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 theQuarterly Period Ended September 30, 2008**

 

**or**

** **
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                          |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| ** ** | ** ** | **For the Transition Period  from                         to                         ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| ** ** | ** ** | **COMMISSION FILE NUMBER: 0-49737**                                                                                                                                                                                                                                                                                                               |

 

**UNI-PIXEL, INC.**

(Exact Name of Registrant as Specified in ItsCharter)

 

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

 

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

(Address of Principal Executive Offices)

** **

**(281)825-4500**

(Issuer’s Telephone Number, Including AreaCode)

 

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

 

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

 

Asof November 1, 2008, the issuer had 22,897,418 shares of issued andoutstanding common 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  filero          |
|----------------------------|--------|------------------------------------------------|--------|------------------------------|
| Non-accelerated  filer o   |   | (Do  not check if a smaller reporting company) |   | Smaller  reporting company x |

 

 

 

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Table of Contents

 

**TABLE OF CONTENTS**

** **
| Part I.  | Financial Information                                                                                                                                                                                                                        |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                                                                                         |   |
| Item 1.       | Consolidated  Financial Statements                                                                                                                                                                                                           |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Balance Sheets  September 30, 2008 (unaudited) and December 31, 2007                                                                                                                                                 |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Operations  Nine months ended September 30, 2008 (unaudited) and September 30,  2007 (unaudited) and cumulative period from inception (February 17,  1998) to September 30, 2008 (unaudited) |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Three months  ended September 30, 2008 (unaudited) and September 30, 2007  (unaudited)                                                                                                                                             |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Shareholders’ Equity (Deficit)  From inception (February 17, 1998) to September 30, 2008 (unaudited)                                                                                              |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Cash Flows  Nine months ended September 30, 2008 (unaudited) and September 30,  2007 (unaudited) and cumulative period from inception (February 17,  1998) to September 30, 2008 (unaudited) |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Notes to  Unaudited Consolidated Financial Statements                                                                                                                                                                                        |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 2.       | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                                                                              |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 3.       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                                                  |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 4.       | Controls and  Procedures                                                                                                                                                                                                                     |   |
|          |                                                                                                                                                                                                                                         |   |
| Part II. | Other Information                                                                                                                                                                                                                            |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 6.       | Exhibits                                                                                                                                                                                                                                     |   |

 

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**PART I- FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                                                                                                                                                                                 | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                 | ** ** | **(unaudited)**              | ** ** | ** **             | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                 |       |                         |       |                   |       |
| Current assets                                                                                                                                                                                                                                                                                                                                             |       |                         |       |                   |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                  |       | $                            | 3,653,679  |                   | $          | 11,697,425 |   |
| Prepaid expenses                                                                                                                                                                                                                                                                                                                                           |       | 21,772                       |       | 23,672                 |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Total current assets                                                                                                                                                                                                                                                                                                                                       |       | 3,675,451                    |       | 11,721,097             |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Property and equipment, net of accumulated  depreciation of $938,399 and $725,338, at September 30, 2008 and  December 31, 2007, respectively                                                                                                                                                                                                    |       | 497,024                      |       | 455,108                |       |
| Restricted cash, less current portion                                                                                                                                                                                                                                                                                                                      |       | 34,877                       |       | 34,877                 |       |
| Intangible assets                                                                                                                                                                                                                                                                                                                                          |       | 189,504                      |       | —                 |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Total assets                                                                                                                                                                                                                                                                                                                                               |       | $                            | 4,396,856  |                   | $          | 12,211,082 |   |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                                                                                                                                                   |       |                         |       |                   |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Current liabilities                                                                                                                                                                                                                                                                                                                                        |       |                         |       |                   |       |
| Accounts payable                                                                                                                                                                                                                                                                                                                                           |       | $                            | 914,353    |                   | $          | 526,959 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                           |       | 317,672                      |       | 405,996                |       |
| Deferred revenue                                                                                                                                                                                                                                                                                                                                           |       | 33,333                       |       | 33,333                 |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                  |       | 1,265,358                    |       | 966,288                |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Total liabilities                                                                                                                                                                                                                                                                                                                                          |       | 1,265,358                    |       | 966,288                |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Commitments and contingencies (Note 4)                                                                                                                                                                                                                                                                                                                     |       | —                       |       | —                 |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Redeemable convertible Series B  Preferred stock, $0.001 par value; $3.75 per share liquidation preference;  3,200,000 shares authorized, issued and outstanding at September 30,  2008 and December 31, 2007, less unamortized discount of $5,016,063 and  $6,130,743 at September 30, 2008 and December 31, 2007,  respectively |       | 8,546,238                    |       | 6,713,531              |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Redeemable convertible Series C  Preferred stock, $0.001 par value; $11.20 per share liquidation preference;  892,858 shares authorized, issued and outstanding at September 30, 2008  and December 31, 2007, less unamortized discount of $6,095,430 and  $7,238,324 at September 30, 2008 and December 31, 2007,  respectively  |       | 4,628,292                    |       | 2,887,043              |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                                        |       |                         |       |                   |       |
| Common stock, $0.001 par value; 100,000,000  shares and 40,000,000 shares authorized at September 30, 2008 and December 31,  2007, respectively, 22,897,418 shares issued and outstanding at  September 30, 2008 and December 31, 2007                                                                                                 |       | 22,897                       |       | 22,897                 |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                 |       | 31,761,597                   |       | 34,512,298             |       |
| Accumulated deficit during development  stage                                                                                                                                                                                                                                                                                                              |       | (41,827,526                  | )          | (32,890,975            | )          |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Total shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                                  |       | (10,043,032                  | )          | 1,644,220              |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                   |       |
| Total liabilities and shareholders’ equity  (deficit)                                                                                                                                                                                                                                                                                                 |       | $                            | 4,396,856  |                   | $          | 12,211,082 |   |

 

*Seeaccompanying notes to these consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements ofOperations

(unaudited)

 
| ** **                                                              | ** ** | **Nine Months Ended  September 30,** | ** **  | **Cumulative  Period from  February 17, 1998  (date of inception)  to September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|--------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                            | ** **  | **2007**                                                                                                                 | ** ** | **2008** | ** ** |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Revenues                                                                |       |                                                |        |                                                                                                                     |       |   |   |
| Development contract revenue                                            |       | $                                                   | —      |                                                                                                                     | $          | — |   | $ | 1,158,201 |   |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Total revenues                                                          |       | —                                              |        | —                                                                                                                   |       | 1,158,201 |   |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Cost of revenues                                                        |       | —                                              |        | —                                                                                                                   |       | 456,648 |   |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Gross margin                                                            |       | —                                              |        | —                                                                                                                   |       | 701,553 |   |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Selling, general and administrative  expenses                           |       | 2,720,922                                           |        | 4,959,433                                                                                                                |       | 19,069,529 |   |
| Research and development                                                |       | 6,384,914                                           |        | 2,516,597                                                                                                                |       | 20,677,263 |   |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Operating loss                                                          |       | (9,105,836                                          | )           | (7,476,030                                                                                                               | )          | (39,045,239 | ) |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Other income (expense)                                                  |       |                                                |        |                                                                                                                     |       |   |   |
| Net decrease in fair value of derivative  liability                     |       | —                                              |        | 382,920                                                                                                                  |       | 845,079 |   |
| Other income                                                            |       | —                                              |        | —                                                                                                                   |       | 886,886 |   |
| Debt issuance expense                                                   |       | —                                              |        | (94,189                                                                                                                  | )          | (644,346 | ) |
| Interest income (expense), net                                          |       | 169,285                                             |        | (914,166                                                                                                                 | )          | (2,103,180 | ) |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Net loss                                                                |       | $                                                   | (8,936,551  | )                                                                                                                        | $          | (8,101,465 | ) | $ | (40,060,800 | ) |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Preferred stock dividends and amortization  of discount                 |       | (3,573,957                                          | )           | (1,899,866                                                                                                               | )          | (8,073,539 | ) |
| Net loss attributable to common  shareholders                           |       | $                                                   | (12,510,508 | )                                                                                                                        | $          | (10,001,331 | ) | $ | (48,134,339 | ) |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Per share information                                                   |       |                                                |        |                                                                                                                     |       |   |   |
| Net loss – basic and diluted                                       |       | $                                                   | (0.39       | )                                                                                                                        | $          | (0.45 | ) | $ | (4.34 | ) |
| Preferred stock dividends                                               |       | (0.16                                               | )           | (0.11                                                                                                                    | )          | (0.88 | ) |
| Net loss  attributable to common shareholders – basic and diluted  |       | $                                                   | (0.55       | )                                                                                                                        | $          | (0.56 | ) | $ | (5.22 | ) |
|                                                                    |       |                                                |        |                                                                                                                     |       |   |   |
| Weighted average number of basic and  diluted common shares outstanding |       | 22,897,418                                          |        | 17,989,369                                                                                                               |       | 9,222,481 |   |
|                                                                         |            |                                                     |             |                                                                                                                          |            |  |  |  |  |  |  |  |  |

 

*Seeaccompanying notes to these consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(unaudited)

 
| ** **                                                              | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                                                    |       |                                                 |       |   |   |
| Revenues                                                                |       |                                                 |       |   |   |
| Development contract revenue                                            |       | $                                                    | —     |   | $ | — |   |
|                                                                    |       |                                                 |       |   |   |
| Total revenues                                                          |       | —                                               |       | — |   |
|                                                                    |       |                                                 |       |   |   |
| Cost of revenues                                                        |       | —                                               |       | — |   |
|                                                                    |       |                                                 |       |   |   |
| Gross margin                                                            |       | —                                               |       | — |   |
|                                                                    |       |                                                 |       |   |   |
| Selling, general and administrative  expenses                           |       | 883,869                                              |       | 1,603,298 |   |
| Research and development                                                |       | 1,895,055                                            |       | 1,075,528 |   |
|                                                                    |       |                                                 |       |   |   |
| Operating loss                                                          |       | (2,778,924                                           | )          | (2,678,826 | ) |
|                                                                    |       |                                                 |       |   |   |
| Other income                                                            |       |                                                 |       |   |   |
| Net increase in fair value of derivative  liability                     |       | —                                               |       | — |   |
| Other income                                                            |       | —                                               |       | — |   |
| Debt issuance expense                                                   |       | —                                               |       | — |   |
| Interest income, net                                                    |       | 26,346                                               |       | 62,915 |   |
|                                                                    |       |                                                 |       |   |   |
| Net loss                                                                |       | $                                                    | (2,752,578 | ) | $ | (2,615,911 | ) |
|                                                                    |       |                                                 |       |   |   |
| Preferred stock dividends and amortization  of discount                 |       | (1,196,141                                           | )          | (721,367 | ) |
| Net loss attributable to common  shareholders                           |       | $                                                    | (3,948,719 | ) | $ | (3,337,278 | ) |
|                                                                    |       |                                                 |       |   |   |
| Per share information                                                   |       |                                                 |       |   |   |
| Net loss – basic and diluted                                       |       | $                                                    | (0.12      | ) | $ | (0.14 | ) |
| Preferred stock dividends                                               |       | (0.05                                                | )          | (0.04 | ) |
| Net loss attributable to common  shareholders – basic and diluted  |       | $                                                    | (0.17      | ) | $ | (0.18 | ) |
|                                                                    |       |                                                 |       |   |   |
| Weighted average number of basic and  diluted common shares outstanding |       | 22,897,418                                           |       | 18,758,056 |   |

 

*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                                                              |       | —                                  |       | —     |       | —                     |       | —         |       | 817,337              |       | —                         |       | —                 |       | 817,337 |   |
| Issuance of  warrants to consultants                                                     |       | —                                  |       | —     |       | —                     |       | —         |       | 5,919                |       | —                         |       | —                 |       | 5,919 |   |
| Amortization of  discount of Series B Preferred Stock                               |       | —                                  |       | —     |       | —                     |       | —         |       | (1,114,680           | )          | —                         |       | —                 |       | (1,114,680 | ) |
| Amortization of  discount of Series C Preferred Stock                               |       | —                                  |       | —     |       | —                     |       | —         |       | (1,142,894           | )          | —                         |       | —                 |       | (1,142,894 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                                  |       | —     |       | —                     |       | —         |       | (718,027             | )          | —                         |       | —                 |       | (718,027 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                                  |       | —     |       | —                     |       | —         |       | (598,356             | )          | —                         |       | —                 |       | (598,356 | ) |
| Net loss                                                                                 |       | —                                  |       | —     |       | —                     |       | —         |       | —               |       | —                         |       | (8,936,551             | )          | (8,936,551 | ) |
| Balance,  September 30, 2008 (unaudited)                                                 |       | —                                  |       | $          | —     |                       | 22,897,418 |           | $          | 22,897               |       | $                              | 31,761,597 |                   | $          | — |   | $ | (41,827,526 | ) | $ | (10,043,032 | ) |

 

*See accompanying notes to these consolidated financialstatements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements ofCash Flows

(unaudited)

 
| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **Cumulative Period  from February 18,  1998 (date of  inception) to  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                            | ** ** | **2007**                                                                                                                 | ** ** | **2008** | ** ** |
| Cash flows from operating activities                                         |       |                                                |       |                                                                                                                     |       |   |   |
| Net loss                                                                     |       | $                                                   | (8,936,551 | )                                                                                                                        | $          | (8,101,465 | ) | $ | (40,060,800 | ) |
| 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                                                |       | 220,145                                             |       | 199,695                                                                                                                  |       | 1,021,602 |   |
| Stock issued for services                                                    |       | —                                              |       | 52,400                                                                                                                   |       | 512,462 |   |
| Stock compensation expense                                                   |       | 817,337                                             |       | 1,715,627                                                                                                                |       | 3,761,418 |   |
| Non-cash compensation expense                                                |       | —                                              |       | —                                                                                                                   |       | 1,100,000 |   |
| Amortization of debt issuance costs                                          |       | —                                              |       | 94,189                                                                                                                   |       | 644,346 |   |
| Amortization of discounts on notes payable                                   |       | —                                              |       | 955,389                                                                                                                  |       | 1,480,448 |   |
| Net decrease in fair value of derivatives                                    |       | —                                              |       | (382,920                                                                                                                 | )          | (845,077 | ) |
| Issuance of warrants to consultants                                          |       | 5,919                                               |       | 280,136                                                                                                                  |       | 303,810 |   |
| Change in operating assets and liabilities:                                  |       |                                                |       |                                                                                                                     |       |   |   |
| Increase  in cash restricted  for note payable and lease obligations    |       | —                                              |       | 5,123                                                                                                                    |       | (34,877 | ) |
| Decrease (increase) in prepaid expenses and other current assets             |       | 1,900                                               |       | (2,000                                                                                                                   | )          | (166,117 | ) |
| Increase (decrease) in accounts payable                                      |       | 387,394                                             |       | (131,740                                                                                                                 | )          | 914,348 |   |
| Increase in accrued interest payable                                         |       | —                                              |       | —                                                                                                                   |       | 180,943 |   |
| Increase (decrease) in accrued expenses and other liabilities                |       | (88,324                                             | )          | (341,975                                                                                                                 | )          | 1,113,137 |   |
| Increase in deferred revenue                                                 |       | —                                              |       | —                                                                                                                   |       | 33,333 |   |
| Net cash used in operating activities                                        |       | (7,592,180                                          | )          | (5,657,541                                                                                                               | )          | (30,927,910 | ) |
|                                                                         |       |                                                |       |                                                                                                                     |       |   |   |
| Cash flows from investing activities                                         |       |                                                |       |                                                                                                                     |       |   |   |
| Purchase of property and equipment                                           |       | (254,978                                            | )          | (88,482                                                                                                                  | )          | (1,483,752 | ) |
| Proceeds from the sale of property and equipment                             |       | —                                              |       | —                                                                                                                   |       | 27,792 |   |
| Purchases of patents, trademarks and organization costs                      |       | (196,588                                            | )          | —                                                                                                                   |       | (264,336 | ) |
| Net cash used in investing activities                                        |       | (451,566                                            | )          | (88,482                                                                                                                  | )          | (1,720,296 | ) |
|                                                                         |       |                                                |       |                                                                                                                     |       |   |   |
| 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                                            |       | —                                              |       | (2,401,280                                                                                                               | )          | (62,833 | ) |
| Issuance of warrants to placement agent                                      |       | —                                              |       | —                                                                                                                   |       | 37,596 |   |
| Proceeds from the issuance of preferred stock, net                           |       | —                                              |       | 21,919,339                                                                                                               |       | 32,367,969 |   |
| Proceeds from the issuance of common stock, net                              |       | —                                              |       | —                                                                                                                   |       | 2,089,050 |   |
| Net cash provided by financing activities                                    |       | —                                              |       | 19,518,059                                                                                                               |       | 36,301,885 |   |
|                                                                         |       |                                                |       |                                                                                                                     |       |   |   |
| Net increase (decrease) in cash and cash equivalents                         |       | (8,043,746                                          | )          | 13,772,036                                                                                                               |       | 3,653,679 |   |
| Cash and cash equivalents, beginning of period                               |       | 11,697,425                                          |       | 20,188                                                                                                                   |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                                   | 3,653,679  |                                                                                                                     | $          | 13,792,224 |   | $ | 3,653,679 |   |
|                                                                         |       |                                                |       |                                                                                                                     |       |   |   |
| Supplemental disclosures of cash flow information:                           |       |                                                |       |                                                                                                                     |       |   |   |
| Cash paid for interest                                                       |       | $                                                   | —     |                                                                                                                     | $          | 134,434 |   | $ | 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                        |       | $                                                   | 3,573,957  |                                                                                                                     | $          | 1,899,866 |   | $ | 8,073,539 |   |
| Conversion of notes payable for preferred stock                              |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 898,250 |   |
| Conversion of notes payable for common stock                                 |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 980,103 |   |
| Stock issued for services                                                    |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 1,612,462 |   |
| Stock issued for interest                                                    |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 81,272 |   |
| Reclassification of derivatives to equity                                    |       | $                                                   | —     |                                                                                                                     | $          | 560,368 |   | $ | 560,368 |   |
| Intrinsic value of beneficial conversion options on Preferred Stock          |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 7,525,246 |   |
| Issuance of warrants to Preferred Stock investors                            |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 7,525,246 |   |

 

*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 our wholly-owned operatingsubsidiary, Uni-Pixel Displays, Inc.  As used herein, “Uni-Pixel,” “we,”“us,” and “our” refer to Uni-Pixel, Inc. and our wholly-owned consolidatedsubsidiary, Uni-Pixel Displays, Inc.  Our common stock, par value$0.001 per share, is quoted on the Over the Counter — 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 September 30, 2008, we hadaccumulated a total deficit of $41.8 million from operations in pursuit ofthese objectives.

 

Weanticipate that our TMOS displays will be thin, lightweight, andpower-efficient devices, which are highly suitable for use in full-colordisplay applications.  We believe TMOS displays will be able to capture ashare of the growing $90+ billion flat panel display market due to thesignificant advantages it should provide over competing displays with respectto manufacturing and materials cost, brightness, power efficiency, viewingangle, video response time and image quality.  We believe that ourtechnology leadership and intellectual property position will enable us togenerate revenues initially from TMOS displays for existing vertical marketsegments such as the military, avionics, and automotive segments, and thensubsequently from consumer electronics markets (i.e., TVs, monitors, personalcomputers, cameras, games, etc.).

 

Ourstrategy is to develop further our proprietary TMOS technology to the point oftransition to manufacturing partners.  We have and will continue toutilize contract manufacturing for prototype fabrication to augment ourinternal capabilities in the short term.  We also plan to be a supplier ofour key thin film component and to enter into joint ventures in certainvertical market segments to exploit the existing manufacturing and distributionchannels of our targeted partners.  We plan to license our technology todisplay manufacturers and supporting partner companies for use in applicationssuch as mobile phones, digital cameras, laptop computers, and other consumerelectronic devices. Through our internal research and development efforts wehave established a portfolio of TMOS-related patents and patent applicationsand other intellectual property rights that support these joint venture andlicensing strategies.  We currently have twenty seven issued patents, fiveallowed patents, and seventy four pending patent applications filed in keyvenues worldwide including regionally in Europe, Asia Pacific, South and NorthAmerica and contemplate obtaining exclusive field-of-use licenses, with theright to sublicense, to complementary technologies from targeted strategicpartners and U.S. national laboratories.

 

Duringthe course of 2008 we have 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.

 

ThroughSeptember 30, 2008, we have been primarily engaged in developing ourinitial product technologies, recruiting personnel, commencing our U.S.operations and raising capital. In the course of our development activities, wehave sustained losses and expect such losses to continue through at least April 2009.We will finance our operations primarily through our existing cash and possiblefuture financing transactions.

 

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing beyond proof of concept to finalprototypes and supporting transferable manufacturing processes to partners toproduce for sale our products and upon our successful development of marketsfor our products and successful manufacturing relationships.  We may berequired to obtain additional capital in the future to expand our operations.No assurance can be given that we will be able to develop our products, successfullydevelop the markets for our products or profitable manufacturing methods, orraise any such additional capital as we might need, either through equity ordebt financing, on satisfactory terms or at all. Additionally, no assurance canbe given that any such financing, if obtained, will be adequate to meet ourultimate capital needs or to support our growth. If adequate capital cannot beobtained on satisfactory terms, our operations could 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 hire additionalmanagement, financial and sales and marketing personnel to manage our expandingoperations. If we are unable to manage this growth effectively andsuccessfully, our business, operating results and financial condition may bematerially adversely affected.

 

Asof September 30, 2008, we had cash and cash equivalents of $3.7million.  We believe that our existing capital resources are adequate tofinance our operations until April 2009. However, our long-term viability is dependent upon our ability tosuccessfully operate our business, develop our manufacturing process, signpartnership agreements, develop our products and raise additional debt andequity to meet our business objectives.

 

*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 estate properties.On June 13, 2001, the management of NEV Acquisition Corp. entered into anAgreement and Plan of Merger with Real-Estateforlease.com, Inc. pursuantto which the sole stockholder and founder of Real-Estateforlease.com, Inc.exchanged his equity ownership interest in Real-Estateforlease.com, Inc.for 9,500,000 shares (or approximately 96%) of NEV Acquisition Corp.’s commonstock. At the time of the merger between Real-Estateforlease.com, Inc. andNEV Acquisition Corp., Real-Estateforlease.com, Inc. had no operations andessentially no assets. Efforts by Real-Estateforlease.com, Inc. toimplement its business plan ceased in June 2002. Prior toReal-Estateforlease.com, Inc.’s merger with Uni-Pixel Displays, Inc.,as described in the next paragraph, Real-Estateforlease.com, Inc. had nooperations and no material assets or liabilities.

 

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

 

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 - Liquidity**

 

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. The Company’s ability to meet its obligations in the ordinarycourse of business is dependent upon its ability to establish profitableoperations, raise additional financing through public or private equityfinancings, enter into collaborative or other arrangements with corporatesources, or secure other sources of financing to fund operations.  In the 4th quarter of 2008, the Company’s management willbegin to reduce operating expenses and delay planned expenditures to preservethe 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 April 2009.

 

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**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-KSB,for the year ended December 31, 2007, filed with the Securities andExchange Commission on March 7, 2008 and our Form 10-KSB/A, for theyear ended December 31, 2007, filed with the Securities and ExchangeCommission on September 26, 2008.

 

*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 inthese banks exceed from time to time the insured limit of $100,000 and exceededthat balance as of September 30, 2008 and December 31, 2007 by$3,088,555 and $11,279,525, respectively. The terms of these deposits are ondemand to minimize risk.  We have not incurred losses related to thesedeposits.

 

*Restricted cash*

 

Asof September 30, 2008 and December 31, 2007, we had restricted cashof $34,877.  This amount secured certainobligations under our lease agreement for our principal facility located in TheWoodlands, Texas as of both September 30, 2008 and December 31,2007.  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 fromthird parties, 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.

 

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* *

*Derivativeinstruments*

 

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

 

*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 September 30,2008 and December 31, 2007 consists of a development contract to produceand deliver a 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 of materialsand devices, and a portion of facilities cost. Prototype development costs area significant component of research and development expenses and include costsassociated with third-party contractors. Invoicing from third-party contractorsfor services performed can lag several months.  We accrue the costs ofservices rendered in connection with third-party contractor activities based onour estimate of management fees, site management and monitoring costs and datamanagement costs. Actual costs may differ from estimated costs in some casesand are adjusted for in the period in which they become known.

 

*Stock-based compensation*

 

In December 2004, the Financial Accounting Standards Board (“FASB”)issued SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), *“Share Based Payment,”* which eliminatesthe use of APB Opinion No. 25 and will require us to measure the cost ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award. That cost will be recognized overthe period during which an employee is required to provide service in exchangefor the reward—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. We have implemented SFAS No. 123(R) effectiveJanuary 1, 2006.

 

Wemay, from time to time, issue common stock, stock options or common stockwarrants to acquire services or goods from non-employees. Common stock, stockoptions and common stock warrants issued to persons other than employees ordirectors are recorded on the basis of their fair value, as required by SFAS No. 123(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 subsequentperiod in 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

 

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expensesin different periods for financial and tax accounting purposes and are measuredusing currently enacted tax rates and laws. In addition, a deferred tax assetcan be generated by net operating loss carryforwards.   If it is more likely than not that someportion or all of a deferred tax asset will not be realized, a valuationallowance is recognized.

 

TheCompany has losses carried forward for income tax purposes to June 30,2008. There are no current or deferred tax expenses for the three and six monthperiods ended June 30 2008 and 2007 due to the Company’s loss position.The Company has fully reserved for any benefits of these losses. The deferredtax consequences 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.

 

AtSeptember 30, 2008, options and warrants to purchase 19,525,704 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 September 30, 2008, 18,083,068 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 September 30, 2008, 7,717,424 shares of common stock,convertible from Series C Convertible Preferred Stock and associateddividends, were not included in the computation of diluted earnings per shareas there effect would be antidilutive.

 

*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 accounting pronouncements*

 

Effectiveat the beginning of the first quarter of 2007, the Company adopted theprovision of FIN 48, “Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48 contains a two-step approach torecognizing and measuring uncertain tax positions accounted for in accordancewith SFAS No. 109, “Accounting for Income Taxes.”  The first step is to evaluate the taxposition for recognition by determining if the weight of available evidenceindicates that it is more likely than not that the position will be sustainedon audit, including resolution of related appeals or litigation processes, ifany.  The second step is to measure thetax benefit as the largest amount that is more than 50% likely of beingrealized upon ultimate settlement.

 

As a result of theimplementation of FIN 48, the Company has not changed any of its tax accrualestimates.  The Company files U.S.federal and U.S. state tax returns.  Forstate tax returns the Company is generally no longer subject to taxexaminations for years prior to 1996.

 

Effective January 1,2008, the Company partially adopted SFAS 157, which provides a framework formeasuring fair value. Fair value is defined as the price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants at the measurement date. The partialadoption of this standard only resulted in additional disclosure requirementsand had no financial statement impact. Delayed application of this statement ispermitted for nonfinancial assets and nonfinancial liabilities, except foritems that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually), until fiscal yearsbeginning after November 15, 2008, and interim periods within those fiscalyears. The Company has not applied the provisions of SFAS 157 for intangibleassets and long-lived assets measured for fair value for impairment assessmentunder Statement 144, *Accounting for theImpairment or Disposal of Long-Lived Assets.*Refer to Note 6 — Fair Value Disclosure (SFAS 157Disclosure)****of theunaudited consolidated financial statements for further information regardingthe fair value of the Company’s financial instruments.

 

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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 theequity method; (b) is irrevocable (unless a new election date occurs); and(c) is applied only to entire instruments and not to portions ofinstruments. In connection with the adoption of this standard, the Company didnot elect any additional financial instruments to be recorded at fair value.

 

*Recent 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.  Management of theCompany does not expect the adoption of this pronouncement to have a materialimpact on its 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 dividends participatein undistributed earnings with common shareholders. If awards are consideredparticipating securities, the Company is required to apply the two-class methodof computing basic and diluted earnings per share. FSP EITF 03-6-1 is effectivefor fiscal years beginning after December 15, 2008 and interim periodswithin those fiscal years. Early adoption is prohibited. The Company iscurrently evaluating the impact of adoption of this guidance.

 

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 Company iscurrently assessing the impact the adoption of EITF 07-1 will have on theCompany’s consolidated financial statements.

 

InDecember 2007, the FASB issued SFAS No. 141 (Revised 2007), BusinessCombinations - Revised 2007. SFAS 141 R provides guidance on improving therelevance, representational faithfulness, and comparability of information thata reporting entity provides in its financial reports about a businesscombination and its effects. SFAS 141R applies to business combinations whereis the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008. The Company isin the process of analyzing the effects SFAS 141R will have on the Company’sconsolidated financial statements.

 

InDecember 2007, the FASB also issued SFAS No. 160, NoncontrollingInterests in Consolidated Financial Statements, which establishes accountingand reporting standards to improve the relevance, comparability, andtransparency of financial information in its consolidated financial statementsthat include an outstanding noncontrolling interest in one or moresubsidiaries. SFAS 160 is effective for fiscal years, and the interim periodswithin those fiscal years, beginning on or after December 15, 2008.Management of the Company does not expect the adoption of this pronouncement tohave a material impact on its consolidated financial statements.

 

InMay 2008, the FASB released SFAS No. 162, **“The Hierarchy of Generally AcceptedAccounting Principles.”**  SFAS No. 162 identifies thesources of accounting principles and the framework for selecting the principlesused in the preparation of financial statements of nongovernmental entitiesthat presented in conformity with generally accepted accounting principles inthe United States of America. SFAS No. 162 will be effective 60 daysfollowing the SEC’s approval of the PCAOB amendments to AU Section 411, **The Meaning ofPresent Fairly in Conformity With Generally Accepted Accounting Principles**. The Company does not believe SFAS 162 will have a significant impact on the Company’sconsolidated financial statements.

 

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**Note 4 - Commitments and Contingencies**

 

*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 September 30, 2008 are as follows:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2008                                       |       | $          | 50,954     |   |
| 2009                                       |       | 206,267    |       |
| 2010                                       |       | 191,825    |       |
| 2011                                       |       | —     |       |
| 2012                                       |       | —     |       |
| Thereafter                                 |       | —     |       |
| Total                                      |       | $          | 449,046    |   |

 

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

 

**Note 5 - Redeemable Preferred Stock, Equity, Stock Plan andWarrants**

 

*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 $12,000,000 fromthe 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 theConsultant a fee of $480,000.  TheCompany utilized the Black-Scholes methodology in determining thefair market value of the warrants of $217,007 and recorded the expense inthe first quarter of 2007.  TheConsultants’ fee of $480,000 was paid from the proceeds of the PurchaseAgreement, described below, and expensed in the first quarter of 2007.

 

·                  EffectiveFebruary 13, 2007 we entered into an Investor Relations Agreement withLusierna Asset Management, Ltd. (the “Consultant”) which provides that theAgreement will terminate on the date twelve (12) months from the CommencementDate, 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:

 

·                  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.

 

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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, 2008, (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.

 

During the three monthsended June 30, 2008, (1) we issued no shares of common stock for cashin connection with the exercise of stock options; (2) issued no shares ofcommon stock in exchange for cashless exercise of warrants; (3) issued noshares 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.

 

During the three monthsended September 30, 2008, (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 September 30,2008, there were 3,200,000 shares of Series B Preferred Stock outstanding,with cumulative unpaid dividends of approximately $1,562,301 or 416,614 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 Stock isredeemable for cash at the option of the holder after five years, the Series CPreferred Stock is classified as temporary

 

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equityon the balance sheet.  In accordance withEITF 00-27, the Company determined that the Series C Preferred Stockcontained a beneficial conversion feature with an intrinsic value of$3,809,644, which was credited to additional paid-in capital in the thirdquarter of 2007, and is being amortized over five years.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the ML Warrants of$3,809,644, which was credited to additional paid-in capital in the thirdquarter 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 September 30, 2008, there were892,858 shares of Series C Preferred Stock outstanding, with cumulativeunpaid dividends of approximately $804,384 or 71,820 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 2008, we did not grant any options under the2005 Stock Incentive Plan.

 

In the second quarter of 2008, we did not grant any options under the2005 Stock Incentive Plan.

 

In the third quarter of 2008, we did not grant any options under the2005 Stock Incentive Plan. In the third quarter of 2008, 50,000 options topurchase our common stock with an exercise price of $2.00 per share wereretired.

 

*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 theawards and to determine the type, size and terms of each award granted.

 

In the first quarter of 2008, we granted a total of 600,000 options topurchase our common stock with an exercise price of $1.45 per share to threeemployees.  These options vest monthlyover 36 months.

 

In the second quarter of 2008, we granted a total of 465,625 options topurchase our common stock with an exercise price of $1.45 per share to nineemployees.  425,625 of these options vestmonthly over 36 months.  40,000 of theseoptions vest 1/3rd on theone year anniversary of the date of grant, 1/3rd on the second year anniversary of the date ofgrant, and 1/3rd on thethird year anniversary of the date of grant.

 

In the third quarter of 2008, we did not grant any options under the2007 Stock Incentive Plan.  In the thirdquarter of 2008, 48,889 options to purchase our common stock with an exerciseprice of $1.45 per share were retired.

 

*Other Stock Options*

 

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

 

In the second quarter of 2008, we did not grant any other stockoptions.

 

In the third quarter of 2008, we did not grant any other stock options.

 

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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. The Company determines the fair value of stockoptions at the date of grant using the Black-Scholes valuation model. Mostoptions vest annually over a three-year service period. The Company will issuenew shares upon the exercise of stock options.

 

Totalcompensation expense recognized for options was approximately $0.8 millionand $1.7 million for the nine months ended September 30, 2008 and September 30,2007, respectively. The Company has recorded approximately $0.5 million ofstock compensation expense in selling, general and administrative expenses andapproximately $0.3 million in research and development expense for the ninemonths ended September 30, 2008 and approximately $1.6 million of stockcompensation expense in selling, general and administrative expenses andapproximately $0.1 million in research and development expense for the ninemonths ended September 30, 2007.

 

Asummary of the changes in the total stock options outstanding during the ninemonths ended September 30, 2008 follows:

 
| ** **                                         | ** ** | **Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|----------------------------------------------------|------------|-------------|------------|---------------------------------------|------------|
| Outstanding at December 31, 2007              |       | 4,712,500   |       | $                                     | 1.58       |   |
| Granted                                            |       | 1,065,625   |       | 1.45                                  |       |
| Forfeited or expired                               |       | (98,889     | )          | 1.73                                  |       |
| Exercised                                          |       | —      |       | —                                |       |
| Outstanding at September 30, 2008             |       | 5,679,236   |       | $                                     | 1.56       |   |
| Vested and exercisable at  September 30, 2008 |       | 3,559,922   |       | $                                     | 1.63       |   |

 

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  September 30,  2008** | ** ** | **Three Months  ended  September 30,  2007** | ** ** | **Nine Months  ended  September 30,  2008** | ** ** | **Nine Months  ended  September 30,  2007** | ** ** |
|-----------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| Expected life (years) |       | 5 years                                           |       | 5 years                                           |       | 5 years                                          |       | 5 years                                     |       |
| Interest rate         |       | 0.90 to 1.92                                           | %          | 4.52                                                   | %          | 0.90 to 3.27                                          | %          | 4.52% to 5.10                                    | %          |
| Dividend yield        |       | —                                                 |       | —                                                 |       | —                                                |       | —                                           |       |
| Volatility            |       | 108.47                                                 | %          | 82.12                                                  | %          | 108.47                                                | %          | 82.12                                            | %          |
| Forfeiture rate       |       | —                                                 |       | —                                                 |       | —                                                |       | —                                           |       |

 

At September 30, 2008, there was $1.8 million of totalunrecognized compensation cost related to non-vested stock option awards whichis expected to be recognized over a weighted-average period of 1.16 years. Therewere 998,983 options that became vested during the nine months ended September 30,2008.

 

**Note 6 - FairValue Measurements**

 

Asof January 1, 2008, the Company implemented FAS No. 157, *Fair Value Measurements*(“FAS 157”) forits financial assets and liabilities that are remeasured and reported at fairvalue at each reporting period and non-financial assets and liabilities thatare remeasured and reported at fair value at least annually. In accordance withthe provisions of FSP No. FAS 157-2, *EffectiveDate of FASB Statement No. 157*, the Company elected to deferimplementation of FAS 157 as it relates to its non-financial assets andnon-financial liabilities that are recognized and disclosed at fair value inthe consolidated financial statements on a nonrecurring basis until January 1,2009.

 

Ingeneral, fair values determined by Level 1 inputs utilize quoted prices(unadjusted) in active markets for identical assets or liabilities. Fairvalues determined by Level 2 inputs utilize observable inputs other than Level1 prices, such as quoted prices for similar assets or liabilities, quotedprices in markets that are not active or other inputs that are observable orcan be corroborated by observable market data for substantially the full termof the related assets or liabilities. Fair values determined by Level 3 inputsare unobservable data points for the asset or liability, and include situationswhere there is little, if any, market activity for the asset or liability. Thefollowing table presents information about the Company’s financial assets thathave been

 

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measured at fair value as of September 30,2008, and indicates the fair value hierarchy of the valuation inputs utilizedto determine such fair value (in thousands):
| **Description**                                           | ** ** | **Fair  Value  at  June 30,  2008** |      | **Quoted  Prices in  Active  Markets  (Level 1)** |   | **Significant    Other  Observable  Inputs  (Level 2)** |   |
|-----------------------------------------------------------|------------|------------------------------------------|-----------|---------------------------------------------------|--------|---------------------------------------------------------|--------|
| Assets:                                                   |       |                                     |      |                                              |   |                                                    |   |
| Cash and  cash equivalents                                |       | $                                        | 3,653,679 |                                              | $      | 3,653,679                                               |   | $ | — |   |
|                                                      |       |                                     |      |                                              |   |                                                    |   |
| Assets  measured at fair value at September 30, 2008 |       | $                                        | 3,653,679 |                                              | $      | 3,653,679                                               |   | $ | — |   |

 

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

 

**ForwardLooking Statements**

 

Someof the information in this report contains forward-looking information thatinvolve risks and uncertainties. Our forward-looking statements express ourcurrent expectations or forecasts of possible future results or events,including projections of future performance, statements of management’s plansand objectives, future contracts, and forecasts of trends and other matters. Youcan identify these statements by the fact that they do not relate strictly tohistoric 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 similar meaning. No assurancecan be given that the results in any forward-looking statement will be achievedand actual results could be affected by one or more factors, which could causethem to differ materially. For these statements, we claim the protection of thesafe harbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act. You should also consider carefully the statements under “Descriptionof Business - Risk Factors” in our 2007 Form 10-KSB, which address factorsthat could cause our actual results to differ from those set forth in theforward-looking statements.

 

*CRITICAL ACCOUNTING POLICIES*

 

Thefollowing discussion and analysis of financial condition and results ofoperations is based upon our consolidated financial statements, which have beenprepared in conformity with accounting principles generally accepted in theUnited States of America. Our significant accounting policies are more fullydescribed in Note 3 of Notes to the unaudited Consolidated FinancialStatements. However, certain accounting policies and estimates are particularlyimportant to the understanding of our financial position and results ofoperations and require the application of significant judgment by ourmanagement or can be materially affected by changes from period to period ineconomic 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.

 

Advancepayments are deferred until shipment. The amount of the revenue deferredrepresents the fair value of the remaining undelivered products measured inaccordance 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.

 

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

 

*Cost of Revenues and Selling, General and AdministrativeExpenses and Research and Development Expenses:*  In an effort to consolidate ourexecutive management team, we moved our headquarters from Austin, Texas to TheWoodlands, Texas

 

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during the third quarter of2005.  The primary purpose of our facility in The Woodlands, Texas is toconduct research on the development, testing and delivery of our prototypedevices, and the commercialization of our products.

 

If,in the future, the purposes for which we operate our facility in The Woodlands,Texas, or any new facilities we open, changes, the allocation of the costsincurred in operating that facility between cost of sales and research anddevelopment expenses could change to reflect such operational changes.

 

*Research and Development Expenses:*  Research and development costs areexpensed as incurred and include salaries and benefits, costs paid tothird-party contractors for research, development and manufacturing of materialsand devices, and a portion of facilities cost. Prototype development costs area significant component of research and development expenses and include costs associatedwith third-party contractors. Invoicing from third-party contractors forservices performed can lag several months. We accrue the costs of servicesrendered in connection with third-party contractor activities based on ourestimate of management fees, site management and monitoring costs and datamanagement costs. Actual costs may differ in some cases from estimated costsand are adjusted for in the period in which they become known.

 

*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.

 

*Stock-Based Compensation:*  Beginning in the quarter beginning January 1,2006, we adopted SFAS No. 123 (Revised 2004), *“Share Based Payment,”* which eliminates the use of APB OpinionNo. 25 and we will be required to measure the cost of employee servicesreceived in exchange for an award of equity instruments based on the grant-datefair value of the award. That cost will be recognized over the period duringwhich an employee is required to provide service in exchange for the reward—therequisite service period. No compensation cost will be recognized for equityinstruments for which employees do not render the requisite service. Thegrant-date fair value of employee share options and similar instruments will beestimated using option-pricing models adjusted for the unique characteristicsof those instruments. SFAS No. 123 (Revised 2004) must be applied to alloptions granted or modified after its effective date and also to recognize thecost associated with the portion of any option awards made before its effectivedate for which the associated service has not been rendered as of its effectivedate.

 

Priorto January 1, 2006, we accounted for our stock-based compensation underthe provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123—“Accounting for Stock Based Compensation.” Under SFAS No. 123, we arepermitted to either record expenses for stock options and other employeecompensation plans based on their fair value at the date of grant or tocontinue to apply the provisions of Accounting Principles Board Opinion No. 25“Accounting for Stock Issued to Employees,” (“APB No. 25”), and recognizecompensation expense, if any, based on the intrinsic value of the equityinstrument at the measurement date. We have elected to continue following theprovisions of APB No. 25. Stock options issued to persons other thanemployees or directors are recorded on the basis of their fair value asrequired by SFAS No. 123.

 

*RESULTS OF OPERATIONS*

 

Comparisonof the nine months ending September 30, 2008 and 2007

 

REVENUES. We are a development stage company that has developed, patented anddemonstrated a new color display technology in the form of proof of conceptprototypes which we call Time Multiplexed Optical Shutter (“TMOS”).  Weintend to be a leader in the research, development and commercialization of newflat 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.

 

Revenuesstayed constant at $0 for the nine months ended September 30, 2008, ascompared to the nine months ended September 30, 2007.

 

COSTOF REVENUES.  Cost of revenues include all direct expenses associated withthe delivery of services including internal labor costs. Cost of revenues forthe nine months ended September 30, 2008 and the nine months ended September 30,2007 was $0.

 

SELLING,GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrativeexpenses decreased by 45% or approximately $2,239,000, to $2,720,922 for thenine months ended September 30, 2008 from $4,959,433 for the nine monthsended September 30, 2007.  The major components of the decrease areas follows:

 

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a) Salaries and benefits decreased by approximately $1,630,000 to $1,370,000 forthe nine months ended September 30, 2008 compared to $3,000,000 for thenine months ended September 30, 2007, due to a decrease in the number ofselling, general and administrative employees and due to a decrease in stockcompensation expense of approximately $1,120,000 to $475,000 for the ninemonths ended September 30, 2008 compared to $1,595,000 for the nine monthsended September 30, 2007;

 

b)Contract labor decreased by approximately $60,000 to $8,000 for the nine monthsended September 30, 2008 compared to $68,000 for the nine months ended September 30,2007;

 

c)Legal expense increased by approximately $108,000 to $346,000 for the ninemonths ended September 30, 2008 compared to $238,000 for the nine monthsended September 30, 2007;

 

d)Accounting expense increased by approximately $15,000 to $67,000 for the ninemonths ended September 30, 2008 compared to $52,000 for the nine monthsended September 30, 2007;

 

e)Office expense decreased by approximately $47,000 to $61,000 for the ninemonths ended September 30, 2008 compared to $108,000 for the nine monthsended September 30, 2007;

 

f)Travel expense decreased by approximately $34,000 to $38,000 for the ninemonths ended September 30, 2008 compared to $72,000 for the nine monthsended September 30, 2007;

 

g)Depreciation and amortization expense increased by approximately $20,000 to$220,000 for the nine months ended September 30, 2008 compared to $200,000for the nine months ended September 30, 2007;

 

h)A one time professional consulting fee of $697,000 was incurred for the ninemonths ended September 30, 2007.

 

RESEARCHAND DEVELOPMENT. Research and development expenses increased by approximately$3,868,000 during the nine months ended September 30, 2008 to $6,384,914from $2,516,597 for the nine months ended September 30, 2007. The majorcomponents of the increase are as follows:

 

a)Salaries and benefits attributable to research and development increased byapproximately $1,043,000 to $2,076,000 for the nine months ended September 30,2008 compared to $1,033,000 for the nine months ended September 30, 2007due to an increase in the number of research and development employees and thelevel of compensation for these employees and due to an increase in stockcompensation expense of approximately $221,000 to $342,000 for the nine monthsended September 30, 2008 compared to $121,000 for the nine months ended September 30,2007;

 

b)Consulting expense attributable to research and development increased byapproximately $235,000 to $1,017,000 for the nine months ended September 30,2008 compared to $782,000 for the nine months ended September 30, 2007primarily due to increased services related to prototype development;

 

c)Lab expense increased by approximately $2,450,000 to $2,810,000 for the ninemonths ended September 30, 2008 compared to $360,000 for the nine monthsended September 30, 2007 primarily due to increased services related toprototype development; and

 

d)Travel expense attributable to research and development increased byapproximately $54,000 to $274,000 for the nine months ended September 30,2008 compared to $220,000 for the nine months ended September 30, 2007.

 

OTHERINCOME (EXPENSE).

 

a)Net decrease in fair value of derivative liabilities was an income of $382,920for the nine months ended September 30, 2007, relating to the Warrantissued in connection with the 12% Senior Secured Convertible Debentures in May 2006and the Warrant issued in connection with the 10% Senior Unsecured ConvertibleDebentures in September 2006.

 

b)Debt issuance expense was $94,189 for the nine months ended September 30,2007, due to the debt raised in May 2006 and September 2006.

 

c)****Interest income (expense), net increasedto income of $169,285 for the nine months ended September 30, 2008 ascompared to $(914,166) for the nine months ended September 30, 2007,primarily due to a) more cash on hand during the nine months ended September 30,2008 and b) during the nine months ended September 30, 2007, the paymentof interest on the $1,500,000 loan received in May 2006, the amortizationof the discount on the Warrant issued in connection with the 12% Senior SecuredConvertible Debentures in May 2006, the payment of interest on the$900,000 loan received in September 2006, and the

 

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amortization of the discount onthe Warrant issued in connection with the 10% Senior Unsecured ConvertibleDebentures in September 2006.

 

NETLOSS.**  **Net lossincreased to $8,936,551 for the nine months ended September 30, 2008, ascompared to $8,104,465 for the nine months ended September 30, 2007. 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 thenine months ended September 30, 2008 was $12,510,508 as compared to a netloss attributable to common stockholders of $10,001,331 for the nine monthsended September 30, 2007. The net loss attributable to common stockholdersfor the nine months ended September 30, 2008 includes $3,573,957 ofaccrued but unpaid preferred stock dividends and amortization of preferredstock discount. The net loss attributable to common stockholders for the ninemonths ended September 30, 2007 includes $1,899,866 of accrued but unpaidpreferred stock dividends and amortization of preferred stock discount.

 

Comparisonof the three months ending September 30, 2008 and 2007

 

REVENUES. We are a development stage company that has developed, patented anddemonstrated a new color display technology in the form of proof of conceptprototypes which we call Time Multiplexed Optical Shutter (“TMOS”).  Weintend to be a leader in the research, development and commercialization of newflat 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.

 

Revenueswere $0 for the three months ended September 30, 2008 and the three monthsended September 30, 2007.

 

COSTOF REVENUES.  Cost of revenues include all direct expenses associated withthe delivery of services including internal labor costs. Cost of revenues forthe three months ended September 30, 2008 and the three months ended September 30,2007 was $0.

 

SELLING,GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrativeexpenses decreased by 45% or $719,000, to $883,869 for the three months ended September 30,2008 from $1,603,298 for the three months ended September 30, 2007. The major components of the decrease are as follows:

 

a) Salaries and benefits decreased by approximately $730,000 to $466,000 for thethree months ended September 30, 2008 compared to $1,196,000 for the threemonths ended September 30, 2007 due to a decrease in the number ofselling, general and administrative employees and due to a decrease in stockcompensation expense of approximately $378,000 to $126,000 for the three monthsended September 30, 2008 compared to $504,000 for the three months ended September 30,2007;

 

b)Contract labor decreased by approximately $3,000 to $0 for the three monthsended September 30, 2008 compared to $3,000 for the three months ended September 30,2007;

 

c)Legal expense increased by approximately $45,000 to $142,000 for the threemonths ended September 30, 2008 compared to $97,000 for the three monthsended September 30, 2007;

 

d)Accounting expense increased by approximately $3,000 to $15,000 for the threemonths ended September 30, 2008 compared to $12,000 for the three monthsended September 30, 2007;

 

e)Office expense decreased by approximately $20,000 to $17,000 for the threemonths ended September 30, 2008 compared to $37,000 for the three monthsended September 30, 2007;

 

f)Travel expense decreased by approximately $17,000 to $8,000 for the threemonths ended September 30, 2008 compared to $25,000 for the three monthsended September 30, 2007;

 

g)Depreciation and amortization expense increased by approximately $3,000 to$72,000 for the three months ended September 30, 2008 compared to $69,000for the three months ended September 30, 2007.

 

RESEARCHAND DEVELOPMENT. Research and development expenses increased by approximately$820,000 during the three months ended September 30, 2008 to $1,895,055from $1,075,528 for the three months ended September 30, 2007. The majorcomponents of the increase are as follows:

 

a)Salaries and benefits attributable to research and development increased byapproximately $275,000 to $737,000 for the three months ended September 30,2008 compared to $462,000 for the three months ended September 30, 2007due to an

 

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increase in the number ofresearch and development employees and the level of compensation for theseemployees and due to an increase in stock compensation expense of approximately$53,000 to $104,000 for the three months ended September 30, 2008 comparedto $51,000 for the three months ended September 30, 2007;

 

b)Consulting expense attributable to research and development decreased byapproximately $36,000 to $247,000 for the three months ended September 30,2008 compared to $283,000 for the three months ended September 30, 2007;

 

c)Lab expense increased by approximately $594,000 to $773,000 for the thee monthsended September 30, 2008 compared to $179,000 for the three months ended September 30,2007 primarily due to increased services related to prototype development; and

 

d)Travel expense attributable to research and development decreased byapproximately $43,000 to $64,000 for the three months ended September 30,2008 compared to $107,000 for the three months ended September 30, 2007.

 

OTHERINCOME (EXPENSE).

 

a)****Interest income (expense), net decreasedto $26,346 for the three months ended September 30, 2008 as compared to$62,915 for the three months ended September 30, 2007 primarily due toless cash on hand.

 

NETLOSS.**  **Net lossincreased to $2,752,578 for the three months ended September 30, 2008, ascompared to $2,615,911 for the three months ended September 30, 2007. 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 September 30, 2008 was $3,948,719 as compared to a netloss attributable to common stockholders of $3,337,278 for the three monthsended September 30, 2007. The net loss attributable to common stockholdersfor the three months ended September 30, 2008 includes $1,196,141 ofaccrued but unpaid preferred stock dividends and amortization of preferredstock discount. The net loss attributable to common stockholders for the threemonths ended September 30, 2007 includes $721,367 of accrued but unpaidpreferred stock dividends.

 

**Off-Balance Sheet Transactions**

 

Wedo not engage in material off-balance sheet transactions.

 

*LIQUIDITY AND CAPITAL RESOURCES*

 

OperatingActivities

 

Cashused in operating activities during the nine months ended September 30,2008 increased to $7,592,180 as compared to $5,657,541 used for the nine monthsended September 30, 2007. This is primarily attributable to an increase inresearch and development expense for the nine months ended September 30,2008 and is offset by the one time cash Consulting Fee expense of $480,000 thatincurred during the nine months ended September 30, 2007.

 

InvestingActivities

 

Cashused for investing activities during the nine months ended September 30,2008 amounted to $451,566, as compared to $88,482 used for investing activitiesfor the nine months ended September 30, 2007. This is primarilyattributable to the acquisition of patents and patent applications in the secondquarter of 2008 in the amount of approximately $197,000 and the acquisition ofapproximately $255,000 of property and equipment during the nine months ended September 30,2008.

 

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 nine months ended September 30,2008, the total net cash provided by financing activities was $0. Duringthe nine months ended September 30, 2007, the total net cash provided byfinancing activities was $19,518,059, which includes: a) $2,401,280 payments onnotes payable and b) $21,919,339 net proceeds from the issuance of Series BConvertible Preferred Stock and Series C Convertible Preferred Stock.

 

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WorkingCapital

 

Asof September 30, 2008, we had a cash balance of $3.7 million. In the4th quarter of 2008, the Company’s management will begin to reduceoperating expenses and delay planned expenditures to preserve the Company’sworking capital. We project that current cash reserves will sustain ouroperations at least through April 2009, and we are not aware of any trendsor potential events that are likely to impact our short term liquidity throughthis term.

 

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

 

OnSeptember 28, 2007, the Company entered into a Securities PurchaseAgreement (the “ ML Purchase Agreement”) with Merrill Lynch Pierce, Fenner &Smith Incorporated (the “ ML Purchaser”) pursuant to which the Company sold onthat 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 and 2007 and the nine months ended September 30,2008. 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 developmentcontracts.  These include a prototype development agreement with a largepersonal computer company, and a Small Business Innovation Research (SBIR)Phase One agreement with the U.S. Air Force for $98,214 and a follow-on PhaseTwo agreement for $686,966.  We also entered into a prototype developmentagreement with Lockheed Martin, a large military contractor, in October 2005,for which we have received full payment. Our immediate customer prospects arelimited to Lockheed Martin, with which we entered into a License and StrategicBusiness Agreement dated October 5, 2005. See “Risk Factors” included inour 2007 Form 10-KSB.

 

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

 

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

 

Notapplicable.

 

**ITEM 4.  CONTROLS ANDPROCEDURES.**

 

DisclosureControls and Procedures

 

Asof September 30, 2008, management, including our Chief Executive Officerand Chief Financial Officer, performed an evaluation of the effectiveness ofthe design and operation of our disclosure controls and procedures, as definedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934. Based on their evaluation, management concluded that, as of June 30,2008, 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 on the most recent evaluation, our ChiefExecutive Officer and Chief Financial Officer have determined that nosignificant changes in our internal control over 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’s Form 10-SB, filed on  February 18, 2005, and incorporated by reference hereto. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Previously  filed as an exhibit to the Company’s Form 10-KSB, filed on  March 28, 2006, and incorporated by reference hereto.   |
| (3) |   | Previously  filed as an exhibit to the Company’s Form 10-QSB, filed on  August 14, 2006, and incorporated by reference hereto.  |
| (4) |   | Previously  filed as an exhibit to the Company’s Form 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.** |
|-------------------------|---------------------|
| ** **              | ** **          |
|                    |                |   |
| November 11,  2008 |                | By: | /s/ James  A. Tassone |
| Date                    |                | James  A. Tassone, Chief Financial Officer |
|                         |                     |  |  |

 

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