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, 2016
or
[ ] | 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 |
(I.R.S.
Employer |
4699 Old Ironsides Drive, Suite 300
Santa Clara, California 95054
(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 [ ] 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2016, the issuer had 45,043,730 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 [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] | Smaller reporting company [X] | |
(Do not check if a smaller reporting company) |
2 |
PART I - FINANCIAL INFORMATION
Uni-Pixel, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
September 30, 2016 | December 31, 2015 | |||||||
(unaudited) | (Derived
from audited financial statements) | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 6,461 | $ | 7,618 | ||||
Restricted cash | — | 4,098 | ||||||
Account receivable, net | 767 | 334 | ||||||
Inventory | 677 | 769 | ||||||
Debt issuance costs | — | 526 | ||||||
Prepaid licenses | 4,900 | 4,900 | ||||||
Prepaid expenses | 452 | 819 | ||||||
Total current assets | 13,257 | 19,064 | ||||||
Property and equipment, net | 1,347 | 1,842 | ||||||
Other long-term assets | 13 | 13 | ||||||
Prepaid licenses, net of current portion | 1,954 | 5,629 | ||||||
Total assets | $ | 16,571 | $ | 26,548 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 2,521 | $ | 1,150 | ||||
Accrued liabilities | 855 | 780 | ||||||
Convertible notes payable | — | 2,773 | ||||||
Derivative liability | 1,369 | 491 | ||||||
Total current liabilities | 4,745 | 5,194 | ||||||
Royalty liability, net | 700 | 1,175 | ||||||
Long term liabilities | 432 | 645 | ||||||
Long term debt | — | 450 | ||||||
Total liabilities | 5,877 | 7,464 | ||||||
Commitments and contingencies (Note 3) | — | — | ||||||
Shareholders’ equity | ||||||||
Common stock, $0.001 par value; 100,000,000 shares authorized, 45,043,730 shares issued and outstanding at September 30, 2016 and 32,170,778 shares issued and outstanding at December 31, 2015 | 45 | 32 | ||||||
Additional paid-in capital | 181,954 | 168,243 | ||||||
Accumulated deficit | (171,305 | ) | (149,191 | ) | ||||
Total shareholders’ equity | 10,694 | 19,084 | ||||||
Total liabilities and shareholders’ equity | $ | 16,571 | $ | 26,548 |
See accompanying notes to these unaudited condensed consolidated financial statements.
3 |
Uni-Pixel, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenue | $ | 907 | $ | 1,498 | $ | 2,714 | $ | 2,867 | ||||||||
Cost of revenues | 3,231 | 4,701 | 11,431 | 8,128 | ||||||||||||
Gross margin | (2,324 | ) | (3,203 | ) | (8,717 | ) | (5,261 | ) | ||||||||
Selling, general and administrative expenses | 1,882 | 1,724 | 5,602 | 8,368 | ||||||||||||
Research and development | 3,119 | 1,491 | 5,059 | 5,690 | ||||||||||||
Operating loss | (7,325 | ) | (6,418 | ) | (19,378 | ) | (19,319 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Debt issuance cost amortization expense | — | (451 | ) | (526 | ) | (827 | ) | |||||||||
Gain (loss) on change in warrant liability | (229 | ) | 1,092 | (907 | ) | 4,992 | ||||||||||
Accretion of discount on convertible notes | — | (4,049 | ) | (1,291 | ) | (7,171 | ) | |||||||||
Interest income (expense), net | (3 | ) | (194 | ) | (12 | ) | (424 | ) | ||||||||
Other income (expense), net | (232 | ) | (3,602 | ) | (2,736 | ) | (3,430 | ) | ||||||||
Net loss from continuing operations | $ | (7,557 | ) | $ | (10,020 | ) | $ | (22,114 | ) | $ | (22,749 | ) | ||||
Discontinued operations (note 8) | ||||||||||||||||
Loss on discontinued operations | — | — | — | (1,093 | ) | |||||||||||
Loss on impairment of property and equipment | — | — | — | (7,608 | ) | |||||||||||
— | — | — | (8,701 | ) | ||||||||||||
Net loss | $ | (7,557 | ) | $ | (10,020 | ) | $ | (22,114 | ) | $ | (31,450 | ) | ||||
Per share information | ||||||||||||||||
Basic | ||||||||||||||||
Loss from continuing operations | $ | (0.17 | ) | $ | (0.60 | ) | $ | (0.55 | ) | $ | (1.61 | ) | ||||
Net loss | $ | (0.17 | ) | $ | (0.60 | ) | $ | (0.55 | ) | $ | (2.22 | ) | ||||
Diluted | ||||||||||||||||
Loss from continuing operations | $ | (0.17 | ) | $ | (0.60 | ) | $ | (0.55 | ) | $ | (1.61 | ) | ||||
Net loss | $ | (0.17 | ) | $ | (0.60 | ) | $ | (0.55 | ) | $ | (2.22 | ) | ||||
Weighted average number of basic common shares outstanding | 45,036,089 | 16,595,889 | 40,359,715 | 14,154,871 | ||||||||||||
Weighted average number of diluted common shares outstanding | 45,036,089 | 16,595,889 | 40,359,715 | 14,154,871 |
See accompanying notes to these condensed consolidated financial statements.
4 |
Uni-Pixel, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
(unaudited)
Nine
Months Ended September 30, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (22,114 | ) | $ | (31,450 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 4,002 | 5,412 | ||||||
Restricted stock issuance | 807 | 1,061 | ||||||
Stock compensation expense | 456 | 1,329 | ||||||
Amortization of debt issuance costs | 526 | 827 | ||||||
Issuance of common stock to convert notes and interest | 3 | 309 | ||||||
Accretion of discount on convertible note | 1,291 | 7,171 | ||||||
Net (gain) loss on change in warrant liability | 907 | (4,992 | ) | |||||
Discontinued Operations | — | 1,093 | ||||||
Loss on R&D equipment related to discontinued operations | — | 7,608 | ||||||
Change in operating assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (433 | ) | (932 | ) | ||||
Increase in inventory | 92 | (1,114 | ) | |||||
Increase in prepaid assets and other current assets | 367 | (86 | ) | |||||
Increase (decrease) in accounts payable | 1,371 | 817 | ||||||
Increase in accrued expenses and other liabilities | 75 | 5,317 | ||||||
Decrease in long-term liabilities | (214 | ) | — | |||||
Decrease in deferred revenue | — | (4,965 | ) | |||||
Net cash used in operating activities – continuing operations | (12,864 | ) | (12,595 | ) | ||||
Net cash used in operating activities – discontinued operations | — | (1,093 | ) | |||||
Net cash used in operating activities - total | (12,864 | ) | (13,688 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (308 | ) | (623 | ) | ||||
Purchase of prepaid licenses | — | (14,000 | ) | |||||
Net cash used in investing activities | (308 | ) | (14,623 | ) | ||||
Cash flows from financing activities | ||||||||
Decrease (increase) in cash restricted for convertible notes payable | 4,098 | (5,986 | ) | |||||
Proceeds from issuance of common stock, net | 8,389 | — | ||||||
Proceeds from exercise of stock options, net | 4 | 75 | ||||||
Payments on note payable | (2,867 | ) | (458 | ) | ||||
Proceeds from convertible notes and warrants issued, less debt issuance costs | 2,391 | 13,195 | ||||||
Net cash provided by financing activities | 12,015 | 6,826 | ||||||
Net decrease in cash and cash equivalents | (1,157 | ) | (21,485 | ) | ||||
Cash and cash equivalents, beginning of period | 7,618 | 23,663 | ||||||
Cash and cash equivalents, end of period | $ | 6,461 | $ | 2,178 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 9 | $ | 101 | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
Supplemental disclosures of non-cash financing information: | ||||||||
Issuance of common stock for legal settlements | $ | — | $ | 2,275 | ||||
Issuance of common stock to convert notes and interest | $ | 1,675 | $ | 8,419 | ||||
Acquisition of XTouch assets from Atmel | $ | — | $ | 1,821 | ||||
Beneficial conversion feature on convertible notes | $ | — | $ | 5,970 | ||||
Warrants issued in connection with convertible notes | $ | — | $ | 5,980 |
See accompanying notes to these unaudited condensed consolidated financial statements.
5 |
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.”
On April 16, 2015 we acquired certain assets and licenses related to the manufacture of XTouch touch sensors from Atmel Corporation and CIT Technology Ltd. and we closed a private offering consisting of $15 million in principal amount of our Senior Secured Convertible Promissory Notes together with warrants. On April 22, 2015 we terminated the Manufacturing Facility Installation and Supply Agreement dated April 15, 2013 which was entered into by Uni-Pixel Displays, Inc. and Eastman Kodak Company.
Our decision to change the focus of our business from developing and manufacturing InTouch sensors to manufacturing and selling XTouch touch sensors was based on, among other things, the pressure of declining prices and margin compression in the touch sensor market. We believe that our acquisition of the XTouch technology will provide us with a stand-alone, go-to-market strategy that we expect to provide a better economic model and lead to a scalable business in a more rapid time frame.
In addition to the flexible electronic films described above, we are developing a hard coat resin that can be applied using film, spray or inkjet coating methods for applications as protective cover films, a cover lens replacement or a conformal hard coat for plastic components. We plan to sell our hard coat resin and optical films under the Diamond Guard® brand.
Our strategy is to further develop our proprietary Performance Engineered Film™ technology around the vertical markets that we have identified as high growth profitable market opportunities. These markets include touch sensors, antennas, automotive and lighting.
As of September 30, 2016, Uni-Pixel had accumulated a total deficit of $171.3 million from operations in pursuit of these objectives.
As of September 30, 2016, we had cash and cash equivalents of $6.5 million. Our long-term viability is dependent upon our ability to successfully operate our business, develop our manufacturing process, develop our products, establish the business relationships we need to manufacture and market our products. On October 24, 2016, we entered into a $2.5 million loan and security agreement with Western Alliance Bank where we can borrow up to 90% of eligible accounts receivable at a rate of prime plus 1.25%.
The Company is subject to a number of risks, including, but not limited to, whether it can successfully integrate the XTouch operations; whether the manufacture and sale of the XTouch touch sensors will ultimately prove to be profitable; whether the Company will be able to raise capital when it needs to do so; whether the Company can successfully compete in the industry, particularly against larger organizations with greater financial and other resources; whether the Company will continue to receive the services of its key personnel; whether its intellectual property is adequately protected; and other risks related to the electronics 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, 2015, filed with the Securities and Exchange Commission on March 30, 2016 (the “2015 Form 10-K”).
6 |
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, 2016 compared to what was previously disclosed in the 2015 Form 10-K. The consolidated financial information as of December 31, 2015 included herein has been derived from the Company’s audited consolidated financial statements as of, and for the fiscal year ended, December 31, 2015.
Significant Accounting Policies
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, the valuation of derivative liability, the potential impairment of property and equipment and intangible assets, deferred taxes, the valuation of non-cash equity awards, and the provision for and disclosure of litigation. 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 at September 30, 2016 and December 31, 2015. We have not incurred losses related to these deposits.
Restricted cash
As of September 30, 2016 and December 31, 2015 we had restricted cash of $0 and $4.1 million, respectively. At December 31, 2015, the $4.1 million of restricted cash represented the amount we were required to maintain on our balance sheet in accordance with the terms of the Securities Purchase Agreement entered into on April 16, 2015 for the sale of our Senior Secured Convertible Promissory Notes. This amount was released from restriction in the first quarter of 2016 upon conversion of the Senior Secured Promissory Notes.
Accounts Receivable
The carrying value of our accounts receivable, net of allowance for doubtful accounts, represents their estimated net realizable value. We estimate the allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance. We had $0.7 million and $0.3 million accounts receivable at September 30, 2016 and December 31, 2015, respectively.
Property and equipment
Property and equipment, consisting primarily of production equipment, lab equipment, computer equipment, software, leasehold improvements, and office furniture and fixtures is carried at cost less accumulated depreciation and amortization. Depreciation and amortization for financial reporting purposes is provided by the straight-line method over the estimated useful lives of three to five years. Leasehold improvements are amortized using the straight-line method over the remaining lease term or the life of the asset, whichever is shorter. The cost of repairs and maintenance is charged as an expense as incurred. Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred.
Convertible debt
The Company accounts for its convertible debt as equal to its proceeds, less unamortized discounts. The Company records discounts on its convertible debt for the fair value of freestanding and embedded derivatives as well as beneficial conversion features associated with the issuance of the debt. Discounts are amortized over the life of the convertible debt.
7 |
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using standard cost, which approximates the first-in, first-out method. Adjustments to reduce the carrying value of inventory to its net realizable value are made for estimated excess, obsolete or impaired balances. These adjustments are measured as the excess of the cost of the inventory over its market value based upon assumptions about future demand and charged to cost of revenue. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration of the original cost basis or increases in the newly established cost basis.
Derivative liabilities
In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, the Company’s convertible notes are accounted for net, outside of shareholders’ equity and warrants are accounted for as liabilities at their fair value during periods where the full ratchet anti-dilution provision is in effect.
The warrants are accounted for a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings or losses. To derive an estimate of the fair value of these warrants, a binomial model is utilized that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.
Revenue recognition
We recognize revenue over the period the service is performed. In general, this requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured.
Advance payments are deferred until shipment of product has occurred or the service has been rendered.
Revenue from licenses and other up-front fees are recognized on a ratable basis over the term of the respective agreement.
Revenue on certain fixed price contracts where we provide research and development services are recognized over the contract term based on achievement of milestones. When the contracts provide for milestone or other interim payments, the Company will recognize revenue under the milestone method. The milestone method requires the Company to deem all milestone payments within each contract as either substantive or non-substantive. That conclusion is determined based upon a thorough review of each contract and the Company’s deliverables committed to in each contract. For substantive milestones, the Company concludes that upon achievement of each milestone, the amount of the corresponding defined payments is commensurate with the effort required to achieve such milestone or the value of the delivered item. The payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of the deliverables and the payment terms within the contract. For non-substantive milestones, including advance payments, the recognition of such payments are pro-rated to the substantive milestones.
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), convertible notes and convertible preferred stock.
At September 30, 2016, 1,260,000 restricted shares and options and warrants to purchase 11,675,251 shares of common stock at exercise prices ranging from $0.55 to $38.70 per share were outstanding, and were not included in the computation of diluted earnings per share as their effect would be anti-dilutive.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
Our financial instruments consist of accounts receivable, prepaid expenses, a derivative liability and accounts payable. We believe the fair values of our accounts receivable, prepaid expenses and accounts payable reflect their respective carrying amounts given the short term nature of these instruments. The derivative liability is measured at fair value on a recurring basis.
8 |
Recently issued accounting pronouncements
In February 2016, the Financial Accounting Standards Update (ASU) 2016-02 Leases (Topic). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. For public companies, the ASU is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the financial position, results of operations or cash flows.
Accounting Guidance Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The Company expects to adopt ASU 2014-09 for the fiscal year ending December 31, 2017 and will continue to assess the impact on its financial statements.
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
In conjunction with the acquisition of the XTouch technology, the Company entered into a lease for office and production facilities for approximately 28,918 square feet at 1150 E. Cheyenne Mountain Boulevard, Colorado Springs, Colorado 80906 under a third party non-cancelable operating lease through April 15, 2017. In July 2015, the company entered into a lease for office space for 4,478 square feet at 4699 Old Ironsides Drive, Ste. 300, Santa Clara, CA 95054 through July 14, 2018. In addition, the company leases approximately 7,186 square feet at 3400 Research Forest Drive, Suite B2, The Woodlands, TX that expires on May 31, 2018. Future minimum lease commitments as of September 30, 2016 are as follows:
Year Ending September 30 (in thousands) | ||||
Three months ending 2016 | $ | 189 | ||
2017 | 463 | |||
2018 | 141 | |||
2019 | — | |||
2020 | — | |||
2021 | — | |||
Total | $ | 793 |
Eco-System Partner Royalty Obligation
In April 2013, we entered into an agreement with Intel Corporation (“Intel”) (the “Capacity License Agreement”) whereby we were to receive $10 million of cash proceeds to assist us in increasing our production capacity. Under the terms of the Capacity License Agreement, there were two milestones with related contingent consideration of $5 million for each milestone plus certain commissions as described below. The Capacity License Agreement required us to purchase certain equipment, which we purchased in 2013 and which we consider not a substantive milestone. The Capacity License Agreement required us to have the capability to produce at least 1 million sensor units per month (as defined in the Capacity License Agreement) by April 2014, which we consider a substantive milestone. We received $5 million in May 2013, which is non-refundable and was recorded as deferred revenue in the consolidated balance sheet at December 31, 2014. Upon achieving the deliverables of the Capacity License Agreement, we would have paid a commission to Intel of 10% on revenue derived from the sales of InTouch™ Sensors jointly developed with Kodak made directly to Designated Customers. The commission amount was to be paid until the aggregate commissions paid equaled the commission cap of $18.5 million. The term of the Capacity License Agreement is the later of 3 years or the full payment of the commission cap. If the Company committed a material breach of the license agreement, certain equipment of the Company with an original cost of approximately $10.1 million would be assigned to Intel to make them whole on any remaining amounts due under the commission cap of $18.5 million.
In April 2014, we entered into the First Amendment to the Capacity License Agreement with Intel (the “Amended Capacity License Agreement”). The Amended Capacity License Agreement modified the original Capacity License Agreement terms as follows: 1) the inability of the Company to reach, by April 2014, the minimum production capability and the required quality standards specified in the Capacity License Agreement will no longer constitute a material breach to the Capacity License Agreement; 2) the total amount of cash proceeds to be received was reduced from $10 million to $5 million, which included the $5 million we received in May 2013; 3) the cap on the commission amount was reduced from $18.5 million to $6.25 million; 4) the term “commission” is defined as 10% of gross revenue from the sale of all sensors sold by the Company, which includes sales of InTouch™ Sensors to all customers including, but not limited to, Intel and its Designated Customers; 5) if the Company becomes the subject of any proceeding under any bankruptcy, insolvency or liquidation law, the Company will assign all title and ownership to the Equipment to Intel; and 6) if the Company materially breaches the Amended Capacity License Agreement, which breach is not cured within 30 days after receipt of notice from Intel, the Company may choose to either (A) pre-pay the cap on the commission to Intel (less the total of all previously paid commissions) or (B) assign all title and ownership to the Equipment to Intel. The only remaining milestone of the Amended Capacity License Agreement is the capability to produce at least 1 million sensors units per month. The Capacity License Agreement pertained to the InTouch™ Sensor technology that was jointly developed with Kodak pursuant to an agreement that was terminated after the acquisition of the XTouch sensor technology in 2015 and the Company has abandoned this InTouch™ Sensor technology.
9 |
In the fourth quarter of 2015, the Company recorded a $5.0 million gain on relief of deferred revenue liability for discontinued operations. The $5 million was originally received in 2013 and under the terms of the Capacity License Agreement, pertained to the Capacity License Agreement that was based on the InTouch™ Sensor technology which is no longer used.
In March 2016, Intel requested that the Company refund over time the $5 million discussed above that the Company had received from Intel in May 2013. The Company declined to refund the money as the payment was not refundable under the Amended Capacity License Agreement or otherwise due to Intel. As noted above, the agreement with Intel pertained to a technology that the Company abandoned when it terminated its joint development agreement with Kodak in 2015. Intel requested that the refund be accomplished by the Company paying Intel commissions on XTouch sensor revenue until the $5 million was refunded. The Company responded that no commissions are owed under the Amended Capacity License Agreement because it is not selling the abandoned InTouch™ Sensors or otherwise using the technology covered by the Amended Capacity License Agreement in its current products. The only products the Company has recognized revenue on are based on the XTouch sensor technology acquired from Atmel Corporation and CIT Technology Ltd. in April of 2015. No litigation or other legal proceeding has commenced on Intel’s request. The Company has engaged in discussions with Intel regarding formulation of a mutually agreeable commercial relationship. While it is not possible to predict the outcome of these discussions with certainty at the present time, if the Company is unable to reach an acceptable relationship, it intends to vigorously contest any claim that Intel might make.
Securities and Exchange Commission Complaint against former Officers of the Company and Settlement with the Company
On November 19, 2013, the Company learned that the Fort Worth Regional Office of the United States Securities and Exchange Commission (“SEC”) issued subpoenas concerning the Company’s agreements related to our InTouch™ Sensors. The Company cooperated fully with the SEC regarding this non-public, fact-finding inquiry, which resulted in a complaint filed by the SEC on March 9, 2016 naming the Company and two of the Company’s former executive officers as defendants. The allegations of the SEC in this complaint against the two former executive officers, Reed Killion and Jeffrey Tomz, who were respectively the Chief Executive Officer and Chief Financial Officer of the Company during the relevant periods of time at issue in the SEC’s complaint, include that they made more than $2 million in personal profits from selling their own shares of the Company’s common stock following disclosures regarding the Company’s agreement related to our InTouch™ Sensors.
On March 16, 2016, the U.S. District Court for the Southern District of Texas on March 16, 2016 signed a final judgment on this complaint pursuant to our consent (the “Final Judgment”), which the Company gave without admitting or denying the allegations of the SEC’s complaint. Without admitting or denying the allegations of the SEC’s complaint, we consented to the Final Judgment, which permanently enjoins us from violating Sections 10(b) and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 of the SEC and Section 17(a) of the Securities Act of 1933. The Final Judgment also permanently enjoins the filing with the SEC any periodic report pursuant to Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 12b-20 of the SEC, which contains any untrue statement of material fact, or which omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or which fails to comply in any material respect with the requirements of Section 13(a) of the Exchange Act and the rules and regulations thereunder. The Final Judgment also provides for a civil penalty in the amount of $750,000 to be paid in accordance with the following schedule:
(1) $20,000, within 14 days of entry of the Final Judgment;
(2) $20,000, within 104 days of entry of the Final Judgment;
(3) $30,000, within 194 days of entry of the Final Judgment;
(4) $45,000, within 284 days of entry of the Final Judgment;
(5) $60,000, within 374 days of entry of the Final Judgment;
(6) $70,000, within 464 days of entry of the Final Judgment;
(7) $80,000, within 554 days of entry of the Final Judgment;
(8) $80,000, within 644 days of entry of the Final Judgment;
(9) $80,000, within 734 days of entry of the Final Judgment;
(10) $85,000, within 824 days of entry of the Final Judgment;
(11) $90,000, within 914 days of entry of the Final Judgment;
(12) $90,000, within 1004 days of entry of the Final Judgment
The $750,000 settlement was recorded in other expense on the consolidated statement of operations for the year ended December 31, 2015. As of September 30, 2016, the remaining settlement accrual is reflected in current liabilities of $255,000 and $425,000 in long-term liabilities.
10 |
Complaint by former Officers of the Company for Advancement of Expenses
The Company’s Amended and Restated Bylaws contain provisions regarding indemnification and advancement of expenses actually and reasonably incurred by the Company’s officers in connection with civil, criminal, administrative or investigative matters provided that such officers acted in good faith and in a manner such officers reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reason or cause to believe such officer’s conduct was unlawful. The advancement of expenses is expressly conditioned upon receipt of an undertaking by the officer to repay all such amounts so advanced in the event that it shall ultimately be determined that the officer is not entitled to be indemnified by the Company. The Company, or its insurance company, has paid as agreed all invoices for all years through the end of 2015 for the defense of Messrs. Killion and Tomz in the investigation by the SEC that resulted in the filing of the complaint against them by the SEC. A portion of payments for 2016 invoices have has also been made, but the Company has disputed other 2016 invoices totaling approximately $265,000 as containing expenses that have not been reasonably incurred by Messrs. Killion and Tomz in defense of the SEC’s complaint. Through the course of 2016, the Company has been in discussions with counsel to Messrs. Killion and Tomz of resolving counsels’ charges on these invoices. Notwithstanding those discussions, on August 22, 2016, Messrs. Killion and Tomz filed an action against the Company for advancement of expenses in the Delaware Chancery Court. The Company has contested the claims made by Messrs. Killion and Tomz that it has not advanced expenses reasonably incurred by them in the underlying action brought by the SEC. In October 2016, the Chancery Court appointed a former Vice Chancellor of the Delaware Chancery Court to act as a Special Master to determine whether expenses are reasonably incurred to the extent that the Company and Messrs. Killion and Tomz are not capable to resolve the dispute concerning whether expenses have been reasonably incurred without the assistance of the judicial process.
Note 4 —Equity, Stock Plan and Warrants
Common Stock
During the nine months ended September 30, 2016, we (1) issued 833,252 shares of common stock to directors and employees; (2) issued 1,595,000 shares related to exercise of warrants; (3) issued 6,152,500 shares and received proceeds of $8.4 million, net of issuance costs of $0.8 million.
During the nine months ended September 30, 2015, we (1) issued 12,500 shares of common stock for cash in connection with the exercise of stock options; (2) issued 105,017 shares of common stock to various directors, officers and employees as stock awards; (3) issued 20,833 shares of common stock for the settlement of the derivative lawsuit; (4) issued 430,000 shares of common stock for the settlement of the class action lawsuit; and (5) issued 6,548,225 shares of common stock to convert $8.1 million of principal and $0.3 million of interest into shares of common stock.
Restricted Stock
Total compensation expense recognized for restricted stock was approximately $1.0 million and $1.1 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company has recorded approximately $1.0 million, $15,000 and $15,000 of restricted stock expense in selling, general and administrative expenses, research and development expense and cost of revenue for the nine months ended September 30, 2016, respectively and approximately $0.9 million and $0.2 million of restricted stock expense in selling, general and administrative expenses and research and development expense for the nine months ended September 30, 2015, respectively.
In the nine months ended September 30, 2016 the Company granted 1,260,000 restricted stock units (“RSUs”) with a grant-date fair value of approximately $1.9 million or $1.50 per share.
RSUs are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of three years and are expensed ratably on a straight line basis over their respective vesting period net of estimated forfeitures. The fair value of the RSUs granted is the product of the number of shares granted and the grant date fair value of the Company’s common stock. The RSUs that will vest in future periods will be net-share settled such that the Company will withhold shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares to be withheld will be based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price.
At September 30, 2016, there was $2.3 million of total unrecognized compensation cost related to non-vested shares of restricted stock which is expected to be recognized over a weighted-average period of 2.23 years. There were 429,938 shares of restricted stock, net that became vested during the nine months ended September 30, 2016.
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 5,500,001 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.
11 |
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, 2016, there were 482,553 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:
Total compensation expense recognized for options was approximately $0.4 million and $1.3 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company has recorded approximately $0.2 million, $0.8 million and $66,000 of stock compensation expense in selling, general and administrative expenses research and development expense and cost of revenue for the nine months ended September 30, 2016 and approximately $0.5 million, 0.8 million and $46,000 of stock compensation expense in selling, general and administrative expenses, research and development expense and cost of revenue for the nine months ended September 30, 2015.
A summary of the changes in the total stock options outstanding during the nine months ended September 30, 2016 follows:
Weighted | ||||||||
Average | ||||||||
Options | Exercise Price | |||||||
Outstanding and expected to vest, at December 31, 2015 | 1,941,194 | $ | 6.54 | |||||
Granted | 418,000 | $ | 1.39 | |||||
Forfeited or expired | (156,253 | ) | $ | 9.36 | ||||
Exercised | (3,050 | ) | $ | 1.23 | ||||
Outstanding and expected to vest, at September 30, 2016 | 2,199,891 | $ | 5.37 | |||||
Vested and exercisable at September 30, 2016 | 1,536,078 | $ | 7.02 |
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 September 30, 2016 | Three
Months ended September 30, 2015 | Nine
Months ended September 30, 2016 | Nine
Months ended September 30, 2015 | |||||||||||||
Expected life (years) | 5 years | 5 years | 5 years | 5 years | ||||||||||||
Interest rate | 1.11 | % | 1.63 | % | 1.11 to 1.63 | % | 1.31 to 1.63 | % | ||||||||
Dividend yield | — | — | — | — | ||||||||||||
Volatility | 97.48 | % | 157.66 | % | 97.48 to 157.66 | % | 144.34 to 157.66 | % | ||||||||
Forfeiture rate | — | — | — | — | ||||||||||||
Weighted average fair value of options granted | $ | 1.11 | $ | 1.15 | $ | 1.02 | $ | 1.41 |
At September 30, 2016, there was $0.8 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 2.01 years. There were approximately 0.5 million, net options that became vested during the nine months ended September 30, 2016.
Common Stock Warrants
As of September 30, 2016, the Company has 9,475,360 common stock warrants outstanding with a weighted average exercise price of $1.61 per share. Information regarding outstanding warrants as of September 30, 2016 is as follows:
Grant date | Warrants | Exercisable | Weighted | Remaining | ||||||||||||
June 10, 2009 | 15,796 | 15,796 | $ | 7.50 | 2.68 | |||||||||||
August 31, 2009 | 24,934 | 24,934 | $ | 7.50 | 2.68 | |||||||||||
October 2, 2009 | 205,000 | 205,000 | $ | 5.00 | 3.08 | |||||||||||
March 15, 2010 | 8,337 | 8,337 | $ | 7.50 | 3.25 | |||||||||||
April 5, 2010 | 930 | 930 | $ | 7.50 | 3.25 | |||||||||||
April 16, 2015 (1) | 1,151,121 | 1,151,121 | $ | 1.50 | 3.25 | |||||||||||
November 5, 2015 (1) | 38,371 | 38,371 | $ | 1.50 | 3.50 | |||||||||||
November 30, 2015 (1) | 8,030,871 | 8,030,871 | $ | 1.50 | 4.17 | |||||||||||
Total | 9,475,360 | 9,475,360 |
(1) | The exercise price of the warrants and the number of shares for which the warrants are exercisable are subject to certain adjustments if the Company issues or sells additional shares of common stock or common stock equivalents at a price per share less than the exercise price then in effect, or without consideration. |
12 |
Note 5 — Property and Equipment and Inventory
A summary of the components of property and equipment (in thousands) at September 30, 2016 and December 31, 2015 are as follows:
Estimated Useful Lives | September 30, 2016 | December 31, 2015 | ||||||||
Production equipment | 3 to 5 years | $ | 2,051 | $ | 1,966 | |||||
Research and development equipment | 3 to 5 years | 3,581 | 3,572 | |||||||
Leasehold improvements | 5 years | 23 | 23 | |||||||
Computer equipment | 5 years | 98 | 98 | |||||||
Office equipment | 3 to 5 years | 20 | 20 | |||||||
Construction-in-progress | 389 | 176 | ||||||||
6,162 | 5,855 | |||||||||
Accumulated depreciation | (4,815 | ) | (4,013 | ) | ||||||
Property and equipment, net | $ | 1,347 | $ | 1,842 |
Depreciation for the nine months ended September 30, 2016 and September 30, 2015 was approximately $0.8 million and $3.6 million, respectively.
A summary of the components of inventory at September 30, 2016 and December 31, 2015 (in thousands):
September 30, 2016 | December 31, 2015 | |||||||
Raw materials | $ | 239 | $ | 419 | ||||
Work-in-progress | 426 | 328 | ||||||
Finish Goods | 12 | 22 | ||||||
Inventory | $ | 677 | $ | 769 |
Note 6 — Senior Secured Convertible Notes and Warrants
Concurrent with the consummation of the XTouch acquisition, on April 16, 2015 (the “Effective Date”), and pursuant to a Securities Purchase Agreement, we sold $15 million in Senior Secured Convertible Notes, together with warrants for the purchase of 1,151,121 shares of our common stock (the “Warrants”), to two accredited investors (the “Investors”). In addition, we sold an additional $0.5 million Convertible Note to one of these Investors in November 2015, and the Warrant issued to that Investor was adjusted for an additional 38,371 shares of common stock. The number of shares of common stock subject to the Warrants equaled 65% of the number of shares of common stock the Investors would receive if the Convertible Notes were converted at the Conversion Price (as defined below) on the trading day immediately prior to the Effective Date.
The Convertible Notes accrue simple interest at the rate of 9% per year (“Interest”). On November 23, 2015, the Interest was reduced to 4%. The Convertible Notes together with all accrued and unpaid Interest were due and payable on April 16, 2016 (the “Maturity Date”). The Investors may, at any time, elect to convert the Convertible Notes into shares of our common stock at the conversion price, subject to certain beneficial ownership limitations. The conversion price is the lesser of $8.47 per share (the “Conversion Price”), subject to adjustment as set forth in the Convertible Notes for stock splits, dividends, recapitalizations and similar events, which equaled 110% of the last closing price of our common stock prior to the execution and delivery of the Securities Purchase Agreement and 85% of the lowest closing sale price during the prior 30 trading day period. As of February 16, 2016, the Convertible Note had been fully repaid.
The Warrants when issued had a five-year term and a per share exercise price of $9.63, subject to adjustment as set forth in the Warrants, which equaled 125% of the closing price of our common stock prior to the Effective Date. If, after the Effective Date, we issue or sell, or are deemed to have issued or sold, any shares of common stock (with the exception of certain Excluded Securities, as those are defined in the Warrants) for a consideration per share less than a price equal to the exercise price of the Warrants in effect immediately prior to such issue or sale (or deemed issuance or sale) (a “Dilutive Issuance”), then immediately after the Dilutive Issuance, (x) if the Dilutive Issuance occurs prior to the one year anniversary of the Effective Date, then the exercise price then in effect will be reduced to an amount equal to the product of (A) the exercise price in effect immediately prior to the Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the exercise price in effect immediately prior to the Dilutive Issuance and the number of Common Shares Deemed Outstanding (as defined in the Warrants) immediately prior to the Dilutive Issuance plus (II) the consideration, if any, received by us on such Dilutive Issuance, by (2) the product derived by multiplying (I) the exercise price in effect immediately prior to the Dilutive Issuance by (II) the number of Common Shares Deemed Outstanding immediately after the Dilutive Issuance and (y) if the Dilutive Issuance occurs after the one year anniversary of the Effective Date but within five years of the Effective Date, the exercise price then in effect will be reduced to an amount equal to the price of the shares of common stock issued in the Dilutive Issuance. The Warrants will be exercisable for cash, but if a prospectus covering the shares of common stock underlying the Warrants is not available, the Investors may exercise the Warrants using a cashless exercise provision. The Warrants may not be exercised if, after giving effect to the exercise, the Investor would beneficially own in excess of 4.99% or 9.99% of the outstanding shares of common stock, depending on the Investor. At the Investor’s option, the cap applicable to the exercise of the Warrants may be raised or lowered to any other percentage not in excess of 9.99%, except that any increase will only be effective upon 61-days’ prior notice to us.
13 |
As per the terms of the November 2015 equity transaction, the 1,189,492 Warrants were exchanged for new warrants to purchase an equivalent number of shares of common stock in the same form and same terms as the warrants issued in such equity transaction, including a repricing to $1.50 per share exercise price. The exercise price of the Warrants and the number of shares for which the Warrants are exercisable are subject to certain adjustments if the Company issues or sells additional shares of common stock or common stock equivalents at a price per share less than the exercise price then in effect, or without consideration. Notwithstanding the foregoing, there will be no adjustment to the exercise price of the Warrants or number of warrant shares issuable upon exercise in connection with the issuance of common stock upon Board of Director-approved employee benefit plans or upon the conversion, exercise or payment of certain outstanding, excluded securities.
Pursuant to a Pledge and Security Agreement (the “Security Agreement”) we entered into in favor of Hudson Bay Fund LP as Collateral Agent, the Convertible Notes are secured by a perfected first priority security interest in all of our assets and are senior in right of payment to all of our existing and future indebtedness, subject to Permitted Liens, as defined in the Convertible Notes. With the exception of Permitted Liens, we have agreed that we will not grant a security interest in our assets so long as the Convertible Notes remain outstanding and that we will not incur any new debt except for Permitted Indebtedness, as that term is defined in the Convertible Notes.
In conjunction with the issuance of the Convertible Notes and the Warrants, we entered into a Registration Rights Agreement pursuant to which we agreed to file a registration statement covering the sum of (i) 200% of the maximum number of shares underlying the Convertible Notes and (ii) the maximum number of shares underlying the Warrants (the “Registrable Securities”). We have agreed to keep any registration statement we file pursuant to the Registration Rights Agreement effective until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by the Registration. Statement without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) or (ii) the date on which the Investors shall have sold all of the securities covered by such Registration Statement.
We were to use our reasonable best efforts to have the registration statement declared effective within 90 days after the Effective Date (the “Registration Statement Effective Date”). If we failed to register the Registrable Securities or the registration statement is not declared effective by the SEC before the Registration Statement Effective Date, or if on any day after the Registration Statement Effective Date, sales of the Registrable Securities required to be included on the Registration Statement cannot be made (collectively, a “Registration Default”), we will pay to each Investor an amount in cash equal to 1% of the aggregate Purchase Price (as that term is defined in the Securities Purchase Agreement) of the Investor’s Registrable Securities, whether or not the Registrable Securities were included in the registration statement, and 1% per month (or a portion thereof pro rata) that the Registration Default continues to exist. We are not required to make these payment if, when a Registration Default occurs, the Investors can freely sell our common stock pursuant to Rule 144 without restriction or limitation. We filed the registration statement within 90 days and therefore did not have to make any payments to the Investors.
Investors in the offering have the right to participate for no less than 35% of any future offering of our equity or equity equivalent securities until the second anniversary of the Effective Date when the Convertible Notes were purchased.
We had agreed to keep at least $6.0 million of restricted cash on our balance sheet at all times until the Maturity Date or until the outstanding principal amount of the Convertible Notes is less than $6.0 million, at which time the amount of restricted cash we are required to keep on our balance sheet will be adjusted downward, dollar for dollar. As of September 30, 2016 and December 31, 2015, the restricted cash was $0 and $4.1 million, respectively.
As additional security for repayment of the Convertible Notes, Uni-Pixel Displays, Inc. entered into to a Guarantee Agreement in favor of the Investors.
Cowen and Company, LLC acted as our financial advisor in the acquisition of the assets and as our placement agent in the financing transaction. We paid Cowen and Company, LLC approximately $1.7 million for these services.
On April 16, 2015, the Company determined that the Convertible Notes had a carrying amount of $3.1 million. The Company utilized a binomial model in determining the fair market value of the Warrants of $6.0 million.
14 |
The Company also determined there was a beneficial conversion feature (“BCF”) as a result of the intrinsic value between the effective exercise price and the market price at the time of conversion of $6.0 million. The BCF was included in additional paid in capital. As a result of the down-round protection on the warrants, they have been accounted for as a derivative liability upon issuance and at December 31, 2015.
At inception, the Convertible Notes balance (in thousands) and unamortized discount in millions were as follows:
Convertible notes | $ | 15,000 | ||
Discount attributable to warrants | (5,980 | ) | ||
Discount attributable to BCF | (5,970 | ) | ||
Carrying amount of Convertible Notes at inception | $ | 3,050 |
As of September 30, 2016, the Investors were issued an aggregate of 13,984,411 shares of common stock on the conversion of $11.6 million of principal and $0.3 million of interest As of September 30, 2016 the convertible note balances were $0.
The following table summarizes the charges to interest, amortization and other expense, net for the nine months ended September 30, 2016 (in thousands):
September 30, 2016 | September 30, 2015 | |||||||
Interest expense on convertible notes | $ | 9 | $ | 434 | ||||
Accretion of convertible not discount | $ | 1,291 | $ | 7,171 |
Note 7 — Agreements with Atmel Corporation and CIT Technology LTD.
Atmel Corporation Asset Acquisition and License Agreements
On April 16, 2015 (the “Effective Date”), Uni-Pixel Displays, Inc. (“Displays”) acquired from Atmel Corporation (“Atmel”), pursuant to the terms of a Purchase and Sale Agreement, a Patent License Agreement, an IP License Agreement, a Bill of Sale and Assignment and Assumption Agreement and two leases for real property, certain assets used for the production of capacitive touch sensors comprised of fine lines of copper metal photo lithographically patterned and plated on flexible plastic film (the “Touch Sensors”). $450,000 was paid for the machinery, parts and equipment needed to manufacture the Touch Sensors and the existing inventory on hand. Displays paid this amount with a secured promissory note due on or before the earlier of (i) the second anniversary of the Effective Date or (ii) the sale of equity and/or debt securities after the Effective Date pursuant to which Displays or any affiliate of our receives gross proceeds of no less than $5 million. Interest accrues on the unpaid principal amount at a rate equal to 2% per annum compounded semi-annually and is to be paid in arrears semi-annually, commencing with the six-month anniversary of the Effective Date. Displays has granted to Atmel a security interest in the purchased assets and all accounts receivable subsequently arising from Display’s manufacture and sale of Touch Sensors and all proceeds therefrom. Pursuant to the Purchase and Sale Agreement, Displays assumed certain liabilities of Atmel, including open purchase and supply orders, related to the Touch Sensor business. In April 2016, the $450,000 promissory note was fully repaid.
Through the Patent License Agreement, Atmel licensed to Displays a non-sublicensable, worldwide, royalty-bearing license under its Touch Sensors patents to make or have made, use, offer for sale, sell, and import the Touch Sensors. In consideration for this license, Displays agreed to pay an annual royalty fee during the initial five year term of the license (the “Initial Term”) of the greater of $3.25 million or 3.33% of the total net sales (as defined in the Patent License Agreement) of the Touch Sensors during the Initial Term. Displays has the right to renew the license for a term of 10 years. If Displays exercises this right, the annual royalty fee will consist of 2.5% of the total net sales of the Touch Sensors until it reaches a total of $16.75 million, at which time no further annual royalty fees will be due. Upon execution of the Patent License Agreement, Displays paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $9.33 million (the “Royalty Prepayment”). The Royalty Prepayment will be applied to the annual royalty fees Displays owes under the Patent License Agreement. If, during the Initial Term, Displays’ cash balances as of the quarter end immediately prior to the date of the royalty period to which an unpaid annual royalty relates is less than $30 million, it may pay the annual royalty fee with a secured promissory note. Atmel has agreed that it will not enter into a license agreement for the licensed patents that is effective prior to the second anniversary of the Effective Date.
Through the IP License Agreement, Atmel licensed to Displays a non-sublicensable, worldwide, royalty-free license to the intellectual property necessary to make or have made, use, offer for sale, sell, and import the Touch Sensors. The term of the IP License Agreement is co-extensive with the term of the Patent License Agreement. Atmel has agreed that it will not enter into a license agreement for the licensed intellectual property that is effective prior to the second anniversary of the Effective Date.
15 |
As part of the business combination acquisition, Displays also entered into leases with Atmel Corporation for Building 2 and Building 4, both of which are located at 1150 E. Cheyenne Mountain Boulevard, Colorado Springs, Colorado. The term of each lease is 18 months (the “Primary Lease Term”). The term of each lease may be extended for two additional six month periods. During the Primary Lease Term, the initial base rent for each of Building 2 and Building 4 will be $100 per month. During the first renewal term, the monthly base rent for Building 2 will be $5,625 and during the second renewal term the monthly base rent will be $8,437. During the first renewal term, the monthly base rent for Building 4 will be $39,375 and during the second renewal term the monthly base rent will be $59,062. Aside from the base rent, Displays is responsible for the payment of its share of operating expenses attributable to the buildings, real estate taxes attributable to the buildings, sales and personal property taxes, utilities and additional services provided by Atmel (as defined in the leases). The Company extended the lease until April 15, 2017.
Transition Services Agreement
In conjunction with the above-described transaction, Displays and Atmel entered into a Transition Services Agreement. Pursuant to the Transition Services Agreement, Atmel agreed to provide the following services for the periods described: (i) quality assurance and failure analysis services for the XTouch Touch Sensors for a period of six months starting from the Effective Date, (ii) operations services for a period of 30 days starting from the Effective Date and (iii) other services, as those are defined in the Transition Services Agreement, for a period of three months starting from the Effective Date. In exchange for the services, Displays has agreed to pay reasonable and documented direct costs incurred by Atmel in performing the services together with actual out-of-pocket third-party expenses reasonably incurred by Atmel in providing the services. The service fees include, but are not limited to, (a) the actual out-of-pocket employment costs (base salary, payroll taxes and out-of-pocket medical benefits) for the individuals performing the services (based on the actual time expended by such individuals in performing the services), (b) costs of materials, (c) the actual out-of-pocket third-party expenses reasonably incurred by Atmel in providing the services, and (d) direct supervisory and management expenses incurred by Atmel in providing the services. On the Effective Date, we paid $0.4 million to Atmel and was applied against certain designated services. The transition services have been completed.
CIT Technology Ltd. License Agreements and Manufacturing and Technology Transfer Agreement
On the Effective Date Displays entered into an FLT (Fine Line Technology) Patent License Agreement (the “CIT Patent License Agreement”), an FLT (Fine Line Technology) Intellectual Property License Agreement (the “CIT IP License Agreement”) and a Manufacturing and Technology Transfer Agreement (the “Manufacturing Agreement”) with CIT Technology Ltd. (“CIT”).
Through the CIT Patent License Agreement, CIT licensed to Displays a non-sublicensable, worldwide, royalty-bearing license under its fine line technology (“FLT”) patents to make or have made, use, offer for sale, sell, and import licensed FLT products (the “Licensed Products”), which are defined as capacitive touch sensors comprising fine lines of copper metal printed on flexible plastic film. In consideration for this license, Displays agreed to pay an annual royalty fee during the initial five year term of the license (the “Initial License Term”) of the greater of $1.65 million or 1.67% of the total net sales (as defined in the CIT Patent License Agreement) of the Licensed Products during the Initial License Term. Displays has the right to renew the license for a term of 10 years. If Displays exercises this right, the annual royalty fee will consist of 1.67% of the total net sales of the Licensed Products until it reaches a total of $8.25 million, at which time no further annual royalty fees will be due. Further, the total royalty fees payable for the initial 5 year term and the subsequent 10 year term is capped at $30 million. Upon execution of the CIT Patent License Agreement, Displays paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $4.67 million (the “CIT Royalty Prepayment”). The CIT Royalty Prepayment will be applied to the annual royalty fees Displays owes under the CIT Patent License Agreement. If, during the Initial License Term, Displays’ cash balances as of the quarter end immediately prior to the date of the royalty period to which an unpaid annual royalty relates is less than $30 million, Displays may pay the annual royalty fee with a secured promissory note. CIT has agreed that it will not enter into a license agreement for the licensed patents as they relate to the Licensed Products that is effective prior to the second anniversary of the Effective Date.
Through the CIT IP License Agreement, CIT licensed to Displays a non-sublicensable, worldwide, royalty-free license to the intellectual property necessary to make or have made, use, offer for sale, sell, and import the Licensed Products. The term of the CIT IP License Agreement is co-extensive with the term of the CIT Patent License Agreement. CIT has agreed that it will not enter into a license agreement for the licensed intellectual property as it relates to the Licensed Products that is effective prior to the second anniversary of the Effective Date.
The Manufacturing Agreement had a term of six months, where Displays agreed that for a period of 16 consecutive weeks it will order, on a weekly basis, 11,500 linear meters of coated film manufactured by CIT at a cost of $7.90 per linear meter. The agreement had been completed and the process was transferred to the Colorado Springs facility in fiscal year 2015.
16 |
The following unaudited pro-forma financial information presents the Company’s condensed financial results (in thousands) for the nine months ended September 30, 2015 as if the acquisitions had occurred as of January 1, 2015:
Nine
Months | ||||
Revenue | $ | 4,238 | ||
Net loss continuing operations | (27,615 | ) | ||
Net loss discontinued operations | (8,701 | ) | ||
Net loss | $ | (36,316 | ) | |
Basic and diluted continuing operations | $ | (1.97 | ) | |
Basic and diluted net loss | $ | (2.62 | ) |
These pro-forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that actually would have resulted had the acquisitions been effective at the beginning of 2015 and are not necessarily representative of future results. The pro-forma results include the following adjustments:
● | Revenue of $1,371,000 from XSense for the quarter ended March 31, 2015; and | |
● | Cost of sales of approximately $2,467,000 for the quarter ended March 31, 2015; and | |
● | Approximately $826,000 of other expense for the quarter ended March 31, 2015 for financing the XSense acquisition. |
Note 8 — Loss on Discontinued Operations
On April 22, 2015 Displays exercised its right to terminate the Manufacturing Facility Installation and Supply Agreement dated April 15, 2013 (the “Supply Agreement”), which was entered into by Displays and Eastman Kodak Company (“Kodak”).
Displays did not renew that certain Joint Development Agreement dated February 5, 2013, also with Kodak, which was related to flexible patterned conductive films.
In connection with the discontinued operations, the Company took a $7.6 million write down on equipment in the second quarter of 2015.
Note 9 — Fair Value Measurements
Liabilities measured at fair value (in thousands) on a recurring basis are summarized as follows:
Carrying | ||||||||||||||||
Fair Value Measurements Using Inputs | Amount at | |||||||||||||||
Financial Instruments | Level 1 | Level 2 | Level 3 | September 30, 2016 | ||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability | $ | - | $ | 1,369 | $ | - | $ | 1,369 | ||||||||
Total | $ | - | $ | 1,369 | $ | - | $ | 1,369 |
As described further in Note 6, the derivative liability is related to warrants to purchase 1,189,492 shares of common stock issued by the Company in connection with our Convertible Note, which included a down-round protection on the warrants. These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The fair value of these warrants were $6.0 million at inception. The Company recognized $0.9 million of other expense for the nine months ended September 30, 2016 in the accompanying consolidated statements of operations, resulting from the increase in the fair value of the derivative liability at September 30, 2016 as compared to December 31, 2015. The derivative liability will continue to be measured at fair value, with changes in fair value recognized in earnings, until the warrants are exercised, expire or are otherwise extinguished.
Note 10 — Revenue and Credit Concentrations
During the nine months ended September 30, 2016 and 2015, revenues (in thousands) by customers with more than 10% of revenue were as follows:
Nine
months ended September 30, 2016 | Nine
months ended September 30, 2015 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Company A | $ | 1,284 | 47 | % | $ | 1,839 | 64 | % | ||||||||
Company B | 704 | 26 | % | 930 | 32 | % | ||||||||||
Company C | 626 | 23 | % | — | — | % | ||||||||||
Total | $ | 2,614 | 96 | % | $ | 2,769 | 96 | % |
17 |
As of September 30, 2016 and December 31, 2015 customers with more than 10% of accounts receivables balances (in thousands) were as follows:
As of September 30, 2016 | As of December 31, 2015 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Company A | $ | 139 | 18 | % | $ | 133 | 40 | % | ||||||||
Company B | 76 | 10 | % | 164 | 49 | % | ||||||||||
Company C | 530 | 69 | % | — | — | % | ||||||||||
Total | $ | 745 | 97 | % | $ | 297 | 89 | % |
Note 11 — Subsequent Event
On October 24, 2016, the Company entered into a $2.5 million two year loan and security agreement with Western Alliance Bank. The agreement allows the Company to borrow up to 90% of its gross eligible trade receivables at an interest rate of prime plus 1.25%. The line is secured by all the assets of the Company, including intellectual property.
18 |
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 possibility that we will be unable to successfully combine the XTouch business and operations with our business and operations, the development of technologies superior to our technologies, the loss of key customers of the XTouch products, our inability to achieve cost savings following the acquisition of the XTouch business, the imposition of unanticipated liabilities as a result of the acquisition of the XTouch business, 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.
Recent Acquisition, Financing and Change in Business Strategy
On April 16, 2015 we acquired certain assets and licenses related to the manufacture of XTouch touch sensors from Atmel Corporation and CIT Technology Ltd. and we closed a private offering consisting of $15 million in principal amount of our Senior Secured Convertible Promissory Notes (the “Notes”) together with warrants. A more complete discussion of these transactions is included in Note 7 to our financial statements, which are included at Item 1 of Part I of this report, and in the Current Report on Form 8-K that we filed with the Securities and Exchange Commission on April 17, 2015.
On April 22, 2015 we terminated the Manufacturing Facility Installation and Supply Agreement dated April 15, 2013 which was entered into by our wholly owned subsidiary, Uni-Pixel Displays, Inc., and Eastman Kodak Company. A more complete discussion of this matter is included in Note 8 to our financial statements, which are included at Item 1 of Part I of this report, and in the Current Report on Form 8-K that we filed with the Securities and Exchange Commission on April 27, 2015.
Our decision to change the focus of our business from developing and manufacturing InTouch sensors to manufacturing and selling XTouch touch sensors was based on, among other things, the pressure of declining prices and margin compression in the touch sensor market. We believe that our acquistion of the XTouch technology will provide us with a stand-alone, go-to-market strategy that we expect to provide a better economic model and lead to a scalable business in a more rapid time frame.
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.
19 |
There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2016, 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 2015 Form 10-K.
Derivative liabilities: The Company, in accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholder’s equity and warrants are accounted for as liabilities at their fair value during periods where the full ratchet anti-dilution provision is in effect.
The warrants are accounted for a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings. To derive an estimate of the fair value of these warrants, a binomial model is utilized that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.
Revenue Recognition: The Company sells its products to original equipment manufacturers (“OEMs”) and distributors and recognizes revenue when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Allowances for sales returns and other credits are recorded at the time of sale.
Contracts and customer purchase orders are used to determine the existence of an arrangement. Shipping documents are used to verify delivery. The Company assesses whether the price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history. Sales terms do not include post-shipment obligations except for product warranty.
Advance payments are deferred until shipment of product has occurred or the service has been rendered.
Revenue from licenses and other up-front fees are recognized on a ratable basis over the term of the respective agreement.
Revenue on certain fixed price contracts where we provide research and development services is recognized over the contract term based on achievement of milestones. When the contracts provide for milestone or other interim payments, the Company will recognize revenue under the milestone method. The milestone method requires the Company to designate all milestone payments within each contract as either substantive or non-substantive. That conclusion is determined based upon a thorough review of each contract and the deliverables to be made by the Company pursuant to each contract. For substantive milestones, the Company concludes that upon achievement of each milestone, the amount of the corresponding defined payments is commensurate with the effort required to achieve such milestone or the value of the delivered item. The payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of the deliverables and the payment terms within the contract. For non-substantive milestones, including advance payments, the recognition of such payments is pro-rated to the substantive milestones.
In April 2013, we entered into an agreement with Intel (the “Capacity License Agreement”), whereby we were to receive $10 million of cash proceeds to assist us in increasing our production capacity. Under the terms of the Capacity License Agreement, there were two milestones with related contingent consideration of $5 million for each milestone plus certain commissions as described below. The Capacity License Agreement required us to purchase certain equipment, which we purchased in 2013 and which we considered not a substantive milestone. The Capacity License Agreement required us to have the capability to produce at least 1 million sensor units per month (as defined in the Capacity License Agreement) by April 2014, which we considered a substantive milestone. We received $5 million in May 2013, which was non-refundable. Upon achieving the deliverables of the Capacity License Agreement, we would have paid a commission to Intel of 10% on revenue derived from the sales of InTouch™ Sensors made directly to Intel or to those of Intel’s manufacturing partners that use Intel’s Preferred Price and Capacity License Agreement (“Designated Customers”). The commission amount was to be paid until the aggregate commissions paid equaled the commission cap of $18.5 million. The term of the Capacity License Agreement is the later of 3 years or the full payment of the commission cap. If the Company committed a material breach of the license agreement, certain equipment of the Company with an original cost of approximately $10.1 million would be assigned to Intel to make Intel whole on any remaining amounts due under the commission cap of $18.5 million.
In April 2014, we entered into the Amended Capacity License Agreement with Intel (the “Amended Capacity License Agreement”). The Amended Capacity License Agreement modified the original Capacity License Agreement terms as follows: 1) the inability of the Company to reach, by April 2014, the minimum production capability and the required quality standards specified in the Capacity License Agreement will no longer constitute a material breach to the Capacity License Agreement; 2) the total amount of cash proceeds to be received was reduced from $10 million to $5 million, which included the $5 million we received in May 2013; 3) the cap on the commission amount was reduced from $18.5 million to $6.25 million; 4) the term “commission” is defined as 10% of gross revenue from the sale of all sensors sold by the Company, which includes sales of sensors to all customers including, but not limited to, Intel and its Designated Customers; 5) if the Company becomes the subject of any proceeding under any bankruptcy, insolvency or liquidation law, the Company will assign all title and ownership to certain designated equipment (the “Equipment”) to Intel; and 6) if the Company materially breaches the Amended Capacity License Agreement, which breach is not cured within 30 days after receipt of notice from Intel, the Company may choose to either (A) pre-pay the cap on the commission to Intel (less the total of all previously paid commissions) or (B) assign all title and ownership to the Equipment to Intel.
20 |
As the Company has discontinued its joint development activities with Kodak to develop, manufacture and market touch sensors based on the InTouch technology (Note 8), the Company is currently in discussions with Intel regarding the Capacity License Agreement.
Cost of Revenues, Selling, General and Administrative Expenses and Research and Development Expenses: The primary purpose of our facilities in Colorado Spring, Colorado and The Woodlands, Texas is for manufacturing, 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 facilities in Colorado Springs, Colorado and 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 on the estimated fair value of those awards at grant-date. The fair values of stock option awards are estimated using a Black-Scholes valuation model. The compensation costs are recognized net of any estimated forfeitures on a straight-line basis over either the employee’s requisite service period, or other such vesting requirements as are stipulated in the stock option award agreements. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Forfeiture rates are estimated at grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates.
Recent Accounting Pronouncements
See Note 2 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.
RESULTS OF OPERATIONS
Comparison of the nine months ending September 30, 2016 and 2015
REVENUES. Revenues were $2.7 million for the nine months ended September 30, 2016 as compared to $2.9 million for the nine months ended September 30, 2015. Revenues for the nine months ended September 30, 2016 and 2015 were mainly comprised of sales of XTouch sensors.
COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery of services and costs of manufacturing including internal labor costs and materials. Cost of revenues was $11.4 million for the nine months ended September 30, 2016 and $8.1 million for the nine months ended September 30, 2015. We recorded cost of revenue expenses for the full nine months in 2016 compared to only six months in 2015 as we did not begin to ship products until the second quarter of 2015.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by 33% or approximately $2.8 million, to $5.6 million for the nine months ended September 30, 2016 from $8.4 million for the nine months ended September 30, 2015. The major changes to selling, general and administrative expenses are as follows:
a) Salaries and benefits decreased by approximately $0.2 million to $2.6 million for the nine months ended September 30, 2016 compared to $2.8 million for the nine months ended September 30, 2015 due to the following: a decrease in severance to approximately $8,000 for the nine months ended September 30, 2016 compared to $0.1 million for the nine months ended September 30, 2015; a decrease in stock compensation expense to $0.2 million for the nine months ended September 30, 2016 compared to $0.5 million for the nine months ended September 30, 2015; and an increase in restricted stock expense to $1.0 million for the nine months ended September 30, 2016 compared to $0.8 million for the nine months ended September 30, 2015;
b) Legal expense decreased by approximately $0.1 million to $0.9 million for the nine months ended September 30, 2016 compared to $1.0 million for the nine months ended September 30, 2015;
c) Contractor expense increased by approximately $0.1 million to $0.2 million for the nine months ended September 30, 2016 compared to $0.1 million for the nine months ended September 30, 2015;
21 |
d) Travel and office expense increased by approximately $0.3 million to $0.6 million for the nine months ended September 30, 2016 compared to $0.3 million for the nine months ended September 30, 2015 primarily due to increased travel visiting potential customers;
e) Depreciation and amortization expense decreased by approximately $3.0 million to $0.2 million for the nine months ended September 30, 2016 compared to $3.2 million for the nine months ended September 30, 2015.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $0.6 million, or 11%, during the nine months ended September 30, 2016 to $5.1 million from $5.7 million for the nine months ended September 30, 2015. The major changes to research and development expenses are as follows:
a) Salaries and benefits attributable to research and development decreased by approximately $1.3 million to $1.6 million for the nine months ended September 30, 2016 compared to $2.9 million for the nine months ended September 30, 2015 primarily due to the following: a decrease in salaries to $1.2 million for the nine months ended September 30, 2016 compared to $1.5 million for the nine months ended September 30, 2015; a decrease in severance to $0 for the nine months ended September 30, 2016 compared to $0.1 million for the nine months ended September 30, 2015; a decrease in stock compensation expense to $0.2 million for the nine months ended September 30, 2016 compared to $0.8 million for the nine months ended September 30, 2015; and a decrease in restricted stock expense to approximately $15,000 for the nine months ended September 30, 2016 compared to $0.2 million for the nine months ended September 30, 2015;
b) License amortization expense attributable to research and development increased by approximately $0.5 million to $0.5 million for the nine months ended September 30, 2016 compared to $0 for the nine months ended September 30, 2015 related to the patents acquired from Atmel Corporation;
c) Mask expense increased by approximately $0.6 million to $0.6 million for the nine months ended September 30, 2016 compared to $0 for the nine months ended September 30, 2015 related to the new product introduction programs;
c) Research and development manufacturing labor expense increased by approximately $0.4 million to $0.4 million for the nine months ended September 30, 2016 compared to $0 for the nine months ended September 30, 2015;
d) Lab and material expense decreased by approximately $0.9 million to $1.0 million for the nine months ended September 30, 2016 compared to $1.9 million for the nine months ended September 30, 2015;
b) Consulting expense attributable to research and development increased by approximately $0.2 million to $0.4 million for the nine months ended September 30, 2016 compared to $0.2 million for the nine months ended September 30, 2015; and
d) Travel expense decreased by approximately $0.1 million to $0.2 million for the nine months ended September 30, 2016 compared to $0.3 million for the nine months ended September 30, 2015 primarily due to offsite management of research and development activities.
OTHER INCOME (EXPENSE), NET.
Debt issuance expense decreased from $0.8 million for the nine months ended September 30, 2015 to $0.5 for the nine months ended September 30, 2016, primarily due to the offering of the Notes completed in April 2015 and the decreased balance of debt outstanding.
Gain or loss on change in warrant liability decreased from a $5.0 million gain for the nine months ended September 30, 2015 to approximately $0.9 million loss for the nine months ended September 30, 2016, due to the offering of the Notes completed in April 2015 and the decrease in stock price in 2015 and increase in stock price in 2016.
Accretion on convertible notes expense decreased from $7.2 million for the nine months ended September 30, 2015 to approximately $1.3 million for the nine months ended September 30, 2016 due to the offering of the Notes completed in April 2015.
Interest expense, net, decreased to approximately $12,000 for the nine months ended September 30, 2016 as compared to expense of $0.4 million for the nine months ended September 30, 2015, primarily due to the interest expense associated with the offering of the Notes completed in April 2015.
NET LOSS. Net loss from continuing operations was $22.1 million for the nine months ended September 30, 2016, as compared to a net loss from continuing operations of $22.7 million for the nine months ended September 30, 2015. Loss on discontinued operations was $0 for the nine months ended September 30, 2016, as compared to a loss on discontinued operations of $8.7 million for the nine months ended September 30, 2015. Net loss was $22.1 million for the nine months ended September 30, 2016, as compared to a net loss of $31.5 million for the nine months ended September 30, 2015.
22 |
Comparison of the three months ending September 30, 2016 and 2015
REVENUES. Revenues were $0.9 million for the three months ended September 30, 2016 as compared to $1.5 million for the three months ended September 30, 2015. Revenues for the three months ended September 30, 2016 and 2015 were mainly comprised of sales of XTouch sensors.
COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery of services and costs of manufacturing including internal labor costs and materials. Cost of revenues were $3.2 million for the three months ended September 30, 2016 and $4.7 million for the three months ended September 30, 2015. The major changes to cost of revenues are as follows:
a) Materials and chemicals decreased by approximately $0.5 million to $0.6 million for the three months ended September 30, 2016 compared to $1.1 million for the three months ended September 30, 2015;
b) Warranty expense decreased by approximately $0.4 million to approximately $48,000 for the three months ended September 30, 2016 compared to $0.4 million for the three months ended September 30, 2015;
c) Facility expense decreased by approximately $0.2 million to $0.3 million for the three months September 30, 2016 compared to $0.5 million for the three months ended September 30, 2015;
d) Depreciation and amortization expense decreased by approximately $0.3 million to $0.9 million for the three months ended September 30, 2016 compared to $1.2 million for the three months ended September 30, 2015;
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 12% or approximately $0.2 million, to $1.9 million for the three months ended September 30, 2016 from $1.7 million for the three months ended September 30, 2015. The major changes to selling, general and administrative expenses are as follows:
a) Legal expense increased by approximately $0.2 million to $0.3 million for the three months ended September 30, 2016 compared to approximately $0.1 million for the three months ended September 30, 2015;
b) Travel expense expense increased by approximately $64,000 to approximately $128,000 for the three months ended September 30, 2016 compared to approximately $64,000 for the three months ended September 30, 2015 primarily due to increased travel visiting existing and potential customers;
c) Depreciation and amortization expense decreased by approximately $41,000 to approximately $55,000 for the three months ended September 30, 2016 compared to $0.1 million for the three months ended September 30, 2015.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $1.6 million, or 107%, during the three months ended September 30, 2016 to $3.1 million from $1.5 million for the three months ended September 30, 2015. The major changes to research and development expenses are as follows:
a) Salaries and benefits attributable to research and development decreased by approximately $0.2 million to $0.6 million for the three months ended September 30, 2016 compared to $0.8 million for the three months ended September 30, 2015 primarily due to the following: a decreased in stock compensation expense to approximately $43,000 for the three months ended September 30, 2016 compared to $0.2 million for the three months ended September 30, 2015;
b) Lab expense increased by approximately $0.2 million to $0.5 million for the three months ended September 30, 2016 compared to $0.3 million for the three months ended September 30, 2015;
c) Research and development manufacturing labor expense increased by approximately $0.4 million to $0.4 million for the three months ended September 30, 2016 compared to $0 for the three months ended September 30, 2015;
d) License amortization expense increased by approximately $0.5 million to $0.5 million for the three months ended September 30, 2016 compared to $0 for the three months ended September 30, 2015; and
e) Mask expense increased by approximately $0.6 to $0.6 million for the three months ended September 30, 2016 compared to $0 for the three months ended September 30, 2015.
OTHER INCOME (EXPENSE), NET.
Debt issuance expense decreased to $0 for the three months ended September 30, 2015 compared to $0.5 for the three months ended September 30, 2015 due to the offering of Notes completed in April 2015.
Gain or loss on change in warrant liability decreased from a gain of $1.1 for the three months ended September 30, 2015 to a loss of approximately $0.2 million for the three months ended September 30, 2016, primarily due to the offering of the Notes completed in April 2015 and the decrease in stock price in 2015 and increase in stock price in 2016.
23 |
Accretion on convertible notes expense decreased from $4.0 for the three months ended September 30, 2015 to approximately $0 for the three months ended September 30, 2016 due to the offering of the Notes completed in April 2015 being fully repaid during 2016.
Interest expense, net, decreased to an expense of approximately $3,000 for the three months ended September 30, 2016 as compared from an expense of $0.2 million for the three months ended September 30, 2015, primarily due to the decreased interest expense associated with the offering of Notes completed in April 2015.
NET LOSS. Net loss was $7.6 million for the three months ended September 30, 2016, as compared to a net loss from continuing operations of $10.0 million for the three months ended September 30, 2015.
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, including through further offerings of our debt and equity securities. On April 16, 2015, we sold $15 million in principal amount of our Senior Secured Convertible Promissory Notes. As of September 30, 2016 the Notes have been fully repaid. On November 30, 2015, we sold 9,625,871 shares for net proceeds of approximately $7.2 million. On June 2, 2016, we sold 6,152,500 shares for net proceeds of approximately $8.4 million. In addition, we received cash proceeds of $2.4 million in connection with warrant exercises in the first half of 2016, and as we have approximately 9.5 million warrants outstanding, it is possible that additional cash proceeds could be received as a result of the exercise of such warrants. We expect the proceeds from the sale of our common stock, together with our cash on hand, to support our operations through December 31, 2016. Furthermore, as noted above in Note 11 – Subsequent Events to our financial statements on October 24, 2016, we entered into a two year $2.5 million loan and security agreement with Western Alliance Bank where we can borrow up to 90% of eligible accounts receivable at an interest rate of prime plus 1.25%. Based on the proceeds raised from the sale of our common stock, potential borrowing on our loan agreement, possible warrant exercises and our cash on hand, we expect to support our operations over the next 12 months.
Operating Activities
Cash used in operating activities during the nine months ended September 30, 2016 was $12.9 million as compared to cash used in operating activities during the nine months ended September 30, 2015 of $13.7 million. Cash used in operating activities are primarily due to net loss in operations.
Investing Activities
Cash used for investing activities during the nine months ended September 30, 2016 was $0.3 million as compared to $14.6 million of cash used for the nine months ended September 30, 2015. The use of cash for investing activities during the nine months ended September 30, 2016 was related to purchases of equipment. The use of cash for investing activities during the nine months ended September 30, 2015 was primarily attributable to the purchase of prepaid licenses.
Investing 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. However, in 2015 the Company began recording revenue from shipments and expects this to continue in the future.
The total net cash provided by financing activities was $12.0 million for the nine months ended September 30, 2016, which was comprised of proceeds from issuance of common stock of $8.4 million, $2.4 million from the exercise of warrants, $4.1 million of release of restricted cash offset by $2.9 million of payments on notes payable.
The total net cash provided by financing activities was $6.8 million for the nine months ended September 30, 2015, which was comprised of increase of $6.0 million in cash restricted for note payable, $0.1 million of net proceeds from the exercise of stock options and $13.2 million in net proceeds from the issuance of a convertible note, less debt issuance costs offset by $0.5 million of payments on notes payable.
24 |
Working Capital
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. In the second quarter of 2016, we received $2.4 million from exercise of warrants. On June 2, 2016, we sold 6,152,500 shares for net proceeds of approximately $8.4 million. We expect the proceeds from the exercise of warrants, proceeds from our sale of shares and our revenue shipments, together with our cash on hand, and potential borrowings under our loan agreement to support our operations over the next 12 months.
As of September 30, 2016, we had a cash balance of approximately $6.5 million and working capital of $8.5 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of September 30, 2016, management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting 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, 2016, 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.
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.
25 |
Securities and Exchange Commission Complaint against former Officers of the Company
On November 19, 2013, the Company learned that the Fort Worth Regional Office of the United States Securities and Exchange Commission (“SEC”) issued subpoenas concerning the Company’s agreements related to our InTouch™ Sensors. The Company cooperated fully with the SEC regarding this non-public, fact-finding inquiry, which resulted in a complaint filed by the SEC on March 9, 2016 naming the Company and two of the Company’s former executive officers as defendants. The U.S. District Court for the Southern District of Texas on March 16, 2016 signed a final judgment, providing for, among other things, a civil penalty in the amount of $750,000 on this complaint pursuant to our consent (the “Final Judgment”), which the Company gave without admitting or denying the allegations of the SEC’s complaint.
The allegations of the SEC in this complaint against the two former executive officers, Reed Killion and Jeffrey Tomz, who were respectively the Chief Executive Officer and Chief Financial Officer of the Company during the relevant periods of time at issue in the SEC’s complaint, include that they made more than $2 million in personal profits from selling their own shares of the Company’s common stock following disclosures regarding the Company’s agreement related to our InTouch™ Sensors. The Company’s Amended and Restated Bylaws contain provisions regarding indemnification and advancement of expenses actually and reasonably incurred by the Company’s officers in connection with civil, criminal, administrative or investigative matters provided that such officers acted in good faith and in a manner such officers reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reason or cause to believe such officer’s conduct was unlawful. The advancement of expenses is expressly conditioned upon receipt of an undertaking by the officer to repay all such amounts so advanced in the event that it shall ultimately be determined that the officer is not entitled to be indemnified by the Company.
Complaint by former Officers of the Company for Advancement of Expenses
The Company, or its insurance company, has paid as agreed all invoices for all years through the end of 2015 for the defense of Messrs. Killion and Tomz in the investigation by the SEC that resulted in the filing of the complaint against them by the SEC. A portion of payments for 2016 invoices have has also been made, but the Company has disputed other 2016 invoices totaling approximately $265,000 as containing expenses that have not been reasonably incurred by Messrs. Killion and Tomz in defense of the SEC’s complaint. Through the course of 2016, the Company has been in discussions with counsel to Messrs. Killion and Tomz of resolving counsels’ charges on these invoices. Notwithstanding those discussions, on August 22, 2016, Messrs. Killion and Tomz filed an action against the Company for advancement of expenses in the Delaware Chancery Court. The Company has contested the claims made by Messrs. Killion and Tomz that it has not advanced expenses reasonably incurred by them in the underlying action brought by the SEC. In October 2016, the Chancery Court appointed a former Vice Chancellor of the Delaware Chancery Court to act as a Special Master to determine whether expenses are reasonably incurred to the extent that the Company and Messrs. Killion and Tomz are not capable to resolve the dispute concerning whether expenses have been reasonably incurred without the assistance of the judicial process.
Intel Corporation
The Company’s Capacity License Agreement with Intel, as amended by the Amended Capacity License Agreement, provided for a payment of a commission to Intel of ten percent of gross revenue from the sale InTouch™ Sensors jointly developed by the Company and Kodak. In March 2016, Intel requested that the Company refund over time the $5 million paid to the Company in May 2013 pursuant to the terms of the Capacity License Agreement. The Company declined to refund the money as the payment was not refundable under the Amended Capacity License Agreement or otherwise due to Intel. The agreement with Intel pertained to a technology that the Company abandoned when it terminated its joint development agreement with Kodak in 2015. Intel requested that the refund be accomplished by the Company paying Intel commissions on XTouch sensor revenue until the $5 million was refunded. The Company responded that no commissions are owed under the Amended Capacity License Agreement because it is not selling the abandoned InTouch™ Sensors or otherwise using the technology covered by the Amended Capacity License Agreement in its current products. The only products the Company has recognized revenue on are based on the XTouch sensor technology acquired from Atmel Corporation and CIT Technology Ltd. in April 2015. No litigation or other legal proceeding has commenced on Intel’s request. The Company is engaged in discussions with Intel regarding formulation of a mutually agreeable commercial relationship. While it is not possible to predict the outcome of these discussions with certainty at the present time, if the Company is unable to reach an acceptable commercial relationship, it intends to vigorously contest any claim that Intel might make.
We incorporate herein by reference the risk factors included in the 2015 Form 10-K, which we filed with the Securities and Exchange Commission on March 30, 2016. The following are risks set forth in our Annual Report on Form 10-K which are reiterated and updated below as well as certain new risks related to our business.
26 |
Expansion into new markets may increase the complexity of our business, cause us to increase our research and development expenses to develop new products and technologies or cause our capital expenditures to increase, and if we are unable to successfully adapt our business processes and product offerings as required by these new markets, our ability to grow will be adversely affected.
As we expand our product lines to sell into new markets, such as automotive, the overall complexity of our business may increase at an accelerated rate and we may become subject to different market dynamics. These dynamics may include, among other things, different demand volume, seasonality, product requirements, sales channels, and warranty and return policies. In addition, expansion into other markets may result in increases in research and development expenses and substantial investments in manufacturing capability or technology enhancements. If we fail to successfully expand into new markets with products that we do not currently offer, we may lose business to our competitors or new entrants who offer these products.
If we fail to develop and introduce new or enhanced solutions on a timely basis, our ability to attract and retain customers could be impaired, and our revenues and competitive position may be harmed.
The markets for our products are characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards, all with an underlying pressure to reduce cost and meet stringent reliability and qualification requirements. In order to compete effectively, we must continually introduce new products or enhance existing products and accurately anticipate customer requirements for new and upgraded products. The introduction of new products by our competitors, the market acceptance of solutions based on new or alternative technologies, or the emergence of new industry standards could render our existing or future solutions obsolete. Our failure to anticipate or timely develop new or enhanced solutions or technologies in response to technological shifts or changes in customer requirements could result in decreased revenues and an increase in design wins by our competitors.
New product development or the enhancement of existing products is subject to a number of risks and uncertainties. We may experience difficulties with solution design, manufacturing or otherwise that could delay or prevent the introduction of new or enhanced solutions. Alternatively, even if technical engineering hurdles can be overcome, we must successfully anticipate customer requirements regarding features and performance, the new or enhanced products must be competitively priced, and they must become available during the window of time when customers are ready to purchase our solutions.
Even after new or enhanced products are developed, we must be able to successfully bring them to market. The success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, our ability to manage the risks associated with new product production ramp-up issues, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects in the early stages of introduction. Ramping of production capacity also entails risks of delays which can limit our ability to realize the full benefit of new product introduction. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely basis. Accordingly, we cannot determine in advance the ultimate effect of new product introductions and transitions, and any failure to manage new product introduction risks could adversely affect our revenues and therefore our business.
We are a company with a limited operating history, our future profitability is uncertain and we anticipate future losses and negative cash flow, which may limit or delay our ability to become profitable.
We are a company with a limited operating history and little revenues to date. We may never be able to produce material revenues or operate on a profitable basis. As a result, we have incurred losses since our inception and expect to experience operating losses and negative cash flow for the foreseeable future. As of September 30, 2016, we had an accumulated total deficit of $171.3 million.
We anticipate our losses will continue to increase from current levels because we expect to incur additional costs and expenses related to prototype development, consulting costs, laboratory development costs, marketing and other promotional activities, the addition of engineering and manufacturing personnel, and the continued development of relationships with strategic business partners. Moreover, planned products based upon our Performance Engineered Film™ technology may never become commercially viable and thus may never generate any revenues. Even if we find commercially viable applications for our Performance Engineered Film™ technology and materials, we may never recover our research and development expenses.
We have had a history of losses and may require additional capital to fund our operations, which capital may not be available on commercially attractive terms or at all.
We have experienced substantial net losses in each fiscal period since our inception. These net losses resulted from a lack of substantial revenues and the significant costs incurred in the development and acceptance of our technology. We may in the future require sources of capital in addition to cash on hand to continue operations and to implement our business plan. We project that we have sufficient liquid assets to continue operating for at least the next twelve months. However, if our operations do not become cash flow positive, we may be forced to seek credit line facilities from financial institutions, equity investments, or debt arrangements. No assurances can be given that we will be successful in obtaining such additional financing on reasonable terms, or at all. If adequate funds are not available when needed on acceptable terms, or at all, we may be unable to adequately fund our business plan, which could have a negative effect on our business, results of operations, and financial condition.
27 |
Restrictive covenants under our credit facility with Western Alliance Bank may adversely affect our operations.
If we utilize our loan and security agreement with Western Alliance Bank, it contains a number of restrictive covenants that will impose significant operating and financial restrictions on our ability to, without prior written consent from Western Alliance Bank:
● | Convey, sell, lease, transfer or otherwise dispose of or permit any of the Company or its subsidiaries to transfer, all or any part of any of their business or property, other than: (i) transfers of inventory in the ordinary course of business; (ii) transfers of non-exclusive licenses and similar arrangements for the use of the property of the Company or its subsidiaries in the ordinary course of business; or (iii) transfers of worn-out or obsolete equipment which was not financed by Western Alliance Bank; | |
● | Merge or consolidate, or permit any of the Company or its subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of their subsidiaries to acquire, all or substantially all of the capital stock or property of another person or suffer or permit a change in control; | |
● | Create, incur, assume or be or remain liable with respect to any indebtedness, or permit any of their subsidiaries so to do, other than indebtedness permitted under the loan and security agreement with Western Alliance Bank; | |
● | Create, incur, assume or suffer to exist any lien with respect to any of the property of either of them (including without limitation, their intellectual property), other than liens permitted under the loan and security agreement with Western Alliance Bank; | |
● | Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of their subsidiaries to do so other than as permitted under the loan and security agreement with Western Alliance Bank; | |
● | Directly or indirectly acquire or own, or make any investment in or to any person, or permit any of their subsidiaries so to do, other than investments permitted under the loan and security agreement with Western Alliance Bank; | |
● | Make or contract to make, without Western Alliance Bank’s prior written consent, capital expenditures (including leasehold improvements) or incur liability for rentals of property (including both real and personal property) in an aggregate amount in any fiscal year in excess of $500,000; and | |
● | Make any material changes to the Company’s organizational structure or identity. |
We have a significant number of outstanding warrants and options, and future sales of the underlying shares of common stock could adversely affect the market price of our common stock.
As of September 30, 2016, we had outstanding warrants and options exercisable for an aggregate of 11,675,251 shares of common stock at a weighted average exercise price of $2.31 per share. Upon exercise of these warrants or options, we would issue additional shares of our stock. As a result, our current stockholders as a group would own a substantially smaller interest in us and may have less influence on our management and policies than they now have. Furthermore, the holders may sell these shares in the public markets from time to time, without limitations on the timing, amount or method of sale. As our stock price rises, the holders may exercise more of their warrants and options and sell a large number of shares. This could cause the market price of our common stock to decline.
In addition, warrants covering 9,625,871 shares which were issued in November 2015 have an exercise price of $1.50 per share and have a term of five years from the date of issuance. In the second quarter of 2016, 1,595,000 warrants were exercised and as of September 30, 2016, 8,030,871 of such warrants are still outstanding. The exercise price of the warrants and the number of shares for which the warrants are exercisable are subject to certain adjustments if we issue or sell additional shares of common stock or common stock equivalents at a price per share less than the exercise price then in effect, or without consideration. Notwithstanding the foregoing, there will be no adjustment to the exercise price of these warrants or number of warrant shares issuable upon exercise in connection with the issuance of common stock upon Board of Director-approved employee benefit plans or upon the conversion, exercise or payment of certain outstanding, excluded securities.
We may be required to raise additional financing by issuing new securities with terms or rights superior to those of our existing stockholders, which could adversely affect the market price of our shares of common stock and our business.
We may require additional financing to fund future operations, including expansion in current and new markets, development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current stockholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us which could have a materially adverse effect on our business.
28 |
The market price of our common stock has been volatile, and the value of stockholders’ investments could decline significantly.
The trading price for our common stock has been, and may continue to be, volatile. The price at which our common stock trades depends upon a number of factors, many of which are beyond our control. These factors include our historical and anticipated operating results, our financial situation, announcements of technological innovations or new products by us or our competitors, customer and vendor relationships, our ability or inability to raise the additional capital we may need and the terms on which we raise it, changes in earnings estimates by analysts and general market and economic conditions. Further, broad market fluctuations may lower the market price of our common stock and affect our trading volume.
We may not be able to successfully integrate the production of the XTouch Touch Sensors into our ongoing business operations, which may result in our inability to fully realize the intended benefits of the asset acquisition and license transactions, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations.
We are in the process of integrating the production of the XTouch Touch Sensors into our business, and this process may absorb significant management attention, produce unforeseen operating difficulties and expenditures and may not produce the favorable business and market opportunities the asset acquisition and license transactions were intended to provide. If we fail to successfully integrate the XTouch business into our business, our business, financial position and results of operations could be materially adversely affected.
Provisions in our Amended and Restated Bylaws provide for indemnification of officers and directors in certain circumstances, which could require us to direct funds away from our business.
Our Amended and Restated Bylaws contain provisions regarding indemnification and advancement of expenses actually and reasonably incurred by any person who is or was a party to a threatened, pending, or completed civil, criminal, administrative or investigative matter by reason of the fact that such person is or was a director, officer, employee, or agent of the Company, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reason or cause to believe his or her conduct was unlawful. The advancement of expenses is expressly conditioned upon receipt of an undertaking by the director, officer, employee, or agent to repay all such amounts so advanced in the event that it shall ultimately be determined that he or she is not entitled to be indemnified by the Company. Funds so advanced or paid in fulfillment of our indemnification obligations (including satisfaction of defense costs, judgments, fines and expenses) may be funds we need for the operation and growth of our business.
Exhibit No. | Description of Document | |
10.1 | Loan and Security Agreement by and between Uni-Pixel, Inc., Uni-Pixel Displays, Inc., and Western Alliance Bank, dated October 18, 2016 and entered into on October 24, 2016. | |
31.1 | Certification of the Chief Executive Officer and Principal Executive Officer of Uni-Pixel, Inc.,Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) | |
31.2 | Certification of the Chief Financial Offer of Uni-Pixel, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) | |
32.1 | Certification of the Chief Executive Officer and Principal Executive Officer of Uni-Pixel, Inc.,Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2) (3) | |
32.2 | Certification of the Chief Financial Offer of Uni-Pixel, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2) (3) |
(1) Filed herewith. Previously filed as an exhibit to our Form 8-K, filed on October 28, 2016 and re-filed herewith to correct a typographical error in the previously filed exhibit. |
(2) Filed herewith |
(3) The certification attached as Exhibit 32.1 and Exhibit 32.2 accompany this Quarterly Report on From 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
29 |
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. | ||
Date: November 10, 2016 | By: | /s/ Jeff A. Hawthorne |
Jeff A. Hawthorne, Chief Executive Officer and President | ||
By: | /s/ Christine A. Russell | |
Christine A. Russell, Chief Financial Officer |
30 |
Exhibit 10.1
UNI-PIXEL, INC.
UNI-PIXEL DISPLAYS, INC.
WESTERN ALLIANCE BANK
LOAN AND SECURITY AGREEMENT
This Loan And Security Agreement is entered into as of October 18, 2016, by and between WESTERN ALLIANCE BANK (“Bank”) and UNI-PIXEL, INC. (“Parent”), and UNI-PIXEL DISPLAYS, INC. (“Uni-Pixel Displays”). Parent and Uni-Pixel Displays are each referred to herein as a (“Borrower”, and collectively, as the “Borrowers”).
Recitals
Borrowers wish to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrowers. This Agreement sets forth the terms on which Bank will advance credit to Borrowers, and Borrowers will repay the amounts owing to Bank.
Agreement
The parties agree as follows:
1. Definitions and Construction.
1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions:
“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles, and all other forms of obligations owing to a Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by a Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by a Borrower and such Borrower’s Books relating to any of the foregoing.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.
“Atmel Intellectual Property License Agreement” means that certain XSense Intellectual Property License Agreement dated as of April 16, 2015 by and between Atmel Corporation and Uni-Pixel Displays.
“Atmel Patent License Agreement” means that certain XSense Patent License Agreement dated as of April 16, 2015 by and between Atmel Corporation and Uni-Pixel Displays.
“Bank Expenses” means all: costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
“Borrower Agreement” means the Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement between Bank and Borrowers.
“Borrower’s Books” means all of a Borrower’s books and records including: ledgers; records concerning a Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
“Change in Control” shall mean a transaction in which (i) any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of a Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of a Borrower, who did not have such power before such transaction, or (ii) Parent ceases to own all of the capital stock of Uni-Pixel Displays, Inc.
“CIT Intellectual Property License Agreement” means that certain FLT Intellectual Property License Agreement dated as of April 16, 2015 by and between CIT Technology Ltd and Uni-Pixel Displays.
“CIT Patent License Agreement” means that certain FLT Patent License Agreement dated as of April 16 2015 by and between CIT Technology Ltd and Uni-Pixel Displays, Inc.
“Closing Date” means the date of this Agreement.
“Code” means the California Uniform Commercial Code.
“Collateral” means the property described on Exhibit A attached hereto.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Bank in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof.
“Credit Extension” means each EXIM Advance, use of the International Sublimit, or any other extension of credit by Bank for the benefit of Borrowers hereunder.
“Daily Balance” means the amount of the Obligations owed at the end of a given day.
“Economic Impact Certification” means the Economic Impact Certification as defined in the Borrower Agreement.
“Eligible Export-Related Accounts” means Eligible Export-Related Accounts Receivable as defined in the Borrower Agreement.
“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which a Borrower has any interest.
“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
2 |
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“Event of Default” has the meaning assigned in Article 8.
“EXIM” means the Export Import Bank of the United States.
“EXIM Advance” means a cash advance or cash advances under the EXIM Facility.
“EXIM Borrowing Base” means an amount equal to ninety percent (90%) of Eligible Export-Related Accounts, as determined by Bank with reference to the most recent EXIM Borrowing Base Certificate delivered by Borrowers; provided however, that the EXIM Borrowing Base may be revised from time to time by Bank following each Collateral audit or as Bank deems necessary in Bank’s reasonable judgment and upon notification thereof to Borrowers.
“EXIM Facility” means the facility under which Borrowers may request Bank to issue EXIM Advances, as specified in Section 2.1(a) hereof.
“EXIM Line” means a Credit Extension of up to Two Million Five Hundred Thousand Dollars ($2,500,000).
“EXIM Maturity Date” means the second anniversary of the Closing Date.
“GAAP” means generally accepted accounting principles as in effect from time to time.
“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations.
“Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
“Intellectual Property Collateral” means all of a Borrower’s right, title, and interest in and to the following: Copyrights, Trademarks and Patents; all trade secrets, all design rights, claims for damages by way of past, present and future infringement of any of the rights included above, all licenses or other rights to use any of the Copyrights, Patents or Trademarks all as more specifically set forth on the exhibits attached to the intellectual property security agreement between Borrowers and Bank dated as of the date hereof and as amended from time to time, and all license fees and royalties arising from such use to the extent permitted by such license or rights; all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and all proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
“International Sublimit” means a sublimit for export related foreign exchange services, commercial letters of credit, and standby letters of credit under the EXIM Line not to exceed Four Hundred Thousand Dollars ($400,000).
“Inventory” means all inventory in which a Borrower has or acquires any interest, including work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of a Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and a Borrower’s Books relating to any of the foregoing.
3 |
“Investment” means any beneficial ownership of Equity Interests of any Person, or any loan, advance or capital contribution or transfer of any assets to any Person.
“IP Indebtedness Agreements” means the Atmel Patent License Agreement and the CIT Patent License Agreement.
“Letter of Credit” or “Letters of Credit” is defined in Section 2.1(b)(ii) hereof.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“Loan Documents” means, collectively, this Agreement, the Borrower Agreement, any note or notes, and any other documents, instruments or agreements entered into by a Borrower or any guarantor or other third party in connection with this Agreement, all as amended or extended from time to time.
“Material Adverse Effect” means a material adverse effect on (i) the business operations, condition (financial or otherwise) or prospects of a Borrower or (ii) the ability of Borrowers to repay the Obligations or otherwise perform its obligations under the Loan Documents or (iii) the value or priority of Bank’s security interests in the Collateral.
“Negotiable Collateral” means all letters of credit of which a Borrower is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and such each Borrower’s Books relating to any of the foregoing.
“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrowers pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrowers to others that Bank may have obtained by assignment or otherwise.
“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
“Periodic Payments” means all installments or similar recurring payments that Borrowers may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrowers and Bank.
“Permitted Indebtedness” means:
(a) Indebtedness of Borrowers in favor of Bank arising under this Agreement or any other Loan Document;
(b) unsecured Indebtedness owing to trade creditors in the ordinary course of business;
(c) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(d) Indebtedness secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $500,000 in the aggregate at any given time;
4 |
(e) Indebtedness whether now existing or hereafter arising under the Atmel Intellectual Property License Agreement and/or the Atmel Patent License Agreement as each are in effect on the date hereof;
(f) Indebtedness whether now existing or hereafter arising under the CIT Intellectual Property License Agreement and/or the CIT Patent License Agreement as each are in effect on the date hereof; and
(g) Subordinated Debt.
“Permitted Investment” means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank’s money market accounts; and
(c) Investments in a to be formed joint development company with General Interface Solution Ltd. (a subsidiary of Foxconn Technology Group) (the “JV Entity”) to which Borrowers shall own fifty percent (50%) of the voting Equity Interests of such JV Entity, and that does not (i) require Borrowers to assume or otherwise become liable for the obligations of such JV Entity or any third party related to or arising out of such arrangement, (ii) require Borrowers to transfer ownership of or contribute any cash or other property, other than (A) the property listed on Schedule 4.6 attached hereto (as such Schedule may be modified by Borrower and accepted by Bank) and such other tangible property collectively with an aggregate book value in excess of $1,000,000 and (B) the non-exclusive license of Borrowers’ Intellectual Property to the JV Entity that could not result in any legal transfer of title of the licensed property.
“Permitted Liens” means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank’s security interests;
(c) Liens (i) upon or in any equipment which was not financed by Bank acquired or held by Borrowers or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or leasing of such equipment, or (ii) existing on such equipment at the time of its acquisition or lease, provided that the Lien is confined solely to the property so acquired or leased and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and
(e) Liens upon Collateral incurred as contemplated in connection with and arising under the IP Indebtedness Agreements and granted in connection with the indebtedness permitted under clauses (e) and (f) of the definition of Permitted Indebtedness, to the extent such Lien is subject to a subordination agreement in form and substance satisfactory to Bank.
5 |
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
“Prime Rate” means the greater of three and one half percent (3.50%) per year, or the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate”, whether or not such announced rate is the lowest rate available from Bank.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Financial Officer and the Vice President of Finance of each Borrower.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“Shares” is one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by a Borrower or any Subsidiary of Borrower, in any direct or indirect Subsidiary.
“Subordinated Debt” means any debt incurred by Borrowers that is subordinated to the debt owing by Borrowers to Bank on terms acceptable to Bank (and identified as being such by Borrowers and Bank), pursuant to a subordination agreement in form and substance satisfactory to Bank.
“Subsidiary” means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries (including any Affiliate), or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower. For the avoidance of doubt, the JV Entity is not a Subsidiary for any purpose under this Agreement.
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrowers connected with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto.
2. Loan and Terms Of Payment.
2.1 Credit Extensions.
Each Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrowers hereunder. Borrowers shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
(a) EXIM Advances.
(i) Subject to and upon the terms and conditions of this Agreement, Borrower may request EXIM Advances in an aggregate outstanding amount not to exceed the lesser of (A) the EXIM Line or (B) the EXIM Borrowing Base, minus in each case the aggregate amounts outstanding under the International Sublimit. Amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the EXIM Maturity Date, at which time all EXIM Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any EXIM Advances without penalty or premium.
6 |
(ii) Whenever Borrower desires an EXIM Advance, Borrower will notify Bank by facsimile transmission of an advance request in substantially the form of Exhibit B hereto no later than noon Pacific Time on the Business Day that is one (1) Business Day prior to the Business Day on which an EXIM Advance is made. Bank is authorized to make EXIM Advances under this Agreement, based upon instructions received from a Responsible Officer or a designee of a Responsible Officer. Bank will credit the amount of EXIM Advances made under this Section 2.1(a) to a Borrower’s deposit account at Bank.
(iii) Borrower shall pay interest on the aggregate outstanding principal amount of the EXIM Advances on the tenth day of each month for so long as any EXIM Advances are outstanding. All EXIM Advances shall be due and payable on the EXIM Maturity Date.
(b) International Sublimit.
(i) Letters of Credit. Subject to the terms and conditions of this Agreement, at any time prior to the EXIM Maturity Date, Bank agrees to issue letters of credit for the account of Borrower (each, a “Letter of Credit” and collectively, the “Letters of Credit”), provided, however, the aggregate outstanding face amount of all Letters of Credit shall not exceed the International Sublimit outstanding, and for purposes of determining availability under the EXIM Line, the aggregate outstanding face amount of all Letters of Credit (whether drawn or undrawn) shall decrease, on a dollar-for-dollar basis, the amount available for other Advances. All Letters of Credit shall be, in form and substance, acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s form of standard application and letter of credit agreement (the “Application”), which Borrower hereby agrees to execute, including Bank’s standard fees. On any drawn but unreimbursed Letter of Credit, the unreimbursed amount shall be deemed an EXIM Advance under Section 2.1(a). The obligation of Borrower to reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, the Application, and such Letters of Credit, under all circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense or liability, including, without limitation, attorneys’ fees, arising out of or in connection with any Letters of Credit, except for expenses caused by Bank’s gross negligence or willful misconduct.
(ii) If at any time the EXIM Facility is terminated or otherwise ceases to exist, Borrower shall immediately secure in cash all obligations under the International Sublimit on terms reasonably acceptable to Bank.
2.2 Overadvances. If the aggregate amount of the outstanding EXIM Advances plus the aggregate amounts outstanding under the International Sublimit exceeds the lesser of the EXIM Line or the EXIM Borrowing Base at any time (as determined by Bank with reference to the most recent EXIM Borrowing Base Certificate delivered by Borrowers), Borrowers shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) EXIM Advances. Except as set forth in Section 2.3(b), the EXIM Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to one and one quarter percent (1.25%) above the Prime Rate.
(b) Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, Borrowers shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law, not in any case to be less than $25.00. At Bank’s election, all Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
7 |
(c) Payments. Interest hereunder shall be due and payable on the tenth calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the EXIM Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment.
(d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrowers specify. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5 Fees and Expenses. Borrowers shall pay to Bank the following:
(a) Facility Fees. On the Closing Date and on the first anniversary of the Closing Date, a fee with respect to the EXIM Facility equal to $25,000, each of which are fully earned and nonrefundable;
(b) EXIM Fees. Such fees as EXIM may charge from time to time, including a $100 application fee payable on the Closing Date; and
(c) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses, including attorneys’ fees and expenses, as and when they are incurred by Bank.
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
8 |
3. Conditions of Loans.
3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
(c) UCC National Form Financing Statements;
(d) an intellectual property security agreement;
(e) agreement to provide insurance;
(f) current financial statements of Borrowers;
(g) an audit of the Collateral, the results of which shall be satisfactory to Bank;
(h) EXIM approval;
(i) the fully executed Borrower Agreement and other related EXIM documents requested by Bank;
(j) an Economic Impact Certification;
(k) the EXIM Guarantee;
(l) evidence of the termination of Lien in favor of Atmel Corporation;
(m) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof; and
(n) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Advance Request Form as provided in Section 2.1;
(b) with respect to any EXIM Advance request, an EXIM Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto; and
(c) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Advance Request Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
4. Creation of Security Interest.
4.1 Grant of Security Interest. Each Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by such Borrower of each of its covenants and duties under the Loan Documents. Such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof.
9 |
4.2 Delivery of Additional Documentation Required. Borrowers shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue the perfection of Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrowers from time to time may deposit with Bank specific time deposit accounts to secure specific Obligations. Each Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any request by a Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Obligations are outstanding.
4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers’ usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect a Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify each Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral
4.4 EXIM. EXIM has agreed to guarantee the EXIM Advances pursuant to certain guarantee agreements and other documents and instruments (collectively, the “EXIM Guarantee”).
(a) If, at any time after the EXIM Guarantee has been entered into by Bank, for any reason other than due to any action or inaction of a Borrower under the EXIM Guarantee, (i) the EXIM Guarantee shall cease to be in full force and effect, or (ii) if EXIM declares the EXIM Guarantee void or revokes any obligations thereunder or denies liability thereunder, and any overadvance results from either of the foregoing, Bank shall provide notice of such overadvance to Borrowers, and Borrowers shall immediately pay the amount of the excess to Bank or provide additional Collateral in such amounts as the Bank deems reasonably necessary to cure such overadvance.
(b) If, at any time after the EXIM Guarantee has been entered into by Bank, for any reason other than the one described in Section 4.4(a), (i) the EXIM Guarantee shall cease to be in full force and effect, or (ii) the EXIM declares the EXIM Guarantee void or revokes any obligations thereunder or denies liability thereunder, any such event shall constitute an Event of Default under this Agreement.
(c) Nothing in any confidentiality provision in this Agreement or in any other agreement shall restrict Bank’s right to make disclosures and provide information to the EXIM in connection with the EXIM Guarantee. Upon the occurrence and continuation of an Event of Default, in the event EXIM seeks to exercise remedies with respect to the Collateral, Bank may assign such portion of its security interest in the Loan Documents and the Collateral as EXIM reasonably requests to effect such exercise. The terms of the Borrower Agreement shall control in the event of any conflict between the terms of this Agreement and the Borrower Agreement.
4.5 Pledge of Shares. Each Borrower hereby pledges, assigns and grants to Bank, a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. Within ten (10) days of the Closing Date, or, to the extent not certificated as of the Closing Date, within ten (10) days of the certification of any Shares, the certificate or certificates for the Shares will be delivered to Bank, accompanied by an instrument of assignment duly executed in blank by Borrowers. To the extent required by the terms and conditions governing the Shares, Borrowers shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new (as applicable) certificates representing such securities to be issued in the name of Bank or its transferee. Borrowers will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, Borrowers shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.
10 |
4.6 Release of Collateral. Upon providing evidence satisfactory to Bank of the creation and consummation of the JV Entity, Bank’s security interest in the assets listed on Schedule 4.6 (as such Schedule may be modified by Borrower and accepted by Bank) (the “Released Collateral”) shall terminate automatically and upon Borrower’s request, Bank shall file a UCC Financing Statement amendment in the appropriate filing office deleting the Released Collateral from the Bank’s previously filed UCC Financing Statement. Bank consents to the transfer of the Released Collateral to the JV Entity without further notice to the Bank.
5. Representations and Warranties.
Each Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Each Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within each Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in a Borrower’s Certificate/Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which a Borrower is a party or by which a Borrower is bound. No Borrower is in default under any material agreement to which it is a party or by which it is bound.
5.3 No Prior Encumbrances. Each Borrower has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Accounts. The Accounts are bona fide existing obligations. The property giving rise to such Accounts has been delivered to the account debtor or to the account debtor’s agent for immediate shipment to and unconditional acceptance by the account debtor. Any services giving rise to such Accounts have been provided to the account debtor.
5.5 Merchantable Inventory. All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made.
5.6 Intellectual Property Collateral. Each Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licenses granted by a Borrower to its customers in the ordinary course of business. Each of the Patents owned or licensed by a Borrower is valid and enforceable, and no part of the Intellectual Property Collateral owned or licensed by a Borrower has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property Collateral owned or licensed by a Borrower violates the rights of any third party. Except as set forth in the Schedule, each Borrower’s rights as a licensee of intellectual property do not give rise to more than five percent (5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. Except as set forth in the Schedule, no Borrower is a party to, or bound by, any agreement that restricts the grant by such Borrower of a security interest in such Borrower’s rights under such agreement.
5.7 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, no Borrower has done business under any name other than that specified on the signature page hereof. The chief executive office of each Borrower is located at the address indicated in Section 10 hereof. All of Borrowers’ Inventory and Equipment is located only at the locations set forth in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against a Borrower or any Subsidiary before any court or administrative agency.
11 |
5.9 No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrowers and any Subsidiary that Bank has received from Borrowers fairly present in all material respects Borrowers’ financial condition as of the date thereof and Borrowers’ consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or the consolidating financial condition of Borrowers since the date of the most recent of such financial statements submitted to Bank.
5.10 Solvency, Payment of Debts. Borrowers on a consolidated basis are solvent and able to pay their debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Each Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from a Borrower’s failure to comply with ERISA that could result in Borrower’s incurring any material liability thereunder. No Borrower is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. No Borrower is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Each Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. No Borrower has violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect.
5.12 Environmental Condition. None of Borrowers’ or any Subsidiary’s properties or assets has ever been used by a Borrower or any Subsidiary or, to the best of Borrowers’ knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrowers’ knowledge, none of Borrowers’ properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by a Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by a Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
5.13 Taxes. Each Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Except as set forth on the Schedule, no Borrower owns any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents. Each Borrower and each Subsidiary have obtained all material consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of such Borrower’s business as currently conducted.
5.16 Accounts. As of the Closing Date, all of Borrowers’ and any Subsidiary’s operating, depository or investment accounts maintained or invested with a Person other than Bank are set forth on the Schedule. On and after the 60th day following the Closing Date, none of a Borrower’s nor any Subsidiary’s operating, depository or investment accounts are maintained or invested with a Person other than Bank, except as permitted under Section 6.8.
5.17 Shares. Each Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit such Borrower from pledging the Shares pursuant to this Agreement. To Borrowers’ knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To Borrowers’ knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the institution of any such proceedings.
12 |
5.18 Full Disclosure. No representation, warranty or other statement made by a Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading.
6. Affirmative Covenants.
Each Borrower shall do all of the following:
6.1 Good Standing. Each Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which it is required under applicable law. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect.
6.2 Government Compliance. Each Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Each Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.
6.3 Financial Statements, Reports, Certificates. Borrowers shall deliver the following to Bank: (a) as soon as available, but in any event within thirty (30) days after the last day of each month, with aged listings of accounts receivable and accounts payable by invoice date, along with due date aging for export related accounts receivable; (b) as soon as available, but in any event within thirty (30) days after the last day of each month, an EXIM Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto and a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto; (c) as soon as available, but in any event within forty five (45) days after the end of each calendar quarter, a company prepared consolidated balance sheet, income statement, and cash flow statement covering Borrowers’ consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form acceptable to Bank and certified by a Responsible Officer, together with a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto; (d) as soon as available, but in any event within one hundred eighty (180) days after the end of each Borrower’s fiscal year, audited consolidated financial statements of each Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (e) as soon as available, but in any event within five (5) days of filing, Borrowers’ tax returns with schedules, prepared by an independent certified public accounting firm reasonably acceptable to Bank; (f) as soon as available, but in any event no later than (1) the earlier to occur of thirty (30) days following the beginning of each fiscal year or the date of review by such Borrower’s board of directors/managers, an annual operating budget and financial projections (including income statements, balance sheets and cash flow statements) for such fiscal year, presented in a monthly format, reviewed by such Borrower’s board of directors/managers, and in form and substance acceptable to Bank (each, a “Financial Plan”); (g) copies of all statements, reports and notices sent or made available generally by a Borrower to its members or stockholders or to any holders of Subordinated Debt and, if applicable, all reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission (acknowledging that Bank’s timely receipt of Borrower’s Form 10-Q and Form 10-K shall satisfy Borrower’s obligation to deliver financial statements under Section 6.3(c) and Section 6.3(d), respectively); (h) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened in writing against a Borrower or any Subsidiary that could result in damages or costs to a Borrower or any Subsidiary of One Hundred Twenty Five Thousand Dollars ($125,000) or more; (i) upon Bank’s request (but no more frequently than quarterly), a report of Borrowers’ adjusted EBITDA; (j) copies of any financial statements or other reporting with respect to the JV Entity when such is available; and (k) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time.
13 |
6.4 Audits. Bank shall have a right from time to time hereafter to audit a Borrower’s Accounts and appraise Collateral at such Borrower’s expense, provided that such audits will be conducted no more often than every six (6) months (or as frequently as is required by EXIM) unless an Event of Default has occurred and is continuing. Audit costs may range from $800-1,200 per day plus expenses, with the duration and scope of each audit to be determined at the time of such audit.
6.5 Inventory; Returns. Borrowers shall keep all Inventory in good and marketable condition and free from all material defects, except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrowers and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrowers, as they exist at the time of the execution and delivery of this Agreement. Borrowers shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000).
6.6 Taxes. Borrowers shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrowers will make, and will cause each Subsidiary to make, timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrowers.
6.7 Insurance.
(a) Borrowers, at their expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where a Borrower’s business is conducted on the date hereof. Borrowers shall also maintain insurance relating to Borrowers’ business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrowers’.
(b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days’ notice to Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.
6.8 Accounts. Borrowers shall maintain and shall cause each of their Subsidiaries to maintain its primary domestic depository, operating, and investment accounts with Bank; provided however that Borrowers shall have forty-five (45) days from the Closing Date to transition and close its accounts maintained outside of Bank. Borrowers shall endeavor to utilize and shall cause each of their Subsidiaries to endeavor to utilize Bank’s International Banking Division for any international banking services required by Borrowers, including, but not limited to, foreign currency wires, hedges, swaps, foreign exchange contracts, and Letters of Credit. For each deposit, operating, or investment domestic account that a Borrower maintains outside of Bank on and after the 60th day following the Closing Date, such Borrower shall cause the applicable bank or financial institution at or with which any such account is maintained to execute and deliver an account control agreement or other appropriate instrument in form and substance satisfactory to Bank. Notwithstanding the foregoing, Borrowers may maintain a deposit account at Fubon Bank in Taiwan without compliance with the foregoing sentence as long as the average daily balance (measured monthly) of the aggregate deposits in such account does not exceed $50,000 (or such greater amount as Bank may agree to from time to time).
14 |
6.9 Financial Covenants.
(a) Asset Coverage Ratio. Borrowers shall maintain at all times a ratio of Borrowers’ unrestricted cash maintained in accounts at Bank plus Eligible Export-Related Accounts to all Obligations owing to Bank with respect to the EXIM Facility (including under the International Sublimit) of at least 1.50 to 1.00.
6.10 Intellectual Property Rights.
(a) Borrowers shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any. Borrowers shall (i) give Bank not less than 30 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed, and (ii) prior to the filing of any such applications or registrations, shall execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrowers, and upon the request of Bank, shall file such documents simultaneously with the filing of any such applications or registrations. Upon filing any such applications or registrations with the United States Copyright Office, Borrowers shall promptly provide Bank with (i) a copy of such applications or registrations, without the exhibits, if any, thereto, (ii) evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and (iii) the date of such filing.
(b) Bank may audit Borrowers’ Intellectual Property Collateral to confirm compliance with this Section, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrowers’ sole expense, any actions that Borrowers are required under this Section to take but which Borrowers fail to take, after 15 days’ notice to Borrowers. Borrowers shall reimburse and indemnify Bank for all costs and expenses incurred in the exercise of its rights under this Section.
6.11 Notices of Commercial Tort Claims; Event of Default. Without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within three (3) Business Days) upon a Borrower becoming aware of the existence of any Event of Default or event described in Section 8 which, with the giving of notice or passage of time, or both, would constitute an Event of Default, such Borrower shall give written notice to Bank of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or event which, with the giving of notice or passage of time, or both, would constitute an Event of Default. If a Borrower shall acquire a commercial tort claim (as defined in the Code), such Borrower shall promptly notify Bank in writing of the general details thereof and grant to the Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Bank.
6.12 Formation or Acquisition of Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary, Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to this Agreement to cause such Subsidiary to become a co-borrower hereunder, together with such appropriate financing statements and/or control agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank that in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above.
6.13 Post-Closing Covenants. On the earlier to occur of thirty (30) days following the renewal of Borrower’s existing lease on its Colorado Springs, Colorado location or October 31, 2017 (or such longer period as Bank may agree to in writing), Borrowers shall deliver to Bank, a landlord consent with respect to Borrowers’ leased location in Colorado Springs, Colorado, in form and substance reasonably satisfactory to Bank, or such other agreements, documents, instruments and/or the provision of such other arrangements as Bank may require in lieu of receipt of such landlord consent.
15 |
6.14 Further Assurances. At any time and from time to time Borrowers shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. Negative Covenants.
Borrowers will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of a Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank.
7.2 Change in Business or Executive Office. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto); or cease to conduct business in the manner conducted by Borrowers as of the Closing Date; or without thirty (30) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Bank’s prior written consent, change the date on which its fiscal year ends.
7.3 Change in Control/Mergers or Acquisitions. (i) Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person; or (ii) suffer or permit a Change in Control; provided however, only advance written notice to the Bank will be required for any action restricted by this Section 7.3 if all Obligations are paid in full in cash out of the proceeds of the initial closing of such action and such payment is listed as a condition to the consummation of such action. Notwithstanding the foregoing, a Subsidiary may merge or consolidate with or into another Borrower with written notice to Bank.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of its property (including without limitation, its Intellectual Property Collateral), or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its property (including without limitation, its Intellectual Property Collateral), or permit any Subsidiary to do so.
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that (i) Parent may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase; and (ii) any Subsidiary may make distributions to Parent without restriction at any time; or
7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in form and substance satisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrowers.
16 |
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrowers except for transactions that are in the ordinary course of Borrowers’ business, upon fair and reasonable terms that are no less favorable to Borrowers than would be obtained in an arm’s length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than the location set forth in Section 10 of this Agreement.
7.11 Compliance. Become an “investment company” or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
7.12 Capital Expenditures. Make or contract to make, without Bank’s prior written consent, capital expenditures (including leasehold improvements) or incur liability for rentals of property (including both real and personal property) in an aggregate amount in any fiscal year in excess of $500,000, or such greater amount as may be approved by Borrower’s board of directors and set forth in Borrower’s Financial Plan acceptable to Bank.
8. Events of Default.
Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrowers fail to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If a Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or
(b) If a Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between a Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within thirty days after a Borrower receives notice thereof or any officer of a Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten day period or cannot after diligent attempts by Borrowers be cured within such thirty day period, and such default is likely to be cured within a reasonable time, then Borrowers shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made.
8.3 Material Adverse Effect. If there occurs any circumstance or circumstances that could have a Material Adverse Effect;
17 |
8.4 Attachment. If any portion of a Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, bonded, discharged or rescinded within twenty (20) days, or if a Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of a Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of a Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within twenty (20) days after a Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrowers (provided that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If a Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by a Borrower, or if an Insolvency Proceeding is commenced against a Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default or other failure to perform (a) in any credit, loan or financing agreement to which a Borrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Twenty Five Thousand Dollars ($125,000) (other than trade amounts payable incurred in the ordinary course of business that are not more than 60 days past due); or (b) in any other agreement to which a Borrower is a party or by which it is bound that could reasonably be expected to result in a Material Adverse Effect;
8.7 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Twenty Five Thousand Dollars ($125,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against a Borrower and shall remain unsatisfied and unstayed for a period of twenty (20) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);
8.8 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document; or
8.9 EXIM Defaults. (a) If the EXIM Guarantee ceases for any reason to be in full force and effect or if EXIM declares the EXIM Guarantee void or revokes any obligations under the EXIM Guarantee, or (b) if any default occurs under the Borrower Agreement.
9. Bank’s Rights and Remedies.
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit of Borrowers under this Agreement or under any other agreement between Borrowers and Bank;
18 |
(c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(d) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrowers agree to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Each Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of a Borrower’s owned premises, each Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i) balances and deposits of Borrowers held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrowers held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, a Borrower’s labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrowers’ rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
(g) Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers’ premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrowers.
9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as such Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse such Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign such Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to such Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) to file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral. The appointment of Bank as each Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence of an Event of Default, Bank may notify any Person owing funds to Borrowers of Bank’s security interest in such funds and verify the amount of such Account. Borrowers shall collect for Bank all amounts owing to Borrowers, receive in trust all such payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
19 |
9.4 Bank Expenses. If Borrowers fail to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrowers: (a) make payment of the same or any part thereof; (b) set up such reserves under the a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.7 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrowers.
9.6 Shares. Borrowers recognize that Bank may be unable to effect a public sale of any or all the Shares, by reason of certain prohibitions contained in federal securities laws and applicable state and provincial securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Borrowers acknowledge and agree that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Bank shall be under no obligation to delay a sale of any of the Shares for the period of time necessary to permit the issuer thereof to register such securities for public sale under federal securities laws or under applicable state and provincial securities laws, even if such issuer would agree to do so. Upon the occurrence of an Event of Default which continues, Bank shall have the right to exercise all such rights as a secured party under the Code as it, in its sole judgment, shall deem necessary or appropriate, including without limitation the right to liquidate the Shares and apply the proceeds thereof to reduce the Obligations. Effective only upon the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as such Borrower’s true and lawful attorney to enforce such Borrower’s rights against any Subsidiary, including the right to compel any Subsidiary to make to the Bank or a Borrower any payments or distributions respecting the Shares which are owing to such Borrower.
9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on a Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
9.8 Demand; Protest. Each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrowers may in any way be liable.
20 |
10. Notices.
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or a Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to Borrowers: | UNI-PIXEL, INC. | |
4699 Old Ironsides Drive, Suite 300 | ||
Santa Clara, CA 95054 | ||
Attn: Christine Russell | ||
FAX: (____) _______________ | ||
EMAIL: crussel@unipixel.com | ||
If to Bank: | Bridge Bank, a division of Western Alliance Bank | |
55 Almaden Blvd. | ||
San Jose, CA 95113 | ||
Attn: Note Department | ||
FAX: (408) 282-1681 | ||
EMAIL: notedepartment@bridgebank.com |
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement and all other Loan Documents (except as otherwise expressly provided in any of the Loan Documents) shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Borrowers and Bank each hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWERS AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. General Provisions.
12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by a Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right after the occurrence of an Event of Default without the consent of or notice to Borrowers to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder. Prior to the occurrence of an Event of Default, Bank may sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder with the consent of the Borrowers which consent shall not be unreasonably withheld; provided however no such consent shall be required if such sale, transfer negotiation or participation (i) is in connection with the sale or disposition of Bank or all or a portion of Bank’s loan portfolio or (ii) does not result in Western Alliance Bank (or any Affiliate thereof) no longer acting as “Bank” hereunder.
12.2 Indemnification. Each Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and a Borrower whether under this Agreement, or otherwise (including without limitation attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.
21 |
12.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrowers. The obligations of each Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with each Borrower, (ii) to prospective transferees or purchasers of any interest in the Credit Extensions who are subject to comparable confidentiality obligations in favor of Borrowers, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
12.9 Patriot Act Notice. Bank hereby notifies Borrowers that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrowers, which information includes names and addresses and other information that will allow Bank, as applicable, to identify the Borrowers in accordance with the Patriot Act.
13. Co-Borrowers.
13.1 Co-Borrowers. Borrowers are jointly and severally liable for the Obligations and Bank may proceed against one Borrower to enforce the Obligations without waiving its right to proceed against any other Borrower. This Agreement and the Loan Documents are a primary and original obligation of each Borrower and shall remain in effect notwithstanding future changes in conditions, including any change of law or any invalidity or irregularity in the creation or acquisition of any Obligations or in the execution or delivery of any agreement between Bank and any Borrower. Each Borrower shall be liable for existing and future Obligations as fully as if all of the Credit Extensions were advanced to such Borrower. Bank may rely on any certificate or representation made by any Borrower as made on behalf of, and binding on, all Borrowers, including without limitation advance request forms and compliance certificates. Each Borrower appoints each other Borrower as its agent with all necessary power and authority to give and receive notices, certificates or demands for and on behalf of all Borrowers, to act as disbursing agent for receipt of any Credit Extensions on behalf of each Borrower and to apply to Bank on behalf of each Borrower for any Credit Extension, any waivers and any consents. This authorization cannot be revoked, and Bank need not inquire as to one Borrower’s authority to act for or on behalf of another Borrower.
22 |
13.2 Subrogation and Similar Rights. Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives, until all Obligations are paid in full and Bank has no further obligation to make Credit Extensions to Borrowers, all rights that it may have at law or in equity (including, without limitation, any law subrogating a Borrower to the rights of Bank under the Loan Documents) to seek contribution, indemnification, or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by a Borrower with respect to the Obligations in connection with the Loan Documents or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by a Borrower with respect to the Obligations in connection with the Loan Documents or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.
13.3 Waivers of Notice. Each Borrower waives, to the extent permitted by law, notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default except as set forth herein; notice of the amount of the Obligations outstanding at any time; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase a Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument; and all other notices and demands to which a Borrower would otherwise be entitled by virtue of being a co-borrower or a surety. Each Borrower waives any defense arising from any defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower. Bank’s failure at any time to require strict performance by any Borrower of any provision of the Loan Documents shall not waive, alter or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Each Borrower also waives any defense arising from any act or omission of Bank that changes the scope of a Borrower’s risks hereunder. Each Borrower hereby waives any right to assert against Bank any defense (legal or equitable), setoff, counterclaim, or claims that such Borrower individually may now or hereafter have against another Borrower or any other Person liable to Bank with respect to the Obligations in any manner or whatsoever.
13.4 Subrogation Defenses. Until all Obligations are paid in full and Bank has no further obligation to make Credit Extensions to Borrowers, each Borrower hereby waives any defense based on impairment or destruction of its subrogation or other rights against any other Borrower and waives all benefits which might otherwise be available to it under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are now in effect and hereafter amended, and under any other similar statutes now and hereafter in effect.
13.5 Right to Settle, Release.
(a) The liability of Borrowers hereunder shall not be diminished by (i) any agreement, understanding or representation that any of the Obligations is or was to be guaranteed by another Person or secured by other property, or (ii) any release or unenforceability, whether partial or total, of rights, if any, which Bank may now or hereafter have against any other Person, including another Borrower, or property with respect to any of the Obligations.
(b) Without notice to any given Borrowers and without affecting the liability of any given Borrowers hereunder, Bank may (i) compromise, settle, renew, extend the time for payment, change the manner or terms of payment, discharge the performance of, decline to enforce, or release all or any of the Obligations with respect to any other Borrower by written agreement with such other Borrower, (ii) grant other indulgences to another Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to any other Borrower by written agreement with such other Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.
13.6 Subordination. All indebtedness of a Borrower now or hereafter arising held by another Borrower is subordinated to the Obligations and a Borrower holding the indebtedness shall take all actions reasonably requested by Bank to effect, to enforce and to give notice of such subordination.
14. Notice of Final Agreement. NOTICE OF FINAL AGREEMENT. BY SIGNING THIS AGREEMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
[signature page follows]
23 |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
BORROWERS: | ||
UNI-PIXEL, INC. | ||
By: | /s/ Christine Russell | |
Name: | Christine Russell | |
Title: | CFO | |
UNI-PIXEL DISPLAYS, INC. | ||
By: | /s/ Christine Russell | |
Name: | Christine Russell | |
Title: | CFO | |
BANK: | ||
WESTERN ALLIANCE BANK | ||
By: | /s/ Kelly Cook | |
Name: | Kelly Cook | |
Title: | Senior Vice President |
24 |
EXHIBIT A
DEBTOR: | UNI-PIXEL, INC. and UNI-PIXEL DISPLAYS, INC. |
SECURED PARTY: | WESTERN ALLIANCE BANK |
COLLATERAL
DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of each Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), commercial tort claims, deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.
Exhibit B
EXIM ADVANCE REQUEST FORM
To: | WESTERN ALLIANCE BANK | |
Fax: | (408) 282-1681 | |
Date: | ||
From: | UNI-PIXEL, INC. and UNI-PIXEL DISPLAYS, INC. | |
Borrower’s Name | ||
Authorized Signature | ||
Authorized Signer’s Name (please print) | ||
Phone Number |
To Account # |
Borrowers hereby request funding of an EXIM Advance in the amount of $ _______ in accordance with the EXIM Facility as defined in the Loan and Security Agreement dated October __, 2016 and as amended from time to time (the “Loan Agreement”).
Borrowers hereby authorize Bank to rely on facsimile stamp signatures and treat them as authorized by Borrowers for the purpose of requesting the above advance.
All representations and warranties of Borrowers stated in the Loan Agreement are true, correct and complete in all material respects as of the date of this EXIM Advance Request Form; provided that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date.
Capitalized terms used herein and not otherwise defined have the meanings set forth in the Loan Agreement.
EXHIBIT C
EXIM BORROWING BASE CERTIFICATE
BRIDGE BANK
55 Almaden Boulevard, San Jose, CA 95113
BORROWER: UNI-PIXEL, INC. and UNI-PIXEL DISPLAYS, INC. | |||||||||
EXPORT-RELATED ACCOUNTS RECEIVABLES | |||||||||
1. | Foreign Accounts Receivable Book Value as of : ____________________ | $ | ______ | ||||||
2. | Additions (please explain on reverse) | $ | ______ | ||||||
3. | Total Export-Related Accounts Receivables | $ | ______ | ||||||
DEDUCTIONS: | |||||||||
4. | Less: Accounts with product US Content less than 50% | $ | _______ | ||||||
5. | Less: Accounts with terms of sale greater than 120 days | $ | _______ | ||||||
6. | Less: Accounts for whom more than 50% of the A/Rs with terms of sales longer than N120 | $ | _______ | ||||||
7. | Less: Accounts over 60 days past original due date (90 days if insured through EXIM Bank insurance) | $ | _______ | ||||||
8. | Less: Accounts with 35% over 60 days past invoice due date | $ | _______ | ||||||
9. | Less: Accounts over 35% concentration of total foreign accounts | $ | _______ | ||||||
10. | Less: Accounts backed by LCs, not negotiated by Bank or the L/C proceeds not assigned to the Bank | $ | _______ | ||||||
11. | Less: Military accounts, or arising from sales of defense articles | $ | _______ | ||||||
12. | Less: Accounts associated with nuclear power, enrichment, reprocessing, research or heavy water production facilities | $ | _______ | ||||||
13. | Less: Contra Accounts, customer deposits or credit accounts | $ | _______ | ||||||
14. | Less: Promotion, Demo or Consignment Accounts, Bill and Hold, or any account where payment is conditional or subject to acceptance (Retainage Accounts) | $ | _______ | ||||||
15. | Less: Inter-company/Employee and Affiliate Accounts | $ | _______ | ||||||
16. | Less: Disputed Accounts | $ | _______ | ||||||
17. | Less: Accounts excluded under the EXIM Borrower Agreement or the Loan and Security Agreement | $ | _______ | ||||||
18. | Less: Arising from inventory not originally located in and shipped from the US | $ | _______ | ||||||
19. | Less: Accounts not subject to a perfected first priority security interest | $ | _______ | ||||||
20. | Less: Accounts from sales not in the ordinary course of business | $ | _______ | ||||||
21. | Less: Accounts not owned by Borrower or with offsetting claims | $ | _______ | ||||||
22. | Less: Accounts without invoices or export orders | $ | _______ | ||||||
23. | Less: Accounts billed and collected outside U.S. (except as may be approved in writing by EXIM Bank) | $ | _______ | ||||||
24. | Less: Accounts billed in non U.S. currency | $ | _______ | ||||||
25. | Less: Accounts in countries prohibited by EXIM as designated in the most current Country Limitation Schedule | $ | _______ | ||||||
26. | Less: Accounts backed by L/C, goods have not been shipped or services have not been delivered | $ | _______ | ||||||
27. | Less: Accounts determined doubtful or Buyer is insolvent or in Bankruptcy | $ | _______ | ||||||
28. | Less: Accounts covering items which have been returned, rejected, or repossessed | $ | _______ | ||||||
29. | Less: Any deduction of sales price arising from sales contracts or agreements | $ | _______ | ||||||
30. | Less: Accounts covering goods or service which have not been accepted or which do not represent final sales for any reason. | $ | _______ | ||||||
31. | Less: Accounts included as eligible receivable under any other credit facility to which Borrower is a party | $ | _______ | ||||||
32. | Less: Accounts from sales of Capital Goods | $ | _______ | ||||||
33. | Less: Others | ||||||||
34. | Add: Lines 4 through 33 - Total Ineligible Export- Related Accounts Receivables | $ | _______ | ||||||
35. | NET ELIGIBLE EXPORT-RELATED ACCOUNTS RECEIVABLE | ||||||||
36. | Export-Related Account Receivable Advance Rate | 90 | % | ||||||
37. | TOTAL EXIM A/R BORROWING BASE | $ | _______ | ||||||
38. | MAXIMUM EXIM LOAN AMOUNT | $ | 2,500,000 | ||||||
39. | Less: Current Loan Outstanding on EXIM Line of Credit | ||||||||
40. | Less: Reserves under International Sublimit | $ | ______ | ||||||
41. | AVAILABLE FOR DRAW/NEED TO PAY | $ | ______ | ||||||
If line #41 is a negative number, this amount must be remitted to the Bank immediately to bring loan balance into compliance. |
The undersigned represents and warrants that as of the date hereof the foregoing is true, complete and correct, that the information reflected in this EXIM Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement, between Borrower and Bank, and the EXIM Borrower Agreement, executed by Borrower and acknowledged by Bank, each dated October __, 2016, as may be amended from time to time, as if all representations and warranties were made as of the date hereof, and that Borrower is, and shall remain, in full compliance with its agreements, covenants, and obligations under such agreements. Such representations and warranties include, without limitation, the following: Borrower is using disbursements only for the purpose of enabling Borrower to finance the cost of manufacturing, purchasing or selling items intended for export. Borrower is not using disbursements for the purpose of: (a) servicing any of Borrower’s unrelated pre-existing or future indebtedness; (b) acquiring fixed assets or capital goods for the use of Borrower’s business; (c) acquiring, equipping, or renting commercial space outside the United States; or (d) paying salaries of non-U.S. citizens or non-U.S. permanent residents who are located in the offices of the United States. Additionally, disbursements are not being used to finance the manufacture, purchase or sale of all of the following: (a) Items to be sold to a buyer located in a country in which the Export Import Bank of the United States is legally prohibited from doing business; (b) that part of the cost of the items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the items and is incorporated into the items in the United States; (c) defense articles or defense services or items directly or indirectly destined for use by military organizations designed primarily for military use (regardless of the nature or actual use of the items); or (d) any items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities.
Capitalized terms used herein and not otherwise defined have the meanings set forth in the Loan and Security Agreement.
Borrower hereby request funding in the amount of $___________in accordance with this EXIM Borrowing Base Certificate. All representations and warranties of Borrower stated in the Loan and Security Agreement are true, correct, and complete in all material respects as of the date of this EXIM Borrowing Base Certificate; provided that those representations and warranties expressly referring to another date shall be true, correct, and complete in all material respects as of such date.
The undersigned also certifies that any interest in any copyrights (whether registered, or unregistered), patents or trademarks, and licenses have been specifically disclosed to the Bank in writing.
Date: | ||||
Prepared By: | ||||
Date: | ||||
Bank Reviewed: |
2 |
Exhibit D
Compliance Certificate
TO: | WESTERN ALLIANCE BANK |
FROM: | UNI-PIXEL, INC. and UNI-PIXEL DISPLAYS, INC. |
The undersigned authorized officer of UNI-PIXEL, INC., on behalf of itself and all other Borrowers, hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrowers and Bank (the “Agreement”), (i) each Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties of Borrowers stated in the Agreement are true and correct as of the date hereof. Attached herewith are the required documents supporting the above certification, if applicable. The Officer further certifies that the financial statements and financial information provided hereunder are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” column.
Reporting Covenant | Required | Complies | ||||
A/R & A/P Agings by invoice date | Monthly within 30 days | Yes | No | |||
Aged listing by due date aging for export Related A/R | Monthly within 30 days | Yes | No | |||
EXIM Borrowing Base Certificate | Monthly within 30 days | Yes | No | |||
Consolidated financial statements (with Compliance Certificate) | Quarterly within 45 days | Yes | No | |||
Compliance Certificate | Monthly within 30 days | Yes | No | |||
Annual audited financial statements | FYE within 180 days | Yes | No | |||
Tax Returns with Schedules | Within 5 days of filing | Yes | No | |||
Annual operating budget, sales projections and operating plans reviewed by board of directors | Annually no later than 30 days after the beginning of each fiscal year | Yes | No | |||
A/R Audit | Initial and Semi-Annual | Yes | No | |||
More than 50% US content of product costs | (Quarterly certification) | Yes | No |
Deposit balances with Bank | $ | ___________________ | ||
Deposit balance outside Bank | $ | ___________________ |
Financial Covenant | Required | Actual | Complies | |||||||||
Minimum Asset Coverage Ratio | 1.50 : 1.00 | _____:1.00 | Yes | No |
Comments Regarding Exceptions: See Attached. | BANK USE ONLY | ||
Received by: | |||
Sincerely, | AUTHORIZED SIGNER | ||
Date: |
Verified: | |||
SIGNATURE | AUTHORIZED SIGNER |
Date: |
TITLE | |||
Compliance Status | Yes No | ||
DATE |
Exhibit 31.1
CERTIFICATION
I, Jeff A. Hawthorne, Principal Executive Officer of Uni-Pixel, Inc. certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Uni-Pixel, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 10, 2016 | ||
By: | /s/ Jeff A. Hawthorne | |
Chief Executive Officer and President | ||
Principal Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Christine Russell, Chief Financial Officer of Uni-Pixel, Inc. certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Uni-Pixel, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 10, 2016 | ||
By: | /s/ Christine A. Russell | |
Chief Financial Officer | ||
Principal Financial and Accounting Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Uni-Pixel, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff A. Hawthorne, Chief Executive Officer, President and Principal Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
● The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m or 78o(d)); and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 10, 2016 | By: | /s/ Jeff A. Hawthorne |
Jeff A. Hawthorne, Chief Executive Officer, | ||
President and Principal Executive Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Uni-Pixel, Inc. and will be retained by Uni-Pixel, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Uni-Pixel, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine Russell, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
● The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m or 78o(d)); and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 10, 2016 | By: | /s/ Christine A. Russell |
Christine A. Russell, Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Uni-Pixel, Inc. and will be retained by Uni-Pixel, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Oct. 31, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | Uni-Pixel | |
Entity Central Index Key | 0001171012 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 45,043,730 | |
Trading Symbol | UNXL | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2016 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 45,043,730 | 32,170,778 |
Common stock, shares outstanding | 45,043,730 | 32,170,778 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Income Statement [Abstract] | ||||
Revenue | $ 907 | $ 1,498 | $ 2,714 | $ 2,867 |
Cost of revenues | 3,231 | 4,701 | 11,431 | 8,128 |
Gross margin | (2,324) | (3,203) | (8,717) | (5,261) |
Selling, general and administrative expenses | 1,882 | 1,724 | 5,602 | 8,368 |
Research and development | 3,119 | 1,491 | 5,059 | 5,690 |
Operating loss | (7,325) | (6,418) | (19,378) | (19,319) |
Other income (expense) | ||||
Debt issuance cost amortization expense | (451) | (526) | (827) | |
Gain (loss) on change in warrant liability | (229) | 1,092 | (907) | 4,992 |
Accretion of discount on convertible notes | (4,049) | (1,291) | (7,171) | |
Interest income (expense), net | (3) | (194) | (12) | (424) |
Other income (expense), net | (232) | (3,602) | (2,736) | (3,430) |
Net loss from continuing operations | (7,557) | (10,020) | (22,114) | (22,749) |
Discontinued operations (note 8) | ||||
Loss on discontinued operations | (1,093) | |||
Loss on impairment of property and equipment | (7,608) | |||
Net loss from discontinued operations | (8,701) | |||
Net loss | $ (7,557) | $ (10,020) | $ (22,114) | $ (31,450) |
Basic | ||||
Loss from continuing operations | $ (0.17) | $ (0.60) | $ (0.55) | $ (1.61) |
Net loss | (0.17) | (0.60) | (0.55) | (2.22) |
Diluted | ||||
Loss from continuing operations | (0.17) | (0.60) | (0.55) | (1.61) |
Net loss | $ (0.17) | $ (0.60) | $ (0.55) | $ (2.22) |
Weighted average number of basic common shares outstanding | 45,036,089 | 16,595,889 | 40,359,715 | 14,154,871 |
Weighted average number of diluted common shares outstanding | 45,036,089 | 16,595,889 | 40,359,715 | 14,154,871 |
Basis of Presentation, Business and Organization |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation, Business and Organization |
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.”
On April 16, 2015 we acquired certain assets and licenses related to the manufacture of XTouch touch sensors from Atmel Corporation and CIT Technology Ltd. and we closed a private offering consisting of $15 million in principal amount of our Senior Secured Convertible Promissory Notes together with warrants. On April 22, 2015 we terminated the Manufacturing Facility Installation and Supply Agreement dated April 15, 2013 which was entered into by Uni-Pixel Displays, Inc. and Eastman Kodak Company.
Our decision to change the focus of our business from developing and manufacturing InTouch sensors to manufacturing and selling XTouch touch sensors was based on, among other things, the pressure of declining prices and margin compression in the touch sensor market. We believe that our acquisition of the XTouch technology will provide us with a stand-alone, go-to-market strategy that we expect to provide a better economic model and lead to a scalable business in a more rapid time frame.
In addition to the flexible electronic films described above, we are developing a hard coat resin that can be applied using film, spray or inkjet coating methods for applications as protective cover films, a cover lens replacement or a conformal hard coat for plastic components. We plan to sell our hard coat resin and optical films under the Diamond Guard® brand.
Our strategy is to further develop our proprietary Performance Engineered Film™ technology around the vertical markets that we have identified as high growth profitable market opportunities. These markets include touch sensors, antennas, automotive and lighting.
As of September 30, 2016, Uni-Pixel had accumulated a total deficit of $171.3 million from operations in pursuit of these objectives.
As of September 30, 2016, we had cash and cash equivalents of $6.5 million. Our long-term viability is dependent upon our ability to successfully operate our business, develop our manufacturing process, develop our products, establish the business relationships we need to manufacture and market our products. On October 24, 2016, we entered into a $2.5 million loan and security agreement with Western Alliance Bank where we can borrow up to 90% of eligible accounts receivable at a rate of prime plus 1.25%.
The Company is subject to a number of risks, including, but not limited to, whether it can successfully integrate the XTouch operations; whether the manufacture and sale of the XTouch touch sensors will ultimately prove to be profitable; whether the Company will be able to raise capital when it needs to do so; whether the Company can successfully compete in the industry, particularly against larger organizations with greater financial and other resources; whether the Company will continue to receive the services of its key personnel; whether its intellectual property is adequately protected; and other risks related to the electronics 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. |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies |
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, 2015, filed with the Securities and Exchange Commission on March 30, 2016 (the “2015 Form 10-K”).
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, 2016 compared to what was previously disclosed in the 2015 Form 10-K. The consolidated financial information as of December 31, 2015 included herein has been derived from the Company’s audited consolidated financial statements as of, and for the fiscal year ended, December 31, 2015.
Significant Accounting Policies
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, the valuation of derivative liability, the potential impairment of property and equipment and intangible assets, deferred taxes, the valuation of non-cash equity awards, and the provision for and disclosure of litigation. 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 at September 30, 2016 and December 31, 2015. We have not incurred losses related to these deposits.
Restricted cash
As of September 30, 2016 and December 31, 2015 we had restricted cash of $0 and $4.1 million, respectively. At December 31, 2015, the $4.1 million of restricted cash represented the amount we were required to maintain on our balance sheet in accordance with the terms of the Securities Purchase Agreement entered into on April 16, 2015 for the sale of our Senior Secured Convertible Promissory Notes. This amount was released from restriction in the first quarter of 2016 upon conversion of the Senior Secured Promissory Notes.
Accounts Receivable
The carrying value of our accounts receivable, net of allowance for doubtful accounts, represents their estimated net realizable value. We estimate the allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance. We had $0.7 million and $0.3 million accounts receivable at September 30, 2016 and December 31, 2015, respectively.
Property and equipment
Property and equipment, consisting primarily of production equipment, lab equipment, computer equipment, software, leasehold improvements, and office furniture and fixtures is carried at cost less accumulated depreciation and amortization. Depreciation and amortization for financial reporting purposes is provided by the straight-line method over the estimated useful lives of three to five years. Leasehold improvements are amortized using the straight-line method over the remaining lease term or the life of the asset, whichever is shorter. The cost of repairs and maintenance is charged as an expense as incurred. Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred.
Convertible debt
The Company accounts for its convertible debt as equal to its proceeds, less unamortized discounts. The Company records discounts on its convertible debt for the fair value of freestanding and embedded derivatives as well as beneficial conversion features associated with the issuance of the debt. Discounts are amortized over the life of the convertible debt.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using standard cost, which approximates the first-in, first-out method. Adjustments to reduce the carrying value of inventory to its net realizable value are made for estimated excess, obsolete or impaired balances. These adjustments are measured as the excess of the cost of the inventory over its market value based upon assumptions about future demand and charged to cost of revenue. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration of the original cost basis or increases in the newly established cost basis.
Derivative liabilities
In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, the Company’s convertible notes are accounted for net, outside of shareholders’ equity and warrants are accounted for as liabilities at their fair value during periods where the full ratchet anti-dilution provision is in effect.
The warrants are accounted for a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings or losses. To derive an estimate of the fair value of these warrants, a binomial model is utilized that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.
Revenue recognition
We recognize revenue over the period the service is performed. In general, this requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured.
Advance payments are deferred until shipment of product has occurred or the service has been rendered.
Revenue from licenses and other up-front fees are recognized on a ratable basis over the term of the respective agreement.
Revenue on certain fixed price contracts where we provide research and development services are recognized over the contract term based on achievement of milestones. When the contracts provide for milestone or other interim payments, the Company will recognize revenue under the milestone method. The milestone method requires the Company to deem all milestone payments within each contract as either substantive or non-substantive. That conclusion is determined based upon a thorough review of each contract and the Company’s deliverables committed to in each contract. For substantive milestones, the Company concludes that upon achievement of each milestone, the amount of the corresponding defined payments is commensurate with the effort required to achieve such milestone or the value of the delivered item. The payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of the deliverables and the payment terms within the contract. For non-substantive milestones, including advance payments, the recognition of such payments are pro-rated to the substantive milestones.
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), convertible notes and convertible preferred stock.
At September 30, 2016, 1,260,000 restricted shares and options and warrants to purchase 11,675,251 shares of common stock at exercise prices ranging from $0.55 to $38.70 per share were outstanding, and were not included in the computation of diluted earnings per share as their effect would be anti-dilutive.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
Our financial instruments consist of accounts receivable, prepaid expenses, a derivative liability and accounts payable. We believe the fair values of our accounts receivable, prepaid expenses and accounts payable reflect their respective carrying amounts given the short term nature of these instruments. The derivative liability is measured at fair value on a recurring basis.
Recently issued accounting pronouncements
In February 2016, the Financial Accounting Standards Update (ASU) 2016-02 Leases (Topic). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. For public companies, the ASU is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the financial position, results of operations or cash flows.
Accounting Guidance Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The Company expects to adopt ASU 2014-09 for the fiscal year ending December 31, 2017 and will continue to assess the impact on its financial statements.
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. |
Commitments and Contingencies |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
Note 3 — Commitments and Contingencies
In conjunction with the acquisition of the XTouch technology, the Company entered into a lease for office and production facilities for approximately 28,918 square feet at 1150 E. Cheyenne Mountain Boulevard, Colorado Springs, Colorado 80906 under a third party non-cancelable operating lease through April 15, 2017. In July 2015, the company entered into a lease for office space for 4,478 square feet at 4699 Old Ironsides Drive, Ste. 300, Santa Clara, CA 95054 through July 14, 2018. In addition, the company leases approximately 7,186 square feet at 3400 Research Forest Drive, Suite B2, The Woodlands, TX that expires on May 31, 2018. Future minimum lease commitments as of September 30, 2016 are as follows:
Eco-System Partner Royalty Obligation
In April 2013, we entered into an agreement with Intel Corporation (“Intel”) (the “Capacity License Agreement”) whereby we were to receive $10 million of cash proceeds to assist us in increasing our production capacity. Under the terms of the Capacity License Agreement, there were two milestones with related contingent consideration of $5 million for each milestone plus certain commissions as described below. The Capacity License Agreement required us to purchase certain equipment, which we purchased in 2013 and which we consider not a substantive milestone. The Capacity License Agreement required us to have the capability to produce at least 1 million sensor units per month (as defined in the Capacity License Agreement) by April 2014, which we consider a substantive milestone. We received $5 million in May 2013, which is non-refundable and was recorded as deferred revenue in the consolidated balance sheet at December 31, 2014. Upon achieving the deliverables of the Capacity License Agreement, we would have paid a commission to Intel of 10% on revenue derived from the sales of InTouch™ Sensors jointly developed with Kodak made directly to Designated Customers. The commission amount was to be paid until the aggregate commissions paid equaled the commission cap of $18.5 million. The term of the Capacity License Agreement is the later of 3 years or the full payment of the commission cap. If the Company committed a material breach of the license agreement, certain equipment of the Company with an original cost of approximately $10.1 million would be assigned to Intel to make them whole on any remaining amounts due under the commission cap of $18.5 million.
In April 2014, we entered into the First Amendment to the Capacity License Agreement with Intel (the “Amended Capacity License Agreement”). The Amended Capacity License Agreement modified the original Capacity License Agreement terms as follows: 1) the inability of the Company to reach, by April 2014, the minimum production capability and the required quality standards specified in the Capacity License Agreement will no longer constitute a material breach to the Capacity License Agreement; 2) the total amount of cash proceeds to be received was reduced from $10 million to $5 million, which included the $5 million we received in May 2013; 3) the cap on the commission amount was reduced from $18.5 million to $6.25 million; 4) the term “commission” is defined as 10% of gross revenue from the sale of all sensors sold by the Company, which includes sales of InTouch™ Sensors to all customers including, but not limited to, Intel and its Designated Customers; 5) if the Company becomes the subject of any proceeding under any bankruptcy, insolvency or liquidation law, the Company will assign all title and ownership to the Equipment to Intel; and 6) if the Company materially breaches the Amended Capacity License Agreement, which breach is not cured within 30 days after receipt of notice from Intel, the Company may choose to either (A) pre-pay the cap on the commission to Intel (less the total of all previously paid commissions) or (B) assign all title and ownership to the Equipment to Intel. The only remaining milestone of the Amended Capacity License Agreement is the capability to produce at least 1 million sensors units per month. The Capacity License Agreement pertained to the InTouch™ Sensor technology that was jointly developed with Kodak pursuant to an agreement that was terminated after the acquisition of the XTouch sensor technology in 2015 and the Company has abandoned this InTouch™ Sensor technology.
In the fourth quarter of 2015, the Company recorded a $5.0 million gain on relief of deferred revenue liability for discontinued operations. The $5 million was originally received in 2013 and under the terms of the Capacity License Agreement, pertained to the Capacity License Agreement that was based on the InTouch™ Sensor technology which is no longer used.
In March 2016, Intel requested that the Company refund over time the $5 million discussed above that the Company had received from Intel in May 2013. The Company declined to refund the money as the payment was not refundable under the Amended Capacity License Agreement or otherwise due to Intel. As noted above, the agreement with Intel pertained to a technology that the Company abandoned when it terminated its joint development agreement with Kodak in 2015. Intel requested that the refund be accomplished by the Company paying Intel commissions on XTouch sensor revenue until the $5 million was refunded. The Company responded that no commissions are owed under the Amended Capacity License Agreement because it is not selling the abandoned InTouch™ Sensors or otherwise using the technology covered by the Amended Capacity License Agreement in its current products. The only products the Company has recognized revenue on are based on the XTouch sensor technology acquired from Atmel Corporation and CIT Technology Ltd. in April of 2015. No litigation or other legal proceeding has commenced on Intel’s request. The Company has engaged in discussions with Intel regarding formulation of a mutually agreeable commercial relationship. While it is not possible to predict the outcome of these discussions with certainty at the present time, if the Company is unable to reach an acceptable relationship, it intends to vigorously contest any claim that Intel might make.
Securities and Exchange Commission Complaint against former Officers of the Company and Settlement with the Company
On November 19, 2013, the Company learned that the Fort Worth Regional Office of the United States Securities and Exchange Commission (“SEC”) issued subpoenas concerning the Company’s agreements related to our InTouch™ Sensors. The Company cooperated fully with the SEC regarding this non-public, fact-finding inquiry, which resulted in a complaint filed by the SEC on March 9, 2016 naming the Company and two of the Company’s former executive officers as defendants. The allegations of the SEC in this complaint against the two former executive officers, Reed Killion and Jeffrey Tomz, who were respectively the Chief Executive Officer and Chief Financial Officer of the Company during the relevant periods of time at issue in the SEC’s complaint, include that they made more than $2 million in personal profits from selling their own shares of the Company’s common stock following disclosures regarding the Company’s agreement related to our InTouch™ Sensors.
On March 16, 2016, the U.S. District Court for the Southern District of Texas on March 16, 2016 signed a final judgment on this complaint pursuant to our consent (the “Final Judgment”), which the Company gave without admitting or denying the allegations of the SEC’s complaint. Without admitting or denying the allegations of the SEC’s complaint, we consented to the Final Judgment, which permanently enjoins us from violating Sections 10(b) and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 of the SEC and Section 17(a) of the Securities Act of 1933. The Final Judgment also permanently enjoins the filing with the SEC any periodic report pursuant to Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 12b-20 of the SEC, which contains any untrue statement of material fact, or which omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or which fails to comply in any material respect with the requirements of Section 13(a) of the Exchange Act and the rules and regulations thereunder. The Final Judgment also provides for a civil penalty in the amount of $750,000 to be paid in accordance with the following schedule:
(1) $20,000, within 14 days of entry of the Final Judgment; (2) $20,000, within 104 days of entry of the Final Judgment; (3) $30,000, within 194 days of entry of the Final Judgment; (4) $45,000, within 284 days of entry of the Final Judgment; (5) $60,000, within 374 days of entry of the Final Judgment; (6) $70,000, within 464 days of entry of the Final Judgment; (7) $80,000, within 554 days of entry of the Final Judgment; (8) $80,000, within 644 days of entry of the Final Judgment; (9) $80,000, within 734 days of entry of the Final Judgment; (10) $85,000, within 824 days of entry of the Final Judgment; (11) $90,000, within 914 days of entry of the Final Judgment; (12) $90,000, within 1004 days of entry of the Final Judgment
The $750,000 settlement was recorded in other expense on the consolidated statement of operations for the year ended December 31, 2015. As of September 30, 2016, the remaining settlement accrual is reflected in current liabilities of $255,000 and $425,000 in long-term liabilities.
Complaint by former Officers of the Company for Advancement of Expenses
The Company’s Amended and Restated Bylaws contain provisions regarding indemnification and advancement of expenses actually and reasonably incurred by the Company’s officers in connection with civil, criminal, administrative or investigative matters provided that such officers acted in good faith and in a manner such officers reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reason or cause to believe such officer’s conduct was unlawful. The advancement of expenses is expressly conditioned upon receipt of an undertaking by the officer to repay all such amounts so advanced in the event that it shall ultimately be determined that the officer is not entitled to be indemnified by the Company. The Company, or its insurance company, has paid as agreed all invoices for all years through the end of 2015 for the defense of Messrs. Killion and Tomz in the investigation by the SEC that resulted in the filing of the complaint against them by the SEC. A portion of payments for 2016 invoices have has also been made, but the Company has disputed other 2016 invoices totaling approximately $265,000 as containing expenses that have not been reasonably incurred by Messrs. Killion and Tomz in defense of the SEC’s complaint. Through the course of 2016, the Company has been in discussions with counsel to Messrs. Killion and Tomz of resolving counsels’ charges on these invoices. Notwithstanding those discussions, on August 22, 2016, Messrs. Killion and Tomz filed an action against the Company for advancement of expenses in the Delaware Chancery Court. The Company has contested the claims made by Messrs. Killion and Tomz that it has not advanced expenses reasonably incurred by them in the underlying action brought by the SEC. In October 2016, the Chancery Court appointed a former Vice Chancellor of the Delaware Chancery Court to act as a Special Master to determine whether expenses are reasonably incurred to the extent that the Company and Messrs. Killion and Tomz are not capable to resolve the dispute concerning whether expenses have been reasonably incurred without the assistance of the judicial process. |
Equity, Stock Plan and Warrants |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity, Stock Plan and Warrants |
Note 4 —Equity, Stock Plan and Warrants
Common Stock
During the nine months ended September 30, 2016, we (1) issued 833,252 shares of common stock to directors and employees; (2) issued 1,595,000 shares related to exercise of warrants; (3) issued 6,152,500 shares and received proceeds of $8.4 million, net of issuance costs of $0.8 million.
During the nine months ended September 30, 2015, we (1) issued 12,500 shares of common stock for cash in connection with the exercise of stock options; (2) issued 105,017 shares of common stock to various directors, officers and employees as stock awards; (3) issued 20,833 shares of common stock for the settlement of the derivative lawsuit; (4) issued 430,000 shares of common stock for the settlement of the class action lawsuit; and (5) issued 6,548,225 shares of common stock to convert $8.1 million of principal and $0.3 million of interest into shares of common stock.
Restricted Stock
Total compensation expense recognized for restricted stock was approximately $1.0 million and $1.1 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company has recorded approximately $1.0 million, $15,000 and $15,000 of restricted stock expense in selling, general and administrative expenses, research and development expense and cost of revenue for the nine months ended September 30, 2016, respectively and approximately $0.9 million and $0.2 million of restricted stock expense in selling, general and administrative expenses and research and development expense for the nine months ended September 30, 2015, respectively.
In the nine months ended September 30, 2016 the Company granted 1,260,000 restricted stock units (“RSUs”) with a grant-date fair value of approximately $1.9 million or $1.50 per share.
RSUs are converted into shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. RSUs generally vest over a period of three years and are expensed ratably on a straight line basis over their respective vesting period net of estimated forfeitures. The fair value of the RSUs granted is the product of the number of shares granted and the grant date fair value of the Company’s common stock. The RSUs that will vest in future periods will be net-share settled such that the Company will withhold shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares to be withheld will be based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price.
At September 30, 2016, there was $2.3 million of total unrecognized compensation cost related to non-vested shares of restricted stock which is expected to be recognized over a weighted-average period of 2.23 years. There were 429,938 shares of restricted stock, net that became vested during the nine months ended September 30, 2016.
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 5,500,001 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, 2016, there were 482,553 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:
Total compensation expense recognized for options was approximately $0.4 million and $1.3 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company has recorded approximately $0.2 million, $0.8 million and $66,000 of stock compensation expense in selling, general and administrative expenses research and development expense and cost of revenue for the nine months ended September 30, 2016 and approximately $0.5 million, 0.8 million and $46,000 of stock compensation expense in selling, general and administrative expenses, research and development expense and cost of revenue for the nine months ended September 30, 2015.
A summary of the changes in the total stock options outstanding during the nine months ended September 30, 2016 follows:
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:
At September 30, 2016, there was $0.8 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 2.01 years. There were approximately 0.5 million, net options that became vested during the nine months ended September 30, 2016.
Common Stock Warrants
As of September 30, 2016, the Company has 9,475,360 common stock warrants outstanding with a weighted average exercise price of $1.61 per share. Information regarding outstanding warrants as of September 30, 2016 is as follows:
|
Property and Equipment and Inventory |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment and Inventory |
Note 5 — Property and Equipment and Inventory
A summary of the components of property and equipment (in thousands) at September 30, 2016 and December 31, 2015 are as follows:
Depreciation for the nine months ended September 30, 2016 and September 30, 2015 was approximately $0.8 million and $3.6 million, respectively.
A summary of the components of inventory at September 30, 2016 and December 31, 2015 (in thousands):
|
Senior Secured Convertible Notes and Warrants |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
Senior Secured Convertible Notes and Warrants |
Note 6 — Senior Secured Convertible Notes and Warrants
Concurrent with the consummation of the XTouch acquisition, on April 16, 2015 (the “Effective Date”), and pursuant to a Securities Purchase Agreement, we sold $15 million in Senior Secured Convertible Notes, together with warrants for the purchase of 1,151,121 shares of our common stock (the “Warrants”), to two accredited investors (the “Investors”). In addition, we sold an additional $0.5 million Convertible Note to one of these Investors in November 2015, and the Warrant issued to that Investor was adjusted for an additional 38,371 shares of common stock. The number of shares of common stock subject to the Warrants equaled 65% of the number of shares of common stock the Investors would receive if the Convertible Notes were converted at the Conversion Price (as defined below) on the trading day immediately prior to the Effective Date.
The Convertible Notes accrue simple interest at the rate of 9% per year (“Interest”). On November 23, 2015, the Interest was reduced to 4%. The Convertible Notes together with all accrued and unpaid Interest were due and payable on April 16, 2016 (the “Maturity Date”). The Investors may, at any time, elect to convert the Convertible Notes into shares of our common stock at the conversion price, subject to certain beneficial ownership limitations. The conversion price is the lesser of $8.47 per share (the “Conversion Price”), subject to adjustment as set forth in the Convertible Notes for stock splits, dividends, recapitalizations and similar events, which equaled 110% of the last closing price of our common stock prior to the execution and delivery of the Securities Purchase Agreement and 85% of the lowest closing sale price during the prior 30 trading day period. As of February 16, 2016, the Convertible Note had been fully repaid.
The Warrants when issued had a five-year term and a per share exercise price of $9.63, subject to adjustment as set forth in the Warrants, which equaled 125% of the closing price of our common stock prior to the Effective Date. If, after the Effective Date, we issue or sell, or are deemed to have issued or sold, any shares of common stock (with the exception of certain Excluded Securities, as those are defined in the Warrants) for a consideration per share less than a price equal to the exercise price of the Warrants in effect immediately prior to such issue or sale (or deemed issuance or sale) (a “Dilutive Issuance”), then immediately after the Dilutive Issuance, (x) if the Dilutive Issuance occurs prior to the one year anniversary of the Effective Date, then the exercise price then in effect will be reduced to an amount equal to the product of (A) the exercise price in effect immediately prior to the Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the exercise price in effect immediately prior to the Dilutive Issuance and the number of Common Shares Deemed Outstanding (as defined in the Warrants) immediately prior to the Dilutive Issuance plus (II) the consideration, if any, received by us on such Dilutive Issuance, by (2) the product derived by multiplying (I) the exercise price in effect immediately prior to the Dilutive Issuance by (II) the number of Common Shares Deemed Outstanding immediately after the Dilutive Issuance and (y) if the Dilutive Issuance occurs after the one year anniversary of the Effective Date but within five years of the Effective Date, the exercise price then in effect will be reduced to an amount equal to the price of the shares of common stock issued in the Dilutive Issuance. The Warrants will be exercisable for cash, but if a prospectus covering the shares of common stock underlying the Warrants is not available, the Investors may exercise the Warrants using a cashless exercise provision. The Warrants may not be exercised if, after giving effect to the exercise, the Investor would beneficially own in excess of 4.99% or 9.99% of the outstanding shares of common stock, depending on the Investor. At the Investor’s option, the cap applicable to the exercise of the Warrants may be raised or lowered to any other percentage not in excess of 9.99%, except that any increase will only be effective upon 61-days’ prior notice to us.
As per the terms of the November 2015 equity transaction, the 1,189,492 Warrants were exchanged for new warrants to purchase an equivalent number of shares of common stock in the same form and same terms as the warrants issued in such equity transaction, including a repricing to $1.50 per share exercise price. The exercise price of the Warrants and the number of shares for which the Warrants are exercisable are subject to certain adjustments if the Company issues or sells additional shares of common stock or common stock equivalents at a price per share less than the exercise price then in effect, or without consideration. Notwithstanding the foregoing, there will be no adjustment to the exercise price of the Warrants or number of warrant shares issuable upon exercise in connection with the issuance of common stock upon Board of Director-approved employee benefit plans or upon the conversion, exercise or payment of certain outstanding, excluded securities.
Pursuant to a Pledge and Security Agreement (the “Security Agreement”) we entered into in favor of Hudson Bay Fund LP as Collateral Agent, the Convertible Notes are secured by a perfected first priority security interest in all of our assets and are senior in right of payment to all of our existing and future indebtedness, subject to Permitted Liens, as defined in the Convertible Notes. With the exception of Permitted Liens, we have agreed that we will not grant a security interest in our assets so long as the Convertible Notes remain outstanding and that we will not incur any new debt except for Permitted Indebtedness, as that term is defined in the Convertible Notes.
In conjunction with the issuance of the Convertible Notes and the Warrants, we entered into a Registration Rights Agreement pursuant to which we agreed to file a registration statement covering the sum of (i) 200% of the maximum number of shares underlying the Convertible Notes and (ii) the maximum number of shares underlying the Warrants (the “Registrable Securities”). We have agreed to keep any registration statement we file pursuant to the Registration Rights Agreement effective until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by the Registration. Statement without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) or (ii) the date on which the Investors shall have sold all of the securities covered by such Registration Statement.
We were to use our reasonable best efforts to have the registration statement declared effective within 90 days after the Effective Date (the “Registration Statement Effective Date”). If we failed to register the Registrable Securities or the registration statement is not declared effective by the SEC before the Registration Statement Effective Date, or if on any day after the Registration Statement Effective Date, sales of the Registrable Securities required to be included on the Registration Statement cannot be made (collectively, a “Registration Default”), we will pay to each Investor an amount in cash equal to 1% of the aggregate Purchase Price (as that term is defined in the Securities Purchase Agreement) of the Investor’s Registrable Securities, whether or not the Registrable Securities were included in the registration statement, and 1% per month (or a portion thereof pro rata) that the Registration Default continues to exist. We are not required to make these payment if, when a Registration Default occurs, the Investors can freely sell our common stock pursuant to Rule 144 without restriction or limitation. We filed the registration statement within 90 days and therefore did not have to make any payments to the Investors.
Investors in the offering have the right to participate for no less than 35% of any future offering of our equity or equity equivalent securities until the second anniversary of the Effective Date when the Convertible Notes were purchased.
We had agreed to keep at least $6.0 million of restricted cash on our balance sheet at all times until the Maturity Date or until the outstanding principal amount of the Convertible Notes is less than $6.0 million, at which time the amount of restricted cash we are required to keep on our balance sheet will be adjusted downward, dollar for dollar. As of September 30, 2016 and December 31, 2015, the restricted cash was $0 and $4.1 million, respectively.
As additional security for repayment of the Convertible Notes, Uni-Pixel Displays, Inc. entered into to a Guarantee Agreement in favor of the Investors.
Cowen and Company, LLC acted as our financial advisor in the acquisition of the assets and as our placement agent in the financing transaction. We paid Cowen and Company, LLC approximately $1.7 million for these services.
On April 16, 2015, the Company determined that the Convertible Notes had a carrying amount of $3.1 million. The Company utilized a binomial model in determining the fair market value of the Warrants of $6.0 million.
The Company also determined there was a beneficial conversion feature (“BCF”) as a result of the intrinsic value between the effective exercise price and the market price at the time of conversion of $6.0 million. The BCF was included in additional paid in capital. As a result of the down-round protection on the warrants, they have been accounted for as a derivative liability upon issuance and at December 31, 2015.
At inception, the Convertible Notes balance (in thousands) and unamortized discount in millions were as follows:
As of September 30, 2016, the Investors were issued an aggregate of 13,984,411 shares of common stock on the conversion of $11.6 million of principal and $0.3 million of interest As of September 30, 2016 the convertible note balances were $0.
The following table summarizes the charges to interest, amortization and other expense, net for the nine months ended September 30, 2016 (in thousands):
|
Agreements with Atmel Corporation and CIT Technology LTD. |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agreements with Atmel Corporation and CIT Technology LTD. |
Note 7 — Agreements with Atmel Corporation and CIT Technology LTD.
Atmel Corporation Asset Acquisition and License Agreements
On April 16, 2015 (the “Effective Date”), Uni-Pixel Displays, Inc. (“Displays”) acquired from Atmel Corporation (“Atmel”), pursuant to the terms of a Purchase and Sale Agreement, a Patent License Agreement, an IP License Agreement, a Bill of Sale and Assignment and Assumption Agreement and two leases for real property, certain assets used for the production of capacitive touch sensors comprised of fine lines of copper metal photo lithographically patterned and plated on flexible plastic film (the “Touch Sensors”). $450,000 was paid for the machinery, parts and equipment needed to manufacture the Touch Sensors and the existing inventory on hand. Displays paid this amount with a secured promissory note due on or before the earlier of (i) the second anniversary of the Effective Date or (ii) the sale of equity and/or debt securities after the Effective Date pursuant to which Displays or any affiliate of our receives gross proceeds of no less than $5 million. Interest accrues on the unpaid principal amount at a rate equal to 2% per annum compounded semi-annually and is to be paid in arrears semi-annually, commencing with the six-month anniversary of the Effective Date. Displays has granted to Atmel a security interest in the purchased assets and all accounts receivable subsequently arising from Display’s manufacture and sale of Touch Sensors and all proceeds therefrom. Pursuant to the Purchase and Sale Agreement, Displays assumed certain liabilities of Atmel, including open purchase and supply orders, related to the Touch Sensor business. In April 2016, the $450,000 promissory note was fully repaid.
Through the Patent License Agreement, Atmel licensed to Displays a non-sublicensable, worldwide, royalty-bearing license under its Touch Sensors patents to make or have made, use, offer for sale, sell, and import the Touch Sensors. In consideration for this license, Displays agreed to pay an annual royalty fee during the initial five year term of the license (the “Initial Term”) of the greater of $3.25 million or 3.33% of the total net sales (as defined in the Patent License Agreement) of the Touch Sensors during the Initial Term. Displays has the right to renew the license for a term of 10 years. If Displays exercises this right, the annual royalty fee will consist of 2.5% of the total net sales of the Touch Sensors until it reaches a total of $16.75 million, at which time no further annual royalty fees will be due. Upon execution of the Patent License Agreement, Displays paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $9.33 million (the “Royalty Prepayment”). The Royalty Prepayment will be applied to the annual royalty fees Displays owes under the Patent License Agreement. If, during the Initial Term, Displays’ cash balances as of the quarter end immediately prior to the date of the royalty period to which an unpaid annual royalty relates is less than $30 million, it may pay the annual royalty fee with a secured promissory note. Atmel has agreed that it will not enter into a license agreement for the licensed patents that is effective prior to the second anniversary of the Effective Date.
Through the IP License Agreement, Atmel licensed to Displays a non-sublicensable, worldwide, royalty-free license to the intellectual property necessary to make or have made, use, offer for sale, sell, and import the Touch Sensors. The term of the IP License Agreement is co-extensive with the term of the Patent License Agreement. Atmel has agreed that it will not enter into a license agreement for the licensed intellectual property that is effective prior to the second anniversary of the Effective Date.
As part of the business combination acquisition, Displays also entered into leases with Atmel Corporation for Building 2 and Building 4, both of which are located at 1150 E. Cheyenne Mountain Boulevard, Colorado Springs, Colorado. The term of each lease is 18 months (the “Primary Lease Term”). The term of each lease may be extended for two additional six month periods. During the Primary Lease Term, the initial base rent for each of Building 2 and Building 4 will be $100 per month. During the first renewal term, the monthly base rent for Building 2 will be $5,625 and during the second renewal term the monthly base rent will be $8,437. During the first renewal term, the monthly base rent for Building 4 will be $39,375 and during the second renewal term the monthly base rent will be $59,062. Aside from the base rent, Displays is responsible for the payment of its share of operating expenses attributable to the buildings, real estate taxes attributable to the buildings, sales and personal property taxes, utilities and additional services provided by Atmel (as defined in the leases). The Company extended the lease until April 15, 2017.
Transition Services Agreement
In conjunction with the above-described transaction, Displays and Atmel entered into a Transition Services Agreement. Pursuant to the Transition Services Agreement, Atmel agreed to provide the following services for the periods described: (i) quality assurance and failure analysis services for the XTouch Touch Sensors for a period of six months starting from the Effective Date, (ii) operations services for a period of 30 days starting from the Effective Date and (iii) other services, as those are defined in the Transition Services Agreement, for a period of three months starting from the Effective Date. In exchange for the services, Displays has agreed to pay reasonable and documented direct costs incurred by Atmel in performing the services together with actual out-of-pocket third-party expenses reasonably incurred by Atmel in providing the services. The service fees include, but are not limited to, (a) the actual out-of-pocket employment costs (base salary, payroll taxes and out-of-pocket medical benefits) for the individuals performing the services (based on the actual time expended by such individuals in performing the services), (b) costs of materials, (c) the actual out-of-pocket third-party expenses reasonably incurred by Atmel in providing the services, and (d) direct supervisory and management expenses incurred by Atmel in providing the services. On the Effective Date, we paid $0.4 million to Atmel and was applied against certain designated services. The transition services have been completed.
CIT Technology Ltd. License Agreements and Manufacturing and Technology Transfer Agreement
On the Effective Date Displays entered into an FLT (Fine Line Technology) Patent License Agreement (the “CIT Patent License Agreement”), an FLT (Fine Line Technology) Intellectual Property License Agreement (the “CIT IP License Agreement”) and a Manufacturing and Technology Transfer Agreement (the “Manufacturing Agreement”) with CIT Technology Ltd. (“CIT”).
Through the CIT Patent License Agreement, CIT licensed to Displays a non-sublicensable, worldwide, royalty-bearing license under its fine line technology (“FLT”) patents to make or have made, use, offer for sale, sell, and import licensed FLT products (the “Licensed Products”), which are defined as capacitive touch sensors comprising fine lines of copper metal printed on flexible plastic film. In consideration for this license, Displays agreed to pay an annual royalty fee during the initial five year term of the license (the “Initial License Term”) of the greater of $1.65 million or 1.67% of the total net sales (as defined in the CIT Patent License Agreement) of the Licensed Products during the Initial License Term. Displays has the right to renew the license for a term of 10 years. If Displays exercises this right, the annual royalty fee will consist of 1.67% of the total net sales of the Licensed Products until it reaches a total of $8.25 million, at which time no further annual royalty fees will be due. Further, the total royalty fees payable for the initial 5 year term and the subsequent 10 year term is capped at $30 million. Upon execution of the CIT Patent License Agreement, Displays paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $4.67 million (the “CIT Royalty Prepayment”). The CIT Royalty Prepayment will be applied to the annual royalty fees Displays owes under the CIT Patent License Agreement. If, during the Initial License Term, Displays’ cash balances as of the quarter end immediately prior to the date of the royalty period to which an unpaid annual royalty relates is less than $30 million, Displays may pay the annual royalty fee with a secured promissory note. CIT has agreed that it will not enter into a license agreement for the licensed patents as they relate to the Licensed Products that is effective prior to the second anniversary of the Effective Date.
Through the CIT IP License Agreement, CIT licensed to Displays a non-sublicensable, worldwide, royalty-free license to the intellectual property necessary to make or have made, use, offer for sale, sell, and import the Licensed Products. The term of the CIT IP License Agreement is co-extensive with the term of the CIT Patent License Agreement. CIT has agreed that it will not enter into a license agreement for the licensed intellectual property as it relates to the Licensed Products that is effective prior to the second anniversary of the Effective Date.
The Manufacturing Agreement had a term of six months, where Displays agreed that for a period of 16 consecutive weeks it will order, on a weekly basis, 11,500 linear meters of coated film manufactured by CIT at a cost of $7.90 per linear meter. The agreement had been completed and the process was transferred to the Colorado Springs facility in fiscal year 2015.
The following unaudited pro-forma financial information presents the Company’s condensed financial results (in thousands) for the nine months ended September 30, 2015 as if the acquisitions had occurred as of January 1, 2015:
These pro-forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that actually would have resulted had the acquisitions been effective at the beginning of 2015 and are not necessarily representative of future results. The pro-forma results include the following adjustments:
|
Loss on Discontinued Operations |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Loss on Discontinued Operations |
Note 8 — Loss on Discontinued Operations
On April 22, 2015 Displays exercised its right to terminate the Manufacturing Facility Installation and Supply Agreement dated April 15, 2013 (the “Supply Agreement”), which was entered into by Displays and Eastman Kodak Company (“Kodak”).
Displays did not renew that certain Joint Development Agreement dated February 5, 2013, also with Kodak, which was related to flexible patterned conductive films.
In connection with the discontinued operations, the Company took a $7.6 million write down on equipment in the second quarter of 2015. |
Fair Value Measurements |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
Note 9 — Fair Value Measurements
Liabilities measured at fair value (in thousands) on a recurring basis are summarized as follows:
As described further in Note 6, the derivative liability is related to warrants to purchase 1,189,492 shares of common stock issued by the Company in connection with our Convertible Note, which included a down-round protection on the warrants. These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The fair value of these warrants were $6.0 million at inception. The Company recognized $0.9 million of other expense for the nine months ended September 30, 2016 in the accompanying consolidated statements of operations, resulting from the increase in the fair value of the derivative liability at September 30, 2016 as compared to December 31, 2015. The derivative liability will continue to be measured at fair value, with changes in fair value recognized in earnings, until the warrants are exercised, expire or are otherwise extinguished. |
Revenue and Credit Concentrations |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue and Credit Concentrations |
Note 10 — Revenue and Credit Concentrations
During the nine months ended September 30, 2016 and 2015, revenues (in thousands) by customers with more than 10% of revenue were as follows:
As of September 30, 2016 and December 31, 2015 customers with more than 10% of accounts receivables balances (in thousands) were as follows:
|
Subsequent Event |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Event |
Note 11 — Subsequent Event
On October 24, 2016, the Company entered into a $2.5 million two year loan and security agreement with Western Alliance Bank. The agreement allows the Company to borrow up to 90% of its gross eligible trade receivables at an interest rate of prime plus 1.25%. The line is secured by all the assets of the Company, including intellectual property. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Use of Estimates |
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, the valuation of derivative liability, the potential impairment of property and equipment and intangible assets, deferred taxes, the valuation of non-cash equity awards, and the provision for and disclosure of litigation. Actual results may differ materially from those estimates. |
Statement of Cash Flows |
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 |
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 at September 30, 2016 and December 31, 2015. We have not incurred losses related to these deposits. |
Restricted Cash |
Restricted cash
As of September 30, 2016 and December 31, 2015 we had restricted cash of $0 and $4.1 million, respectively. At December 31, 2015, the $4.1 million of restricted cash represented the amount we were required to maintain on our balance sheet in accordance with the terms of the Securities Purchase Agreement entered into on April 16, 2015 for the sale of our Senior Secured Convertible Promissory Notes. This amount was released from restriction in the first quarter of 2016 upon conversion of the Senior Secured Promissory Notes. |
Accounts Receivable |
Accounts Receivable
The carrying value of our accounts receivable, net of allowance for doubtful accounts, represents their estimated net realizable value. We estimate the allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance. We had $0.7 million and $0.3 million accounts receivable at September 30, 2016 and December 31, 2015, respectively. |
Property and Equipment |
Property and equipment
Property and equipment, consisting primarily of production equipment, lab equipment, computer equipment, software, leasehold improvements, and office furniture and fixtures is carried at cost less accumulated depreciation and amortization. Depreciation and amortization for financial reporting purposes is provided by the straight-line method over the estimated useful lives of three to five years. Leasehold improvements are amortized using the straight-line method over the remaining lease term or the life of the asset, whichever is shorter. The cost of repairs and maintenance is charged as an expense as incurred. Gains or losses related to retirements or dispositions of fixed assets are recognized in the period incurred. |
Convertible Debt |
Convertible debt
The Company accounts for its convertible debt as equal to its proceeds, less unamortized discounts. The Company records discounts on its convertible debt for the fair value of freestanding and embedded derivatives as well as beneficial conversion features associated with the issuance of the debt. Discounts are amortized over the life of the convertible debt. |
Inventory |
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using standard cost, which approximates the first-in, first-out method. Adjustments to reduce the carrying value of inventory to its net realizable value are made for estimated excess, obsolete or impaired balances. These adjustments are measured as the excess of the cost of the inventory over its market value based upon assumptions about future demand and charged to cost of revenue. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration of the original cost basis or increases in the newly established cost basis. |
Derivative Liabilities |
Derivative liabilities
In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, the Company’s convertible notes are accounted for net, outside of shareholders’ equity and warrants are accounted for as liabilities at their fair value during periods where the full ratchet anti-dilution provision is in effect.
The warrants are accounted for a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings or losses. To derive an estimate of the fair value of these warrants, a binomial model is utilized that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect. |
Revenue Recognition |
Revenue recognition
We recognize revenue over the period the service is performed. In general, this requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured.
Advance payments are deferred until shipment of product has occurred or the service has been rendered.
Revenue from licenses and other up-front fees are recognized on a ratable basis over the term of the respective agreement.
Revenue on certain fixed price contracts where we provide research and development services are recognized over the contract term based on achievement of milestones. When the contracts provide for milestone or other interim payments, the Company will recognize revenue under the milestone method. The milestone method requires the Company to deem all milestone payments within each contract as either substantive or non-substantive. That conclusion is determined based upon a thorough review of each contract and the Company’s deliverables committed to in each contract. For substantive milestones, the Company concludes that upon achievement of each milestone, the amount of the corresponding defined payments is commensurate with the effort required to achieve such milestone or the value of the delivered item. The payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of the deliverables and the payment terms within the contract. For non-substantive milestones, including advance payments, the recognition of such payments are pro-rated to the substantive milestones. |
Loss Per Share Data |
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), convertible notes and convertible preferred stock.
At September 30, 2016, 1,260,000 restricted shares and options and warrants to purchase 11,675,251 shares of common stock at exercise prices ranging from $0.55 to $38.70 per share were outstanding, and were not included in the computation of diluted earnings per share as their effect would be anti-dilutive. |
Fair Value of Financial Instruments |
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
Our financial instruments consist of accounts receivable, prepaid expenses, a derivative liability and accounts payable. We believe the fair values of our accounts receivable, prepaid expenses and accounts payable reflect their respective carrying amounts given the short term nature of these instruments. The derivative liability is measured at fair value on a recurring basis. |
Recently Issued Accounting Pronouncements |
Recently issued accounting pronouncements
In February 2016, the Financial Accounting Standards Update (ASU) 2016-02 Leases (Topic). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. For public companies, the ASU is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the financial position, results of operations or cash flows. |
Accounting Guidance Not Yet Effective |
Accounting Guidance Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The Company expects to adopt ASU 2014-09 for the fiscal year ending December 31, 2017 and will continue to assess the impact on its financial statements.
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. |
Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases |
Future minimum lease commitments as of September 30, 2016 are as follows:
|
Equity, Stock Plan and Warrants (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Changes in Stock Options Outstanding |
A summary of the changes in the total stock options outstanding during the nine months ended September 30, 2016 follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions |
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:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Outstanding Warrants |
Information regarding outstanding warrants as of September 30, 2016 is as follows:
|
Property and Equipment and Inventory (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property and Equipment |
A summary of the components of property and equipment (in thousands) at September 30, 2016 and December 31, 2015 are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory |
A summary of the components of inventory at September 30, 2016 and December 31, 2015 (in thousands):
|
Senior Secured Convertible Notes and Warrants (Tables) |
9 Months Ended | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||
Schedule of Convertible Debt |
At inception, the Convertible Notes balance (in thousands) and unamortized discount in millions were as follows:
|
|||||||||||||||||||||||||||
Schedule of Debt |
The following table summarizes the charges to interest, amortization and other expense, net for the nine months ended September 30, 2016 (in thousands):
|
Agreements with Atmel Corporation and CIT Technology LTD. - Schedule of Unaudited Pro-forma Financial Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Schedule of Unaudited Pro-forma Financial Information |
The following unaudited pro-forma financial information presents the Company’s condensed financial results (in thousands) for the nine months ended September 30, 2015 as if the acquisitions had occurred as of January 1, 2015:
|
Fair Value Measurements (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Liabilities Measured on Recurring Basis |
Liabilities measured at fair value (in thousands) on a recurring basis are summarized as follows:
|
Revenue and Credit Concentrations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue And Credit Concentrations Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedules of Credit Concentration Risk |
During the nine months ended September 30, 2016 and 2015, revenues (in thousands) by customers with more than 10% of revenue were as follows:
As of September 30, 2016 and December 31, 2015 customers with more than 10% of accounts receivables balances (in thousands) were as follows:
|
Basis of Presentation, Business and Organization (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
9 Months Ended | |||||
---|---|---|---|---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
Nov. 30, 2015 |
Sep. 30, 2015 |
Apr. 16, 2015 |
Dec. 31, 2014 |
|
Note 1 - Basis of Presentation, Business and Organization (Details) [Line Items] | ||||||
Common stock, par value | $ 0.001 | $ 0.001 | ||||
Debt principal amount | $ 15,000 | |||||
Accumulated deficit | 171,305 | $ 149,191 | ||||
Cash and cash equivalents | 6,461 | $ 7,618 | $ 2,178 | $ 23,663 | ||
Western Alliance Bank [Member] | October 24, 2016 [Member] | ||||||
Note 1 - Basis of Presentation, Business and Organization (Details) [Line Items] | ||||||
Line of credit facility, maximum borrowing capacity | $ 2,500 | |||||
Maximum borrowing percentage | 90.00% | |||||
Interest rate | 1.25% | |||||
Atmel Corporation X Touch [Member] | Convertible Debt [Member] | ||||||
Note 1 - Basis of Presentation, Business and Organization (Details) [Line Items] | ||||||
Debt principal amount | $ 500 | $ 15,000 |
Commitments and Contingencies - Schedule of Future Minimum Rental Payments for Operating Leases (Details) $ in Thousands |
Sep. 30, 2016
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
Three months ending 2016 | $ 189 |
2017 | 463 |
2018 | 141 |
2019 | |
2020 | |
2021 | |
Total | $ 793 |
Equity, Stock Plan and Warrants - Summary of Changes in Stock Options Outstanding (Details) - $ / shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Stockholders' Equity Note [Abstract] | ||
Options Outstanding and expected to vest, Beginning Balance | 1,941,194 | |
Options Granted | 418,000 | |
Options Forfeited or expired | (156,253) | |
Options Exercised | (3,050) | (12,500) |
Options Outstanding and expected to vest, Ending Balance | 2,199,891 | |
Options Vested and exercisable | 1,536,078 | |
Weighted Average Exercise Price Outstanding and expected to vest, Beginning Balance | $ 6.54 | |
Weighted Average Exercise Price Granted | 1.39 | |
Weighted Average Exercise Price Forfeited or expired | 9.36 | |
Weighted Average Exercise Price Exercised | 1.23 | |
Weighted Average Exercise Price Outstanding and expected to vest, Ending Balance | 5.37 | |
Weighted Average Exercise Price Vested and exercisable | $ 7.02 |
Equity, Stock Plan and Warrants - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Details) - $ / shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Stockholders' Equity Note [Abstract] | ||||
Expected life (years) | 5 years | 5 years | 5 years | 5 years |
Interest rate | 1.11% | 163.00% | ||
Interest rate, minimum | 1.11% | 1.31% | ||
Interest rate, maximum | 1.63% | 1.63% | ||
Dividend yield | 0.00% | 0.00% | 0.00% | 0.00% |
Volatility | 97.48% | 157.66% | ||
Volatility, minimum | 97.48% | 144.34% | ||
Volatility, maximum | 157.66% | 157.66% | ||
Forfeiture rate | ||||
Weighted average fair value per share of options granted | $ 1.11 | $ 1.15 | $ 1.02 | $ 1.41 |
Property and Equipment and Inventory (Details Narrative) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation | $ 800 | $ 3,600 |
Property and Equipment and Inventory - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Property, and Equipment | $ 6,162 | $ 5,855 |
Accumulated depreciation | (4,815) | (4,013) |
Property and equipment, net | $ 1,347 | 1,842 |
Minimum [Member] | ||
Property and Equipment, Estimated Useful Lives | 3 years | |
Maximum [Member] | ||
Property and Equipment, Estimated Useful Lives | 5 years | |
Production Equipment [Member] | ||
Property, and Equipment | $ 2,051 | 1,966 |
Production Equipment [Member] | Minimum [Member] | ||
Property and Equipment, Estimated Useful Lives | 3 years | |
Production Equipment [Member] | Maximum [Member] | ||
Property and Equipment, Estimated Useful Lives | 5 years | |
Research and Development Equipment [Member] | ||
Property, and Equipment | $ 3,581 | 3,572 |
Research and Development Equipment [Member] | Minimum [Member] | ||
Property and Equipment, Estimated Useful Lives | 3 years | |
Research and Development Equipment [Member] | Maximum [Member] | ||
Property and Equipment, Estimated Useful Lives | 5 years | |
Leasehold Improvements [Member] | ||
Property and Equipment, Estimated Useful Lives | 5 years | |
Property, and Equipment | $ 23 | 23 |
Computer Equipment [Member] | ||
Property and Equipment, Estimated Useful Lives | 5 years | |
Property, and Equipment | $ 98 | 98 |
Office Equipment [Member] | ||
Property, and Equipment | $ 20 | 20 |
Office Equipment [Member] | Minimum [Member] | ||
Property and Equipment, Estimated Useful Lives | 3 years | |
Office Equipment [Member] | Maximum [Member] | ||
Property and Equipment, Estimated Useful Lives | 5 years | |
Construction in Progress [Member] | ||
Property, and Equipment | $ 389 | $ 176 |
Property and Equipment and Inventory - Schedule of Inventory (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Raw materials | $ 239 | $ 419 |
Work-in-progress | 426 | 328 |
Finish Goods | 12 | 22 |
Inventory | $ 677 | $ 769 |
Senior Secured Convertible Notes and Warrants (Details Narrative) $ / shares in Units, $ in Thousands |
1 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Apr. 16, 2015
USD ($)
Investor
$ / shares
shares
|
Nov. 30, 2015
USD ($)
Investor
$ / shares
shares
|
Sep. 30, 2016
USD ($)
shares
|
Dec. 31, 2015
USD ($)
|
Nov. 23, 2015 |
|
Debt instrument, face amount | $ 15,000 | ||||
Class of warrant or right, outstanding | shares | 9,475,360 | ||||
Restricted cash and cash equivalents | $ 4,098 | ||||
Convertible notes payable | 3,050 | ||||
Debt instrument, convertible, beneficial conversion feature | 5,970 | ||||
Convertible notes payable | $ 2,773 | ||||
Atmel Corporation X Touch [Member] | |||||
Debt interest rate percentage | 4.00% | ||||
Debt payment terms | Interest accrues on the unpaid principal amount at a rate equal to 2% per annum compounded semi-annually and is to be paid in arrears semi-annually, commencing with the six-month anniversary of the closing date | ||||
Atmel Corporation X Touch [Member] | Convertible Debt [Member] | |||||
Debt instrument, face amount | $ 15,000 | $ 500 | |||
Class of warrant or rights, granted, shares | shares | 1,151,121 | 38,371 | |||
Number of investers | Investor | 2 | 1 | |||
Equity method investment, ownership percentage | 65.00% | ||||
Debt interest rate percentage | 9.00% | 4.00% | |||
Debt maturity date | Apr. 16, 2016 | ||||
Debt convertible, conversion price per share | $ / shares | $ 8.47 | ||||
Debt convertible, terms of conversion feature | subject to adjustment as set forth in the Convertible Notes for stock splits, dividends, recapitalizations and similar events, which equaled 110% of the last closing price of our common stock prior to the execution and delivery of the Securities Purchase Agreement and 85% of the lowest closing sale price during the prior 30 trading day period. | ||||
Debt payment terms | The Investors have the right to accelerate payment on each monthly redemption date of up to two monthly redemption amounts upon written notice to us, and the Investors have the option to be paid such accelerated amount in common stock as if it were a Company Conversion. The Investors also have the right to defer payment of a monthly redemption amount. | ||||
Debt default, description of violation or event of default | Following an Event of Default, as defined in the Convertible Notes, the Investors may require us to redeem all or any portion of the Convertible Notes. The redemption amount may be paid in cash or with shares of our common stock, at the election of the Investor, at a price equal to the Event of Default Redemption Price, as defined in the Convertible Notes. | ||||
Warrants, term of warrants | 5 years | ||||
Warrants exercise price per share | $ / shares | $ 9.63 | $ 1.50 | |||
Percentage of warrants equals to common stock price | 125.00% | ||||
Warrant exercise price of warrants or rights, description | If, after the Effective Date, we issue or sell, or are deemed to have issued or sold, any shares of common stock (with the exception of certain Excluded Securities, as those are defined in the Warrants) for a consideration per share less than a price equal to the exercise price of the Warrants in effect immediately prior to such issue or sale (or deemed issuance or sale) (a Dilutive Issuance), then immediately after the Dilutive Issuance, (x) if the Dilutive Issuance occurs prior to the one year anniversary of the Effective Date, then the exercise price then in effect will be reduced to an amount equal to the product of (A) the exercise price in effect immediately prior to the Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the exercise price in effect immediately prior to the Dilutive Issuance and the number of Common Shares Deemed Outstanding (as defined in the Warrants) immediately prior to the Dilutive Issuance plus (II) the consideration, if any, received by us on such Dilutive Issuance, by (2) the product derived by multiplying (I) the exercise price in effect immediately prior to the Dilutive Issuance by (II) the number of Common Shares Deemed Outstanding immediately after the Dilutive Issuance and (y) if the Dilutive Issuance occurs after the one year anniversary of the Effective Date but within five years of the Effective Date, the exercise price then in effect will be reduced to an amount equal to the price of the shares of common stock issued in the Dilutive Issuance. The Warrants will be exercisable for cash, but if a prospectus covering the shares of common stock underlying the Warrants is not available, the Investors may exercise the Warrants using a cashless exercise provision. The Warrants may not be exercised if, after giving effect to the exercise, the Investor would beneficially own in excess of 4.99% or 9.99% of the outstanding shares of common stock, depending on the Investor. At the Investors option, the cap applicable to the exercise of the Warrants may be raised or lowered to any other percentage not in excess of 9.99%, except that any increase will only be effective upon 61-days prior notice to us. | ||||
Class of warrant or right, outstanding | shares | 1,189,492 | ||||
Registration rights agreement, description | In conjunction with the issuance of the Convertible Notes and the Warrants, we entered into a Registration Rights Agreement pursuant to which we agreed to file a registration statement covering the sum of (i) 200% of the maximum number of shares underlying the Convertible Notes and (ii) the maximum number of shares underlying the Warrants (the Registrable Securities). We have agreed to keep any registration statement we file pursuant to the Registration Rights Agreement effective until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by the Registration Statement without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) or (ii) the date on which the Investors shall have sold all of the securities covered by such Registration Statement. We were to use our reasonable best efforts to have the registration statement declared effective within 90 days after the Effective Date (the Registration Statement Effective Date). If we failed to register the Registrable Securities or the registration statement is not declared effective by the SEC before the Registration Statement Effective Date, or if on any day after the Registration Statement Effective Date, sales of the Registrable Securities required to be included on the Registration Statement cannot be made (collectively, a Registration Default), we will pay to each Investor an amount in cash equal to 1% of the aggregate Purchase Price (as that term is defined in the Securities Purchase Agreement) of the Investors Registrable Securities, whether or not the Registrable Securities were included in the registration statement, and 1% per month (or a portion thereof pro rata) that the Registration Default continues to exist. We are not required to make these payment if, when a Registration Default occurs, the Investors can freely sell our common stock pursuant to Rule 144 without restriction or limitation. | ||||
Secruities purchase agreement, investor rights | Investors in the offering have the right to participate for no less than 35% of any future offering of our equity or equity equivalent securities until the second anniversary of the Effective Date when the Convertible Notes were purchased. | ||||
Restricted cash and cash equivalent item, agreement | We agreed to keep at least $6.0 million of restricted cash on our balance sheet at all times until the Maturity Date or until the outstanding principal amount of the Convertible Notes is less than $6.0 million, at which time the amount of restricted cash we are required to keep on our balance sheet will be adjusted downward, dollar for dollar. As of March 31, 2016 and December 31, 2015, the restricted cash was $0 and $4.1 million, respectively. | ||||
Restricted cash and cash equivalents | $ 6,000 | ||||
Payments of stock issuance costs | 1,700 | ||||
Convertible notes payable | 3,100 | ||||
Warrants, fair value of warrants, granted | 6,000 | ||||
Debt instrument, convertible, beneficial conversion feature | $ 6,000 | ||||
Debt conversion, converted instrument, shares issued | shares | 13,984,411 | ||||
Atmel Corporation X Touch [Member] | Convertible Debt [Member] | Principal [Member] | |||||
Debt conversion, original debt, amount | $ 11,600 | ||||
Atmel Corporation X Touch [Member] | Convertible Debt [Member] | Interest [Member] | |||||
Debt conversion, original debt, amount | $ 300 |
Senior Secured Convertible Notes and Warrants - Schedule of Convertible Debt (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Debt Disclosure [Abstract] | |
Convertible notes | $ 15,000 |
Discount attributable to warrants | (5,980) |
Discount attributable to BCF | (5,970) |
Carrying amount of Convertible Notes at inception | $ 3,050 |
Senior Secured Convertible Notes and Warrants - Schedule of Interest, Amortization and Other Expenses Related to Debt (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Debt Disclosure [Abstract] | ||||
Interest expense on convertible notes | $ 9 | $ 434 | ||
Accretion of convertible note discount | $ 4,049 | $ 1,291 | $ 7,171 |
Agreements with Atmel Corporation and CIT Technology LTD.(Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|---|
Apr. 16, 2015 |
Apr. 30, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Mar. 31, 2015 |
|
Payments to acquire property, plant, and equipment | $ 308,000 | $ 623,000 | |||||
Repayment of promissory note plus interest | 2,867,000 | 458,000 | |||||
Cost of sales | $ 3,231,000 | $ 4,701,000 | 11,431,000 | $ 8,128,000 | |||
Other expense | $ 900,000 | ||||||
Atmel Corporation [Member] | |||||||
Repayment of promissory note plus interest | $ 450,000 | ||||||
Atmel Corporation [Member] | Licensing Agreements [Member] | |||||||
Transition services agreement, description | In conjunction with the above-described transaction, Displays and Atmel entered into a Transition Services Agreement. Pursuant to the Transition Services Agreement, Atmel agreed to provide the following services for the periods described: (i) quality assurance and failure analysis services for the XTouch Touch Sensors for a period of six months starting from the Effective Date, (ii) operations services for a period of 30 days starting from the Effective Date and (iii) other services, as those are defined in the Transition Services Agreement, for a period of three months starting from the Effective Date. In exchange for the services, Displays has agreed to pay reasonable and documented direct costs incurred by Atmel in performing the services together with actual out-of-pocket third-party expenses reasonably incurred by Atmel in providing the services. The service fees include, but are not limited to, (a) the actual out-of-pocket employment costs (base salary, payroll taxes and out-of-pocket medical benefits) for the individuals performing the services (based on the actual time expended by such individuals in performing the services), (b) costs of materials, (c) the actual out-of-pocket third-party expenses reasonably incurred by Atmel in providing the services, and (d) direct supervisory and management expenses incurred by Atmel in providing the services. | ||||||
Payment of transition services | $ 400 | ||||||
Atmel Corporation [Member] | Machinery and Equipment [Member] | |||||||
Payments to acquire property, plant, and equipment | $ 450,000 | ||||||
Debt instrument, maturity date, description | the second anniversary of the Effective Date or (ii) the sale of equity and/or debt securities after the Effective Date pursuant to which Displays or any affiliate of our receives gross proceeds of no less than $5 million. | ||||||
Debt instrument, interest rate, stated percentage | 2.00% | ||||||
Debt instrument, payment terms | compounded semi-annually and is to be paid in arrears semi-annually, commencing with the six-month anniversary of the Effective Date. | ||||||
Atmel Corporation [Member] | Building 2 And 4 [Member] | |||||||
Lessee leasing arrangements, operating leases, term of contract | 18 months | ||||||
Description of lessee leasing arrangements, operating leases | The term of each lease may be extended for two additional six month periods. | ||||||
Operating leases, rent expense, minimum rentals | $ 100 | ||||||
Extended operating leases, date | Apr. 15, 2017 | ||||||
Atmel Corporation [Member] | Building 2 First Renewal Term [Member] | |||||||
Operating leases, rent expense, minimum rentals | $ 5,625 | ||||||
Atmel Corporation [Member] | Building 2 Second Renewal Term [Member] | |||||||
Operating leases, rent expense, minimum rentals | 8,437 | ||||||
Atmel Corporation [Member] | Building 4 First Renewal Term [Member] | |||||||
Operating leases, rent expense, minimum rentals | 39,375 | ||||||
Atmel Corporation [Member] | Building 4 Second Renewal Term [Member] | |||||||
Operating leases, rent expense, minimum rentals | $ 59,062 | ||||||
Atmel Corporation X Touch [Member] | |||||||
Debt instrument, interest rate, stated percentage | 4.00% | ||||||
Debt instrument, payment terms | Interest accrues on the unpaid principal amount at a rate equal to 2% per annum compounded semi-annually and is to be paid in arrears semi-annually, commencing with the six-month anniversary of the closing date | ||||||
Atmel Corporation X Touch [Member] | Licensing Agreements [Member] | |||||||
Patent license agreement, term | 5 years | ||||||
Patent license agreement, royalty fee, description | greater of $3.25 million or 3.33% of the total net sales (as defined in the Patent License Agreement) of the Touch Sensors during the Initial Term. | ||||||
Atmel Corporation X Touch [Member] | Licensing Agreements [Member] | License Agreement Renewal Terms [Member] | |||||||
Patent license agreement, term | 10 years | ||||||
Patent license agreement, royalty fee, description | If Displays exercises this right, the annual royalty fee will consist of 2.5% of the total net sales of the Touch Sensors until it reaches a total of $16.75 million, at which time no further annual royalty fees will be due. Upon execution of the Patent License Agreement, Displays paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $9.33 million (the Royalty Prepayment). The Royalty Prepayment will be applied to the annual royalty fees Displays owes under the Patent License Agreement. If, during the Initial Term, Displays cash balances as of the quarter end immediately prior to the date of the royalty period to which an unpaid annual royalty relates is less than $30 million, it may pay the annual royalty fee with a secured promissory note. Atmel has agreed that it will not enter into a license agreement for the licensed patents that is effective prior to the second anniversary of the Effective Date. | ||||||
CIT Technology Ltd [Member] | Manufacturing Agreement [Member] | |||||||
Other commitments, description | The Manufacturing Agreement had a term of six months, where Displays agreed that for a period of 16 consecutive weeks it will order, on a weekly basis, 11,500 linear meters of coated film manufactured by CIT at a cost of $7.90 per linear meter. The agreement had been completed and the process was transferred to the Colorado Springs facility in fiscal year 2015. | ||||||
Long-term purchase commitment, period | 6 months | ||||||
CIT Technology Ltd [Member] | Licensing Agreements [Member] | |||||||
Patent license agreement, term | 5 years | ||||||
Patent license agreement, royalty fee, description | greater of $1.65 million or 1.67% of the total net sales (as defined in the CIT Patent License Agreement) of the Licensed Products during the Initial License Term. | ||||||
CIT Technology Ltd [Member] | Licensing Agreements [Member] | License Agreement Renewal Terms [Member] | |||||||
Patent license agreement, term | 10 years | ||||||
Patent license agreement, royalty fee, description | annual royalty fee will consist of 1.67% of the total net sales of the Licensed Products until it reaches a total of $8.25 million, at which time no further annual royalty fees will be due. Further, the total royalty fees payable for the initial 5 year term and the subsequent 10 year term is capped at $30 million. Upon execution of the CIT Patent License Agreement, Displays paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $4.67 million (the CIT Royalty Prepayment). The CIT Royalty Prepayment will be applied to the annual royalty fees Displays owes under the CIT Patent License Agreement. If, during the Initial License Term, Displays cash balances as of the quarter end immediately prior to the date of the royalty period to which an unpaid annual royalty relates is less than $30 million, Displays may pay the annual royalty fee with a secured promissory note. CIT has agreed that it will not enter into a license agreement for the licensed patents as they relate to the Licensed Products that is effective prior to the second anniversary of the Effective Date. | ||||||
XSense Acquisition [Member] | |||||||
Revenue | $ 1,371,000 | ||||||
Cost of sales | 2,467,000 | ||||||
Other expense | $ 826,000 |
Agreements with Atmel Corporation and CIT Technology LTD. - Schedule of Pro-forma Financial Information (Details) $ / shares in Units, $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
$ / shares
| |
Agreements With Atmel Corporation And Cit Technology Ltd. - Schedule Of Pro-forma Financial Information Details | |
Revenue | $ 4,238 |
Net loss continuing operations | (27,615) |
Net loss discontinued operations | (8,701) |
Net loss | $ (36,316) |
Basic and diluted continuing operations | $ / shares | $ (1.97) |
Basic and diluted net loss | $ / shares | $ (2.62) |
Loss on Discontinued Operations (Details Narrative) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2015
USD ($)
| |
Discontinued Operations and Disposal Groups [Abstract] | |
Write down on equipment | $ 7,600 |
Fair Value Measurements (Details Narrative) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
shares
| |
Warrant outstanding, shares | shares | 9,475,360 |
Fair value of warrants | $ | $ 6,000 |
Other expense | $ | $ 900 |
Warrant [Member] | |
Warrant outstanding, shares | shares | 1,189,492 |
Fair Value Measurements - Fair Value, Liabilities Measured on Recurring Basis (Details) $ in Thousands |
Sep. 30, 2016
USD ($)
|
---|---|
Derivative liability | $ 1,369 |
Fair Value, Inputs, Level 1 [Member] | |
Derivative liability | |
Fair Value, Inputs, Level 2 [Member] | |
Derivative liability | 1,369 |
Fair Value, Inputs, Level 3 [Member] | |
Derivative liability | |
Derivative Liability [Member] | |
Derivative liability | 1,369 |
Derivative Liability [Member] | Fair Value, Inputs, Level 1 [Member] | |
Derivative liability | |
Derivative Liability [Member] | Fair Value, Inputs, Level 2 [Member] | |
Derivative liability | 1,369 |
Derivative Liability [Member] | Fair Value, Inputs, Level 3 [Member] | |
Derivative liability |
Revenue and Credit Concentrations - Schedules of Customer Concentration Risk (Details) - Customer Concentration Risk [Member] - Sales Revenue, Goods, Net [Member] - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Revenue | $ 2,614 | $ 2,769 |
Percentage of Revenue | 96.00% | 96.00% |
Customer A [Member] | ||
Revenue | $ 1,284 | $ 1,839 |
Percentage of Revenue | 47.00% | 64.00% |
Customer B [Member] | ||
Revenue | $ 704 | $ 930 |
Percentage of Revenue | 26.00% | 32.00% |
Customer C [Member] | ||
Revenue | $ 626 | |
Percentage of Revenue | 23.00% | 0.00% |
Revenue and Credit Concentrations - Schedules of Customer Concentration Risk (Details) (Parenthetical) - Customers [Member] |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|
Percentage of concentration risk | 10.00% | 10.00% | |
Sales Revenue, Goods, Net [Member] | |||
Percentage of concentration risk | 10.00% | 10.00% |
Revenue and Credit Concentrations - Schedules of Credit Concentration Risk (Details) - Accounts Receivable [Member] - Credit Concentration Risk [Member] - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Concentration Risk [Line Items] | ||
Accounts Receivable | $ 745 | $ 297 |
Percentage of Accounts Receivable | 97.00% | 89.00% |
Customer A [Member] | ||
Concentration Risk [Line Items] | ||
Accounts Receivable | $ 139 | $ 133 |
Percentage of Accounts Receivable | 18.00% | 40.00% |
Customer B [Member] | ||
Concentration Risk [Line Items] | ||
Accounts Receivable | $ 76 | $ 164 |
Percentage of Accounts Receivable | 10.00% | 49.00% |
Customer C [Member] | ||
Concentration Risk [Line Items] | ||
Accounts Receivable | $ 530 | |
Percentage of Accounts Receivable | 69.00% |
Revenue and Credit Concentrations - Schedules of Credit Concentration Risk (Details) (Parenthetical) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Customers [Member] | ||
Percentage of concentration risk | 10.00% | 10.00% |
Subsequent Event (Details Narrative) - Subsequent Event [Member] - Western Alliance Bank [Member] |
Oct. 24, 2016
USD ($)
|
---|---|
Line of credit facility, maximum borrowing capacity | $ 2,500,000 |
Maximum borrowing percentage | 90.00% |
Interest rate | 1.25% |
)^;=YE=7X*8?=
MA7]+9FP9FA^6?ZPH]__X+#LO<6W[JZ"?S([!^F!C*N?::C/L&]63"ZM?SJV^
M "6[=Z;7+:QS@SM@\TA_PHN\)S?Z@_!;W0GOS*1ZZLV#?&5,4A5,^**2K50+
MGA<-O4H]S=2 CYTP[<
MGV!V8.Y#5+X8^@Y[+JAQU4O)LJR@%R]TQ9QF#-M@;@CJU%<+%K,XL7_H+$[?
M11/N GVW=<__X[^/"NR#P/ZO%ME=BS',+FZ21TWRB,#^SB2&R>],Z.;@%.@V
MW$]#*AS[\!HVU?4)/+)P\#=X60R\A1]
M@_RV&1/,$,+6-J,@US9CAAF 6#I<@&&*F0_&S.:8HCB*7+\H3#+S09G9+#^4
MPC0S'YS'H.1.RK'-A&DF'YI1D"2'#J:9$,V.AR1AFLF'9K)I3CEW/!0(PTP^
M,),-\P,AS#+YL$Q/L$R89?)A&05)AS<19ID0RZY6, /49XS#:.;Q*YQZ2;&2A$@F>]X: :_V8U*F4OC*O"S#J-Q5/B
M>GMC/]AQ":_[*E/D'6G@C:B&"HU.TMB7X_M;2VG QA@_K"/4VH&>#@QJX[:/
M=J_"&P\'([O+Q$Z_C>(_4$L#!!0 ( *"":DG=>9-\6 , /X/ 9
M>&PO=V]R:W-H965T !R<3UA
M(,VSL5>Y'\/>R%ZQ+A*6I&TVB#.7T"%_C]VM2A#GUU)]YWF2?VP:5JA7:V5"
M43&Z+G-/U?5]_[BS^WCU/4>BD.Q:?LB\N[K
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M AFA (#(.DFU$[*9Y]$1$GN3!G7AG:?S@:
X7+_4A27T*P*&R7H&Z
MX0P/P+D71]WZM:KMV_
\K[1]5W:M9FG/;6.Q"LN'>)N=>7?T'4$L#!!0 ( *""
M:DDOVN+#J@$ +0# 9 >&PO=V]R:W-H965T&PO=V]R:W-H965TCK3$Z_E9_=5E:]P?J8),L-]-H6MCUO=0 27M
MF?X0PQM,*3B'N6#*?5'>*RWXF>(A3K_&L6G=.(P[W_V)MDX@$X',A/F<=<)F
M(FPNA/ A(9P(X86P=:494W&%.%!-DUB*
)@VYTE^$7XM:."
/-TU(%)=E,U8'*41\=0LN,OH?K0,[/NI"W$M;% 7.-Q#L@9P!>LK4D
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M5K'0)T;2%4=-.UR-V^L:')(1H@_LIT(OW8;(R7LV'0$T><6RM\F2_'RPI5V5 NN#17_B/76[>36> VXHZXRT7;8
BRQ>VZE33 ?V5C#BF$5^SY*JI'" [K?%;@U1&I%H6J@ 6PD:60.L6]5J2
M!MQ?M\B=.=@5I^19)C3+A]Q]*\,:X>O6]-'K;+=F$)?JX R33A5)N0(=AQEQ
M%!U;P]M^>[$@&(Z%S;8HX_/![JJ40\G]4 Q[@FHP)B=(EX-DVRA=ACI*ES.;
MM]C(?371K:C^;\F*-F[1S= PIJC)[(9NU"ZC05'P/26320LBS%D7?&QO%[
M8&'6U;E/H+/.U%,'^AS)EC:P3RP0Z(3($9NTCI4?WE'D\/M"+*B@8[Q*;\L=
MACH2@2+'D;MX7N#)C1C5JNC#EH(H3JYN/IS26V?#,9NC@;32U3QE/QW
)&I6ML'F!-HAE[A4\0;A,^Y3Y"SP?01LZL22L]?3H&_CX
MT-:%5"BUU>MZ2\74G. %8SX;>\6><16T?JQU;?FEST^9TGLR),80?&*=S=&!
M-G>5^#[C)_[>MBN$);:XSYD6]W$W2A@G7\Z*$6Q-$DPZQG,'(=
M>$4'J7IQ)RGKX0
[>ITZ(W?O4";49)+,YX!C6
MTD @1H MO?R25#LW9NB;%%0SBHRKJV0]/.%$HRTK,7E7:;_&@3ANQK&PAQNL
M7K1_-(F].(X6WW#=_:277(Z.8Q@-RC2DU+N+%FT\$G-/'W)TZ/]9K#!2*YF=
M<"M>>C#$:=Y-O:]7(6;JY\W+9G]::/BMWC)W 'I?'8">7+EZ)YV7=ZR/! 2@
M3]'(,(.=$5W@U]'R(X/KV+^C:$'.4;2'3?HS"IM5RUW96H,-X8G5QM()YQ
M%C03+$ZC=@8"'[$[+'YGH.-\JNO5YW\!4$L! A0#% @ H()J23W.=%CA
M 0 "1X !, ( ! %M#;VYT96YT7U1Y<&5S72YX;6Q0
M2P$"% ,4 " "@@FI)2'4%[L4 K @ "P @ $2 @
M7W)E;',O+G)E;'-02P$"% ,4 " "@@FI)8(*:H=(! "-'0 &@
M @ $ P >&PO7W)E;',O=V]R:V)O;VLN>&UL+G)E;'-02P$"% ,4
M " "@@FI)2KZE+@L# %#0 $ @ $*!0 9&]C4')O
M<',O87!P+GAM;%!+ 0(4 Q0 ( *"":DG2JIX\/@$ &D# 1
M " 4,( !D;V-0
P.!MV]$K*(;=.'6R,DGXF79NZ*,M-ZJEBZ# A5
M@[_&%42]-^I7!C\O5;DS?N 0 VM=JU3LBM7252K)H/$3N@T02063F1TI\/5E
MEU[CP"R=IEM R+[J;35NK GH;!30IP;[:M
MQOM3OP.PN;FJYSUP![SY,DY"3&-T&BMUOPRU^\]KF%/#X<9.;4I5O_6<]J=V
M)Z#;:A^ G=K'7>J3&XUO+*=/J?9#%,%J!.C<[NYTXD1]G]#PMS%0S45J]P:J
ML\M2[X.^2%W.(\^W&@OU0+MS]Q!YTW"WL4Z-=:J[]!^&==I+*HIL$]98(WBZ
M=>(TJ-^KAZHY??C?SC-J.6QXW!BK1VQ28ZP:8[6?J]3G\)9[:_J-P7I8D,[M
M[O 9:=*&P8VI:DQ5K0[ ;ME[P/ <\-6'
M=3U3^@U8"6XDO/$^97&4!S]C#6G;YJRO&6^#HZ&/ Q%R_Y% TXH(CE&>W73"
MVO25E[V6DTVCA,_-58 *'-)D^8GL!YO?4JYP\1T:Y%&J"E8V2!%%F>35:L+C
M Y4&(R6F9G9:\8T0'-$"/11-Z'>YZ7YJG"?1<(6H)6S@OZH08C;)+3 V.GVSM2=4(T"]07>'O*E.]^U&;LX;N5FE>'I._>5F3]KF$(<<
M5B,U^@;9V:4'>.!:I]-NY. G
M-TMGKVGQ\(*OX%3#IW%NQ7J'7-ERR7W%?.0]6W/U 2D&W^_@\8OW80K_"K^#
M?Q[#GEX&DROO9R+$L@>0$61JOP^?W[_X6[MUH?S"UI"9SK]J6J=X@6PN0YP(14FQT](8.3M
M/?*I(XJ@GVP1\)BB"3"N$K=D,0!TG1/E8X2%7%R\""'#+26YIR:GL+S H\NW
M>,D.^ BO!R57%O4&69?=A,%# 93AZE1<_L7\70J)4[RHI\*O;&-R"SCHIK3J
M'-28"R(@H^=;2MF:Y!'.$AY*O\MS_]B=#@D0D9JNK4_A;RQ5#92"-7!]L1>*
M6O@FUN=N?(*I@L4PBL@BXB-P0Z:<2Z"P<(25S$>2 $"JZ-78:PGZL!+LQ,
M:<)(MT1\311R1,:?1?5H<8F)2@YUO^);(0(J7J07WQU-[5N*R1)[%_7-@J@C
M:5E;RNWZR%NF2 O)&&T$:@00VA-/;9J4O5JCN=/QR"?,!$=-X_'RE='$(T5
M^D"!@IT@GSC)@]# 'HNJBKA$#:-GAK4&Z)VC(#VPJ)G_0E2O7EF3&9=+C*WQ
MJ$+F/.)M,VS?I5HPKDF9N+7G*C'Y$Q,Q.0D0)0K
FE87=)7,,[#O6P/<7D;O2G $$G_'D/KSIHIL&<*SM/
M9\^-)O0-5;%F@-/'62@)R+'EO^ .*OV!EG6934=190Q@&M,Q3U')W\61-$\O
M02J>LLLSG<>9.^%KFJIR"G1L+WHJ1$SM'/Y.Z9T,% A5+9!*[FQ81#UZ3'4M2)A
MI5%3 Q-V:;V]>]9[7\!8J^3=!8T?"J@V&E;=':TXGFW\-2#R,U^IP[*3UP?Z:_,S(XBZU5N
M]Y[^9AZX7>DK5_@CCTE&-Q+82. V)+#?2.#>)? S5NT>JP V*K 1P"/5@%N*
MN>PG"/M.!5U];RJL$^H5KTT^H';AE;X$"3E !C4L/H G-"QN6%RW4+\,RG1V
M5)G\0:%/XG3P#=E5_V+9074%QRUGT\3?;BMZ?VDV\PF;.=BT;*#9S/ININ-@
M30-NZJ8&H=G5^NYJM[:[FF=<&5T'?6=]ZR%@23"Q%I[PF_+"E;&2;!C% ?*H
MX?)A/*'AK;P9+^^.0FJ$$71$Y1Y3)EF=S/W(5-@+G!PDI@@VQ+^ JWE\E?<1* P:%U
MCUZ4?!_K8T'D$-RN788./!(!'):Q!Y(3W@7PE1MO#B[HS$O(!,5,>/8XB=SK
MQ?0:1/?ET_[RO-4;&KB_1>Z\R1-$9S6OJPWB,LABQ!B-18*Z#7;."U9P!56?
M5%=SWTM W"?>K0="/(FQ!&/LSF$]OO=?7A-M+ BLY[M<%2+PH@J?9)!EI=4<
MIZW5FN^"8* [B I$PS
_I,8C\&2#EO7NISLCSBI,%IKD&1,?4.&/W FHP5$2TS20
M:>H#X;>\MFP>!KX1F#PGXT6308($]!V9:%XV.Q&H]7+"4*9@^:/S$.TMKM\#
M->U%:EK29B^="#7A@ >:EQ*!DU7(:N/C\,F@="=R/JJ
#_^5U$GN:E!>@TI/,6
M$