When we consulted with experts in the touch screen industry who had tested UniBoss, it was clear to us that Uni-Pixel (NASDAQ:UNXL) was unlikely to be successful. You can find a summary of our findings in our first article. But the best shorts don't just have bad technology - they also have bad characters. So as we did our checks, we also researched the past histories of the management team. The information we uncovered was overwhelmingly negative.
Three current and former Uni-Pixel executives have been involved in past scandals at their companies where there have been allegations of fraud. In the lawsuits described below, the similarities are striking. The lawsuits claim that executives raised money from investors despite knowing that their technologies and products did not work and were going to fail. We believe that Uni-Pixel executives are at it again, but this time we suspect the SEC is catching up to them.
SEC letters and FOIA response
We have witnessed what we and others believe to be multiple examples of securities violations by the executives at Uni-Pixel. As a result, we wrote the SEC on three separate occasions about our concerns regarding Uni-Pixel's behavior. On April 22, 2013, the SEC received a letter highlighting three material violations of its disclosure obligations concerning the material terms of Uni-Pixel's "manufacturing and supply" agreement with Eastman Kodak Company (click here). On May 2, 2013, the SEC received a letter detailing further evidence that Uni-Pixel had violated securities laws by withholding information regarding the terms of the Kodak agreement prior to its sale of shares on April 18, 2013 (click here). Lastly, on May 21, 2013, the SEC received a letter highlighting probable Regulation FD violations by Uni-Pixel with regard to selective disclosures (click here).
Some investors dismiss investor complaints to the SEC based on an outdated and jaded view that the SEC only acts after a fraud is revealed, so we decided to try to determine whether the SEC was taking the allegations of securities violations seriously. To check this, we filed a request with the SEC under the Freedom of Information Act (FOIA) to see the correspondences they have had with Uni-Pixel since the start of the year. This is what they said in their response to our FOIA request (full SEC letter here):
"After consulting with SEC staff, we have determined to withhold non-public records that may be responsive to your request, under 5 U.S.C. § 552(b)(7)(NYSE:A), 17 CFR § 200.80(b) (7)(NYSE:I). This exemption protects from disclosure records compiled for law enforcement purposes, the release of which could reasonably be expected to interfere with enforcement activities."
While we are not securities lawyers, our opinion after reading the letter from the SEC is that Uni-Pixel is probably under investigation by the SEC. While the language in the response letter does not say an SEC investigation is certain, it is highly suggestive. The fact that Uni-Pixel did not disclose any language in their most recent 10-Q and 10-K filings regarding any open SEC investigations or inquiries indicates to us that this is probably a new investigation by the SEC. If this is true, it is most likely very bad news for both Uni-Pixel and its investors. We have confidence that the SEC will not sit idly by and let this apparent stock promotion spiral out of control and risk leaving egg on the SEC's face after it received numerous warnings about these bad actors. We think Bernie Madoff was enough bad press for the SEC. In our opinion, the gig is almost up.
History of fooling investors with dubious technologies
That Uni-Pixel may be under investigation by the SEC should not be a surprise to anyone who has conducted even a cursory review into the backgrounds of the executives. We know others have touched upon this, but we think that it is worth going into just how untrustworthy we believe the management team is. Long investors point to the executives and say they're credible people. However, a series of simple internet searches reveals that it's a list of characters that have been involved in multiple scams and have connections to other scam artists.
CTO Robert Petcavich is front and center on Uni-Pixel, and everything we know about him suggests he has a history of parting otherwise trusting investors from their money. His biography is filled with development stage companies in emerging industries that never panned out despite raising millions from investors. Over the course of his career, he's worked on biodegradable plastics, implantable RFID chips, animal neutraceuticals, fruit shelf life extension technology, and even biotech.
The pitch at every one of his companies is the same. Bob Petcavich promotes a breakthrough technology that he invented at a fraction of the cost of existing technologies. It's so great that he's willing to let you in on it if you just invest a few million dollars.
The following Los Angeles Times article from September 29, 1992 is a great example (click here). The article states, "Petcavich now acknowledges that the demonstration was more of a circus sideshow than proof that his proprietary technology represented a viable way to reduce waste. But the sideshow/press conference drew the desired attention from potential investors and customers."
Despite the show, Bob Petcavich was able to raise $2.4 million from 50 private investors. From 1992 to 2002, Bob Petcavich ran Planet Polymer Technologies, the company referred to in the Los Angeles Times article. Under his leadership, the company continually switched product ideas, ranging from recycling and packing products to fruit coatings. Petcavich and Planet Polymer Technologies were even sued by a director and fundraiser. In that lawsuit, the director accused Petcavich of having knowledge that a technology would not work while at the same time pitching it to investors. The former director also alleged that Bob Petcavich tried to buy his silence with shares in another company Petcavich founded named A-Life Medical.
Want more? We think his latest venture is especially curious. Start at the 11:00 mark of the video (click here).
It's important to note this was filmed in August 2011. The date was confirmed to us by the producer. This overlaps with Bob's tenure at Uni-Pixel. While Bob was busy revolutionizing the touch panel industry at Uni-Pixel, Bob tinkered in his kitchen and developed a miraculous way of extracting oil sands for "one fourth to one eighth the cost of existing extraction technologies" (12:50 mark) in only 15 seconds.
If you've been duped into thinking Uni-Pixel is a great investment, you should seriously consider his oil sands venture. Those who are interested may be in luck, because in the video he mentions he's looking for $2 million in funding.
If you think this is a one off, let us point you to a presentation from 2009 from a conference titled "Energy and Clean Technology Elevator Pitches." (Click here for the link) Once you're on the website, click on the presentation on AquaOil from Bob Petcavich to listen to the 90 second audio file, or click here for the mp3. Again, this was while Bob was working at Uni-Pixel. Again, Bob has developed a breakthrough technology in a fast growing field. This time, he claims he can grow gasoline in aquatic plants. It seems like Bob Petcavich has become quite an expert in oil while he led Uni-Pixel's UniBoss initiative.
Oh, and as indicated in the clip, Bob just needs $3 million to develop this renewable, biofuel, aquatic gasoline technology.
Bob Petcavich isn't the only Uni-Pixel executive with a checkered past. CFO Jeff Tomz was previously CFO of Isolagen, an aesthetic procedure company that ultimately collapsed in a tangled web of lies, failure, and stock fraud. Isolagen had a wrinkle-reducing product that never really worked despite enormous promises. In a class action lawsuit filed against Jeff Tomz and other Isolagen executives, shareholders alleged that the company misrepresented the efficacy of its product and probability of success. The lawsuit said that even though Isolagen knew its product would not gain regulatory approval in the US and was failing commercially in the UK, Isolagen executives withheld this information from the market and issued stock and bonds to shareholders.
Meanwhile, executives cashed out of millions of dollars' worth of stock through secondary issuances and privately negotiated transactions. In June 2004, after a significant increase in share price, Isolagen raised $61 million of gross proceeds. As part of the greenshoe, insiders sold $7 million worth of stock. Then in November 2004, Isolagen issued a $90 million convertible note and used $26 million of the proceeds to purchase shares from insiders and other unnamed parties at privately negotiated prices. All in all, Isolagen raised $151 million from the public markets while insiders dumped $17 million of stock at the same exact time.
Soon after the capital raises, Isolagen announced its aesthetic product failed, and it later revealed that Isolagen had made little progress on its highly touted ACE System, even though it had repeatedly and publicly promised that it was in the "final stages" of development.
In September 2006, shareholders filed a class action lawsuit against Jeff Tomz and other executives. Isolagen ultimately settled the class action lawsuit in 2008 and soon thereafter filed for bankruptcy. Here's a link to the lawsuit and settlement:
Of the $151 million raised, investors recovered only $4.4 million. That's less than a 3% recovery.
While the settlement was paltry, it wasn't because the shareholders' case had no merit. We spoke to the lead lawyer in the case at Bernstein Litowitz Berger & Grossman LLP. He said Isolagen essentially had no assets remaining and all that was left was D&O insurance. They settled because the D&O policy was the company's last remaining asset of any value.
You can read the lawsuit and claim Jeff Tomz was just a bit player in this. After all, he wasn't a founding member of Isolagen and only sold $208,989 worth of stock. You can try to argue that he wasn't one of the bad apples. However, before be joined Isolagen in 2001, Tomz was a Principal at Benchmark Equity Capital from 1999-2001. Isolagen's largest shareholder was Frank DeLape. Frank was part of a group that gained control of Isolagen in 2001 and during the period of the class action lawsuit, he personally sold $5 million of stock and was one of the insiders who sold shares to Isolagen using proceeds from the $90 million convertible. Frank DeLape is founder, CEO, and Chairman of Benchmark. He clearly had a prior relationship to Jeff and likely brought him to Isolagen.
It is also important to note that Frank DeLape is co-founder, ex-CEO, and ex-Chairman of the Board of Uni-Pixel. In fact, he hired Jeff Tomz in 2004 and brought Tomz into Uni-Pixel after Tomz left Isolagen. Frank DeLape also hired Reed Killion.
What do we know about Reed Killion? A review into Uni-Pixel's history shows that during his tenure as CEO of Uni-Pixel, Reed has been responsible for numerous failures and zero successful product launches. Others have pointed this out, but it's worth repeating. As CEO, he is responsible for Uni-Pixel's failed TMOS, Opcuity, and Diamond Guard products. Each product came with big promises of commercialization, yet resulted in no significant revenues. None of these products were ever even introduced into the marketplace. He is also responsible for missing numerous financial forecasts. The worst example is when Reed guided to $6 million in Diamond Guard revenues in 2011, slashed that target mid-way through the year, and ultimately delivered less than $200,000 in total revenues. Lastly, Reed has signed and touted numerous agreements, partnerships, and development deals with companies like Samsung, Avery Dennison, and Texas Instruments. However, none of these agreements have produced any commercial products.
Would you want to be an investor in a company associated with Frank DeLape, Jeff Tomz, Bob Petcavich, and Reed Killion?
Amazingly, it doesn't stop there. The story behind Uni-Pixel's executives gets even better. The current Chairman of Uni-Pixel is Bernard Marren. He has been a CEO or Director at four companies (Opti Inc., Western Micro Technologies, Infocus, and Mondowave) that all experienced significant declines in their stock prices and are now either bankrupt, liquidating, or worthless penny stocks. If history is any indication, should investors trust his leadership at Uni-Pixel?
As if this isn't bad enough, there is also the bizarre. A Barron's article on Uni-Pixel from May 11, 2013 highlighted the unusual beliefs of Martin Selbrede. The article can be found here. Martin is the former chief scientist at Uni-Pixel and inventor of TMOS, which was the first technology that Uni-Pixel tried to commercialize. The Barron's reporter wrote that Martin Selbrede has been associated with geocentrism, which is the belief that the Sun revolves around the Earth. We dug a little further into Martin's background and discovered that he has no college level degree. Is it any wonder that TMOS failed?
This begs the question, "What type of person would hire these people?" The CEO hired these people when even a simple internet search reveals their checkered pasts. We're shocked by the lack of judgment in hiring the executives at Uni-Pixel. If you were a CEO of a company, would you hire a CTO who has never successfully developed and commercialized a product? Would you hire a CFO who was the subject of a class action lawsuit by investors and resulted in a multimillion dollar settlement?
This makes us ask, "Were these people hired despite their past, or were they hired because of their past and ability to dupe investors?" More importantly, would you as a shareholder put your money in his hands?
Uni-Pixel is a short at any price
We believe that this article provides compelling proof that Uni-Pixel is run by an untrustworthy management team and our prior article shows that the technology doesn't work. In a few weeks, we intend to expose the company's dodgy accounting and after that we don't think you will trust their financials any longer either.
Uni-Pixel supporters always point to the agreements with a major PC maker (supposedly Dell Inc. (DELL)), Ecosystem Partner (supposedly Intel (NASDAQ:INTC)), and Eastman Kodak as proof that Uni-Pixel is real this time. Uni-Pixel's supporters argue that these rumored partners would not have signed agreements and given Uni-Pixel millions of dollars unless the products worked. We find this logic to be faulty and extremely dangerous. If these executives from Uni-Pixel can repeatedly fool sophisticated investors out of millions of dollars with their lies and promises, why can't they pull the wool over the eyes of executives at technology companies? What makes them so different? We've caught on that it isn't different this time, and soon enough we expect that the SEC will catch on as well and properly put an end to this nonsense.
In our previous write up, we put out a fair value target of $3. We now think that's too generous and would be short Uni-Pixel at any price. This company has never generated substantial sales from its products. The only meaningful revenues we have been able to identify were the one-time non-recurring engineering fee it received last quarter. It is our expectation that Uni-Pixel will never generate meaningful revenues and that it will burn through all of its cash. Accordingly, our price target is now zero.
This is a company led by a management team with a history of failure and fraud. Moreover, we believe Uni-Pixel may soon be exposed by an SEC investigation. Tick-tock.
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.