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| UNXL > SEC Filings for UNXL > Form 10-K on 26-Feb-2013 | All Recent SEC Filings |
26-Feb-2013
Annual Report
The following discussion of our financial condition and results of operation should be read in conjunction with the financial statements and related notes that appear elsewhere in this report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
These forward-looking statements speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with accounting principles generally accepted in the United States.
Overview
We are a production stage company delivering its Performance Engineered Film™ to the display, touch screen and flexible electronics market segments. Our newly developed thin film high volume roll to roll or continuous flow manufacturing process offers high fidelity replication of advanced micro-optic structures and surface characteristics over a large area, combined with the option of a thin film conductive element. We will sell our films as sub-components for use in liquid crystal display (LCD) as a back light film and active film sub-component. We are currently shipping our Diamond Guard™ Finger Print Resistant and Hard Coat (Anti-Scratch) protective cover films for multiple touch enabled devices. We sell our films under the Diamond Guard™ brand as well as private label to original equipment manufacturers (OEMs).
We are making ITO-less touch films and flexible electronic films based on our newly-developed UniBoss™ manufacturing process for high volume roll to roll printing of flexible thin-film conductor patterns. In addition, our work in developing Time Multiplexed Optical Shutter (TMOS), which we sold in May 2010, led to advances in the thin-film advanced optics arenas that can be leveraged for other marketable applications, such as low cost LCD backlights and general lighting films. We intend to explore the business potential within these applications and pursue those markets that offer profitable opportunities either through licensing or direct production and sales. As of December 31, 2012, we had accumulated a total deficit of $71.3 million from operations in pursuit of these objectives.
We anticipate that our initial film sales will allow us to fund and support further technology developments in the lighting & display, 3D displays, avionics and flexible electronics market segments.
Our strategy is to further develop our proprietary Performance Engineered Film™ technology around the five vertical markets that we have identified as high growth profitable market opportunities. We have and will continue to utilize contract manufacturing for prototype fabrication to augment our internal capabilities in the short term. We also plan to supply our key thin film components and enter into joint developments or ventures in key vertical market segments to exploit the existing manufacturing and distribution channels of our targeted partners.
In 2013, we will remain focused on balancing the longer-term needs of our business while remaining agile and prudent with our spending in the short term. We believe in the underlying fundamentals of our core business strategy and we are focused on addressing the market trends of mobile devices. We believe our strategy aligns well with the driving forces of the portable device manufacturers. With our strategy, our product pipeline, and the deeper penetration in the various markets, we plan to address our challenges in the following manner:
· Assume continued uncertainty in the near-term US economic recovery;
· Grow faster than the markets we serve by focusing on new product introductions to accelerate growth as we enter 2013; and
· Maintain investments that deliver innovation and product development.
The financial statements presented in this annual report include Uni-Pixel, Inc. and our wholly-owned subsidiary, Uni-Pixel Displays, Inc. All significant intercompany transactions and balances have been eliminated.
Critical Accounting Policies
The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in the Notes to the Consolidated Financial Statements. However, certain accounting policies and estimates are particularly important to the understanding of our consolidated financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period-to-period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. The following discusses our significant accounting policies and estimates.
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.
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.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, which is incorporated herein by reference.
Results of Operations
Comparison of Fiscal Years Ending December 31, 2012 and 2011
REVENUES. During the first quarter of 2010, we began to manufacture, market and sell our thin film product.
Revenues decreased to $76,154 for the year ended December 31, 2012, as compared to $195,237 for the year ended December 31, 2011. 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 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 were $26,292 for the year ended December 31, 2012 and $46,985 for the year ended December 31, 2011.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by 5%, or approximately $225,000, to $3,961,667 for the year ended December 31, 2012 from $4,186,927 for the year ended December 31, 2011. The major components of the decrease are as follows:
a) Salaries and benefits decreased by approximately $227,000 to $2,458,000 for the year ended December 31, 2012 compared to $2,685,000 for the year ended December 31, 2011. This decrease was due largely to a decrease in stock compensation expenses to $1,270,000 for the year ended December 31, 2012 compared to $2,014,000 for the year ended December 31, 2011, while restricted stock compensation expenses increased to $200,000 for the year ended December 31, 2012 compared to $0 for the year ended December 31, 2011, and while salaries increased to $877,000 for the year ended December 31, 2012 compared to $568,000 for the year ended December 31, 2011;
b) Contract labor decreased by approximately $120,000 to $74,000 for the year ended December 31, 2012 compared to $194,000 for the year ended December 31, 2011;
c) Legal expense increased by approximately $120,000 to $349,000 for the year ended December 31, 2012 compared to $229,000 for the year ended December 31, 2011;
d) Accounting expense increased by approximately $12,000 to $79,000 for the year ended December 31, 2012 compared to $67,000 for the year ended December 31, 2011;
e) Office expense decreased by approximately $6,000 to $11,000 for the year ended December 31, 2012 compared to $17,000 for the year ended December 31, 2011;
f) Travel expense decreased by approximately $20,000 to $68,000 for the year ended December 31, 2012 compared to $88,000 for the year ended December 31, 2011;
g) Depreciation and amortization expense increased by approximately $122,000 to $555,000 for the year ended December 31, 2012 compared to $433,000 for the year ended December 31, 2011.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by 13% or approximately $570,000 during the year ended December 31, 2012 to $5,112,855 from $4,542,735 for the year ended December 31, 2011. The major components of the increase are as follows:
a) Salaries and benefits attributable to research and development decreased by approximately $520,000 to $3,016,000 for the year ended December 31, 2012 from $3,536,000 for the year ended December 31, 2011. The decrease was due largely to a decrease in stock compensation expenses to $1,214,000 for the year ended December 31, 2012 compared to $1,995,000 for the year ended December 31, 2011, while restricted stock compensation expenses increased to $29,000 for the year ended December 31, 2012 compared to $0 for the year ended December 31, 2011, and while salaries increased to $1,518,000 for the year ended December 31, 2012 compared to $1,315,000 for the year ended December 31, 2011;
b) Consulting expense attributable to research and development decreased by approximately $51,000 to $78,000 for the year ended December 31, 2012 from $129,000 for the year ended December 31, 2011;
c) Lab expense increased by approximately $1,086,000 to $1,689,000 for the year ended December 31, 2012 from $603,000 for the year ended December 31, 2011 primarily due to increased services related to prototype development; and
d) Travel expense attributable to research and development increased by approximately $34,000 to $99,000 for the year ended December 31, 2012 from $65,000 for the year ended December 31, 2011.
OTHER INCOME (EXPENSE)
Interest income, net decreased to income of $6,852 for the year ended December 31, 2012 as compared to income of $11,986 for the year ended December 31, 2011, primarily due to a decrease in the average cash on hand during the twelve months ended December 31, 2012.
NET LOSS. Net loss increased to $9,017,808 for the year ended December 31, 2012, as compared to net loss of $8,569,424 for the year ended December 31, 2011.
Off-Balance Sheet Transactions
We do not engage in 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 2013, 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 year ended December 31, 2012 increased to $5,646,617 as compared to $4,393,600 used for the year ended December 31, 2011. The increase is primarily a result of increases in research and development expenses.
Investing Activities
Cash used in investing activities during the year ended December 31, 2012 decreased to $941,679 as compared to $1,512,322 used for the year ended December 31, 2011. The significant use of cash for investing activities during the 2012 and 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.
The total net cash provided by financing activities was $12,372,005 for the year ended December 31, 2012, which includes:
· $12,271,995 net proceeds from the issuance of 2,520,585 shares of common stock;
· $87,507 net proceeds from exercise of warrants; and
· $12,503 net proceeds from exercise of stock options.
The total net cash provided by financing activities was $73,139 for the year ended December 31, 2011, which we realized from the exercise of stock options.
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 December 31, 2012, we had a cash balance of approximately $13.0 million and working capital of $12.8 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. 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, each to the extent necessary.
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