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Uni-Pixel Inc. (NASDAQ:UNXL)

Q4 2012 Earnings Call

February 26, 2013 04:30 PM ET

Executives

Reed Killion - President and CEO

Jeff Tomz - CFO

Bob Petcavich - SVP and CTO

Analysts

Michael Malouf - Craig-Hallum Capital Group

Cody Acree - Williams Financial

Ankur Desai - MDB Capital

Jon Hickman - Ladenburg Thalmann

Orin Hirschman - AIGH Investment Partners

John Dorff - PlainsCapital

Gavin Richey - Rockwood Investment Partners

Donald Hutchinson - Safe Harbor Financial Management

Michael Chapman - Altimeter capital

Jason Polansky - JP Capital Management

Harry Zirinsky - Talpion

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Uni-Pixel's Fourth-Quarter Full-Year Ended December 31, 2012. Joining us today are Reed Killion, the President and CEO of Uni-Pixel, Dr. Robert Petcavich, the Company's Senior Vice President and Chief Technology Officer, and Jeff Tomz, the Company's CFO. Following their remarks, we will open up the call for your questions. Then before we conclude today's call, I'll provide the Company's Safe Harbor statement with important cautions regarding forward-looking statements made during this call.

Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay through March 26, 2013 starting later this evening via the link provided in today's press release as well as on the company's website.

Now I’d like to turn the call over to President and CEO of Uni-Pixel, Mr. Reed Killion. Sir, please proceed.

Reed Killion

Thank you Alisha, good afternoon everyone. Thanks for joining us today. On today’s call we’re going to talk about the progress we made in 2012 as well as the market rollout of our two flagship performance engineered film technologies; UniBoss for touch screen sensors and our Diamond Guard hard coat films. In 2012 we established multiple relationships that were core to our product development, the ramping and build out of our manufacturing capacity and overall business model.

We also qualified a number of sensors controller manufacturers continued to develop key IP and qualified parts of our downstream supply chain with the help of our first preferred price and capacity licensee. I would like to delve into this little further but first I would like to turn the call over to our CFO, Jeff Tomz, who will take us briefly through the financial details for the quarter. I will then return to talk about our progress as well as the goals and opportunities we see ahead in 2013. Then we’ll open up the call to your questions. Jeff, please proceed.

Jeff Tomz

Thank you, Reed. This afternoon we filed our Form 10-K with the Securities and Exchange Commission as well as released our fourth quarter financial results in a Press Release. Both of these should be available for the download from the Investor sector of our website at www.Uni-Pixel.com. Our marginal revenues of about $76,000 in 2012 reflects the fact that we remain primarily in the development stage for the course of the year as we made the necessary investments to transition to production space company.

SG&A expenses 2012 totaled $4.0 million which is $200,000 less than we expensed 2011. This is primarily due to a decreased stock compensation expense. Research and development costs in 2012 totaled $5.1 million as compared to $4.5 million in 2011. Our increase in R&D was primarily due to increased lab expenses related to prototype development.

Our net loss was $9.0 million or $1.11 per share in 2012, as compared to a net loss of $8.6 million or $1.20 per share in 2011. Cash and cash equivalents totaled $13 million at December 31, 2012, as compared to $7.2 million at December 31, 2011. Increase in cash was primarily from an equity offering we completed in August 2012 which brought in net proceeds of about $12.3 million. We believe our existing capital resources are adequate to finance our operations through at least the end of 2013, as we continue to make prudent use of these resources as well as begin to generate revenue from the recently announced preferred price capacity agreement for UniBoss with our major PC maker.

Now I'd like to turn the call back over to our CEO and President, Mr. Killion.

Reed Killion

Thanks Jeff. 2012 was an exciting year for Uni-Pixel. We established several major relationships to advance product development and ramp up our manufacturing capacity, as well as introduced our preferred price and capacity license model to finance our capacity ramp with built in customers. We ended 2012 on a high note with the validation of a major PC manufacturer and the signing of our first license and a solid market response to Uni-Pixel's business model and technology.

This included joining forces with N-Trig to develop metal mesh sensors its DuoSense Pen and MultiTouch input used on mobile computing devices. We also qualified our UniBoss printed touch sensors with Texas Instruments as well as multiple other controller manufacturers. Together with multiple controller manufacturers and others, we are working towards yielding integrated touch solutions, superior to what we could accomplish independently.

Our ability to leverage partner infrastructure without diluting shareholders or giving up equity in the company has been a part of our executive team strategy on building shareholder value. These partnerships and collaborations represent a strong validation of our UniBoss technology and how it means a lower cost and higher performance solution over current indium tin oxide touch sensors that currently dominate the market.

With UniBoss we offer the touch ecosystem, a price performance curve that ITO and other ITO replacement solutions can't meet. The unique advantages of metal mesh touch sensors based on Uni-Pixel's additive roll-to-roll, flexible electronics process are substantial.

Our UniBoss manufacturing process continues to be the only completely additive process that reduces manufacturing costs and supply chain complexity of current ITO and other ITO replacement sensors by significantly minimizing the number of manufacturing steps and lowering the infrastructure costs required of these subtractive processes.

Other production advantages include lower materials cost and simplified supply chain, as well as near linear scalability to many sizes and form factors. Along with reducing manufacturing costs, our UniBoss Touch Screen also offers higher touch response and sensitivity, superior touch distinction, better durability and lower power requirements.

But UniBoss is of the only technology we are rolling out. Last year we partnered with Carestream Tollcoating as our manufacturing and distribution partner of our Diamond Guard Hard Coat Film. With Carestream, we established the capacity to support large scale volume production of more than 100 million square feet per year of Diamond Guard and that is either a covered glass replacement film, protective cover film or a decorative graphic hard coat film. This large volume certification allows us to begin widespread commercialization of Diamond Guard. We designed Diamond Guard to offer superior performance as a low cost substitute for glass. Diamond Guard is super hard, rated 6H scratch resistance, making it highly resistant to scratching and shatterproof.

However, it is also very thin, light and flexible with glass equivalent gloss and finish. Diamond Guard is less labor intensive to utilize in glass and unlike glass, it is available in large rolls that can be die-cut or laser cut to size. The large role format can also save manufacturing cost and it allows direct printing of role to role graphics that includes bezels, logos, multicolor boarders for consumer electronic esthetics and unlike glass, it does not required pre and post processing steps like the special surface treatment for glass that allows inks to adhere.

Given our strong focus on UniBoss in 2012, we spent the lion’s share of our resources outside of Diamond Guard and worked with the a couple of significant target customers for the downstream supply chain and conversion solutions around die cutting, lamination and printing. We have received strong interest from OEM and ODMs to combine Diamond Guard with UniBoss Touch Sensor to produce a thinner and less expensive touch screen display.

The functional prototypes we’ve produced with UniBoss demonstrates that laminating Diamond Guard with UniBoss eliminates the need for protective cover glass or sensor glass in many applications. As a combined solution, this offers a thinner solution at a highly competitive cost. We anticipate UniBoss will be a significant growth driver for Diamond Guard in 2013 and 2014.

UniBoss is a roll-to-roll process technology which allows Uni-Pixel to sell a complete UniBoss sensor. The sensor is a value-added product, not a material play like ITO target suppliers or some Nanoink suppliers that still needs the costly infrastructure necessary to support the multiple, subtractive and labor intensive process steps to produce the sensor product.

A UniBoss sensor includes the bezel pad circuit, conductive grid, FPC board pad and in the future in some applications the entire flex circuit. The sensor is manufactured as a single sheet of film with conductors on both sides, in our UniBoss additive roll-to-roll process. This directly addresses a touch module market that DisplaySearch estimates will grow $13 billion to $32 billion by 2018.

To meet this large market opportunity and anticipated demand, we are developing relationships with major partners to tap their established infrastructure. These relationships include signing preferred price and capacity agreements with OEM supply chain ODM's and touch ecosystem partners in order to scale our manufacturing capacity quickly and effectively. This also allows us to maintain a lean and efficient organizational structure within Uni-Pixel.

One such relationship we recently announced, which was the signing the preferred price and capacity agreement with a major manufacturer of personal computers to develop and introduce products that feature UniBoss based next generation touch screen. Given our exceptional progress with this venture, we expect to recognize about $5 million in revenue in the current first quarter.

We also began negotiations last quarter with ecosystem enablers, supply chain and LCD panel manufacturers. These talks have continued into 2013 due to the current preferred price and capacity licensee request of 1 million square feet a month and the same request of 1 million square feet a month and more from others we are negotiating with.

It is paramount that we scale capacity as quickly as possible to meet demand. To that end, we have started talks with multiple companies about possible joint ventures. While building out our current capacity, we will consider a number of potential joint venture partners. We expect to announce a joint venture with a world class manufacturer in the second quarter. While we are maintaining an efficient organizational structure to our partnered funded model; we have added some key staff, including the recently announced appointment of Robert Berg to the new position of Vice President of Global Sales.

Robert brings to Uni-Pixel 25 years of sales and marketing management experience in Touch Solutions, printed and flexible circuit industries. This includes a strong record of team revenue and profitability targets, improving time to market performance and establishing global sales channels and supply chain partners.

Looking ahead in 2013, we will continue to focus on developing our downstream supply chain to support large volume manufacturing. The downstream supply chain includes die-cutting, tab bonding, lamination and assembly resources. We are working closely with our partners to ensure that best practices are used in converting our UniBoss Touch Sensors into end products.

Our plating facility is on track with its capacity buildup. The roll-to-roll plating line is installed; it is in the final stages of qualification. We have run UniBoss film roll-to-roll with great results. We recently placed purchase orders for two new roll-to-roll printing and two more roll-to-roll plating machines which we will modify with UniBoss technology and qualify for UniBoss process. Each printer will be capable of printing trace widths down to 5 microns and produce $1 million units or square feet per month.

Looking at our manufacturing capacity roadmap, we see limited production in the second quarter and ramp up to volume production in the third quarter. We are on target to hit 45,000 to 60,000 units or square feet per month by the end of April; 200,000 by the end of June, 700,000 by the end of September and then achieving 1.3 million units monthly by January of 2014.

As a developer or disruptive technology we will continue to protect our breakthrough achievements by expanding our strong IT portfolio. We filed or have in process more than 90 patents on our Performance Engineered Films and propitiatory Hard Coat Chemistry.

In closing, our focusing on leveraging licensees and partner infrastructure will remain our primary strategy to quickly ramp capacity, advance product development and improve our time to market as we work towards the worldwide introductions of our unique touch screen solutions and Hard Coat films. We expect to close another preferred pricing capacity license with an ecosystem provider within the next four to six weeks, maybe earlier.

Now with that I would like to open up the call to questions. Alisha, please provide the appropriate instructions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Michael Malouf with Craig-Hallum Capital Group. Please go ahead.

Michael Malouf - Craig-Hallum Capital Group

Question on the capacity ramp; you talked about to get to 60,000; I’m assuming that that’s one plating line working with the existing printer line that you have in Houston. I’m wondering if you can talk a little bit about, what you need to do to get to that 60,000 from where you are at now. I think you said that you have had great results so far. If you could just give us a little color around those great results, that would be helpful and one of the things that I have seen recently in the press is when some of the metal mesh guys get very close to producing, it still may run into some problems, and so I am just trying to get a sense of how that’s going as I noticed that excess as I thought producing and then now it looks like they are having trouble. So just wondering if that relates anything to you?

Reed Killion

I don’t comment on our competitor’s problems but with respect to what we are doing, we feel very comfortable with the process. We started lining this out. We put the equipment in on December 28th and have built out the facility, got the equipment up and running installed and have been calibrating the equipment. We do a tremendous amount testing with respect to the chemicals in the bath that we put this on the plating line and I don’t want to dominate this discussion, so I’ll Bob talk about it little more.

Bob Petcavich

Yes Mike unlike our competitors, they’re doing a photolithography process which involves, as you know many steps. But each one of those steps probably has some kind of yield or yield loss whereas we’re additive. We’re just adding the metal exactly where we want it on our printed lines. We only have a one step process versus a multistep process. So we think our ramp and our yields are going to be much, much higher than maybe other people are experiencing with the multistep lithography process.

So, now the line is actually running, we’re actually running roll-to-roll material off the line now. We do have a recipe for product that we are bringing off the lines as we speak even this afternoon and we don’t see any road blocks to meeting or exceeding that 60,000 units per month in April. We’re adding couple of pieces of equipment that are expected to be delivered in a couple of weeks that will amplify that production throughput and that we think the one we know today, there is not going to be hiccup or issues with the scale up, at least for 60,000 units.

Michael Malouf - Craig-Hallum Capital Group

Okay great and I would imagine once you get up to 60,000 it’s probably a lot easier to add two more lines or 10 more lines once you kind of get the recipe down. Is that a good way to think about it?

Bob Petcavich

Yes certainly it.

Reed Killion

Exactly, the first machine is always the toughest one Mike and since no one ever done this before as an additive process, we added a lot of bells and whistles to the machine so we could go through a lot of variables quickly but now we’ve narrowed it down and know what to do on lines two and three. We think we can bring those lines up within weeks after equipment delivered now.

Michael Malouf - Craig-Hallum Capital Group

Okay fantastic and as a follow-up question, regarding the competitor front, I know that you’ve had a little chat with some people in Mobile World Congress and some other events around the world and I’m just wondering if you could give an update on where we are relative to perhaps ITO as is it improves on price and also on performance and then maybe where other ITO replacement or slash kind of metal mesh processes are, are you seeing any improvements there.

As you probably saw Young Fast is now shipping some metal mesh products, maybe not its own, but certainly shipping some to Lenovo and I'm just wondering how is the whole competitive environment shaking out now?

Reed Killion

We see it as a great opportunity actually, to enable some of our customers. There is a demand that's exceeding the supply at this stage and there's room for plenty of other types of technologies to enter this market segment. But, again we go back to the additive process and what we offer with respect to UniBoss, we don't see anybody being able to compete on price and certainly don't see anybody that's going to be able to compete on a scalability side. Bob if you want to add to that.

Bob Petcavich

The only competitive product we've run into actually in our customers is Silver Motion from Fujifilm and we don't know if that's ever going to be scaled up to full scale production or not, but there are seems to be some issues with integration of that type of product, but other than that we haven't seen any other, at least the customers we're talking to, any other competitive technologies.

Reed Killion

Mike we're inundated with customer requests so if other people are coming up with different solutions and lower prices, it certainly has an effect that people contacting us and wanting to work with us.

Operator

Thank you. Our next question comes from the line of Cody Acree with Williams Financial. Please go ahead.

Cody Acree - Williams Financial

Maybe if you can just go back to your discussion of ecosystem partners and maybe the next level of interest, to what degree you can tell us, what kind of interest are you seeing and just give us some color around maybe timing and progress?

Reed Killion

We've seen strong interest with respect to the supply chain and macro ecosystem partners, that want to enable their products to have a price performance curve advantage specifically with the introduction of Touch. Scalability seems to be a problem with some of the larger form factors, access to product with the performance levels that our solution currently offers is something that we see from more than one ecosystem partner, and we're probably four to six weeks away, possibly much sooner with respect to the announcement of one of the ecosystem partners.

It’s a very competitive environment out there, specifically for supply. So, some of these eco system partners may or may not want their name mentioned with this but will certainly be working with them and the customer base to get our product designed in and integrated into next generation products for some of the PC manufacturers and even some of the Android folks out there.

Cody Acree - Williams Financial

And on that what’s the hurdles of the negotiation process when you are talking four to six weeks out, what are some of the sticking points and when you talk about not mentioning names I guess, can you just maybe give us a little color so why someone would not want to their name announced?

Reed Killion

The ecosystem partners are engaged in trying to garner as much supply for their product line as possible and it may be a competitive environment out there. So they want to enable us but not necessarily upset the apple cart with respect to some agreements that they already have in place. We are not on any Christmas card list. I think I have told you this before, Cody. We don't get any Christmas cards from the touch panel module supply chain.

A lot of what we bring to the table takes away from the value add that they currently enjoy and that’s associated with the subtractive processes. So we think that the next ecosystem partner is going to be a great partner to work with and certainly will generate revenue for the company. So that’s about as far as we’ll into discussing that at this stage.

Cody Acree - Williams Financial

Sure and with the ramp of something as large like an ecosystem partners, this sounds like it would be broadly across multiple OEMs. How concerned are the discussions of your production, your ability to reliably producing in high volumes and I guess where is that factoring into the conversation?

Reed Killion

We had some manufacturing and process engineers from the ecosystem partner, from our PC manufacturer as well as a major film manufacturer come in to review our process and walk through the facility and the feedback that we have received has been exceptional. The value that we create in a relatively small footprint, obviously at first was a concern but when people see what we've developed and what we're doing, their concern is alleviated a little bit.

The real focus is the downstream supply chain. We can have a the world class best practices 100% yielded roll of film and if the conversion downstream doesn't implement best practices, then the end product is not going to be what we expect.

So, most of it is on the downstream supply chain, in making sure that we can transition those best practices downstream and we have been in discussions with a partner for lamination. Lamination is one of the key factors in making sure you get a good product out and that discussion and development effort has gone exceptionally well and we hope to get something completed with them within the next month.

The other thing that we are looking at is as I mentioned in the call is the potential for a joint venture; our supply chain agreements, that could turn into joint ventures. We're knee-deep in discussions with multiple companies on that front as well and they are all fairly large footprint organizations.

Cody Acree - Williams Financial

Any thoughts on JV might impact margins or just the kind of the cost structure of producing it?

Reed Killion

At this stage we understand the margins and the infrastructure because of the footprint of the JV is structured correctly. You are not going to have a big company lay on it and add a bunch of cost that shouldn't be there and we’re in a position where we can structure that, where we benefit from the scalability that we get with a joint venture. Scalability is number one right now for this technology and our company.

Cody Acree - Williams Financial

Of course and lastly I just want to clarify the units that you gave, the targets April, June and beyond, that is production units not capacity, but actual revenue units, is that correct?

Reed Killion

That is capacity. You need to be able to meet, to support several players that we are in discussions with.

Cody Acree - Williams Financial

And then can you just tell us when you think that you’ll actually see months or quarters when you actually see revenue units going through?

Cody Acree - Williams Financial

Yes, we are being pushed to get to revenue pretty quickly with some of these partners. So as we bring this up and qualify it, first products are scheduled to be in the market in a product by September timeframe and we have been approached and asked if we can meet June schedules but we are still 100% focused on the current schedules in front of us. As we continue to make progress and if we are in a position to support it, we will.

Operator

Thank you. Our next question comes from the line of Ankur Desai with MDB Capital. Please go ahead

Ankur Desai - MDB Capital

I wanted to actually just build off on what you were just talking about there, with respect to timelines on product shipment. So the deal with the major PC manufacturer, I think that’s the September timeframe that you were talking about that the product should be on the shelf from that deal, in the September timeframe, is that right?

Reed Killion

Right

Ankur Desai - MDB Capital

Are you already shipping product to them right now, or is that the April kind of timeframe?

Reed Killion

That’s the April timeframe. And we have done prototypes but the production, it will come off the plating line and we are in the process of finalizing the production level process. I was told yesterday by one of the guys that if we had to ship product today, we could but we still want to dial in and make sure that we get all our quality test and everything in line before we let product out the door.

Ankur Desai - MDB Capital

Okay, what needs to happen on their end between the time they receive the product and put product on the shelf? Besides in between time they received UniBoss and then putting their product?

Reed Killion

It’s, there is the downstream supply chain. We get aligned with the ODMs or the module manufactures that they are working with, and the panel manufactures that they are working, and the controller manufacturers that they are working with, early in the process. We then print our film and then ship the film over to the Far-East where it then would be die-cut and tab bonded, laminated and then put in a product.

Then you go through a series of live tests while it’s in the product and you also go through qualification for Windows 8, and some of the other aspects of qualification that they go through. And once that is completed then you are ready to go to pilot production.

Ankur Desai - MDB Capital

Okay, so when do they need to get it by, to do all that stuff between, sort of, when do they need to get it aligned in order to have product on the shelf in September?

Reed Killion

April.

Ankur Desai - MDB Capital

Okay, and from a revenue perspective, are you going to be able to recognize that revenue in April or does it have to wait until September?

Reed Killion

Revenue will be recognized when we ship the product, okay.

Operator

Our next question comes from the line of Jon Hickman with Ladenburg Thalmann. Please go ahead.

Jon Hickman - Ladenburg Thalmann

Reed, could you just go through this steps again of the process, you master it, you print it, you plate it, then it goes to downstream guys who die-cut it,

Reed Killion

They tab bond it, laminate and then assemble into either a panel or the end product assemble okay.

Jon Hickman - Ladenburg Thalmann

So there is seven steps in your process?

Reed Killion

That’s to go to the end product.

Jon Hickman - Ladenburg Thalmann

Yes okay and then could just identify like who would consider an ecosystem person out there? Like is it Intel because they make chips for computers or how do you identify or define an ecosystem partner?

Reed Killion

Well, if you’re looking at an ecosystem you would look at somebody like Google and their Android system or Apple in their system or it could be Foxconn, an ODM that supplies multiple products in multiple groups, could be Microsoft. Those are what I would consider as ecosystem partners, could be Qualcomm, there is host of guys that sell processors or software or offer services into multiple platform. That would equate to an ecosystem partner.

Operator

Thank you. Our next question comes from the line of Orin Hirschman with AIGH Investment Partners. Please go ahead.

Orin Hirschman - AIGH Investment Partners

I just want to reiterate again, just within the steps that are your responsibility and the rest of partners responsibility, what’s the remains in terms of proving on the scaling, will you have any shadow of doubt that there is an issue in terms of scaling because obviously you are making product, limited volumes, probably it sounds like almost ready for the social step of volume production. What’s still is an issue? Is platting an issue? What still needs to be ironed out, so to speak?

Reed Killion

As far as the printing process, everything is lined out. As far as the plating process, everything is lined out. It's more continuous process improvement, tweaking and finalizing on whether we run it through the batch at a certain temperature or raise it to two degrees so we get better throughput or if we change the chemical to get better throughput, those are the things that we're finalizing and working on right now.

Orin Hirschman - AIGH Investment Partners

In terms of the new equipment that's coming in, if that's the scale though, is there anything new where you haven't put it through a small scale test yet. Will you have to do that?

Reed Killion

No, we design new equipment per our specifications, everything that we have added above and beyond what we currently have, we've done it in the lab and we understand what the ramifications are going to be. So we have done significant testing on all the variables associated with what we're trying to accomplish. There's only about 250 of them.

Orin Hirschman - AIGH Investment Partners

Okay and in terms of, you mentioned those small tweaks, the yields though acceptable on the smaller (inaudible) mid volume runs without getting those tweaks perfect.

Reed Killion

Well our focus is to get them perfect because the amount of volume that we're going to run, they need to be perfect. It's satisfactory with what we're doing now, meet our product specification.

Orin Hirschman - AIGH Investment Partners

Meaning the product that's coming off at this point is worthy of customer delivery?

Reed Killion

Correct.

Orin Hirschman - AIGH Investment Partners

Okay your issue is though only can you do better in terms of yield?

Reed Killion

Correct. Yield or speed.

Orin Hirschman - AIGH Investment Partners

Speed, right. Yield is probably the wrong word here. Speed is probably the correct or it could be called yield also. You mentioned another partner coming off. I just wanted to make sure we understand ecosystem partner, I think was the terminology that you used a bunch of times is that an end customer too or is that a customer that's selling to the end customer?

Reed Killion

It's an end customer and their customers; they would offer a preferred price and dedicated capacity too. So, not only do they become a potential customer but they're also helping us on the sales and marketing side and enabling their customer base to enjoy the price performance curve that UniBoss offers.

Operator

Our next question comes from the line of Cody Acree with Williams Financial. Please go ahead.

Cody Acree - Williams Financial

Just a couple of housekeeping things. Can you just talk about share count expectations for the next quarter especially given the running stock?

Jeff Tomz

This is Jeff speaking. Currently we have approximately 10 million shares outstanding right now and we don’t have anything on the horizon to increase the share account by secondary offerings or anything of that magnitude.

Cody Acree - Williams Financial

No, Jeff I guess what I was asking was with dilution with options and warrants that are out there, how much of those are now levying in the money and effecting dilution.

Jeff Tomz

We have 3.2 million options in warrants outstanding in total and basically almost all of them are in the money, and most of them probably about over 75% invested.

Cody Acree - Williams Financial

75%, okay great. And then Jeff could you may be talk about OpEx expectations. As we look at the next several quarters ramping into that million plus capacity and how that affects infrastructure cost?

Jeff Tomz

We are still looking to have operation expenditures to be less than a $1 million a month, even up to full production. So we’re going to be leveraging most of our infrastructure hopefully to our joint venture arrangements that we’re working on.

Cody Acree - Williams Financial

And then lastly I guess on that, with the Lufkin facility, can you just talk about how that’s being, how that affects the expense? I understand that that’s kind of an hourly basis but how does that kind of flow through the income statement and then impact what might be profitability?

Jeff Tomz

Right now, it’s currently going through R&D expense, going through cost of goods sold. Once we get our first major purchase order and then that will flip in that expense which is basically at an hourly basis will flip in the cost of goods sold as well as the depreciation on our equipment, our plating lines and operating pressures will flip into cost of goods sold at that point as well.

Operator

(Operator Instructions). Our next question comes from the line of John Dorff with PlainsCapital. Please go ahead.

John Dorff - PlainsCapital

Question about, kind of following along the lines is the float this far, the outstanding shares and sort of some volatility that we saw in the last quarter, especially in the January period. It seemed to be based on an article like a Seeking Alpha article or something. I am just wondering how you guys, with the volatility, I mean the low slope, how are you planning to kind of address, or make sure that the investors are informed and kind of weed out some of the misinformation that might be floating out there in the market.

Reed Killion

The results, our results are what you are going to hang your head on and calls like this. With respect to what people write about us, we can't control that and we are not going to respond to that. We are focused, we've laid out our strategy in the way we’re going to market and as material events happen, we'll obviously announce them.

The PC manufacturer aligned with us. We signed our first license deal that was material; we announced it. If a lawsuit or something else came up that caused that PC manufacturer or somebody else not to engage or to drop the relationship, then we have to announce that too. So we'll announce what is material and the rest of it I look at is potentially just hearsay.

Operator

Our next question comes from the line of Gavin Richey with Rockwood Investment Partners. Please go ahead.

Gavin Richey - Rockwood Investment Partners

How many hours per day is the January targeted capacity predicated on? Is that a 24/7 schedule or?

Reed Killion

Two shifts. Not 24/7, two shifts.

Operator

Our next question comes from the line of Donald Hutchinson with Safe Harbor Financial Management. Please go ahead.

Donald Hutchinson - Safe Harbor Financial Management

It seems that everybody is mostly interested in UniBoss as I am but also wondering just how Diamond Guard gets in gear and kind of hard to get an idea about profitability of that. Is that likely; I have three questions that I'd like to come back after you answer the first one. Is that going to be mostly sold along with UniBoss or is that going to be sold in other applications?

Reed Killion

We think UniBoss is going to be a significant driver for Diamond Guard. But there are many other applications that it can be utilized in. But the combination of Diamond Guard and UniBoss is very interesting, not only in the consumer electronic space but in the automotive space, as well as the appliances and industrial spaces where you can go, even in lighting, it can be applied to.

But basically button less and curved features, you can have a console in a car then basically you just laminate in. On appliances, the Diamond Guard can be utilized instead of metal painting, they can paint or print the graphics on the Diamond Guard and then laminate that to the surface and give you your buttons and your interface. So there is a lot of different applications for it. The margins are not going to be as high on Diamond Guard as they are on UniBoss.

Donald Hutchinson - Safe Harbor Financial Management

Well there is certainly plenty of places to use it. So I guess just that wouldn’t be absolutely necessary. How does this thing, how does its usage or comparative position against the Willow Glass stand up?

Reed Killion

Willow Glass is Corning’s next great technology associated with glass. It’s flexible glass and we’ve seen it and we think that there is certainly some applications it will be used for, specifically for back panes and in potential LCDs. But we don’t necessarily see it as the competitor. It’s very thin and it’s fragile.

Donald Hutchinson - Safe Harbor Financial Management

One of the things that saw the other day was, I guess it would be a flexible, wearable, cell phone wrapped around your wrist. Is that a good spot for UniBoss and Diamond Guard?

Reed Killion

It would be. What I feel, it’s very brittle and it’s difficult to work with, and when you flex it you get micro-cracks, when you get micro-cracks you lose conductivity. So our solution is very robust and rugged and it would be a good application for curved surfaces.

Donald Hutchinson - Safe Harbor Financial Management

Are there any let’s say milestones, guideposts or whatever about Diamond Guard that you could give us a few hints on as to what we could look forward to hearing over the next 12 months or so?

Reed Killion

Yes, in some notebook applications you don’t necessarily need a cover glass because it’s a clamshell. You might want to thinner and reduce costs. So it’s certainly something that could applied there for TVs. Large screen TVs, glass is heavy and cost a lot and handling aspect of it, you might see it an application there. There is also some applications in Smartphones and tablets. We have also laminated our Diamond Guard to polycarbonate and polycarbonate as you know is unbreakable and little easier to work in glass, laminate our Diamond Guard over the top of that and you get the mechanical rigidity of glass without the breakage. There is a lot of given applications.

Operator

Thank you. Our next question comes from the lien of Michael Chapman with Altimeter capital. Please go ahead.

Michael Chapman - Altimeter capital

I was wondering earlier when you were discussing your process developments, where you yet able to use roll-to-roll or you’re still doing the batch processing on the electrolux rating?

Reed Killion

No it’s roll-to-roll.

Operator

(Operator Instructions). And our next question comes from the line of Chris Brown with (inaudible) Capital. Please go ahead.

Unidentified Analyst

I was just wondering if you guys had a purchase order yet from your OEM partners and if not when you get one, is that something you think you’ll do a press release on?

Reed Killion

We probably won’t do a Press Release on it. We will do a Press Release when we ship product.

Operator

Our next question comes from the line of Jason Polansky with JP Capital Management. Please go ahead.

Jason Polansky - JP Capital Management

I may have heard you wrong in the past or in current script here but I think I heard you say 45,000 to 60,000 for your April target, I guess production/capacity. I think that in past I’ve heard it as 60,000, is there anything going on that you’re wanting to hedge that a little bit lower?

Reed Killion

It’s just where we are. If we could potentially get up higher than that, we’re going to run it double threated. So we should be able to meet the 60,000. If it’s 15-6 (ph) larger we’d run it single threaded and that might slow it down a little bit to 45,000.

Jason Polansky - JP Capital Management

I can imagine, I think what double threaded may mean, but could you explain that.

Reed Killion

You run two rolls of film right the plating line at the same time.

Jason Polansky - JP Capital Management

Right, okay. Is that a significant challenge to line up, given your tolerances or is that something that you fully anticipate you could do, if say you're running a smaller,

Reed Killion

No, on the plating lines it doesn't have anything to do with tolerances.

Jason Polansky - JP Capital Management

Oh is it just the plating side.

Reed Killion

Yes.

Jason Polansky - JP Capital Management

Which I get,…

Reed Killion

Just the printing you would have to deal with tolerances. On the plating line its 30 inches wide. So you can run two films down at the same time.

Jason Polansky - JP Capital Management

So is it still safe to consider the plating is kind of a bottleneck to the process.

Reed Killion

Plating is the bottleneck to the process.

Jason Polansky - JP Capital Management

Right, right. And given the state of printing today, would you be able to be producing at a much higher rate at this time right now?

Reed Killion

Yes. Significantly about 10:1.

Operator

(Operator Instructions) And our next question comes from the line of Harry Zirinsky with Talpion, please go ahead.

Harry Zirinsky - Talpion

So of course as an investor I've done due diligence and seen your arguments online, and I was wondering if you could comment a bit on the disclosure of some the information you put out regarding say other the two printing presses that some of the analyst teams have known about and the capacity that you've talked about I've seen available to analysts but not quite the public and also as a means of using Benzinga as the weightage to express information.

Reed Killion

Certainly, we have ordered two new printing lines. It should be delivered in May and we have ordered two new plating lines that we should have delivered a little bit before May. We are putting a kind of dual footprint facility together or a redundancy and that's one of the reasons why we acquired two printing lines instead of just the one printing line and the number of parties that we're engaged with and that have requested volume, the two printing lines are going to be required and obviously additional plating lines up to probably 15 plating lines or more to support the requests that we're seeing. So we're just trying to get ahead of it a little bit.

Harry Zirinsky - Talpion

I mean sort of in the way of the means of distributing information. As an investor seeing things come across on blogs and follow up on the company which I can confirm through Benzinga, if whether or not going forward, you can expect more information as well and given directly to investors.

Reed Killion

Yes, I think if you’ll see more of an information flow. Obviously, when we are shipping product will make sure that, will make an announcement we are shipping our rolls of product. As we get to the deal signed, we’ll make those announcements and what that could mean from a capacity standpoint as we work through supply agreements and relationships, we’ll announce those relationships as well.

Operator

At this time this concludes our question and answer session. I would like to turn the conference back to Mr. Killion for any final remarks.

Reed Killion

Thanks again Alisha. I would like thank you for the continued support of our staff, partners and shareholders that we advanced towards the worldwide market introduction and commercialization of next generation touchscreen solutions and hard coat films. Thank you all very, very much.

Operator

Before we conclude today’s call I would like to take a moment to read the Company’s Safe Harbor Statement. All statements made by management during this call that are not based on historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements include but are not limited to those made by Mr. Killion regarding anticipated demand of UniBoss and Diamond Guard, these products and solutions, expectations of revenue ramp up with Diamond Guard film product and solutions, expectations of revenue ramp up capacity ramp and volume production with UniBase based product and solutions, expectations of a joint sale and marking effort with Texas Instruments and the company’s anticipated product launches.

While management has based any forward looking statements made during the call on its current expectations, the information on which set expectations are based may change. These forward looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties and other factors, many of which are outside of the Company’s control that could cause the actual result to materially differ from such statements.

Such risk, uncertainties and other factors include but are not necessarily limited to those set forth under Item 1A Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. We operate in a highly competitive and rapidly changing environment, thus new or unforeseen risks may arise. Accordingly you should not place any reliance on forward-looking statements as a prediction of actual results. The company disclaims any intention to and undertakes no obligation to update and revise any forward-looking statements.

You are also urged to carefully review and consider the other various disclosures in the Company's Annual Report on Form 10-K for the year ended December 31,2013 as well as other public filings with the SEC since such date.

Now again, I would like to remind everyone that this call will be available for replay through March 26, 2013 starting later this evening via the link provided in today's Press Release as well as available in the Investors section of the Company's website.

Thank you ladies and gentlemen for joining us for our presentation. You may now disconnect.

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