SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  UNI-PIXEL - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

[February 26, 2014]

UNI-PIXEL - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

(Edgar Glimpses Via Acquire Media NewsEdge) 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 our Performance Engineered Film™ (PEF) products to the display, touch screen and flexible electronics market segments. We recently rebranded our PEF production process as Copperhead™. We have also recently rebranded the touch sensors made with the Copperhead™ process as InTouch™ sensors.

We make transparent conductive films and flexible electronic films based on our proprietary Copperhead™ manufacturing process for high volume, roll to roll printing of flexible thin-film conductor patterns. The Copperhead™ process offers precision micro-electronic circuit patterning and modification of surface characteristics over a large area on an ultra-thin, clear, flexible, plastic substrate. These films may be incorporated into touch sensors, capacitive switches, general lighting, automotive, antenna, display and shielding applications. We intend to sell the touch screen films, under the brand InTouch™, as sub-components of a touch sensor module.

In addition to the flexible electronic films described above, we are currently shipping our hard coat resin and protective films for use with multiple types of devices either as protective cover films, a cover lens replacement or a conformal hard coat for plastic components. We sell our hard coat resin and optical films under the Diamond Guard™ brand. Furthermore, our past work in developing the Time Multiplexed Optical Shutter (TMOS) technology, which we sold in May 2010, led to advances in the field of thin-film advanced optics that we believe 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.

Our strategy is to further develop our proprietary Performance Engineered Film™ technology around the vertical markets that we have identified as high growth profitable market opportunities. These markets include touch sensors, antennas, automotive and lighting. 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 enter into licensing arrangements, joint developments or ventures in key market segments to exploit the manufacturing and distribution channels of the targeted partners.

In 2014, we will remain focused on balancing the longer-term needs of our business while remaining 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: 23 -------------------------------------------------------------------------------- Table of Contents · 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 2014; 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 in Item 8 of Part II of this Annual Report on Form 10-K. 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 of product has occurred or services have been rendered.

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

Revenue on certain fixed price contracts where we provide research and development services are recognized over the contract term based on achievement of milestones.

Under the milestone method, we recognized $5.0 million of revenue from a PC manufacturer in the first quarter of 2013 as non-recurring engineering revenue.

In April 2013, we entered into an agreement with an Eco-System Partner (the "Agreement"), whereby we will receive $10 million of cash proceeds to assist us in increasing our production capacity. The Agreement requires us to have the capability to produce at least 1 million sensor units per month (as defined in the Agreement) by April 2014. Upon achieving the minimum production capability and meeting the required quality standards specified in the Agreement, we will record non-recurring engineering revenue for the total amount of cash proceeds received. As of December 31, 2013, we have received $5 million, which is recorded as deferred revenue in the accompanying consolidated balance sheet.

Upon achieving the deliverables of the Agreement, we will pay a commission to the Eco-System Partner of 10%, on revenue derived from the sales of InTouch™ Sensors directly to the Eco-System Partner or to those of the Eco-System Partner's manufacturing partners that use the Eco-System Partner's Preferred Price and Capacity License Agreement. The commission amount is capped at $18.5 million.

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.

24 -------------------------------------------------------------------------------- Table of Contents 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, 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 increased to $5,081,574 for the year ended December 31, 2013, as compared to $76,154 for the year ended December 31, 2012, an increase of $5,005,420. $5.0 million of revenue from a PC manufacturer was recognized in the year ended December 31, 2013 as non-recurring engineering revenue.

COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues were $9,005 for the year ended December 31, 2013 and $26,292 for the year ended December 31, 2012.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 150%, or approximately $5,926,868, to $9,888,535 for the year ended December 31, 2013 from $3,961,667 for the year ended December 31, 2012. The major components of the increase are as follows: a) Salaries and benefits increased by approximately $2,185,000 to $4,643,000 for the year ended December 31, 2013 compared to $2,458,000 for the year ended December 31, 2012 due primarily to the following: an increase in salaries to $1,574,000 for the year ended December 31, 2013 compared to $878,000 for the year ended December 31, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $1,532,000 for the year ended December 31, 2013 compared to $1,270,000 for the year ended December 31, 2012; an increase in restricted stock expense to $1,177,000 for the year ended December 31, 2013 compared to $200,000 for the year ended December 31, 2012; and for the year ended December 31, 2013, an employee separation and release expense consisting of six months salary in the amount of $125,000 and six months car allowance of $6,000, both payable in fiscal year 2014 to Reed Killion, our former Chief Executive Officer; b) Legal expense increased by approximately $1,577,000 to $1,926,000 for the year ended December 31, 2013 compared to $349,000 for the year ended December 31, 2012 primarily due to legal fees related to the UK Actions, the Texas Action and the class action lawsuit and an increase in patent related legal work; c) Travel expense increased by approximately $225,000 to $293,000 for the year ended December 31, 2013 compared to $68,000 for the year ended December 31, 2012 primarily due to increased travel visiting potential customers and suppliers; d) Depreciation and amortization expense increased by approximately $1,683,000 to $2,238,000 for the year ended December 31, 2013 compared to $555,000 for the year ended December 31, 2012.

25 -------------------------------------------------------------------------------- Table of Contents RESEARCH AND DEVELOPMENT. Research and development expenses increased by 103% or approximately $5,271,495 during the year ended December 31, 2013 to $10,384,350 from $5,112,855 for the year ended December 31, 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 $1,825,000 to $4,841,000 for the year ended December 31, 2013 compared to $3,016,000 for the year ended December 31, 2012 due primarily to the following: an increase in salaries to $2,081,000 for the year ended December 31, 2013 compared to $1,518,000 for the year ended December 31, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $1,874,000 for the year ended December 31, 2013 compared to $1,214,000 for the year ended December 31, 2012; and an increase in restricted stock expense to $547,000 for the year ended December 31, 2013 compared to $29,000 for the year ended December 31, 2012; b) Lab expense, which includes contract labor, increased by approximately $3,232,000 to $4,921,000 for the year ended December 31, 2013 from $1,689,000 for the year ended December 31, 2012 primarily due to increased services related to prototype development and an increase in third party plating expense to $1,835,000 for the year ended December 31, 2013 compared to $363,000 for the year ended December 31, 2012; and c) Travel expense attributable to research and development increased by approximately $143,000 to $242,000 for the year ended December 31, 2013 from $99,000 for the year ended December 31, 2012 primarily due to offsite management of research and development activities.

OTHER INCOME (EXPENSE) Interest income, net increased to income of $19,422 for the year ended December 31, 2013 as compared to income of $6,852 for the year ended December 31, 2012, primarily due to an increase in the average cash on hand during the twelve months ended December 31, 2013.

NET LOSS. Net loss was $15,180,894 for the year ended December 31, 2013, as compared to net loss of $9,017,808 for the year ended December 31, 2012.

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.

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 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; 26 -------------------------------------------------------------------------------- Table of Contents 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, which includes contract labor, 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 an increase in third party plating expense in to $363,000 for the year ended December 31, 2012 compared to $0 for the year ended December 31, 2011; 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. 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 used in operating activities during the year ended December 31, 2013 decreased to $1,958,681 as compared to $5,646,617 used for the year ended December 31, 2012. 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.

27 -------------------------------------------------------------------------------- Table of Contents Investing Activities Cash used in investing activities during the year ended December 31, 2013 increased to $16,594,313 as compared to $941,679 used for the year ended December 31, 2012. The significant use of cash for investing activities during 2013 and 2012 was primarily attributable to the purchase of equipment related to our research and development activities and for anticipated production. 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.

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 $44,922,196 for the year ended December 31, 2013, which includes: · $187,983 of net proceeds from the exercise of warrants; · $3,514,320 of net proceeds from the exercise of stock options; and · $41,219,893 of net proceeds from the issuance of common stock.

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 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 December 31, 2013, we had a cash balance of approximately $39.4 million and working capital of $33.3 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.

Contractual Obligations Our contractual obligations are included in our consolidated financial statements and the related notes thereto called for by this item appear under the caption "Financial Statements" beginning on page F-1 of this Annual Report on Form 10-K.

[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved.