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UNXL > SEC Filings for UNXL > Form 10-Q on 30-Apr-2013All Recent SEC Filings

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Form 10-Q for UNI-PIXEL


30-Apr-2013

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 three months ended March 31, 2013, 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, 2012, which was filed with the SEC on February 26, 2013.

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.

Advance payments are deferred until shipment, or the service has been completed.

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


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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 to pursue 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 three months ending March 31, 2013 and 2012

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

Revenues were $5,069,416 for the three months ended March 31, 2013 as compared to $3,564 for the three months ended March 31, 2012, an increase of $5,065,852. $5.0 million of revenue from a PC manufacturer was recognized in the three months ended March 31, 2013 as non-recurring engineering revenue. We anticipate that, as we further develop and improve upon UniBoss, we will earn additional non-recurring engineering revenue in the remaining quarters of 2013. We expect to sell the finished products to OEMs in 2013.

COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues was $3,036 for the three months ended March 31, 2013 and $1,373 for the three months ended March 31, 2012. Cost of revenues increased as a result of the increase in revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 135% or approximately $1,251,000, to $2,180,067 for the three months ended March 31, 2013 from $929,069 for the three months ended March 31, 2012. The major changes to selling, general and administrative expenses are as follows:

a) Salaries and benefits increased by approximately $415,000 to $966,000 for the three months ended March 31, 2013 compared to $551,000 for the three months ended March 31, 2012 due to the following: an increase in salaries to $310,000 for the three months ended March 31, 2013 compared to $203,000 for the three months ended March 31, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $317,000 for the three months ended March 31, 2013 compared to $316,000 for the three months ended March 31, 2012; an increase in restricted stock expense to $152,000 for the three months ended March 31, 2013 compared to $0 for the three months ended March 31, 2012; and an increase in bonus accrual to $134,000 for the three months ended March 31, 2013 compared to $0 for the three months ended March 31, 2012;

b) Contract labor expense decreased by approximately $13,000 to $21,000 for the three months ended March 31, 2013 compared to $34,000 for the three months ended March 31, 2012;

c) Legal expense increased by approximately $687,000 to $734,000 for the three months ended March 31, 2013 compared to $47,000 for the three months ended March 31, 2012 primarily due to legal fees related to the UK Action and the Texas Action and an increase in patent related legal work;

d) Accounting expense increased by approximately $2,000 to $27,000 for the three months ended March 31, 2013 compared to $25,000 for the three months ended March 31, 2012;


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e) Office expense increased by approximately $2,000 to $3,000 for the three months ended March 31, 2013 compared to $1,000 for the three months ended March 31, 2012;

f) Travel expense increased by approximately $49,000 to $65,000 for the three months ended March 31, 2013 compared to $16,000 for the three months ended March 31, 2012;

g) Depreciation and amortization expense increased by approximately $92,000 to $219,000 for the three months ended March 31, 2013 compared to $127,000 for the three months ended March 31, 2012.

RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $820,000, or 73%, during the three months ended March 31, 2013 to $1,939,888 from $1,120,078 for the three months ended March 31, 2012. 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 $289,000 to $1,030,000 for the three months ended March 31, 2013 compared to $741,000 for the three months ended March 31, 2012 due to the following: an increase in salaries to $424,000 for the three months ended March 31, 2013 compared to $369,000 for the three months ended March 31, 2012 due to increased number of employees; an increase in stock compensation expense to $314,000 for the three months ended March 31, 2013 compared to $300,000 for the three months ended March 31, 2012; an increase in restricted stock expense to $70,000 for the three months ended March 31, 2013 compared to $0 for the three months ended March 31, 2012; and an increase in bonus accrual to $139,000 for the three months ended March 31, 2013 compared to $0 for the three months ended March 31, 2012;

b) Consulting expense attributable to research and development decreased by approximately $26,000 to $0 for the three months ended March 31, 2013 compared to $26,000 for the three months ended March 31, 2012;

c) Lab expense increased by approximately $538,000 to $834,000 for the three months ended March 31, 2013 compared to $296,000 for the three months ended March 31, 2012 primarily due to increased services related to prototype development; and

d) Travel expense increased by approximately $8,000 to $21,000 for the three months ended March 31, 2013 compared to $13,000 for the three months ended March 31, 2012.

OTHER INCOME (EXPENSE).

Interest income, net, decreased to income of $990 for the three months ended March 31, 2013 as compared to income of $1,571 for the three months ended March 31, 2012, primarily due to a decrease in the average cash on hand during the three months ended March 31, 2013.

NET INCOME (LOSS). Net income was $947,415 for the three months ended March 31, 2013, as compared to a net loss of $2,045,385 for the three months ended March 31, 2012.

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. Until our products begin to earn enough revenue to support our operations, which may never happen, we will continue to be highly dependent on financing from third parties. On April 23, 2013 we sold 1,374,250 shares of our common stock, raising net proceeds of approximately $41.2 million. Barring unanticipated expenses, we expect the proceeds from this offering, together with our cash on hand and collaborative agreements with corporate partners, to support our operations through December 31, 2013.

Operating Activities

Cash provided by operating activities during the three months ended March 31, 2013 was $2,524,423 as compared to cash used in operating activities during the three months ended March 31, 2012 was $1,284,124.


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Investing Activities

Cash used for investing activities during the three months ended March 31, 2013 was $2,364,060 as compared to $14,071 of cash used for the three months ended March 31, 2012. The increase in the use of cash for investing activities during the three months ended March 31, 2013 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 $2,547,221 for the three months ended March 31, 2013, which includes:
$115,982 of net proceeds from the exercise of warrants; and

$2,431,239 of net proceeds from the exercise of stock options.

During the three months ended March 31, 2012, the total net cash provided by financing activities was $0.

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 March 31, 2013, we had a cash balance of approximately $15.7 million and working capital of $15.0 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. As noted above, we raised net proceeds of approximately $41.2 million in April 2013 through the sale of our common stock. Barring unanticipated expenses, we expect the proceeds from this offering, together with our cash on hand and collaborative agreements with corporate partners, to support our operations through December 31, 2013.

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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