Table ofContents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the Quarterly Period Ended September 30,2009**

 

**or**

** **

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

** **

**For theTransition Periodfrom                         to            **

 

**COMMISSIONFILE NUMBER: 0-49737**

 

**UNI-PIXEL, INC.**

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

**8708 Technology Forest Place, Suite 100**

**The Woodlands, Texas 77381**

(Address of Principal Executive Offices)

** **

**(281) 825-4500**

(Issuer’s Telephone Number, Including Area Code)

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).    Yes o No o

 

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

 

As of November 11,2009, the issuer had 52,100,535 shares of issued and outstanding 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  filer o         |
|-----------------------------------------------|--------|------------------------------|
|                                          |   |                         |
| Non-accelerated  filer o                      |   | Smaller  reporting company x |
| (Do not check if a smaller reporting company) |   |                         |

 

 

 

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Table of Contents

 

**TABLE OF CONTENTS**

 
| Part I.  | Financial  Information                                                                                                                                                                                                                       |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                                                                                         |   |
| Item 1.       | Consolidated  Financial Statements                                                                                                                                                                                                           |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Balance Sheets  September 30, 2009 (unaudited) and December 31, 2008                                                                                                                                                 |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Operations  Nine months ended September 30, 2009 (unaudited) and September 30,  2008 (unaudited) and cumulative period from inception (February 17,  1998) to September 30, 2009 (unaudited) |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Three  months ended September 30, 2009 (unaudited) and September 30, 2008  (unaudited)                                                                                                                                             |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Shareholders’ Equity (Deficit)  From inception (February 17, 1998) to September 30, 2009  (unaudited)                                                                                             |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Cash Flows  Nine months ended September 30, 2009 (unaudited) and September 30,  2008 (unaudited) and cumulative period from inception (February 17,  1998) to September 30, 2009 (unaudited) |   |
|          |                                                                                                                                                                                                                                         |   |
|          | Notes to  Unaudited Consolidated Financial Statements                                                                                                                                                                                        |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 2.       | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                                                                              |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 3.       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                                                  |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 4.       | Controls and  Procedures                                                                                                                                                                                                                     |   |
|          |                                                                                                                                                                                                                                         |   |
| Part II. | Other Information                                                                                                                                                                                                                            |   |
|          |                                                                                                                                                                                                                                         |   |
| Item 6.       | Exhibits                                                                                                                                                                                                                                     |   |

 

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**PART I - FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

 
| ** **                                                                                                                                                                                                                                                                                                                                                 | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                 | ** ** | **(unaudited)**              | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                 |       |                         |       |                        |       |
| Current  assets                                                                                                                                                                                                                                                                                                                                            |       |                         |       |                        |       |
| Cash  and cash equivalents                                                                                                                                                                                                                                                                                                                                 |       | $                            | 879,746    |                        | $          | 2,035,547 |   |
| Deferred  loan costs                                                                                                                                                                                                                                                                                                                                       |       | 395,277                      |       | —                      |       |
| Prepaid  expenses                                                                                                                                                                                                                                                                                                                                          |       | 3,400                        |       | 3,400                       |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Total  current assets                                                                                                                                                                                                                                                                                                                                      |       | 1,278,423                    |       | 2,038,947                   |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Property  and equipment, net of accumulated depreciation of $1,250,178 and $1,013,967,  atSeptember 30,  2009 and December 31, 2008, respectively                                                                                                                                                                                                |       | 355,845                      |       | 592,056                     |       |
| Restricted  cash, less current portion                                                                                                                                                                                                                                                                                                                     |       | 34,877                       |       | 34,877                      |       |
| Intangible  assets, net of accumulated amortization of $57,389 and $44,637, at  September 30, 2009 and December 31, 2008, respectively                                                                                                                                                                                                           |       | 172,500                      |       | 185,252                     |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Total  assets                                                                                                                                                                                                                                                                                                                                              |       | $                            | 1,841,645  |                        | $          | 2,851,132 |   |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’  DEFICIT**                                                                                                                                                                                                                                                                                                            |       |                         |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Current  liabilities                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Accounts  payable                                                                                                                                                                                                                                                                                                                                          |       | $                            | 967,777    |                        | $          | 731,022 |   |
| Accrued  expenses                                                                                                                                                                                                                                                                                                                                          |       | 641,151                      |       | 383,039                     |       |
| Deferred  revenue                                                                                                                                                                                                                                                                                                                                          |       | 33,333                       |       | 33,333                      |       |
| Current  portion of convertible note payable, net of unamortized discounts of $14,411  and $0 at September 30, 2009 and December 31, 2008, respectively                                                                                                                                                                                          |       | 635,589                      |       | —                      |       |
| Interest  payable                                                                                                                                                                                                                                                                                                                                          |       | 15,678                       |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Total  current liabilities                                                                                                                                                                                                                                                                                                                                 |       | 2,293,528                    |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Long  term portion of convertible note payable, net of unamortized discounts of  $32,752 and $0 at September 30, 2009 and December 31, 2008,  respectively                                                                                                                                                                                       |       | 1,242,248                    |       | —                      |       |
| Interest  payable                                                                                                                                                                                                                                                                                                                                          |       | 4,117                        |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Total  liabilities                                                                                                                                                                                                                                                                                                                                         |       | 3,539,893                    |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Commitments  and contingencies (Note 4)                                                                                                                                                                                                                                                                                                                    |       | —                       |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Redeemable  convertible Series B Preferred stock, $0.001 par value; $3.75 per share  liquidation preference; 3,200,000 shares authorized, issued and outstanding  at September 30, 2009 and December 31, 2008, less unamortized  discount of $3,529,822 and $4,644,502 at September 30, 2009 and  December 31, 2008, respectively |       | 10,989,849                   |       | 9,159,771                   |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Redeemable  convertible Series C Preferred stock, $0.001 par value; $11.20 per share  liquidation preference; 892,858 shares authorized, issued and outstanding at  September 30, 2009 and December 31, 2008, less unamortized discount  of $4,571,573 and $5,714,466 at September 30, 2009 and December 31,  2008, respectively  |       | 6,949,959                    |       | 5,210,901                   |       |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Shareholders’  deficit                                                                                                                                                                                                                                                                                                                                |       |                         |       |                        |       |
| Common  stock, $0.001 par value; 100,000,000 shares authorized at September 30,  2009 and December 31, 2008, 22,897,418 shares issued and outstanding at  September 30, 2009 and December 31, 2008                                                                                                                                     |       | 22,897                       |       | 22,897                      |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                                                                                |       | 28,523,375                   |       | 30,785,560                  |       |
| Accumulated  deficit during development stage                                                                                                                                                                                                                                                                                                              |       | (48,184,328                  | )          | (43,475,391                 | )          |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Total  shareholders’ deficit                                                                                                                                                                                                                                                                                                                          |       | (19,638,056                  | )          | (12,666,934                 | )          |
|                                                                                                                                                                                                                                                                                                                                                       |       |                         |       |                        |       |
| Total  liabilities and shareholders’ deficit                                                                                                                                                                                                                                                                                                          |       | $                            | 1,841,645  |                        | $          | 2,851,132 |   |

 

*See accompanying notes to thesecondensed consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(unaudited)

 
| ** **                                                              | ** ** | **Nine Months Ended  September 30,** | ** ** | **Cumulative  Period from  February 17, 1998  (date of inception)  to September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                                            | ** ** | **2008**                                                                                                                 | ** ** | **2009** | ** ** |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Revenues                                                                |       |                                                |       |                                                                                                                     |       |   |   |
| Development  contract revenue                                           |       | $                                                   | —     |                                                                                                                     | $          | — |   | $ | 1,158,201 |   |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Total  revenues                                                         |       | —                                              |       | —                                                                                                                   |       | 1,158,201 |   |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Cost  of revenues                                                       |       | —                                              |       | —                                                                                                                   |       | 456,648 |   |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Gross  margin                                                           |       | —                                              |       | —                                                                                                                   |       | 701,553 |   |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Selling,  general and administrative expenses                           |       | 2,179,777                                           |       | 2,720,922                                                                                                                |       | 21,821,746 |   |
| Research  and development                                               |       | 2,452,030                                           |       | 6,384,914                                                                                                                |       | 24,219,908 |   |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Operating  loss                                                         |       | (4,631,807                                          | )          | (9,105,836                                                                                                               | )          | (45,340,101 | ) |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Other  income (expense)                                                 |       |                                                |       |                                                                                                                     |       |   |   |
| Net  decrease in fair value of derivative liability                     |       | —                                              |       | —                                                                                                                   |       | 845,079 |   |
| Other  income                                                           |       | —                                              |       | —                                                                                                                   |       | 886,886 |   |
| Debt  issuance expense                                                  |       | (54,951                                             | )          | —                                                                                                                   |       | (699,297 | ) |
| Interest  income (expense), net                                         |       | (22,179                                             | )          | 169,285                                                                                                                  |       | (2,110,169 | ) |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Net  loss                                                               |       | $                                                   | (4,708,937 | )                                                                                                                        | $          | (8,936,551 | ) | $ | (46,417,602 | ) |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Preferred  stock dividends and amortization of discount                 |       | (3,569,136                                          | )          | (3,573,957                                                                                                               | )          | (12,838,816 | ) |
| Net  loss attributable to common shareholders                           |       | $                                                   | (8,278,073 | )                                                                                                                        | $          | (12,510,508 | ) | $ | (59,256,418 | ) |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Per  share information                                                  |       |                                                |       |                                                                                                                     |       |   |   |
| Net  loss — basic and diluted                                      |       | $                                                   | (0.21      | )                                                                                                                        | $          | (0.39 | ) | $ | (4.46 | ) |
| Preferred  stock dividends                                              |       | (0.15                                               | )          | (0.16                                                                                                                    | )          | (1.24 | ) |
| Net  loss attributable to common shareholders — basic and diluted  |       | $                                                   | (0.36      | )                                                                                                                        | $          | (0.55 | ) | $ | (5.70 | ) |
|                                                                    |       |                                                |       |                                                                                                                     |       |   |   |
| Weighted  average number of basic and diluted common shares outstanding |       | 22,897,418                                          |       | 22,897,418                                                                                                               |       | 10,398,854 |   |

 

*See accompanying notes to thesecondensed consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(unaudited)

 
| ** **                                                              | ** ** | **Three  Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                                                    |       |                                   |       |   |   |
| Revenues                                                                |       |                                   |       |   |   |
| Development  contract revenue                                           |       | $                                      | —     |   | $ | — |   |
|                                                                    |       |                                   |       |   |   |
| Total  revenues                                                         |       | —                                 |       | — |   |
|                                                                    |       |                                   |       |   |   |
| Cost  of revenues                                                       |       | —                                 |       | — |   |
|                                                                    |       |                                   |       |   |   |
| Gross  margin                                                           |       | —                                 |       | — |   |
|                                                                    |       |                                   |       |   |   |
| Selling,  general and administrative expenses                           |       | 745,051                                |       | 883,869 |   |
| Research  and development                                               |       | 693,860                                |       | 1,895,055 |   |
|                                                                    |       |                                   |       |   |   |
| Operating  loss                                                         |       | (1,438,911                             | )          | (2,778,924 | ) |
|                                                                    |       |                                   |       |   |   |
| Other  income (expense)                                                 |       |                                   |       |   |   |
| Debt  issuance expense                                                  |       | (48,400                                | )          | — |   |
| Interest  income (expense), net                                         |       | (22,862                                | )          | 26,346 |   |
|                                                                    |       |                                   |       |   |   |
| Net  loss                                                               |       | $                                      | (1,510,173 | ) | $ | (2,752,578 | ) |
|                                                                    |       |                                   |       |   |   |
| Preferred  stock dividends and amortization of discount                 |       | (1,196,140                             | )          | (1,196,141 | ) |
| Net  loss attributable to common shareholders                           |       | $                                      | (2,706,313 | ) | $ | (3,948,719 | ) |
|                                                                    |       |                                   |       |   |   |
| Per  share information                                                  |       |                                   |       |   |   |
| Net  loss — basic and diluted                                      |       | $                                      | (0.07      | ) | $ | (0.12 | ) |
| Preferred  stock dividends                                              |       | (0.05                                  | )          | (0.05 | ) |
| Net  loss attributable to common shareholders — basic and diluted  |       | $                                      | (0.12      | ) | $ | (0.17 | ) |
|                                                                    |       |                                   |       |   |   |
| Weighted  average number of basic and diluted common shares outstanding |       | 22,897,418                             |       | 22,897,418 |   |

 

*See accompanying notes to these condensedconsolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statementsof Shareholders’ Equity (Deficit)

 
| ** **                                                                               | ** ** | **Series A  Preferred Stock** | ** ** | ** ** | ** **   | ** **             | ** ** | ** **     | ** ** | ** **           | ** ** | **Accumulated  Deficit**      | ** **      | **Total**              | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|------------|--------------|------------------------|------------|----------------|------------|----------------------|------------|-------------------------------|-----------------|------------------------|------------|
| ** **                                                                               | ** ** | **Number**                              | ** ** | ** ** | ** **   | **Common Stock**  | ** ** | **Additional** | ** ** | **Deferred**         | ** ** | **During**                    | ** **      | **Shareholders’** | ** ** |
| ** **                                                                               | ** ** | **of  Shares**                          | ** ** | **Amount** | ** **   | **Number  of  Shares** | ** ** | **Amount**     | ** ** | **Paid-In  Capital** | ** ** | **Stock-Based  Compensation** | ** **      | **Development  Stage** | ** ** | **Equity  (Deficit)** | ** ** |
| Founder  shares issued at inception at February 17, 1998                            |       | —                                  |       | $          |  — |                   | 4,500,000  |           | $          |  4,500          |       | $                             |  (500      | )                      | $          |  — |   | $ |  — |   | $ |  4,000 |   |
| Stock  issued during 1999 (prices ranging from $0.50 - $0.62 per share)                  |       | —                                  |       | —     |         | 180,000                |       | 180            |       | 183,820              |       | —                        |            | —                 |       | 184,000 |   |
| Stock  issued during 2000 (prices ranging from $11.34 - $17.00 per share)                |       | —                                  |       | —     |         | 63,750                 |       | 64             |       | 956,186              |       | —                        |            | —                 |       | 956,250 |   |
| Stock  issued during 2001 (prices ranging from $10.00 - $17.00 per share)                |       | —                                  |       | —     |         | 28,176                 |       | 28             |       | 404,227              |       | —                        |            | —                 |       | 404,255 |   |
| Stock  issued during 2002 (prices ranging from $2.00 - $10.00 per share)                 |       | —                                  |       | —     |         | 157,327                |       | 157            |       | 353,783              |       | —                        |            | —                 |       | 353,940 |   |
| Deferral  of stock-based compensation                                                    |       | —                                  |       | —     |         | —                 |       | —         |       | 1,100,000            |       | (1,100,000                    | )               | —                 |       | — |   |
| Amortization  of stock-based compensation                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | 206,250                       |            | —                 |       | 206,250 |   |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (3,968,540             | )          | (3,968,540 | ) |
| Balance,  December 31, 2002                                                         |       | —                                  |       | $          |  — |                   | 4,929,253  |           | $          |  4,929          |       | $                             |  2,997,516 |                   | $          | (893,750 | ) | $ | (3,968,540 | ) | $ | (1,859,845 | ) |
| Stock  issued during 2003 (prices ranging from $1.00 - $2.00 per share)                  |       | —                                  |       | —     |         | 210,827                |       | 211            |       | 263,943              |       | —                        |            | —                 |       | 264,154 |   |
| Amortization  of stock-based compensation                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | 275,000                       |            | —                 |       | 275,000 |   |
| Warrants  issued                                                                         |       | —                                  |       | —     |         | —                 |       | —         |       | 500,000              |       | —                        |            | —                 |       | 500,000 |   |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (2,492,123             | )          | (2,492,123 | ) |
| Balance,  December 31, 2003                                                         |       | —                                  |       | $          |  — |                   | 5,140,080  |           | $          | 5,140                |       | $                             | 3,761,459       |                   | $          | (618,750 | ) | $ | (6,460,663 | ) | $ | (3,312,814 | ) |
| Issuance  of common stock for services                                                   |       | —                                  |       | —     |         | 738,309                |       | 738            |       | 316,975              |       | —                        |            | —                 |       | 317,713 |   |
| Conversion  of note payable for common stock                                             |       | —                                  |       | —     |         | 51,008                 |       | 51             |       | 95,052               |       | —                        |            | —                 |       | 95,103 |   |
| Exercise  of stock options                                                               |       | —                                  |       | —     |         | 1,490,000              |       | 1,490          |       | 28,310               |       | —                        |            | —                 |       | 29,800 |   |
| Exercise  of warrants                                                                    |       | —                                  |       | —     |         | 512,500                |       | 513            |       | 34,487               |       | —                        |            | —                 |       | 35,000 |   |
| Amortization  of stock-based compensation                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | 618,750                       |            | —                 |       | 618,750 |   |
| Conversion  of bridge loans                                                              |       | 256,643                                 |       | 257        |         | 850,625                |       | 851            |       | 1,834,242            |       | —                        |            | —                 |       | 1,835,350 |   |
| Issuance  of preferred stock                                                             |       | 2,565,000                               |       | 2,565      |         | —                 |       | —         |       | 7,646,765            |       | —                        |            | —                 |       | 7,649,330 |   |
| Issuance  of common stock for net assets of REFL                                         |       | —                                  |       | —     |         | 1,100,808              |       | 1,101          |       | (1,101               | )          | —                        |            | —                 |       | — |   |
| Issuance  of common stock for net assets of Gemini                                       |       | —                                  |       | —     |         | 2,917,250              |       | 2,917          |       | 26,255               |       | —                        |            | —                 |       | 29,172 |   |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (2,315,332             | )          | (2,315,332 | ) |
| Balance,  December 31, 2004                                                         |       | 2,821,643                               |       | $          |  2,822  |                   | 12,800,580 |           | $          | 12,801               |       | $                             | 13,742,444      |                   | $          | — |   | $ | (8,775,995 | ) | $ | 4,982,072 |   |
| Issuance  of preferred stock                                                             |       | 930,000                                 |       | 930        |         | —                 |       | —         |       | 2,798,370            |       | —                        |            | —                 |       | 2,799,300 |   |
| Conversion  of preferred stock into common stock and payment of preferred stock dividend |       | (1,222,499                              | )          | (1,223     | )            | 2,594,477              |       | 2,594          |       | 260,296              |       | —                        |            | (261,667               | )          | — |   |
| Issuance  of preferred stock for dividends                                               |       | 156,507                                 |       | 157        |         | —                 |       | —         |       | 547,618              |       | —                        |            | (547,775               | )          | — |   |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (4,966,790             | )          | (4,966,790 | ) |
| Balance,  December 31, 2005                                                         |       | 2,685,651                               |       | $          |  2,686  |                   | 15,395,057 |           | $          | 15,395               |       | $                             | 17,348,728      |                   | $          | — |   | $ | (14,552,227 | ) | $ | 2,814,582 |   |
| Conversion  of preferred stock into common stock and payment of preferred stock dividend |       | (450,317                                | )          | (451       | )            | 916,916                |       | 917            |       | 28,039               |       | —                        |            | (28,505                | )          | — |   |
| Stock  compensation expense                                                              |       | —                                  |       | —     |         | —                 |       | —         |       | 914,755              |       | —                        |            | —                 |       | 914,755 |   |
| Issuance  of warrants to placement agent                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | 37,596               |       | —                        |            | —                 |       | 37,596 |   |
| Issuance  of preferred stock for dividends                                               |       | 134,117                                 |       | 134        |         | —                 |       | —         |       | 469,289              |       | —                        |            | (469,423               | )          | — |   |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (6,485,618             | )          | (6,485,618 | ) |
| Balance,  December 31, 2006                                                         |       | 2,369,451                               |       | $          | 2,369        |                   | 16,311,973 |           | $          | 16,312               |       | $                             | 18,798,407      |                   | $          | — |   | $ | (21,535,773 | ) | $ | (2,718,685 | ) |
| Conversion  of preferred stock into common stock and payment of preferred stock dividend |       | (2,369,451                              | )          | (2,369     | )            | 6,545,445              |       | 6,545          |       | 455,180              |       | —                        |            | (459,356               | )          | — |   |
| Stock  compensation expense                                                              |       | —                                  |       | —     |         | —                 |       | —         |       | 2,029,326            |       | —                        |            | —                 |       | 2,029,326 |   |
| Issuance  of warrants to consultants                                                     |       | —                                  |       | —     |         | —                 |       | —         |       | 297,891              |       | —                        |            | —                 |       | 297,891 |   |
| Issuance  of warrants to Series B Preferred Stock Investors                         |       | —                                  |       | —     |         | —                 |       | —         |       | 3,715,602            |       | —                        |            | —                 |       | 3,715,602 |   |
| Intrinsic  value of beneficial conversion option on Series B Preferred Stock        |       | —                                  |       | —     |         | —                 |       | —         |       | 3,715,602            |       | —                        |            | —                 |       | 3,715,602 |   |
| Issuance  of common stock for services                                                   |       | —                                  |       | —     |         | 40,000                 |       | 40             |       | 52,360               |       | —                        |            | —                 |       | 52,400 |   |
| Issuance  of warrants to Series C Preferred Stock Investors                         |       | —                                  |       | —     |         | —                 |       | —         |       | 3,809,644            |       | —                        |            | —                 |       | 3,809,644 |   |
| Intrinsic  value of beneficial conversion option on Series C Preferred Stock        |       | —                                  |       | —     |         | —                 |       | —         |       | 3,809,644            |       | —                        |            | —                 |       | 3,809,644 |   |
| Amortization  of discount of Series B Preferred Stock                               |       | —                                  |       | —     |         | —                 |       | —         |       | (1,300,460           | )          | —                        |            | —                 |       | (1,300,460 | ) |
| Amortization  of discount of Series C Preferred Stock                               |       | —                                  |       | —     |         | —                 |       | —         |       | (380,964             | )          | —                        |            | —                 |       | (380,964 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | (844,274             | )          | —                        |            | —                 |       | (844,274 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | (206,028             | )          | —                        |            | —                 |       | (206,028 | ) |
| Reclassification  of derivative liabilities to equity                                    |       | —                                  |       | —     |         | —                 |       | —         |       | 560,368              |       | —                        |            | —                 |       | 560,368 |   |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (10,895,846            | )          | (10,895,846 | ) |
| Balance,  December 31, 2007                                                         |       | —                                  |       | $          | —       |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 34,512,298      |                   | $          | — |   | $ | (32,890,975 | ) | $ | 1,644,220 |   |
| Stock  compensation expense                                                              |       | —                                  |       | —     |         | —                 |       | —         |       | 1,037,441            |       | —                        |            | —                 |       | 1,037,441 |   |
| Issuance  of warrants to consultants                                                     |       | —                                  |       | —     |         | —                 |       | —         |       | 5,919                |       | —                        |            | —                 |       | 5,919 |   |
| Amortization  of discount of Series B Preferred Stock                               |       | —                                  |       | —     |         | —                 |       | —         |       | (1,486,240           | )          | —                        |            | —                 |       | (1,486,240 | ) |
| Amortization  of discount of Series C Preferred Stock                               |       | —                                  |       | —     |         | —                 |       | —         |       | (1,523,858           | )          | —                        |            | —                 |       | (1,523,858 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | (960,000             | )          | —                        |            | —                 |       | (960,000 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | (800,000             | )          | —                        |            | —                 |       | (800,000 | ) |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (10,584,416            | )          | (10,584,416 | ) |
| Balance,  December 31, 2008                                                         |       | —                                  |       | $          | —       |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 30,785,560      |                   | $          | — |   | $ | (43,475,391 | ) | $ | (12,666,934 | ) |
| Stock  compensation expense                                                              |       | —                                  |       | —     |         | —                 |       | —         |       | 1,043,328            |       | —                        |            | —                 |       | 1,043,328 |   |
| Issuance  of warrants to convertible note investors                                      |       | —                                  |       | —     |         | —                 |       | —         |       | 53,825               |       | —                        |            | —                 |       | 53,825 |   |
| Issuance  of warrants to placement agent                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | 209,798              |       | —                        |            | —                 |       | 209,798 |   |
| Amortization  of discount of Series B Preferred Stock                               |       | —                                  |       | —     |         | —                 |       | —         |       | (1,114,681           | )          | —                        |            | —                 |       | (1,114,681 | ) |
| Amortization  of discount of Series C Preferred Stock                               |       | —                                  |       | —     |         | —                 |       | —         |       | (1,142,893           | )          | —                        |            | —                 |       | (1,142,893 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | (715,397             | )          | —                        |            | —                 |       | (715,397 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                                  |       | —     |         | —                 |       | —         |       | (596,165             | )          | —                        |            | —                 |       | (596,165 | ) |
| Net  loss                                                                                |       | —                                  |       | —     |         | —                 |       | —         |       | —               |       | —                        |            | (4,708,937             | )          | (4,708,937 | ) |
| Balance,  September 30, 2009                                                        |       | —                                  |       | $          | —       |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 28,523,375      |                   | $          | — |   | $ | (48,184,328 | ) | $ | (19,638,056 | ) |

 

*Seeaccompanying notes to these condensed consolidated financial statements.*

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(unaudited)

 
| ** **                                                                   | ** ** | **Nine  Months Ended  September 30,** | ** ** | **Cumulative  Period  from February 18,  1998 (date of  inception) to  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                              | ** ** | **2008**                                                                               | ** ** | **2009** | ** ** |
| Cash  flows from operating activities                                        |       |                                  |       |                                                                                   |       |   |   |
| Net  loss                                                                    |       | $                                     | (4,708,937 | )                                                                                      | $          | (8,936,551 | ) | $ | (46,417,602 | ) |
| 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                                               |       | 248,964                               |       | 220,145                                                                                |       | 1,350,387 |   |
| Stock  issued for services                                                   |       | —                                |       | —                                                                                 |       | 512,462 |   |
| Stock  compensation expense                                                  |       | 1,043,328                             |       | 817,337                                                                                |       | 5,024,850 |   |
| Non-cash  compensation expense                                               |       | —                                |       | —                                                                                 |       | 1,100,000 |   |
| Amortization  of deferred loan costs                                         |       | 54,951                                |       | —                                                                                 |       | 699,297 |   |
| Amortization  of discounts on notes payable                                  |       | 6,661                                 |       | —                                                                                 |       | 1,487,109 |   |
| Net  decrease in fair value of derivatives                                   |       | —                                |       | —                                                                                 |       | (845,077 | ) |
| Issuance  of warrants to consultants                                         |       | —                                |       | 5,919                                                                                  |       | 303,810 |   |
| Change  in operating assets and liabilities:                                 |       |                                  |       |                                                                                   |       |   |   |
| Increase  in cash restricted for note payable and lease obligations          |       | —                                |       | —                                                                                 |       | (34,877 | ) |
| Decrease  (increase) in prepaid expenses and other current assets            |       | —                                |       | 1,900                                                                                  |       | (147,745 | ) |
| Increase  in accounts payable                                                |       | 236,755                               |       | 387,394                                                                                |       | 967,772 |   |
| Increase  in accrued interest payable                                        |       | 19,795                                |       | —                                                                                 |       | 200,738 |   |
| Increase  (decrease) in accrued expenses and other liabilities               |       | 258,112                               |       | (88,324                                                                                | )          | 1,436,616 |   |
| Increase  in deferred revenue                                                |       | —                                |       | —                                                                                 |       | 33,333 |   |
| Net  cash used in operating activities                                       |       | (2,840,371                            | )          | (7,592,180                                                                             | )          | (35,215,813 | ) |
|                                                                         |       |                                  |       |                                                                                   |       |   |   |
| Cash  flows from investing activities                                        |       |                                  |       |                                                                                   |       |   |   |
| Purchase  of property and equipment                                          |       | —                                |       | (254,978                                                                               | )          | (1,654,352 | ) |
| 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                                                                               | )          | (1,890,896 | ) |
|                                                                         |       |                                  |       |                                                                                   |       |   |   |
| Cash  flows from financing activities                                        |       |                                  |       |                                                                                   |       |   |   |
| Proceeds  from notes payable to related party                                |       | —                                |       | —                                                                                 |       | 115,103 |   |
| Payments  on notes payable to related party                                  |       | —                                |       | —                                                                                 |       | (164,328 | ) |
| Proceeds  from convertible notes payable                                     |       | 1,925,000                             |       | —                                                                                 |       | 5,315,000 |   |
| Payments  on convertible notes payable                                       |       | —                                |       | —                                                                                 |       | (1,470,672 | ) |
| Net  repayments from notes payable                                           |       | —                                |       | —                                                                                 |       | (62,833 | ) |
| Issuance  of warrants to placement agent                                     |       | —                                |       | —                                                                                 |       | 37,596 |   |
| Payment  of deferred loan costs                                              |       | (240,430                              | )          | —                                                                                 |       | (240,430 | ) |
| Proceeds  from the issuance of preferred stock, net                          |       | —                                |       | —                                                                                 |       | 32,367,969 |   |
| Proceeds  from the issuance of common stock, net                             |       | —                                |       | —                                                                                 |       | 2,089,050 |   |
| Net  cash provided by financing activities                                   |       | 1,684,570                             |       | —                                                                                 |       | 37,986,455 |   |
|                                                                         |       |                                  |       |                                                                                   |       |   |   |
| Net  increase (decrease) in cash and cash equivalents                        |       | (1,155,801                            | )          | (8,043,746                                                                             | )          | 879,746 |   |
| Cash  and cash equivalents, beginning of period                              |       | 2,035,547                             |       | 11,697,425                                                                             |       | — |   |
| Cash  and cash equivalents, end of period                                    |       | $                                     | 879,746    |                                                                                   | $          | 3,653,679 |   | $ | 879,746 |   |
|                                                                         |       |                                  |       |                                                                                   |       |   |   |
| Supplemental  disclosures of cash flow information:                          |       |                                  |       |                                                                                   |       |   |   |
| Cash  paid for interest                                                      |       | $                                     | —     |                                                                                   | $          | — |   | $ | 960,727 |   |
| Cash  paid for income taxes                                                  |       | $                                     | —     |                                                                                   | $          | — |   | $ | — |   |
| Interest  capitalized into notes payable                                     |       | $                                     | —     |                                                                                   | $          | — |   | $ | 8,250 |   |
| Debt  issuance cost for warrant issued                                       |       | $                                     | —     |                                                                                   | $          | — |   | $ | 500,000 |   |
| Preferred  stock dividend and amortization of discount                       |       | $                                     | 3,569,136  |                                                                                   | $          | 3,573,957 |   | $ | 12,838,816 |   |
| Conversion  of notes payable for preferred stock                             |       | $                                     | —     |                                                                                   | $          | — |   | $ | 898,250 |   |
| Conversion  of notes payable for common stock                                |       | $                                     | —     |                                                                                   | $          | — |   | $ | 980,103 |   |
| Stock  issued for services                                                   |       | $                                     | —     |                                                                                   | $          | — |   | $ | 1,612,462 |   |
| Stock  issued for interest                                                   |       | $                                     | —     |                                                                                   | $          | — |   | $ | 81,272 |   |
| Reclassification  of derivatives to equity                                   |       | $                                     | —     |                                                                                   | $          | — |   | $ | 560,368 |   |
| Intrinsic  value of beneficial conversion options on Preferred Stock         |       | $                                     | —     |                                                                                   | $          | — |   | $ | 7,525,246 |   |
| Issuance  of warrants to Preferred Stock investors                           |       | $                                     | —     |                                                                                   | $          | — |   | $ | 7,525,246 |   |
| Issuance  of warrants to convertible note investors                          |       | $                                     | 53,825     |                                                                                   | $          | — |   | $ | 53,825 |   |
| Issuance  of warrants to Placement Agent                                     |       | $                                     | 209,798    |                                                                                   | $          | — |   | $ | 209,798 |   |

 

*See accompanying notes to thesecondensed consolidated financial statements.*

 

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**Uni-Pixel, Inc.**

**(ADevelopment Stage Company)**

**Notes to Unaudited Consolidated FinancialStatements**

 

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

 

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

 

Uni-Pixel is adevelopment stage company that has developed, patented and demonstrated a newcolor display technology in the form of proof of concept prototypes which wecall Time Multiplexed Optical Shutter (“TMOS”).  We intend to be a leaderin the research, development and commercialization of new flat panel displaysusing TMOS in a variety of applications, such as mobile phones, digitalcameras, notebook computers, televisions and other consumer electronic devices.Our work developing TMOS has led to advances in the thin film arena that haveother marketable applications.  We intendto explore the business potential within these applications and pursue thosethin film markets that offer profitable opportunities either through licensingor direct production and sales.  As of September 30,2009, we had accumulated a total deficit of $48.2 million from operations inpursuit of these objectives.

 

We anticipate that ourTMOS displays will be thin, lightweight, and power-efficient devices, which arehighly suitable for use in full-color display applications.  We believeTMOS displays will be able to capture a share of the growing $90+ billionflat panel display market due to the significant advantages it should provideover competing displays with respect to manufacturing and materials cost,brightness, power efficiency, viewing angle, and video response time and imagequality.  We believe that our technology leadership and intellectualproperty position will enable us to generate revenues initially from TMOSdisplays for existing vertical market segments such as the military, avionics,and automotive segments, and then subsequently from consumer electronicsmarkets (i.e., TVs, monitors, personal computers, cameras, games, etc.).

 

Our strategy is tofurther develop our proprietary TMOS technology to the point of being able totransition the technology to manufacturing partners.  We have and willcontinue to utilize contract manufacturing for prototype fabrication to augmentour internal capabilities in the short term.  We also plan to be asupplier of our key thin film component and to enter into joint ventures incertain vertical market segments to exploit the existing manufacturing anddistribution channels of our targeted partners.  We plan to license ourtechnology to display manufacturers and supporting partner companies for use inapplications such as mobile phones, digital cameras, laptop computers, andother consumer electronic devices. Through our internal research anddevelopment efforts we have established a portfolio of TMOS-related patents andpatent applications and other intellectual property rights that support thesejoint venture and licensing strategies.  We currently have 39 issuedpatents, 1 allowed patents, and 81 pending patent applications filed in keyvenues worldwide including regionally in Europe, Asia Pacific, South Americaand North America. We also contemplate obtaining exclusive field-of-uselicenses (which would include the right to sublicense) to complementarytechnologies from targeted strategic partners and U.S. national laboratories.

 

During the course of 2008we developed our first independent thin film product opportunity.  This unique variation of the thin filmdeveloped for TMOS can be applied to a variety of touch screen product devicesas a protective cover.  We intend tomarket this thin film product under our brand, OpcuityTM, to various potentialdistribution and channel partners.

 

Since our inception, wehave been primarily engaged in developing our initial product technologies,recruiting personnel, commencing our U.S. operations and obtaining sufficientcapital to meet our working capital needs. In the course of our developmentactivities, we have sustained losses and expect such losses to continue throughat least 2009. We will finance our operations primarily through our existingcash and possible future financing transactions.

 

Our ability to operateprofitably under our current business plan is largely contingent upon our successin developing our products beyond proof of concept to final prototypes,supporting transferable manufacturing processes to partners to produce ourproducts and successfully developing markets and manufacturing relationshipsfor our products.  We may be required toobtain additional capital in the future to expand our operations. No assurancecan be given that we will be able to develop our products, successfully developthe markets or profitable manufacturing methods for our products, or raise anysuch additional capital as we might need, either through equity or debtfinancing, on satisfactory terms or at all. Additionally, no assurance can begiven 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.

 

If we achieve growth inour operations in the next few years, such growth could place a strain on ourmanagement, administrative, operational and financial infrastructure. Ourability to manage our current operations and future growth requires the 

 

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continued improvement ofoperational, financial and management controls, reporting systems andprocedures. 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, our business,operating results and financial condition may be materially adversely affected.

 

As of September 30,2009, we had cash and cash equivalents of $0.9 million.  We believe thatour existing capital resources are adequate to finance our operations until December 15,2009.  However, our long-term viabilityis dependent upon our ability to successfully operate our business, develop ourmanufacturing process, sign partnership agreements, develop our products andraise additional debt and equity to meet our business objectives.

 

*CorporateHistory*

 

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

 

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

 

Our wholly-ownedsubsidiary, Uni-Pixel Displays, Inc., was originally incorporated asTralas 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.

 

*Basisof Presentation*

 

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

 

**Note 2 - Going Concern**

 

Ouraccompanying consolidated financial statements have been prepared assuming thatwe will continue as a going concern, which contemplates realization of assetsand the satisfaction of liabilities in the normal course of business.  However, Uni-Pixel has sustained losses andnegative cash flows from operations since its inception. As shown in theaccompanying consolidated financial statements, Uni-Pixel incurred recurringnet losses of $4.7 million and $8.9 million for the nine months ended September 30,2009 and 2008, respectively, has negative working capital of $1.0 million andhas an accumulated deficit of $48.2 million as of September 30, 2009.  The Company’s ability to meet its obligationsin the ordinary course of business is dependent upon its ability to establishprofitable operations, raise additional financing through public or privateequity financings, enter into collaborative or other arrangements withcorporate sources, or secure other sources of financing to fund operations.  Starting in the fourth quarter of 2008, theCompany’s management began to reduce operating expenses and delay plannedexpenditures to maximize cash available for working capital needs.

 

In the second quarter of2009, the Company raised a total of $650,000 in convertible notes.  In the third quarter of 2009, the Companyraised a total of $1,275,000 in convertible notes.   In 2007, the Company had raised an aggregateof $22 million in a 

 

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private placement of its Series Band Series C Preferred Stock (See Note 5). Management believes that it has sufficient cash to enable the Company tocontinue operations until December 15, 2009.

 

Our growth and continuedoperations could be impaired by limitations on our access to the capitalmarkets.  In the event that we do not raise additional funding, wemay be forced to further scale back our operations which would have a materialadverse impact upon our ability to pursue our business plan.  We haveno commitments from officers, directors or affiliates to providefunding.  There can be no assurance that capital from outside sourceswill be available, or if such financing is available, it may involve issuingsecurities senior to our common stock or equity financings which are dilutiveto holders of our common stock.  In addition, in the event we do notraise additional capital from conventional sources, it is likely that ourgrowth will be restricted and we may need to scale back or curtail implementingour business plan.

 

Our ability to reachprofitably under our current business plan is largely contingent upon oursuccess in developing beyond proof of concept to final prototypes andsupporting transferable manufacturing processes to partners to produce for saleour products and upon our successful development of markets for our productsand successful manufacturing relationships.  We will need to obtainadditional capital in the future to expand our operations. No assurance can begiven that we will be able to develop our products, successfully develop themarkets for our products or profitable manufacturing methods, or raise any suchadditional capital as we might need, either through equity or debt financing,on satisfactory terms or at all. Additionally, no assurance can be given thatany such financing, if obtained, will be adequate to meet our ultimate capitalneeds or to support our growth. If adequate capital cannot be obtained onsatisfactory terms, our operations could be negatively impacted.

 

The conditions describedabove create substantial doubt as to Uni-Pixel’s ability to continue as a goingconcern.  The September 30, 2009 condensed consolidatedfinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classifications of liabilities that may result from the outcome ofthis uncertainty.

 

**Note 3 - Summary ofSignificant Accounting Policies**

 

*Interimfinancial information*

 

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

 

The accounting andreporting policies of the Company conform to U.S. generally accepted accountingprinciples (GAAP) and to the practices within the technology industry.  There have been no significant changes in theCompany’s significant accounting policies during the three and nine monthsended September 30, 2009 compared to what was previously disclosed in theCompany’s Annual Report on 10-K for the year ended December 31, 2008. Theconsolidated financial information as of December 31, 2008 included hereinhas been derived from the Company’s audited consolidated financial statementsas of, and for the fiscal year ended, December 31, 2008.

 

*Use ofestimates*

 

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

 

*Statementof cash flows*

 

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

 

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*Concentrationof credit risk*

 

We maintain our cashprimarily with major U.S. domestic banks. The amounts held in interest bearing accounts periodically exceed theinsured limit of $250,000 at September 30, 2009 and December 31, 2008.  The amounts held in these banks did notexceed the insured limit of $250,000 as of September 30, 2009 and December 31,2008, respectively.  The terms of otherdeposits are on demand and are subject to guarantees in full by FDIC under theTransaction Account Guarantee Program. We have not incurred losses related to these deposits.  In addition, on September 30, 2009 and December31, 2008, we held an investment account of $726,619 and $1,662,973,respectively, with a financial institution other than a bank.  These funds are invested in money marketfunds.  We have not incurred lossesrelated to these deposits.

 

*Restrictedcash*

 

As of September 30, 2009and December 31, 2008, we had restricted cash of $34,877.  This amount secured certain obligations underour lease agreement for our principal facility located in The Woodlands, Texasas of both September 30, 2009 and December 31, 2008.  The restricted cash has been segregated intocurrent and long-term classifications based on its anticipated liquidation.

 

*Researchand development expenses*

 

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

 

*Incometaxes*

 

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

 

The Company has lossescarried forward for income tax purposes to September 30, 2009. There are nocurrent or deferred tax expenses for the nine month periods ended September 30,2009 and 2008 due to the Company’s loss position. The Company has fullyreserved for any benefits of these losses. The deferred tax consequences oftemporary differences in reporting items for financial statement and income taxpurposes are recognized, as appropriate. Realization of the future tax benefitsrelated to the deferred tax assets is dependent on many factors, including theCompany’s ability to generate taxable income within the net operating losscarryforward period. Management has considered these factors in reaching itsconclusion as to the valuation allowance for financial reporting purposes.Accordingly, no benefit has been recognized on the net loss as the realizationof the net operating loss carryforward cannot be assured.

 

*Lossper share data*

 

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

 

At September 30, 2009,options and warrants to purchase 21,298,698 shares of common stock at exerciseprices ranging from $0.50 to $2.00 per share were outstanding, but were notincluded in the computation of diluted earnings per share as their effect wouldbe antidilutive.  Further, at September 30,2009, 19,359,562 shares of common stock, convertible from Series B ConvertiblePreferred Stock and associated dividends, were not included in the computationof diluted earnings per share as their effect would be antidilutive.  Further, at September 30, 2009, 8,287,288 sharesof common stock, convertible from Series C Convertible Preferred Stock andassociated dividends, were not included in the computation of diluted earningsper share as their effect would be antidilutive.

 

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*Fairvalue of financial instruments*

 

Our financial instrumentsconsist of accounts receivable, accounts payable, notes payable and derivativeliabilities. We believe the fair values of our accounts receivable, accountspayable and notes payable reflect their respective carrying amounts. The fairvalue of derivative liabilities, due to certain embedded features (conversionoption) and free standing derivatives (warrants) is calculated using theBlack-Scholes valuation model.

 

*Recentlyissued accounting pronouncements*

 

In April 2009, the FASBissued the following three FSPs intended to provide additional applicationguidance and enhance disclosures regarding fair value measurements andimpairments of securities:

 

FSP FAS 157-4, *Determining Fair Value When the Volume and Level ofActivity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly* (ASC 820-10-65-4, *Transition Related to FASB Staff Position FAS 157-4*),provides additional guidance for estimating fair value in accordance with SFAS No.157 when the volume and level of activity for the asset or liability havedecreased significantly. This FSP also provides guidance on identifyingcircumstances that indicate a transaction is not orderly. The provisions ofthis FSP are effective for the Company’s interim period ending on June 30,2009. The adoption of this FSP at June 30, 2009 did not have a material impacton the Company’s statement of operations and balance sheet.

 

FSP FAS 107-1 and APB28-1, *Interim Disclosures about Fair Valueof Financial Instruments*(ASC 825-10-65-1, *Transition Related to FSP FAS 107-1 and APB 28-1*),requires disclosures about fair value of financial instruments in interimreporting periods of publicly traded companies that were previously onlyrequired to be disclosed in annual financial statements. The provisions of thisFSP are effective for the Company’s interim period ending on June 30, 2009 andonly amends the disclosure requirements about fair value of financialinstruments in interim periods. The Company adopted this FSP during the secondquarter of 2009. See Note 9 for additional information.

 

FSP FAS 115-2 and FAS124-2, *Recognition and Presentation ofOther-Than-Temporary Impairments*(ASC 320-10-65-1, *Transition Related to FSP FAS 115-2 and FAS 124-2*),amends current other-than-temporary impairment guidance in GAAP for debtsecurities to make the guidance more operational and to improve thepresentation and disclosure of other-than-temporary impairments on debt andequity securities in the financial statements. This FSP does not amend existingrecognition and measurement guidance related to other-than-temporaryimpairments of equity securities. The provisions of this FSP are effective forthe Company’s interim period ending on June 30, 2009.

 

The Company adopted theseFSPs effective April 1, 2009. The adoption of these FSPs did not have amaterial impact on the Company’s statement of operations and balance sheet.

 

In December 2007, theFASB issued SFAS No. 141(revised 2007), *BusinessCombinations*, (ASC 805, *BusinessCombinations*) “ASC 805”, which replaces SFAS No. 141. ASC 805establishes principles and requirements for recognition and measurement ofassets, liabilities and any noncontrolling interest acquired due to a businesscombination. ASC 805 expands the definitions of a business and a businesscombination, resulting in an increased number of transactions or other eventsthat will qualify as business combinations. Under ASC 805 the entity thatacquires the business (the “acquirer”) will record 100 percent of all assetsand liabilities of the acquired business, including goodwill, generally attheir fair values. As such, an acquirer will not be permitted to recognize theallowance for loan losses of the acquiree. ASC 805 requires the acquirer torecognize goodwill as of the acquisition date, measured as a residual. In mostbusiness combinations, goodwill will be recognized to the extent that theconsideration transferred plus the fair value of any noncontrolling interestsin the acquiree at the acquisition date exceeds the fair values of theidentifiable net assets acquired. Under ASC 805, acquisition-relatedtransaction and restructuring costs will be expensed as incurred rather thantreated as part of the cost of the acquisition and included in the amountrecorded for assets acquired. ASC 805 is effective for fiscal years beginningafter December 15, 2008. The adoption of ASC 805 on January 1, 2009, had noeffect on the Company’s consolidated financial statements.

 

In March 2008, the FASBissued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities, and an amendment of FASBStatement No. 133* (ASC 815-10-65-1, *Transitionand Effective Date Related to FASB Statement No. 161*) “ASC 815”. ASC815 applies to all derivative instruments and related hedged items accountedfor under SFAS No. 133, *Accounting forDerivative Instruments and Hedging Activities*. ASC 815 requiresentities to provide greater transparency about (a) how and why an entity usesderivative instruments, (b) how derivative instruments are related hedged itemsare accounted for under SFAS No. 133 and its related interpretations, and (c) howderivative instruments and related hedged items affect an entity’s financialposition, results of operations and cash flows. To meet those objectives, ASC815 requires (1) qualitative disclosures about objectives for using derivativesby primary underlying risk exposure (e.g., interest rate, credit or foreignexchange rate) and 

 

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by purpose or strategy(fair value hedge, cash flow hedge, net investment hedge, and non-hedges), (2) informationabout the volume of derivative activity in a flexible format that the preparerbelieves is the most relevant and practicable, (3) tabular disclosures aboutbalance sheet location and gross fair value amounts of derivative instruments,income statement and other comprehensive income location of gain and lossamounts on derivative instruments by type of contract, and (4) disclosuresabout credit-risk related contingent features in derivative agreements. ASC 815is effective for financial statements issued for fiscal years and interimperiods beginning after November 15, 2008. The adoption of ASC 815 on January 1,2009, had no effect on the Company’s consolidated financial statements.

 

In May 2009, the FASBissued SFAS No. 165, *Subsequent Events*(ASC 855, *Subsequent Events*) “ASC855”*.*ACS 855 establishes generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued. Specifically, ASC 855 provides (a) the period after the balancesheet date during which management of a reporting entity should evaluate eventsor transactions that may occur for potential recognition or disclosure in the financialstatements; (b) the circumstances under which an entity should recognize eventsor transactions occurring after the balance sheet date in its financialstatements; and (c) the disclosures that an entity should make about events ortransactions that occurred after the balance sheet date. ASC 855 is effectivefor interim or annual financial periods ending after June 15, 2009, and shallbe applied prospectively. The Company adopted ASC 855 in the second quarter of2009. The adoption did not materially impact the Company. We considered allsubsequent events through November 11, 2009, the date the financial statementswere available to be issued.

 

In June 2009, the FASBissued SFAS No. 166, *Accounting forTransfers of Financial Assets* (ASC 860, *Transfers and Servicing*) “ASC 860”, which is a revision toSFAS No. 140. ASC 860 requires more information about transfers of financialassets, including securitization transactions and a company’s continuingexposure to the risks related to the transfer of financial assets. Iteliminates the concept of a “qualifying special-purpose entity” and changes therequirements for derecognizing financial assets. ASC 860 is effective for firstannual reporting period beginning after November 15, 2009. The Company isevaluating ASC 860 but does not expect that it will have any significant impacton its consolidated financial statements.

 

In June 2009, FASB issuedSFAS No.168, *FASB Accounting StandardsCodification TM and the Hierarchy of Generally Accepted Accounting Principles—areplacement of FASB Statement No. 162 (*ASC 105,*Generally Accepted Accounting Principles*)“ASC 105”, which states that the FASB Accounting Standards CodificationTM(Codification) will become the source of authoritative U.S. generally acceptedaccounting principles (GAAP) recognized by the FASB to be applied bynongovernmental entities. On the effective date of this Statement, theCodification will supersede all then-existing non-SEC accounting and reportingstandards. All other non-grandfathered non-SEC accounting literature notincluded in the Codification will become non-authoritative. ASC 105 iseffective for financial statements issued for interim and annual periods endingafter September 15, 2009. The codification is effective for these third quarterfinancial statements and the principal impact is limited to disclosures as allfuture references to authoritative literature will be reference in accordancewith the codification.

 

In August 2009, the FASBissued Accounting Standards Update (“ASU”) No. 2009-05, *Fair Value Measurements and Disclosures (Topic 820) —Measuring Liabilities at Fair Value*. This ASU provides amendmentsfor fair value measurements of liabilities. It provides clarification that incircumstances in which a quoted price in an active market for the identicalliability is not available, a reporting entity is required to measure fairvalue using one or more techniques. ASU 2009-05 also clarifies that whenestimating a fair value of a liability, a reporting entity is not required toinclude a separate input or adjustment to other inputs relating to theexistence of a restriction that prevents the transfer of the liability. ASU2009-05 is effective for the first reporting period (including interim periods)beginning after issuance or fourth quarter 2009. The Company is assessing theimpact of ASU 2009-05 on our financial condition, results of operations, anddisclosures.

 

In September 2009, theFASB issued additional guidance on measuring the fair value of liabilitieseffective for the first reporting period (including interim periods) beginningafter issuance. Implementation will not have a material impact on ourconsolidated financial position and results of operations.

 

In September 2009, theFASB issued additional guidance on measuring fair value of certain alternativeinvestments effective for the first reporting period (including interimperiods) ending after December 15, 2009. Implementation will not have amaterial impact on our consolidated financial position and results of operations.

 

The implementation of thefair value guidance for nonfinancial assets and nonfinancial liabilities,effective January 1, 2009, did not have a material impact on our consolidatedfinancial position and results of operations.

 

In October 2009, the FASBissued amendments to the accounting and disclosure for revenue recognition.These amendments, effective for fiscal years beginning on or after June 15,2010 (early adoption is permitted), modify the criteria for recognizing revenuein multiple element arrangements and the scope of what constitutes anon-software deliverable. The Company is currently assessing the impact (ifany) on its consolidated financial position and results of operations.

 

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Other accountingstandards that have been issued or proposed by the FASB or otherstandards-setting bodies are not expected to have a material impact on theCompany’s financial position, results of operations and cash flows.

 

**Note 4 -Commitments and Contingencies**

 

*Leases*

 

The Company hasentered into a lease for office, warehouse and laboratory facilities in TheWoodlands, Texas under a third party non-cancelable operating lease through2010. Future minimum lease commitments as of September 30, 2009 are as follows:

 

| **Year Ending December 31** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------|------------|
| 2009                        |       | $          | 51,771     |   |
| 2010                        |       | 191,825    |       |
| 2011                        |       | —     |       |
| 2012                        |       | —     |       |
| 2013                        |       | —     |       |
| Thereafter                  |       | —     |       |
| Total                       |       | $          | 243,596    |   |

 

This leaseprovides the Company with a 5-year renewal option.

 

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

 

*Equityinstruments issued to non-employees*

 

From time to time, inorder to preserve cash and to fund our operating activities, common stock orother equity instruments may be issued for cash or in exchange for goods orservices. Equity instruments issued for goods or services are recorded at thefair value of the goods or services received or the fair value of the equityinstruments issued, whichever is more reliably measurable.

 

*CommonStock*

 

During the nine months ended September 30, 2009 (1) weissued no shares of common stock for cash in connection with the exercise ofstock options; (2) issued no shares of common stock in exchange for cashlessexercise of warrants; (3) issued no shares of common stock in connection withthe conversion of Series B Preferred Stock and accrued dividends; and (4) issuedno shares of common stock in connection with the conversion of Series CPreferred Stock and accrued dividends.

 

*Series BConvertible Preferred Stock*

 

On February 13,2007, the Company 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 the Company sold on thatdate in a private placement to the Purchasers (a) 3,200,000 shares of theCompany’s Series B Convertible Preferred Stock, par value $0.001 per share (the“Series BPreferred Stock”), and (b) warrants (the “Series B Warrants”) topurchase, in aggregate, up to 6,839,279 shares of the Company’s common stock,par value $0.001 for an aggregate purchase price of $12,000,000.  As the Series B Preferred Stock is redeemablefor cash at the option of the holder after five years, the Series B PreferredStock is classified as temporary equity on the balance sheet. The Companydetermined that the Series B Preferred Stock contained a beneficial conversionfeature with an intrinsic value of $3,715,602, which was credited to additionalpaid-in capital in the first quarter of 2007, and is being amortized over fiveyears.  The Company utilized theBlack-Scholes methodology in determining the fair market value of the Series B Warrantsof $3,715,602, which was credited to additional paid-in capital in the firstquarter of 2007, and is being amortized over five years.

 

Dividends shallaccrue, whether or not declared and paid, on the Series B Preferred Stock atthe rate per annum of 8%, and shall be cumulative as to any dividends notdeclared and paid in any year, compounding annually at the same rate.  These dividends are charged to additionalpaid-in capital.  Each share of Series BPreferred Stock may, at the option of the holder, be converted at any time intoa number of fully paid and non-assessable shares of common stock of the Companyequal to the quotient obtained by dividing the original issue price of $3.75for the Series B Preferred Shares, plus all accrued and unpaid Series 

 

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B Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series BPreferred Stock conversion price of $0.75, which is subject to adjustment fromtime to time in accordance with the Certificate of Designations.  As of September 30, 2009, there were3,200,000 shares of Series B Preferred Stock outstanding, with cumulativeunpaid dividends of approximately $2,519,671 or 671,912 shares of Series BPreferred Stock.

 

*Series CConvertible Preferred Stock*

 

On September 28, 2007,the Company entered into a Securities Purchase Agreement (the “ ML PurchaseAgreement”) with Merrill Lynch Pierce, Fenner & Smith Incorporated (“MerrillLynch”) pursuant to which the Company sold on that date in a private placementto Merrill Lynch (a) 892,858 shares of the Company’s Series C ConvertiblePreferred 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.  As the Series C PreferredStock is redeemable for cash at the option of the holder after five years, the SeriesC Preferred Stock is classified as temporary equity on the balance sheet.  The Company determined that the Series CPreferred Stock contained a beneficial conversion feature with an intrinsicvalue of $3,809,644, which was credited to additional paid-in capital in thethird quarter 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 shallaccrue, whether or not declared and paid, on the Series C Preferred Stock atthe rate per annum of 8%, and shall be cumulative as to any dividends notdeclared and paid in any year, compounding annually at the same rate. Thesedividends are charged to additional paid-in capital.  Each share of Series C Preferred Stock may,at the option of the holder, be converted at any time into a number of fullypaid and non-assessable shares of common stock of the Company equal to thequotient obtained by dividing the original issue price of $11.20 for the SeriesC Preferred Shares, plus all accrued and unpaid Series C Preferred Stock dividendsand any other declared and unpaid dividends, by the initial Series C PreferredStock conversion price of $1.40, which is subject to adjustment from time totime in accordance with the Certificate of Designations.  As of September 30, 2009, there were 892,858shares of Series C Preferred Stock outstanding, with cumulative unpaiddividends of approximately $1,602,193 or 143,053 shares of Series C PreferredStock.

 

*Stock-basedCompensation*

 

*2005Stock Incentive Plan*

 

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

 

In the first,second and third quarter of 2009, we did not grant any options under the 2005Stock Incentive Plan.

 

*2007Stock Incentive Plan*

 

Effective August 21,2007, we adopted the Uni-Pixel, Inc. 2007 Stock Incentive Plan. The StockIncentive Plan is discretionary and allows for an aggregate of up to 4,000,000shares of our common stock to be awarded through incentive and non-qualifiedstock options and stock appreciation rights. The Stock Incentive Plan isadministered by our Board of Directors, which has exclusive discretion to selectparticipants who will receive the awards and to determine the type, size andterms of each award granted.

 

In the firstquarter of 2009, we granted a total of 575,000 options to purchase our commonstock with an exercise price of $1.45 per share to twenty-three employees.  These options vested on the date ofgrant.  In the first quarter of 2009,82,639 options to purchase our common stock with an exercise price of $1.45 pershare were retired.

 

In the secondquarter of 2009, we did not grant any options under the 2007 Stock IncentivePlan.  In the second quarter of 2009,29,861 options to purchase our common stock with an exercise price of $1.45 pershare were retired.

 

In the thirdquarter of 2009, we did not grant any options under the 2007 Stock IncentivePlan.  In the third quarter of 2009,152,284 options to purchase our common stock with an exercise price of $1.45per share were retired.

 

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*OtherStock Options*

 

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

 

The following disclosuresprovide information regarding the Company’s stock-based compensation awards,all of which are classified as equity awards:

 

*Stockoptions.*TheCompany grants stock options to employees that allow them to purchase shares ofthe Company’s common stock. Options are also granted to members of the Board ofDirectors.  The Company determines the fairvalue of stock options at the date of grant using the Black-Scholes valuationmodel.  Most options vest annually over athree-year service period.  The Companywill issue new shares upon the exercise of stock options.

 

Total compensationexpense recognized for options was approximately $1.0 million and $0.8 millionfor the nine months ended September 30, 2009 and September 30, 2008,respectively.  The Company has recordedapproximately $0.5 million of stock compensation expense in selling, generaland administrative expenses and approximately $0.5 million in research anddevelopment expense for the nine months ended September 30, 2009 andapproximately $0.5 million of stock compensation expense in selling, generaland administrative expenses and approximately $0.3 million in research anddevelopment expense for the nine months ended September 30, 2008.

 

A summary of the changesin the total stock options outstanding during the nine months ended September 30,2009 follows:

 
| ** **                                    | ** ** | ** **  | ** ** | **Weighted**        | ** ** |
|-----------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                    | ** ** | ** **  | ** ** | **Average**         | ** ** |
| ** **                                    | ** ** | **Options** | ** ** | **Exercise  Price** | ** ** |
| Outstanding  at December 31, 2008             |       | 5,602,014   |       | $                   | 1.56       |   |
| Granted                                       |       | 575,000     |       | 1.45                |       |
| Forfeited  or expired                         |       | (264,784    | )          | 1.45                |       |
| Exercised                                     |       | —      |       | —              |       |
| Outstanding  at September 30, 2009            |       | 5,912,230   |       | $                   | 1.55       |   |
| Vested  and exercisable at September 30, 2009 |       | 4,968,983   |       | $                   | 1.57       |   |

 

The fair value of theCompany’s options were estimated on the date of grant using the Black-Scholesvaluation model with the following weighted-average assumptions:

 
| ** **             | ** ** | **Three  Months  ended  September 30,********2009** | ** ** | **Three  Months  ended  September 30,********2008** | ** ** | **Nine  Months  ended  September 30,********2009** | ** ** | **Nine  Months  ended  September 30,********2008** | ** ** |
|------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| Expected  life (years) |       | 5 years                                             |       | 5 years                                             |       | 5 years                                            |       | 5 years                                            |       |
| Interest  rate         |       | 1.85                                                | %          | 0.90 to 1.92                                        | %          | 1.85                                               | %          | 0.90 to 3.27                                       | %          |
| Dividend  yield        |       | —                                              |       | —                                              |       | —                                             |       | —                                             |       |
| Volatility             |       | 135.15                                              | %          | 108.47                                              | %          | 135.15                                             | %          | 108.47                                             | %          |
| Forfeiture  rate       |       | —                                              |       | —                                              |       | —                                             |       | —                                             |       |

 

At September 30,2009, there was $0.8 million of total unrecognized compensation cost related tonon-vested stock option awards which is expected to be recognized over aweighted-average period of 0.69 years. There were 1,160,953 options that became vested during the nine monthsended September 30, 2009.

 

**Note 6 — Notes Payable**

 

Commencing in June 2009,the Company entered into subscription agreements (the “Subscription Agreements”)with accredited individual investors (each, an “Investor” and collectively, the“Investors”), pursuant to which the Company commenced a private placement (the “PrivatePlacement”) of its 8% convertible promissory notes maturing on July 9, 2010.The Private Placement offering was closed effective July 9, 2009.

 

On June 10, 2009 and June30, 2009, the Company entered into a Subscription Agreement with variousaccredited individual investors (the “1st Closing Investors”) in a first closing of thePrivate Placement and issued convertible promissory notes in the originalaggregate principal amount of $650,000 (the “1st Closing Notes”).  The convertible promissory notes mature on July9, 2010. Investors purchased for $650,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $650,000 together with warrants (the “Warrants”)to purchase an aggregate of 325,000 shares of Common Stock for $0.50 per 

 

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share. The convertiblenotes are convertible by the holders at any time at a conversion price of $0.50per share into the Company’s common stock. The convertible notes are due and payable at maturity together withinterest at the rate of 8% per annum. The Company expects to use the proceedsof the financing to finance on-going operations.

 

The Debentures did notcontain a beneficial conversion feature at the time of issuance.

 

Total funds received of$650,000 were allocated $20,001 to the Warrants and $629,999 to the Debenture.The relative fair value of the Warrants is $20,001 which was determined usingthe Black-Scholes option-pricing model. The discount on the Debenture attributable to the Warrants of $20,001 isbeing amortized to interest expense over the term of the Debenture using theeffective interest method.

 

At September 30, 2009,the unamortized discount on the Debenture is approximately $14,411. Thefollowing table reflects the convertible debt at September 30, 2009:

 

| Convertible  Debt                       |   | $       | 650,000 |   |
|-----------------------------------------|--------|---------|---------|--------|
| Less:  Current portion of debt discount |   | (14,411 | )       |
|                                    |   |    |    |
| Value  of debt at September 30, 2009    |   | $       | 635,589 |   |

 

The following tablesummarizes the charges to interest, amortization and other expense, net for thenine months ended September 30, 2009:

 

| Interest  expense on debt   |   | $ | 15,678 |   |
|-----------------------------|--------|---|--------|--------|
| Accretion  of debt discount |   | $ | 5,590  |   |

 

In consideration forservices rendered as the placement agent in the Private Placement, the Companyissued to Fordham Financial Management, Inc. (“Fordham”) ten-year warrants topurchase 195,000 shares of the Company’s Common Stock at an exercise price of$0.50 per share (the “Fordham Warrants”), for the 1st Closing of the Private Placement. Fordham alsoreceived, in consideration for services rendered as placement agent cashcommissions aggregating $65,000, which represents 10% of the aggregate grossproceeds of the 1st Closing. The Company utilized theBlack-Scholes methodology in determining the fair market value of the FordhamWarrants, which is $74,674, and this amount is expensed over the expected lifeof the convertible notes as additional interest expense.  The Company also paid $25,000 in otherissuance costs. The placement agent cash commission, other issuance costs andFordham warrants are recorded as deferred loan costs in the accompanyingbalance sheet..

 

Commencing in August 2009,the Company entered into subscription agreements (the “Subscription Agreements”)with accredited individual investors (each, an “Investor” and collectively, the“Investors”), pursuant to which the Company commenced a private placement (the “PrivatePlacement”) of its 8% convertible promissory notes maturing on October 22,2010. The Private Placement offering was closed effective October 22, 2009.

 

On August 31, 2009 and September30, 2009, the Company entered into a Subscription Agreement with variousaccredited individual investors (the “2nd Closing Investors”) in a first closing of thePrivate Placement and issued convertible promissory notes in the originalaggregate principal amount of $1,275,000 (the “2nd Closing Notes”).  The convertible promissory notes mature on October22, 2010. Investors purchased for $1,275,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $1,275,000 together with warrants (the “Warrants”)to purchase an aggregate of 637,500 shares of Common Stock for $0.50 per share.The convertible notes are convertible by the holders at any time at aconversion price of $0.50 per share into the Company’s common stock.  The convertible notes are due and payable atmaturity together with interest at the rate of 8% per annum. The Companyexpects to use the proceeds of the financing to finance on-going operations.

 

The Debentures did notcontain a beneficial conversion feature at the time of issuance.

 

Total funds received of$1,275,000 were allocated $33,824 to the Warrants and $1,241,176 to theDebenture. The relative fair value of the Warrants is $33,824 which wasdetermined using the Black-Scholes option-pricing model.  The discount on the Debenture attributable tothe Warrants of $33,824 is being amortized to interest expense over the term ofthe Debenture using the effective interest method.

 

At September 30, 2009,the unamortized discount on the Debenture is approximately $32,752. Thefollowing table reflects the convertible debt at September 30, 2009:

 

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| Convertible  Debt                       |   | $       | 1,275,000 |   |
|-----------------------------------------|--------|---------|-----------|--------|
| Less:  Current portion of debt discount |   | (32,752 | )         |
|                                    |   |    |      |
| Value  of debt at September 30, 2009    |   | $       | 1,242,248 |   |

 

The following tablesummarizes the charges to interest, amortization and other expense, net for thenine months ended September 30, 2009:

 

| Interest  expense on debt   |   | $ | 4,117 |   |
|-----------------------------|--------|---|-------|--------|
| Accretion  of debt discount |   | $ | 1,072 |   |

 

In consideration forservices rendered as the placement agent in the Private Placement, the Companyissued to Fordham Financial Management, Inc.(“Fordham”) ten-year warrants topurchase 382,500 shares of the Company’s Common Stock at an exercise price of$0.50 per share (the “Fordham Warrants”), for the 2nd Closing of the Private Placement. Fordham alsoreceived, in consideration for services rendered as placement agent cash commissionsaggregating $140,250, which represents 11% of the aggregate gross proceeds ofthe 2nd Closing. The Company utilized theBlack-Scholes methodology in determining the fair market value of the FordhamWarrants, which is $135,124, and this amount is expensed over the expected lifeof the convertible notes.  The Companyalso paid $10,180 in other issuance costs. The placement agent cash commission,other issuance costs and Fordham warrants are recorded as deferred loan costsin the accompanying balance sheet.

 

**Note 7 -********Fair Value Measurements**

 

As of January 1, 2008, the Company implemented fair value measurementsfor its financial assets and liabilities that are remeasured and reported atfair value at each reporting period and non-financial assets and liabilitiesthat are remeasured and reported at fair value at least annually. Theimplementation of the fair value guidance for nonfinancial assets andnonfinancial liabilities, effective January 1, 2009, did not have a materialimpact on our consolidated financial position and results of operations.

 

In general, fairvalues determined by Level 1 inputs utilize quoted prices (unadjusted) inactive markets for identical assets or liabilities. Fair values determined byLevel 2 inputs utilize observable inputs other than Level 1 prices, such asquoted prices for similar assets or liabilities, quoted prices in markets thatare not active or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the related assets orliabilities. Fair values determined by Level 3 inputs are unobservable datapoints for the asset or liability, and include situations where there islittle, if any, market activity for the asset or liability. The Company’sfinancial assets consist solely of cash and cash equivalents.

 

**Note 8 -********Subsequent Events**

 

In connection with the Private Placement which began in August 2009, on October2, 2009 the Company completed another closing in the gross amount of$150,000.  On October 2, 2009, all theshareholders of the Series B and C Preferred Stock automatically convertedtheir preferred shares and accrued dividends into shares of Common Stock.  The holders of the Series B Preferred Stockreceived an aggregate of 20,485,298 shares of Common Stock and the holders ofthe Series C Preferred Stock received an aggregate of 8,717,819 shares ofCommon Stock.  As further inducement toconvert into Common Stock, the holders of the Series B Preferred Stock and the SeriesC Preferred Stock received warrants to purchase 1,042,518 shares and 457,482 shares, respectively,of the Company’s Common Stock at an exercise price of $0.50 per share and anexpiration date of October 31, 2019. Further, the existing warrants to purchase 6,839,279 shares of theCompany’s Commons Stock held by the holders of the Series B Preferred Stockwere cancelled and reissued with an exercise price of $0.50 per shares and anexpiration date of October 31, 2019. Further, the existing warrants to purchase3,214,289 shares of the Company’s Commons Stock held by the holders of the SeriesC Preferred Stock were cancelled and reissued with an exercise price of $0.50per shares and an expiration date of October 31, 2019.

 

The Companyconsidered all subsequent events through November 11, 2009, the date of thefinancial statements were available to be issued.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OFOPERATON.**

 

**Forward Looking Statements**

 

Some of the informationin this report contains forward-looking information that involve risks anduncertainties.  Our forward-lookingstatements express our current expectations or forecasts of possible futureresults or events, including projections of future performance, statements ofmanagement’s plans and objectives, future contracts, and forecasts of trendsand other matters.  You can identifythese statements by the fact that they do not relate strictly to historic orcurrent facts and often use words such as “anticipate,” “believe,” “plan,” “expect,”“future,” “intend,” “may,” “will,” “should,” “estimate,” “predict,” “potential,”“continue,” and other words and expressions of similar meaning.  No assurance can be given that the results inany forward-looking statement will be achieved and actual results could be affectedby one or more factors, which could cause them to differ materially.  For these statements, we claim the protectionof the safe harbor for forward-looking statements contained in the PrivateSecurities Litigation Reform Act. You should also consider carefully thestatements under “Description of Business - Risk Factors” in our 2008 Form 10-K,which address factors that could cause our actual results to differ from thoseset forth in the forward-looking statements.

 

*CRITICALACCOUNTING POLICIES*

 

The followingdiscussion and analysis of financial condition and results of operations isbased upon our consolidated financial statements, which have been prepared inconformity with accounting principles generally accepted in the United Statesof America. Our significant accounting policies are more fully described inNote 3 of Notes to the unaudited Consolidated Financial Statements.However, certain accounting policies and estimates are particularly importantto the understanding of our financial position and results of operations andrequire the application of significant judgment by our management or can bematerially affected by changes from period to period in economic factors orconditions that are outside of our control.  As a result, they are subjectto an inherent degree of uncertainty. In applying these policies, ourmanagement uses their judgment to determine the appropriate assumptions to beused in the determination of certain estimates. Those estimates are based onour historical operations, our future business plans and projected financialresults, the terms of existing contracts, our observance of trends in theindustry, information provided by our customers and information available fromother outside sources, as appropriate. The following discusses our significantaccounting policies and estimates.

 

*RevenueRecognition:* We recognize revenue over the period the service is performed. In general, thisrequires that four basic criteria must be met before revenue can be recognized:(1) persuasive evidence that an arrangement exists, (2) delivery hasoccurred or services rendered, (3) the fee is fixed and determinable, and (4) collectibilityis reasonably assured.

 

Advance paymentsare deferred until shipment.

 

Revenue fromlicenses and other up-front fees are recognized on a ratable basis over theterm of the respective agreement.

 

*Costof Revenues and Selling, General and Administrative Expenses and Research andDevelopment Expenses:*  In an effort to consolidate our executive management team, wemoved our headquarters from Austin, Texas to The Woodlands, Texas during thethird quarter of 2005.  The primary purpose of our facility in TheWoodlands, Texas is to conduct research on the development, testing anddelivery of our prototype devices, and the commercialization of our products.

 

If, in the future,the purposes for which we operate our facility in The Woodlands, Texas, or anynew facilities we open, changes, the allocation of the costs incurred inoperating that facility between cost of sales and research and developmentexpenses could change to reflect such operational changes.

 

*Researchand Development Expenses:*  Research and development costs are expensed as incurred andinclude salaries and benefits, costs paid to third-party contractors for research,development and manufacturing of materials and devices, and a portion offacilities cost. Prototype development costs are a significant component ofresearch and development expenses and include costs associated with third-partycontractors. Invoicing from third-party contractors for services performed canlag several months. We accrue the costs of services rendered in connection withthird-party contractor activities based on our estimate of management fees,site management and monitoring costs and data management costs. Actual costsmay differ in some cases from estimated costs and are adjusted for in theperiod in which they become known.

 

*IntangibleAssets:*  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.  Impairment would 

 

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then be measured as thedifference between the fair value of the fixed or amortizing intangible assetand the carrying value to determine the amount of the impairment.

 

*Stock-BasedCompensation:* We recognize the cost of stock options and restricted stock which requires usto measure the cost of employee services received in exchange for an award ofequity instruments based on the grant-date fair value of the award.  That cost will be recognized over the periodduring which an employee is required to provide service in exchange for thereward—known as the requisite service period. No compensation cost isrecognized for equity instruments for which employees do not render therequisite service. The grant-date fair value of employee share options andsimilar instruments will be estimated using option-pricing models adjusted forthe unique characteristics of those instruments. We apply to all optionsgranted or modified after its effective date and also to recognize the cost associatedwith the portion of any option awards made before its effective date for whichthe associated service has not been rendered as of its effective date.

 

*Derivatives*: We record and carry certain derivatives(embedded and free standing instruments) on the balance sheet as eitherliabilities or assets at fair value. Derivatives are measured at fair value with changes in fair valuerecognized through earnings as they occur.

 

*RESULTSOF OPERATIONS*

 

Comparison of the ninemonths ending September 30, 2009 and 2008

 

REVENUES.  Weare 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 a leaderin the research, development and commercialization of new flat panel displaysusing TMOS in a variety of applications, such as mobile phones, digitalcameras, notebook computers, televisions and other consumer electronic devices.From inception, we have had a limited amount of revenue that is derived fromdevelopment contracts.

 

Revenues were $0for the nine months ended September 30, 2009 and the nine months ended September 30,2008.

 

COST OFREVENUES.  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, 2009 and the nine months ended September 30,2008 was $0.

 

SELLING, GENERALAND ADMINISTRATIVE EXPENSES. Selling, general and administrative expensesdecreased by 20% or approximately $541,000, to $2,179,777 for the nine monthsended September 30, 2009 from $2,720,922 for the nine months ended September 30,2008.  The major components of the decrease are as follows:

 

a)  Salariesand benefits decreased by approximately $100,000 to $1,270,000 for the ninemonths ended September 30, 2009 compared to $1,370,000 for the nine monthsended September 30, 2008 due to a decrease in salaries and an increase instock compensation expense of approximately $15,000 to $490,000 for the ninemonths ended September 30, 2009 compared to $475,000 for the nine monthsended September 30, 2008;

 

b) Contract labordecreased by approximately $8,000 to $0 for the nine months ended September 30,2009 compared to $8,000 for the nine months ended September 30, 2008;

 

c) Legal expensedecreased by approximately $108,000 to $238,000 for the nine months ended September 30,2009 compared to $346,000 for the nine months ended September 30, 2008;

 

d) Accountingexpense decreased by approximately $10,000 to $57,000 for the nine months endedSeptember 30, 2009 compared to $67,000 for the nine months ended September 30,2008;

 

e) Office expensedecreased by approximately $50,000 to $11,000 for the nine months ended September 30,2009 compared to $61,000 for the nine months ended September 30, 2008;

 

f) Travel expensedecreased by approximately $20,000 to $18,000 for the nine months ended September 30,2009 compared to $38,000 for the nine months ended September 30, 2008;

 

g) Depreciationand amortization expense increased by approximately $29,000 to $249,000 for thenine months ended September 30, 2009 compared to $220,000 for the ninemonths ended September 30, 2008.

 

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RESEARCH ANDDEVELOPMENT. Research and development expenses decreased by approximately$3,932,884 during the nine months ended September 30, 2009 to $2,452,030from $6,384,914 for the nine months ended September 30, 2008. The majorcomponents of the decrease are as follows:

 

a) Salaries andbenefits attributable to research and development decreased by approximately$205,000 to $1,871,000 for the nine months ended September 30, 2009compared to $2,076,000 for the nine months ended September 30, 2008 due toa decrease in salaries and an increase in stock compensation expense ofapproximately $211,000 to $553,000 for the nine months ended September 30,2009 compared to $342,000 for the nine months ended September 30, 2008;

 

b) Consultingexpense attributable to research and development decreased by approximately$888,000 to $129,000 for the nine months ended September 30, 2009 comparedto $1,017,000 for the nine months ended September 30, 2008;

 

c) Lab expensedecreased by approximately $2,592,000 to $218,000 for the nine months ended September 30,2009 compared to $2,810,000 for the nine months ended September 30, 2008primarily due to decreased services related to prototype development; and

 

d) Travel expenseattributable to research and development decreased by approximately $189,000 to$85,000 for the nine months ended September 30, 2009 compared to $274,000for the nine months ended September 30, 2008.

 

OTHER INCOME (EXPENSE).

 

a) Debt issuanceexpense increased to an expense of $54,951 for the nine months ended September 30,2009 as compared to $0 during the nine months ended September 30, 2008,due to the debt raised in the 2nd and 3rd quarter of 2009.

 

b)****Interest income (expense), net decreasedto an expense of ($22,179) for the nine months ended September 30, 2009 ascompared to income of $169,285 for the nine months ended September 30,2008 primarily due to less cash on hand and interest expense associated withthe debt raised in the 2nd and 3rd quarter of 2009.

 

NET LOSS.** **Net loss decreased to $4,708,937 forthe nine months ended September 30, 2009, as compared to $8,936,551 forthe nine months ended September 30, 2008. We compute our net loss pershare on the basis of net loss attributable to common stockholders, whichincluded the effects of certain items not included in the determination of netloss. Net loss attributable to common stockholders for the nine months ended September 30,2009 was $8,278,073 as compared to a net loss attributable to commonstockholders of $12,510,508 for the nine months ended September 30, 2008.The net loss attributable to common stockholders for the nine months ended September 30,2009 includes $3,569,136 of accrued but unpaid preferred stock dividends andamortization of preferred stock discount. The net loss attributable to common stockholders for the nine monthsended September 30, 2008 includes $3,573,957 of accrued but unpaidpreferred stock dividends.

 

Comparison of the threemonths ending September 30, 2009 and 2008

 

REVENUES.  Weare 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. From inception, we have had a limited amount of revenue that isderived from development contracts.

 

Revenues were $0for the three months ended September 30, 2009 and the three months ended September 30,2008.

 

COST OFREVENUES.  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, 2009 and the three months ended September 30,2008 was $0.

 

SELLING, GENERALAND ADMINISTRATIVE EXPENSES. Selling, general and administrative expensesdecreased by 16% or approximately $139,000, to $745,051 for the three monthsended September 30, 2009 from $883,869 for the three months ended September 30,2008.  The major components of the decrease are as follows:

 

a)  Salariesand benefits decreased by approximately $58,000 to $408,000 for the threemonths ended September 30, 2009 compared to $466,000 for the three monthsended September 30, 2008 due to a decrease in salaries and stockcompensation expense stayed constant at $126,000 for the three months ended September 30,2009 compared to $126,000 for the three months ended September 30, 2008;

 

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b) Legal expenseincreased by approximately $15,000 to $157,000 for the three months ended September 30,2009 compared to $142,000 for the three months ended September 30, 2008;

 

c) Accountingexpense decreased by approximately $2,000 to $13,000 for the three months endedSeptember 30, 2009 compared to $15,000 for the three months ended September 30,2008;

 

d) Office expensedecreased by approximately $15,000 to $2,000 for the three months ended September 30,2009 compared to $17,000 for the three months ended September 30, 2008;

 

e) Travel expensestayed constant at $8,000 for the three months ended September 30, 2009compared to $8,000 for the three months ended September 30, 2008;

 

f) Depreciationand amortization expense increased by approximately $11,000 to $83,000 for thethree months ended September 30, 2009 compared to $72,000 for the threemonths ended September 30, 2008.

 

RESEARCH ANDDEVELOPMENT. Research and development expenses decreased by approximately $1,201,000during the three months ended September 30, 2009 to $693,860 from$1,895,055 for the three months ended September 30, 2008. The majorcomponents of the decrease are as follows:

 

a) Salaries andbenefits attributable to research and development decreased by approximately$239,000 to $498,000 for the three months ended September 30, 2009compared to $737,000 for the three months ended September 30, 2008 due toa decrease in salaries and a decrease in stock compensation expense ofapproximately $33,000 to $71,000 for the three months ended September 30,2009 compared to $104,000 for the three months ended September 30, 2008;

 

b) Consultingexpense attributable to research and development decreased by approximately$221,000 to $26,000 for the three months ended September 30, 2009 comparedto $247,000 for the three months ended September 30, 2008;

 

c) Lab expensedecreased by approximately $674,000 to $99,000 for the three months ended September 30,2009 compared to $773,000 for the three months ended September 30, 2008primarily due to decreased services related to prototype development; and

 

d) Travel expenseattributable to research and development decreased by approximately $40,000 to$24,000 for the three months ended September 30, 2009 compared to $64,000for the three months ended September 30, 2008.

 

OTHER INCOME(EXPENSE).

 

a) Debt issuanceexpense increased to an expense of $48,400 for the three months ended September 30,2009 as compared to $0 during the three months ended September 30, 2008,due to the debt raised in the 2nd and 3rd quarter of 2009.

 

b)****Interest income (expense), net decreasedto an expense of ($22,862) for the three months ended September 30, 2009as compared to income of $26,346 for the three months ended September 30,2008 primarily due to less cash on hand and interest expense associated withthe debt raised in the 2nd and 3rd quarter of 2009.

 

NET LOSS.** **Net loss decreased to $1,510,173 forthe three months ended September 30, 2009, as compared to $2,752,578 forthe three months ended September 30, 2008. We compute our net loss pershare on the basis of net loss attributable to common stockholders, whichincluded the effects of certain items not included in the determination of netloss. Net loss attributable to common stockholders for the three months ended September 30,2009 was $2,706,313 as compared to a net loss attributable to commonstockholders of $3,948,719 for the three months ended September 30, 2008.The net loss attributable to common stockholders for the three months ended September 30,2009 includes $1,196,140 of accrued but unpaid preferred stock dividends andamortization of preferred stock discount. The net loss attributable to common stockholders for the three monthsended September 30, 2008 includes $1,196,141 of accrued but unpaidpreferred stock dividends.

 

**Off-BalanceSheet Transactions**

 

We do not engagein material off-balance sheet transactions.

 

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*LIQUIDITYAND CAPITAL RESOURCES*

 

Operating Activities

 

Cash used inoperating activities during the nine months ended September 30, 2009decreased to $2,840,371 as compared to $7,592,180 used for the nine monthsended September 30, 2008. This is primarily attributable to a decrease inresearch and development expense for the nine months ended September 30,2009.

 

Investing Activities

 

Cash used forinvesting activities during the nine months ended September 30, 2009amounted to $0, as compared to $451,566 used for investing activities for thenine months ended September 30, 2008. This is primarily attributable tothe acquisition of patents and patent applications in the second quarter of2008 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.

 

Financing Activities

 

We have financedour operating and investing activities primarily from the proceeds of privateplacements of common stock, convertible investor notes, Series AConvertible Preferred Stock offering which we closed in December 2004 and January 2005and Series B Convertible Preferred Stock offering which we closed in February 2007and Series C Convertible Preferred Stock offering we closed in September 2007.During the nine months ended September 30, 2009, the total net cashprovided by financing activities was $1,684,570, from the net proceeds receivedfrom convertible notes.  During the ninemonths ended September 30, 2008, the total net cash provided by financingactivities was $0.

 

Working Capital

 

As of September 30,2009, we had a cash balance of $0.9 million. In the 4th quarter of2008, the Company’s management began to reduce operating expenses and delay plannedexpenditures to preserve the Company’s working capital.  In the second quarter of 2009, the Companyraised a total of $650,000 in convertible notes.  In the third quarter of 2009, the Companyraised a total of $1,275,000 in convertible notes.  Management believes that it has sufficientcash to enable the Company to continue operations until December 15, 2009.We project that current cash reserves will sustain our operations at leastthrough December 15, 2009, and we are not aware of any trends or potentialevents that are likely to impact our short term liquidity through this term.

 

We are a developmentstage company and have not experienced significant operations since ourformation. We reached a positive working capital position as of the first quarterof 2005 as a result of our financing activities. We have incurred significantoperating losses during the years ended December 31, 2002, 2003, 2004,2005, 2006, 2007 and 2008 and the nine months ended September 30, 2009. Weintend to utilize a proprietary methodology for development of our displays.Our principal activities, from the beginning of the development stage, havebeen organizational matters, capital raising activities including issuance ofstock, product research and development, fund raising, and market research.

 

To date, we have had onlya few revenue-generating services or development contracts.  These includea prototype development agreement with a large personal computer company, and aSmall Business Innovation Research (SBIR) Phase One agreement with the U.S. AirForce for $98,214 and a follow-on Phase Two agreement for $686,966.  Wealso entered into a prototype development agreement with Lockheed Martin, alarge military contractor, in October 2005, for which we have receivedfull payment.  Our immediate customerprospects are limited to Lockheed Martin, with which we entered into a Licenseand Strategic Business Agreement dated October 5, 2005.  See “Risk Factors” included in our 2008 Form 10-K.

 

Management will work toestablish specific applications for our display technology that will generatesignificant revenues and cash flows to support operations.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK.**

 

Not applicable.

 

**ITEM 4.  CONTROLS AND PROCEDURES.**

 

Disclosure Controls andProcedures

 

As of September 30,2009, management, including our Chief Executive Officer and Chief FinancialOfficer, performed an evaluation of the effectiveness of the design andoperation of our disclosure controls and procedures, as defined in Rules 13a-

 

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15(e) and 15d-15(e) underthe Securities Exchange Act of 1934. Based on their evaluation, management concluded that, as of September 30,2009, our disclosure controls and procedures are effective to ensure thatmaterial information required to be disclosed by us in the reports that we fileor submit under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms, and that it isaccumulated and communicated to management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.

 

Changes in InternalControl Over Financial Reporting

 

We maintain asystem of internal control over financial reporting that is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of consolidated financial statements for external purposes inaccordance with accounting principles generally accepted in the UnitedStates.  Based on the most recentevaluation, our Chief Executive Officer and Chief Financial Officer havedetermined that no significant changes in our internal control over financialreporting occurred during our most recent fiscal quarter that have materiallyaffected, or are reasonably like to materially affect, our internal controlover financial reporting.

 

**PART II - OTHER INFORMATION**

 

**ITEM 6. EXHIBITS.**

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

 

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|  (1) |   | Previously filed as an  exhibit to 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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Table of Contents

 

**SIGNATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|                   | **UNI-PIXEL,  INC.** |
|------------------------|----------------------|
|                   |                 |   |
|                   |                 |   |
| November 11, 2009 |                 | By: | /s/ James A.  Tassone |
| Date                   |                 | James A. Tassone, Chief  Financial Officer |
|                        |                      |  |  |

 

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