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UNXL > SEC Filings for UNXL > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for UNI-PIXEL

Form 10-Q for UNI-PIXEL


8-Aug-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, fluctuation of quarterly financial results, reliance on third party manufacturers and suppliers, reliance on the proprietary technology of others, loss of key personnel, uncertain protection for our intellectual property, litigation or other proceedings, dependence on corporate partners and collaborators and future changes in the electronic market industry that may adversely affect the Company.

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 six months ended June 30, 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.


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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.

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 six months ending June 30, 2013 and 2012

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

Revenues were $5,070,165 for the six months ended June 30, 2013 as compared to $74,124 for the six months ended June 30, 2012, an increase of $4,996,041. $5.0 million of revenue from a PC manufacturer was recognized in the six months ended June 30, 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.


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COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues was $3,421 for the six months ended June 30, 2013 and $25,479 for the six months ended June 30, 2012.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 140% or approximately $2,535,000, to $4,352,844 for the six months ended June 30, 2013 from $1,817,873 for the six months ended June 30, 2012. The major changes to selling, general and administrative expenses are as follows:

a) Salaries and benefits increased by approximately $1,041,000 to $2,127,000 for the six months ended June 30, 2013 compared to $1,086,000 for the six months ended June 30, 2012 due to the following: an increase in salaries to $679,000 for the six months ended June 30, 2013 compared to $409,000 for the six months ended June 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $691,000 for the six months ended June 30, 2013 compared to $634,000 for the six months ended June 30, 2012; an increase in restricted stock expense to $764,000 for the six months ended June 30, 2013 compared to $0 for the six months ended June 30, 2012; and an increase in employee bonus expense to $134,000 for the six months ended June 30, 2013 compared to $0 for the six months ended June 30, 2012;

b) Contract labor expense increased by approximately $23,000 to $57,000 for the six months ended June 30, 2013 compared to $34,000 for the six months ended June 30, 2012;

c) Legal expense increased by approximately $1,027,000 to $1,184,000 for the six months ended June 30, 2013 compared to $157,000 for the six months ended June 30, 2012 primarily due to legal fees related to the UK Action, the Texas Action and the class action lawsuit and an increase in patent related legal work;

d) Accounting expense decreased by approximately $5,000 to $48,000 for the six months ended June 30, 2013 compared to $53,000 for the six months ended June 30, 2012;

e) Office expense increased by approximately $15,000 to $18,000 for the six months ended June 30, 2013 compared to $3,000 for the six months ended June 30, 2012;

f) Travel expense increased by approximately $100,000 to $136,000 for the six months ended June 30, 2013 compared to $36,000 for the six months ended June 30, 2012;

g) Depreciation and amortization expense increased by approximately $286,000 to $539,000 for the six months ended June 30, 2013 compared to $253,000 for the six months ended June 30, 2012.

RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $2,151,000, or 93%, during the six months ended June 30, 2013 to $4,468,191 from $2,317,341 for the six months ended June 30, 2012. The primary reason for the increase in research and development expense is due to an increase 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 $1,041,000 to $2,127,000 for the six months ended June 30, 2013 compared to $1,086,000 for the six months ended June 30, 2012 due to the following: an increase in salaries to $904,000 for the six months ended June 30, 2013 compared to $724,000 for the six months ended June 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $771,000 for the six months ended June 30, 2013 compared to $600,000 for the six months ended June 30, 2012; an increase in restricted stock expense to $242,000 for the six months ended June 30, 2013 compared to $0 for the six months ended June 30, 2012; and an increase in employee bonus expense to $139,000 for the six months ended June 30, 2013 compared to $0 for the six months ended June 30, 2012;

b) Consulting expense attributable to research and development decreased by approximately $62,000 to $0 for the six months ended June 30, 2013 compared to $62,000 for the six months ended June 30, 2012;

c) Lab expense increased by approximately $1,384,000 to $2,016,000 for the six months ended June 30, 2013 compared to $632,000 for the six months ended June 30, 2012 primarily due to increased services related to prototype development; and

d) Travel expense increased by approximately $49,000 to $89,000 for the six months ended June 30, 2013 compared to $40,000 for the six months ended June 30, 2012.

OTHER INCOME (EXPENSE).

Interest income, net, increased to income of $6,471 for the six months ended June 30, 2013 as compared to income of $2,826 for the six months ended June 30, 2012, primarily due to an increase in the average cash on hand during the six months ended June 30, 2013.


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NET INCOME (LOSS). Net loss was $3,747,820 for the six months ended June 30, 2013, as compared to a net loss of $4,083,743 for the six months ended June 30, 2012.

Comparison of the three months ending June 30, 2013 and 2012

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

Revenues were $749 for the three months ended June 30, 2013 as compared to $70,560 for the three months ended June 30, 2012, a decrease of $69,811. 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 $385 for the three months ended June 30, 2013 and $24,106 for the three months ended June 30, 2012. Cost of revenues decreased as a result of the decrease in revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 144% or approximately $1,284,000, to $2,172,777 for the three months ended June 30, 2013 from $888,804 for the three months ended June 30, 2012. The major changes to selling, general and administrative expenses are as follows:

a) Salaries and benefits increased by approximately $627,000 to $1,162,000 for the three months ended June 30, 2013 compared to $535,000 for the three months ended June 30, 2012 due to the following: an increase in salaries to $369,000 for the three months ended June 30, 2013 compared to $206,000 for the three months ended June 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $374,000 for the three months ended June 30, 2013 compared to $319,000 for the three months ended June 30, 2012; and an increase in restricted stock expense to $370,000 for the three months ended June 30, 2013 compared to $0 for the three months ended June 30, 2012;

b) Contract labor expense increased by approximately $36,000 to $36,000 for the three months ended June 30, 2013 compared to $0 for the three months ended June 30, 2012;

c) Legal expense increased by approximately $340,000 to $450,000 for the three months ended June 30, 2013 compared to $110,000 for the three months ended June 30, 2012 primarily due to legal fees related to the UK Action, the Texas Action and the class action lawsuit and an increase in patent related legal work;

d) Accounting expense decreased by approximately $8,000 to $20,000 for the three months ended June 30, 2013 compared to $28,000 for the three months ended June 30, 2012;

e) Office expense increased by approximately $14,000 to $15,000 for the three months ended June 30, 2013 compared to $1,000 for the three months ended June 30, 2012;

f) Travel expense increased by approximately $52,000 to $71,000 for the three months ended June 30, 2013 compared to $19,000 for the three months ended June 30, 2012;

g) Depreciation and amortization expense increased by approximately $195,000 to $321,000 for the three months ended June 30, 2013 compared to $126,000 for the three months ended June 30, 2012.

RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $1,331,000, or 111%, during the three months ended June 30, 2013 to $2,528,303 from $1,197,263 for the three months ended June 30, 2012. The primary reason for the increase in research and development expense is due to an increase in 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 $443,000 to $1,182,000 for the three months ended June 30, 2013 compared to $739,000 for the three months ended June 30, 2012 due to the following: an increase in salaries to $480,000 for the three months ended June 30, 2013 compared to $355,000 for the three months ended June 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $457,000 for the three months ended June 30, 2013 compared to $300,000 for the three months ended June 30, 2012; and an increase in restricted stock expense to $172,000 for the three months ended June 30, 2013 compared to $0 for the three months ended June 30, 2012;

b) Consulting expense attributable to research and development decreased by approximately $36,000 to $0 for the three months ended June 30, 2013 compared to $36,000 for the three months ended June 30, 2012;

c) Lab expense increased by approximately $845,000 to $1,181,000 for the three months ended June 30, 2013 compared to $336,000 for the three months ended June 30, 2012 primarily due to increased services related to prototype development; and

d) Travel expense increased by approximately $41,000 to $68,000 for the three months ended June 30, 2013 compared to $27,000 for the three months ended June 30, 2012.


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OTHER INCOME (EXPENSE).

Interest income, net, increased to income of $5,481 for the three months ended June 30, 2013 as compared to income of $1,255 for the three months ended June 30, 2012, primarily due to an increase in the average cash on hand during the three months ended June 30, 2013.

NET INCOME (LOSS). Net loss was $4,695,235 for the three months ended June 30, 2013, as compared to a net loss of $2,038,358 for the three months ended June 30, 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, 2014.

Operating Activities

Cash provided by operating activities during the six months ended June 30, 2013 was $5,391,942 as compared to cash used in operating activities during the six months ended June 30, 2012 was $2,572,143.

Investing Activities

Cash used for investing activities during the six months ended June 30, 2013 was $8,857,640 as compared to $14,071 of cash used for the six months ended June 30, 2012. The increase in the use of cash for investing activities during the six months ended June 30, 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 $43,874,006 for the six months ended June 30, 2013, which includes:

$151,982 of net proceeds from the exercise of warrants;

$2,502,131 of net proceeds from the exercise of stock options; and

$41,219,893 of net proceeds from the issuance of common stock.

During the six months ended June 30, 2012, the total net cash provided by financing activities was $0.

Working Capital

Our primary sources of liquidity have been the sale of registered shares of our common stock to the public which was completed in April 2013, 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 June 30, 2013, we had a cash balance of approximately $53.4 million and working capital of $46.8 million. We project that current cash reserves will sustain our operations through at least December 31, 2014, 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.

Through December 31, 2013, we expect to fund our operations with our net product revenues from our commercial products and cash and cash equivalents supplemented by proceeds from equity or debt financings, and loans or collaborative agreements with corporate partners.


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