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APNT > SEC Filings for APNT > Form 10-Q on 1-May-2013All Recent SEC Filings

Show all filings for APPLIED NANOTECH HOLDINGS, INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for APPLIED NANOTECH HOLDINGS, INC


1-May-2013

Quarterly Report


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

The following is management's discussion and analysis of certain significant factors that have affected the Company's financial position and operating results during the periods included in the accompanying consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain forward-looking statements that we believe are within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our strategy, future operations, future expectations or future estimates, financial position and objectives of management. Those statements in this Form 10-Q containing the words "believes," "anticipates," "plans," "expects" and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and are subject to a number of risks, uncertainties and assumptions relating to our operations, results of operations, competitive factors, shifts in market demand and other risks and uncertainties.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and actual results may differ from those indicated by the forward-looking statements included in this Form 10-Q. In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Three months ended March 31, 2013 and 2012

OVERVIEW

We are a nanotechnology company primarily engaged in the development of technologies, based principally on our intellectual property. We generate revenues by performing research services, licensing our technology, and selling products based on our technology. During all periods presented, our primary revenues were earned as a result of reimbursed research expenditures and licensing of our technology. As more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2012, we expect to incur significant additional research and development expenses in 2013 to further develop our technology. We are focused on commercializing our technology and obtaining sufficient revenue to cover our ongoing expenditures and to achieve profitability.

OUTLOOK

We expect our present cash balances, when combined with known and expected revenue sources, to enable us to operate through the end of 2013. However, our cash on hand is only adequate to allow us to operate into June 2012. We expect to sign additional contracts during this time period which will extend that period further. If we do not receive the expected revenue sources as quickly as anticipated, we may be required to cut back on our commercialization activities, or to raise additional funding. If we are unable to raise additional funding on commercially acceptable terms, we may be forced to drastically curtail activities or obtain funding on terms that are not favorable to the Company.

We have a plan to achieve profitability in 2013, and that plan anticipated a loss in the first quarter, which is expected to be offset by profits for the balance of the year. A critical component of our plan is the receipt of additional revenues. These revenues must come from a variety of sources, including research revenues, license fees - either in the form of an upfront payment, or from ongoing royalties as a result of product sales by our licensees, and product sales by us.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.)

At the present time, there can be no assurance that we will achieve our plan for profitability in 2013, or that expected revenue sources will all occur as planned. It is not possible for us to achieve profitability without license fees or royalties at our present level of activity. In order to achieve profitability solely based on research revenues, our research revenue would have to more than double from our expected level for 2013, and the majority of the revenue would have to come from non-governmental sources. The mix of revenues received could also cause the revenues required to reach break-even to increase. If revenue producing projects require unanticipated expenses, or heavier than anticipated use of outside services and materials, we may be unable to achieve profitability at the expected level of revenues. We believe that we have the ability to continue to obtain funding, if necessary, to enable us to continue operations until we reach profitability.

Our plan is based on current development plans, current operating plans, the current regulatory environment, historical experience in the development of electronic products and general economic conditions. Changes could occur which would cause certain assumptions on which this plan is based to be no longer valid. If adequate funds are not available from operations, or other sources of financing, we may have to eliminate, or reduce substantially, expenditures for research and development, testing and production of its products, or obtain funds through arrangements with other entities that may require us to relinquish rights to certain of our technologies or products. Such results could materially and adversely affect us.

RECENT DEVELOPMENTS

During 2013 we have received new research contracts totaling approximately $1.1 million.

RECENT ACCOUNTING PRONOUNCEMENTS

There are no recent accounting pronouncements that we have not implemented that are expected to have a material impact on our financial statements.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.)

FINANCIAL CONDITION AND LIQUIDITY

Our cash position increased during the period from approximately $330,000 at December 31, 2012 to approximately $650,000 at March 31, 2013. This increase in cash is primarily the result of cash provided by operating activities as well as cash provided by financing activities.

Our operating activities provided $86,450 of cash in the quarter ended March 31, 2013 (the "2013 Period"), as opposed to the cash used by operating activities of $842,265 in the quarter ended March 31, 2012 (the "2012 Period"). The cash provided by operations in the 2013 is primarily the result of the net loss during the period, offset by non-cash expenditures and working capital management. In the 2013 Period, our $600,000 deposit related to a potential acquisition from 2012 was returned to us and was a significant source of working capital for us. Our cash used in operations during the 2012 Period is also primarily the result of the net loss during the period, partially offset by working capital management.

We would expect our cash used in, or provided by, operating activities to fluctuate in future quarters in 2013, depending on the timing of receipt of various items. We expect positive cash flow from operations in future quarters in 2013, but not necessarily in all quarters, as a result of increasing revenues, particularly license agreements, while expenses increase at a much lower rate.

Our cash provided by financing activities was approximately $230,000 in the 2013 Period. This was the result of issuing notes payable to supplement our cash balance, partially offset by payments on capital leases and notes payable. We had cash used in financing activities of approximately $9,000 in the 2012 Period related to payments made on capital lease obligations.

We used an insignificant amount of cash related to the purchase of equipment in the 2012 Period and had no capital expenditures in the 2013 Period. We expect cash used in investing activities to remain at relatively insignificant levels for the balance of 2013.

Historically, the principal source of our liquidity has been funds received from exempt offerings of common stock and debt. While we expect to be able to obtain any funds needed for operations, there can be no assurance that, if needed, any financing alternatives can be arranged on commercially acceptable terms. If we are unable to achieve sufficient revenues to support our operations, we may be required to obtain funding on terms that are unfavorable to the Company. We believe that our success in reaching profitability will be dependent on our patent portfolio and upon the viability of products using our technology and their acceptance in the marketplace, as well as our ability to obtain additional debt or equity financings in the future, if needed.

We expect to continue to incur substantial expenses for research, development and commercialization activities. Further, we believe that certain products that may be developed by potential licensees of our technology may not be available for commercial sale or routine use for a period of one to two years. Others are expected to be available in 2013. While we would likely receive initial license payments, ongoing royalty streams related to some licenses may not be available until potential licensees have introduced products using our technology. Therefore, it is possible that the commercialization of our existing and proposed products may require additional capital in excess of our current funding. We do, however, have a plan to operate profitably in 2013 based on the receipt of research funding, license agreements, product sales, and other revenues. We have cut back significantly on our expenditures to better match our revenues and expenditures; however, this cut back in expenditures will likely delay commercialization of some of our products. Achievement of at least break-even would enable us to continue our research without seeking additional financing in the future.

Because the timing and receipt of revenues from product sales, or license and royalty agreements will be tied to the achievement of certain product development, testing and marketing objectives, which cannot be predicted with certainty, there may be substantial fluctuations in our results of operations. If revenues do not increase as rapidly as anticipated, or if product development and testing require more funding than anticipated, we may be required to curtail our operations or seek additional financing from other sources at some point in the future. The combined effect of the foregoing may prevent us from achieving sustained profitability for an extended period of time.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont.)

RESULTS OF OPERATIONS

Our net loss for the 2013 Period was approximately $1.375 million, as compared with the net loss of approximately $1.6 million for the 2012 Period. Our loss from operations decreased by a much larger amount than net income, from approximately $1.525 million to approximately $675,000 - a decrease of greater than 50%. The reasons for the decreased loss are discussed in more detail below.

Our revenues for the quarter ended March 31, 2013, totaled approximately $950,000, compared to approximately $775,000 for the same quarter in 2012. The revenues in both periods were substantially all the result of reimbursed research expenditures. The majority of the revenues in both periods came from government sources, which is included in government contract revenue in the statement of operations. At the present stage of our development, significant conclusions cannot be drawn by comparing revenues from period to period; however, we would expect the quarterly revenue for the balance of 2013 to increase above the first quarter level in the majority of quarters. Our plan calls for targeted revenues of $7.0 million for 2013. Our business strategy is built on commercializing our technology through product sales and developing a royalty stream from licensing our intellectual property. To supplement this, we also seek funding from both governmental and private sources to help fund our research. Until we are able to develop a steady revenue stream from royalties, or product sales, our revenues will tend to fluctuate greatly from quarter to quarter. Our private research funding tends to come in large amounts at sporadic times.

We have a research revenue backlog of approximately $2.8 million as of March 31, 2013, up from our total research revenue backlog of approximately $1.8 million as of March 31, 2012. Our ability to perform continued research, or fulfill our backlog, should not require significant additional personnel; however, we do plan to increase this backlog significantly throughout 2013 and an increase in revenue levels may require additional personnel. We expect our revenue backlog to continue to support our expected revenue levels.

We incurred research and development expenses of approximately $875,000 for the 2013 Period, a decrease from the approximately $1.3 million incurred in the 2012 Period. This decrease in research expenses is a direct result of our cost cutting initiatives and elimination of almost all unfunded research activities. We expect research and development expenditures to remain near the current level for the balance of 2013; however, significant new revenue producing research programs beyond those already identified could cause research and development expenditures to increase further.

Our selling, general, and administrative expenses were approximately $750,000 for the 2013 Period, compared with approximately $975,000 for the 2012 Period. This decrease in selling, general, and administrative expenses was primarily the result of our cost cutting efforts.

Our interest income is insignificant in both periods. Our interest income results from the investment of excess funds in short term interest bearing instruments, primarily certificates of deposit, commercial paper, and money market funds. We expect our interest income to remain at insignificant levels for the balance of 2013.

Our interest expense, which is primarily the result of our convertible notes payable, increased in the 2013 Period. This interest expense includes both the stated interest rate on the debt and the amortization of the discount associated with the beneficial conversion feature of the notes. The interest expense increased because of several factors including new notes issued with beneficial conversion features, original issue discount on new notes issue, and expense associated with induced conversions (lowering the conversion price to induce conversion).

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