When examining Uni-Pixel's (NASDAQ:UNXL) "manufacturing and supply" agreement with Eastman Kodak (EKDKQ.PK), it's important to note there are two sides to every transaction. On one side, it's clear that Uni-Pixel thinks the Kodak agreement is crucial to its success and allows it to ramp UniBoss faster, cheaper and in greater quantities. On the recent 1Q 2013 conference call, Uni-Pixel executives talked glowingly about the expertise Kodak brings in "large scale manufacturing and commercialization." CEO Reed Killion even went as far as to point out the explosive expansion opportunity with Kodak and laid out a target for 10 million units of monthly capacity by the end of 2014.
It's also evident the agreement will provide significant economics to Kodak. On the conference call, Reed Killion said, "The revenue share will be on equitable terms." If that isn't explicit enough, the two underwriters of Uni-Pixel's recent primary offering, Cowen and Craig Hallum, have both incorporated a 50-50 profit share with Kodak into their financial models. In fact, Cowen has $59 million and $119 million of gross profit going to Kodak in 2014 and 2015, respectively.
However, what does Eastman Kodak think? Let's examine Kodak's SEC and bankruptcy filings. Unlike Uni-Pixel, which has never filed copies of its agreements with its PC OEM customer, ecosystem partner, or manufacturing partner, Kodak actually appears to respect its disclosure and filing requirements.
Kodak's filings set off alarm bells
It's clear Kodak doesn't think much of the Uni-Pixel agreement. In fact, Kodak didn't even bother to file an 8-K announcing it. While Uni-Pixel wants investors to believe the Kodak agreement will result in hundreds of millions of profit in the near future, it's extremely telling that Kodak did not even think the agreement with Uni-Pixel was material enough to file an 8-K.
What does Kodak consider to be material? A simple review of its 2013 filings makes clear what Kodak considers material. On February 27, 2013, Kodak released an 8-K announcing a license sale to the Kodak trademark for use in prescription lenses for $30.6 million (Signet license 8-K). Kodak considered a license sale for $30.6 million worthy enough of an 8-K. If there was a realistic chance that over the next two years Kodak could earn $178 million of gross profit, as forecast by the Cowen analyst covering Uni-Pixel, Kodak would have filed an 8-K announcing the agreement. After all, Kodak seems to be serious about its disclosure requirements, which mandate that an 8-K be filed for "material definitive agreements entered into by a company that are not made in the ordinary course of business" as per this SEC document description (Form 8-K Disclosure Requirements).
Let's also examine Kodak's Disclosure Statement that was filed with the bankruptcy court on April 30, 2013, in which Kodak provides its most up to date financial projections. Disclosure Statements are one of the most important documents in a bankruptcy proceeding and no material information can be hidden from the courts. What struck us is that there is not one single mention of Uni-Pixel or UniBoss within the Disclosure Statement, even though it contains an extensive discussion of the Functional Printing division. More importantly, there's been almost no change from its projections provided on January 22, 2012. The Uni-Pixel agreement was signed on April 16, 2013; any material addition would have been reflected in its Disclosure Statement filed April 30, 2013. See for yourself.
The first projections are available on slide 12 from the January 2013 Presentation to Creditors, which was filed as part of an 8-K on January 22, 2013. The second set of projects is found on page 175 from the Kodak Disclosure Statement filed April 30, 2013. As you can see, there is almost no change to the projections. The only difference is the treatment of a divested segment in 2014 and 2015. In addition, it's important to note that Kodak has regularly updated its financial projections with the most up to date information (see filings from August 13, 2012 and October 12, 2012).
Where are the millions of future profits from Uni-Pixel? How come they're not in the new Disclosure Statement? If UniBoss' profits are truly expected to be of the magnitude that analysts project, Kodak must update its projected figures. Our only conclusion is that Kodak believes the agreement with Uni-Pixel is unlikely to amount to anything.
There you have it. The silence from Kodak is deafening.
Disclosure: I am short UNXL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.