One of the core ways we identify compelling shorts is to find companies where the management team repeatedly lies to investors. Among other reasons, that has been a core part of our UNXL short. Just for giggles, we went through two years of conference calls and several additional years of press releases to document what UNXL management has (or more accurately has not) achieved. What we found were 26 instances of failures or lies or both carried out by the UNXL management team. I’m sure we would have found more if we had extended our review of conference calls or press releases back even further. Included among these lies and failures are at least 8 failed products, 10 missed deadlines, and 8 instances of revenue projections that have not materialized. I wish we could say we found something to balance these out, but the truth is that we didn't find a single promise or forecast by UNXL’s management that has come true. And no, we don’t count press releases about partnering with Samsung or Targus or a “mystery OEM” as a promise or forecast coming true – these are the necessary precursors to making a product and generating revenue – they’re not successes in and of themselves (except perhaps to boost the stock so management can sell). While a lot has been debated back and forth on UNXL, this history of failure we document below cannot be refuted. Below is a compare and contrast between the promises spouted by UNXL management and the reality that turned out to be quite different.

LIES AND BROKEN PROMISES ON UNIBOSS AND DIAMOND GUARD

First, we will list the 8 lies that UNXL management has told us about their current products, UniBoss and Diamond Guard. Let’s start with UniBoss, Uni-Pixel’s latest and greatest product. Current UNXL investors believe UniBoss is poised to launch and generate substantial revenues in the very near future. However, we find it extremely curious that UNXL’s management has made the same exact promises in the past and still have nothing to show for it.

1) The UniBoss lies first start in 1Q 2011 soon after UniBoss was introduced. During the 1Q 2011 earnings call, CEO Reed Killion stated “We expect to see more UniBoss revenue via non-recurring engineering charges starting in the third quarter of this year and that could lead to production orders in late fourth quarter and Q1 for UniBoss.”

This is a clear instance of UNXL management promising revenues from UniBoss. It’s important to note that this is NOT the large PC maker that UNXL signed an “agreement” with in December 2012. This is a different customer.

Did these promises come true? We’ll save you the time of looking up the revenues from 4Q 2011 and 1Q 2012. They were $4,940 and $3,564, respectively. That’s four thousand, nine hundred and forty dollars in 4Q and three thousand, five hundred and sixty four dollars in 1Q. We have not changed the units. These are actual figures.

2) In the following 2Q 2011 conference call, CEO Reed Killion no longer keeps to his 4Q 2011 and 1Q 2012 timeline and delays the timing for production revenues for UniBoss. He states during his opening remarks, “Our first projected production revenue should occur in the near future as one of the companies we are working with is targeting Q2 2012 for the product introduction.”

During the Q&A, an analyst, having revenue recognition pushed back by two quarters, presses Reed on the timing of the product launch. Reed answers, "Our customer feels very comfortable of the fact that given the qualification test passed, and they will be in the market by second half of 2012."

The second half of 2012 has come and gone with no product introduction and no revenues. 3Q 2012 revenues were $0 and 4Q 2012 revenues were $2,030. UNXL is now 0 for 2.

3) In his opening remarks in the 3Q 2011 conference call, Reed Killion reiterates that UNXL expects to have a commercial product utilizing UniBoss launched into the market in 2012. Unfortunately, the timeline has again slipped. He states, "We believe our first production shipments for UniBoss will still be in the end of Q2 2012. One of the early companies we sampled and continue to work with is now targeting Q3 2012 for their first production unit. This was moved from the end of Q2 due to the company's internal schedule."

Later, he echoes the timing of the product launch, "We have some feedback from our first customer. It's about a nine-month cycle that we're looking at right now with some of the customers. So the initial samples that we supported out there in August and September are on track for a commercialized product in Q3 of 2012."

It is now well past the third quarter of 2012. We have yet to see a UniBoss product out in the market with this initial customer. In three separate instances UNXL promised production, revenues, and a commercialized product. After a series of delays, this mystery customer never came through.

What happened to this product? Why is no one asking these questions? Unfortunately, these are not the only promises UNXL broken.

4) For the fourth one, we’ll take a detour and go into a lie UNXL told about their technical capabilities. In the same 3Q 2011 earnings call on November 11, 2011, Reed made an important announcement regarding UniBoss’ development. He proudly states, "We are very excited to announce that we have achieved the capacity to consistently print the conductive copper lines on our UniBoss film and with less than 10 micron."

Based on that statement, UNXL has been producing UniBoss film at less than 10 microns for more than a year and a half. This directly contradicts statements made by Uni-Pixel two months ago. In UNXL’s corporate presentation from February 2013, management said they only achieved ~6μm capabilities in 2013, which is why there has been such sudden and deep interest in UniBoss. Before 2013, they were unable to get below 10 microns. This is puzzling. CEO Reed Killion clearly stated that they were able to “consistently print” at “less than 10 micron” back in 2011. Yet, on slide 17 of the presentation, UNXL clearly shows they only had the capability to print ~20μm lines in 2011 and ~12μm in 2012. They were not able to print under 10 microns before 2013:

Why did Reed Killion lie about UNXL’s technical capabilities back in 2011? Which statement is true, or are they all lies?

5) Now we jump ahead to 2Q 2012 where again UNXL makes promises about future product launches. This is a different product from the one promised in 2011. In fact, that product from 2011 is never mentioned again in any conference calls or press releases.

In the earnings press release from 7/30/2012, CEO Reed Killion states, “We’ve received our first reference design for UniBoss as an ‘e-sensor’, which makes possible a revolutionary touchless interface that uses hand gestures, and takes advantage of the latest advances in computer hardware and operating systems. We anticipate the ‘e-senor’ [sic] to be introduced to the notebook market in the second quarter of 2013 or sooner.”

It is now the second quarter of 2013 and there’s been no mention of an e-sensor for UniBoss. The only product they mention now is a notebook product. Where is this e-sensor product and where can we purchase it? Where has this product gone?

6) The most recent lie about UniBoss came less than 6 months ago. It also has to do with a phantom product using UniBoss. During the 3Q 2012 earnings call, CEO Reed Killion states, "We've had multiple design wins. The most prevalent design wins are with an 11.6 inch notebook and the other are three, 10.8 inch tablets that should be rolling out second half of the year."

Wait, what happened to these 3 tablets that were supposed to be introduced in the second half of 2013? How come there’s no mention of the tablets and only mentions of the notebooks? Where did the tablets go? Did they run away with the e-sensor?

We don’t yet know what will happen to more recent promises regarding Uniboss, but our diligence suggests UNXL’s prior failures are likely to be repeated.

Diamond Guard

With Diamond Guard, the lies are just as blatant. We count at least 2 lies and broken promises.

1) In the 1Q 2011 conference call, CEO Reed Killion introduces Diamond Guard and announces that UNXL is in "advanced to late stage discussions with a major national electronics retailer. Initial orders are anticipated in the second quarter 2011, with products on the shelf by third quarter 2011."

This is in reference to Diamond Guard and Uni-Pixel’s finger print resistant film (FPR). We will get into the FPR product later. Let’s focus on Diamond Guard for now.

In anticipation of the commercialization of Diamond Guard, UNXL even announced that they had signed a “letter of intent with Griffin Technologies, a leading global mobile accessory company, for an exclusive retail relationship in North America.” This is exciting news and an analyst asks on the call if UNXL expects “to be shipping rolls at the end of this quarter.” Reed Killion responds, “I certainly do,” and later adds, "I think you'll see a tremendous uptick in this quarter going into the third and fourth quarter with respect to revenues."

3Q and 4Q 2011 revenues were $731 and $4,940, respectively. Again, we did not change the units.

Things were so bad that in the 2Q 2011 earnings call, Reed Killion admits that "sales of our Protective Cover Film products have not met our revenue expectations." As a result, he says, "This will significantly lower the $6 million revenue that has been discussed for fiscal year 2011.”

How much lower? Full year 2011 revenues were $195,237. That’s a far cry and a complete and utter failure relative to that lofty $6 million figure.

2) When UNXL first began touting Diamond Guard, we noted that the company claimed it had a hardness of 9H on the hardness scale – see for instance this presentation from 2011 http://www.unipixel.com/images/stories/pdf/presentations/111207-unxl-touchgesture-presentation.pdf or this press release http://www.tollcoating.com/Articles/Carestream%20Unipixel%20Press%20Release%20Diamond%20Guard.htm. Somehow that has changed to 6H today – see for instance http://www.unipixel.com/images/stories/pdf/datasheets/unipixel-diamond-guard-dg4-6h-datasheet-201210.pdf. Why is this and why does it matter? Well, as you can easily see on this handy Wikipedia page (http://en.wikipedia.org/wiki/Mohs_scale_of_mineral_hardness) 6H is basically like a soft version of glass but we know that Gorillla Glass (the gold standard for consumer electronics) is really closer to 9H – see http://chemistry.about.com/od/howthingswork/f/What-Is-Gorilla-Glass.htm. Is it any wonder that UNXL can’t sell Diamond Guard? First they materially misrepresent its hardness and then they admit it’s an inferior product.

3) Despite their abject failure of Diamond Guard in 2011, UNXL brazenly tried again in 2012. Hoping that a new calendar year would make investor forget all about their broken promises in 2011, during the 4Q 2011 earnings call, Reed Killion again promises significant Diamond Guard revenues. He says, "We anticipate shipping initial commercial quantities of Diamond Guard by the end of the first quarter with a production and distribution partner, and foresee multiple design wins for Diamond Guard in the second quarter."

Reed Killion qualifies it further by stating, "Several major electronic OEMs and ODMs are evaluating testing Diamond Guard films produced from our in-house production runs. Some evaluations have advanced to the submission of purchase orders for test piloting purposes, and we expect to begin production level shipments in late May and June."

He doesn’t end there. In the Q&A session, Reed clarifies his statement once more and says he expects pilot production orders by the end of the first quarter and "real orders" in June of 2012.

Revenues of $70,560 in the second quarter of 2012 are “real,” but we wouldn’t characterize them as significant. Revenues of $0 in the third quarter of 2012 are really nonexistent.

After 1 significant revenue downgrade, 1 massive change to specifications, and 2 failed promises for meaningful revenue generation, UNXL now claims that Diamond Guard won’t be commercialized until after UniBoss gains traction. We are not holding our breath on either promise.

CONSISTENT HISTORY OF PRODUCT FAILURES

Investors must realize that these aren’t isolated incidents. UNXL’s executive team has a history of broken promises regarding product commercialization.

TMOS – Same exact playbook as UniBoss

UNXL’s initial claim to fame was its TMOS technology for flat panel displays. It promised to provide better image quality over LCD and OLED displays while being up to 60% cheaper to manufacture than LCD’s. UNXL claimed TMOS consisted of just 6 layers, compared to 15 for plasma and 30 for LCDs, and that it only took 12 steps to manufacture versus 128 steps for an LCD. Essentially TMOS was cheaper, faster, and better than the existing technology. These claims sound suspiciously similar to their current claims on UniBoss.

In fact, a simple search into past filings shows UNXL used the same exact playbook on TMOS as they are now on UniBoss. Like UniBoss, TMOS was a simpler process that claimed to give you superior performance at half the cost. Like with touch screens, the flat panel display market was gigantic and UNXL just needed to grab a small percent of that market to make significant money. In fact, UNXL claimed that the display market segment was $100 billion and growing, much larger than the touch screen market. They also had patents! Unlike with UniBoss where they only have 2 issued patents, UNXL had 31 issued patents for TMOS along with 4 allowed and 82 pending patent applications. Just like with UniBoss, UNXL signed up agreements with blue chip partners. This time, it was Samsung, which they announced back in February 2009.

Like with all their past lies, UNXL’s promises led to nothing. In an interview March 19, 2007, UNXL promised “to have the display in a television application by the fourth quarter.” No product utilizing TMOS was ever introduced.

What about the development agreement with Samsung? Nothing ever came of it.

What about all the patents they had? UNXL sold them to Rambus in May 2010 for less than $2.5 million. In the press release, UNXL states that they “entered into an engineering services agreement with Rambus providing the ability for future collaboration and technology development.” This gives off the illusion that something could come out of TMOS after all. In our due diligence, we spoke with a former Rambus employee. He said nothing ever came out of the TMOS-related patents or with their relationship with UNXL , that the executive who okayed the purchase was seduced by UNXL’s powerpoint presentation but had no technical background, and that the money spent was completely wasted.

Why did TMOS fail? In our due diligence, we spoke with an engineer who was at a partner that tested TMOS. He told us that while he thought TMOS was a neat idea, it had a number of issues regarding viewing angle, color purity, and performance in a real-life operating environment due to humidity issues. Basically, he said it had essential issues with every important aspect of a display product and didn’t work. Is it any surprise all the promises, the partnerships, and patents led to nothing?

Opcuity – Double failure by UNXL management

As UNXL management was failing to deliver on their TMOS promises, they began touting their finger print resistant film technology, called Opcuity. On 3 separate instances, UNXL promised revenues from Opcuity.

1) In a press release from May 27, 2009, UNXL touted Opcuity as a “revenue producer for UniPixel… which is sampling now and expected to start volume production beginning early third quarter 2009.”

2) A press release from August 26, 2009 states, “Killion noted, ‘By bringing our fingerprint-resistant film to market, UniPixel transitions from a development stage company to a commercial manufacturing business. We are currently preparing volume production of Opcuity film and expect to ship products in the fourth quarter.’ The company forecasts revenue in 2009, and cash-flow positive by the second half of 2010.”

3) In a press release from December 1, 2009, Reed Killion says the same exact quote verbatim as in August 2009.

Like with TMOS, UNXL signed up blue chip partners like Avery Dennison and Targus for Opcuity. UNXL went as far as to announce when they received their first orders for Opcuity. A press release dated October 1, 2009 proudly leads with the headline, “UniPixel Receives First Orders for Opcuity Film Products.” UNXL even publicized that they had begun taking pre-orders through Amazon.com on UNXL’s storefront starting August 16, 2010.

Unfortunately, like every other one of UNXL’s products, revenue projections, and promises for commercialization, Opcuity failed. Revenues in 2009 were $0 and cash flow in 2010 was negative and increasingly negative in every quarter, totaling -$3.4 million in CFFO.

Why did UNXL’s FPR products fail? UNXL’s management blamed it on a collapsing industry cost structure. They have said on numerous occasions that they successfully produced the product; however, by the time that they began commercializing it, numerous low-cost Asian players entered the market and UNXL’s FPR products were uncompetitive.

Is this true? Would you be surprised if it weren’t true? In a channel check with an engineer at Targus, he said that UNXL approached them with a prototype of the FPR film. After some market research, Targus decided to move forward with UNXL and signed two development agreements, one for the finger print resistant film and the second for a privacy screen. Upon entering the agreements, Targus went back to UNXL and asked for a series of changes to the prototype to make it market-ready. He said that unfortunately the products that UNXL returned were completely unusable and very poor in quality. At the same time, competing products had entered the market, and they were better and cheaper than anything UNXL could produce. Targus ultimately ended up moving forward with a competitor due to UNXL’s poor performance. Targus also ended up scrapping the privacy film project with UNXL. The engineer said that UNXL failed to even deliver a workable product so Targus canceled the project.

Shockingly, UNXL management continued making promises on Opcuity commercialization. More than a year later, in March 2011, CEO Reed Killion touted “an improved, next generation finger print resistant protective cover film” that “has been completely re-mastered and re-qualified.” He even promised, “We see the sales of our FingerPrint Resistant films ramping up dramatically in 2011.” We’ll kill the suspense and inform you that revenues in fiscal 2011 totaled $195,237, which was a 20% drop from 2010. That’s quite a dramatic ramp!

CONCLUSION

Today investors are now asked to believe that this time is truly different and that the same promises of future revenues they’ve made in the past are now going to come true. This time, management claims that a large PC maker will soon come to market with a product and that UNXL will finally revolutionize an industry. Let me assure you that a tiger doesn’t change its stripes.

Just in case UNXL’s history isn’t enough to convince you that the company will fail, we’ve also done exhaustive work on Uniboss itself. While we intend to incorporate this work into an “expose” paper that will include all of our work above, I’ll give you the conclusions here. First, we don’t think UNXL can manufacture a working product to reasonable specifications. Second, even if they manage to make it, we are convinced that it will not meet even a low level of acceptable quality for use in displays.

We are short UNXL. Our target price on UNXL is $1/share. They have $1/share of cash that they are burning through.