**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                            |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| **For the Quarterly Period Ended  March 31, 2008** |
|                                                    |       |                                                                                                                                                                                                                                                                                                                                              |
| **or**                                                  |
| ** **                                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                           |
| ** **                                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| ** **                                              | ** ** | **For the Transition Period  from                         to                         ** |
|                                                    |       |                                                                                                                                                                                                                                                                                                                                              |
| ** **                                              | ** ** | **COMMISSION FILE NUMBER: 0-49737**                                                                                                                                                                                                                                                                                                               |

 

**UNI-PIXEL, INC.**

(Exact Name of Registrant as Specified in Its Charter)

 

| **DELAWARE**                                                    | ** ** | **75-2926437**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |

 

**8708Technology Forest Place, Suite 100The Woodlands, Texas 77381**

(Address of PrincipalExecutive Offices)

** **

**(281)825-4500**

(Issuer’s TelephoneNumber, Including Area Code)

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.   x Yes o No

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).   Yes o   No x

 

As of May 1,2008, the issuer had 22,897,418 shares of issued and outstanding common stock,par value $0.001 per share.

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  Seedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.  

 

| Large accelerated filer  o                    |   |   |   | Accelerated filero           |
|-----------------------------------------------|--------|--------|--------|------------------------------|
| Non-accelerated filer o                       |   |   |   | Smaller reporting  company x |
| (Do not check if a smaller reporting company) |   |   |

 

----

 

**TABLE OF CONTENTS**

 
| Part I.  | Financial Information                                                                                                                                                                                                               |   |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                                                                                |   |
| Item 1.       | Financial Statements                                                                                                                                                                                                                |   |
|          |                                                                                                                                                                                                                                |   |
|          | Consolidated Balance Sheets  March 31, 2008 (unaudited) and December 31, 2007                                                                                                                                             |   |
|          |                                                                                                                                                                                                                                |   |
|          | Consolidated Statements of  Operations  Three months ended March 31, 2008 (unaudited) and March 31, 2007  (unaudited)   and cumulative period from inception (February 17, 1998) to  March 31, 2008 (unaudited) |   |
|          |                                                                                                                                                                                                                                |   |
|          | Consolidated Statements of  Shareholders’ Equity (Deficit)  From inception (February 17, 1998) to March 31, 2008 (unaudited)                                                                                         |   |
|          |                                                                                                                                                                                                                                |   |
|          | Consolidated Statements of  Cash Flows  Three months ended March 31, 2008 (unaudited) and March 31, 2007  (unaudited)   and cumulative period from inception (February 17, 1998) to  March 31, 2008 (unaudited) |   |
|          |                                                                                                                                                                                                                                |   |
|          | Notes to  Unaudited Consolidated Financial Statements                                                                                                                                                                               |   |
|          |                                                                                                                                                                                                                                |   |
| Item 2.       | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                                                                     |   |
|          |                                                                                                                                                                                                                                |   |
| Item 3.       | Quantitative and  Qualitative Disclosures About Market Risk                                                                                                                                                                         |   |
|          |                                                                                                                                                                                                                                |   |
| Item 4.       | Controls and  Procedures                                                                                                                                                                                                            |   |
|          |                                                                                                                                                                                                                                |   |
| Part II. | Other Information                                                                                                                                                                                                                   |   |
|          |                                                                                                                                                                                                                                |   |
| Item 6.       | Exhibits                                                                                                                                                                                                                            |   |

 

2

----

 

**PART I- FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

Uni-Pixel, Inc.

(A Development StageCompany)

Consolidated BalanceSheets

 
| ** **                                                                                                                                                                                                                                                                                                                                        | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                        | ** ** | **(unaudited)**          | ** ** | **(audited)**               | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                        |       |                     |       |                        |       |
| Current assets                                                                                                                                                                                                                                                                                                                                    |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                         |       | $                        | 9,089,720  |                        | $          | 11,697,425 |   |
| Prepaid expenses                                                                                                                                                                                                                                                                                                                                  |       | 21,772                   |       | 23,672                      |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total current assets                                                                                                                                                                                                                                                                                                                              |       | 9,111,492                |       | 11,721,097                  |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Property and equipment, net of accumulated depreciation of $795,096  and $725,338, at March 31, 2008 and December 31, 2007, respectively                                                                                                                                                                                                |       | 546,842                  |       | 455,108                     |       |
| Restricted cash, less current portion                                                                                                                                                                                                                                                                                                             |       | 34,877                   |       | 34,877                      |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total assets                                                                                                                                                                                                                                                                                                                                      |       | $                        | 9,693,211  |                        | $          | 12,211,082 |   |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY (DEFICIT)**                                                                                                                                                                                                                                                                                          |       |                     |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Current liabilities                                                                                                                                                                                                                                                                                                                               |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                                                                                  |       | $                        | 823,598    |                        | $          | 526,959 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                  |       | 257,811                  |       | 405,996                     |       |
| Deferred revenue                                                                                                                                                                                                                                                                                                                                  |       | 33,333                   |       | 33,333                      |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                         |       | 1,114,742                |       | 966,288                     |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total liabilities                                                                                                                                                                                                                                                                                                                                 |       | 1,114,742                |       | 966,288                     |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Commitments and contingencies (Note 4)                                                                                                                                                                                                                                                                                                            |       | —                   |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Redeemable convertible Series B Preferred stock, $0.001 par  value; $3.75 per share liquidation preference; 3,200,000 shares authorized,  issued and outstanding at March 31, 2008 and December 31, 2007,  less unamortized discount of $5,759,183 and $6,130,743 at March 31, 2008  and December 31, 2007, respectively |       | 7,321,803                |       | 6,713,531                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Redeemable convertible Series C Preferred stock, $0.001 par  value; $11.20 per share liquidation preference; 892,858 shares authorized,  issued and outstanding at March 31, 2008 and December 31, 2007,  less unamortized discount of $6,857,359 and $7,238,324 at March 31, 2008  and December 31, 2007, respectively  |       | 3,465,267                |       | 2,887,043                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                               |       |                     |       |                        |       |
| Common stock, $0.001 par value; 100,000,000 shares and 40,000,000  shares authorized at March 31, 2008 and December 31, 2007,  respectively, 22,897,418 shares issued and outstanding at March 31, 2008  and December 31, 2007                                                                                                |       | 22,897                   |       | 22,897                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                        |       | 33,667,738               |       | 34,512,298                  |       |
| Accumulated deficit during development stage                                                                                                                                                                                                                                                                                                      |       | (35,899,236              | )          | (32,890,975                 | )          |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                         |       | (2,208,601               | )          | 1,644,220                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total liabilities and shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                         |       | $                        | 9,693,211  |                        | $          | 12,211,082 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

3

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

Consolidated Statementsof Operations

(unaudited)

 
| ** **                                                              | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative  Period from  February 17, 1998  (date of inception)  to March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                         | ** ** | **2007**                                                                                                             | ** ** | **2008** | ** ** |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Revenues                                                                |       |                                             |       |                                                                                                                 |       |   |   |
| Development contract revenue                                            |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 1,158,201 |   |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Total revenues                                                          |       | —                                           |       | —                                                                                                               |       | 1,158,201 |   |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Cost of revenues                                                        |       | —                                           |       | —                                                                                                               |       | 456,648 |   |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Gross margin                                                            |       | —                                           |       | —                                                                                                               |       | 701,553 |   |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Selling, general and administrative expenses                            |       | 836,844                                          |       | 2,396,263                                                                                                            |       | 17,185,451 |   |
| Research and development                                                |       | 2,268,137                                        |       | 491,238                                                                                                              |       | 16,560,486 |   |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Operating loss                                                          |       | (3,104,981                                       | )          | (2,887,501                                                                                                           | )          | (33,044,384 | ) |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Other income (expense)                                                  |       |                                             |       |                                                                                                                 |       |   |   |
| Net decrease (increase) in fair value of derivative liability           |       | —                                           |       | 382,920                                                                                                              |       | 845,079 |   |
| Other income                                                            |       | —                                           |       | —                                                                                                               |       | 886,886 |   |
| Debt issuance expense                                                   |       | —                                           |       | (94,189                                                                                                              | )          | (644,346 | ) |
| Interest income (expense), net                                          |       | 96,720                                           |       | (1,051,250                                                                                                           | )          | (2,175,745 | ) |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Net loss                                                                |       | $                                                | (3,008,261 | )                                                                                                                    | $          | (3,650,020 | ) | $ | (34,132,510 | ) |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Preferred stock dividends and amortization of discount                  |       | (1,186,497                                       | )          | (454,332                                                                                                             | )          | (5,686,079 | ) |
| Net loss attributable to common shareholders                            |       | $                                                | (4,194,758 | )                                                                                                                    | $          | (4,104,352 | ) | $ | (39,818,589 | ) |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Per share information                                                   |       |                                             |       |                                                                                                                 |       |   |   |
| Net loss – basic and diluted                                       |       | $                                                | (0.13      | )                                                                                                                    | $          | (0.22 | ) | $ | (3.99 | ) |
| Preferred stock dividends                                               |       | (0.05                                            | )          | (0.02                                                                                                                | )          | (0.67 | ) |
| Net loss attributable to common shareholders – basic and diluted   |       | $                                                | (0.18      | )                                                                                                                    | $          | (0.24 | ) | $ | (4.66 | ) |
|                                                                    |       |                                             |       |                                                                                                                 |       |   |   |
| Weighted average number of basic and diluted common shares  outstanding |       | 22,897,418                                       |       | 16,900,078                                                                                                           |       | 8,545,210 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

4

----

 

Uni-Pixel, Inc.

(A DevelopmentStage Company)

ConsolidatedStatements of Shareholders’ Equity (Deficit)

 
| ** **                                                                               | ** ** | **Series A  Preferred Stock** | ** ** | **Common Stock** | ** ** | **Additional**             | ** ** | **Deferred** | ** ** | **Accumulated  Deficit  During** | ** ** | **Total  Shareholders’** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------|------------|----------------------------|------------|--------------|------------|----------------------------------|------------|-------------------------------|------------|
| ** **                                                                               | ** ** | **Number of  Shares**              | ** ** | **Amount**            | ** ** | **Number of  Shares** | ** ** | **Amount**   | ** ** | **Paid-In  Capital**             | ** ** | **Stock-Based  Compensation** | ** ** | **Development  Stage** | ** ** | **Equity  (Deficit)** | ** ** |
| Founder shares  issued at inception at February 17, 1998                            |       | —                                  |       | $                     | —     |                       | 4,500,000  |         | $          | 4,500                            |       | $                             | (500       | ) | $ | — |   | $ | — |   | $ | 4,000 |   |
| Stock issued  during 1999 (prices ranging from $0.50 - $0.62 per share)                  |       | —                                  |       | —                |       | 180,000                    |       | 180          |       | 183,820                          |       | —                        |       | — |   | 184,000 |   |
| Stock issued  during 2000 (prices ranging from $11.34 - $17.00 per share)                |       | —                                  |       | —                |       | 63,750                     |       | 64           |       | 956,186                          |       | —                        |       | — |   | 956,250 |   |
| Stock issued  during 2001 (prices ranging from $10.00 - $17.00 per share)                |       | —                                  |       | —                |       | 28,176                     |       | 28           |       | 404,227                          |       | —                        |       | — |   | 404,255 |   |
| Stock issued  during 2002 (prices ranging from $2.00 - $10.00 per share)                 |       | —                                  |       | —                |       | 157,327                    |       | 157          |       | 353,783                          |       | —                        |       | — |   | 353,940 |   |
| Deferral of  stock-based compensation                                                    |       | —                                  |       | —                |       | —                     |       | —       |       | 1,100,000                        |       | (1,100,000                    | )          | — |   | — |   |
| Amortization of  stock-based compensation                                                |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | 206,250                       |       | — |   | 206,250 |   |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (3,968,540 | ) | (3,968,540 | ) |
| Balance,  December 31, 2002                                                         |       | —                                  |       | $                     | —     |                       | 4,929,253  |         | $          | 4,929                            |       | $                             | 2,997,516  |   | $ | (893,750 | ) | $ | (3,968,540 | ) | $ | (1,859,845 | ) |
| Stock issued  during 2003 (prices ranging from $1.00 - $2.00 per share)                  |       | —                                  |       | —                |       | 210,827                    |       | 211          |       | 263,943                          |       | —                        |       | — |   | 264,154 |   |
| Amortization of  stock-based compensation                                                |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | 275,000                       |       | — |   | 275,000 |   |
| Warrants issued                                                                          |       | —                                  |       | —                |       | —                     |       | —       |       | 500,000                          |       | —                        |       | — |   | 500,000 |   |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (2,492,123 | ) | (2,492,123 | ) |
| Balance,  December 31, 2003                                                         |       | —                                  |       | $                     | —     |                       | 5,140,080  |         | $          | 5,140                            |       | $                             | 3,761,459  |   | $ | (618,750 | ) | $ | (6,460,663 | ) | $ | (3,312,814 | ) |
| Issuance of  common stock for services                                                   |       | —                                  |       | —                |       | 738,309                    |       | 738          |       | 316,975                          |       | —                        |       | — |   | 317,713 |   |
| Conversion of  note payable for common stock                                             |       | —                                  |       | —                |       | 51,008                     |       | 51           |       | 95,052                           |       | —                        |       | — |   | 95,103 |   |
| Exercise of stock  options                                                               |       | —                                  |       | —                |       | 1,490,000                  |       | 1,490        |       | 28,310                           |       | —                        |       | — |   | 29,800 |   |
| Exercise of warrants                                                                     |       | —                                  |       | —                |       | 512,500                    |       | 513          |       | 34,487                           |       | —                        |       | — |   | 35,000 |   |
| Amortization of  stock-based compensation                                                |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | 618,750                       |       | — |   | 618,750 |   |
| Conversion of  bridge loans                                                              |       | 256,643                                 |       | 257                   |       | 850,625                    |       | 851          |       | 1,834,242                        |       | —                        |       | — |   | 1,835,350 |   |
| Issuance of  preferred stock                                                             |       | 2,565,000                               |       | 2,565                 |       | —                     |       | —       |       | 7,646,765                        |       | —                        |       | — |   | 7,649,330 |   |
| Issuance of  common stock for net assets of REFL                                         |       | —                                  |       | —                |       | 1,100,808                  |       | 1,101        |       | (1,101                           | )          | —                        |       | — |   | — |   |
| Issuance of  common stock for net assets of Gemini                                       |       | —                                  |       | —                |       | 2,917,250                  |       | 2,917        |       | 26,255                           |       | —                        |       | — |   | 29,172 |   |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (2,315,332 | ) | (2,315,332 | ) |
| Balance,  December 31, 2004                                                         |       | 2,821,643                               |       | $                     | 2,822      |                       | 12,800,580 |         | $          | 12,801                           |       | $                             | 13,742,444 |   | $ | — |   | $ | (8,775,995 | ) | $ | 4,982,072 |   |
| Issuance of  preferred stock                                                             |       | 930,000                                 |       | 930                   |       | —                     |       | —       |       | 2,798,370                        |       | —                        |       | — |   | 2,799,300 |   |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |       | (1,222,499                              | )          | (1,223                | )          | 2,594,477                  |       | 2,594        |       | 260,296                          |       | —                        |       | (261,667 | ) | — |   |
| Issuance of  preferred stock for dividends                                               |       | 156,507                                 |       | 157                   |       | —                     |       | —       |       | 547,618                          |       | —                        |       | (547,775 | ) | — |   |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (4,966,790 | ) | (4,966,790 | ) |
| Balance,  December 31, 2005                                                         |       | 2,685,651                               |       | $                     | 2,686      |                       | 15,395,057 |         | $          | 15,395                           |       | $                             | 17,348,728 |   | $ | — |   | $ | (14,552,227 | ) | $ | 2,814,582 |   |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |       | (450,317                                | )          | (451                  | )          | 916,916                    |       | 917          |       | 28,039                           |       | —                        |       | (28,505 | ) | — |   |
| Stock  compensation expense                                                              |       | —                                  |       | —                |       | —                     |       | —       |       | 914,755                          |       | —                        |       | — |   | 914,755 |   |
| Issuance of  warrants to placement agent                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | 37,596                           |       | —                        |       | — |   | 37,596 |   |
| Issuance of  preferred stock for dividends                                               |       | 134,117                                 |       | 134                   |       | —                     |       | —       |       | 469,289                          |       | —                        |       | (469,423 | ) | — |   |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (6,485,618 | ) | (6,485,618 | ) |
| Balance,  December 31, 2006                                                         |       | 2,369,451                               |       | $                     | 2,369      |                       | 16,311,973 |         | $          | 16,312                           |       | $                             | 18,798,407 |   | $ | — |   | $ | (21,535,773 | ) | $ | (2,718,685 | ) |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |       | (2,369,451                              | )          | (2,369                | )          | 6,545,445                  |       | 6,545        |       | 455,180                          |       | —                        |       | (459,356 | ) | — |   |
| Stock  compensation expense                                                              |       | —                                  |       | —                |       | —                     |       | —       |       | 2,029,326                        |       | —                        |       | — |   | 2,029,326 |   |
| Issuance of  warrants to consultants                                                     |       | —                                  |       | —                |       | —                     |       | —       |       | 297,891                          |       | —                        |       | — |   | 297,891 |   |
| Issuance of  warrants to Series B Preferred Stock Investors                         |       | —                                  |       | —                |       | —                     |       | —       |       | 3,715,602                        |       | —                        |       | — |   | 3,715,602 |   |
| Intrinsic value  of beneficial conversion option on Series B Preferred Stock        |       | —                                  |       | —                |       | —                     |       | —       |       | 3,715,602                        |       | —                        |       | — |   | 3,715,602 |   |
| Issuance of  common stock for services                                                   |       | —                                  |       | —                |       | 40,000                     |       | 40           |       | 52,360                           |       | —                        |       | — |   | 52,400 |   |
| Issuance of  warrants to Series C Preferred Stock Investors                         |       | —                                  |       | —                |       | —                     |       | —       |       | 3,809,644                        |       | —                        |       | — |   | 3,809,644 |   |
| Intrinsic value  of beneficial conversion option on Series C Preferred Stock        |       | —                                  |       | —                |       | —                     |       | —       |       | 3,809,644                        |       | —                        |       | — |   | 3,809,644 |   |
| Amortization of  discount of Series B Preferred Stock                               |       | —                                  |       | —                |       | —                     |       | —       |       | (1,300,460                       | )          | —                        |       | — |   | (1,300,460 | ) |
| Amortization of  discount of Series C Preferred Stock                               |       | —                                  |       | —                |       | —                     |       | —       |       | (380,964                         | )          | —                        |       | — |   | (380,964 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | (844,274                         | )          | —                        |       | — |   | (844,274 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | (206,028                         | )          | —                        |       | — |   | (206,028 | ) |
| Reclassification  of derivative liabilities to equity                                    |       | —                                  |       | —                |       | —                     |       | —       |       | 560,368                          |       | —                        |       | — |   | 560,368 |   |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (10,895,846 | ) | (10,895,846 | ) |
| Balance,  December 31, 2007                                                         |       | —                                  |       | $                     | —     |                       | 22,897,418 |         | $          | 22,897                           |       | $                             | 34,512,298 |   | $ | — |   | $ | (32,890,975 | ) | $ | 1,644,220 |   |
| Stock  compensation expense                                                              |       | —                                  |       | —                |       | —                     |       | —       |       | 336,018                          |       | —                        |       | — |   | 336,018 |   |
| Issuance of  warrants to consultants                                                     |       | —                                  |       | —                |       | —                     |       | —       |       | 5,919                            |       | —                        |       | — |   | 5,919 |   |
| Amortization of  discount of Series B Preferred Stock                               |       | —                                  |       | —                |       | —                     |       | —       |       | (371,560                         | )          | —                        |       | — |   | (371,560 | ) |
| Amortization of  discount of Series C Preferred Stock                               |       | —                                  |       | —                |       | —                     |       | —       |       | (380,965                         | )          | —                        |       | — |   | (380,965 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | (236,712                         | )          | —                        |       | — |   | (236,712 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | (197,260                         | )          | —                        |       | — |   | (197,260 | ) |
| Net loss                                                                                 |       | —                                  |       | —                |       | —                     |       | —       |       | —                           |       | —                        |       | (3,008,261 | ) | (3,008,261 | ) |
| Balance,  March 31, 2008 (unaudited)                                                |       | —                                  |       | $                     | —     |                       | 22,897,418 |         | $          | 22,897                           |       | $                             | 33,667,738 |   | $ | — |   | $ | (35,899,236 | ) | $ | (2,208,601 | ) |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

 

5

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

Consolidated Statementsof Cash Flows

(unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative Period  from February 18,  1998 (date of  inception) to  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                                         | ** ** | **2007**                                                                                                             | ** ** | **2008** | ** ** |
| Cash flows from operating activities                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Net loss                                                                       |       | $                                                | (3,008,261 | )                                                                                                                    | $          | (3,650,020 | ) | $ | (34,132,510 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:    |       |                                             |       |                                                                                                                 |       |   |   |
| Interest forgiven                                                              |       | —                                           |       | —                                                                                                               |       | (91,421 | ) |
| Employee compensation notes payable forgiven                                   |       | —                                           |       | —                                                                                                               |       | (795,465 | ) |
| Depreciation and amortization                                                  |       | 69,758                                           |       | 64,852                                                                                                               |       | 871,215 |   |
| Stock issued for services                                                      |       | —                                           |       | —                                                                                                               |       | 512,462 |   |
| Stock compensation expense                                                     |       | 336,018                                          |       | 935,102                                                                                                              |       | 3,280,099 |   |
| Non-cash compensation expense                                                  |       | —                                           |       | —                                                                                                               |       | 1,100,000 |   |
| Amortization of debt issuance costs                                            |       | —                                           |       | 94,189                                                                                                               |       | 644,346 |   |
| Amortization of discounts on notes payable                                     |       | —                                           |       | 955,389                                                                                                              |       | 1,480,448 |   |
| Net decrease in fair value of derivatives                                      |       | —                                           |       | (382,920                                                                                                             | )          | (845,077 | ) |
| Issuance of warrants to consultants                                            |       | 5,919                                            |       | 244,626                                                                                                              |       | 303,810 |   |
| Change in operating assets and liabilities:                                    |       |                                             |       |                                                                                                                 |       |   |   |
| (Increase) decrease in cash restricted for note payable and lease  obligations |       | —                                           |       | —                                                                                                               |       | (34,877 | ) |
| (Increase) in prepaid expenses and other current assets                        |       | 1,900                                            |       | (25,845                                                                                                              | )          | (166,117 | ) |
| Increase (decrease) in accounts payable                                        |       | 296,639                                          |       | (163,102                                                                                                             | )          | 823,593 |   |
| Increase in accrued interest payable                                           |       | —                                           |       | —                                                                                                               |       | 180,943 |   |
| Increase (decrease) in accrued expenses and other liabilities                  |       | (148,185                                         | )          | (591,425                                                                                                             | )          | 1,053,276 |   |
| Increase (decrease) in deferred revenue                                        |       | —                                           |       | —                                                                                                               |       | 33,333 |   |
| Net cash used in operating activities                                          |       | (2,446,212                                       | )          | (2,519,154                                                                                                           | )          | (25,781,942 | ) |
|                                                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Cash flows from investing activities                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Purchase of property and equipment                                             |       | (161,493                                         | )          | (21,970                                                                                                              | )          | (1,390,267 | ) |
| Proceeds from the sale of property and equipment                               |       | —                                           |       | —                                                                                                               |       | 27,792 |   |
| Purchases of patents, trademarks and organization costs                        |       | —                                           |       | —                                                                                                               |       | (67,748 | ) |
| Net cash used in investing activities                                          |       | (161,493                                         | )          | (21,970                                                                                                              | )          | (1,430,223 | ) |
|                                                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Cash flows from financing activities                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Proceeds from notes payable to related party                                   |       | —                                           |       | —                                                                                                               |       | 115,103 |   |
| Payments on notes payable to related party                                     |       | —                                           |       | —                                                                                                               |       | (164,328 | ) |
| Proceeds from convertible notes payable                                        |       | —                                           |       | —                                                                                                               |       | 3,390,000 |   |
| Payments on convertible notes payable                                          |       | —                                           |       | —                                                                                                               |       | (1,470,672 | ) |
| Net proceeds (repayments) from notes payable                                   |       | —                                           |       | (2,400,967                                                                                                           | )          | (62,833 | ) |
| Issuance of warrants to placement agent                                        |       | —                                           |       | —                                                                                                               |       | 37,596 |   |
| Proceeds from the issuance of preferred stock, net                             |       | —                                           |       | 12,000,000                                                                                                           |       | 32,367,969 |   |
| Proceeds from the issuance of common stock, net                                |       | —                                           |       | —                                                                                                               |       | 2,089,050 |   |
| Net cash provided by financing activities                                      |       | —                                           |       | 9,599,033                                                                                                            |       | 36,301,885 |   |
|                                                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Net increase (decrease) in cash and cash equivalents                           |       | (2,607,705                                       | )          | 7,057,909                                                                                                            |       | 9,089,720 |   |
| Cash and cash equivalents, beginning of period                                 |       | 11,697,425                                       |       | 20,188                                                                                                               |       | — |   |
| Cash and cash equivalents, end of period                                       |       | $                                                | 9,089,720  |                                                                                                                 | $          | 7,078,097 |   | $ | 9,089,720 |   |
|                                                                           |       |                                             |       |                                                                                                                 |       |   |   |
| Supplemental disclosures of cash flow information:                             |       |                                             |       |                                                                                                                 |       |   |   |
| Cash paid for interest                                                         |       | $                                                | —     |                                                                                                                 | $          | 134,372 |   | $ | 960,727 |   |
| Cash paid for income taxes                                                     |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | — |   |
| Interest capitalized into notes payable                                        |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 8,250 |   |
| Debt issuance cost for warrant issued                                          |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 500,000 |   |
| Preferred stock dividend and amortization of discount                          |       | $                                                | 1,186,497  |                                                                                                                 | $          | 454,332 |   | $ | 5,686,079 |   |
| Conversion of notes payable for preferred stock                                |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 898,250 |   |
| Conversion of notes payable for common stock                                   |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 980,103 |   |
| Stock issued for services                                                      |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 1,612,462 |   |
| Stock issued for interest                                                      |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 81,272 |   |
| Reclassification of derivatives to equity                                      |       | $                                                | —     |                                                                                                                 | $          | 560,368 |   | $ | 560,368 |   |
| Intrinsic value of beneficial conversion options on Preferred Stock            |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 7,525,246 |   |
| Issuance of warrants to Preferred Stock investors                              |       | $                                                | —     |                                                                                                                 | $          | — |   | $ | 7,525,246 |   |

* *

*The accompanying notes are anintegral part of these consolidated financial statements.*

 

6

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**Uni-Pixel, Inc.**

**(A Development Stage Company)**

**Notes to Unaudited Consolidated FinancialStatements**

 

**Note1 – Basis of Presentation, Business and Organization**

 

Uni-Pixel, Inc., a Delaware corporation, is theparent company of our wholly-owned operating subsidiary, Uni-Pixel Displays, Inc. As used herein, “Uni-Pixel,” “we,” “us,” and “our” refer to Uni-Pixel, Inc.and our wholly-owned consolidated subsidiary, Uni-Pixel Displays, Inc. Our common stock, par value $0.001 per share, is quoted on the Over the Counter— Bulletin Board (“OTCBB”) under the ticker symbol “UNXL.”

 

Uni-Pixelis a development stage company that has developed, patented and demonstrated anew color display technology in the form of proof of concept prototypes whichwe call Time Multiplexed Optical Shutter (“TMOS”).  We intend to be aleader in the research, development and commercialization of new flat paneldisplays using TMOS in a variety of applications, such as mobile phones,digital cameras, notebook computers, televisions and other consumer electronicdevices. As of March 31, 2008, we had accumulated a total deficit of $35.9million from operations in pursuit of this objective.

 

Weanticipate that our TMOS displays will be thin, lightweight, andpower-efficient devices, which are highly suitable for use in full-colordisplay applications.  We believe TMOS displays will be able to capture ashare of the growing $60+ billion flat panel display market due to thesignificant advantages it should provide over competing displays with respectto manufacturing and materials cost, brightness, power efficiency, viewingangle, video response time and image quality.  We believe that ourtechnology leadership and intellectual property position will enable us togenerate revenues initially from TMOS displays for existing vertical marketsegments such as the military, avionics, and automotive segments, and thensubsequently from consumer electronics markets (i.e., TVs, monitors, personalcomputers, cameras, games, etc.).

 

Ourstrategy is to develop further our proprietary TMOS technology to the point ofinitially manufacturing small volumes of high performance displays for militaryapplications.  We intend to utilize contract manufacturing for productfabrication to augment our internal capabilities in the short term.  Wealso plan to be a supplier of our key thin film component and to enter intojoint ventures in certain vertical market segments to exploit the existingmanufacturing and distribution channels of our targeted partners.  We furtherplan to license our technology to display manufacturers and supporting partnercompanies for use in applications such as mobile phones, digital cameras,laptop computers, and other consumer electronic devices. Through our internalresearch and development efforts we have established a portfolio ofTMOS-related patents and patent applications and other intellectual propertyrights that support these joint venture and licensing strategies.  Wecurrently have fifteen issued patents and fifty pending patent applicationsfiled in key venues worldwide including regionally in Europe, Asia Pacific,South and North America and contemplate obtaining exclusive field-of-uselicenses, with the right to sublicense, to complementary technologies fromtargeted strategic partners and U.S. national laboratories.

 

ThroughMarch 31, 2008, we have been primarily engaged in developing our initialproduct technology, recruiting personnel, commencing our U.S. operations andraising capital. In the course of our development activities, we have sustainedlosses and expect such losses to continue through at least 2008. We willfinance our operations primarily through our existing cash and possible futurefinancing transactions.

 

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing beyond proof of concept to finalprototypes and supporting transferable manufacturing processes to partners toproduce for sale our products and upon our successful development of marketsfor our products and successful manufacturing relationships.  We may berequired to obtain additional capital in the future to expand our operations.No assurance can be given that we will be able to develop our products,successfully develop the markets for our products or profitable manufacturingmethods, or raise any such additional capital as we might need, either throughequity or debt financing, on satisfactory terms or at all. Additionally, noassurance can be given that any such financing, if obtained, will be adequateto meet our ultimate capital needs or to support our growth. If adequatecapital cannot be obtained on satisfactory terms, our operations could benegatively impacted.

 

If weachieve growth in our operations in the next few years, such growth could placea strain on our management, administrative, operational and financialinfrastructure. Our ability to manage our current operations and future growthrequires the continued improvement of operational, financial and managementcontrols, reporting systems and procedures. In addition, we may find itnecessary to hire additional management, financial and sales and marketingpersonnel to manage our expanding operations. If we are unable to manage thisgrowth effectively and successfully, our business, operating results andfinancial condition may be materially adversely affected.

 

As of March 31,2008, we had cash and cash equivalents of $9.1 million.  We believe thatour existing capital resources are adequate to finance our operations until December 2008.However, our long-term viability is dependent upon our ability to 

 

7

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successfully operate ourbusiness, develop our manufacturing process, sign partnership agreements,develop our products and raise additional debt and equity to meet our businessobjectives.

 

*Acquisitionand merger and basis of presentation*

 

Uni-Pixel, Inc.was originally incorporated in the State of Nevada as Super Shops, Inc. OnNovember 15, 1999, Super Shops and its sister companies filed an amendedpetition under Chapter 11 of the United States Bankruptcy Code. On July 31,2000, the court approved Super Shops’ Amended Joint Plan of Reorganization. On October 13,2000, and in accordance with the Plan of Reorganization, the management ofSuper Shops changed its state of incorporation from Nevada to Delaware bymerging with and into NEV Acquisition Corp., a Delaware corporation formedsolely for the purpose of effecting the reincorporation. On June 13, 2001,NEV Acquisition Corp. changed its corporate name to Real-Estateforlease.com, Inc.,as a result of the merger transaction discussed in the following paragraph.

 

Real-Estateforlease.com, Inc.was incorporated on May 24, 2001, in the State of Delaware to serve as abusiness-to-business internet information intermediary providing turnkeymarketing services to facilitate the leasing of commercial real estateproperties. On June 13, 2001, the management of NEV Acquisition Corp.entered into an Agreement and Plan of Merger with Real-Estateforlease.com, Inc.pursuant to which the sole stockholder and founder of Real-Estateforlease.com, Inc.exchanged his equity ownership interest in Real-Estateforlease.com, Inc.for 9,500,000 shares (or approximately 96%) of NEV Acquisition Corp.’s commonstock. At the time of the merger between Real-Estateforlease.com, Inc. andNEV Acquisition Corp., Real-Estateforlease.com, Inc. had no operations andessentially no assets. Efforts by Real-Estateforlease.com, Inc. toimplement its business plan ceased in June 2002. Prior toReal-Estateforlease.com, Inc.’s merger with Uni-Pixel Displays, Inc.,as described in the next paragraph, Real-Estateforlease.com, Inc. had nooperations and no material assets or liabilities.

 

Ourwholly-owned subsidiary, Uni-Pixel Displays, Inc., was originallyincorporated as Tralas Technologies, Inc., a Texas corporation, on February 17,1998. Tralas Technologies, Inc. changed its name to Uni-Pixel Displays, Inc.during 2001. On December 7, 2004, Real-Estateforlease.com, Inc.entered into a merger agreement with Uni-Pixel Displays, Inc. and certainother parties pursuant to which Uni-Pixel Displays, Inc. became awholly-owned subsidiary of Real-Estateforlease.com, Inc. Pursuant to themerger, we changed our name to “Uni-Pixel, Inc.” at the annual meeting ofour stockholders held in January 2005.

 

Thefinancial statements presented in this quarterly report include Uni-Pixel, Inc.and our wholly-owned subsidiary, Uni-Pixel Displays, Inc. All significantintercompany transactions and balances have been eliminated. Uni-Pixel Displays, Inc.was, for accounting purposes, the surviving entity of the merger, andaccordingly for the periods prior to the merger, the financial statementsreflect the financial position, results of operations and cash flows ofUni-Pixel Displays, Inc.  The assets, liabilities, operations andcash flows of Real-Estateforlease.com, Inc. are included in theconsolidated financial statements from December 10, 2004 onward.

 

**Note 2 - Liquidity**

 

Uni-Pixelhas sustained losses and negative cash flows from operations since itsinception. The Company’s ability to meet its obligations in the ordinary courseof business is dependent upon its ability to establish profitable operations,raise additional financing through public or private equity financings, enterinto collaborative or other arrangements with corporate sources, or secureother sources of financing to fund operations.

 

On February 13,2007, the Company raised $12 million in a private placement of its Series BConvertible Preferred Stock (see Note 5) and on September 28, 2007, theCompany raised an additional $10 million in a private placement of its Series CConvertible Preferred Stock (see Note 5), which management believes will enablethe Company to continue operations until December 2008.

 

**Note 3 - Summaryof Significant Accounting Policies**

 

*Interimfinancial information*

 

Thefinancial statements included herein, which have not been audited pursuant tothe rules and regulations of the Securities and Exchange Commission, reflectall adjustments which, in the opinion of management, are necessary for a fairpresentation of financial position, results of operations and cash flows forthe interim periods on a basis consistent with the annual audited statements.All such adjustments are of a normal recurring nature. The results ofoperations for interim periods are not necessarily indicative of the resultsthat may be expected for any other interim period or for a full year. Certaininformation, accounting policies and footnote disclosures normally included infinancial statements prepared in conformity with accounting principlesgenerally accepted in the United States of America have been omitted pursuantto such rules and regulations, although we believe that the disclosuresare adequate to make the information presented not misleading. These financialstatements should 

 

8

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be read in conjunctionwith our audited financial statements included in our Form 10-KSB, for theyear ended December 31, 2007, filed with the Securities and ExchangeCommission on March 7, 2008.

 

*Useof estimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires us to make estimatesand assumptions that affect the reported amounts of assets and liabilities,disclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Examples include provisions for bad debts, useful lives ofproperty and equipment and intangible assets, impairment of property andequipment and intangible assets, deferred taxes, and the provision for anddisclosure of litigation and loss contingencies. Actual results may differmaterially from those estimates.

 

*Statementof cash flows*

 

Forpurposes of the statements of cash flows, we consider all highly liquidinvestments (i.e., investments which, when purchased, have original maturitiesof three months or less) to be cash equivalents.

 

*Concentrationof credit risk*

 

Wemaintain our cash primarily with major U.S. domestic banks. The amounts held inthese banks exceed from time to time the insured limit of $100,000 and exceededthat balance as of March 31, 2008 and December 31, 2007 by $8,662,633and $11,279,525, respectively. The terms of these deposits are on demand tominimize risk.  We have not incurred losses related to these deposits.

 

*Restrictedcash*

 

As of March 31,2008 and December 31, 2007, we had restricted cash of $34,877. Thisamounts secured certain obligations under our lease agreement for our principalfacility located in The Woodlands, Texas as of both March 31, 2008 and December 31,2007. The restricted cash has been segregated into current and long-termclassifications based on its anticipated liquidation.

 

*Propertyand equipment*

 

Propertyand equipment, consisting primarily of lab equipment, computer equipment,software, leasehold improvements, and office furniture and fixtures is carriedat cost less accumulated depreciation and amortization. Depreciation andamortization for financial reporting purposes is provided by the straight-linemethod over the estimated useful lives of three to five years. Leaseholdimprovements are amortized using the straight-line method over the remaininglease term or the life of the asset, whichever is shorter. The cost of repairsand maintenance is charged as an expense as incurred. Gains or losses relatedto retirements or dispositions of fixed assets are recognized in the periodincurred.

 

*Intangibleassets*

 

Ourintangible assets represent patent applications which are recorded atcost.  We have filed applications for patents in connection withtechnologies being developed. The patent applications and any patents issued asa result of these applications are important to the protection of ourtechnologies that may result from our research and development efforts. Costsassociated with patent applications and maintaining patents are capitalized andwill be amortized over the life of the patents.  We review the valuerecorded for intangible assets to assess recoverability from future operationsusing undiscounted cash flows. Impairments are recognized in operating resultsto the extent the carrying value exceeds fair value determined based on the netpresent value of estimated future cash flows.

 

*Derivativeinstruments*

 

Weaccount for all derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Derivativefinancial instruments are recorded as liabilities in the consolidated balancesheet and are measured at fair value. When available, quoted market prices areused in determining fair value. However, if quoted market prices are notavailable, we estimate fair value using either quoted market prices offinancial instruments with similar characteristics or other valuationtechniques. These derivative liabilities are marked-to-market each quarter withthe change in fair value recorded in the income statement.

 

9

----

 

*Revenuerecognition*

 

Werecognize revenue over the period the service is performed in accordance withSEC Staff Accounting Bulletin No. 104, “Revenue Recognition in FinancialStatements” (“SAB 104”). In general, SAB 104 requires that four basiccriteria must be met before revenue can be recognized: (1) persuasiveevidence that an arrangement exists, (2) delivery has occurred or servicesrendered, (3) the fee is fixed and determinable, and (4) collectibilityis reasonably assured.

 

Revenuefrom licenses and other up front fees are recognized on a ratable basis overthe term of the respective agreement.

 

Revenuefrom development contracts are recognized when the contract is completed andcollectibility is reasonably assured. Deferred revenue on these contracts of$33,333 as of March 31, 2008 and December 31, 2007 consists of adevelopment contract to produce and deliver a prototype device.

 

*Researchand development expenses*

 

Research and development costs are expensed asincurred and include salaries and benefits, costs paid to third-partycontractors for research, development and manufacturing of materials anddevices, and a portion of facilities cost. Prototype development costs are asignificant component of research and development expenses and include costsassociated with third-party contractors. Invoicing from third-party contractorsfor services performed can lag several months.  We accrue the costs ofservices rendered in connection with third-party contractor activities based onour estimate of management fees, site management and monitoring costs and datamanagement costs. Actual costs may differ from estimated costs in some casesand are adjusted for in the period in which they become known.

 

*Stock-basedcompensation*

 

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”),*“Share Based Payment,”* whicheliminates the use of APB Opinion No. 25 and will require us to measure thecost of employee services received in exchange for an award of equityinstruments based on the grant-date fair value of the award. That cost will berecognized over the period during which an employee is required to provideservice in exchange for the reward—known as the requisite service period. Nocompensation cost is recognized for equity instruments for which employees donot render the requisite service. The grant-date fair value of employee shareoptions and similar instruments will be estimated using option-pricing modelsadjusted for the unique characteristics of those instruments. We haveimplemented SFAS No. 123(R) effective January 1, 2006.

 

Wemay, from time to time, issue common stock, stock options or common stockwarrants to acquire services or goods from non-employees. Common stock, stockoptions and common stock warrants issued to persons other than employees ordirectors are recorded on the basis of their fair value, as required by SFAS No. 123(“SFAS No. 123”), “*Accounting for Stock BasedCompensation”,* which is measured as of the date required by EITFIssue 96-18 (“EITF 96-18”), *“Accountingfor Equity Instruments That Are Issued to Other Than Employees for Acquiring,or in Conjunction with Selling, Goods or Services.”*  Inaccordance with EITF 96-18, the stock options or common stock warrants arevalued using the Black-Scholes model on the basis of the market price of theunderlying common stock on the “valuation date,” which for options and warrantsrelated to contracts that have substantial disincentives to non-performance, isthe date of the contract, and for all other contracts is the vesting date.Expense related to the options and warrants is recognized on a straight-linebasis over the shorter of the period over which services are to be received orthe vesting period. Where expense must be recognized prior to a valuation date,the expense is computed under the Black-Scholes model on the basis of themarket price of the underlying common stock at the end of the period, and anysubsequent changes in the market price of the underlying common stock throughthe valuation date is reflected in the expense recorded in the subsequentperiod in which that change occurs.

 

Thefollowing disclosures provide information regarding the Company’s stock-basedcompensation awards, all of which are classified as equity awards in accordancewith SFAS No. 123(R):

 

*Stock options.*The Company grants stock options to employees thatallow them to purchase shares of the Company’s common stock. Options are alsogranted to members of the Board of Directors. The Company determines the fairvalue of stock options at the date of grant using the Black-Scholes valuationmodel. Most options vest annually over a three-year service period. The Companywill issue new shares upon the exercise of stock options.

 

Totalcompensation expense recognized for options was approximately $0.3 millionand $0.9 million for the three months ended March 31, 2008 and March 31,2007, respectively.

 

Asummary of the changes in the total stock options outstanding during the threemonths ended March 31, 2008 follows:

 

10

----

 
| ** **                                    | ** ** | ** **  | ** ** | **Weighted**            | ** ** |
|-----------------------------------------------|------------|-------------|------------|-------------------------|------------|
| ** **                                    | ** ** | ** **  | ** ** | **Average**             | ** ** |
| ** **                                    | ** ** | **Options** | ** ** | **Exercise Price** | ** ** |
| Outstanding at December 31, 2007         |       | 4,712,500   |       | $                       | 1.58       |   |
| Granted                                       |       | 600,000     |       | 1.45                    |       |
| Forfeited or expired                          |       | —      |       | —                  |       |
| Exercised                                     |       | —      |       | —                  |       |
| Outstanding at March 31, 2008            |       | 5,312,500   |       | $                       | 1.57       |   |
| Vested and exercisable at March 31, 2008 |       | 2,931,981   |       | $                       | 1.65       |   |

 

Thefair value of the Company’s options were estimated on the date of grant usingthe Black-Scholes valuation model with the following weighted-averageassumptions:

 
| ** **            | ** ** | **Three Months  ended  March 31,  2008** | ** ** | **Three Months  ended  March 31,  2007** | ** ** |
|-----------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| Expected life (years) |       | 5 years                                       |       | 5 years                                       |       |
| Interest rate         |       | 3.14  to 3.27                                      | %          | 5.1                                                | %          |
| Dividend yield        |       | —                                             |       | —                                             |       |
| Volatility            |       | 108.47                                             | %          | 82.12                                              | %          |
| Forfeiture rate       |       | —                                             |       | —                                             |       |

 

At March 31, 2008, there was $2.0 million oftotal unrecognized compensation cost related to non-vested stock option awardswhich is expected to be recognized over a weighted-average period of 1.34 years.There were 371,042 options that became vested during the three months ended March 31,2008.

 

*Incometaxes*

 

Anasset and liability approach is used for financial accounting and reporting forincome taxes. Deferred income taxes arise from temporary differences betweenincome tax and financial reporting and principally relate to recognition ofrevenue and expenses in different periods for financial and tax accountingpurposes and are measured using currently enacted tax rates and laws. In addition,a deferred tax asset can be generated by net operating loss carryforwards. Ifit is more likely than not that some portion or all of a deferred tax assetwill not be realized, a valuation allowance is recognized.

 

Nobenefit has been recognized on the net loss as the realization of the netoperating loss carryforward cannot be assured.

 

*Lossper share data*

 

Basicloss per share is calculated based on the weighted average common sharesoutstanding during the period, after giving effect to the manner in which themerger was accounted for as described in Note 1. Diluted earnings pershare also gives effect to the dilutive effect of stock options, warrants(calculated based on the treasury stock method) and convertible notes andconvertible preferred stock. The Company does not present diluted earnings pershare for years in which it incurred net losses as the effect is antidilutive.

 

At March 31,2008, options and warrants to purchase 19,158,968 shares of common stock atexercise prices ranging from $1.10 to $2.00 per share were outstanding, butwere not included in the computation of diluted earnings per share as theireffect would be antidilutive. Further, at March 31, 2008, 17,441,315shares of commons stock, convertible from Series B Convertible PreferredStock and associated dividends, were not included in the computation of dilutedearnings per share as there effect would be antidilutive. Further, at March 31,2008, 7,430,927 shares of commons stock, convertible from Series CConvertible Preferred Stock and associated dividends, were not included in thecomputation of diluted earnings per share as there effect would beantidilutive.

 

*Fairvalue of financial instruments*

 

Ourfinancial instruments consist of accounts receivable, accounts payable, notes payableand derivative liabilities. We believe the fair values of our accountsreceivable, accounts payable, notes payable and derivative liabilities reflecttheir respective carrying amounts.

 

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*Recentaccounting pronouncements*

 

Effectiveat the beginning of the first quarter of 2007, the Company adopted theprovision of FIN 48, “Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 contains atwo-step approach to recognizing and measuring uncertain tax positionsaccounted for in accordance with SFAS No. 109, “Accounting for IncomeTaxes.”  The first step is to evaluatethe tax position for recognition by determining if the weight of availableevidence indicates that it is more likely than not that the position will besustained on audit, including resolution of related appeals or litigationprocesses, if any. The second step is to measure the tax benefit as the largestamount that is more than 50% likely of being realized upon ultimate settlement.

 

As aresult of the implementation of FIN 48, the Company has not changed any of itstax accrual estimates. The Company files U.S. federal and U.S. state taxreturns. For state tax returns the Company is generally no longer subject totax examinations for years prior to 1996.

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement No. 157,“Fair Value Measurements” (“FAS 157”), which addresses how companies shouldmeasure fair value when they are required to use a fair value measure forrecognition or disclosure purposes under generally accepted accountingprinciples (“GAAP”). As a result of FAS 157, there is now a common definitionof fair value to be used throughout GAAP, which is expected to make themeasurement of fair value more consistent and comparable. The Company mustadopt FAS 157 in fiscal 2008, and management currently does not expect theimpact to be material to its consolidated financial statements.

 

In February 2006,the FASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments—an amendment of FASB Statements No. 133 and 140,” to permitfair value remeasurement for any hybrid financial instrument that contains anembedded derivative that otherwise would require bifurcation in accordance withthe provisions of SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities.” The Company adopted SFAS No. 155 in fiscal year 2007.SFAS 155 did not have a material impact on the Company’s consolidated financialstatements.

 

****In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities”, whichpermits entities to choose to measure many financial instruments and certainother items at fair value. The objective is to improve financial reporting byproviding entities with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently withouthaving to apply complex hedge accounting provisions.  The statement amendsSFAS No. 115, “Accounting for Certain Investments in Debt and Equity”.****

 

In December 2006,the FASB issued the FASB Staff Position (FSP) No. EITF 00-19-2, (“FSP EITF00-19-2”), Accounting for Registration Payment Arrangements. This FSP addressesan issuer’s accounting for registration payment arrangements. This FSPspecifies that the contingent obligation to make future payments or otherwisetransfer consideration under a registration payment arrangement, whether issuedas a separate agreement or included as a provision of a financial instrument orother agreement, should be separately recognized and measured in accordancewith FASB Statement No. 5, Accounting for Contingencies. The guidance inthis FSP amends FASB Statements No. 133, Accounting for DerivativeInstruments and Hedging Activities, and No. 150, Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity, andFASB Interpretation No. 45, Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers, to include scope exceptions for registration payment arrangements. ThisFSP further clarifies that a financial instrument subject to a registrationpayment arrangement should be accounted for in accordance with other applicablegenerally accepted accounting principles without regard to the contingentobligation to transfer consideration pursuant to the registration paymentarrangement. This FSP shall be effective immediately for registration paymentarrangements and the financial instruments subject to those arrangements thatare entered into or modified subsequent to the date of issuance of this FSP, orfor financial statements issued for fiscal years beginning after December 15,2006, and interim periods within those fiscal years.

 

TheCompany adopted FSP EITF 00-19-2 beginning in 2007. The adoption of this FSPdid not have a material effect on the Company’s financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (Revised 2007), Business Combinations -Revised 2007. SFAS 141 R provides guidance on improving the relevance,representational faithfulness, and comparability of information that areporting entity provides in its financial reports about a business combinationand its effects. SFAS 141R applies to business combinations where is theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The Company is in theprocess of analyzing the effects SFAS 141R will have on the Company’s financialstatements.

 

In December 2007,the FASB also issued SFAS No. 160, Noncontrolling Interests inConsolidated Financial Statements, which establishes accounting and reportingstandards to improve the relevance, comparability, and transparency offinancial information in its consolidated financial statements that include anoutstanding noncontrolling interest in one or more subsidiaries. 

 

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SFAS 160 is effective forfiscal years, and the interim periods within those fiscal years, beginning onor after December 15, 2008. Management of the Company does not expect theadoption of this pronouncement to have a material impact on its financialstatements.

 

**Note 4 -**** ****Commitments andContingencies**

 

*Leases*

 

The Company has entered into a lease for office,warehouse and laboratory facilities in The Woodlands, Texas under a third partynon-cancelable operating lease through 2010. Future minimum lease commitmentsas of March 31, 2008 are as follows:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2008                                       |       | $          | 152,316    |   |
| 2009                                       |       | 206,267    |       |
| 2010                                       |       | 191,825    |       |
| 2011                                       |       | —     |       |
| 2012                                       |       | —     |       |
| Thereafter                                 |       | —     |       |
| Total                                      |       | $          | 550,408    |   |

 

This lease provides the Company with a 5-year renewaloption.

 

**Note 5 -**** ****Redeemable Preferred Stock,Equity, Stock Plan and Warrants**

 

*Equity instruments issued to non-employees*

 

From time to time, in order to preserve cash and tofund our operating activities, common stock or other equity instruments may beissued for cash or in exchange for goods or services. Equity instruments issuedfor goods or services are recorded at the fair value of the goods or servicesreceived or the fair value of the equity instruments issued, whichever is morereliably measurable. During 2007, we did the following:

 

·                  Effective January 15, 2007, we requested andLusierna Asset Management, Ltd. (the “Consultant”) agreed to provide consultingand advisory services to us pursuant to and in accordance with our request,including but not limited to, advice regarding corporate structuring, theidentification of potential candidates for our board of directors andtransaction structuring. In consideration of the consulting services, we agreedthat at the time of, and subject to, the closing of no less than gross proceedsof $12,000,000 from the sale of the Company’s equity in a private placement,(the “**Offering Threshold Closing**”), theCompany (i) issued to the Consultant, simultaneously with the OfferingThreshold Closing, initial closing, a three year warrant to purchase 750,000 shares(the “**Option Shares**”) of our commonstock, at an exercise price of $1.10 per Option Share, with a cashless exerciseprovision and no anti-dilution adjustment, and (ii) we paid to theConsultant a fee of $480,000. The Company utilized the Black-Scholesmethodology in determining the fair market value of the warrantsof $217,007 and recorded the expense in the first quarter of 2007. TheConsultants’ fee of $480,000 was paid from the proceeds of the PurchaseAgreement, described below, and expensed in the first quarter of 2007.

 

·                  Effective February 13, 2007 we entered into anInvestor Relations Agreement with Lusierna Asset Management, Ltd. (the “Consultant”)which provides that the Agreement will terminate on the date twelve (12) monthsfrom the Commencement Date, unless otherwise subject to earlier termination. Duringthe term of this Agreement, the Consultant shall provide public and investorrelations services (collectively, the “**Services**”)to us, to result in improved investor recognition of Uni-Pixel, Inc., abroader following by analysts and institutions to include providing directly,or managing the delivery of, a wide range of services, including, but notlimited to:

 

·                  Proactive marketing of the Company directly tosecurity analysts, stockbrokers and portfolio managers and investors.

·                  Assisting the Company in gaining media coverage bothlocally and nationally.

·                  Assisting in the preparation of press releases,including monitoring wire service coverage of the Company for accuracy andpickup.

·                  Preparing presentations relating to the Company formeetings with analysts, registered representatives and portfolio managers,other large investors, and sponsored forums.

 

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·                  Assisting in preparing information kits about theCompany in response to press and/or investor inquiries.

·                  Providing such other services and assistance asConsultant and the Company shall deem necessary or appropriate to enhance theCompany’s business.

 

TheConsultant shall receive $10,000 per month payable monthly on the tenth (10th)day of each month, commencing on the tenth (10th) day of the monthfollowing the month in which the Commencement Date occurs and a three (3) yearwarrant (the “**Warrant**”) to purchase 300,000shares of restricted Uni-Pixel, Inc. common stock at an exercise price of$1.10 per share, with a cashless exercise provision and no anti-dilutionadjustment. The Warrant shall vest in twelve (12) monthly installments on thetenth (10th) day of each month, commencing in the First PaymentMonth. The initial payment shall be for 75,000 shares, with the remaining225,000 shares equally divided into the remaining eleven (11) installments. TheCompany utilized the Black-Scholes methodology in determining thefair market value of the warrants of $86,803 and this amount is expensedover 12 months.

 

*Common Stock*

 

During the three months ended March 31, 2008, (1) weissued no shares of common stock for cash in connection with the exercise ofstock options; (2) issued no shares of common stock in exchange forcashless exercise of warrants; (3) issued no shares of common stock inconnection with the conversion of Series B Preferred Stock and accrueddividends; and (4) issued no shares of common stock in connection with theconversion of Series C Preferred Stock and accrued dividends.

 

*Series B Convertible Preferred Stock*

 

On February 13, 2007, the Company entered into aSecurities Purchase Agreement (the “Purchase Agreement”) with The Raptor GlobalPortfolio Ltd., The Tudor BVI Global Portfolio Ltd., Tudor Proprietary Trading,L.L.C. and The Altar Rock Fund L.P. (collectively, the “Purchasers”) pursuantto which the Company sold on that date in a private placement to the Purchasers(a) 3,200,000 shares of the Company’s Series B Convertible PreferredStock, par value $0.001 per share (the “Series B Preferred Stock”), and (b) warrants(the “Series B Warrants”) to purchase, in aggregate, up to 6,839,279shares of the Company’s common stock, par value $0.001 for an aggregatepurchase price of $12,000,000. As the Series B Preferred Stock isredeemable for cash at the option of the holder after five years, the Series BPreferred Stock is classified as temporary equity on the balance sheet. Inaccordance with EITF 00-27, the Company determined that the Series BPreferred Stock contained a beneficial conversion feature with an intrinsicvalue of $3,715,602, which was credited to additional paid-in capital in thefirst quarter of 2007, and is being amortized over five years. The Companyutilized the Black-Scholes methodology in determining the fair marketvalue of the Series B Warrants of $3,715,602, which was credited toadditional paid-in capital in the first quarter of 2007, and is being amortizedover five years.

 

Dividends shall accrue, whether or not declared andpaid, on the Series B Preferred Stock at the rate per annum of 8%, andshall be cumulative as to any dividends not declared and paid in any year,compounding annually at the same rate. These dividends are charged toadditional paid-in capital. Each share of Series B Preferred Stock may, atthe option of the holder, be converted at any time into a number of fully paidand non-assessable shares of common stock of the Company equal to the quotientobtained by dividing the original issue price of $3.75 for the Series BPreferred Shares, plus all accrued and unpaid Series B Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series BPreferred Stock conversion price of $0.75, which is subject to adjustment fromtime to time in accordance with the Certificate of Designations. As of March 31,2008, there were 3,200,000 shares of Series B Preferred Stock outstanding,with cumulative unpaid dividends of approximately $1,080,986 or 288,263 sharesof Series B Preferred Stock.

 

*Series C Convertible Preferred Stock*

 

On September 28,2007, the Company entered into a Securities Purchase Agreement (the “ MLPurchase Agreement”) with Merrill Lynch Pierce, Fenner & SmithIncorporated (“Merrill Lynch”) pursuant to which the Company sold on that datein a private placement to Merrill Lynch (a) 892,858 shares of the Company’sSeries C Convertible Preferred Stock, par value $0.001 per share (the “Series CPreferred Stock”), and (b) warrants (the “ML Warrants”) topurchase, in aggregate, up to 3,214,289 shares of the Company’s common stock,par value $0.001 for an aggregate purchase price of $10,000,010. As the Series CPreferred Stock is redeemable for cash at the option of the holder after fiveyears, the Series C Preferred Stock is classified as temporary equity onthe balance sheet. In accordance with EITF 00-27, the Company determined thatthe Series C Preferred Stock contained a beneficial conversion featurewith an intrinsic value of $3,809,644, which was credited to additional paid-incapital in the third quarter of 2007, and is being amortized over five years. TheCompany utilized the Black-Scholes methodology in determining the fair marketvalue of the ML Warrants of $3,809,644, which was credited to additionalpaid-in capital in the third quarter of 2007, and is being amortized over fiveyears.

 

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Dividends shall accrue, whether or not declared andpaid, on the Series C Preferred Stock at the rate per annum of 8%, andshall be cumulative as to any dividends not declared and paid in any year,compounding annually at the same rate. These dividends are charged toadditional paid-in capital. Each share of Series C Preferred Stock may, atthe option of the holder, be converted at any time into a number of fully paidand non-assessable shares of common stock of the Company equal to the quotientobtained by dividing the original issue price of $11.20 for the Series CPreferred Shares, plus all accrued and unpaid Series C Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series CPreferred Stock conversion price of $1.40, which is subject to adjustment fromtime to time in accordance with the Certificate of Designations. As of March 31,2008, there were 892,858 shares of Series C Preferred Stock outstanding,with cumulative unpaid dividends of approximately $403,288 or 36,008 shares of Series CPreferred Stock.

 

*2005 Stock Incentive Plan*

 

Effective January 27, 2005, we adopted theUni-Pixel, Inc. 2005 Stock Incentive Plan. The Stock Incentive Plan isdiscretionary and allows for an aggregate of up to 2,000,000 shares of ourcommon stock to be awarded through incentive and non-qualified stock optionsand stock appreciation rights. The Stock Incentive Plan is administered by ourBoard of Directors, which has exclusive discretion to select participants whowill receive the awards and to determine the type, size and terms of each awardgranted.

 

In the first quarter of 2008, we did not grant anyoptions under the 2005 Stock Incentive Plan.

 

*2007 Stock Incentive Plan*

 

Effective August 21, 2007, we adopted theUni-Pixel, Inc. 2007 Stock Incentive Plan. The Stock Incentive Plan isdiscretionary and allows for an aggregate of up to 4,000,000 shares of ourcommon stock to be awarded through incentive and non-qualified stock optionsand stock appreciation rights. The Stock Incentive Plan is administered by ourBoard of Directors, which has exclusive discretion to select participants whowill receive the awards and to determine the type, size and terms of each awardgranted.

 

In the first quarter of 2008, we granted a total of600,000 options to purchase our common stock with an exercise price of $1.45per share to three employees. These options vest monthly over 36 months.

 

*Other Stock Options*

 

In the first quarter of 2008, we did not grant anyother stock options.

 

**Note 6 -**** ****Subsequent Events**

 

On April 18, 2008, the Board of Directors ofUni-Pixel, Inc. promoted Mr. Reed Killion to Chief Executive Officer.In addition, Mr. Killion will retain the title of President.

 

On April 18, 2008, the Board of Directors ofUni-Pixel, Inc. granted the following stock options:

 

·                  Reed J. Killion, CEO and President, 202,500 options to purchase ourcommon stock with an exercise price of $1.45 per share. These options vestmonthly over 36 months.

·                  James A. Tassone, CFO, 26,250 options to purchase our common stock withan exercise price of $1.45 per share. These options vest monthly over 36months.

·                  B. Tod Cox, Vice President of Engineering, 46,875 options to purchaseour common stock with an exercise price of $1.45 per share. These options vestmonthly over 36 months.

 

On April 30, 2008, Mr. Frank DeLape resignedas the Company’s Chairman of the Board and as a director.

 

On April 30, 2008, Mr. Bernard T. Marren was unanimously elected as the Company’sChairman of the Board.

 

**ITEM 2. MANAGEMENT’S DISCUSSION ANDANALYSIS OR PLAN OF OPERATON.**

 

**ForwardLooking Statements**

 

Someof the information in this report contains forward-looking information thatinvolve risks and uncertainties. Our forward-looking statements express ourcurrent expectations or forecasts of possible future results or events,including projections of future performance, statements of management’s plansand objectives, future contracts, and forecasts of trends and other 

 

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matters. You can identifythese statements by the fact that they do not relate strictly to historic orcurrent facts and often use words such as “anticipate,” “believe,” “plan,” “expect,”“future,” “intend,” “may,” “will,” “should,” “estimate,” “predict,” “potential,”“continue,” and other words and expressions of similar meaning. No assurancecan be given that the results in any forward-looking statement will be achievedand actual results could be affected by one or more factors, which could causethem to differ materially. For these statements, we claim the protection of thesafe harbor for forward-looking statements contained in the Private Securities LitigationReform Act. You should also consider carefully the statements under “Descriptionof Business - Risk Factors” in our 2007 Form 10-KSB, which address factorsthat could cause our actual results to differ from those set forth in theforward-looking statements.

 

*CRITICAL ACCOUNTING POLICIES*

 

The following discussion and analysis of financialcondition and results of operations is based upon our consolidated financialstatements, which have been prepared in conformity with accounting principlesgenerally accepted in the United States of America. Our significant accountingpolicies are more fully described in Note 3 of Notes to the unauditedConsolidated Financial Statements. However, certain accounting policies andestimates are particularly important to the understanding of our financialposition and results of operations and require the application of significantjudgment by our management or can be materially affected by changes from periodto period in economic factors or conditions that are outside of ourcontrol.  As a result, they are subject to an inherent degree ofuncertainty. In applying these policies, our management uses their judgment todetermine the appropriate assumptions to be used in the determination ofcertain estimates. Those estimates are based on our historical operations, ourfuture business plans and projected financial results, the terms of existingcontracts, our observance of trends in the industry, information provided byour customers and information available from other outside sources, asappropriate. The following discusses our significant accounting policies andestimates.

 

*Revenue Recognition:*  We recognize revenue over theperiod the service is performed in accordance with SEC Staff AccountingBulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”).In general, SAB 104 requires that four basic criteria must be met beforerevenue can be recognized: (1) persuasive evidence that an arrangementexists, (2) delivery has occurred or services rendered, (3) the feeis fixed and determinable, and (4) collectibility is reasonably assured.

 

Advance payments are deferred until shipment. Theamount of the revenue deferred represents the fair value of the remainingundelivered products measured in accordance with Emerging Issues Task ForceIssue (“EITF”) 00-21, *“Accounting forRevenue Arrangements with Multiple Deliverables,”* which addressesthe issue of accounting for arrangements that involve the delivery of multipleproducts or services.

 

Revenue from licenses and other up-front fees arerecognized on a ratable basis over the term of the respective agreement.

 

*Cost of Revenues and Selling,General and Administrative Expenses and Research and Development Expenses:*  In an effort to consolidate ourexecutive management team, we moved our headquarters from Austin, Texas to TheWoodlands, Texas during the third quarter of 2005.  The primary purpose ofour facility in The Woodlands, Texas is to conduct research on the development,testing and delivery of our prototype devices, and the commercialization of ourproducts.

 

If, in the future, the purposes for which we operateour facility in The Woodlands, Texas, or any new facilities we open, changes,the allocation of the costs incurred in operating that facility between cost ofsales and research and development expenses could change to reflect suchoperational changes.

 

*Research and Development Expenses:*  Research and development costs areexpensed as incurred and include salaries and benefits, costs paid tothird-party contractors for research, development and manufacturing ofmaterials and devices, and a portion of facilities cost. Prototype developmentcosts are a significant component of research and development expenses andinclude costs associated with third-party contractors. Invoicing fromthird-party contractors for services performed can lag several months. Weaccrue the costs of services rendered in connection with third-party contractoractivities based on our estimate of management fees, site management and monitoringcosts and data management costs. Actual costs may differ in some cases fromestimated costs and are adjusted for in the period in which they become known.

 

*Intangible Assets:*  Our intangible assets representpatent applications which are recorded at cost. We have filed applications forpatents in connection with technologies being developed. The patentapplications and any patents issued as a result of these applications areimportant to the protection of our technologies that may result from our researchand development efforts. Costs associated with patent applications andmaintaining patents are capitalized and will be amortized over the life of thepatents. We review the value recorded for intangibles to assess recoverabilityfrom future operations using undiscounted cash flows. Impairments arerecognized in operating results to the extent the carrying value exceeds fairvalue determined based on the net present value of estimated future cash flows.The projection of future cash flows requires us to make estimates about whenproduct approvals may be obtained, and the amount of future revenues. Theactual future results could differ significantly from these 

 

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estimates,and resulting changes in the estimates of future cash flows could besignificant and could affect the recoverability of intangible assets.

 

*Stock-Based Compensation:*  Beginning in the quarter beginningJanuary 1, 2006, we adopted SFAS No. 123 (Revised 2004), *“Share Based Payment,”* which eliminatesthe use of APB Opinion No. 25 and we will be required to measure the costof employee services received in exchange for an award of equity instrumentsbased on the grant-date fair value of the award. That cost will be recognizedover the period during which an employee is required to provide service inexchange for the reward—the requisite service period. No compensation cost willbe recognized for equity instruments for which employees do not render therequisite service. The grant-date fair value of employee share options andsimilar instruments will be estimated using option-pricing models adjusted forthe unique characteristics of those instruments. SFAS No. 123 (Revised2004) must be applied to all options granted or modified after its effectivedate and also to recognize the cost associated with the portion of any optionawards made before its effective date for which the associated service has notbeen rendered as of its effective date.

 

Prior to January 1, 2006, we accounted for ourstock-based compensation under the provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 123— “Accounting for Stock BasedCompensation.” Under SFAS No. 123, we are permitted to either recordexpenses for stock options and other employee compensation plans based on theirfair value at the date of grant or to continue to apply the provisions ofAccounting Principles Board Opinion No. 25 “Accounting for Stock Issued toEmployees,” (“APB No. 25”), and recognize compensation expense, if any,based on the intrinsic value of the equity instrument at the measurement date.We have elected to continue following the provisions of APB No. 25. Stockoptions issued to persons other than employees or directors are recorded on thebasis of their fair value as required by SFAS No. 123.

 

*RESULTS OF OPERATIONS*

 

Comparisonof the three months ending March 31, 2008 and 2007

 

REVENUES.  We are a development stage companythat has developed, patented and demonstrated a new color display technology inthe form of proof of concept prototypes which we call Time Multiplexed OpticalShutter (“TMOS”).  We intend to be a leader in the research, developmentand commercialization of new flat panel displays using TMOS in a variety ofapplications, such as mobile phones, digital cameras, notebook computers,televisions and other consumer electronic devices. From inception, we have hada limited amount of revenue that is derived from development contracts.

 

Revenues stayed constant at $0 for the three monthsended March 31, 2008, as compared to the three months ended March 31,2007.

 

COST OF REVENUES.  Cost of revenues include alldirect expenses associated with the delivery of services including internallabor costs. Cost of revenues for the three months ended March 31, 2008and the three months ended March 31, 2007 was $0.

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,general and administrative expenses decreased by 65% or approximately$1,559,000, to $836,844 for the three months ended March 31, 2008 from$2,396,263 for the three months ended March 31, 2007.  The majorcomponents of the decrease are as follows:

 

a)  Salaries and benefits decreased byapproximately $832,000 to $411,000 for the three months ended March 31,2008 compared to $1,243,000 for the three months ended March 31, 2007,primarily due to a decrease in stock compensation expense of approximately$692,000 to $208,000 for the three months ended March 31, 2008 compared to$900,000 for the three months ended March 31, 2007;

 

b) Contract labor decreased by approximately $55,000to $3,000 for the three months ended March 31, 2008 compared to $58,000for the three months ended March 31, 2007;

 

c) Legal expense decreased by approximately $24,000 to$65,000 for the three months ended March 31, 2008 compared to $89,000 forthe three months ended March 31, 2007;

 

d) Accounting expense increased by approximately$14,000 to $32,000 for the three months ended March 31, 2008 compared to$18,000 for the three months ended March 31, 2007;

 

e) Office expense decreased by approximately $4,000 to$25,000 for the three months ended March 31, 2008 compared to $29,000 forthe three months ended March 31, 2007;

 

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f) Travel expense decreased by approximately $16,000to $13,000 for the three months ended March 31, 2008 compared to $29,000for the three months ended March 31, 2007;

 

g) Depreciation and amortization expense increased byapproximately $5,000 to $70,000 for the three months ended March 31, 2008compared to $65,000 for the three months ended March 31, 2007;

 

h) A one time professional consulting fee of $697,000was incurred for the three months ended March 31, 2007.

 

RESEARCH AND DEVELOPMENT. Research and developmentexpenses increased by approximately $1,777,000 during the three months ended March 31,2008 to $2,268,137 from $491,238 for the three months ended March 31,2007. The major components of the increase are as follows:

 

a) Salaries and benefits attributable to research anddevelopment increased by approximately $336,000 to $609,000 for the threemonths ended March 31, 2008 compared to $273,000 for the three monthsended March 31, 2007 due to an increase in the number of research anddevelopment employees and the level of compensation for these employees and dueto an increase in stock compensation expense of approximately $93,000 to$128,000 for the three months ended March 31, 2008 compared to $35,000 forthe three months ended March 31, 2007;

 

b) Consulting expense attributable to research anddevelopment increased by approximately $375,000 to $507,000 for the threemonths ended March 31, 2008 compared to $132,000 for the three monthsended March 31, 2007 primarily due to increased services related toprototype development;

 

c) Lab expense increased by approximately $970,000 to$986,000 for the three months ended March 31, 2008 compared to $16,000 forthe three months ended March 31, 2007 primarily due to increased servicesrelated to prototype development; and

 

d) Travel expense attributable to research anddevelopment increased by approximately $80,000 to $103,000 for the three monthsended March 31, 2008 compared to $23,000 for the three months ended March 31,2007.

 

OTHER INCOME (EXPENSE).

 

a) Net decrease in fair value of derivativeliabilities was an income of $382,920 for the three months ended March 31,2007, relating to the Warrant issued in connection with the 12% Senior SecuredConvertible Debentures in May 2006 and the Warrant issued in connectionwith the 10% Senior Unsecured Convertible Debentures in September 2006.

 

b) Debt issuance expense was $94,189 for the threemonths ended March 31, 2007, due to the debt raised in May 2006 and September 2006.

 

c)****Interestincome (expense), net increased to income of $96,720 for the three months endedMarch 31, 2008 as compared to $(1,051,250) for the three months ended March 31,2007, primarily due to a) more cash on hand during the three months ended March 31,2008 and b) during the three months ended March 31, 2007, the payment ofinterest on the $1,500,000 loan received in May 2006, the amortization ofthe discount on the Warrant issued in connection with the 12% Senior SecuredConvertible Debentures in May 2006, the payment of interest on the $900,000loan received in September 2006, and the amortization of the discount onthe Warrant issued in connection with the 10% Senior Unsecured ConvertibleDebentures in September 2006.

 

NET LOSS.**  **Net loss decreased to $3,008,261 for the three months ended March 31,2008, as compared to $3,650,020 for the three months ended March 31, 2007.We compute our net loss per share on the basis of net loss attributable tocommon stockholders, which included the effects of certain items not includedin the determination of net loss. Net loss attributable to common stockholdersfor the three months ended March 31, 2008 was $4,194,758 as compared to anet loss attributable to common stockholders of $4,104,352 for the three monthsended March 31, 2007. The net loss attributable to common stockholders forthe three months ended March 31, 2008 includes $1,186,497 of accrued butunpaid preferred stock dividends and amortization of preferred stock discount. Thenet loss attributable to common stockholders for the three months ended March 31,2007 includes $454,332 of accrued but unpaid preferred stock dividends.

 

**Off-Balance Sheet Transactions**

 

We do not engage in material off-balance sheettransactions.

 

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*LIQUIDITY AND CAPITAL RESOURCES*

 

OperatingActivities

 

Cash used in operating activities during the threemonths ended March 31, 2008 decreased to $2,446,212 as compared to$2,519,154 used for the three months ended March 31, 2007. The increase inresearch and development expense for the three months ended March 31, 2008is offset by the one time cash Consulting Fee expense of $480,000 that incurredduring the three months ended March 31, 2007.

 

InvestingActivities

 

Cash used for investing activities during the threemonths ended March 31, 2008 amounted to $161,493, as compared to $21,970used for investing activities for the three months ended March 31, 2007.

 

FinancingActivities

 

We have financed our operating and investingactivities primarily from the proceeds of private placements of common stock,convertible investor notes, Series A Convertible Preferred Stock offeringwhich we closed in December 2004 and January 2005 and Series BConvertible Preferred Stock offering which we closed in February 2007 and Series CConvertible Preferred Stock offering we closed in September 2007. Duringthe three months ended March 31, 2008, the total net cash provided byfinancing activities was $0. During the three months ended March 31, 2007,the total net cash provided by financing activities was $9,599,033, whichincludes: a) $2,400,967 payments on notes payable and b) $12,000,000 netproceeds from the issuance of Series B Convertible Preferred Stock.

 

WorkingCapital

 

As of March 31, 2008, we had a cash balance of$9.1 million.  We project that current cash reserves will sustain ouroperations at least through December 2008, and we are not aware of anytrends or potential events that are likely to impact our short term liquiditythrough this term.

 

On February 13, 2007, we entered into aSecurities Purchase Agreement (the “Purchase Agreement”) with The Raptor GlobalPortfolio Ltd., The Tudor BVI Global Portfolio Ltd., Tudor Proprietary Trading,L.L.C. and The Altar Rock Fund L.P. (collectively, the “Purchasers”) pursuantto which we sold on that date in a private placement to the Purchasers (a) 3,200,000authorized but unissued shares of the Company’s Series B Preferred Stock,par value $0.001 per share (the “Series B Preferred Stock”), and (b) warrants(the “Warrants”) to purchase, in aggregate, up to 6,839,279 shares at $1.24 pershare, of the Company’s common stock, par value $0.001, for an aggregatepurchase price of $12,000,000.

 

On September 28, 2007, the Company entered into aSecurities Purchase Agreement (the “ ML Purchase Agreement”) with Merrill LynchPierce, Fenner & Smith Incorporated (the “ ML Purchaser”) pursuant towhich the Company sold on that date in a private placement to the ML Purchaser (a) 892,858authorized but unissued shares of the Company’s Series C Preferred Stock,par value $0.001 per share (the “Series C Preferred Stock”), and (b) warrants(the “ML Warrants”) to purchase, in aggregate, up to 3,214,289 shares of theCompany’s common stock, par value $0.001 for an aggregate purchase price of$10,000,010.

 

We area development stage company and have not experienced significant operationssince our formation. We reached a positive working capital position as of thefirst quarter of 2005 as a result of our financing activities. We have incurredsignificant operating losses during the years ended December 31, 2002,2003, 2004, 2005, 2006 and 2007 and the three months ended March 31, 2008.We intend to utilize a proprietary methodology for development of our displays.Our principal activities, from the beginning of the development stage, havebeen organizational matters, capital raising activities including issuance ofstock, product research and development, fund raising, and market research.

 

Todate, we have had only a few revenue-generating services or developmentcontracts.  These include a prototype development agreement with a largepersonal computer company, and a Small Business Innovation Research (SBIR)Phase One agreement with the U.S. Air Force for $98,214 and a follow-on PhaseTwo agreement for $686,966.  We also entered into a prototype developmentagreement with Lockheed Martin, a large military contractor, in October 2005,for which we have received full payment. Our immediate customer prospects arelimited to Lockheed Martin, with which we entered into a License and StrategicBusiness Agreement dated October 5, 2005. See “Risk Factors” included inour 2007 Form 10-KSB.

 

Managementwill work to establish specific applications for our display technology thatwill generate significant revenues and cash flows to support operations.

 

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**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

Not applicable.

 

**ITEM4.  CONTROLS AND PROCEDURES.**

** **

DisclosureControls and Procedures

 

As of March 31, 2008, management, including ourPresident and Chief Financial Officer, performed an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures, as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934. Based on their evaluation, managementconcluded that, as of March 31, 2008, our disclosure controls andprocedures are effective to ensure that material information required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported, within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and that it is accumulated and communicatedto management, including our President and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

Changesin Internal Control Over Financial Reporting

 

We maintain a system of internal control overfinancial reporting that is designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with accounting principlesgenerally accepted in the United States. Based on the most recent evaluation,our President and Chief Financial Officer have determined that no significantchanges in our internal control over financial reporting occurred during ourmost recent fiscal quarter that have materially affected, or are reasonablylike to materially affect, our internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

 

**ITEM 6. EXHIBITS.**

 
| **Exhibit********No.** | ** ** | **Description**                                                                                                                                                                           |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                    |       | Amended and  Restated Certificate of Incorporation of Real-Estateforlease.com, Inc.  (1)                                                                                             |
| 3.2                    |       | Amended and  Restated Bylaws of Uni-Pixel, Inc. (1)                                                                                                                                  |
| 4.1                    |       | Certificate of  Designations of Real-Estateforlease.com, Inc. Series A Convertible  Preferred Stock (1)                                                                         |
| 4.2                    |       | Junior  Subordinated Unsecured Promissory Note (1)                                                                                                                                        |
| 4.3                    |       | Common Stock  Purchase Warrant No. 1 (1)                                                                                                                                             |
| 4.4                    |       | Common Stock  Purchase Warrant No. 2 (1)                                                                                                                                             |
| 4.5                    |       | Common Stock  Purchase Warrant No. 3 (1)                                                                                                                                             |
| 4.6                    |       | Form of  Common Stock certificate (2)                                                                                                                                                |
| 4.7                    |       | Uni-Pixel, Inc.  12% Senior Secured Convertible Debenture No. 1 issued to Trident Growth  Fund, L.P., dated May 24, 2006. (3)                                              |
| 4.8                    |       | Uni-Pixel, Inc.  12% Senior Secured Convertible Debenture No. 1 issued to CapSource Fund,  L.P., dated May 24, 2006. (3)                                                   |
| 4.9                    |       | Uni-Pixel, Inc.  10% Senior Unsecured Convertible Debenture dated September 12, 2006.(4)                                                                                        |
| 4.10                   |       | Common Stock  Purchase Warrant No. 1 issued to Trident Growth Fund, L.P., dated  May 24, 2006. (3)                                                                              |
| 4.11                   |       | Common Stock  Purchase Warrant No. 1 issued to CapSource Fund, L.P., dated  May 24, 2006. (3)                                                                                   |
| 4.12                   |       | Common Stock  Purchase Warrant dated September 12, 2006. (4)                                                                                                                         |
| 10.1                   |       | Securities  Purchase Agreement dated May 24, 2006, by and between  Uni-Pixel, Inc., Uni-Pixel Displays, Inc., Trident Growth  Fund, L.P. and CapSource Fund, L.P. (3) |
| 10.2                   |       | Security  Agreement dated May 24, 2006, by and between Uni-Pixel, Inc.,  Uni-Pixel Displays, Inc., Trident Growth Fund, L.P. and CapSource Fund,  L.P. (3)                 |
| 10.3                   |       | Securities  Purchase Agreement dated September 12, 2006 (4)                                                                                                                          |
| 31.1                   |       | Certification  of the President and Principal Executive Officer of Uni-Pixel, Inc.,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (5)                              |
| 31.2                   |       | Certification  of the Chief Financial Officer of Uni-Pixel, Inc., pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 (5)                                                |
| 32.1                   |       | Certification  of the President and Principal Executive Officer of Uni-Pixel, Inc.,  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (5)                              |
| 32.2                   |       | Certification  of the Chief Financial Officer of Uni-Pixel, Inc., pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (5)                                                |

 

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(1)                                               Previously filed as an exhibit to theCompany’s Form 10-SB, filed on February 18, 2005, and incorporated byreference hereto.

 

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(2)                                               Previously filed as an exhibit to theCompany’s Form 10-KSB, filed on March 28, 2006, and incorporated byreference hereto.

(3)                                               Previously filed as an exhibit to theCompany’s Form 10-QSB, filed on August 14, 2006, and incorporated byreference hereto.

(4)                                               Previously filed as an exhibit to theCompany’s Form 8-K, filed on September, 2006, and incorporated byreference hereto.

(5)                                               Filed herewith

 

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**SIGNATURES**

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|               | **UNI-PIXEL, INC.** |
|--------------------|---------------------|
|               |                |   |
|               |                |   |
| May 12,  2008 |                | By: | /s/ James  A. Tassone |
| Date               |                | James  A. Tassone, Chief Financial Officer |
|                    |                     |  |  |

 

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