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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-Q 
 

 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2012
 
or
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from                      to                           
 
COMMISSION FILE NUMBER: 0-49737
 
UNI-PIXEL, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
DELAWARE
 
75-2926437
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
8708 Technology Forest Place, Suite 100
The Woodlands, Texas 77381
(Address of Principal Executive Offices)
 
(281) 825-4500
(Issuer’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x
 
As of July 29, 2012, the issuer had 7,145,029 shares of issued and outstanding common stock, par value $0.001 per share.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer o
     
Non-accelerated filer o
 
Smaller reporting company x
(Do not check if a smaller reporting company)
   
 
 
TABLE OF CONTENTS
 
Part I.
Financial Information
3
     
Item 1.
3
     
 
   June 30, 2012 (unaudited) and December 31, 2011
3
     
 
  Three and six months ended June 30, 2012 (unaudited) and June 30, 2011 (unaudited)
4
     
 
   From December 31, 2010 to June 30, 2012 (unaudited)
5
     
 
   Six months ended June 30, 2012 (unaudited) and June 30, 2011 (unaudited)
6
     
 
7
     
Item 2.
13
     
Item 3.
17
     
Item 4.
17
     
Part II.
Other Information
18
     
Item 6.
18
 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS.
 
Uni-Pixel, Inc.
Condensed Consolidated Balance Sheets
 
   
June 30,
 2012
   
December 31,
2011
 
   
(unaudited)
       
ASSETS
           
Current assets
           
Cash and cash equivalents
 
$
4,630,449
   
$
7,216,663
 
Accounts receivable, net
   
47,796
     
4,550
 
                 
Total current assets
   
4,678,245
     
7,221,213
 
                 
Property and equipment, net of accumulated depreciation of $2,230,224 and $1,977,241,
   at June 30, 2012 and December 31, 2011, respectively
   
910,742
     
1,149,654
 
Restricted cash
   
17,439
     
17,439
 
                 
Total assets
 
$
5,606,426
   
$
8,388,306
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Current liabilities
               
Accounts payable
 
$
154,626
   
$
87,468
 
                 
Total current liabilities
   
154,626
     
87,468
 
                 
Total liabilities
   
154,626
     
87,468
 
                 
Commitments and contingencies (Note 3)
   
     
 
                 
Shareholders’ equity
               
Common stock, $0.001 par value; 100,000,000 shares authorized, 7,142,307 shares issued
    and outstanding at June 30, 2012 and December 31, 2011
   
7,142
     
7,142
 
Additional paid-in capital
   
71,824,143
     
70,589,438
 
Accumulated deficit
   
(66,379,485
)
   
(62,295,742
)
                 
Total shareholders’ equity
   
5,451,800
     
8,300,838
 
                 
Total liabilities and shareholders’ equity
 
$
5,606,426
   
$
8,388,306
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Uni-Pixel, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenue
 
$
70,560
   
$
137,978
   
$
74,124
   
$
189,566
 
                                 
Cost of revenues
   
24,106
     
36,313
     
25,479 
     
44,007 
 
                                 
Gross margin
   
46,454
     
101,665
     
48,645
     
145,559
 
                                 
Selling, general and administrative expenses
   
888,804
     
932,234
     
1,817,873
     
2,448,002
 
Research and development
   
1,197,263
     
901,851
     
2,317,341
     
2,526,166
 
                                 
Operating loss
   
(2,039,613
)
   
(1,732,420
)
   
(4,086,569
)
   
(4,828,609
)
                                 
Other income (expense)
                               
   Interest income (expense), net
   
1,255
     
3,694
     
2,826
     
7,443
 
                                 
Net income (loss)
 
$
(2,038,358
)
 
$
(1,728,726
)
 
$
(4,083,743
)
 
$
(4,821,166
)
                                 
Per share information
                               
   Net income (loss) - basic
 
$
(0.29
)
 
$
(0.24
)
 
$
(0.57
)
 
$
(0.68
)
   Net income (loss) - diluted
   
(0.29
)
   
(0.24
)
   
(0.57
)
   
(0.68
)
                                 
Weighted average number of basic common shares outstanding
   
7,142,307
     
7,137,041
     
7,142,307
     
7,134,480
 
Weighted average number of diluted common shares outstanding
   
7,142,307
     
7,137,041
     
7,142,307
     
7,134,480
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Uni-Pixel, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
 
   
Common Stock
                   
   
Number
of
Shares
   
Amount
   
Additional
Paid-In
Capital
   
Accumulated
Deficit
   
Total
Shareholders’
Equity
 
Balance, December 31, 2010
   
7,131,890
   
$
7,132
   
$
66,507,247
   
$
(53,726,318
)
 
$
12,788,061
 
Stock compensation expense
   
     
     
4,009,062
     
     
4,009,062
 
Exercise of stock options
   
10,417
     
10
     
73,129
     
     
73,139
 
Net loss
   
     
     
     
(8,569,424
)
   
(8,569,424
)
Balance, December 31, 2011
   
7,142,307
   
$
7,142
   
$
70,589,438
   
$
(62,295,742
)
 
$
8,300,838
 
Stock compensation expense
   
     
     
1,234,705
     
     
1,234,705
 
Net loss
   
     
     
     
(4,083,743
)
   
(4,083,743
)
Balance, June 30, 2012 (unaudited)
   
7,142,307
   
$
7,142
   
$
71,824,143
   
$
(66,379,485
)
 
$
5,451,800
 
 
See accompanying notes to these condensed consolidated financial statements
 
 
Uni-Pixel, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
   
Six Months Ended
June 30,
 
   
2012
   
2011
 
Cash flows from operating activities
           
Net loss
 
$
(4,083,743
)
 
$
(4,821,166
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
252,982
     
171,510
 
Stock compensation expense
   
1,234,705
     
2,825,048
 
Bad debt expense
   
     
33,774
 
Change in operating assets and liabilities:
               
(Increase) decrease in accounts receivable
   
(43,246
)
   
44,064
 
Increase (decrease) in accounts payable
   
67,159
     
(276,799
)
Decrease in deferred revenue
   
     
(85,906
)
Net cash used in operating activities
   
(2,572,143
)
   
(2,109,475
)
                 
Cash flows from investing activities
               
Purchase of property and equipment
   
(14,071
)
   
(1,425,263
)
Net cash used in investing activities
   
(14,071
)
   
(1,425,263
)
                 
Cash flows from financing activities
               
Proceeds from exercise of stock options, net
   
     
73,139
 
Net cash provided by financing activities
   
     
73,139
 
                 
Net decrease in cash and cash equivalents
   
(2,586,214
)
   
(3,461,599
)
Cash and cash equivalents, beginning of period
   
7,216,663
     
13,049,446
 
Cash and cash equivalents, end of period
 
$
4,630,449
   
$
9,587,847
 
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
   
$
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Uni-Pixel, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
 
Note 1 — Basis of Presentation, Business and Organization
 
Uni-Pixel, Inc., a Delaware corporation, is the parent company of Uni-Pixel Displays, Inc., its wholly-owned operating subsidiary.  As used herein, “Uni-Pixel,” “the Company,” “we,” “us,” and “our” refer to Uni-Pixel, Inc. and Uni-Pixel Displays, Inc.  Our common stock, par value $0.001 per share, is quoted on The NASDAQ Capital Market under the ticker symbol “UNXL.”

Uni-Pixel is a production stage company delivering its Clearly Superior™ Performance Engineered Film™ to the lighting & display and flexible electronics market segments. The Company has 3 patents issued and 54 patent applications filed protecting its Performance Engineered Film™ development and manufacturing platforms.
 
Uni-Pixel’s UniBoss™ is a roll-to-roll or continuous flow printed electronics manufacturing process that offers high fidelity replication of surface micro structures, advanced micro-optic structures, and conductive elements on thin film.  Our roll-to-roll production capabilities result in low production costs which allow us to competitively price our product at or below the price of other products in the market today.
 
 Uni-Pixel’s strategy is to develop proprietary Performance Engineered Film™ for applications in large established markets that are susceptible to technology disruption and can potentially deliver Uni-Pixel high profit growth. The Company plans to sell its printed films for applications such as protective cover film, antennas, touch panel sensors, custom circuitry, etc.  A key focus for Uni-Pixel is developing electronic conductive films for use in electronic sensors for consumer and industrial applications.  Uni-Pixel is currently shipping protective cover films for personal devices. The Company sells its protective cover film under the Clearly Superior™ or Diamond Guard™ brand.  Our strategy is to sell our printed film-based products under the Uni-Pixel label, private labels, and through Original Equipment Manufacturers’ (“OEM”) brands.
 
Uni-Pixel is exploring the business potential within key application markets and pursuing those markets that offer profitable opportunities either through licensing or partnerships and/or direct sales.  Uni-Pixel anticipates that its initial film capabilities and partner funded product development capabilities will allow the Company to fund and support further technology development and market expansion. Uni-Pixel has and will continue to utilize contract manufacturing for prototype fabrication to augment its internal capabilities in the short term. Through Uni-Pixel’s internal research and development efforts, the Company has established an extensive portfolio of patents and patent applications, as well as other intellectual property rights that support these joint venture, licensing and manufacturing strategies.

Liquidity

As shown in the accompanying financial statements, the Company has incurred recurring losses from operations, and as of June 30, 2012, the Company has accumulated a total deficit of $66.4 million. Since its inception, Uni-Pixel has been primarily engaged in developing its initial product technologies, recruiting personnel, commencing its U.S. operations and obtaining sufficient capital to meet its working capital needs. In the course of the Company’s development activities, it has sustained losses and expects such losses to continue through at least December 31, 2012. The Company intends to finance its operations primarily through its existing cash, potential revenue creation and/or possible future financing transactions.
 
As of June 30, 2012, we had cash and cash equivalents of $4.6 million.  We believe that our existing capital resources are adequate to finance our operations until at least December 31, 2012 based on our current long-term business plan.  However, our long-term viability is dependent upon our ability to successfully operate our business, develop our manufacturing process, sign partnership agreements, develop our products and raise additional debt and equity to meet our business objectives.
 
The Company is subject to a number of risks, including the financial performance of its current products; the potential need for additional financings; its ability to successfully commercialize its product candidates; the uncertainty of the Company’s research and development efforts resulting in future successful commercial products; significant competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; dependence on corporate partners and collaborators;  as well as other changes in the electronic market industry.

Basis of Presentation
 
The condensed consolidated financial statements presented in this quarterly report include Uni-Pixel, Inc. and our wholly-owned subsidiary, Uni-Pixel Displays, Inc. All significant intercompany transactions and balances have been eliminated.


Note 2 — Summary of Significant Accounting Policies
 
Interim financial information
 
The condensed consolidated financial statements included herein, which have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods on a basis consistent with the annual audited statements. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full year. Certain information, accounting policies and footnote disclosures normally included in condensed consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Form 10-K, for the year ended December 31, 2011, filed with the Securities and Exchange Commission on March 8, 2012.

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and to the practices within the technology industry.  There have been no significant changes in the Company’s significant accounting policies during the six months ended June 30, 2012 compared to what was previously disclosed in the Company’s Annual Report on 10-K for the year ended December 31, 2011. The consolidated financial information as of December 31, 2011 included herein has been derived from the Company’s audited consolidated financial statements as of, and for the fiscal year ended, December 31, 2011.
 
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing this Quarterly Report on Form 10-Q that would require recognition or disclosure in the condensed consolidated financial statements.

Significant Accounting Policies
 
There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2012, as compared to the significant accounting policies disclosed in Note 2 of the Company’s consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2011.
 
Use of estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples include provisions for bad debts, useful lives of property and equipment and intangible assets, impairment of property and equipment and intangible assets, deferred taxes, and the provision for and disclosure of litigation and loss contingencies, derivative liabilities and stock based compensation. Actual results may differ materially from those estimates.
 
Statement of cash flows
 
For purposes of the statements of cash flows, we consider all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents.

Concentration of credit risk
 
We maintain our cash primarily with major U.S. domestic banks.   The amounts held in interest bearing accounts periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000.  The amounts held in these banks exceeded the insured limit of $250,000 as of June 30, 2012 and December 31, 2011.   We have not incurred losses related to these deposits.
 
Loss per share data
 
Basic loss per share is calculated based on the weighted average common shares outstanding during the period.  Diluted earnings per share also gives effect to the dilutive effect of stock options, warrants (calculated based on the treasury stock method) and convertible notes and convertible preferred stock. The Company does not present diluted earnings per share for years in which it incurred net losses as the effect is antidilutive.
 
            
At June 30, 2012, options and warrants to purchase 3,553,536 shares of common stock at exercise prices ranging from $5.00 to $30.00 per share were outstanding, but were not included in the computation of diluted earnings per share as their effect would be antidilutive.
 
Recently issued accounting pronouncements
 
During January 2012, the Company adopted new accounting guidance related to convergence between GAAP and International Financial Reporting Standards (“IFRS”). The new guidance changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between GAAP and IFRS. The new guidance also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The adoption had no impact on the Company’s financial condition or results of operations.
 
During January 2012, the Company adopted new accounting guidance related to the presentation of comprehensive income. The new guidance required the presentation of components of net income and other comprehensive income either as one continuous statement or as two consecutive statements and eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. There is no change to the items that we must report in other comprehensive income or when the Company must reclassify an item of other comprehensive income to net income. This new guidance could effect future reporting requirements.  Because the guidance impacts presentation only, it had no effect on the Company’s financial condition or results of operations.

Accounting Guidance Not Yet Effective
 
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

Note 3 —   Commitments and Contingencies
 
Leases
 
The Company has entered into a lease for office, warehouse and laboratory facilities in The Woodlands, Texas under a third party non-cancelable operating lease through April 30, 2016. Future minimum lease commitments as of June 30, 2012 are as follows:

Year Ending December 31
     
Six months ending 2012
 
$
109,537
 
2013
 
203,542
 
2014
 
206,267
 
2015
 
208,992
 
2016
 
76,294
 
2017
 
--
 
Thereafter
 
--
 
Total
 
$
804,632
 
 
This lease provides the Company with a right to extend the lease term for two additional five year terms or one term of ten years, at the Company’s option.  

Litigation

The Company from time to time may be involved in litigation relating to claims arising out of its ordinary course of business. Management believes that there are no claims or actions pending or threatened against the Company, the ultimate disposition of which would have a material impact on the Company’s financial position, results of operations or cash flows.

Note 4 —Equity, Stock Plan and Warrants
 
Common Stock

During the six months ended June 30, 2012, we issued no shares of common stock.


Stock Incentive Plans

The Company has adopted four stock incentive plans: the 2005 Stock Incentive Plan, the 2007 Stock Incentive Plan, the 2010 Stock Incentive Plan and the 2011 Stock Incentive Plan (collectively, the “Stock Incentive Plans”).  The Stock Incentive Plans allow for an aggregate of up to 2,300,001 shares of our common stock to be awarded through incentive and non-qualified stock options, stock appreciation rights, restricted stock, performance shares and other types of awards.

Our Stock Incentive Plans are administered by our Board of Directors, which has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted.  As of June 30, 2012, there were 173,237 shares available for issuance under the Stock Incentive Plans.

The following disclosures provide information regarding the Company’s stock-based compensation awards, all of which are classified as equity awards:

The Company grants stock options to employees that allow them to purchase shares of the Company’s common stock. Options are also granted to members of the Board of Directors.  The Company determines the fair value of stock options at the date of grant using the Black-Scholes valuation model.  Most options vest annually over a three-year service period.  The Company will issue shares from its authorized but unissued common stock upon the exercise of stock options.

Total compensation expense recognized for options was approximately $1.2 million and $2.8 million for the six months ended June 30, 2012 and June 30, 2011, respectively.  The Company has recorded approximately $0.6 million of stock compensation expense in selling, general and administrative expenses and approximately $0.6 million in research and development expense for the six months ended June 30, 2012 and approximately $1.4 million of stock compensation expense in selling, general and administrative expenses and approximately $1.4 million in research and development expense for the six months ended June 30, 2011.

A summary of the changes in the total stock options outstanding during the six months ended June 30, 2012 follows:
 
           
Weighted
 
         
Average
 
   
Options
   
Exercise Price
 
Outstanding at December 31, 2011
   
2,154,217
   
$
7.56
 
Granted
   
85,000
     
6.00
 
Forfeited or expired
   
(36,202)
     
7.72
 
Exercised
   
--
     
--
 
Outstanding at June 30, 2012
   
2,203,015
   
$
7.50
 
Vested and exercisable at June 30, 2012
   
1,306,059
   
$
7.93
 
 
The fair values of the Company’s options were estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

   
Three Months
ended
June 30,
 2012
   
Three Months
ended
June 30,
 2011
   
Six Months
ended
June 30,
 2012
   
Six Months
ended
June 30,
 2011
 
Expected life (years)
 
5 years
   
5 years
   
5 years
   
5 years
 
Interest rate
    0.69 %   1.80 to 1.84 %     0.69 to 0.90 %     1.80 to 2.04 %  
Dividend yield
                       
Volatility
    63.63 %     98.78 %     63.63 %     98.78 %
Forfeiture rate
                       
Weighted average fair value of options granted
  $ 6.00     $ 7.65     $ 6.00     $ 6.97  
  
At June 30, 2012, there was $3.5 million of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized over a weighted-average period of 0.94 years.  There were 405,035 options that became vested during the six months ended June 30, 2012.


Common Stock Warrants

As of June 30, 2012, the Company has 1,350,521 common stock warrants outstanding with a weighted average exercise price of $6.37 per share.  Information regarding outstanding warrants as of June 30, 2012 is as follows:

Grant date
 
Warrants
Outstanding
    Exercisable  
Weighted
Exercise
Price
 
Remaining
Life
(Years)
December 9, 2004
   
 51,304
   
51,304
 
$
20.70
 
2.42
January 10, 2005
   
11,253
   
11,253
 
$
20.70
 
2.42
January 26, 2005
   
7,353
   
7,353
 
$
20.70
 
2.42
June 10, 2009
   
32,007
   
32,007
 
$
7.50
 
6.93
June 30, 2009
   
2,667
   
2,667
 
$
7.50
 
6.93
August 31, 2009
   
30,674
   
30,674
 
$
7.50
 
6.93
September 30, 2009
   
37,340
   
37,340
 
$
7.50
 
6.93
October 2, 2009
   
8,004
   
8,004
 
$
7.50
 
6.93
October 2, 2009
   
770,239
   
770,239
 
$
5.00
 
7.33
December 31, 2009
   
8,336
   
8,336
 
$
7.50
 
7.50
January 29, 2010
   
3,336
   
3,336
 
$
7.50
 
7.50
February 2, 2010
   
2,501
   
2,501
 
$
7.50
 
7.50
March 15, 2010
   
19,173
   
19,173
 
$
7.50
 
7.50
March 29, 2010
   
834
   
834
 
$
7.50
 
7.50
April 5, 2010
   
20,500
   
20,500
 
$
7.50
 
7.50
December 15, 2010
   
300,000
   
300,000
 
$
6.00
 
3.42
December 20, 2010
   
45,000
   
45,000
 
$
6.00
 
3.42
                     
Total                      
   
1,350,521
   
1,350,521
       

Note 5 — Property and Equipment

A summary of the components of property and equipment at June 30, 2012 and December 31, 2011 are as follows:
 
 
Estimated
Useful
Lives
 
June 30,
2012
   
December 31,
2011
 
Research and development equipment
3 to 5 years
 
$
2,643,906
   
$
2,629,836
 
Leasehold improvements
5 years
   
304,176
     
304,175
 
Computer equipment
5 years
   
97,740
     
97,740
 
Office equipment 
3 to 5 years
   
95,144
     
95,144
 
       
3,140,966
     
3,126,895
 
Accumulated depreciation
     
(2,230,224
)
   
(1,977,241
)
Property and equipment, net
   
$
910,742
   
$
1,149,654
 
 
Depreciation and amortization expense of property and equipment for the six months ended June 30, 2012 and June 30, 2011 was approximately $253,000 and $172,000, respectively.
 
 
Note 6 — Fair Value Measurements
 
The Company accounts for its financial assets and liabilities that are remeasured and reported at fair value at each reporting period and non-financial assets and liabilities that are remeasured and reported at fair value at least annually.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Company’s financial assets consist solely of cash and cash equivalents and accounts receivable.
 
Note 7 — Revenue and Credit Concentrations
 
During the six months ended as of June 30, 2012 and 2011, revenues by customers with more than 10% of revenue were as follows:
 
   
Six months ended
June 30, 2012
   
Six months ended
June 30, 2011
 
   
Amount
   
%
   
Amount
   
%
 
Company A
 
$
-
     
-
%
 
$
50,000
     
26
%
Company B
   
-
     
-
%
   
136,812
     
72
%
Company C
   
67,140
     
91
%
   
-
     
-
%
Total
 
$
67,140
     
91
%
 
$
186,812
     
98
%
 
As of June 30, 2012 and December 31, 2011 customers with more than 10% of accounts receivable balances were as follows:

   
As of June 30, 2012
   
As of December 31, 2011
 
   
Amount
   
%
   
Amount
   
%
 
Company C
 
$
47,140
     
99
%
 
$
-
     
-
%
Company D
   
-
     
-
%
   
4,550
     
100
%
Total
 
$
47,140
     
99
%
 
$
4,550
     
100
%
 
 
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 six months ended June 30, 2012, 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, 2011, which was filed with the SEC on March 8, 2012.
 
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 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.
 
RESULTS OF OPERATIONS
  
Comparison of the six months ending June 30, 2012 and 2011
 
REVENUES.  During the first quarter of 2010, we began to manufacture, market and sell our thin film product.
 
Revenues were $74,124 for the six months ended June 30, 2012 as compared to $189,566 for the six months ended June 30, 2011, a decrease of $115,442, or 61%. The revenue for these periods was primarily related to engineering services and the sale and marketing 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. We expect to sell the finished products to OEMs.  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 includes all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues was $25,479 for the six months ended June 30, 2012 and $44,007 for the six months ended June 30, 2011. Cost of revenues decreased as a result of the decrease in revenues.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by 26% or approximately $630,000, to $1,817,873 for the six months ended June 30, 2012 as compared to $2,448,002 for the six months ended June 30, 2011.   Selling, general and administrative expenses were higher during the six months ended June 30, 2011 due to the issuance of stock options to employees and the related increase in stock compensation expense.  The major changes to selling, general and administrative expenses were as follows:
 
a)  Salaries and benefits decreased by approximately $662,000 to $1,086,000 for the six months ended June 30, 2012 compared to $1,748,000 for the six months ended June 30, 2011 primarily because stock compensation expense decreased to $616,000 for the six months ended June 30, 2012 compared to $1,423,000 for the six months ended June 30, 2011;

b) Legal expense increased by approximately $77,000 to $157,000 for the six months ended June 30, 2012 compared to $80,000 for the six months ended June 30, 2011 primarily due to increased patent filings;
 
c) Accounting expense increased by approximately $15,000 to $53,000 for the six months ended June 30, 2012 compared to $38,000 for the six months ended June 30, 2011;
 
d) Office expense decreased by approximately $8,000 to $3,000 for the six months ended June 30, 2012 compared to $11,000 for the six months ended June 30, 2011;
 
 
e) Travel expense decreased by approximately $15,000 to $36,000 for the six months ended June 30, 2012 compared to $51,000 for the six months ended June 30, 2011;
 
f) Depreciation and amortization expense increased by approximately $81,000 to $253,000 for the six months ended June 30, 2012 compared to $172,000 for the six months ended June 30, 2011.
 
RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $209,000 during the six months ended June 30, 2012 to $2,317,341 from $2,526,166 for the six months ended June 30, 2011.  Research and development expense was higher during the six months ended June 30, 2011 due to the issuance of stock options to employees and the related increase in stock compensation expense.   The major changes to research and development expenses were as follows:
 
a) Salaries and benefits attributable to research and development decreased by approximately $607,000 to $1,480,000 for the six months ended June 30, 2012 compared to $2,087,000 for the six months ended June 30, 2011.  As indicated above, salaries and benefits were higher during the six months ended June 30, 2011 primarily due to stock compensation expense, which decreased to $618,000 for the six months ended June 30, 2012 compared to $1,402,000 for the six months ended June 30, 2011;
 
b) Consulting expense attributable to research and development decreased by approximately $11,000 to $62,000 for the six months ended June 30, 2012 compared to $73,000 for the six months ended June 30, 2011;
 
c) Lab expense increased by approximately $411,000 to $632,000 for the six months ended June 30, 2012 compared to $221,000 for the six months ended June 30, 2011 primarily due to increased services related to prototype development; and
 
d) Travel expense attributable to research and development increased by $7,000 to $40,000 for the six months ended June 30, 2012 compared to $33,000 for the six months ended June 30, 2011.
 
OTHER INCOME (EXPENSE).
 
Interest income, net, decreased to income of $2,826 for the six months ended June 30, 2012 as compared to income of $7,443 for the six months ended June 30, 2011, primarily due to less cash on hand.
 
NET LOSS.   Net loss was $4,083,743 for the six months ended June 30, 2012, as compared to a net loss of $4,821,166 for the six months ended June 30, 2011.  

Comparison of the three months ending June 30, 2012 and 2011
 
REVENUES.  During the first quarter of 2010, we began to manufacture, market and sell our thin film product.

Revenues were $70,560 for the three months ended June 30, 2012 as compared to $137,978 for the three months ended June 30, 2011, a decrease of $67,418, or 49%. The revenue for these periods was primarily related to engineering services and the sale and marketing 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.  We expect to sell the finished products to OEMs.  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 was $24,106 for the three months ended June 30, 2012 and $36,313 for the three months ended June 30, 2011.   Cost of revenues decreased as a result of the decrease in revenues.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by 5% or approximately $43,000, to $888,804 for the three months ended June 30, 2012 from $932,234 for the three months ended June 30, 2011.  The major changes to selling, general and administrative expenses are as follows:
 
a)  Salaries and benefits increased by approximately $1,000 to $535,000 for the three months ended June 30, 2012 compared to $534,000 for the three months ended June 30, 2011 due to an increase in salaries to $235,000 for the three months ended June 30, 2012 compared to $143,000 for the three months ended June 30, 2011, and due to stock compensation expense decreased to $300,000 for the three months ended June 30, 2012 compared to $390,000 for the three months ended June 30, 2011;

b) Contract labor expense decreased by approximately $67,000 to $0 for the three months ended June 30, 2012 compared to $67,000 for the three months ended June 30, 2011;
 
 
c) Legal expense increased by approximately $84,000 to $110,000 for the three months ended June 30, 2012 compared to $26,000 for the three months ended June 30, 2011 primarily due to increased patent filings;
 
d) Accounting expense increased by approximately $14,000 to $28,000 for the three months ended June 30, 2012 compared to $14,000 for the three months ended June 30, 2011; 

e) Office expense decreased by approximately $5,000 to $1,000 for the three months ended June 30, 2012 compared to $6,000 for the three months ended June 30, 2011; 

f) Travel expense decreased by approximately $5,000 to $19,000 for the three months ended June 30, 2012 compared to $24,000 for the three months ended June 30, 2011; 
 
g) Depreciation and amortization expense increased by approximately $8,000 to $126,000 for the three months ended June 30, 2012 compared to $118,000 for the three months ended June 30, 2011.
 
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $295,000, or 33%, during the three months ended June 30, 2012 to $1,197,263 from $901,851 for the three months ended June 30, 2011.  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 $38,000 to $739,000 for the three months ended June 30, 2012 compared to $701,000 for the three months ended June 30, 2011 due to an increase in salaries to $420,000 for the three months ended June 30, 2012 compared to $358,000 for the three months ended June 30, 2011. Stock compensation expense decreased to $319,000 for the three months ended June 30, 2012 compared to $342,000 for the three months ended June 30, 2011;

b) Consulting expense attributable to research and development increased by approximately $32,000 to $36,000 for the three months ended June 30, 2012 compared to $4,000 for the three months ended June 30, 2011;
 
c) Lab expense increased by approximately $208,000 to $336,000 for the three months ended June 30, 2012 compared to $128,000 for the three months ended June 30, 2011 primarily due to increased services related to prototype development; and
 
d) Travel expense increased by approximately $15,000 to $27,000 for the three months ended June 30, 2012 compared to $12,000 for the three months ended June 30, 2011.

OTHER INCOME (EXPENSE).  

Interest income, net, decreased to income of $1,255 for the three months ended June 30, 2012 as compared to income of $3,694 for the three months ended June 30, 2011, primarily due to less cash on hand.
 
NET INCOME (LOSS).   Net loss was $2,038,358 for the three months ended June 30, 2012, as compared to a net loss of $1,728,726 for the three months ended June 30, 2011.  
 
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. During the remainder of 2012, 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 six months ended June 30, 2012 increased to $2,572,143 as compared to $2,109,475 used for the six months ended June 30, 2011.
 

Investing Activities
 
Cash used for investing activities during the six months ended June 30, 2012 was $14,071 as compared to $1,425,263 of cash used for the six months ended June 30, 2011.  The significant use of cash for investing activities during the six months ended June 30, 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 a public offering of common stock, convertible investor notes, and a preferred stock offering.
 
During the six months ended June 30, 2012, the total net cash provided by financing activities was $0. During the six months ended June 30, 2011, the total net cash provided by financing activities was $73,139, which represented the net proceeds we received 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 3,450,000 shares of common stock for net proceeds of $15.28 million in December 2010.

As of June 30, 2012, we had a cash balance of approximately $4.6 million and working capital of $4.5 million.  We project that current cash reserves will sustain our operations through at least December 31, 2012, and we are not aware of any trends or potential events that are likely to adversely impact our short term liquidity through this term.  Through December 31, 2012, 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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.
 
ITEM 4.  CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
As of June 30, 2012, management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  Based on their evaluation, management concluded that, as of June 30, 2012, our disclosure controls and procedures are effective to ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that it is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting
 
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States.  Based on the most recent evaluation, our Chief Executive Officer and Chief Financial Officer have determined that no significant changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably like to materially affect, our internal control over financial reporting.
 

PART II - OTHER INFORMATION
 
ITEM 6.  EXHIBITS.
 
Exhibit No.
 
 Description of Document
3.1
 
Composite Certificate of Incorporation of Uni-Pixel, Inc. (1)
3.2
 
Amended and Restated Bylaws of Uni-Pixel, Inc. (2)
31.1
 
31.2
 
32.1
 
32.2
 
101.INS
 
XBRL Instance Document (4)
101.SCH
 
XBRL Taxonomy Extension Schema (4)
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase (4)
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase (4)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase (4)
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase (4)
     
(1) Previously filed as an exhibit to Post-Effective Amendment No. 1 to the Company’s S-1 registration statement, number 333-169279 which was filed with the SEC on December 10, 2010 and incorporated by reference hereto.
(2) Previously filed as an exhibit to the Company’s Form 10-SB, filed on February 18, 2005, and incorporated by reference hereto.
(3) Filed herewith
(4) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
UNI-PIXEL, INC.
     
     
July 30, 2012
 
By:
/s/ Reed J. Killion
Date
 
Reed J. Killion, Chief Executive Officer and President
       
   
By:
/s/ Jeffrey W. Tomz
     
Jeffrey W. Tomz, Chief Financial Officer