Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

| **x**                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                           |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                              |
| **For the  Quarterly Period Ended March 31, 2009** |
|                                                    |
| **or**                                                  |
| ** **                                              |
| **o**                                                   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                          |
| ** **                                              | ** **                                                                                                                                                                                                                                                                                                                                        |
| ** **                                              | **For the Transition Period  from                         to                         ** |
| ** **                                              | ** **                                                                                                                                                                                                                                                                                                                                        |
| ** **                                              | **COMMISSION FILE NUMBER: 0-49737**                                                                                                                                                                                                                                                                                                               |

 

**UNI-PIXEL, INC.**

(Exact Name of Registrant as Specified in ItsCharter)

 

| **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)                        |

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.   x Yes o No

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).   Yes o   No o

 

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

 

Asof May 1, 2009, the issuer had 22,897,418 shares of issued and outstandingcommon stock, par value $0.001 per share.

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

 

 

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Table of Contents

 

**TABLE OFCONTENTS**

 
| Part I.  | Financial Information                                                                                                                                                                      |   |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                                       |   |
| Item 1.       | Consolidated Financial Statements                                                                                                                                                          |   |
|          |                                                                                                                                                                                       |   |
|          | Consolidated Balance Sheets                                                                                                                                                                |   |
|          | March 31, 2009 (unaudited) and  December 31, 2008                                                                                                                                |   |
|          |                                                                                                                                                                                       |   |
|          | Consolidated Statements of  Operations                                                                                                                                                     |   |
|          | Three months ended  March 31, 2009 (unaudited) and March 31, 2008 (unaudited) and  cumulative period from inception (February 17, 1998) to March 31,  2009 (unaudited) |   |
|          |                                                                                                                                                                                       |   |
|          | Consolidated Statements of  Shareholders’ Equity (Deficit)                                                                                                                            |   |
|          | From inception  (February 17, 1998) to March 31, 2009 (unaudited)                                                                                                                |   |
|          |                                                                                                                                                                                       |   |
|          | Consolidated  Statements of Cash Flows                                                                                                                                                     |   |
|          | Three months  ended March 31, 2009 (unaudited) and March 31, 2008 (unaudited) and  cumulative period from inception (February 17, 1998) to March 31,  2009 (unaudited) |   |
|          |                                                                                                                                                                                       |   |
|          | Notes to Unaudited Consolidated Financial Statements                                                                                                                                       |   |
|          |                                                                                                                                                                                       |   |
| Item 2.       | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                            |   |
|          |                                                                                                                                                                                       |   |
| Item 3.       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                |   |
|          |                                                                                                                                                                                       |   |
| Item 4.       | Controls and  Procedures                                                                                                                                                                   |   |
|          |                                                                                                                                                                                       |   |
| Part II. | Other Information                                                                                                                                                                          |   |
|          |                                                                                                                                                                                       |   |
| Item 6.       | Exhibits                                                                                                                                                                                   |   |

 

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**PART I- FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                                                                                                                                                                        | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                        | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                        |       |                     |       |                        |       |
| Current assets                                                                                                                                                                                                                                                                                                                                    |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                         |       | $                        | 1,138,677  |                        | $          | 2,035,547 |   |
| Prepaid expenses                                                                                                                                                                                                                                                                                                                                  |       | 3,400                    |       | 3,400                       |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total current assets                                                                                                                                                                                                                                                                                                                              |       | 1,142,077                |       | 2,038,947                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Property and equipment, net of accumulated  depreciation of $1,092,983 and $1,013,967, at March 31, 2009 and  December 31, 2008, respectively                                                                                                                                                                                           |       | 513,040                  |       | 592,056                     |       |
| Restricted cash, less current portion                                                                                                                                                                                                                                                                                                             |       | 34,877                   |       | 34,877                      |       |
| Intangible assets, net of accumulated  amortization of $48,887 and $44,637, at March 31, 2009 and  December 31, 2008, respectively                                                                                                                                                                                                      |       | 181,002                  |       | 185,252                     |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total assets                                                                                                                                                                                                                                                                                                                                      |       | $                        | 1,870,996  |                        | $          | 2,851,132 |   |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIT**                                                                                                                                                                                                                                                                                                   |       |                     |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Current liabilities                                                                                                                                                                                                                                                                                                                               |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                                                                                  |       | $                        | 834,639    |                        | $          | 731,022 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                  |       | 483,076                  |       | 383,039                     |       |
| Deferred revenue                                                                                                                                                                                                                                                                                                                                  |       | 33,333                   |       | 33,333                      |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                         |       | 1,351,048                |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total liabilities                                                                                                                                                                                                                                                                                                                                 |       | 1,351,048                |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Commitments and contingencies (Note 4)                                                                                                                                                                                                                                                                                                            |       | —                   |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Redeemable convertible Series B  Preferred stock, $0.001 par value; $3.75 per share liquidation preference;  3,200,000 shares authorized, issued and outstanding at March 31, 2009  and December 31, 2008, less unamortized discount of $4,272,942 and  $4,644,502 at March 31, 2009 and December 31, 2008, respectively |       | 9,765,414                |       | 9,159,771                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Redeemable convertible Series C  Preferred stock, $0.001 par value; $11.20 per share liquidation preference;  892,858 shares authorized, issued and outstanding at March 31, 2009 and  December 31, 2008, less unamortized discount of $5,333,502 and  $5,714,466 at March 31, 2009 and December 31, 2008, respectively  |       | 5,786,934                |       | 5,210,901                   |       |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Shareholders’ deficit                                                                                                                                                                                                                                                                                                                        |       |                     |       |                        |       |
| Common stock, $0.001 par value; 100,000,000  shares authorized at March 31, 2009 and December 31, 2008,  22,897,418 shares issued and outstanding at March 31, 2009 and  December 31, 2008                                                                                                                                    |       | 22,897                   |       | 22,897                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                        |       | 30,239,680               |       | 30,785,560                  |       |
| Accumulated deficit during development  stage                                                                                                                                                                                                                                                                                                     |       | (45,294,977              | )          | (43,475,391                 | )          |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total shareholders’ deficit                                                                                                                                                                                                                                                                                                                  |       | (15,032,400              | )          | (12,666,934                 | )          |
|                                                                                                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Total liabilities and shareholders’ deficit                                                                                                                                                                                                                                                                                                  |       | $                        | 1,870,996  |                        | $          | 2,851,132 |   |

 

*Seeaccompanying notes to these consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements ofOperations

(unaudited)

 
| ** **                                                              | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative  Period from  February 17, 1998  (date of inception)  to March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                               | ** ** | **2008**                                                                                    | ** ** | **2009** | ** ** |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Revenues                                                                |       |                                   |       |                                                                                        |       |   |   |
| Development contract revenue                                            |       | $                                      | —     |                                                                                        | $          | — |   | $ | 1,158,201 |   |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Total revenues                                                          |       | —                                 |       | —                                                                                      |       | 1,158,201 |   |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Cost of revenues                                                        |       | —                                 |       | —                                                                                      |       | 456,648 |   |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Gross margin                                                            |       | —                                 |       | —                                                                                      |       | 701,553 |   |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Selling, general and administrative  expenses                           |       | 812,770                                |       | 836,844                                                                                     |       | 20,454,739 |   |
| Research and development                                                |       | 1,010,346                              |       | 2,268,137                                                                                   |       | 22,778,224 |   |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Operating loss                                                          |       | (1,823,116                             | )          | (3,104,981                                                                                  | )          | (42,531,410 | ) |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Other income (expense)                                                  |       |                                   |       |                                                                                        |       |   |   |
| Net decrease in fair value of derivative  liability                     |       | —                                 |       | —                                                                                      |       | 845,079 |   |
| Other income                                                            |       | —                                 |       | —                                                                                      |       | 886,886 |   |
| Debt issuance expense                                                   |       | —                                 |       | —                                                                                      |       | (644,346 | ) |
| Interest income (expense), net                                          |       | 3,530                                  |       | 96,720                                                                                      |       | (2,084,460 | ) |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Net loss                                                                |       | $                                      | (1,819,586 | )                                                                                           | $          | (3,008,261 | ) | $ | (43,528,251 | ) |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Preferred stock dividends and amortization  of discount                 |       | (1,181,676                             | )          | (1,186,497                                                                                  | )          | (10,451,356 | ) |
| Net loss attributable to common  shareholders                           |       | $                                      | (3,001,262 | )                                                                                           | $          | (4,194,758 | ) | $ | (53,979,607 | ) |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Per share information                                                   |       |                                   |       |                                                                                        |       |   |   |
| Net loss – basic and diluted                                       |       | $                                      | (0.08      | )                                                                                           | $          | (0.13 | ) | $ | (4.43 | ) |
| Preferred stock dividends                                               |       | (0.05                                  | )          | (0.05                                                                                       | )          | (1.06 | ) |
| Net loss attributable to common  shareholders — basic and diluted  |       | $                                      | (0.13      | )                                                                                           | $          | (0.18 | ) | $ | (5.49 | ) |
|                                                                    |       |                                   |       |                                                                                        |       |   |   |
| Weighted average number of basic and  diluted common shares outstanding |       | 22,897,418                             |       | 22,897,418                                                                                  |       | 9,835,495 |   |

 

*Seeaccompanying notes to these consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements of Shareholders’ Equity (Deficit)

 
| ** **                                                                               | ** ** | **Series A  Preferred Stock** | ** ** | ** ** | ** ** | ** **             | ** ** | ** **     | ** ** | ** **           | ** ** | **Accumulated  Deficit**      | ** ** | **Total**              | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------|------------|------------------------|------------|----------------|------------|----------------------|------------|-------------------------------|------------|------------------------|------------|
| ** **                                                                               | ** ** | **Number**                         | ** ** | ** ** | ** ** | **Common  Stock**      | ** ** | **Additional** | ** ** | **Deferred**         | ** ** | **During**                    | ** ** | **Shareholders’** | ** ** |
| ** **                                                                               | ** ** | **of  Shares**                     | ** ** | **Amount** | ** ** | **Number  of  Shares** | ** ** | **Amount**     | ** ** | **Paid-In  Capital** | ** ** | **Stock-Based  Compensation** | ** ** | **Development  Stage** | ** ** | **Equity  (Deficit)** | ** ** |
| Founder shares  issued at inception at February 17, 1998                            |       | —                             |       | $          | —     |                   | 4,500,000  |           | $          | 4,500                |       | $                             | (500       | )                      | $          | — |   | $ | — |   | $ | 4,000 |   |
| Stock issued  during 1999 (prices ranging from $0.50 - $0.62 per share)                  |       | —                             |       | —     |       | 180,000                |       | 180            |       | 183,820              |       | —                        |       | —                 |       | 184,000 |   |
| Stock issued  during 2000 (prices ranging from $11.34 - $17.00 per share)                |       | —                             |       | —     |       | 63,750                 |       | 64             |       | 956,186              |       | —                        |       | —                 |       | 956,250 |   |
| Stock issued  during 2001 (prices ranging from $10.00 - $17.00 per share)                |       | —                             |       | —     |       | 28,176                 |       | 28             |       | 404,227              |       | —                        |       | —                 |       | 404,255 |   |
| Stock issued  during 2002 (prices ranging from $2.00 - $10.00 per share)                 |       | —                             |       | —     |       | 157,327                |       | 157            |       | 353,783              |       | —                        |       | —                 |       | 353,940 |   |
| Deferral of  stock-based compensation                                                    |       | —                             |       | —     |       | —                 |       | —         |       | 1,100,000            |       | (1,100,000                    | )          | —                 |       | — |   |
| Amortization of  stock-based compensation                                                |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | 206,250                       |       | —                 |       | 206,250 |   |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (3,968,540             | )          | (3,968,540 | ) |
| Balance,  December 31, 2002                                                         |       | —                             |       | $          | —     |                   | 4,929,253  |           | $          | 4,929                |       | $                             | 2,997,516  |                   | $          | (893,750 | ) | $ | (3,968,540 | ) | $ | (1,859,845 | ) |
| Stock issued  during 2003 (prices ranging from $1.00 - $2.00 per share)                  |       | —                             |       | —     |       | 210,827                |       | 211            |       | 263,943              |       | —                        |       | —                 |       | 264,154 |   |
| Amortization of  stock-based compensation                                                |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | 275,000                       |       | —                 |       | 275,000 |   |
| Warrants issued                                                                          |       | —                             |       | —     |       | —                 |       | —         |       | 500,000              |       | —                        |       | —                 |       | 500,000 |   |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (2,492,123             | )          | (2,492,123 | ) |
| Balance,  December 31, 2003                                                         |       | —                             |       | $          | —     |                   | 5,140,080  |           | $          | 5,140                |       | $                             | 3,761,459  |                   | $          | (618,750 | ) | $ | (6,460,663 | ) | $ | (3,312,814 | ) |
| Issuance of  common stock for services                                                   |       | —                             |       | —     |       | 738,309                |       | 738            |       | 316,975              |       | —                        |       | —                 |       | 317,713 |   |
| Conversion of  note payable for common stock                                             |       | —                             |       | —     |       | 51,008                 |       | 51             |       | 95,052               |       | —                        |       | —                 |       | 95,103 |   |
| Exercise of stock  options                                                               |       | —                             |       | —     |       | 1,490,000              |       | 1,490          |       | 28,310               |       | —                        |       | —                 |       | 29,800 |   |
| Exercise of  warrants                                                                    |       | —                             |       | —     |       | 512,500                |       | 513            |       | 34,487               |       | —                        |       | —                 |       | 35,000 |   |
| Amortization of  stock-based compensation                                                |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | 618,750                       |       | —                 |       | 618,750 |   |
| Conversion of  bridge loans                                                              |       | 256,643                            |       | 257        |       | 850,625                |       | 851            |       | 1,834,242            |       | —                        |       | —                 |       | 1,835,350 |   |
| Issuance of  preferred stock                                                             |       | 2,565,000                          |       | 2,565      |       | —                 |       | —         |       | 7,646,765            |       | —                        |       | —                 |       | 7,649,330 |   |
| Issuance of  common stock for net assets of REFL                                         |       | —                             |       | —     |       | 1,100,808              |       | 1,101          |       | (1,101               | )          | —                        |       | —                 |       | — |   |
| Issuance of  common stock for net assets of Gemini                                       |       | —                             |       | —     |       | 2,917,250              |       | 2,917          |       | 26,255               |       | —                        |       | —                 |       | 29,172 |   |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (2,315,332             | )          | (2,315,332 | ) |
| Balance,  December 31, 2004                                                         |       | 2,821,643                          |       | $          | 2,822      |                   | 12,800,580 |           | $          | 12,801               |       | $                             | 13,742,444 |                   | $          | — |   | $ | (8,775,995 | ) | $ | 4,982,072 |   |
| Issuance of  preferred stock                                                             |       | 930,000                            |       | 930        |       | —                 |       | —         |       | 2,798,370            |       | —                        |       | —                 |       | 2,799,300 |   |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |       | (1,222,499                         | )          | (1,223     | )          | 2,594,477              |       | 2,594          |       | 260,296              |       | —                        |       | (261,667               | )          | — |   |
| Issuance of  preferred stock for dividends                                               |       | 156,507                            |       | 157        |       | —                 |       | —         |       | 547,618              |       | —                        |       | (547,775               | )          | — |   |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (4,966,790             | )          | (4,966,790 | ) |
| Balance,  December 31, 2005                                                         |       | 2,685,651                          |       | $          | 2,686      |                   | 15,395,057 |           | $          | 15,395               |       | $                             | 17,348,728 |                   | $          | — |   | $ | (14,552,227 | ) | $ | 2,814,582 |   |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |       | (450,317                           | )          | (451       | )          | 916,916                |       | 917            |       | 28,039               |       | —                        |       | (28,505                | )          | — |   |
| Stock  compensation expense                                                              |       | —                             |       | —     |       | —                 |       | —         |       | 914,755              |       | —                        |       | —                 |       | 914,755 |   |
| Issuance of  warrants to placement agent                                                 |       | —                             |       | —     |       | —                 |       | —         |       | 37,596               |       | —                        |       | —                 |       | 37,596 |   |
| Issuance of  preferred stock for dividends                                               |       | 134,117                            |       | 134        |       | —                 |       | —         |       | 469,289              |       | —                        |       | (469,423               | )          | — |   |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (6,485,618             | )          | (6,485,618 | ) |
| Balance,  December 31, 2006                                                         |       | 2,369,451                          |       | $          | 2,369      |                   | 16,311,973 |           | $          | 16,312               |       | $                             | 18,798,407 |                   | $          | — |   | $ | (21,535,773 | ) | $ | (2,718,685 | ) |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |       | (2,369,451                         | )          | (2,369     | )          | 6,545,445              |       | 6,545          |       | 455,180              |       | —                        |       | (459,356               | )          | — |   |
| Stock  compensation expense                                                              |       | —                             |       | —     |       | —                 |       | —         |       | 2,029,326            |       | —                        |       | —                 |       | 2,029,326 |   |
| Issuance of  warrants to consultants                                                     |       | —                             |       | —     |       | —                 |       | —         |       | 297,891              |       | —                        |       | —                 |       | 297,891 |   |
| Issuance of  warrants to Series B Preferred Stock Investors                         |       | —                             |       | —     |       | —                 |       | —         |       | 3,715,602            |       | —                        |       | —                 |       | 3,715,602 |   |
| Intrinsic value  of beneficial conversion option on Series B Preferred Stock        |       | —                             |       | —     |       | —                 |       | —         |       | 3,715,602            |       | —                        |       | —                 |       | 3,715,602 |   |
| Issuance of  common stock for services                                                   |       | —                             |       | —     |       | 40,000                 |       | 40             |       | 52,360               |       | —                        |       | —                 |       | 52,400 |   |
| Issuance of  warrants to Series C Preferred Stock Investors                         |       | —                             |       | —     |       | —                 |       | —         |       | 3,809,644            |       | —                        |       | —                 |       | 3,809,644 |   |
| Intrinsic value  of beneficial conversion option on Series C Preferred Stock        |       | —                             |       | —     |       | —                 |       | —         |       | 3,809,644            |       | —                        |       | —                 |       | 3,809,644 |   |
| Amortization of  discount of Series B Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (1,300,460           | )          | —                        |       | —                 |       | (1,300,460 | ) |
| Amortization of  discount of Series C Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (380,964             | )          | —                        |       | —                 |       | (380,964 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (844,274             | )          | —                        |       | —                 |       | (844,274 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (206,028             | )          | —                        |       | —                 |       | (206,028 | ) |
| Reclassification  of derivative liabilities to equity                                    |       | —                             |       | —     |       | —                 |       | —         |       | 560,368              |       | —                        |       | —                 |       | 560,368 |   |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (10,895,846            | )          | (10,895,846 | ) |
| Balance,  December 31, 2007                                                         |       | —                             |       | $          | —     |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 34,512,298 |                   | $          | — |   | $ | (32,890,975 | ) | $ | 1,644,220 |   |
| Stock  compensation expense                                                              |       | —                             |       | —     |       | —                 |       | —         |       | 1,037,441            |       | —                        |       | —                 |       | 1,037,441 |   |
| Issuance of  warrants to consultants                                                     |       | —                             |       | —     |       | —                 |       | —         |       | 5,919                |       | —                        |       | —                 |       | 5,919 |   |
| Amortization of  discount of Series B Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (1,486,240           | )          | —                        |       | —                 |       | (1,486,240 | ) |
| Amortization of  discount of Series C Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (1,523,858           | )          | —                        |       | —                 |       | (1,523,858 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (960,000             | )          | —                        |       | —                 |       | (960,000 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (800,000             | )          | —                        |       | —                 |       | (800,000 | ) |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (10,584,416            | )          | (10,584,416 | ) |
| Balance,  December 31, 2008                                                         |       | —                             |       | $          | —     |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 30,785,560 |                   | $          | — |   | $ | (43,475,391 | ) | $ | (12,666,934 | ) |
| Stock  compensation expense                                                              |       | —                             |       | —     |       | —                 |       | —         |       | 635,796              |       | —                        |       | —                 |       | 635,796 |   |
| Amortization of  discount of Series B Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (371,561             | )          | —                        |       | —                 |       | (371,561 | ) |
| Amortization of  discount of Series C Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (380,964             | )          | —                        |       | —                 |       | (380,964 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (234,082             | )          | —                        |       | —                 |       | (234,082 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (195,069             | )          | —                        |       | —                 |       | (195,069 | ) |
| Net loss                                                                                 |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (1,819,586             | )          | (1,819,586 | ) |
| Balance,  March 31, 2009                                                            |       | —                             |       | $          | —     |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 30,239,680 |                   | $          | — |   | $ | (45,294,977 | ) | $ | (15,032,400 | ) |

 

*See accompanying notes to these consolidatedfinancial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements ofCash Flows

(unaudited)

 
| ** **                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Cumulative Period  from February 18,  1998 (date of  inception) to  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                               | ** ** | **2008**                                                                                    | ** ** | **2009** | ** ** |
| Cash flows from operating activities                                         |       |                                   |       |                                                                                        |       |   |   |
| Net loss                                                                     |       | $                                      | (1,819,586 | )                                                                                           | $          | (3,008,261 | ) | $ | (43,528,251 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                   |       |                                                                                        |       |   |   |
| Interest forgiven                                                            |       | —                                 |       | —                                                                                      |       | (91,421 | ) |
| Employee compensation notes payable  forgiven                                |       | —                                 |       | —                                                                                      |       | (795,465 | ) |
| Depreciation and amortization                                                |       | 83,266                                 |       | 69,758                                                                                      |       | 1,184,689 |   |
| Stock issued for services                                                    |       | —                                 |       | —                                                                                      |       | 512,462 |   |
| Stock compensation expense                                                   |       | 635,796                                |       | 336,018                                                                                     |       | 4,617,318 |   |
| Non-cash compensation expense                                                |       | —                                 |       | —                                                                                      |       | 1,100,000 |   |
| Amortization of debt issuance costs                                          |       | —                                 |       | —                                                                                      |       | 644,346 |   |
| Amortization of discounts on notes payable                                   |       | —                                 |       | —                                                                                      |       | 1,480,448 |   |
| Net decrease in fair value of derivatives                                    |       | —                                 |       | —                                                                                      |       | (845,077 | ) |
| Issuance of warrants to consultants                                          |       | —                                 |       | 5,919                                                                                       |       | 303,810 |   |
| Change in operating assets and liabilities:                                  |       |                                   |       |                                                                                        |       |   |   |
| Increase in cash restricted for note  payable and lease obligations          |       | —                                 |       | —                                                                                      |       | (34,877 | ) |
| Decrease (increase) in prepaid expenses and  other current assets            |       | —                                 |       | 1,900                                                                                       |       | (147,745 | ) |
| Increase in accounts payable                                                 |       | 103,617                                |       | 296,639                                                                                     |       | 834,634 |   |
| Increase in accrued interest payable                                         |       | —                                 |       | —                                                                                      |       | 180,943 |   |
| Increase (decrease) in accrued expenses and  other liabilities               |       | 100,037                                |       | (148,185                                                                                    | )          | 1,278,541 |   |
| Increase in deferred revenue                                                 |       | —                                 |       | —                                                                                      |       | 33,333 |   |
| Net cash used in operating activities                                        |       | (896,870                               | )          | (2,446,212                                                                                  | )          | (33,272,312 | ) |
|                                                                         |       |                                   |       |                                                                                        |       |   |   |
| Cash flows from investing activities                                         |       |                                   |       |                                                                                        |       |   |   |
| Purchase of property and equipment                                           |       | —                                 |       | (161,493                                                                                    | )          | (1,654,352 | ) |
| Proceeds from the sale of property and  equipment                            |       | —                                 |       | —                                                                                      |       | 27,792 |   |
| Purchases of patents, trademarks and  organization costs                     |       | —                                 |       | —                                                                                      |       | (264,336 | ) |
| Net cash used in investing activities                                        |       | —                                 |       | (161,493                                                                                    | )          | (1,890,896 | ) |
|                                                                         |       |                                   |       |                                                                                        |       |   |   |
| Cash flows from financing activities                                         |       |                                   |       |                                                                                        |       |   |   |
| Proceeds from notes payable to related  party                                |       | —                                 |       | —                                                                                      |       | 115,103 |   |
| Payments on notes payable to related party                                   |       | —                                 |       | —                                                                                      |       | (164,328 | ) |
| Proceeds from convertible notes payable                                      |       | —                                 |       | —                                                                                      |       | 3,390,000 |   |
| Payments on convertible notes payable                                        |       | —                                 |       | —                                                                                      |       | (1,470,672 | ) |
| Net repayments from notes payable                                            |       | —                                 |       | —                                                                                      |       | (62,833 | ) |
| Issuance of warrants to placement agent                                      |       | —                                 |       | —                                                                                      |       | 37,596 |   |
| Proceeds from the issuance of preferred  stock, net                          |       | —                                 |       | —                                                                                      |       | 32,367,969 |   |
| Proceeds from the issuance of common stock,  net                             |       | —                                 |       | —                                                                                      |       | 2,089,050 |   |
| Net cash provided by financing activities                                    |       | —                                 |       | —                                                                                      |       | 36,301,885 |   |
|                                                                         |       |                                   |       |                                                                                        |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                        |       | (896,870                               | )          | (2,607,705                                                                                  | )          | 1,138,677 |   |
| Cash and cash equivalents, beginning of  period                              |       | 2,035,547                              |       | 11,697,425                                                                                  |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                      | 1,138,677  |                                                                                        | $          | 9,089,720 |   | $ | 1,138,677 |   |
|                                                                         |       |                                   |       |                                                                                        |       |   |   |
| Supplemental disclosures of cash flow  information:                          |       |                                   |       |                                                                                        |       |   |   |
| Cash paid for interest                                                       |       | $                                      | —     |                                                                                        | $          | — |   | $ | 960,727 |   |
| Cash paid for income taxes                                                   |       | $                                      | —     |                                                                                        | $          | — |   | $ | — |   |
| Interest capitalized into notes payable                                      |       | $                                      | —     |                                                                                        | $          | — |   | $ | 8,250 |   |
| Debt issuance cost for warrant issued                                        |       | $                                      | —     |                                                                                        | $          | — |   | $ | 500,000 |   |
| Preferred stock dividend and amortization  of discount                       |       | $                                      | 1,181,676  |                                                                                        | $          | 1,186,497 |   | $ | 10,451,356 |   |
| Conversion of notes payable for preferred  stock                             |       | $                                      | —     |                                                                                        | $          | — |   | $ | 898,250 |   |
| Conversion of notes payable for common  stock                                |       | $                                      | —     |                                                                                        | $          | — |   | $ | 980,103 |   |
| Stock issued for services                                                    |       | $                                      | —     |                                                                                        | $          | — |   | $ | 1,612,462 |   |
| Stock issued for interest                                                    |       | $                                      | —     |                                                                                        | $          | — |   | $ | 81,272 |   |
| Reclassification of derivatives to equity                                    |       | $                                      | —     |                                                                                        | $          | — |   | $ | 560,368 |   |
| Intrinsic value of beneficial conversion  options on Preferred Stock         |       | $                                      | —     |                                                                                        | $          | — |   | $ | 7,525,246 |   |
| Issuance of warrants to Preferred Stock  investors                           |       | $                                      | —     |                                                                                        | $          | — |   | $ | 7,525,246 |   |

 

*Seeaccompanying notes to these consolidated financial statements.*

 

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**Uni-Pixel, Inc.**

**(A Development Stage Company)**

**Notes to Unaudited ConsolidatedFinancial Statements**

 

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

 

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

 

Uni-Pixelis a development stage company that has developed, patented and demonstrated anew color display technology in the form of proof of concept prototypes whichwe call Time Multiplexed Optical Shutter (“TMOS”).  We intend to be aleader in the research, development and commercialization of new flat paneldisplays using TMOS in a variety of applications, such as mobile phones,digital cameras, notebook computers, televisions and other consumer electronicdevices. Our work developing TMOS has led to advances in the thin film arenathat have other marketable applications. We intend to explore the business potential within these applicationsand pursue those thin film markets that offer profitable opportunities eitherthrough licensing or direct production and sales.  As of March 31, 2009, we had accumulateda total deficit of $45.3 million from operations in pursuit of theseobjectives.

 

Weanticipate that our TMOS displays will be thin, lightweight, and power-efficientdevices, which are highly suitable for use in full-color displayapplications.  We believe TMOS displays will be able to capture a share ofthe growing $90+ billion flat panel display market due to the significantadvantages it should provide over competing displays with respect tomanufacturing and materials cost, brightness, power efficiency, viewing angle,and video response time and image quality.  We believe that our technologyleadership and intellectual property position will enable us to generaterevenues initially from TMOS displays for existing vertical market segmentssuch as the military, avionics, and automotive segments, and then subsequentlyfrom consumer electronics markets (i.e., TVs, monitors, personal computers,cameras, games, etc.).

 

Ourstrategy is to further develop our proprietary TMOS technology to the point ofbeing able to transition the technology to manufacturing partners.  Wehave and will continue to utilize contract manufacturing for prototypefabrication to augment our internal capabilities in the short term.  Wealso plan to be a supplier of our key thin film component and to enter intojoint ventures in certain vertical market segments to exploit the existingmanufacturing and distribution channels of our targeted partners.  We planto license our technology to display manufacturers and supporting partnercompanies for use in applications such as mobile phones, digital cameras,laptop computers, and other consumer electronic devices. Through our internalresearch and development efforts we have established a portfolio ofTMOS-related patents and patent applications and other intellectual propertyrights that support these joint venture and licensing strategies.  Wecurrently have 32 issued patents, 4 allowed patents, and 81 pending patentapplications filed in key venues worldwide including regionally in Europe, AsiaPacific, South America and North America. We also contemplate obtainingexclusive field-of-use licenses (which would include the right to sublicense)to complementary technologies from targeted strategic partners and U.S.national laboratories.

 

Duringthe course of 2008 we developed our first independent thin film productopportunity.  This unique variation ofthe thin film developed for TMOS can be applied to a variety of touch screenproduct devices as a protective cover. We intend to market this thin film product under our brand, OpcuityTM, tovarious potential distribution and channel partners.

 

Sinceour inception, we have been primarily engaged in developing our initial producttechnologies, recruiting personnel, commencing our U.S. operations andobtaining sufficient capital to meet our working capital needs. In the courseof our development activities, we have sustained losses and expect such lossesto continue through at least May 2009. We will finance our operations primarilythrough our existing cash and possible future financing transactions.

 

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing our products beyond proof of conceptto final prototypes, supporting transferable manufacturing processes topartners to produce our products and successfully developing markets andmanufacturing relationships for our products. We may be required to obtain additional capital in the future to expandour operations. No assurance can be given that we will be able to develop ourproducts, successfully develop the markets or profitable manufacturing methodsfor our products, or raise any such additional capital as we might need, eitherthrough equity or debt financing, on satisfactory terms or at all.Additionally, no assurance can be given that any such financing, if obtained,will be adequate to meet our ultimate capital needs or to support our growth.If adequate capital cannot be obtained on satisfactory terms, our operationscould be negatively impacted.

 

Ifwe achieve growth in our operations in the next few years, such growth couldplace a strain on our management, administrative, operational and financialinfrastructure. Our ability to manage our current operations and future growthrequires the 

 

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continuedimprovement of operational, financial and management controls, reportingsystems 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 effectively,our business, operating results and financial condition may be materiallyadversely affected.

 

Asof March 31, 2009, we had cash and cash equivalents of $1.1 million. We believe that our existing capital resources are adequate to finance ouroperations until May 2009.  However,our long-term viability is dependent upon our ability to successfully operateour business, develop our manufacturing process, sign partnership agreements,develop our products and raise additional debt and equity to meet our businessobjectives.

 

*Acquisition and merger and basis of presentation*

 

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

 

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

 

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

 

Theconsolidated financial statements presented in this quarterly report includeUni-Pixel, Inc. and our wholly-owned subsidiary, Uni-Pixel Displays, Inc.All significant intercompany transactions and balances have been eliminated.Uni-Pixel Displays, Inc. was, for accounting purposes, the survivingentity of the merger, and accordingly for the periods prior to the merger, thefinancial statements reflect the financial position, results of operations andcash flows of Uni-Pixel Displays, Inc.  The assets, liabilities,operations and cash flows of Real-Estateforlease.com, Inc. are included inthe consolidated financial statements from December 10, 2004 onward.

 

**Note 2 -****                 ****Going Concern**

 

Our accompanying consolidated financial statementshave been prepared assuming that we will continue as a going concern, whichcontemplates realization of assets and the satisfaction of liabilities in thenormal course of business.  However,Uni-Pixel has sustained losses and negative cash flows from operations sinceits inception. As shown in the accompanying consolidated financial statements,Uni-Pixel incurred recurring net losses of $1.8 million and $3.0 million forthe three months ended March 31, 2009 and 2008, respectively, has negativeworking capital of $0.2 million and has an accumulated deficit of $45.3 millionas of March 31, 2009.  The Company’sability to meet its obligations in the ordinary course of business is dependentupon its ability to establish profitable operations, raise additional financingthrough public or private equity financings, enter into collaborative or otherarrangements with corporate sources, or secure other sources of financing tofund operations.  In the 4th quarter of 2008, the Company’smanagement began to reduce operating expenses and delay planned expenditures topreserve the Company’s working capital.

 

OnFebruary 13, 2007, the Company raised $12 million in a private placementof its Series B Convertible Preferred Stock (see Note 5) and on September 28,2007, the Company raised an additional $10 million in a private placement ofits Series C Convertible Preferred Stock (see Note 5), which managementbelieves will enable the Company to continue operations until May 2009.

 

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Ourgrowth and continued operations could be impaired by limitations on our accessto the capital markets.  In the event that we do not raise additionalfunding, we may be forced to further scale back our operations which would havea material adverse impact upon our ability to pursue our businessplan.  We have no commitments from officers, directors or affiliatesto provide funding.  There can be no assurance that capital fromoutside sources will be available, or if such financing is available, it mayinvolve issuing securities senior to our common stock or equity financingswhich are dilutive to holders of our common stock.  In addition, inthe event we do not raise additional capital from conventional sources, it islikely that our growth will be restricted and we may need to scale back orcurtail implementing our business plan.

 

Ourability to reach profitably under our current business plan is largelycontingent upon our success in developing beyond proof of concept to finalprototypes and supporting transferable manufacturing processes to partners toproduce for sale our products and upon our successful development of marketsfor our products and successful manufacturing relationships.  We will needto obtain additional capital in the future to expand our operations. Noassurance can be given that we will be able to develop our products,successfully develop the markets for our products or profitable manufacturingmethods, or raise any such additional capital as we might need, either throughequity or debt financing, on satisfactory terms or at all. Additionally, noassurance can be given that any such financing, if obtained, will be adequateto meet our ultimate capital needs or to support our growth. If adequatecapital cannot be obtained on satisfactory terms, our operations could benegatively impacted.

 

Theconditions described above create substantial doubt as to Uni-Pixel’s abilityto continue as a going concern.  The March 31, 2009 consolidatedfinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classifications of liabilities that may result from the outcome ofthis uncertainty.

 

**Note 3- Summary of Significant Accounting Policies**

 

*Interim financial information*

 

Theconsolidated financial statements included herein, which have not been auditedpursuant to the rules and regulations of the Securities and ExchangeCommission, reflect all adjustments which, in the opinion of management, arenecessary for a fair presentation of financial position, results of operationsand cash flows for the interim periods on a basis consistent with the annualaudited statements. All such adjustments are of a normal recurring nature. Theresults of operations for interim periods are not necessarily indicative of theresults that may be expected for any other interim period or for a full year.Certain information, accounting policies and footnote disclosures normallyincluded in consolidated financial statements prepared in conformity withaccounting principles generally accepted in the United States of America havebeen omitted pursuant to such rules and regulations, although we believethat the disclosures are adequate to make the information presented notmisleading. These consolidated financial statements should be read inconjunction with our audited consolidated financial statements included in our Form 10-K,for the year ended December 31, 2008, filed with the Securities andExchange Commission on March 6, 2009.

 

*Use of estimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires us to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosures of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Examples include provisions for bad debts, usefullives of property and equipment and intangible assets, impairment of propertyand equipment and intangible assets, deferred taxes, and the provision for anddisclosure of litigation and loss contingencies. Actual results may differmaterially from those estimates.

 

*Statement of cash flows*

 

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

 

*Concentration of credit risk*

 

Wemaintain our cash primarily with major U.S. domestic banks.   The amounts held in interest bearingaccounts periodically exceed the insured limit of $250,000 at March 31,2009 and December 31, 2008.  Theamounts held in these banks did not exceed the insured limit of $250,000 as of March 31,2009 and December 31, 2008, respectively. The terms of other deposits are on demand and are subject to guaranteesin full by FDIC under the Transaction Account Guarantee Program.   We have not incurred losses related to thesedeposits.  In addition, on March 31,2009 and December 31, 2008, we held an investment account 

 

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of$666,477 and $1,662,973, respectively, with a financial institution other thana bank.  These funds are invested inmoney market funds.  We have not incurredlosses related to these deposits.

 

*Restricted cash*

 

Asof March 31, 2009 and December 31, 2008, we had restricted cash of$34,877.  This amount secured certainobligations under our lease agreement for our principal facility located in TheWoodlands, Texas as of both March 31, 2009 and December 31,2008.  The restricted cash has beensegregated into current and long-term classifications based on its anticipatedliquidation.

 

*Property and equipment*

 

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

 

*Intangible assets*

 

Ourintangible assets represent patents and patent applications, acquired from thirdparties, which are recorded at cost and amortized over the life of thepatent.  We review the value recorded for intangible assets 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.  Impairment would thenbe measured as the difference between the fair value of the fixed or amortizingintangible asset and the carrying value to determine the amount of theimpairment.

 

*Derivativeinstruments*

 

Weaccount for all derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and relatedEmerging Issues Task Force (“EITF”) interpretations and Securities and ExchangeCommission (“SEC”) rules, which require that certain embedded and freestandingderivative instruments be classified as a liability and measured at fair valuewith changes in fair value recognized currently in earnings.  The Company has recorded changes in fairvalue as an other expense in the consolidated statements of operations.

 

*Revenue recognition*

 

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

 

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

 

Revenuefrom development contracts are recognized when the contract is completed andcollectibility is reasonably assured. Deferred revenue on these contracts of $33,333 as of March 31, 2009and December 31, 2008 consists of a development contract to produce and delivera prototype device.

 

*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 andinclude costs associated with third-party contractors. Invoicing fromthird-party contractors for services performed can lag several months.  Weaccrue the costs of services rendered in connection with third-party contractoractivities based on our estimate of management fees, site management andmonitoring costs and data management costs. Actual costs may differ from estimatedcosts in some cases and are adjusted for in the period in which they becomeknown.

 

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*Stock-based compensation*

 

We recognize the cost of stock options and restricted stock inaccordance with SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), “ShareBased Payment.”  SFAS No. 123(R) requiresus to measure the cost of employee services received in exchange for an awardof equity instruments based on the grant-date fair value of the award.  That cost will be recognized over the periodduring which an employee is required to provide service in exchange for thereward — known as the requisite service period. No compensation cost isrecognized for equity instruments for which employees do not render therequisite service. The grant-date fair value of employee share options andsimilar instruments will be estimated using option-pricing models adjusted forthe unique characteristics of those instruments.  SFAS No. 123 must be applied to alloptions granted or modified after its effective date and also to recognize thecost associated with the portion of any option award made before its effectivedate for which the associated service has not been rendered as of its effectivedate.

 

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

 

*Income taxes*

 

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

 

TheCompany has losses carried forward for income tax purposes to March 31,2009. There are no current or deferred tax expenses for the three month periodsended March 31, 2009 and 2008 due to the Company’s loss position. TheCompany has fully reserved for any benefits of these losses. The deferred taxconsequences of temporary differences in reporting items for financialstatement and income tax purposes are recognized, as appropriate. Realizationof the future tax benefits related to the deferred tax assets is dependent onmany factors, including the Company’s ability to generate taxable income withinthe net operating loss carryforward period. Management has considered thesefactors in reaching its conclusion as to the valuation allowance for financialreporting purposes. Accordingly, no benefit has been recognized on the net lossas the realization of the net operating loss carryforward cannot be assured.

 

*Loss per share data*

 

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

 

AtMarch 31, 2009, options and warrants to purchase 19,940,843 shares ofcommon stock at exercise prices ranging from $1.10 to $2.00 per share wereoutstanding, but were not included in the computation of diluted earnings pershare as their effect would be antidilutive. Further, at March 31, 2009, 18,717,808 shares of common stock,convertible from Series B Convertible Preferred Stock and associateddividends, were not included in the computation of diluted earnings per shareas there effect would be antidilutive. Further, at March 31, 2009, 8,000,790 shares of common stock,convertible from Series C Convertible Preferred Stock and associateddividends, were not included in the computation of diluted earnings per shareas their effect would be antidilutive.

 

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*Fair value of financial instruments*

 

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

 

*Recently adopted accountingpronouncements*

 

EffectiveJanuary 1, 2008, the Company partially adopted SFAS 157, which provides aframework for measuring fair value. Fair value is defined as the price thatwould be received for an asset or paid to transfer a liability (an exit price)in the principal or most advantageous market for the asset or liability in anorderly transaction between market participants at the measurement date. Thepartial adoption of this standard only resulted in additional disclosurerequirements and had no financial statement impact. Delayed application of thisstatement is permitted for nonfinancial assets and nonfinancial liabilities,except for items that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually), until fiscalyears beginning after November 15, 2008, and interim periods within thosefiscal years. As of January 1, 2009, the Company has applied theprovisions of SFAS 157 for intangible assets and long-lived assets measured forfair value for impairment assessment under Statement 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets.*The adoption of SFAS 157 did not impact theCompany’s consolidated financial statements.

 

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 159, *The Fair Value Option for Financial Assets andLiabilities — Including an Amendment of SFAS No. 115*(SFAS159). This standard permits an entity to choose to measure many financialinstruments and certain other items at fair value. Most of the provisions inSFAS No. 159 are elective; however, the amendment to SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities,*applies to all entities with available-for-sale andtrading securities. The fair value option established by SFAS 159 permits theCompany to choose to measure eligible items at fair value at specified electiondates. The Company will report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate. The fair value option: (a) may be applied instrument by instrument,with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable(unless a new election date occurs); and (c) is applied only to entireinstruments and not to portions of instruments. In connection with the adoptionof this standard, the Company did not elect any additional financialinstruments to be recorded at fair value.

 

EffectiveDecember 31, 2008, the Company adopted the Emerging Issues Task Force (“EITF”) IssueNo. ****08-4:******Transition Guidance for Conforming Changes toIssue No. 98-5 (EITF 08-4)**, which was ratifiedby the consensus of the FASB in June 2008.  The objectiveof EITF 08-4 is to provide transition guidance for conforming changes madeto Issue No. 98-5 “Accounting for Convertible Securities with BeneficialConversion Features or Contingently Adjustable Conversion Ratios” that resultedfrom Issue No. 00-27, “Application of Issue No. 98-5 to CertainConvertible Instruments,” and FASB Statement No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity*. This transitionguidance is unique in that the current changes reflect matters that should havebeen addressed in the past, but were missed. Issue No. 08-4 concludes thatconforming changes made to Issue No. 98-5 that result from Issue No. 00-27and Statement No. 150 are effective for financial statements issued forfiscal  years ending after December 15, 2008. The effect of thesechanges is to be applied retrospectively with the cumulative effect of thechange being reported in retained earnings. If a company must make a change inits accounting to implement these changes, then the disclosure requirements inFAS 154 should be followed. The Company is currently evaluating the impact ofadoption of EITF 08-4.   The adoption of EITF 08-4 did notimpact the Company’s consolidated financial statements.

 

InMay 2008, the FASB issued Staff Position (FSP) EITF 03-6-1, *Determining Whether Instruments Granted inShare-Based Payment Transactions are Participating Securities*. Thisstaff position addresses whether instruments granted in share-based paymenttransactions are participating securities prior to vesting and, therefore, needto be included in the allocation in computing earnings per share under thetwo-class method described in SFAS 128, *EarningsPer Share.*The FASB concluded that all outstanding unvestedshare-based payment awards that contain rights to nonforfeitable dividendsparticipate in undistributed earnings with common shareholders. If awards areconsidered participating securities, the Company is required to apply thetwo-class method of computing basic and diluted earnings per share. FSP EITF03-6-1 is effective for fiscal years beginning after December 15, 2008 andinterim periods within those fiscal years. Early adoption is prohibited. Theimplementation of EIFT 03-6-1 did not impact the Company’s consolidatedfinancial statements.

 

InNovember 2007, FASB issued EITF 07-1, “**Accounting for Collaborative Arrangements”**(“EITF 07-1”)**.”**  EITF 07-1 requires additionaldisclosures related to collaborative arrangements. EITF 07-1 is effective forfiscal years beginning after December 15, 2008.  The implementationof EIFT 07-1 did not impact the Company’s consolidated financial statements.

 

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*Recently issued accounting pronouncements*

 

InMarch 2008, the Financial Accounting Standards Board issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities — an Amendment of Statement No. 133*(SFAS161). SFAS 161 enhances disclosure requirements about (a) how and why anentity uses derivative instruments, (b) how derivative instruments andrelated hedged items are accounted for under SFAS No. 133 and its relatedinterpretations, and (c) how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance and cashflows. This statement is effective for financial statements issued for fiscalyears and interim periods beginning after November 15, 2008, with earlyapplication encouraged. The Company is currently evaluating the impact ofadoption of SFAS 161.

 

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

 

*Leases*

 

The Company has entered into a lease for office, warehouse andlaboratory facilities in The Woodlands, Texas under a third partynon-cancelable operating lease through 2010. Future minimum lease commitmentsas of March 31, 2009 are as follows:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| 2009                             |       | $          | 154,768    |   |
| 2010                             |       | 191,825    |       |
| 2011                             |       | —     |       |
| 2012                             |       | —     |       |
| 2013                             |       | —     |       |
| Thereafter                       |       | —     |       |
| Total                            |       | $          | 346,593    |   |

 

This lease provides the Company with a 5-year renewal option.

 

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

 

*Equity instruments issued to non-employees*

 

From time to time, in order to preserve cash and to fund our operatingactivities, common stock or other equity instruments may be issued for cash orin exchange for goods or services. Equity instruments issued for goods orservices are recorded at the fair value of the goods or services received orthe fair value of the equity instruments issued, whichever is more reliablymeasurable.  During 2007, we did thefollowing:

 

·                  EffectiveJanuary 15, 2007, we requested and Lusierna Asset Management, Ltd. (the “Consultant”)agreed to provide consulting and advisory services to us pursuant to and inaccordance with our request, including but not limited to, advice regardingcorporate structuring, the identification of potential candidates for our boardof directors and transaction structuring. In consideration of the consulting services, we agreed that at the timeof, and subject to, the closing of no less than gross proceeds of $12,000,000from the sale of the Company’s equity in a private placement, (the “**Offering Threshold Closing**”), theCompany (i) issued to the Consultant, simultaneously with the OfferingThreshold Closing, initial closing, a three year warrant to purchase 750,000shares (the “**Option Shares**”) of our commonstock, at an exercise price of $1.10 per Option Share, with a cashless exerciseprovision and no anti-dilution adjustment, and (ii) we paid to the Consultanta fee of $480,000.  The Company utilizedthe Black-Scholes methodology in determining the fair market value ofthe warrants of $217,007 and recorded the expense in the first quarter of2007.  The Consultants’ fee of $480,000was paid from the proceeds of the Purchase Agreement, described below, andexpensed in the first quarter of 2007.

 

·                  EffectiveFebruary 13, 2007 we entered into an Investor Relations Agreement withLusierna Asset Management, Ltd. (the “Consultant”) which provides that the Agreementwill terminate on the date twelve (12) months from the Commencement Date,unless otherwise subject to earlier termination.  During the term of this Agreement, theConsultant shall provide public and investor relations services (collectively,the “**Services**”) to us, to result inimproved investor recognition of Uni-Pixel, Inc., a broader following byanalysts and institutions to include providing directly, or managing thedelivery of, a wide range of services, including, but not limited to:

 

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·                  Proactivemarketing of the Company directly to security analysts, stockbrokers andportfolio managers and investors.

·                  Assistingthe Company in gaining media coverage both locally and nationally.

·                  Assistingin the preparation of press releases, including monitoring wire servicecoverage of the Company for accuracy and pickup.

·                  Preparingpresentations relating to the Company for meetings with analysts, registeredrepresentatives and portfolio managers, other large investors, and sponsoredforums.

·                  Assistingin preparing information kits about the Company in response to press and/orinvestor inquiries.

·                  Providingsuch other services and assistance as Consultant and the Company shall deemnecessary or appropriate to enhance the Company’s business.

 

TheConsultant shall receive $10,000 per month payable monthly on the tenth (10th) day of each month, commencing on the tenth (10th)day of the month following the month in which the Commencement Date occurs anda three (3) year warrant (the “**Warrant**”)to purchase 300,000 shares of restricted Uni-Pixel, Inc. common stock atan exercise price of $1.10 per share, with a cashless exercise provision and noanti-dilution adjustment. The Warrant shall vest in twelve (12) monthlyinstallments on the tenth (10th) day of each month, commencing in the FirstPayment Month. The initial payment shall be for 75,000 shares, with theremaining 225,000 shares equally divided into the remaining eleven (11)installments.  The Company utilized theBlack-Scholes methodology in determining the fair market value ofthe warrants of $86,803 and this amount is expensed over 12 months.

 

*Common Stock*

 

During the three monthsended March 31, 2009, (1) we issued no shares of common stock forcash in connection with the exercise of stock options; (2) issued noshares of common stock in exchange for cashless exercise of warrants; (3) issuedno shares of common stock in connection with the conversion of Series BPreferred Stock and accrued dividends; and (4) issued no shares of commonstock in connection with the conversion of Series C Preferred Stock andaccrued dividends.

 

*Series B Convertible Preferred Stock*

 

On February 13, 2007, the Company entered into a SecuritiesPurchase Agreement (the “Purchase Agreement”) with The Raptor Global PortfolioLtd., The Tudor BVI Global Portfolio Ltd., Tudor Proprietary Trading, L.L.C.and The Altar Rock Fund L.P. (collectively, the “Purchasers”) pursuant to whichthe Company sold on that date in a private placement to the Purchasers (a) 3,200,000shares of the Company’s Series B Convertible Preferred Stock, par value$0.001 per share (the “Series B Preferred Stock”), and (b) warrants (the “Series BWarrants”) to purchase, in aggregate, up to 6,839,279 shares of the Company’scommon stock, par value $0.001 for an aggregate purchase price of$12,000,000.  As the Series BPreferred Stock is redeemable for cash at the option of the holder after fiveyears, the Series B Preferred Stock is classified as temporary equity onthe balance sheet.  In accordance withEITF 00-27, the Company determined that the Series B Preferred Stockcontained a beneficial conversion feature with an intrinsic value of$3,715,602, which was credited to additional paid-in capital in the firstquarter of 2007, and is being amortized over five years.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the Series BWarrants of $3,715,602, which was credited to additional paid-in capital in thefirst quarter of 2007, and is being amortized over five years.

 

Dividends shall accrue, whether or not declared and paid, on the Series BPreferred Stock at the rate per annum of 8%, and shall be cumulative as to anydividends not declared and paid in any year, compounding annually at the samerate.  These dividends are charged toadditional paid-in capital.  Each shareof Series B Preferred Stock may, at the option of the holder, be convertedat any time into a number of fully paid and non-assessable shares of commonstock of the Company equal to the quotient obtained by dividing the originalissue price of $3.75 for the Series B Preferred Shares, plus all accruedand unpaid Series B Preferred Stock dividends and any other declared andunpaid dividends, by the initial Series B Preferred Stock conversion priceof $0.75, which is subject to adjustment from time to time in accordance withthe Certificate of Designations.  As of March 31,2009, there were 3,200,000 shares of Series B Preferred Stock outstanding,with cumulative unpaid dividends of approximately $2,038,356 or 543,562 sharesof Series B Preferred Stock.

 

*Series C Convertible Preferred Stock*

 

OnSeptember 28, 2007, the Company entered into a Securities PurchaseAgreement (the “ ML Purchase Agreement”) with Merrill Lynch Pierce, Fenner &Smith Incorporated (“Merrill Lynch”) pursuant to which the Company sold on thatdate in a private placement to Merrill Lynch (a) 892,858 shares of theCompany’s Series C Convertible Preferred Stock, par value $0.001 per share(the “Series CPreferred Stock”), and (b) warrants (the “ML Warrants”) topurchase, in aggregate, up to 3,214,289 shares of the Company’s common stock,par value $0.001 for an aggregate purchase price of $10,000,010.  As the Series C Preferred 

 

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Stockis redeemable for cash at the option of the holder after five years, the Series CPreferred Stock is classified as temporary equity on the balance sheet.  In accordance with EITF 00-27, the Companydetermined that the Series C Preferred Stock contained a beneficialconversion feature with an intrinsic value of $3,809,644, which was credited toadditional paid-in capital in the third quarter of 2007, and is being amortizedover five years.  The Company utilizedthe Black-Scholes methodology in determining the fair market value of the MLWarrants of $3,809,644, which was credited to additional paid-in capital in thethird quarter of 2007, and is being amortized over five years.

 

Dividends shall accrue, whether or not declared and paid, on the Series CPreferred Stock at the rate per annum of 8%, and shall be cumulative as to anydividends not declared and paid in any year, compounding annually at the samerate. These dividends are charged to additional paid-in capital.  Each share of Series C Preferred Stockmay, at the option of the holder, be converted at any time into a number offully paid and non-assessable shares of common stock of the Company equal tothe quotient obtained by dividing the original issue price of $11.20 for the Series CPreferred Shares, plus all accrued and unpaid Series C Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series CPreferred Stock conversion price of $1.40, which is subject to adjustment fromtime to time in accordance with the Certificate of Designations.  As of March 31, 2009, there were 892,858shares of Series C Preferred Stock outstanding, with cumulative unpaiddividends of approximately $1,201,097 or 107,241 shares of Series CPreferred Stock.

 

*Stock-based Compensation*

 

*2005 Stock Incentive Plan*

 

Effective January 27, 2005, we adopted the Uni-Pixel, Inc.2005 Stock Incentive Plan. The Stock Incentive Plan is discretionary and allowsfor an aggregate of up to 2,000,000 shares of our common stock to be awardedthrough incentive and non-qualified stock options and stock appreciationrights. The Stock Incentive Plan is administered by our Board of Directors,which has exclusive discretion to select participants who will receive theawards and to determine the type, size and terms of each award granted.

 

In the first quarter of 2009, we did not grant any options under the2005 Stock Incentive Plan.

 

*2007 Stock Incentive Plan*

 

Effective August 21, 2007, we adopted the Uni-Pixel, Inc.2007 Stock Incentive Plan. The Stock Incentive Plan is discretionary and allowsfor an aggregate of up to 4,000,000 shares of our common stock to be awardedthrough incentive and non-qualified stock options and stock appreciationrights. The Stock Incentive Plan is administered by our Board of Directors,which has exclusive discretion to select participants who will receive the awardsand to determine the type, size and terms of each award granted.

 

In the first quarter of 2009, we granted a total of 575,000 options topurchase our common stock with an exercise price of $1.45 per share totwenty-three employees.  These optionsvested on the date of grant.    In thefirst quarter of 2009, 82,639 options to purchase our common stock with anexercise price of $1.45 per share were retired.

 

*Other Stock Options*

 

In the first quarter of 2009, we did not grant any other stock options.

 

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

 

*Stock options.*The Company grants stock options to employees that allow them topurchase shares of the Company’s common stock. Options are also granted tomembers of the Board of Directors.  TheCompany determines the fair value of stock options at the date of grant usingthe Black-Scholes valuation model.  Mostoptions vest annually over a three-year service period.  The Company will issue new shares upon theexercise of stock options.

 

Totalcompensation expense recognized for options was approximately $0.6 millionand $0.3 million for the three months ended March 31, 2009 and March 31,2008, respectively.  The Company hasrecorded approximately $0.2 million of stock compensation expense in selling,general and administrative expenses and approximately $0.4 million in researchand development expense for the three months ended March 31, 2009 andapproximately $0.2 million of stock compensation expense in selling, generaland administrative expenses and approximately $0.1 million in research anddevelopment expense for the three months ended March 31, 2008.

 

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Asummary of the changes in the total stock options outstanding during the threemonths ended March 31, 2009 follows:

 
| ** **                                     | ** ** | ** **  | ** ** | **Weighted**       | ** ** |
|------------------------------------------------|------------|-------------|------------|--------------------|------------|
| ** **                                     | ** ** | ** **  | ** ** | **Average**        | ** ** |
| ** **                                     | ** ** | **Options** | ** ** | **Exercise Price** | ** ** |
| Outstanding at December 31, 2008          |       | 5,602,014   |       | $                  | 1.56       |   |
| Granted                                        |       | 575,000     |       | 1.45               |       |
| Forfeited or expired                           |       | (82,639     | )          | 1.45               |       |
| Exercised                                      |       | —      |       | —             |       |
| Outstanding at March 31, 2009             |       | 6,094,375   |       | $                  | 1.55       |   |
| Vested and exercisable at March 31,  2009 |       | 4,542,839   |       | $                  | 1.59       |   |

 

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

 
| ** **            | ** ** | **Three Months  ended  March 31,  2009** | ** ** | **Three Months  ended  March 31,  2008** | ** ** |
|-----------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| Expected life (years) |       | 5 years                                  |       | 5 years                                  |       |
| Interest rate         |       | 1.85                                          | %          | 3.14 to 3.27                                  | %          |
| Dividend yield        |       | —                                        |       | —                                        |       |
| Volatility            |       | 135.15                                        | %          | 108.47                                        | %          |
| Forfeiture rate       |       | —                                        |       | —                                        |       |

 

At March 31, 2009, there was $1.3 million of total unrecognizedcompensation cost related to non-vested stock option awards which is expectedto be recognized over a weighted-average period of 0.92 years.  There were 734,809 options that became vestedduring the three months ended March 31, 2009.

 

**Note 6 -****   ****Fair Value Measurements**

 

As of January 1, 2008, the Companyimplemented FAS No. 157, *Fair ValueMeasurements*(“FAS 157”) for its financial assets and liabilitiesthat are remeasured and reported at fair value at each reporting period andnon-financial assets and liabilities that are remeasured and reported at fairvalue at least annually. In accordance with the provisions of FSP No. FAS157-2, *Effective Date of FASB Statement No. 157*,the Company elected to defer implementation of FAS 157 as it relates to itsnon-financial assets and non-financial liabilities that are recognized anddisclosed at fair value in the consolidated financial statements on anonrecurring basis until January 1, 2009.

 

In general, fair values determined by Level 1inputs utilize quoted prices (unadjusted) in active markets for identicalassets or liabilities. Fair values determined by Level 2 inputs utilizeobservable inputs other than Level 1 prices, such as quoted prices for similarassets or liabilities, quoted prices in markets that are not active or otherinputs that are observable or can be corroborated by observable market data forsubstantially the full term of the related assets or liabilities. Fair valuesdetermined by Level 3 inputs are unobservable data points for the asset orliability, and include situations where there is little, if any, marketactivity for the asset or liability. The following table presents informationabout the Company’s financial assets that have been measured at fair value asof March 31, 2009, and indicates the fair value hierarchy of the valuationinputs utilized to determine such fair value (in thousands):

 
| ** **                                            | ** ** | ** **         | ** ** | **Quoted**    | ** ** | **Significant** | ** ** |
|-------------------------------------------------------|------------|--------------------|------------|---------------|------------|-----------------|------------|
| ** **                                            | ** ** | **Fair Value**     | ** ** | **Prices in** | ** ** | **Other**       | ** ** |
| ** **                                            | ** ** | **at**             | ** ** | **Active**    | ** ** | **Observable**  | ** ** |
| ** **                                            | ** ** | **March 31,** | ** ** | **Markets**   | ** ** | **Inputs**      | ** ** |
| **Description**                                       | ** ** | **2009**           | ** ** | **(Level 1)** | ** ** | **(Level 2)**   | ** ** |
| Assets:                                               |       |               |       |          |       |            |       |
| Cash and cash equivalents                             |       | $                  | 1,138,677  |          | $          | 1,138,677       |       | $ | — |   |
|                                                  |       |               |       |          |       |            |       |
| Assets measured at fair value at  March 31, 2009 |       | $                  | 1,138,677  |          | $          | 1,138,677       |       | $ | — |   |

 

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

 

**ForwardLooking Statements**

 

Someof the information in this report contains forward-looking information thatinvolve risks and uncertainties.  Ourforward-looking statements express our current expectations or forecasts ofpossible future results or events, including projections of future performance,statements of management’s plans and objectives, future contracts, andforecasts of trends and other matters. You can identify these statements by the fact that they do not relatestrictly to historic or current facts and often use words such as “anticipate,”“believe,” “plan,” “expect,” “future,” “intend,” “may,” “will,” “should,” “estimate,”“predict,” “potential,” “continue,” and other words and expressions of similarmeaning.  No assurance can be given thatthe results in any forward-looking statement will be achieved and actualresults could be affected by one or more factors, which could cause them todiffer materially.  For these statements,we claim the protection of the safe harbor for forward-looking statementscontained in the Private Securities Litigation Reform Act. You should alsoconsider carefully the statements under “Description of Business - Risk Factors”in our 2008 Form 10-K, which address factors that could cause our actualresults to differ from those set forth in the forward-looking statements.

 

*CRITICAL ACCOUNTING POLICIES*

 

The following discussion and analysis of financial condition andresults of operations is based upon our consolidated financial statements,which have been prepared in conformity with accounting principles generallyaccepted in the United States of America. Our significant accounting policiesare more fully described in Note 3 of Notes to the unaudited ConsolidatedFinancial Statements. However, certain accounting policies and estimates areparticularly important to the understanding of our financial position andresults of operations and require the application of significant judgment byour management or can be materially affected by changes from period to periodin economic factors or conditions that are outside of our control.  As aresult, they are subject to an inherent degree of uncertainty. In applyingthese policies, our management uses their judgment to determine the appropriateassumptions to be used in the determination of certain estimates. Thoseestimates are based on our historical operations, our future business plans andprojected financial results, the terms of existing contracts, our observance oftrends in the industry, information provided by our customers and informationavailable from other outside sources, as appropriate. The following discussesour significant accounting policies and estimates.

 

*Revenue Recognition:*  We recognize revenue over the periodthe service is performed in accordance with SEC Staff Accounting Bulletin No. 104,“Revenue Recognition in Financial Statements” (“SAB 104”). In general, SAB 104requires that four basic criteria must be met before revenue can be recognized:(1) persuasive evidence that an arrangement exists, (2) delivery hasoccurred or services rendered, (3) the fee is fixed and determinable, and (4) collectibilityis reasonably assured.

 

Advance payments are deferred until shipment. The amount of the revenuedeferred represents the fair value of the remaining undelivered productsmeasured in accordance with Emerging Issues Task Force Issue (“EITF”) 00-21, *“Accounting for Revenue Arrangements with MultipleDeliverables,”* which addresses the issue of accounting forarrangements that involve the delivery of multiple products or services.

 

Revenue from licenses and other up-front fees are recognized on aratable basis over the term of the respective agreement.

 

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

 

If, in the future, the purposes for which we operate our facility inThe Woodlands, Texas, or any new facilities we open, changes, the allocation ofthe costs incurred in operating that facility between cost of sales andresearch and development expenses could change to reflect such operationalchanges.

 

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

 

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*Intangible Assets:*  Our intangible assets represent patents and patent applications,acquired from third parties, which are recorded at cost and amortized over thelife of the patent.  We review the value recorded for intangible assets toassess recoverability 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.  Impairment would thenbe measured as the difference between the fair value of the fixed or amortizingintangible asset and the carrying value to determine the amount of theimpairment.

 

*Stock-Based Compensation:*  We recognize the cost of stock optionsand restricted stock in accordance with SFAS No. 123 (Revised 2004) (“SFASNo. 123(R)”), “Share Based Payment.” SFAS No. 123(R) requires us to measure the cost of employeeservices received in exchange for an award of equity instruments based on thegrant-date fair value of the award.  Thatcost will be recognized over the period during which an employee is required toprovide service in exchange for the reward—known as the requisite serviceperiod. No compensation cost is recognized for equity instruments for whichemployees do not render the requisite service. The grant-date fair value ofemployee share options and similar instruments will be estimated usingoption-pricing models adjusted for the unique characteristics of thoseinstruments. SFAS No. 123 must be applied to all options granted ormodified after its effective date and also to recognize the cost associatedwith the portion of any option awards made before its effective date for whichthe associated service has not been rendered as of its effective date.

 

*RESULTS OF OPERATIONS*

 

Comparisonof the three months ending March 31, 2009 and 2008

 

REVENUES.  We are a development stage company that has developed,patented and demonstrated a new color display technology in the form of proofof concept prototypes which we call Time Multiplexed Optical Shutter (“TMOS”). We intend to be a leader in the research, development and commercialization ofnew flat panel displays using TMOS in a variety of applications, such as mobilephones, digital cameras, notebook computers, televisions and other consumerelectronic devices. From inception, we have had a limited amount of revenuethat is derived from development contracts.

 

Revenues were $0 for the three months ended March 31, 2009 and thethree months ended March 31, 2008.

 

COST OF REVENUES.  Cost of revenues include all direct expensesassociated with the delivery of services including internal labor costs. Costof revenues for the three months ended March 31, 2009 and the three monthsended March 31, 2008 was $0.

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrativeexpenses decreased by 3% or approximately $24,000, to $812,770 for the threemonths ended March 31, 2009 from $836,844 for the three months ended March 31,2008.  The major components of the decrease are as follows:

 

a)  Salaries and benefits increased by approximately $76,000 to$487,000 for the three months ended March 31, 2009 compared to $411,000for the three months ended March 31, 2008 due to an increase in stockcompensation expense of approximately $29,000 to $237,000 for the three monthsended March 31, 2009 compared to $208,000 for the three months ended March 31,2008;

 

b) Contract labor decreased by approximately $3,000 to $0 for the threemonths ended March 31, 2009 compared to $3,000 for the three months ended March 31,2008;

 

c) Legal expense decreased by approximately $27,000 to $38,000 for thethree months ended March 31, 2009 compared to $65,000 for the three monthsended March 31, 2008;

 

d) Accounting expense decreased by approximately $6,000 to $26,000 forthe three months ended March 31, 2009 compared to $32,000 for the threemonths ended March 31, 2008;

 

e) Office expense decreased by approximately $22,000 to $3,000 for thethree months ended March 31, 2009 compared to $25,000 for the three monthsended March 31, 2008;

 

f) Travel expense decreased by approximately $8,000 to $5,000 for thethree months ended March 31, 2009 compared to $13,000 for the three monthsended March 31, 2008;

 

g) Depreciation and amortization expense increased by approximately$13,000 to $83,000 for the three months ended March 31, 2009 compared to$70,000 for the three months ended March 31, 2008.

 

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RESEARCH AND DEVELOPMENT. Research and development expenses decreasedby approximately $1,258,000 during the three months ended March 31, 2009to $1,010,346 from $2,268,137 for the three months ended March 31, 2008.The major components of the decrease are as follows:

 

a) Salaries and benefits attributable to research and developmentincreased by approximately $240,000 to $849,000 for the three months ended March 31,2009 compared to $609,000 for the three months ended March 31, 2008 due toan increase in stock compensation expense of approximately $270,000 to $398,000for the three months ended March 31, 2009 compared to $128,000 for thethree months ended March 31, 2008;

 

b) Consulting expense attributable to research and developmentdecreased by approximately $471,000 to $36,000 for the three months ended March 31,2009 compared to $507,000 for the three months ended March 31, 2008;

 

c) Lab expense decreased by approximately $933,000 to $53,000 for thethee months ended March 31, 2009 compared to $986,000 for the three monthsended March 31, 2008 primarily due to decreased services related toprototype development; and

 

d) Travel expense attributable to research and development decreased byapproximately $77,000 to $26,000 for the three months ended March 31, 2009compared to $103,000 for the three months ended March 31, 2008.

 

OTHER INCOME (EXPENSE).

 

a)****Interest income(expense), net decreased to $3,530 for the three months ended March 31,2009 as compared to $96,720 for the three months ended March 31, 2008primarily due to less cash on hand.

 

NET LOSS.**  **Netloss decreased to $1,819,586 for the three months ended March 31, 2009, ascompared to $3,008,261 for the three months ended March 31, 2008. Wecompute our net loss per share on the basis of net loss attributable to commonstockholders, which included the effects of certain items not included in thedetermination of net loss. Net loss attributable to common stockholders for thethree months ended March 31, 2009 was $3,001,261 as compared to a net lossattributable to common stockholders of $4,194,758 for the three months ended March 31,2008. The net loss attributable to common stockholders for the three monthsended March 31, 2009 includes $1,181,676 of accrued but unpaid preferredstock dividends and amortization of preferred stock discount.  The net loss attributable to commonstockholders for the three months ended March 31, 2008 includes $1,186,497of accrued but unpaid preferred stock dividends.

 

**Off-Balance Sheet Transactions**

 

We do not engage in material off-balance sheet transactions.

 

*LIQUIDITY AND CAPITAL RESOURCES*

 

OperatingActivities

 

Cash used in operating activities during the three months ended March 31,2009 decreased to $896,870 as compared to $2,446,212 used for the three monthsended March 31, 2008. This is primarily attributable to a decrease inresearch and development expense for the three months ended March 31,2009.

 

InvestingActivities

 

Cash used for investing activities during the three months ended March 31,2009 amounted to $0, as compared to $161,493 used for investing activities forthe three months ended March 31, 2008. This is primarily attributable tothe acquisition of approximately $161,000 of property and equipment during thethree months ended March 31, 2008.

 

FinancingActivities

 

We have financed our operating and investing activities primarily fromthe proceeds of private placements of common stock, convertible investor notes,Series A Convertible Preferred Stock offering which we closed in December 2004and January 2005 and Series B Convertible Preferred Stock offeringwhich we closed in February 2007 and Series C Convertible PreferredStock offering we closed in September 2007. During the three months ended March 31,2009, the total net cash provided by financing activities was $0.  During the three months ended March 31,2008, the total net cash provided by financing activities was $0.

 

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WorkingCapital

 

As of March 31, 2009, we had a cash balance of $1.1million. In the 4th quarter of 2008, the Company’s managementbegan to reduce operating expenses and delay planned expenditures to preservethe Company’s working capital.  Weproject that current cash reserves will sustain our operations at least throughMay 2009, and we are not aware of any trends or potential events that arelikely to impact our short term liquidity through this term.

 

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

 

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

 

Weare a development stage company and have not experienced significant operationssince our formation. We reached a positive working capital position as of thefirst quarter of 2005 as a result of our financing activities. We have incurredsignificant operating losses during the years ended December 31, 2002,2003, 2004, 2005, 2006, 2007 and 2008 and the three months ended March 31,2009. We intend to utilize a proprietary methodology for development of ourdisplays. Our principal activities, from the beginning of the developmentstage, have been organizational matters, capital raising activities includingissuance of stock, product research and development, fund raising, and marketresearch.

 

Todate, we have had only a few revenue-generating services or development contracts. These include a prototype development agreement with a large personal computercompany, and a Small Business Innovation Research (SBIR) Phase One agreementwith the U.S. Air Force for $98,214 and a follow-on Phase Two agreement for$686,966.  We also entered into a prototype development agreement withLockheed Martin, a large military contractor, in October 2005, for whichwe have received full payment.  Ourimmediate customer prospects are limited to Lockheed Martin, with which weentered into a License and Strategic Business Agreement dated October 5,2005.  See “Risk Factors” included in our2008 Form 10-K.

 

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

 

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

 

Not applicable.

 

**ITEM 4.  CONTROLS ANDPROCEDURES.**

 

DisclosureControls and Procedures

 

As of March 31, 2009, management, including our Chief ExecutiveOfficer and Chief Financial Officer, performed an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures, as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934. Based on their evaluation, management concluded that, as of March 31,2009, our disclosure controls and procedures are effective to ensure thatmaterial information required to be disclosed by us in the reports that we fileor submit under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms, and that it isaccumulated and communicated to management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.

 

Changesin Internal Control Over Financial Reporting

 

We maintain a system of internal control over financial reporting thatis designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of consolidated financial statementsfor external purposes in accordance with accounting principles generallyaccepted in the United States.  Based onthe most recent evaluation, our Chief Executive Officer and Chief FinancialOfficer have determined that no significant changes in our internal controlover financial 

 

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reportingoccurred during our most recent fiscal quarter that have materially affected,or are reasonably like to materially affect, our internal control overfinancial reporting.

 

**PART II - OTHER INFORMATION**

 

**ITEM 6. EXHIBITS.**

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

 

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(1)                                  Previously filed as an exhibit to the Company’sForm 10-SB, filed on February 18, 2005, and incorporated by referencehereto.

(2)                                  Previously filed as an exhibit to the Company’sForm 10-KSB, filed on March 28, 2006, and incorporated by referencehereto.

(3)                                  Previously filed as an exhibit to the Company’sForm 10-QSB, filed on August 14, 2006, and incorporated by referencehereto.

(4)                                  Previously filed as an exhibit to the Company’sForm 8-K, filed on September, 2006, and incorporated by reference hereto.

(5)                                  Filed herewith

 

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**SIGNATURES**

 

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

 
|              |   | **UNI-PIXEL, INC.** |
|-------------------|--------|---------------------|
|              |   |                | ** ** |
|              |   |                |   |
| May 1,  2009 |   | By:                 | /s/ James  A. Tassone |
| Date              |   |                | James  A. Tassone, Chief Financial Officer |

 

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