 2011, the total net cash provided by financing activities was $73,139, which represented the net proceeds we received from the exercise of stock options.


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Working Capital

Our primary sources of liquidity have been short-term loans from private placements of convertible notes, private placements of equity securities, the sale of certain intellectual property and the issuance of shares of common stock.

As of September 30, 2012, we had a cash balance of approximately $15.4 million and working capital of $15.5 million. We project that current cash reserves will sustain our operations through at least December 31, 2013, and we are not aware of any trends or potential events that are likely to adversely impact our short term liquidity through this term. Through December 31, 2013, we expect to fund our operations with our net product revenues from our commercial products, cash and cash equivalents supplemented by proceeds from equity or debt financings, and loans or collaborative agreements with corporate partners.

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