**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-QSB**

 
| **ý**                                                  | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                       |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                  | ** ** | ** **                                                                                                                                                                                                                                                   |
| **For the  Quarterly Period Ended September 30, 2005** |
|                                                        |       |                                                                                                                                                                                                                                                         |
| **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 SmallBusiness Issuer as Specified in Its Charter)

 
| **DELAWARE**                                                                  | ** ** | **75-2926437**                        |
|-------------------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization)              |       | (I.R.S. Employer  Identification No.) |
|                                                                          |       |                                  |
| **8708  Technology Forest Place, Suite 100  The Woodlands, Texas 77381** |
| (Address of Principal  Executive Offices)                                     |
| ** **                                                                    | ** ** | ** **                            |
| **(281)  825-4500**                                                           |
| (Issuer’s Telephone  Number, Including Area Code)                        |

 

Check whether the issuer: (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 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.   ý Yes o No

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes ý No

 

As of November 10, 2005, the issuer had12,800,580 shares of issued and outstanding common stock, par value $0.001 pershare.

 

Transitional Small Business Disclosure Format (CheckOne):   Yes o   No ý

 

 

----

 

**TABLE OFCONTENTS**

 
| Part I.  | Financial  Information                                                                                                                                                                                              |   |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                                                                |   |
| Item  1.      | Financial  Statements                                                                                                                                                                                               |   |
|          |                                                                                                                                                                                                                |   |
|          | Consolidated  Balance Sheets  September 30, 2005 (unaudited) and December 31, 2004                                                                                                                        |   |
|          |                                                                                                                                                                                                                |   |
|          | Consolidated  Statements of Operations  Nine months ended September 30, 2005 (unaudited) and September 30,  2004 (unaudited)  and cumulative period from inception to September 30, 2005 (unaudited) |   |
|          |                                                                                                                                                                                                                |   |
|          | Three months ended  September 30, 2005 (unaudited) and September 30, 2004 (unaudited)                                                                                                                     |   |
|          |                                                                                                                                                                                                                |   |
|          | Consolidated  Statements of Shareholders’ Equity  From inception to September 30, 2005 (unaudited)                                                                                                        |   |
|          |                                                                                                                                                                                                                |   |
|          | Consolidated  Statements of Cash Flows  Nine months ended September 30, 2005 (unaudited) and September 30,  2004 (unaudited)  and cumulative period from inception to September 30, 2005 (unaudited) |   |
|          |                                                                                                                                                                                                                |   |
|          | Notes  to Unaudited Consolidated Financial Statements                                                                                                                                                               |   |
|          |                                                                                                                                                                                                                |   |
| Item  2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                         |   |
|          |                                                                                                                                                                                                                |   |
| Item  3.      | 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 Balance Sheets

 
| ** **                                                       | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **(unaudited)**              | ** ** | **(audited)**               | ** ** |
| **ASSETS**                                                       |       |                         |       |                        |       |
| Current  assets                                                  |       |                         |       |                        |       |
| Cash and cash equivalents                                        |       | $                            | 3,879,942  |                        | $          | 5,342,641 |   |
| Prepaid expenses                                                 |       | 33,314                       |       | 18,163                      |       |
|                                                             |       |                         |       |                        |       |
| Total current assets                                             |       | 3,913,256                    |       | 5,360,804                   |       |
|                                                             |       |                         |       |                        |       |
| Property and  equipment, net                                     |       | 891,006                      |       | 12,474                      |       |
| Intangible  assets                                               |       | —                       |       | 13,520                      |       |
|                                                             |       |                         |       |                        |       |
| Total assets                                                     |       | $                            | 4,804,262  |                        | $          | 5,386,798 |   |
|                                                             |       |                         |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                    |       |                         |       |                        |       |
|                                                             |       |                         |       |                        |       |
| Current  liabilities                                             |       |                         |       |                        |       |
| Accounts payable                                                 |       | $                            | 216,737    |                        | $          | 33,213 |   |
| Accrued expenses                                                 |       | 4,871                        |       | 27,185                      |       |
| Deferred revenue                                                 |       | 200,000                      |       | 200,000                     |       |
| Current portion of note payable                                  |       | 161,656                      |       | 75,000                      |       |
|                                                             |       |                         |       |                        |       |
| Total current liabilities                                        |       | 583,264                      |       | 335,398                     |       |
|                                                             |       |                         |       |                        |       |
| Note  payable, less current portion                              |       | 84,311                       |       | 69,328                      |       |
|                                                             |       |                         |       |                        |       |
| Total liabilities                                                |       | 667,575                      |       | 404,726                     |       |
|                                                             |       |                         |       |                        |       |
| Shareholders’  equity                                       |       |                         |       |                        |       |
| Preferred stock, $0.001 par value;  10,000,000 shares authorized |       | 3,752                        |       | 2,822                       |       |
| Common stock, $0.001 par value; 40,000,000  shares authorized    |       | 12,801                       |       | 12,801                      |       |
| Additional paid-in capital                                       |       | 16,540,814                   |       | 13,742,444                  |       |
| Accumulated deficit during development  stage                    |       | (12,420,680                  | )          | (8,775,995                  | )          |
|                                                             |       |                         |       |                        |       |
| Total shareholders’ equity                                  |       | 4,136,687                    |       | 4,982,072                   |       |
|                                                             |       |                         |       |                        |       |
| Total  liabilities and shareholders’ equity                 |       | $                            | 4,804,262  |                        | $          | 5,386,798 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

3

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements of Operations

(unaudited)

 
| ** **                                                              | ** ** | **Nine Months Ended  September 30,** | ** ** | **Cumulative  Period from  February 17, 1998  (date of inception)  to September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                  | ** ** | **2004**                                                                                        | ** ** | **2005** | ** ** |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Revenues                                                                |       |                                      |       |                                                                                            |       |   |   |
| Development  contract revenue                                           |       | $                                         | 19,689     |                                                                                            | $          | 250,000 |   | $ | 958,201 |   |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Total revenues                                                          |       | 19,689                                    |       | 250,000                                                                                         |       | 958,201 |   |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Cost of  revenues                                                       |       | 9,844                                     |       | 125,000                                                                                         |       | 456,648 |   |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Gross margin                                                            |       | 9,845                                     |       | 125,000                                                                                         |       | 501,553 |   |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Selling,  general and administrative expenses                           |       | 1,715,098                                 |       | 1,224,207                                                                                       |       | 6,174,515 |   |
| Research and  development                                               |       | 2,028,155                                 |       | 784,248                                                                                         |       | 6,320,199 |   |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Operating loss                                                          |       | (3,733,408                                | )          | (1,883,455                                                                                      | )          | (11,993,161 | ) |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Other income  (expense)                                                 |       |                                      |       |                                                                                            |       |   |   |
| Other income                                                            |       | —                                    |       | 886,886                                                                                         |       | 886,886 |   |
| Debt issuance expense                                                   |       | —                                    |       | (125,000                                                                                        | )          | (500,000 | ) |
| Interest income (expense), net                                          |       | 88,723                                    |       | (230,663                                                                                        | )          | (814,405 | ) |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Net loss                                                                |       | $                                         | (3,644,685 | )                                                                                               | $          | (1,352,232 | ) | $ | (12,420,680 | ) |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Preferred  stock dividends                                              |       | (580,531                                  | )          | —                                                                                          |       | (616,246 | ) |
| Net loss  attributable to common shareholders                           |       | $                                         | (4,225,216 | )                                                                                               | $          | (1,352,232 | ) | $ | (13,036,936 | ) |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Per share  information                                                  |       |                                      |       |                                                                                            |       |   |   |
| Net loss – basic and diluted                                       |       | $                                         | (0.28      | )                                                                                               | $          | (0.26 | ) | $ | (2.19 | ) |
| Preferred stock dividends                                               |       | (0.05                                     | )          | —                                                                                          |       | (0.11 | ) |
| Net loss  attributable to common shareholders – basic and diluted  |       | $                                         | (0.33      | )                                                                                               | $          | (0.26 | ) | $ | (2.30 | ) |
|                                                                    |       |                                      |       |                                                                                            |       |   |   |
| Weighted average number of basic and  diluted common shares outstanding |       | 12,800,580                                |       | 5,164,634                                                                                       |       | 5,671,510 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

4

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements of Operations

(unaudited)

 
| ** **                                                              | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
|                                                                    |       |                                       |       |   |   |
| Revenues                                                                |       |                                       |       |   |   |
| Development  contract revenue                                           |       | $                                          | —     |   | $ | — |   |
|                                                                    |       |                                       |       |   |   |
| Total revenues                                                          |       | —                                     |       | — |   |
|                                                                    |       |                                       |       |   |   |
| Cost of  revenues                                                       |       | —                                     |       | — |   |
|                                                                    |       |                                       |       |   |   |
| Gross margin                                                            |       | —                                     |       | — |   |
|                                                                    |       |                                       |       |   |   |
| Selling,  general and administrative expenses                           |       | 597,951                                    |       | 675,179 |   |
| Research and  development                                               |       | 706,472                                    |       | 240,454 |   |
|                                                                    |       |                                       |       |   |   |
| Operating loss                                                          |       | (1,304,423                                 | )          | (915,633 | ) |
|                                                                    |       |                                       |       |   |   |
| Other income  (expense)                                                 |       |                                       |       |   |   |
| Other income                                                            |       | —                                     |       | 886,886 |   |
| Debt issuance expense                                                   |       | —                                     |       | — |   |
| Interest income (expense), net                                          |       | 25,126                                     |       | (109,924 | ) |
|                                                                    |       |                                       |       |   |   |
| Net loss                                                                |       | $                                          | (1,279,297 | ) | $ | (138,671 | ) |
|                                                                    |       |                                       |       |   |   |
| Preferred  stock dividends                                              |       | (198,580                                   | )          | — |   |
| Net loss  attributable to common shareholders                           |       | $                                          | (1,477,877 | ) | $ | (138,671 | ) |
|                                                                    |       |                                       |       |   |   |
| Per share  information                                                  |       |                                       |       |   |   |
| Net loss – basic and diluted                                       |       | $                                          | (0.10      | ) | $ | (0.03 | ) |
| Preferred stock dividends                                               |       | (0.02                                      | )          | — |   |
| Net loss  attributable to common shareholders – basic and diluted  |       | $                                          | (0.12      | ) | $ | (0.03 | ) |
|                                                                    |       |                                       |       |   |   |
| Weighted  average number of basic and diluted common shares outstanding |       | 12,800,580                                 |       | 5,183,289 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

5

----

 

Uni-Pixel, Inc.

(ADevelopment Stage Company)

ConsolidatedStatements of Shareholders’ Equity

(unaudited)

 
| ** **                                                                | ** ** | **Series A**    | ** ** | ** ** | ** ** | ** **        | ** ** | **Additional  Paid-In  Capital** | ** ** | **Deferred  Stock-Based  Compensation** | ** ** | **Accumulated  Deficit  During  Development  Stage** | ** ** | **Total  Shareholders’  Equity  (Deficit)** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------|------------|------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                | ** ** | **Preferred  Stock** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **                       |
| ** **                                                                | ** ** | **Number**           | ** ** | ** ** | ** ** | **Common  Stock** | ** ** | ** **                       |
| ** **                                                                | ** ** | **of**               | ** ** | ** ** | ** ** | **Number  of**    | ** ** | ** **                       | ** ** | ** **                              |
| ** **                                                                | ** ** | **Shares**           | ** ** | **Amount** | ** ** | **Shares**        | ** ** | **Amount**                       | ** ** | ** **                              |
| Founder shares  issued at inception at 2/17/98                            |       | —               |       | $          | —     |              | 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                                 |       | —                                               |       | —                                           |       | 359,940 |   |
| 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, 12/31/02                                                         |       | —               |       | $          | —     |              | 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, 12/31/03                                                         |       | —               |       | $          | —     |              | 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                              |       | 34,488                                  |       | —                                               |       | —                                           |       | 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, 12/31/04                                                         |       | 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 |   |
| Net loss                                                                  |       | —               |       | —     |       | —            |       | —                           |       | —                                  |       | —                                               |       | (3,644,685                                       | )          | (3,644,685 | ) |
| Balance, 9/30/05                                                          |       | 3,751,643            |       | $          | 3,752      |              | 12,800,580 |                             | $          | 12,801                                  |       | $                                                    | 16,540,814 |                                             | $          | — |   | $ | (12,420,680 | ) | $ | 4,136,687 |   |

 

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

 

6

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements of Cash Flows

(unaudited)

 
| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **Cumulative Period  from February 18,  1998 (date of  inception) to  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2005**                                  | ** ** | **2004**                                                                                        | ** ** | **2005** | ** ** |
| Cash flows  from operating activities                                        |       |                                      |       |                                                                                            |       |   |   |
| Net loss                                                                     |       | $                                         | (3,644,685 | )                                                                                               | $          | (1,352,232 | ) | $ | (12,420,680 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                      |       |                                                                                            |       |   |   |
| Interest forgiven                                                            |       | —                                    |       | (91,421                                                                                         | )          | (91,421 | ) |
| Employee compensation notes payable  forgiven                                |       | —                                    |       | (795,465                                                                                        | )          | (795,465 | ) |
| Depreciation and amortization                                                |       | 127,108                                   |       | 7,153                                                                                           |       | 208,430 |   |
| Stock issued for services                                                    |       | —                                    |       | 166,935                                                                                         |       | 460,062 |   |
| Non-cash compensation expense                                                |       | —                                    |       | 618,750                                                                                         |       | 1,100,000 |   |
| Amortization of debt issuance costs                                          |       | —                                    |       | 125,000                                                                                         |       | 500,000 |   |
| Change in operating assets and liabilities:                                  |       |                                      |       |                                                                                            |       |   |   |
| (Increase) decrease in related party  receivables                            |       | —                                    |       | (6,479                                                                                          | )          | — |   |
| (Increase) in prepaid expenses and other  current assets                     |       | (15,151                                   | )          | 864                                                                                             |       | (33,314 | ) |
| Increase in accounts payable                                                 |       | 183,524                                   |       | 214,783                                                                                         |       | 216,737 |   |
| Increase (decrease) in accrued interest  payable                             |       | (7,635                                    | )          | 85,243                                                                                          |       | 180,943 |   |
| Increase (decrease) in accrued expenses and  other liabilities               |       | (14,679                                   | )          | 358,826                                                                                         |       | 800,336 |   |
| Increase in deferred revenue                                                 |       | —                                    |       | (250,000                                                                                        | )          | 200,000 |   |
| Net cash used in operating activities                                        |       | (3,371,518                                | )          | (918,043                                                                                        | )          | (9,674,372 | ) |
|                                                                         |       |                                      |       |                                                                                            |       |   |   |
| Cash flows  from investing activities                                        |       |                                      |       |                                                                                            |       |   |   |
| Purchase of property and equipment                                           |       | (992,120                                  | )          | (2,616                                                                                          | )          | (1,059,480 | ) |
| 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                                        |       | (992,120                                  | )          | (2,616                                                                                          | )          | (1,099,436 | ) |
|                                                                         |       |                                      |       |                                                                                            |       |   |   |
| Cash flows from  financing activities                                        |       |                                      |       |                                                                                            |       |   |   |
| Proceeds from notes payable to related  party                                |       | —                                    |       | 45,750                                                                                          |       | 115,103 |   |
| Payments on notes payable to related party                                   |       | (85,068                                   | )          | —                                                                                          |       | (105,068 | ) |
| Proceeds from convertible notes payable                                      |       | —                                    |       | 855,971                                                                                         |       | 3,390,000 |   |
| Payments on convertible notes payable                                        |       | —                                    |       | —                                                                                          |       | (1,470,672 | ) |
| Net proceeds from notes payable                                              |       | 186,707                                   |       | —                                                                                          |       | 186,707 |   |
| Proceeds from the issuance of preferred  stock, net                          |       | 2,799,300                                 |       | —                                                                                          |       | 10,448,630 |   |
| Proceeds from the issuance of common stock,  net                             |       | —                                    |       | —                                                                                          |       | 2,089,050 |   |
| Net cash provided by financing activities                                    |       | 2,900,939                                 |       | 901,721                                                                                         |       | 14,653,750 |   |
|                                                                         |       |                                      |       |                                                                                            |       |   |   |
| Net increase  in cash and cash equivalents                                   |       | (1,462,699                                | )          | (18,938                                                                                         | )          | 3,879,942 |   |
| Cash and  cash equivalents, beginning of period                              |       | 5,342,641                                 |       | 19,760                                                                                          |       | — |   |
| Cash and cash  equivalents, end of period                                    |       | $                                         | 3,879,942  |                                                                                            | $          | 822 |   | $ | 3,879,942 |   |
|                                                                         |       |                                      |       |                                                                                            |       |   |   |
| Supplemental  disclosures of cash flow information:                          |       |                                      |       |                                                                                            |       |   |   |
| Cash paid for interest                                                       |       | $                                         | 14,419     |                                                                                            | $          | 145,241 |   | $ | 736,604 |   |
| Interest capitalized into notes payable                                      |       | $                                         | —     |                                                                                            | $          | — |   | $ | 8,250 |   |
| Debt issuance cost for warrant issued                                        |       | $                                         | —     |                                                                                            | $          | — |   | $ | 500,000 |   |
| Preferred stock dividend                                                     |       | $                                         | 580,531    |                                                                                            | $          | — |   | $ | 616,246 |   |
| Conversion of notes payable for preferred  stock                             |       | $                                         | —     |                                                                                            | $          | — |   | $ | 898,250 |   |
| Conversion of notes payable for common  stock                                |       | $                                         | —     |                                                                                            | $          | 95,103 |   | $ | 980,103 |   |
| Stock issued for services                                                    |       | $                                         | —     |                                                                                            | $          | 166,935 |   | $ | 1,560,062 |   |
| Stock issued for interest                                                    |       | $                                         | —     |                                                                                            | $          | — |   | $ | 81,272 |   |

 

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

 

7

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Uni-Pixel, Inc.

(A Development StageCompany)

Notesto Unaudited Consolidated Financial Statements

 

**Note 1 – Basis of Presentation,Business and Organization**

 

Uni-Pixel, Inc., aDelaware corporation, is the parent company of our wholly-owned operatingsubsidiary, Uni-Pixel Displays, Inc.  As used herein, “Uni-Pixel,” “we,”“us,” and “our” refer to Uni-Pixel, Inc. and our wholly-owned consolidatedsubsidiary, Uni-Pixel Displays, Inc.  Our common stock, par value$0.001 per share, is quoted on the Over the Counter – Pink Sheets (“OTC.PK”)under the ticker symbol “UNXL.”

 

Uni-Pixel is a developmentstage company that has developed, patented and demonstrated a new color displaytechnology in the form of proof of concept prototypes which we call TimeMultiplexed Optical Shutter (“TMOS”).  We intend to be a leader in theresearch, development and commercialization of new flat panel displays usingTMOS in a variety of applications, such as mobile phones, digital cameras,notebook computers, televisions and other consumer electronic devices. As of September 30,2005, we had accumulated a total deficit of $12.4 million from operations inpursuit of this objective.

 

We anticipate that our TMOSdisplays will be thin, lightweight, and power-efficient devices, which arehighly suitable for use in full-color display applications.  We believeTMOS displays will be able to capture a share of the growing $60+ billionflat panel display market due to the significant advantages it should provideover competing displays with respect to manufacturing and materials cost,brightness, power efficiency, viewing angle, video response time and imagequality.  We believe that our technology leadership and intellectualproperty position will enable us to generate revenues initially from TMOSdisplays for existing vertical market segments such as the military, avionics,and automotive segments, and then subsequently from consumer electronicsmarkets (i.e., TVs, monitors, personal computers, cameras, games, etc.).

 

Our strategy is to developfurther our proprietary TMOS technology to the point of initially manufacturingsmall volumes of high performance displays for military applications.  Weintend to utilize contract manufacturing for product fabrication to augment ourinternal capabilities in the short term.  We also plan to enter into jointventures in certain vertical market segments to exploit the existingmanufacturing and distribution channels of our targeted partners.  Wefurther plan to license our technology to display manufacturers for use inapplications such as mobile phones, digital cameras, laptop computers, andother consumer electronic devices. Through our internal research anddevelopment efforts we have established a portfolio of TMOS-related patents andpatent applications and other intellectual property rights that support thesejoint venture and licensing strategies.  We currently have seven issuedpatents and fifteen pending patent applications worldwide and contemplateobtaining exclusive field-of-use licenses, with the right to sublicense, tocomplementary technologies from targeted strategic partners and U.S. nationallaboratories.

 

Through September 30,2005, we have been primarily engaged in developing our initial producttechnology, recruiting personnel, commencing our U.S. operations and raisingcapital. In the course of our development activities, we have sustained lossesand expect such losses to continue through at least 2005. We will finance ouroperations primarily through our existing cash and possible future financingtransactions.

 

Our ability to operateprofitably under our current business plan is largely contingent upon oursuccess in developing beyond proof of concept to final prototypes andmanufacturing for sale our products and upon our successful development ofmarkets for our products and profitable manufacturing processes.  We maybe required to obtain additional capital in the future to expand ouroperations. 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 and to support our growth. If adequatecapital cannot be obtained on satisfactory terms, our operations could benegatively impacted.

 

If we achieve growth in ouroperations in the next few years, such growth could place a strain on ourmanagement, administrative, operational and financial infrastructure. Ourability to manage our current operations and future growth requires thecontinued improvement of operational, financial and management controls,reporting systems and procedures. In addition, we may find it necessary to hireadditional management, financial and sales and marketing personnel to manageour expanding operations. If we are unable to manage this growth effectivelyand successfully, our business, operating results and financial condition maybe materially adversely affected.

 

As of September 30,2005, we had cash and cash equivalents of $3.9 million.  We believe thatour existing capital resources are adequate to finance our operations until December 31,2006, however our long-term viability is dependent upon

 

8

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successful operation of ourbusiness, our ability to develop our manufacturing process, the development ofour products and our ability to raise additional debt and equity to meet ourbusiness objectives.

 

*Acquisition and merger and basisof presentation*

 

Uni-Pixel, Inc. wasoriginally incorporated in the State of Nevada as Super Shops, Inc. On November 15,1999, Super Shops and its sister companies filed an amended petition underChapter 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.

 

Our wholly-owned subsidiary,Uni-Pixel Displays, Inc., was originally incorporated as TralasTechnologies, Inc., a Texas corporation, on February 17, 1998. TralasTechnologies, 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.

 

The financial statementspresented in this quarterly report include Uni-Pixel, Inc. and ourwholly-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 -      ********Summary of SignificantAccounting Policies**

 

*Interim financial information*

 

The financial statementsincluded herein, which have not been audited pursuant to the rules andregulations of the Securities and Exchange Commission, reflect all adjustmentswhich, in the opinion of management, are necessary for a fair presentation offinancial position, results of operations and cash flows for the interimperiods on a basis consistent with the annual audited statements. All suchadjustments are of a normal recurring nature. The results of operations forinterim periods are not necessarily indicative of the results that may beexpected for any other interim period or of a full year. Certain information,accounting policies and footnote disclosures normally included in financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been omitted pursuant to such rules andregulations, although we believe that the disclosures are adequate to make theinformation presented not misleading. These financial statements should be readin conjunction with our audited financial statements included in our Form 10-SB,as amended, including the year ended December 31, 2004, filed with theSecurities and Exchange Commission on July 22, 2005.

 

*Use of estimates*

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires us to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Examples include provisions for bad debts, useful lives of property andequipment and intangible assets, impairment of property and equipment andintangible assets, deferred taxes, and the provision for and disclosure oflitigation and loss contingencies. Actual results may differ materially fromthose estimates.

 

9

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* *

*Statement of cash flows*

 

For purposes of thestatements of cash flows, we consider all highly liquid investments (i.e.,investments which, when purchased, have original maturities of three months or less)to be cash equivalents.

 

*Concentration of credit risk*

 

We maintain our cashprimarily with major U.S. domestic banks. The amounts held in these banksexceed the insured limit of $100,000 from time to time and exceeded thatbalance at September 30, 2005 and December 31, 2004. The terms ofthese deposits are on demand to minimize risk.  We have not incurredlosses related to these deposits.

 

*Property and equipment*

 

Property and equipment,consisting primarily of lab equipment, computer equipment, software, leaseholdimprovements, and office furniture and fixtures is carried at cost lessaccumulated depreciation and amortization. Depreciation and amortization forfinancial reporting purposes is provided by the straight-line method over theestimated useful lives of three to five years. Leasehold improvements areamortized using the straight-line method over the remaining lease term or thelife of the asset, whichever is shorter. The cost of repairs and maintenance ischarged as an expense as incurred.

 

*Intangible assets*

 

Our intangible assetsrepresent patent applications which are recorded at cost.  We have filedapplications for patents in connection with technologies being developed. Thepatent applications and any patents issued as a result of these applicationsare important to the protection of our technologies that may result from ourresearch and 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 assessrecoverability from future operations using undiscounted cash flows.Impairments are recognized in operating results to the extent the carryingvalue exceeds fair value determined based on the net present value of estimatedfuture cash flows.

 

*Revenue recognition*

 

We recognize revenue overthe period 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.

 

Revenue from licenses andother up front fees are recognized on a ratable basis over the term of therespective agreement.

 

*Research and development expenses*

 

Research and developmentcosts are expensed 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 and includecosts associated with third-party contractors. Invoicing from third-partycontractors for services performed can lag several months.  We accrue thecosts of services rendered in connection with third-party contractor activitiesbased on our estimate of management fees, site management and monitoring costsand data management costs. Actual costs may differ from estimated costs in somecases and are adjusted for in the period in which they become known.

 

*Stock-based compensation*

 

We may, from time to time, issuecommon stock, stock options or common stock warrants to acquire services orgoods from non-employees. Common stock, stock options and common stock warrantsissued to persons other than employees or directors are recorded on the basisof their fair value, as required by SFAS No. 123, which is measured as ofthe date required by EITF Issue 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

 

10

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stock at the end of the period,and any subsequent changes in the market price of the underlying common stockthrough the valuation date is reflected in the expense recorded in thesubsequent period in which that change occurs.

 

Had compensation costs forour stock option plan been determined based on the fair value at the grant datefor the three months and nine months ended September 30, 2005, consistentwith the provisions of SFAS No. 123 and SFAS 148, our net loss andnet loss per share would have increased to the pro forma amounts indicatedbelow:

 
| ** **                                                                                                                                                            | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                                                                            | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| Net loss attributable to common  shareholders – as reported                                                                                                      |       | $                                         | (1,477,877 | )                                        | $          | (138,671 | ) | $ | (4,255,216 | ) | $ | (1,352,232 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss, net of related tax effects of $0                                                       |       | N/A                                       |       | N/A                                      |       | N/A |   | N/A |   |
| Less: total stock-based employee  compensation expense determined under fair value based method for all awards  granted to employees, net of related tax effect of $0 |       | (176,223                                  | )          | —                                   |       | (354,023 | ) | — |   |
| Net loss –  pro forma                                                                                                                                            |       | $                                         | (1,654,100 | )                                        | $          | (138,671 | ) | $ | (4,579,239 | ) | $ | (1,352,232 | ) |
|                                                                                                                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| Net loss per  share – as reported                                                                                                                                |       |                                      |       |                                     |       |   |   |   |   |
| Basic and diluted                                                                                                                                                     |       | $                                         | (0.12      | )                                        | $          | (0.03 | ) | $ | (0.33 | ) | $ | (0.26 | ) |
| Net loss per  share – pro forma                                                                                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| Basic and diluted                                                                                                                                                     |       | $                                         | (0.13      | )                                        | $          | (0.03 | ) | $ | (0.36 | ) | $ | (0.26 | ) |

 

As required underSFAS 123 and SFAS 148, the pro forma effects of stock-basedcompensation on net loss per share have been estimated at the date of grantusing the Black Scholes option-pricing model based on the following weightedaverage assumptions:

 
| ** **             | ** ** | **Three Months  ended  September 30,  2005** | ** ** | **Three Months  ended  September 30,  2004** | ** ** | **Nine Months  ended  September 30,  2005** | ** ** | **Nine Months  ended  September 30,  2004** | ** ** |
|------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Expected  life (years) |       | 5 years                                      |       | N/A                                               |       | 5 years                                     |       | N/A                                              |       |
| Interest  rate         |       | 4                                                 | %          | N/A                                               |       | 4                                                | %          | N/A                                              |       |
| Dividend  yield        |       | —                                            |       | N/A                                               |       | —                                           |       | N/A                                              |       |
| Volatility             |       | 40.05                                             | %          | N/A                                               |       | 40.05                                            | %          | N/A                                              |       |

 

*Income taxes*

 

An asset and liabilityapproach is used for financial accounting and reporting for income taxes.Deferred income taxes arise from temporary differences between income tax andfinancial reporting and principally relate to recognition of revenue andexpenses in different periods for financial and tax accounting purposes and aremeasured using currently enacted tax rates and laws. In addition, a deferredtax asset can be generated by net operating loss carryforwards (“NOLs”). If itis more likely than not that some portion or all of a deferred tax asset willnot be realized, a valuation allowance is recognized.

 

No benefit has beenrecognized on the net loss as the realization of the net operating losscarryforward cannot be assured.

 

*Loss per share data*

 

Basic loss per share iscalculated based on the weighted average common shares outstanding during theperiod, after giving effect to the manner in which the merger was accounted foras described in Note 1. Diluted earnings per share also gives effect tothe dilutive effect of stock options, warrants (calculated based on thetreasury stock method) and convertible notes and convertible preferred stock.The Company does not present diluted earnings per share for years in which itincurred net losses as the effect is antidilutive.

 

At September 30, 2005,options and warrants to purchase 2,723,500 shares of common stock at exerciseprices ranging from $1.75 to $4.00 per share were outstanding, but were notincluded in the computation of diluted earnings per share as their effect wouldbe antidilutive.

 

11

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*Fair Value of FinancialInstruments*

 

Our financial instrumentsconsist of accounts receivable and accounts payable. The fair values of ouraccounts receivable and accounts payable, in our opinion, reflect theirrespective carrying amounts.

 

*Recent accounting pronouncements*

 

In December 2004, theFASB issued SFAS No. 123 (Revised 2004), *“ShareBased Payment,”* which eliminates the use of APB Opinion No. 25and will require us to measure the cost of employee services received inexchange for an award of equity instruments based on the grant-date fair valueof the award. That cost will be recognized over the period during which anemployee is required to provide service in exchange for the reward—therequisite service period. No compensation cost is recognized for equityinstruments for which employees do not render the requisite service. Thegrant-date fair value of employee share options and similar instruments will beestimated using option-pricing models adjusted for the unique characteristicsof those instruments. SFAS No. 123 (Revised 2004) is effective for thefirst interim or annual reporting period that begins after June 15, 2005(the quarter beginning July 1, 2005 for us) and must be applied to alloptions granted or modified after its effective date and also to recognize thecost associated with the portion of any option awards made before its effectivedate for which the associated service has not been rendered as of its effectivedate.  We are still studying the requirements of SFAS No. 123(Revised 2004) and have not yet determined what impact it will have on ourresults of operations and financial position.  On April 14, 2005, theU.S. Securities and Exchange Commission announced a deferral of the effectivedate of FAS 123(R) for calendar year companies until the beginning of 2006.

 

On July 14, 2005, FASB issued its ExposureDraft, “Accounting for Uncertain Tax Positions”, which is a proposedinterpretation to FASB Statement No. 109, “Accounting for Income Taxes.”This proposed interpretation would require an enterprise to recognize, in itsfinancial statements, the best estimate of the impact of a tax position. Inevaluating whether the probable recognition threshold has been met, thisproposed interpretation would require the presumption that the tax positionwill be evaluated during an audit by taxing authorities. The term probable isused in this proposed interpretation consistent with its use in FASB Statement No. 5,“Accounting Contingencies”, to mean “the future event or events are likely tooccur.” Individual tax positions that fail to meet the probable recognitionthreshold will generally result in either (a) a reduction in the deferredtax asset or an increase in a deferred tax liability or (b) an increase ina liability for income taxes payable or the reduction of an income tax refundreceivable. The impact may also include both (a) and (b). The proposedinterpretation would be effective as of the end of the first fiscal year endingafter December 15, 2005. The initial recognition of the effect of applyingthe proposed interpretation would be a cumulative effect of a change inaccounting principle. The comment period for the proposed interpretation endson October 28, 2005. The Company is currently evaluating the impact of theExposure Draft on its financial statements.

 

**Note 3 -     ********Commitments andContingencies**

 

Leases

 

The Company has entered intoa lease for office, warehouse and laboratory facility in The Woodlands, Texasunder third party non-cancelable operating leases through 2010. Future minimumlease commitments are as follows as of September 30, 2005:

 

| **Year Ending December 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| 2005                             |       | $          | 16,349     |   |
| 2006                             |       | 196,457    |       |
| 2007                             |       | 199,727    |       |
| 2008                             |       | 202,997    |       |
| 2009                             |       | 206,267    |       |
| Thereafter                       |       | 191,825    |       |
| Total                            |       | $          | 1,013,622  |   |

 

This lease provides theCompany with one 5-year renewal options.

 

**Note 4 -     ********Equity, Stock Plan andWarrants**

 

*Equity instruments issued tonon-employees*

 

From time to time, in orderto preserve cash and to fund our operating activities, common stock or otherequity instruments may be issued for cash or in exchange for goods or services.Equity instruments issued for goods or services are

 

12

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recorded at the fair value ofthe goods or services received or the fair value of the equity instrumentsissued, whichever is more reliably measurable. During the nine months ended September 30, 2005, we did not issueequity instruments to non-employees.

 

*Common Stock*

 

During the nine months endedSeptember 30, 2005, we issued no shares of common stock for cash inconnection with the exercise of stock options and issued no shares of commonstock in exchange for cashless exercise of warrants.

 

*2005 Stock Incentive Plan*

 

Effective January 27,2005, we adopted the Uni-Pixel, Inc. 2005 Stock Incentive Plan. The StockIncentive Plan is discretionary and allows for an aggregate of up to 2,000,000shares of our common stock to be awarded through incentive and non-qualifiedstock options and stock appreciation rights. The Stock Incentive Plan isadministered by our Board of Directors, which has exclusive discretion toselect participants who will receive the awards and to determine the type, sizeand terms of each award granted.

 

In the first quarter of2005, we issued under the Stock Incentive Plan a total of 1,050,000 options topurchase our common stock with an exercise price of $4.00 per share to twoemployees.  The options vest over periods of a maximum of 36 to 46 monthsfrom the date of grant.

 

In the second quarter of2005, we issued under the Stock Incentive Plan a total of 625,000 options topurchase our common stock with an exercise price of $4.00 per share to fouremployees.  The options vest over periods of a maximum of 36 months fromthe date of grant.

 

In the third quarter of2005, we did not issue any options.

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

The following discussion andanalysis should be read in conjunction with the consolidated financialstatements including the notes thereto.

 

**Forward-Looking Information**

 

Thisreport contains certain “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, as well as information relating tous that is based on our exercise of business judgment and assumptions made byand information currently available to us.  When used in this document andother documents, releases and reports released by us, the words “anticipate,” “believe,”“estimate,” “expect,” and “intend” and words of similar import, are intended toidentify any forward-looking statements. You should not place undue reliance onthese forward-looking statements.  These statements reflect our currentview of future events and are subject to certain risks and uncertainties asnoted below. Should one or more of these risks or uncertainties materialize, orshould underlying assumptions prove incorrect, our actual results could differmaterially from those anticipated in these forward-looking statements. Actual events, transactions and results may differ materially from theanticipated events, transactions or results described in such statements. Thediscovery and development of applications of our business are subject tosubstantial risks and uncertainties. There can be no assurance that ourbusiness plan can be conducted within the timeframe that we expect.  Theseand other factors, some of which are described below, could cause futureresults to differ materially from the expectations expressed in thisreport.  Although we believe that our expectations are based on reasonableassumptions, we can give no assurance that our expectations will materialize.Many factors could cause actual results to differ materially from our forwardlooking statements.  Several of these factors include, without limitation:

 

•                  our ability to develop our flat panel displaytechnology into marketable products;

•                  our ability to finance our business;

•                  our ability to improve our current pricingmodel;

•                  our ability to service the demand for ourproduct;

•                  a stable interest rate market in the world,and specifically in the countries in which we are doing business or plan to dobusiness;

•                  a stable currency rate environment in theworld, and specifically in the countries in which we are doing business or planto do business;

•                  continued availability of supplies atsatisfactory prices;

 

13

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•                  no new entrance of competitive products inour markets;

•                  no adverse publicity related to our productsor the Company itself;

•                  no adverse claims relating to ourintellectual property;

•                  the adoption of new, or changes in,accounting principles, and/or legal proceedings;

•                  our ability to maintain compliance forcontinued listing of our common stock;

•                  the costs inherent with complying with newstatutes and regulations applicable to public reporting companies, such as theSarbanes-Oxley Act of 2002;

•                  our ability to efficiently integrate futureacquisitions, if any;

•                  other new lines of business that we may enterin the future; and

•                  other risks referenced from time to timeelsewhere in this report and in our filings with the Securities and ExchangeCommission.

 

These factors are notnecessarily all of the important factors that could cause actual results ofoperations to differ materially from those expressed in these forward-lookingstatements. Other unknown or unpredictable factors also could have materialadverse effects on our future results.  We undertake no obligation and donot intend to update, revise or otherwise publicly release any revisions tothese forward-looking statements to reflect events or circumstances after thedate hereof or to reflect the occurrence of any unanticipated events. We cannotassure you that projected results will be achieved.

 

*CRITICAL ACCOUNTING POLICIES*

 

The following discussion andanalysis of financial condition and results of operations are based upon ourconsolidated financial statements, which have been prepared in conformity withaccounting principles generally accepted in the United States of America. Oursignificant accounting policies are more fully described in Note 2 ofNotes to the Unaudited Consolidated Financial Statements. However, certainaccounting policies and estimates are particularly important to theunderstanding of our financial position and results of operations and requirethe application of significant judgment by our management or can be materiallyaffected by changes from period to period in economic factors or conditionsthat are outside of our control.  As a result, they are subject to aninherent degree of uncertainty. In applying these policies, our management usestheir judgment to determine the appropriate assumptions to be used in thedetermination of certain estimates. Those estimates are based on our historicaloperations, our future business plans and projected financial results, theterms of existing contracts, our observance of trends in the industry,information provided by our customers and information available from otheroutside sources, as appropriate. The following discusses our significantaccounting policies and estimates.

 

*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 basic criteriamust be met before revenue can be recognized: (1) persuasive evidence thatan arrangement exists, (2) delivery has occurred or services rendered, (3) thefee is fixed and determinable, and (4) collectibility is reasonablyassured.

 

Advance payments aredeferred until shipment. The amount of the revenue deferred represents the fairvalue of the remaining undelivered products measured in accordance withEmerging Issues Task Force Issue (“EITF”) 00-21, *“Accounting for Revenue Arrangements with Multiple Deliverables,”*which addresses the issue of accounting for arrangements that involve thedelivery of multiple products or services.

 

Revenue from licenses andother up-front fees are recognized on a ratable basis over the term of therespective agreement.

 

*Cost ofSales and Selling, General and Administrative Expenses and Research andDevelopment Expenses:* In an effort to consolidate our executive management team, we moved ourheadquarters from Austin, Texas to The Woodlands, Texas during the thirdquarter of 2005.  The primary purpose of our facility in The Woodlands,Texas is to conduct research on the development, testing and delivery of ourprototype devices, and the commercialization of our products so the costsincurred in operating our facility in The Woodlands, Texas have been classifiedas research and development expenses.

 

If, in the future, thepurposes for which we operate our facility in The Woodlands, Texas, or any newfacilities we open, changes, the allocation of the costs incurred in operatingthat facility between cost of sales and research and development expenses couldchange to reflect such operational changes.

 

*Researchand Development Expenses:*  Research and development costs are expensed as incurred andinclude salaries and benefits, costs paid to third-party contractors forresearch, development and manufacturing of materials and devices, and a portionof facilities cost. Prototype development costs are a significant component ofresearch and development expenses and include costs associated with third-partycontractors. Invoicing from third-party contractors for services performed canlag several months. We

 

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accrue the costs of servicesrendered in connection with third-party contractor activities based on ourestimate of management fees, site management and monitoring costs and datamanagement costs. Actual costs may differ in some cases from estimated costsand are adjusted for in the period in which they become known.

 

*IntangibleAssets:*  Ourintangible assets represent patent applications which are recorded at cost. Wehave filed applications for patents in connection with technologies beingdeveloped. The patent applications and any patents issued as a result of theseapplications are important to the protection of our technologies that may resultfrom our research and development efforts. Costs associated with patentapplications and maintaining patents are capitalized and will be amortized overthe life of the patents. We review the value recorded for intangibles to assessrecoverability from future operations using undiscounted cash flows.Impairments are recognized in operating results to the extent the carryingvalue exceeds fair value determined based on the net present value of estimatedfuture cash flows. The projection of future cash flows requires us to makeestimates about when product approvals may be obtained, and the amount offuture revenues. The actual future results could differ significantly fromthese estimates, and resulting changes in the estimates of future cash flowscould be significant and could affect the recoverability of intangible assets.

 

*Stock-BasedCompensation:* We account for our stock-based compensation under the provisions of Statementof Financial Accounting Standards (“SFAS”) No. 123—”Accounting for StockBased Compensation.” 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.

 

Beginning in the quarterbeginning January 1, 2006, we will be required to adopt SFAS No. 123(Revised 2004), *“Share Based Payment,”*which eliminates the use of APB Opinion No. 25 and we will be required tomeasure the cost of employee services received in exchange for an award ofequity instruments based on the grant-date fair value of the award. That costwill be recognized over the period during which an employee is required toprovide service in exchange for the reward—the requisite service period. Nocompensation cost will be recognized for equity instruments for which employeesdo not render the requisite service. The grant-date fair value of employeeshare options and similar instruments will be estimated using option-pricingmodels adjusted for the unique characteristics of those instruments. SFAS No. 123(Revised 2004) must be applied to all options granted or modified after itseffective date and also to recognize the cost associated with the portion ofany option awards made before its effective date for which the associatedservice has not been rendered as of its effective date. We are still studying therequirements of SFAS No. 123 (Revised 2004) and have not yet determinedwhat impact it will have on our results of operations and financialposition.  On April 14, 2005, the U.S. Securities and ExchangeCommission announced a deferral of the effective date of FAS 123(R) forcalendar year companies until the beginning of 2006.

 

*RESULTS OF OPERATIONS*

 

Comparison of the nine months ending September 30,2005 and 2004

 

REVENUES.  We are adevelopment stage company that has developed, patented and demonstrated a newcolor display technology in the form of proof of concept prototypes which wecall Time Multiplexed Optical Shutter (“TMOS”).  We intend to be a leaderin the research, development and commercialization of new flat panel displaysusing TMOS in a variety of applications, such as mobile phones, digitalcameras, notebook computers, televisions and other consumer electronic devices.From inception, we have had a limited amount of revenue that is derived fromdevelopment contracts.

 

Revenues decreased to $19,689for the nine months ended September 30, 2005, as compared to $250,000 forthe nine months ended September 30, 2004, due to the revenues recognizedfrom the work specific to a development contract during each of thoserespective periods.

 

COST OF REVENUES.  Costof revenues include all direct expenses associated with the delivery ofservices including internal labor costs. Cost of revenues for the nine monthsended September 30, 2005 decreased to $9,844 as compared to $125,000 forthe nine months ended September 30, 2004, due to the decrease in revenuesrecognized from the work specific to a development contract.

 

SELLING, GENERAL ANDADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increasedby 40% or $490,891, to $1,715,098 for the nine months ended September 30,2005 from $1,224,207 for the nine months ended September 30, 2004. The major components of the increase are as follows:

 

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a)  Salaries andbenefits decreased by approximately $138,000 to $723,000 for the nine monthsended September 30, 2005 compared to $861,000 for the nine months ended September 30,2004 due to a decrease in the number of selling, general and administrativeemployees;

 

b) Contract labor increasedby approximately $85,000 to $163,000 for the nine months ended September 30,2005 compared to $78,000 for the nine months ended September 30, 2004;

 

c) Legal expense increasedby approximately $48,000 to $257,000 for the nine months ended September 30,2005 compared to $209,000 for the nine months ended September 30, 2004 dueto an increase in legal expenses related to the preparation of the Form 10-SB,as amended, filed with the Securities and Exchange Commission on July 22,2005 and associated securities work;

 

d) Accounting expenseincreased by approximately $25,000 to $31,000 for the nine months ended September 30,2005 compared to $6,000 for the nine months ended September 30, 2004 dueto an increase in accounting expenses related to audits and reporting requiredfor the preparation of the Form 10-SB, as amended, filed with theSecurities and Exchange Commission on July 22, 2005;

 

e) Office expense increasedby approximately $64,000 to $75,000 for the nine months ended September 30,2005 compared to $11,000 for the nine months ended September 30, 2004;

 

f) Travel expense increasedby approximately $45,000 to $63,000 for the nine months ended September 30,2005 compared to $18,000 for the nine months ended September 30, 2004; and

 

g) Depreciation andamortization expense increased by approximately $120,000 to $127,000 for thenine months ended September 30, 2005 compared to $7,000 for the ninemonths ended September 30, 2004 as a result of an increase in property andequipment during the nine months ended September 30, 2005.

 

RESEARCH AND DEVELOPMENT.Research and development expenses increased by approximately $1,243,907 duringthe nine months ended September 30, 2005 to $2,028,155 from $784,248 forthe nine months ended September 30, 2004. The major components of theincrease are as follows:

 

a) Salaries and benefitsattributable to research and development increased by approximately $254,000 to$875,000 for the nine months ended September 30, 2005 compared to $621,000for the nine months ended September 30, 2004 due to an increase in thenumber of research and development employees and the level of compensation forthese employees, including executive pay increases;

 

b) Consulting expenseattributable to research and development increased by approximately $655,000 to$763,000 for the nine months ended September 30, 2005 compared to $108,000for the nine months ended September 30, 2004 primarily due to increasedservices related to prototype development and an increase in legal expensesrelated to patent work;

 

c) Lab expense increased byapproximately $142,000 to $146,000 for the nine months ended September 30,2005 compared to $4,000 for the nine months ended September 30, 2004; and

 

d) Travel expenseattributable to research and development increased by approximately $120,000 to$147,000 for the nine months ended September 30, 2005 compared to $27,000for the nine months ended September 30, 2004.

 

OTHER INCOME (EXPENSE).

 

a) Other income decreased to$0 for the nine months ended September 30, 2005 as compared to $886,886for the nine months ended September 30, 2004, primarily due to a one timegain on forgiveness of accrued wages, employee notes and related accruedinterest for the nine months ended September 30, 2004.

 

b) Debt issuance expensedecreased to $0 for the nine months ended September 30, 2005 as comparedto $125,000 during the nine months ended September 30, 2004, due to thefinalization of debt utilization for funding in 2004.

 

c)****Interest income (expense), net increased to $88,723 for thenine months ended September 30, 2005 as compared to an expense of $230,663for the nine months ended September 30, 2004 primarily due to theinvestment of proceeds from the sale of shares of our Series A PreferredStock during the first nine months of 2005.  During the first nine monthsof 2004, we were incurring interest expense because of the impact of debtassociated with loans that were repaid in December 2004 with the proceedsfrom the sale of our Series A Preferred Stock.

 

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NET LOSS.**  **Net loss increased to$3,644,685 for the nine months ended September 30, 2005, as compared to$1,352,232 for the nine months ended September 30, 2004. We compute ournet loss per share on the basis of net loss attributable to common stockholders,which included the effects of certain items not included in the determinationof net loss. Net loss attributable to common stockholders for the nine monthsended September 30, 2005 was $4,225,216 as compared to a net lossattributable to common stockholders of $1,352,232 for the nine months ended September 30,2004. The net loss attributable to common stockholders for the nine monthsended September 30, 2005 includes $580,531 of accrued but unpaid preferredstock dividends.

 

Comparison of the three months ending September 30,2005 and 2004

 

REVENUES.  There was norevenue recognized for the three months ended September 30, 2005 and thethree months ended September 30, 2004.

 

COST OF REVENUES.  Costof revenues include all direct expenses associated with the delivery ofservices including internal labor costs. There was no cost of revenuesrecognized for the three months ended September 30, 2005 and the threemonths ended September 30, 2004.

 

SELLING, GENERAL ANDADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreasedby 11% or $77,228, to $597,951 for the three months ended September 30,2005 from $675,179 for the three months ended September 30, 2004. The major components of the decease are as follows:

 

a)  Salaries and benefitsdecreased by approximately $340,000 to $267,000 for the three months ended September 30,2005 compared to $607,000 for the three months ended September 30, 2004due to a decrease in the number of selling, general and administrativeemployees;

 

b) Contract labor decreasedby approximately $5,000 to $22,000 for the three months ended September 30,2005 compared to $27,000 for the three months ended September 30, 2004;

 

c) Legal expense increasedby approximately $5,000 to $17,000 for the three months ended September 30,2005 compared to $12,000 for the three months ended September 30, 2004 dueto an increase in legal expenses related to the preparation of the Form 10-SB,as amended, filed with the Securities and Exchange Commission on July 22,2005 and associated securities work;

 

d) Accounting expenseincreased by approximately $4,000 to $5,000 for the three months ended September 30,2005 compared to $1,000 for the three months ended September 30, 2004 dueto an increase in accounting expenses related to audits and reporting requiredfor the preparation of the Form 10-SB, as amended, filed with theSecurities and Exchange Commission on July 22, 2005;

 

e) Office expense increasedby approximately $28,000 to $30,000 for the three months ended September 30,2005 compared to $2,000 for the three months ended September 30, 2004;

 

f) Travel expense increasedby approximately $14,000 to $27,000 for the three months ended September 30,2005 compared to $13,000 for the three months ended September 30, 2004;and

 

g) Depreciation andamortization expense increased by approximately $58,000 to $60,000 for thethree months ended September 30, 2005 compared to $2,000 for the threemonths ended September 30, 2004 as a result of an increase in property andequipment during the three months ended September 30, 2005.

 

RESEARCH AND DEVELOPMENT.Research and development expenses increased by approximately $466,018 duringthe three months ended September 30, 2005 to $706,472 from $240,454 forthe three months ended September 30, 2004. The major components of theincrease are as follows:

 

a) Salaries and benefitsattributable to research and development increased by approximately $82,000 to$264,000 for the three months ended September 30, 2005 compared to$182,000 for the three months ended September 30, 2004 due to an increasein the number of research and development employees and the level ofcompensation for these employees, including executive pay increases;

 

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b) Consulting expenseattributable to research and development increased by approximately $271,000 to$312,000 for the three months ended September 30, 2005 compared to $41,000for the three months ended September 30, 2004 primarily due to increasedservices related to prototype development and an increase in legal expensesrelated to patent work;

 

c) Lab expense increased byapproximately $40,000 to $41,000 for the three months ended September 30,2005 compared to $1,000 for the three months ended September 30, 2004; and

 

d) Travel expenseattributable to research and development increased by approximately $54,000 to$62,000 for the three months ended September 30, 2005 compared to $8,000for the three months ended September 30, 2004.

 

OTHER INCOME (EXPENSE).

 

a) Other income decreased to$0 for the three months ended September 30, 2005 as compared to $886,886for the three months ended September 30, 2004, primarily due to a one timegain on forgiveness of accrued wages, employee notes and related accruedinterest for the three months ended September 30, 2004.

 

b)****Interest income (expense), net increased to $25,126 for thethree months ended September 30, 2005 as compared to an expense of$109,924 for the three months ended September 30, 2004 primarily due tothe investment of proceeds from the sale of shares of our Series APreferred Stock during the third quarter of 2005.  During the thirdquarter of 2004, we were incurring interest expense because of the impact ofdebt associated with loans that were repaid in December 2004 with theproceeds from the sale of our Series A Preferred Stock.

 

NET LOSS.**  **Net loss increased to$1,279,297 for the three months ended September 30, 2005, as compared to$138,671 for the three months ended September 30, 2004. We compute our netloss per share on the basis of net loss attributable to common stockholders,which included the effects of certain items not included in the determinationof net loss. Net loss attributable to common stockholders for the three monthsended September 30, 2005 was $1,477,877 as compared to a net lossattributable to common stockholders of $138,671 for the three months ended September 30,2004. The net loss attributable to common stockholders for the three monthsended September 30, 2005 includes $198,580 of accrued but unpaid preferredstock dividends.

 

**Off-Balance Sheet Transactions**

 

We do not engage in materialoff-balance sheet transactions.

 

*LIQUIDITY AND CAPITAL RESOURCES*

 

Operating Activities

 

Cash used in operatingactivities during the nine months ended September 30, 2005 increased to$3,371,518 as compared to $918,043 used for the nine months ended September 30,2004. The increase is primarily a result of increases in the first nine monthsof 2005 in research and development spending and general and administrativeexpenses resulting from additional employee salary and related employee costs.

 

Investing Activities

 

Cash used for investingactivities during the nine months ended September 30, 2005 amounted to$992,120, as compared to $2,616 used for investing activities for the ninemonths ended September 30, 2004 due to our increased spending oncomputers, furniture, laboratory, metrology and testing equipment in the ninemonths ended September 30, 2005.

 

Financing Activities

 

We have financed ouroperating and investing activities primarily from the proceeds of privateplacements of common stock, convertible investor notes, and a preferred stockoffering which we closed in December 2004 and January 2005. Duringthe nine months ended September 30, 2005, we realized $2,799,300 net fromcash sales of shares of our Series A Preferred Stock. During the ninemonths ended September 30, 2005, we paid $85,068 to retire notes payableto a related party.  Further, during the nine months ended September 30,2005, we received net proceeds of $186,707 from a note payable from Bank ofAmerica to purchase equipment. The total net cash provided by financingactivities was $901,721 for the nine months ended September 30, 2004. The$901,721 includes: a) $855,971 received from cash sales of convertible investornotes provided by financing activities for the nine months ended September 30,2004 which were converted to our common stock during December 2004 and b)$45,750 proceeds from note payable to a related party.

 

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Working Capital

 

As of September 30,2005, we had a cash balance of $3.9 million.  We project that current cashreserves will sustain our operations at least through December 31, 2006,and we are not aware of any trends or potential events that are likely toimpact our short term liquidity through this term.  As discussed above,during the first nine months of 2005, we had unusually high expenses associatedwith independent contractors, accountants and attorneys associated with thepreparation and filing of our Form 10-SB, as amended, and associatedsecurities work and increased research and development activities and increasedlegal fees related to the associated patent work.  As a result, we do notbelieve that those expenses are reflective of future expenses through the endof 2006.

 

We are a development stagecompany and have not experienced significant operations since our formation. Wehave reached a positive working capital position as of the first quarter of2005 as a result of our financing activities. We have incurred significantoperating losses during the years ended December 31, 2002, 2003, and 2004and during the nine-month period ended September 30, 2005. We intend toutilize a proprietary methodology for development of our displays. Ourprincipal activities, from the beginning of the development stage, have beenorganizational matters, capital raising activities including issuance of stock,product research and development, fund raising, and market research.

 

We are subject to many risksassociated with early-stage businesses in the electronics industry, includingour loss history, the absence of revenues and revenue producing agreements andproducts, our ability to raise capital, our reliance on key persons,competition, uncertainties surrounding the ability to develop our products andultimately market acceptance of our products.

 

To date, we have experiencedlosses from our operations. We anticipate that we will require additionalcapital resources, including the net proceeds from additional equity and debtfinancing transactions, to generate revenue and achieve positive cash flowsfrom operations. Our ability to generate positive cash flows depends upon avariety of factors, including the acceptance in the market of our products andvarious other factors, some of which may be beyond our control. There canbe no assurance that suchfinancing transactions will be consummated or that such revenue will begenerated.

 

To date, we have had only afew revenue-generating services or development contracts.  These include aprototype development agreement with a large personal computer company, and aSmall Business Innovation Research (SBIR) Phase One agreement with the U.S. AirForce for $98,214 and a follow-on Phase Two agreement for $686,966.  Wealso entered into a prototype development agreement with Lockheed Martin, alarge military contractor, in October 2004, for which we have receivedfull payment from Lockheed Martin.  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 in our Form 10-SB, as amended, filedwith the Securities and Exchange Commission on July 22, 2005.

 

Management will work toestablish specific applications for our display technology that will generatesignificant revenues, and cash flows to support operations. Our ability tocontinue as a going concern will be dependent upon achieving profitableoperations, and obtaining additional funding from current shareholders and newinvestors.

 

**ITEM 3.  CONTROLS AND PROCEDURES.**

 

Disclosure Controls and Procedures

 

We have evaluated, under thesupervision and with the participation of management, including our Presidentand Chief Financial Officer, the effectiveness of the design and operation ofour disclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, as of the end of the period covered bythis report.  Based upon that evaluation, our President and our ChiefFinancial Officer concluded that, as of September 30, 2005, our disclosurecontrols and procedures are effective to ensure that 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 Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

Changes in Internal Control Over Financial Reporting

 

We maintain a system ofinternal control over financial reporting that is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States.  Based on the most recent evaluation, ourChief Executive Officer and Chief Financial Officer have determined, based onsuch review, that there were no changes in our internal controls over financialreporting that occurred during our most recent fiscal quarter that havematerially affected, or are reasonably like to materially affect, our internalcontrol over financial reporting.

 

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**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)                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.1             |       | License and Strategic Business Agreement between  Uni-Pixel Displays, Inc. and Lockheed Martin Corporation, acting by and  through Lockheed Martin Systems Integration-Owego, dated as of  October 5, 2005.** (The portions of this Exhibit 10.1 marked  “******” have been omitted and confidentially filed with the Securities and  Exchange Commission pursuant to Rule 24b-2 promulgated under the  Securities Exchange Act of 1934, as amended.) |
| 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**                                                                                                                                                                                                                                                                                                                          |
| 31.2             |       | Certification of the Chief Financial Officer of  Uni-Pixel, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002**                                                                                                                                                                                                                                                                                                                                            |
| 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**                                                                                                                                                                                                                                                                                                                          |
| 32.2             |       | Certification of the Chief Financial Officer of  Uni-Pixel, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002**                                                                                                                                                                                                                                                                                                                                            |

 

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(1)                                  Filed as an exhibit to Uni-Pixel’s Form 10-SBfiled with the SEC on February 18, 2005 and incorporated by referenceherein

**           Filedherewith

 

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**SIGNATURES**

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                   | **UNI-PIXEL, INC.** |
|------------------------|---------------------|
|                   |                |   |
|                   |                |   |
| November 10, 2005 |                | By: | /s/ James A. Tassone |   |
| Date                   |                | James A. Tassone, Chief Financial Officer |
|                        |                     |  |  |  |

 

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