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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 September 30, 2013
 
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 October 31, 2013, the issuer had 12,236,048 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)
 
 
 
 
Part I.
Financial Information
3
     
Item 1.
3
     
 
September 30, 2013 (unaudited) and December 31, 2012
3
     
 
Three and nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
4
     
 
From December 31, 2011 to September 30, 2013 (unaudited)
5
     
 
Nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
6
     
 
7
     
Item 2.
15
     
Item 3.
20
     
Item 4.
20
     
Part II.
Other Information
21
     
Item 1.
21
     
Item 1A.
21
     
Item 2.
21
     
Item 6.
21
 
 
 
ITEM 1.  FINANCIAL STATEMENTS.
 
Condensed Consolidated Balance Sheets
 
   
September 30,
 2013
   
December 31,
2012
 
   
(unaudited)
       
ASSETS
           
Current assets
           
Cash and cash equivalents
 
$
46,631,201
   
$
13,000,372
 
Prepaid expenses
   
     
160,320
 
                 
Total current assets
   
46,631,201
     
13,160,692
 
                 
Property and equipment, net of accumulated depreciation of $3,760,789 and $2,531,917,
at September 30, 2013 and December 31, 2012, respectively
   
13,572,134
     
1,536,658
 
Restricted cash
   
17,439
     
17,439
 
                 
Total assets
 
$
60,220,774
   
$
14,714,789
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Current liabilities
               
Accounts payable
 
$
1,228,077
   
$
348,683
 
Bonus accrual
   
273,675
     
 
Deferred revenue
   
5,000,000
     
 
                 
Total current liabilities
   
6,501,752
     
348,683
 
                 
Total liabilities
   
6,501,752
     
348,683
 
                 
Commitments and contingencies (Note 3)
   
     
 
                 
Shareholders’ equity
               
Common stock, $0.001 par value; 100,000,000 shares authorized, 12,189,570 shares issued
and outstanding at September 30, 2013 and 9,854,268 shares issued and outstanding at
December 31, 2012
   
12,190
     
9,854
 
Additional paid-in capital
   
134,066,617
     
85,669,802
 
Accumulated deficit
   
(80,359,785
)
   
(71,313,550
)
                 
Total shareholders’ equity
   
53,719,022
     
14,366,106
 
                 
Total liabilities and shareholders’ equity
 
$
60,220,774
   
$
14,714,789
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Condensed Consolidated Statements of Operations
(unaudited)
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Revenue
 
$
   
$
   
$
5,070,165
   
$
74,124
 
                                 
Cost of revenues
   
     
     
3,421 
     
25,479 
 
                                 
Gross margin
   
     
     
5,066,744
     
48,645
 
                                 
Selling, general and administrative expenses
   
2,478,717
     
829,628
     
6,831,561
     
2,647,501
 
Research and development
   
2,826,532
     
1,216,464
     
7,294,723
     
3,533,805
 
                                 
Operating loss
   
(5,305,249
)
   
(2,046,092
)
   
(9,059,540
)
   
(6,132,661
)
                                 
Other income
                               
Interest income, net
   
6,834
     
2,448
     
13,305
     
5,274
 
                                 
Net loss
 
$
(5,298,415
)
 
$
(2,043,644
)
 
$
(9,046,235
)
 
$
(6,127,387
)
                                 
Per share information
                               
Net loss - basic
 
$
(0.44
)
 
$
(0.24
)
 
$
(0.80
)
 
$
(0.80
)
Net loss - diluted
   
(0.44
)
   
(0.24
)
   
(0.80
)
   
(0.80
)
                                 
Weighted average number of basic common shares outstanding
   
12,090,337
     
8,596,928
     
11,271,118
     
7,630,720
 
Weighted average number of diluted common shares outstanding
   
12,090,337
     
8,596,928
     
11,271,118
     
7,630,720
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Condensed Consolidated Statements of Shareholders’ Equity
 
   
Common Stock
                   
   
Number
         
Additional
         
Total
 
   
of
Shares
   
Amount
   
Paid-In
Capital
   
Accumulated
Deficit
   
Shareholders’
Equity
 
Balance, December 31, 2011
   
7,142,307
   
$
7,142
   
$
70,589,438
   
$
(62,295,742
)
 
$
8,300,838
 
Stock compensation expense
   
     
     
2,482,911
     
     
2,482,911
 
Exercise of warrants
   
157,709
     
157
     
87,350
     
     
87,507
 
Exercise of stock options
   
1,667
     
2
     
12,501
     
     
12,503
 
Issuance of restricted stock
   
32,000
     
32
     
228,128
     
     
228,160
 
Issuance of common stock, net of issuance costs
   
2,520,585
     
2,521
     
12,269,474
     
     
12,271,995
 
Net loss
   
     
     
     
(9,017,808
)
   
(9,017,808
)
Balance, December 31, 2012
   
9,854,268
   
$
9,854
   
$
85,669,802
   
$
(71,313,550
)
 
$
14,366,106
 
Stock compensation expense
   
     
     
2,408,590
     
     
2,408,590
 
Exercise of warrants
   
431,251
     
431
     
175,551
     
     
175,982
 
Exercise of stock options
   
491,801
     
493
     
3,283,388
     
     
3,283,881
 
Issuance of restricted stock
   
38,000
     
38
     
1,310,767
     
     
1,310,805
 
Issuance of common stock, net of issuance costs
   
1,374,250
     
1,374
     
41,218,519
     
     
41,219,893
 
Net loss
   
     
     
     
(9,046,235
)
   
(9,046,235
)
Balance, September 30, 2013 (unaudited)
   
12,189,570
   
$
12,190
   
$
134,066,617
   
$
(80,359,785
)
 
$
53,719,022
 
 
See accompanying notes to these condensed consolidated financial statements
 
 
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
   
Nine Months Ended
September 30,
 
   
2013
   
2012
 
Cash flows from operating activities
           
Net loss
 
$
(9,046,235
)
 
$
(6,127,387
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
   
1,228,872
     
378,940
 
Restricted stock issuance
   
1,310,805
     
 
Stock compensation expense
   
2,408,590
     
1,846,492
 
Change in operating assets and liabilities:
               
Decrease in accounts receivable
   
     
4,550
 
(Increase) decrease in prepaid assets
   
160,320
     
(211,073
)
Increase in accounts payable
   
879,394
     
16,120
 
Increase in bonus accrual
   
273,675
     
 
Increase in deferred revenue
   
5,000,000
     
 
Net cash provided by (used in) operating activities
   
2,215,421
     
(4,092,358
)
                 
Cash flows from investing activities
               
Purchase of property and equipment
   
(13,264,348
)
   
(25,571
)
Net cash used in investing activities
   
(13,264,348
)
   
(25,571
)
                 
Cash flows from financing activities
               
    Proceeds from exercise of warrants, net
   
175,982
     
 
    Proceeds from exercise of stock options, net
   
3,283,881
     
 
    Proceeds from the issuance of common stock, net
   
41,219,893
     
12,271,995
 
Net cash provided by financing activities
   
44,679,756
     
12,271,995
 
                 
Net increase in cash and cash equivalents
   
33,630,829
     
8,154,066
 
Cash and cash equivalents, beginning of period
   
13,000,372
     
7,216,663
 
Cash and cash equivalents, end of period
 
$
46,631,201
   
$
15,370,729
 
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
   
$
 
Cash paid for income taxes
 
$
   
$
 
                 
Supplemental disclosures of non-cash financing information:
               
Issuance of 399,629 shares of common stock in exchange for the cashless
exercise of warrants to purchase 505,661 shares of common stock for the nine months
ended September 30, 2013.  Issuance of 2,722 shares of common stock in exchange
for the cashless exercise of warrants to purchase 33,542 shares of common stock
for the nine months ended September 30, 2012.
   
$
 
2,151,182
     
$
 
16,335
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
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 produces Clearly Superior™ Performance Engineered Film™ to the lighting & display and flexible electronics market segments. The Company has 3 patents issued and 95 patent applications filed covering its Performance Engineered Film™ development and manufacturing platforms.
 
Uni-Pixel’s UniBoss™ Process 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.

InTouch™ Sensors is Uni-Pixel’s newly developed and named pro-cap, multi-touch sensor film, previously named after the UniBoss™ manufacturing process. Eastman Kodak Company and Uni-Pixel have further cobranded this new name as “InTouch™ Sensors Powered by Kodak,” which reflects the synergistic contributions the companies bring to this new touch-screen sensor solution.
 
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.

As of September 30, 2013, Uni-Pixel had accumulated a total deficit of $80.4 million from operations in pursuit of these objectives.
 
Since our inception, we have been primarily engaged in developing our initial product technologies, recruiting personnel, commencing our operations and obtaining sufficient capital to meet our working capital needs. In the course of our development activities, we have sustained losses through September 30, 2013. We will finance our operations primarily through our existing cash and possible future financing transactions.
 
As of September 30, 2013, we had cash and cash equivalents of $46.6 million.  We believe that our existing capital resources are adequate to finance our operations until at least December 31, 2014 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 capital through offerings of our debt or equity securities to meet our business objectives.
 
The Company is subject to a number of risks, including 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.

 
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, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “Commission”) and 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 period 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 the Commission’s 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, 2012, filed with the Commission on February 26, 2013.

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 nine months ended September 30, 2013 compared to what was previously disclosed in the Company’s Annual Report on 10-K for the year ended December 31, 2012. The consolidated financial information as of December 31, 2012 included herein has been derived from the Company’s audited consolidated financial statements as of, and for the fiscal year ended, December 31, 2012.
 
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 nine months ended September 30, 2013, 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, 2012.
 
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, impairment of property and equipment, deferred taxes, and the provision for and disclosure of litigation and loss contingencies 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 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 September 30, 2013 and December 31, 2012.   We have not incurred losses related to these deposits.
 
 
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 the product is delivered, depending on shipping method 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.

Income (loss) per share data
 
            Basic income (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), 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 September 30, 2013, 181,400 restricted shares and options and warrants to purchase 2,554,579 shares of common stock at exercise prices ranging from $5.00 to $38.70 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 for approximately 13,079 square feet at 8708 Technology Forest Pl., Ste 100, The Woodlands, Texas 77381 under a third party non-cancelable operating lease through April 30, 2016.  Further, the Company has also entered into a lease for office, warehouse and laboratory facilities for approximately 7,186 square feet at 3400 Research Forest Drive, Suite B2, The Woodlands, Texas 77381 under a third party non-cancelable operating lease through May 31, 2016. Future minimum lease commitments as of September 30, 2013 are as follows:

Year Ending December 31
     
Three months ending 2013
 
$
88,820
 
2014
 
339,503
 
2015
 
345,528
 
2016
 
133,184
 
2017
 
--
 
2018
 
--
 
Thereafter
 
--
 
Total
 
$
907,035
 
 
The lease for 8708 Technology Forest Pl., Ste 100, The Woodlands, Texas 77381 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.  

Eco-System Partner Royalty Obligation

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 September 30, 2013, we have received $5 million, which is recorded as deferred revenue in the accompanying condensed 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.
 
Litigation

On or around December 12, 2012, we were served with notice of two lawsuits filed by Conductive Inkjet Technology Limited (“CIT”) in the Patent Court in the United Kingdom.  The two cases are respectively claim nos. HC12E02467 and HC12F02468 (the “UK Actions”).  The first action, which is case number HC12E02467, asserts that we included CIT’s confidential information in two Patent Cooperation Treaty (“PCT”) patent applications that we filed.  The second action, which is case number HC12F02468, seeks relief for (1) breach of contract, (2) causing loss by unlawful means, and (3) breach of confidence.  It also asserts that we included CIT's confidential information in the two PCT patent applications and a European and Korean application deriving from one of them. The UK Actions seek a finding that we violated a duty of confidence to CIT, an order that confidential materials be returned to CIT, an order that we change the inventorship on the four patent applications to include Xennia (a former co-owners of CIT) employees, and ownership of those patent applications to CIT, an inquiry into damages, other forms of injunctive and declaratory relief, and the award of attorney fees and costs.  On January 3, 2013, we filed an Acknowledgement of Service for each of the UK Actions with the court and indicated that we intended to contest the jurisdiction of the United Kingdom court over these matters. A hearing on our contest of jurisdiction took place on April 22-23, 2013.  On October 7, 2013, the UK court found UK jurisdiction proper on the inventorship claims but found that CIT had exceeded its jurisdiction with regard to certain of its breach claims.  The UK court allowed CIT to amend those claims to fall within UK jurisdiction.  The UK court also awarded CIT 80% of its reasonable costs related to the jurisdictional dispute with the sum of £50,000 being due by October 21, 2013.  On October 28, 2013 we filed an Acknowledgement of Service for each of the UK Actions stated that we intended to defend the claims.  A substantive defense to CIT’s claims is due on November 11, 2013.  No UK trial date has been set. 
 
 
On January 18, 2013, we filed a verified petition and applications for temporary and permanent injunction against CIT in the 284th Judicial District in Montgomery County, Texas (the “Texas Action”).  The case was assigned cause number 13-01-00561.  In the Texas Action, we asked the court to provide the following relief: issue a preliminary ruling that Montgomery County, Texas is the exclusive venue for the UK Actions, issue a preliminary ruling that CIT violated the terms of an agreement with us (the “2010 Agreement”) by filing the UK Actions, enter a judgment that we did not violate any duty of confidentiality to CIT, enter a judgment against CIT for breach of contract and award additional relief as set forth in the verified petition, including costs, pre and post judgment interest, and attorney’s fees.  A hearing on the temporary injunction application was set for January 31, 2013.  On January 25, 2013, CIT removed the Texas Action from state court to federal court in the Southern District of Texas based on CIT’s non-Texas resident status.  On April 30, 2013, the Federal Court remanded the case back to state court in Montgomery County.  On August 28, 2013, the state court set a trial date of June 4, 2014.  The case is currently pending. 
 
We believe these allegations to be without merit and intend to vigorously defend this action.  The potential impact of this action, which seeks unspecified damages, attorneys’ fees and expenses, is uncertain.
 
Class Action Litigation 

In June 2013, two purported class action complaints were filed in the United States District Court, Southern District of New York and the United States District Court, Southern District of Texas against the Company and our CEO, CFO, and Chairman. The Southern District of New York complaint was voluntarily dismissed by plaintiff on July 2, 2013.  The surviving complaint alleges that we and our officers and directors violated the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making purportedly false and misleading statements concerning our licensing agreements and product development.  The complaint seeks unspecified damages on behalf of a purported class of purchasers of our common stock during the period from December 7, 2012 to May 31, 2013.  We will vigorously defend against this lawsuit.  The Company has directors' and officers' and corporate liability insurance to cover risks associated with securities claims filed against the Company or its directors and officers and has notified its insurers of the complaints filed against the Company.  Based on the very early stage of the litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of this matter. 
 
Note 4 —Equity, Stock Plan and Warrants
 
Common Stock

During the nine months ended September 30, 2013, we (1) issued 491,801 shares of common stock for cash in connection with the exercise of stock options; (2) issued 31,622 shares of common stock for cash in connection with the exercise of warrants; (3) issued 399,629 shares of common stock as a result of the cashless exercise of warrants; (4) issued 38,000 shares of common stock to various directors and officers in connection with the vesting of restricted stock awards; and (5) issued 1,374,250 shares of common stock and received proceeds of $41.2 million, net of issuance costs of $2.8 million.

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 3,100,001 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 the sole discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted.  As of September 30, 2013, there were 389,338 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 $2.4 million and $1.8 million for the nine months ended September 30, 2013 and September 30, 2012, respectively.  The Company has recorded approximately $1.1 million of stock compensation expense in selling, general and administrative expenses and approximately $1.3 million in research and development expense for the nine months ended September 30, 2013 and approximately $0.9 million of stock compensation expense in selling, general and administrative expenses and approximately $0.9 million in research and development expense for the nine months ended September 30, 2012.

A summary of the changes in the total stock options outstanding during the nine months ended September 30, 2013 follows:
 
           
Weighted
 
         
Average
 
   
Options
   
Exercise Price
 
Outstanding at December 31, 2012
   
2,254,514
   
$
7.08
 
Granted
   
281,000
   
$
30.07
 
Forfeited or expired
   
(1,667
 
$
7.80
 
Exercised
   
(491,801
 
$
7.03
 
Outstanding at September 30, 2013
   
2,042,046
   
$
10.25
 
Vested and exercisable at September 30, 2013
   
1,336,398
   
$
7.17
 
 
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 Month
ended
September 30, 
2013
 
Three Months
ended
September 30,
 2012
 
Nine Months
ended
September 30,
 2013
   
Nine Months
ended
September 30,
 2012
 
Expected life (years)
     
5 years
 
na
     
5 years
       
5 years
 
Interest rate
    1.32 to 1.71 %
na
    0.69 to 1.71 %     0.69 to 0.90 %
Dividend yield
         
na
                   
Volatility
    124.28  to 132.25 %
na
    57.26 to 132.25 %         63.63 %
Forfeiture rate
         
na
                   
Weighted average fair value of
options granted
  $     14.12  
na
  $     19.03     $     2.92  
  
At September 30, 2013, there was $5.6 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 1.28 years.  There were approximately 0.5 million options that became vested during the nine months ended September 30, 2013.

Restricted Common Stock

On August 16, 2013, the Company issued 38,000 shares of common stock to various directors and officers in connection with the vesting of restricted stock awards that were granted on January 15, 2013.

On April 26, 2013, the Company issued 181,400 shares of restricted common stock.  106,900 of these shares vest in increments as follows: 1/3rd on March 1, 2014, 1/3rd on March 1, 2015 and 1/3rd on March 1, 2016.  The remaining 74,500 shares of restricted common stock vest according to certain financial performance criteria.  As of September 30, 2013, management is uncertain whether the Company will achieve the financial performance criteria.  Accordingly, the Company has not recorded compensation expense for the contingent restricted stock for the nine months ended September 30, 2013.  The Company will re-evaluate this estimate during the fourth quarter of 2013.
 
 
Common Stock Warrants

As of September 30, 2013, the Company has outstanding 512,533 common stock warrants with a weighted average exercise price of $7.27 per share.  Information regarding outstanding warrants as of September 30, 2013 is as follows:

Grant date
 
Warrants
Outstanding
 
Exercisable
 
Weighted
Exercise
Price
 
Remaining
Life
(Years)
 
December 9, 2004
 
63,641
 
63,641
 
$
20.70
 
1.17
 
June 10, 2009
 
15,796
 
15,796
 
$
7.50
 
5.68
 
August 31, 2009
 
24,934
 
24,934
 
$
7.50
 
5.68
 
October 2, 2009
 
361,433
 
361,433
 
$
5.00
 
6.08
 
March 15, 2010
 
8,337
 
8,337
 
$
7.50
 
6.25
 
April 5, 2010
 
930
 
930
 
$
7.50
 
6.25
 
December 15, 2010
 
37,462
 
37,462
 
$
6.00
 
2.17
 
                     
Total                      
 
512,533
 
512,533
         

Note 5 — Property and Equipment

A summary of the components of property and equipment at September 30, 2013 and December 31, 2012 are as follows:
 
    Estimated Useful Lives  
September 30,
 2013
   
December 31,
2012
 
Research and development equipment
  3 years  
$
9,597,668
   
$
3,542,045
 
Leasehold improvements
  5 years    
385,323
     
333,646
 
Computer equipment
  5 years    
97,740
     
97,740
 
Office equipment
   3 years  to
5 years
   
95,144
     
95,144
 
Construction-in-progress
           
7,157,048
     
 
             
17,332,923
     
4,068,575
 
Accumulated depreciation
           
(3,760,789
)
   
(2,531,917
)
Property and equipment, net
         
$
13,572,134
   
$
1,536,658
 
 
Depreciation and amortization expense of property and equipment for the nine months ended September 30, 2013 and September 30, 2012 was approximately $1.2 million and $0.4 million, 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 nine months ended September 30, 2013 and 2012, revenues by customers with more than 10% of revenue were as follows:

   
Nine months ended
September 30, 2013
   
Nine months ended
September 30, 2012
 
   
Amount
   
%
   
Amount
   
%
 
Company A
 
$
5,000,000
     
99
%
 
$
-
     
-
%
Company B
   
-
     
-
%
   
67,140
     
91
%
Total
 
$
5,000,000
     
99
%
 
$
67,140
     
91
%
 
As of September 30, 2013 and December 31, 2012, there were no accounts receivable balances.

Note 8 — Subsequent Event

None.
 
 
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 nine months ended September 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.
 
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 product is delivered, depending on shipping method 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 nine months ending September 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 nine months ended September 30, 2013 as compared to $74,124 for the nine months ended September 30, 2012, an increase of $4,996,041.  $5.0 million of revenue from a PC manufacturer was recognized in the nine months ended September 30, 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 was $3,421 for the nine months ended September 30, 2013 and $25,479 for the nine months ended September 30, 2012.   
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 158% or approximately $4,184,000, to $6,831,561 for the nine months ended September 30, 2013 from $2,647,501 for the nine months ended September 30, 2012.  The major changes to selling, general and administrative expenses are as follows:
 
a)  Salaries and benefits increased by approximately $1,757,000 to $3,400,000 for the nine months ended September 30, 2013 compared to $1,643,000 for the nine months ended September 30, 2012 due primarily to the following: an increase in salaries to $1,107,000 for the nine months ended September 30, 2013 compared to $614,000 for the nine months ended September 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $1,103,000 for the nine months ended September 30, 2013 compared to $946,000 for the nine months ended September 30, 2012; an increase in restricted stock expense to $895,000 for the nine months ended September 30, 2013 compared to $0 for the nine months ended September 30, 2012; and an increase in employee bonus expense to $134,000 for the nine months ended September 30, 2013 compared to $0 for the nine months ended September 30, 2012;

b) Contract labor expense increased by approximately $46,000 to $93,000 for the nine months ended September 30, 2013 compared to $47,000 for the nine months ended September 30, 2012;
 
c) Legal expense increased by approximately $1,213,000 to $1,423,000 for the nine months ended September 30, 2013 compared to $210,000 for the nine months ended September 30, 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;
 
d) Accounting expense increased by approximately $6,000 to $72,000 for the nine months ended September 30, 2013 compared to $66,000 for the nine months ended September 30, 2012; 

e) Office expense increased by approximately $60,000 to $66,000 for the nine months ended September 30, 2013 compared to $6,000 for the nine months ended September 30, 2012; 
 
f) Travel expense increased by approximately $142,000 to $193,000 for the nine months ended September 30, 2013 compared to $51,000 for the nine months ended September 30, 2012; 
 
g) Depreciation and amortization expense increased by approximately $850,000 to $1,229,000 for the nine months ended September 30, 2013 compared to $379,000 for the nine months ended September 30, 2012.
 
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $3,761,000, or 106%, during the nine months ended September 30, 2013 to $7,294,723 from $3,533,805 for the nine months ended September 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 $1,324,000 to $3,535,000 for the nine months ended September 30, 2013 compared to $2,211,000 for the nine months ended September 30, 2012 due primarily to the following: an increase in salaries to $1,439,000 for the nine months ended September 30, 2013 compared to $1,110,000 for the nine months ended September 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $1,305,000 for the nine months ended September 30, 2013 compared to $900,000 for the nine months ended September 30, 2012; an increase in restricted stock expense to $416,000 for the nine months ended September 30, 2013 compared to $0 for the nine months ended September 30, 2012; and an increase in employee bonus expense to $139,000 for the nine months ended September 30, 2013 compared to $0 for the nine months ended September 30, 2012;

b) Consulting expense attributable to research and development decreased by approximately $66,000 to $0 for the nine months ended September 30, 2013 compared to $66,000 for the nine months ended September 30, 2012;
 
c) Lab expense increased by approximately $2,312,000 to $3,330,000 for the nine months ended September 30, 2013 compared to $1,018,000 for the nine months ended September 30, 2012 primarily due to increased services related to prototype development; and
 
d) Travel expense increased by approximately $104,000 to $167,000 for the nine months ended September 30, 2013 compared to $63,000 for the nine months ended September 30, 2012.

OTHER INCOME.  

Interest income, net, increased to income of $13,305 for the nine months ended September 30, 2013 as compared to income of $5,274 for the nine months ended September 30, 2012, primarily due to an increase in the average cash on hand during the nine months ended September 30, 2013.
 
NET LOSS.   Net loss was $9,046,235 for the nine months ended September 30, 2013, as compared to a net loss of $6,127,387 for the nine months ended September 30, 2012.  

Comparison of the three months ending September 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 $0 for the three months ended September 30, 2013 as compared to $0 for the three months ended September 30, 2012.
 
COST OF REVENUES.  Cost of revenues include all direct expenses associated with the delivery of services including internal labor costs. Cost of revenues was $0 for the three months ended September 30, 2013 and $0 for the three months ended September 30, 2012. 
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 199% or approximately $1,649,000, to $2,478,717 for the three months ended September 30, 2013 from $829,628 for the three months ended September 30, 2012.  The major changes to selling, general and administrative expenses are as follows:
 
a)  Salaries and benefits increased by approximately $716,000 to $1,273,000 for the three months ended September 30, 2013 compared to $557,000 for the three months ended September 30, 2012 due primarily to the following: an increase in salaries to $428,000 for the three months ended September 30, 2013 compared to $205,000 for the three months ended September 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $413,000 for the three months ended September 30, 2013 compared to $330,000 for the three months ended September 30, 2012; and an increase in restricted stock expense to $373,000 for the three months ended September 30, 2013 compared to $0 for the three months ended September 30, 2012;
 
 
b) Contract labor expense increased by approximately $22,000 to $36,000 for the three months ended September 30, 2013 compared to $14,000 for the three months ended September 30, 2012;
 
c) Legal expense increased by approximately $187,000 to $239,000 for the three months ended September 30, 2013 compared to $52,000 for the three months ended September 30, 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;
 
d) Accounting expense increased by approximately $11,000 to $24,000 for the three months ended September 30, 2013 compared to $13,000 for the three months ended September 30, 2012; 

e) Office expense increased by approximately $44,000 to $47,000 for the three months ended September 30, 2013 compared to $3,000 for the three months ended September 30, 2012; 

f) Travel expense increased by approximately $41,000 to $57,000 for the three months ended September 30, 2013 compared to $16,000 for the three months ended September 30, 2012; 
 
g) Depreciation and amortization expense increased by approximately $563,000 to $689,000 for the three months ended September 30, 2013 compared to $126,000 for the three months ended September 30, 2012.
 
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $1,610,000, or 132%, during the three months ended September 30, 2013 to $2,826,532 from $1,216,464 for the three months ended September 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 $592,000 to $1,323,000 for the three months ended September 30, 2013 compared to $731,000 for the three months ended September 30, 2012 due primarily to the following: an increase in salaries to $535,000 for the three months ended September 30, 2013 compared to $387,000 for the three months ended September 30, 2012 due to an increase in the number of employees; an increase in stock compensation expense to $534,000 for the three months ended September 30, 2013 compared to $319,000 for the three months ended September 30, 2012; and an increase in restricted stock expense to $174,000 for the three months ended September 30, 2013 compared to $0 for the three months ended September 30, 2012;

b) Consulting expense attributable to research and development decreased by approximately $4,000 to $0 for the three months ended September 30, 2013 compared to $4,000 for the three months ended September 30, 2012;
 
c) Lab expense increased by approximately $928,000 to $1,314,000 for the three months ended September 30, 2013 compared to $386,000 for the three months ended September 30, 2012 primarily due to increased services related to prototype development; and
 
d) Travel expense increased by approximately $55,000 to $78,000 for the three months ended September 30, 2013 compared to $23,000 for the three months ended September 30, 2012.

OTHER INCOME.  

Interest income, net, increased to income of $6,834 for the three months ended September 30, 2013 as compared to income of $2,448 for the three months ended September 30, 2012, primarily due to an increase in the average cash on hand during the three months ended September 30, 2013.
 
NET LOSS.   Net loss was $5,298,415 for the three months ended September 30, 2013, as compared to a net loss of $2,043,644 for the three months ended September 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 nine months ended September 30, 2013 was $2,215,421 as compared to cash used in operating activities during the nine months ended September 30, 2012 was $4,092,358.

Investing Activities
 
Cash used for investing activities during the nine months ended September 30, 2013 was $13,264,348 as compared to $25,571 of cash used for the nine months ended September 30, 2012.  The increase in the use of cash for investing activities during the nine months ended September 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 $44,679,756 for the nine months ended September 30, 2013, which includes:
 
·  
     $175,982 of net proceeds from the exercise of warrants;
·  
     $3,283,881 of net proceeds from the exercise of stock options; and
·  
   $41,219,893 of net proceeds from the issuance of common stock.

During the nine months ended September 30, 2012, the total net cash provided by financing activities was $12,271,995, which represents the net proceeds from the issuance of 2,520,585 shares of common stock.

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 September 30, 2013, we had a cash balance of approximately $46.6 million and working capital of $40.1 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.
 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.
 
ITEM 4.  CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
As of September 30, 2013, 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 September 30, 2013, 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.

 

ITEM 1.  LEGAL PROCEEDINGS
 
For a description of the current status of the legal proceedings in which we are involved, please see Note 3 to our financial statements, which are included in this report at Part I, Item 1.

ITEM 1A.  RISK FACTORS
 
We incorporated by reference the risk factors included at Item 1A of our annual report on Form 10-K which was filed with the Securities and Exchange Commission on February 26, 2013.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 
 
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 (3)
101.SCH
 
XBRL Taxonomy Extension Schema (3)
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase (3)
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase (3)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase (3)
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase (3)
     
(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
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
UNI-PIXEL, INC.
     
     
November 7, 2013
 
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
       

 
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