Uni-Pixel, Inc. (UNXL) develops and markets high performance metal mesh capacitive touch sensors to the touch screen and flexible displays markets. Its roll-to-roll electronics manufacturing process patterns fine line conductive elements on thin films. The company market its technologies for touch panel sensor and hard coat resin for cover glass replacement and protective cover film applications under the XTouch™ and Diamond Guard® brands.

The company believe Uni-Pixel is one of the technology leaders in the optical design and manufacturing of large area microstructured polymer film materials and related technologies for the display, flexible electronics and automotive industries. Its microstructured polymer films, which the company refer to as Performance Engineered Films (PEFs), are designed to lower the cost and improve functionality and performance of devices in the markets they address. The company make transparent conductive films and flexible electronic films based on its proprietary manufacturing process for high volume, roll to roll patterning of flexible thin-film conductor patterns. The process offers precision micro-electronic circuit patterning and modification of surface characteristics over a large area on an ultra-thin, clear, flexible, plastic substrate. These films may be incorporated into computer, tablet, printer and smartphone touch sensors, as well as automotive applications. The company sell the touch screen films under the brand XTouch™, as sub-components of a fully assembled touch sensor module.¹

In addition to the flexible electronic films described above, Uni-Pixel has developed 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. The company sell its hard coat resin and optical films under the Diamond Guard® brand.

Uni-Pixel is headquartered in Santa Clara, California in Silicon Valley, with sales and research and development offices in The Woodlands, Texas and Taiwan, and a manufacturing facility in Colorado Springs, Colorado. Its original equipment manufacturer or OEM, customers include Tier 1 PC and Tablet OEMs.

Uni-pixel’s common stock, par value $0.001 per share, is currently quoted on The NASDAQ Capital Market under the ticker symbol “UNXL.” From January 18, 2006 until December 9, 2010, its common stock was quoted on the OTC Bulletin Board under the ticker symbol “UNXL”.

The company file annual, quarterly and current reports, proxy statements and other information with the SEC via EDGAR. Its SEC filings are available free of charge to the public at its website, www.unipixel.com, as soon as reasonably practicable after they have been filed with or furnished to the SEC.

Atmel Corporation Business Combination and License Agreements

On April 16, 2015 (the “Closing Date”), its wholly-owned subsidiary, 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”). Displays paid $450,000 for the machinery, parts and equipment needed to manufacture the Touch Sensors and the existing inventory on hand by issuing to Atmel a secured promissory note (the “Atmel Note”) which has been fully paid.

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 of the Touch Sensors during the Initial Term. Displays has the unilateral 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 closing 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 Closing Date.

On February 15, 2017, Displays and Atmel and Atmel’s successor, Microchip Technology (Barbados) II Inc., entered into a Letter Agreement Amendment (the “Amendment”) to the Patent License Agreement and the IP License Agreement (collectively with the Patent License Agreement, the “License Agreements”). The Amendment adds an affiliate of Atmel, Microchip Technology (Barbados) II Inc., as a party to the License Agreements. The Amendment also revises the respective License Agreements to provide that the licenses granted under the License Agreements allow for Displays to enter into a non-transferable, non-assignable, non-exclusive, royalty-bearing sublicense solely to General Interface Solution Limited, a Samoa corporation (“GIS”), to make, use offer for sale, sell and import Licensed XSense Products (as defined in the License Agreements), subject to certain terms provided for in the Amendment. Furthermore, the Amendment provides that if a sublicense agreement is in effect at the time that the License Agreements are terminated for any reason, then such sublicense will survive and remain in full force and effect with Atmel having assumed such sublicense agreement.

The Amendment increases the annual royalty rate for all sales of Licensed XSense Products by the Company under the Patent License Agreement, not including any sublicense arrangement, to 4%. The Amendment also provides that the definition of Sales Price (which is used to calculate the royalty rate) in the Patent License Agreement means the gross revenue recognized by the Company from the sale, use or other disposition of a TouchScreen by the Company. In addition, the Amendment adds that the Company shall pay Atmel a separate royalty rate of 5.7% for any GIS sublicenses, based on the manufacturing costs used by the Company to calculate the royalty payable under its sublicense agreement with GIS (the “Sublicense Price”), provided always that the Sublicense Price shall be reflect an arm’s length transaction between a willing licensor and a willing licensee and be no less than the manufacturing cost incurred by other manufacturers involving the most similar products sold in the same volume in an arms-length transaction, as reasonably determined by Displays and auditable by Atmel. A minimum of 4% of the 5.7% royalty rate owed to Atmel for a sublicense agreement with GIS must be paid in cash, in which case the remaining 1.7% will be paid to Atmel in the Company’s stock or other consideration as mutually agreed upon by the parties. Furthermore, the maximum cumulative annual royalties payable for the GIS sublicense is $13,250,000. Royalties from the GIS sublicense are separate from and do not count toward the minimum annual royalty amount paid for Display’s license under the Patent License Agreement during the Initial Term, the maximum cumulative annual royalties during the Renewal Period (as such term is defined in the Patent License Agreement), nor the calculation of when the Royalty Prepayment has been fully used and credited.

As part of the business combination, 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 was 18 months (the “Primary Lease Term”). The term of each lease was extended through October 17, 2018 with two additional renewal periods expiring on October 16, 2020. The company believe that Building 2 and Building 4 are currently suitable for the operations related to the manufacture and distribution of the Touch Sensors.

Displays also acquired from CIT Technology Limited, an FLT (Fine Line Technology) Patent License Agreement and an FLT (Fine Line Technology) Intellectual Property License Agreement, which agreements were amended on December 21, 2016, and entered into an agreement for the provision of manufacturing and technology transfer services.

Proprietary Technologies

The company focus its research and development on projects that will generate long term high volume product purchases. The majority of its employees have degrees or advanced degrees in physics, mathematics, chemistry, materials science or optics. Historically its development efforts have yielded numerous patents, as well as trade secrets and manufacturing know how that the company believe gives it a competitive advantage with respect to its current intellectual properties. As of December 31, 2016, the company had 7 patents issued and 45 patents pending and also license in an additional 44 issued and 93 pending patents under the Atmel License.

Uni-Pixel's patent-pending Copperhead technology used in conjunction with the fine line technology (“FLT”) technology enables a high-fidelity manufacturing process to create complex micro-electronic patterns that enable what the company believe are revolutionary new electronic printed circuits, such as projected capacitive touch sensors. The company believe that the combined Copperhead and FLT process can dramatically simplify and reduce the complexity, cost and risk of manufacturing Touch Sensors and other electronic circuit applications. Uni-Pixel is manufacturing and selling copper-based touch sensor films made by a combination of the in-licensed Atmel Technology, the FLT and the Copperhead process as an alternative to traditional indium tin oxide (“ITO”) coated transparent materials used in a variety of electronic products. The company believe the combined technologies will establish several patented competitive advantages over existing ITO and other metal mesh touch sensor technologies. These advantages include: sensor mesh designs that permit the thinnest cover lens, the lowest effective sheet resistance to enable the narrowest borders and passive stylus, patterning and processing of both sides of the substrate to produce one of the thinnest sensors and roll to roll manufacturing processes to lower device production cost. The resulting technology advantages allow its customers, PC and Tablet OEMs and Original Design Manufacturers or ODMs, to reduce their product overall thickness, overall product footprint, weight, lower manufacturing costs and offer performance features such as passive stylit. Furthermore, this process is adaptive with polymer substrates and as a result may enable the production of flexible displays.

Additionally, during the development of its PEF technology, the company were able to produce an ultra-hard coat surface, Diamond Guard®, which can be applied to plastic films and substrates to improve the scratch and abrasion resistance of these surfaces. The company intend to apply Diamond Guard® to its XTouch™ sensors to lower sensor product costs and to enable new sensor products that are thinner and lighter. The company also are working with third party coating manufacturers to develop Diamond Guard® as a coating for a variety of applications. Uni-Pixel is initially focusing on the application of Diamond Guard® in the coating of acrylic plastic sheets to replace glass cover lenses in tablets and smart phones.

Target Markets

Uni-Pixel is currently focusing its efforts on applications of its PEFs in the following areas:

Transparent Electrically Conductive Films

Uni-Pixel's recent combination of the Atmel Technology, the FLT and the Copperhead process will enable it to enter a large and growing market for transparent touch screens. The company believe this technology is a superior alternative to ITO as the transparent conducting layer in a touch screen device. Based upon calculations derived from DisplaySearch, on the worldwide touch panel market, the company believe that the global film market for touch sensors could be $3 billion-$5 billion annually over the next five years. Its transparent electronically conductive films can be produced based on the combination of the Atmel Technology, the FLT and the Copperhead process at low cost and on large flexible polymer roll substrates. The company believe this enables manufacturers to effectively produce large area touch screens at commercially viable costs with enhanced performance and functionality. In addition, the company believe that the insertion of this technology into smaller devices will lead to thinner, lighter, lower cost and higher efficiency products. The company intend to sell the touch screen films as sub-components of a touch sensor module.

Uni-Pixel is currently working with touch screen manufacturers and OEMs to design products based on its technology.

Diamond Guard® Cover Glass replacement and Protective Cover Films

Uni-Pixel has designed, developed and demonstrated production capabilities of micro-structured and hard coated films for use as cover glass replacement and protective cover films for touch and multi-touch electronic computing devices. The company believe that its Diamond Guard® hard coat materials are unique in the market as compared to other similar products because its hard coat surface treatments offer better functional specifications as compared to competitive films. Uni-Pixel is currently in discussions with various third party coating manufacturers and plastic component manufacturers to sell its Diamond Guard® hard coat resin.

Industry Background

The Touch Sensor Market

Proliferation of Touch-Enabled Mobile Consumer Electronics Devices. Consumers throughout the world are rapidly adopting mobile consumer electronics devices such as smartphones, mini and full-size tablet computers, touch enabled notebook computers, All-In-One computers, mobile gaming devices and digital cameras. Advances in component technology are driving down the cost of these products and expanding their functionality. Early mobile devices were equipped with small displays with limited functionality. As the cost of color displays decreased and quality improved, consumers began rapidly adopting mobile devices with color displays. This trend towards greater functionality in mobile devices continues with the development of smartphones with touch sensors, ultra-high resolution displays, embedded cameras and high-speed data networking capability.

The overall touch sensor enabled computer electronics industry is continuing to experience significant growth. The industry growth is being driven by a number of market forces including:

• Increased demand for large format high resolution televisions and computer monitors;
• Steady growth in usage of smartphones, phablets, tablet computers, notebooks and All-In-One computers;
• The increasing use of touch in gaming applications;
• The popularity of combined stylus and finger touch in tablets and 2 in 1 devices;
• A migration to larger color screens, which are multi-touch enabled, for smartphones and other mobile devices; and
• A migration to higher resolution screens;
• Up and coming flexible displays: and
• Decreasing costs, increasing production and improving efficiency as a newer generation of smart mobile devices are increasingly being produced.

These factors in combination with additional market forces are driving overall growth and shifting the mix of product applications within the touch-enabled device industry.

Applications. With the enormous growth in Internet usage, there has not only been an explosion in the amount of available content, but a rapid evolution of the form in which it appears. No longer is information a two-dimensional, text-only experience; online content is now being delivered in graphic rich, animated and video formats. As the sophistication of the user base continues to heighten and bandwidth continues to increase, the company believe there will be increasing demand for superior, high-resolution visual and touch experiences. Flowing from this demand, the company expect that new types of applications and functionality will evolve that, in turn, will enhance existing markets and create new ones. The continued evolution of technologies such as touch-enabled notebook computers tablet computers and smartphones, and the ability to connect all of these devices through mobile high-speed data networks, will likely fuel significant demand and, therefore, growth in what have become relatively mature markets. The devices that deliver this rich user experience will generally have two things in common: high resolution displays and touch interfaces. The company believe that Uni-Pixel is well positioned to take advantage of these growing markets with its Diamond Guard® hard coat and XTouch™ flexible printed touch sensors.

Films for Displays. Glass and plastics are the principal materials being used as first surfaces for display systems. Because displays are incorporated into devices that are used extensively and are transportable, the displays are subject to damage and the effects of use in challenging environments. A large and growing business has developed in films that are designed to provide protection and other functional uses on top of the display surface. The technologies that Uni-Pixel has developed and are currently developing can be applied to a variety of functional uses in films for display products. Its Diamond Guard® hard coat resin can be applied to plastic film and sheets to produce a protective cover film product that can be used to protect touch screen devices from scratches while providing a transparency and gloss equivalent to glass. In other embodiments, its Diamond Guard® coating can be applied to substrates that can be used as the first surface of hand held electronic devices or cover plastic parts that could form the shell casing for mobile electronic devices. Diamond Guard® coating can be used in application with other materials to replace the current cover glass and enable softer plastics to be used in external cases and other components that have been heretofore dominated by glass or metal parts. The company believe its Diamond Guard® coating will be less expensive to manufacture and install in addition to being lighter and more shatter and scratch resistant.

Comparing Touch Screen Technologies

The touch screen is one of the easiest interfaces to use, making it the interface of choice for a wide variety of applications. Accordingly, there are several technologies that compete to capitalize on this market. The more commonly used technologies are resistive, capacitive (mainly projected capacitive or pro-cap), infrared grid, acoustic and optical. Projected capacitive touch technology comprises approximately 90% of touch sensor units shipped today. Resistive touch technology comprises approximately 9% of the touch sensor units and the remaining technologies comprise the other 1% of the touch sensors units shipped. Pro-cap touch sensor units are projected to grow, while resistive touch sensors units are projected to shrink, while the remaining technologies will occupy less than 1% of total end market in units. Its XTouch™ touch sensor is a pro-cap touch sensor technology. The company compete with a variety of ITO (indium tin oxide) based pro-cap touch sensor technologies. The following table is a comparison of ITO based pro-cap touch sensor technologies.

The following table is a comparison of XTouch™ touch sensor technology (with integrated Diamond Guard® cover lens) to ITO based pro-cap touch technologies prepared by and used by it based upon industry feedback and a market assessment on a scale of 1-10 with 10 being the highest:

Strategy

Uni-Pixel's business strategy is to penetrate existing applications markets with its family of Performance Engineered Film™ technologies including XTouch™ produced touch panels and its Diamond Guard® hard coat products by leveraging the capabilities and competencies the company achieved in the development of its functional application specific films. Uni-Pixel is presently focused on taking the following measures to implement its business strategy:

• Develop Strategic Relationships. The company plan to cultivate relationships to further its efforts in the ongoing development, commercialization and sales of XTouch™ produced touch panel films and its Diamond Guard® hard coat technology. The company believe that gaining the assistance of technology leading OEMs in the deployment of XTouch™ produced touch panel films by including the films in their products will be a significant step for its continuing commercialization and sales of this product line. As a result, Uni-Pixel has, and will continue to seek to build relationships with OEMs that will allow it to leverage its existing knowledge, scale, infrastructure, manufacturing and expertise in thin films, optics, fine line printed conductors, assembly and logistics.
• Build Its Revenue Sources. The company believe that the company will be able to continue to derive revenues from several sources: product sales of XTouch™ sensors and Diamond Guard® resins and, potentially, XTouch™ and Diamond Guard® in an integrated product.
• Target Leading Manufacturers. Uni-Pixel is targeting leading display, materials and electronics manufacturers as potential partners and/or integrators of its Performance Engineered Film™ (PEF) products. The company will provide technical assistance and support to manufacturers who are evaluators, developers or users of its protective cover and XTouch™ touch screen films. The company also employ a “pull through” strategy (targeting end device OEMs) by actively marketing the advantages of its technologies to the manufacturers that incorporate touch screen technology into their devices. This could result in its production partners gaining access to the OEM supply chain as OEMs seek the competitive product advantages offered by its Performance Engineered Film™ technologies. The company also target ODMs targeted to assemble its sub-components and films into OEM products.
• Drive Adoption by End-Product Original Equipment Manufacturers. The company also plan to employ a “pull through” strategy with OEMs and ODMs that produce end user products by demonstrating its technology. The company believe that the significant advantages that its films will offer in performance and protection may induce additional OEMs to request its solutions from their existing suppliers.
• Enhance Its Existing Performance Engineered Film™ Technology. The company believe that continuing development and enhancement of its PEF technology is critical to its success, therefore, the company engage in internal development efforts that the company expect will expand its intellectual property portfolio, collaborative relationships and other strategic opportunities. Its primary focus is to expand its intellectual property through development of additional prototypes and materials that enhance and extend its product capabilities or the processes by which the systems are produced, thereby allowing them to be used in a broader array of applications.
• Develop Prototypes Suitable for Industry Demonstration. Uni-Pixel has produced prototypes with a performing system and film products that the company believe have superior touch performance to those currently used in the industry and demonstrate its ability to meet OEM product requirements. Uni-Pixel has the capability at its Colorado Springs manufacturing facility to run prototype films and products to demonstrate its production solutions for all applications.
• Manufacturing Facility and Process. The company maintain a manufacturing facility in Colorado Springs, Colorado. The facility is equipped with the equipment and infrastructure required to supply commercial level shipments to its current customers and prospective customers. The manufacturing process is conducted in a clean room environment and employs roll-to-roll film production and advanced chemical and photolithographic processes. The company manufacture in a clean environment utilizing a combination of Class 1000 and Class 100 clean rooms.

The company plan ongoing research on the use of a variety of different thin-film technologies in surface modification applications and the construction of multi-layer stacks where micro-structures can play unique functional roles, such as its current XTouch™ sensor construction and advances to XTouch™ sensor construction. Its focus on next-generation technologies is designed to help establish it as a recognized provider of Performance Engineered Film™ as new markets and applications emerge.

Customers and Partners

Uni-Pixel's current and, the company believe, its future customers for the XTouch™ electronic film touch sensors will be the device manufacturers and OEMs that currently use touch screens with the LCD and OLED displays in their products.

The company expect its future Diamond Guard® hard coat resin customers to include a variety of third party coating manufacturers, plastic component manufacturers and channel distribution partners.

Current and Targeted Partners

• Carestream (Film Manufacturing Partner): The company engaged a production partner for specific varieties of its protective cover film products. Carestream provides assistance in the development and manufacturing of coated films. Manufacturing of its protective cover films can be accomplished using proprietary resins that the company will provide.
• Touch Screen Controller Manufacturers: Although not material to its business plans, the company will continue working with touch screen drive controller manufacturers to expand the market for its XTouch™ touch sensors. Uni-Pixel has demonstrated that, while XTouch™ touch sensors work with existing touch controllers, the touch controllers can be further modified to maximize the performance advantages that XTouch™ touch sensors offer.

Existing and Target Customers

• Uni-Pixel's existing and target customers are large OEM and ODMs: The company shipped commercial products commencing in its second quarter of 2015. Uni-Pixel has been awarded 20 plus new projects in 2016 that will began initial small volume pre-production at the end of 2016 and begin to ramp production in 2017. Uni-Pixel is continuing to respond to Requests for Quotes (RFQs) from existing as well as potential future customers.
• Automotive Market: Its flexible sensor film could be utilized in curved areas of cars such as dashboards.

Sales and Marketing

Uni-Pixel is seeking end user product OEMs that desire to integrate XTouch™ touch screens and Diamond Guard® hard coat offerings into their products. The company believe that some of the OEMs that have been engaged in these discussions will be interested in pursuing the advantages of XTouch™ touch screens and Diamond Guard® films as a differentiator for their products relative to their competition in their individual market segments. The company believe that the proven entry into a single vertical market or application will drive the demand for that product for expanded applications to other product markets.

Uni-Pixel's sales strategy intends to build a diverse revenue base that will derive revenues from multiple sources:

• Product revenues — Proceeds from the sales of Performance Engineered Film™ products from retail and wholesale channels.
• Critical materials — Proceeds from the sales of Performance Engineered Film™ products to integrators or manufacturers that produce or assemble devices with touch screens.
• Engineering support contracts — Integrators that are seeking to differentiate their products by leveraging the unique attributes that its Performance Engineered Film™ or Diamond Guard™ resin can potentially provide.

Currently, Uni-Pixel is introducing its products to OEMs in various market segments. The company do this by demonstrating the advantages that its Performance Engineered Film™ can provide in the form of improved efficiencies and performance. The company expect to continue to create OEM and ODM interest in its products by gaining design wins for integration of protective cover films and XTouch™ printed electronic film into established end user devices and applications.

Uni-Pixel's plan is to advance its brand in the industry by actively demonstrating to OEMs the elegance and performance advantages of its unique solutions. As the company ship its initial products and the company begin to build momentum, the company may launch various marketing programs to drive awareness of its technology as a component “brand” within the end user products. The company expect that these marketing programs will be designed to drive awareness and education of its unique capabilities and enhanced performance among OEMs and wholesale and retail channels. The company believe that the company will be able to promote its brand as a valued component brand included within the OEM products as a part of its relationship with the end product OEMs. Ultimately the goal of this marketing program will be to:

• establish it and its unique technologies, independently, as a differentiating factor in end user products;
• help promote its value as a component product through the inclusion by its partner OEMs of its Performance Engineered Film™ technology in their products; and
• promote the pen sensitivity advantage of its sensor technology. Pen sensitivity allows OEMs to move to lower cost passive pens vs the currently used active pens present in Microsoft and Apple tablet products.

In addition the company will periodically attend trade shows where its targeted customers can be expected to have a presence.

Research and Development

For the twelve months ended December 31, 2016 and 2015, the company spent approximately $7.9 million and $6.8 million, respectively, on research and development activities. The company continue conducting research and development both internally and externally and anticipate material additional investments going forward.

Uni-Pixel's development activities are located in its laboratory in The Woodlands, Texas and Colorado Springs, CO. The laboratories house its chemistry and testing operations where Diamond Guard® and all PEF materials development and testing is conducted. The Colorado Springs facility includes a Class 1000 clean room.

Research and development costs are expensed as incurred and include salaries and benefits, costs to third party contractors to perform research or other activities related to its business, professional fees related to intellectual property work and facilities costs. The materials used in its research and development and in the manufacturing of its Diamond Guard® and PEF films are readily available for purchase in the open market.

Manufacturing

Uni-Pixel's XTouch™ touch screens products are primarily manufactured in its facility in Colorado Springs, Colorado. The manufacturing process is conducted in a clean room environment and employs roll-to-roll film production and advanced chemical and photolithographic processes. The facility is equipped with equipment and infrastructure required to produce commercial level shipment to its current and prospective customers.

Uni-Pixel'sa roll to roll process consists of a number of sequential steps to produce its XTouch™ touch sensor onto PET film. A basecoat comprised of a catalyst impregnated photoresist is applied to both sides of a PET film. As part of the license agreement with Conductive Inkjet Technology (CIT) the company transferred the basecoating process for the basecoated PET film to its coating equipment in the Colorado Springs facility in the fourth quarter of 2015. The basecoating operation in-house has resulted in substantial manufacturing cost savings and yield improvements.

Photolithographic equipment exposes the basecoat material with the XTouch™ touch sensor circuit pattern. Both sides of the PET film are exposed simultaneously. The expose - plating system develops the exposed basecoat material and the remaining patterned basecoat PET is plated with copper using an electroless plating chemistry.

The patterned, copper plated PET film is then processed by a second chemical plating process to apply a second metal for darkening the copper to enhance visual performance and to improve the environmental reliability.

A polymer overcoat is applied to the patterned PET film utilizing precision film coating equipment. Uni-Pixel has started to replace the current polymer overcoat with Diamond Guard®. Diamond Guard® applied to its XTouch™ sensor will lower sensor product costs and enable new sensor products that are thinner and lighter.

Outgoing quality checks are performed on the XTouch™ sensor film, including 100% electrical test and visual inspection. Protective shipping liner are applied to both sides of the XTouch™ sensor film and film is singulated into individual sensors prior to being packaged into shipping containers.

The company believe the manufacturing facility and process equipment are capable of supporting current and future production requirements through 2017 without significant capital expenditure.

Intellectual Property

As a company primarily focused on developing new technologies, the company expect that its most valuable asset will be its intellectual property. This includes U.S. and foreign patents, patent applications, registered trademarks, common-law trademarks, trade secrets and know-how. Uni-Pixel is pursuing an aggressive intellectual property strategy.

As of December 31, 2016, the company had 7 patents issued and 45 pending. In addition, as a component of the acquisition of the Atmel touch screen sensor business, Uni-Pixel has a license for the Atmel and CIT technology which include 44 patents and 93 pending. Its issued U.S. patents will expire between September 2025 and April 2033.

Uni-Pixel has also registered the marks “UniPixel®” and “Diamond Guard®” and filed for registration of the mark “XTouch™” on the principal register of the U.S. Patent and Trademark Office. The company rely on a combination of patent and trademark filings, laws that protect intellectual property, confidentiality procedures and contractual restrictions with its employees and others, to establish and protect its intellectual property rights.

Competition

The industry in which the company operate is highly competitive. While existing touch screen technologies based on the use of indium tin oxide (ITO) currently dominate the marketplace, the company will be more specifically competing against other emerging technologies that also seek to improve the performance of touch screen systems. It is its objective to enable the existing touch module assembly infrastructure to incorporate the use of XTouch™ touch screen films into their current manufacturing and assembly operations. In this way, the company believe XTouch™ touch screen products can penetrate the touch screen industry quicker and overcome the resistance to change. Given the potential advantages that the company believe the XTouch™ touch screen films offer, the company believe that this should be a relatively quick, inexpensive and profitable process for these manufacturers.

Compared to its competition, the company believe the company follow a more broadly developed business model allowing it to benefit from the following factors:

• A wide range of opportunities to enter the market;
• The flexibility to pursue multiple entry points to multiple market segments;
• The ability to be a supplier of key materials;
• The ability to be nimble and make decisions quickly in the market; and
• The ability to leverage established infrastructures.

The suppliers of metal mesh touch sensor technology, which formerly were numerous, are now concentrated in three companies of which its company is one.

Employees

As of December 31, 2016, the company had 93 full-time employees and no part-time employees. None of these employees are covered by a collective bargaining agreement, and the company believe its relationship with its employees is good. The company also employ consultants on an as-needed basis to supplement existing staff.

References

1. ^ https://fintel.io/doc/sec-unxl-uni-pixel-10q-2017-august-10-17946