Table of Contents

 

 

 

**UNITED STATESSECURITIES 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 June 30,2009**

 

**or**

 

**o****         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**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 100The Woodlands, Texas 77381**

(Address of Principal Executive Offices)

** **

**(281) 825-4500**

(Issuer’s Telephone Number, Including Area Code)

 

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

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and post suchfiles).   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 August 1,2009, the issuer had 22,897,418 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 OFCONTENTS**

 
| Part I.  | Financial Information                                                                                                                                                                                                        |   |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                                                                                                         |   |
| Item 1.       | Consolidated Financial Statements                                                                                                                                                                                            |   |
|          |                                                                                                                                                                                                                         |   |
|          | Consolidated  Balance Sheets  June 30, 2009 (unaudited) and December 31, 2008                                                                                                                                      |   |
|          |                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Operations  Six months ended June 30, 2009 (unaudited) and June 30, 2008  (unaudited) and cumulative period from inception (February 17, 1998) to  June 30, 2009 (unaudited) |   |
|          |                                                                                                                                                                                                                         |   |
|          | Three months ended  June 30, 2009 (unaudited) and June 30, 2008 (unaudited)                                                                                                                                        |   |
|          |                                                                                                                                                                                                                         |   |
|          | Consolidated  Statements of Shareholders’ Equity (Deficit)  From inception (February 17, 1998) to June 30, 2009 (unaudited)                                                                                   |   |
|          |                                                                                                                                                                                                                         |   |
|          | Consolidated Statements of Cash Flows  Six months ended June 30, 2009 (unaudited) and June 30, 2008  (unaudited) and cumulative period from inception (February 17, 1998) to  June 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

 
| ** **                                                                                                                                                                                                                                                                                                                                       | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                       | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                       |       |                    |       |                        |       |
| Current  assets                                                                                                                                                                                                                                                                                                                                  |       |                    |       |                        |       |
| Cash  and cash equivalents                                                                                                                                                                                                                                                                                                                       |       | $                       | 680,348    |                        | $          | 2,035,547 |   |
| Deferred  loan costs                                                                                                                                                                                                                                                                                                                             |       | 158,123                 |       | —                      |       |
| Prepaid  expenses                                                                                                                                                                                                                                                                                                                                |       | 3,400                   |       | 3,400                       |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total  current assets                                                                                                                                                                                                                                                                                                                            |       | 841,871                 |       | 2,038,947                   |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Property  and equipment, net of accumulated depreciation of $1,171,581 and $1,013,967,  atJune 30,  2009 and December 31, 2008, respectively                                                                                                                                                                                           |       | 434,442                 |       | 592,056                     |       |
| Restricted  cash, less current portion                                                                                                                                                                                                                                                                                                           |       | 34,877                  |       | 34,877                      |       |
| Intangible  assets, net of accumulated amortization of $53,138 and $44,637, at  June 30, 2009 and December 31, 2008, respectively                                                                                                                                                                                                      |       | 176,751                 |       | 185,252                     |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total  assets                                                                                                                                                                                                                                                                                                                                    |       | $                       | 1,487,941  |                        | $          | 2,851,132 |   |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’  DEFICIT**                                                                                                                                                                                                                                                                                                  |       |                    |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Current  liabilities                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Accounts  payable                                                                                                                                                                                                                                                                                                                                |       | $                       | 792,637    |                        | $          | 731,022 |   |
| Accrued  expenses                                                                                                                                                                                                                                                                                                                                |       | 583,114                 |       | 383,039                     |       |
| Deferred  revenue                                                                                                                                                                                                                                                                                                                                |       | 33,333                  |       | 33,333                      |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total  current liabilities                                                                                                                                                                                                                                                                                                                       |       | 1,409,084               |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Long  term portion of convertible note payable, net of unamortized discounts of  $19,215 and $0 at June 30, 2009 and December 31, 2008, respectively                                                                                                                                                                                   |       | 630,785                 |       | —                      |       |
| Interest  payable                                                                                                                                                                                                                                                                                                                                |       | 2,678                   |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total  liabilities                                                                                                                                                                                                                                                                                                                               |       | 2,042,547               |       | 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 June 30, 2009 and December 31, 2008, less unamortized discount  of $3,901,382 and $4,644,502 at June 30, 2009 and December 31,  2008, respectively |       | 10,376,316              |       | 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  June 30, 2009 and December 31, 2008, less unamortized discount of  $4,952,537 and $5,714,466 at June 30, 2009 and December 31, 2008,  respectively  |       | 6,367,351               |       | 5,210,901                   |       |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Shareholders’  deficit                                                                                                                                                                                                                                                                                                                      |       |                    |       |                        |       |
| Common  stock, $0.001 par value; 100,000,000 shares authorized at June 30, 2009  and December 31, 2008, 22,897,418 shares issued and outstanding at  June 30, 2009 and December 31, 2008                                                                                                                                     |       | 22,897                  |       | 22,897                      |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                                                                      |       | 29,352,985              |       | 30,785,560                  |       |
| Accumulated  deficit during development stage                                                                                                                                                                                                                                                                                                    |       | (46,674,155             | )          | (43,475,391                 | )          |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total  shareholders’ deficit                                                                                                                                                                                                                                                                                                                |       | (17,298,273             | )          | (12,666,934                 | )          |
|                                                                                                                                                                                                                                                                                                                                             |       |                    |       |                        |       |
| Total  liabilities and shareholders’ deficit                                                                                                                                                                                                                                                                                                |       | $                       | 1,487,941  |                        | $          | 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)

 
| ** **                                                              | ** ** | **Six  Months Ended  June 30,** | ** ** | **Cumulative  Period from  February 17, 1998  (date of inception)  to June 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                           |       | 1,434,726                            |       | 1,837,053                                                                                  |       | 21,076,695 |   |
| Research  and development                                               |       | 1,758,170                            |       | 4,489,859                                                                                  |       | 23,526,048 |   |
|                                                                    |       |                                 |       |                                                                                       |       |   |   |
| Operating  loss                                                         |       | (3,192,896                           | )          | (6,326,912                                                                                 | )          | (43,901,190 | ) |
|                                                                    |       |                                 |       |                                                                                       |       |   |   |
| Other  income (expense)                                                 |       |                                 |       |                                                                                       |       |   |   |
| Net  decrease in fair value of derivative liability                     |       | —                               |       | —                                                                                     |       | 845,079 |   |
| Other  income                                                           |       | —                               |       | —                                                                                     |       | 886,886 |   |
| Debt  issuance expense                                                  |       | (6,551                               | )          | —                                                                                     |       | (650,897 | ) |
| Interest  income (expense), net                                         |       | 683                                  |       | 142,939                                                                                    |       | (2,087,307 | ) |
|                                                                    |       |                                 |       |                                                                                       |       |   |   |
| Net  loss                                                               |       | $                                    | (3,198,764 | )                                                                                          | $          | (6,183,973 | ) | $ | (44,907,429 | ) |
|                                                                    |       |                                 |       |                                                                                       |       |   |   |
| Preferred  stock dividends and amortization of discount                 |       | (2,372,996                           | )          | (2,377,816                                                                                 | )          | (11,642,676 | ) |
| Net  loss attributable to common shareholders                           |       | $                                    | (5,571,760 | )                                                                                          | $          | (8,561,789 | ) | $ | (56,550,105 | ) |
|                                                                    |       |                                 |       |                                                                                       |       |   |   |
| Per  share information                                                  |       |                                 |       |                                                                                       |       |   |   |
| Net  loss – basic and diluted                                      |       | $                                    | (0.14      | )                                                                                          | $          | (0.27 | ) | $ | (4.44 | ) |
| Preferred  stock dividends                                              |       | (0.10                                | )          | (0.10                                                                                      | )          | (1.15 | ) |
| Net  loss attributable to common shareholders – basic and diluted  |       | $                                    | (0.24      | )                                                                                          | $          | (0.37 | ) | $ | (5.59 | ) |
|                                                                    |       |                                 |       |                                                                                       |       |   |   |
| Weighted  average number of basic and diluted common shares outstanding |       | 22,897,418                           |       | 22,897,418                                                                                 |       | 10,121,844 |   |

 

*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  June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                                                    |       |                                   |       |   |   |
| Revenues                                                                |       |                                   |       |   |   |
| Development  contract revenue                                           |       | $                                      | —     |   | $ | — |   |
|                                                                    |       |                                   |       |   |   |
| Total  revenues                                                         |       | —                                 |       | — |   |
|                                                                    |       |                                   |       |   |   |
| Cost  of revenues                                                       |       | —                                 |       | — |   |
|                                                                    |       |                                   |       |   |   |
| Gross  margin                                                           |       | —                                 |       | — |   |
|                                                                    |       |                                   |       |   |   |
| Selling,  general and administrative expenses                           |       | 621,956                                |       | 1,000,209 |   |
| Research  and development                                               |       | 747,824                                |       | 2,221,722 |   |
|                                                                    |       |                                   |       |   |   |
| Operating  loss                                                         |       | (1,369,780                             | )          | (3,221,931 | ) |
|                                                                    |       |                                   |       |   |   |
| Other  income                                                           |       |                                   |       |   |   |
| Net  increase in fair value of derivative liability                     |       | —                                 |       | — |   |
| Other  income                                                           |       | —                                 |       | — |   |
| Debt  issuance expense                                                  |       | (6,551                                 | )          | — |   |
| Interest  income, net                                                   |       | (2,847                                 | )          | 46,219 |   |
|                                                                    |       |                                   |       |   |   |
| Net  loss                                                               |       | $                                      | (1,379,178 | ) | $ | (3,175,712 | ) |
|                                                                    |       |                                   |       |   |   |
| Preferred  stock dividends and amortization of discount                 |       | (1,191,320                             | )          | (1,191,319 | ) |
| Net  loss attributable to common shareholders                           |       | $                                      | (2,570,498 | ) | $ | (4,367,031 | ) |
|                                                                    |       |                                   |       |   |   |
| Per  share information                                                  |       |                                   |       |   |   |
| Net  loss – basic and diluted                                      |       | $                                      | (0.06      | ) | $ | (0.14 | ) |
| Preferred  stock dividends                                              |       | (0.05                                  | )          | (0.05 | ) |
| Net  loss attributable to common shareholders – basic and diluted  |       | $                                      | (0.11      | ) | $ | (0.19 | ) |
|                                                                    |       |                                   |       |   |   |
| Weighted  average number of basic and diluted common shares outstanding |       | 22,897,418                             |       | 22,897,418 |   |

 

*See accompanying notes to thesecondensed consolidated 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                                                              |       | —                             |       | —     |       | —                 |       | —         |       | 845,746              |       | —                        |       | —                 |       | 845,746 |   |
| Issuance  of warrants to convertible note investors                                      |       | —                             |       | —     |       | —                 |       | —         |       | 20,001               |       | —                        |       | —                 |       | 20,001 |   |
| Issuance  of warrants to placement agent                                                 |       | —                             |       | —     |       | —                 |       | —         |       | 74,674               |       | —                        |       | —                 |       | 74,674 |   |
| Amortization  of discount of Series B Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (743,121             | )          | —                        |       | —                 |       | (743,121 | ) |
| Amortization  of discount of Series C Preferred Stock                               |       | —                             |       | —     |       | —                 |       | —         |       | (761,929             | )          | —                        |       | —                 |       | (761,929 | ) |
| Series B  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (473,425             | )          | —                        |       | —                 |       | (473,425 | ) |
| Series C  Preferred Stock dividends                                                 |       | —                             |       | —     |       | —                 |       | —         |       | (394,521             | )          | —                        |       | —                 |       | (394,521 | ) |
| Net  loss                                                                                |       | —                             |       | —     |       | —                 |       | —         |       | —               |       | —                        |       | (3,198,764             | )          | (3,198,764 | ) |
| Balance,  June 30, 2009                                                             |       | —                             |       | $          | —     |                   | 22,897,418 |           | $          | 22,897               |       | $                             | 29,352,985 |                   | $          | — |   | $ | (46,674,155 | ) | $ | (17,298,273 | ) |

 

*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)

 
| ** **                                                                   | ** ** | **Six  Months Ended  June 30,** | ** ** | **Cumulative  Period  from February 18,  1998 (date of  inception) to  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                             | ** ** | **2008**                                                                                    | ** ** | **2009** | ** ** |
| Cash  flows from operating activities                                        |       |                                 |       |                                                                                        |       |   |   |
| Net  loss                                                                    |       | $                                    | (3,198,764 | )                                                                                           | $          | (6,183,973 | ) | $ | (44,907,429 | ) |
| 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                                               |       | 166,114                              |       | 148,042                                                                                     |       | 1,267,537 |   |
| Stock  issued for services                                                   |       | —                               |       | —                                                                                      |       | 512,462 |   |
| Stock  compensation expense                                                  |       | 845,746                              |       | 587,215                                                                                     |       | 4,827,268 |   |
| Non-cash  compensation expense                                               |       | —                               |       | —                                                                                      |       | 1,100,000 |   |
| Amortization  of debt issuance costs                                         |       | 6,551                                |       | —                                                                                      |       | 650,897 |   |
| Amortization  of discounts on notes payable                                  |       | 786                                  |       | —                                                                                      |       | 1,481,234 |   |
| Net  decrease in fair value of derivatives                                   |       | —                               |       | —                                                                                      |       | (845,077 | ) |
| Issuance  of warrants to placement agent                                     |       | 74,674                               |       | —                                                                                      |       | 74,674 |   |
| 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 | ) |
| Increase  in deferred financing costs                                        |       | (164,674                             | )          |                                                                                        |       | (164,674 | ) |
| Decrease  (increase) in prepaid expenses and other current assets            |       | —                               |       | 1,900                                                                                       |       | (147,745 | ) |
| Increase  in accounts payable                                                |       | 61,615                               |       | 445,972                                                                                     |       | 792,632 |   |
| Increase  in accrued interest payable                                        |       | 2,678                                |       | —                                                                                      |       | 183,621 |   |
| Increase  (decrease) in accrued expenses and other liabilities               |       | 200,075                              |       | (190,712                                                                                    | )          | 1,378,579 |   |
| Increase  in deferred revenue                                                |       | —                               |       | —                                                                                      |       | 33,333 |   |
| Net  cash used in operating activities                                       |       | (2,005,199                           | )          | (5,185,637                                                                                  | )          | (34,380,641 | ) |
|                                                                         |       |                                 |       |                                                                                        |       |   |   |
| Cash  flows from investing activities                                        |       |                                 |       |                                                                                        |       |   |   |
| Purchase  of property and equipment                                          |       | —                               |       | (244,315                                                                                    | )          | (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                                       |       | —                               |       | (440,903                                                                                    | )          | (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                                     |       | 650,000                              |       | —                                                                                      |       | 4,040,000 |   |
| Payments  on convertible notes payable                                       |       | —                               |       | —                                                                                      |       | (1,470,672 | ) |
| Net  repayments from notes payable                                           |       | —                               |       | —                                                                                      |       | (62,833 | ) |
| Issuance  of warrants to placement agent                                     |       | —                               |       | —                                                                                      |       | 37,596 |   |
| Proceeds  from the issuance of preferred stock, net                          |       | —                               |       | —                                                                                      |       | 32,367,969 |   |
| Proceeds  from the issuance of common stock, net                             |       | —                               |       | —                                                                                      |       | 2,089,050 |   |
| Net  cash provided by financing activities                                   |       | 650,000                              |       | —                                                                                      |       | 36,951,885 |   |
|                                                                         |       |                                 |       |                                                                                        |       |   |   |
| Net  increase (decrease) in cash and cash equivalents                        |       | (1,355,199                           | )          | (5,626,540                                                                                  | )          | 680,348 |   |
| Cash  and cash equivalents, beginning of period                              |       | 2,035,547                            |       | 11,697,425                                                                                  |       | — |   |
| Cash  and cash equivalents, end of period                                    |       | $                                    | 680,348    |                                                                                        | $          | 6,070,885 |   | $ | 680,348 |   |
|                                                                         |       |                                 |       |                                                                                        |       |   |   |
| 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                       |       | $                                    | 2,372,996  |                                                                                        | $          | 2,377,816 |   | $ | 11,642,676 |   |
| 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 Placement Agent                                     |       | $                                    | 74,674     |                                                                                        | $          | — |   | $ | 74,674 |   |

 

*See accompanying notes to thesecondensed consolidated financial statements.*

 

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**Uni-Pixel, Inc.**

**(A DevelopmentStage 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 June 30,2009, we had accumulated a total deficit of $46.7 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 to furtherdevelop 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 36 issuedpatents, 2 allowed patents, and 83 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 oursuccess in 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. Our abilityto 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 June 30, 2009,we had cash and cash equivalents of $0.7 million.  We believe that ourexisting capital resources are adequate to finance our operations until August 31,2009.  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.

 

*Acquisitionand merger and basis of presentation*

 

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

 

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

 

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.

 

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 of Uni-PixelDisplays, Inc.  The assets, liabilities, operations and cash flows ofReal-Estateforlease.com, Inc. are included in the consolidated financialstatements 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 $3.2 million and $6.2 million for the six months ended June 30,2009 and 2008, respectively, has negative working capital of $0.6 million andhas an accumulated deficit of $46.7 million as of June 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 fundoperations.  In the 4th quarter of2008, the Company’s management began to reduce operating expenses and delayplanned expenditures to preserve the Company’s working capital.

 

In June 2009, theCompany raised a total of $650,000 in convertible notes.  In 2007, the Company had raised an aggregateof $22 million in a private placement of its Series B and Series CPreferred Stock (See Note 5)., Management believes that it has sufficient cashto enable the Company to continue operations until August 31, 2009.

 

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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 June 30, 2009 condensed consolidated financialstatements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets or the amounts andclassifications of liabilities that may result from the outcome of this uncertainty.

 

**Note 3 -   Summaryof Significant 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 six months endedJune 30, 2009 compared to what was previously disclosed in the Company’sAnnual Report on 10-K for the year ended December 31, 2008. Theconsolidated financial information as of December 31, 2008  included herein has been derived from theCompany’s audited consolidated financial statements as of, and for the fiscalyear 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 June 30, 2009 and December 31,2008.  The amounts held in these banksdid not exceed the insured limit of $250,000 as of June 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 June 30, 2009 and December 31,2008, we held an investment account of $482,044 and $1,662,973, respectively,with a financial institution other than a bank. These funds are invested in money market funds.  We have not incurred losses related to thesedeposits.

 

*Restrictedcash*

 

As of June 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 June 30, 2009 and December 31, 2008.  The restricted cash has been segregated intocurrent and long-term classifications based on its anticipated liquidation.

 

*Derivative instruments*

 

We account for allderivative financial instruments in accordance with SFAS No.  133, “Accountingfor Derivative Instruments and Hedging Activities” and related Emerging IssuesTask Force (“EITF”) interpretations and Securities and Exchange Commission (“SEC”)rules, which require that certain embedded and freestanding derivativeinstruments be classified as a liability and measured at fair value withchanges in fair value recognized currently in earnings.  The Company has recorded changes in fairvalue as an other expense in the consolidated statements of operations.

 

*Researchand development expenses*

 

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

 

*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 June 30, 2009. There are nocurrent or deferred tax expenses for the six month periods ended June 30,2009 and 2008 due to the Company’s loss position. The Company has fully reservedfor any benefits of these losses. The deferred tax consequences of temporarydifferences in reporting items for financial statement and income tax purposesare recognized, as appropriate. Realization of the future tax benefits relatedto the deferred tax assets is dependent on many factors, including the Company’sability to generate taxable income within the net operating loss carryforwardperiod. Management has considered these factors in reaching its conclusion asto the valuation allowance for financial reporting purposes. Accordingly, nobenefit has been recognized on the net loss as the realization of the netoperating 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 tothe dilutive effect of stock options, warrants (calculated based on thetreasury stock method) and convertible notes and convertible preferred stock.The Company does not present diluted earnings per share for years in which itincurred net losses as the effect is antidilutive.

 

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At June 30, 2009,options and warrants to purchase 20,430,982 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 June 30,2009, 19,036,932 shares of common stock, convertible from Series BConvertible Preferred Stock and associated dividends, were not included in thecomputation of diluted earnings per share as there effect would beantidilutive.  Further, at June 30,2009, 8,143,256 shares of common stock, convertible from Series CConvertible Preferred Stock and associated dividends, were not included in thecomputation of diluted earnings per share as their effect would beantidilutive.

 

*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, notes payable and derivative liabilities reflect their respectivecarrying amounts.

 

*Recently adopted accounting pronouncements*

 

Effective December 31,2008, the Company adopted the Emerging Issues Task Force (“EITF”) Issue No. ****08-4:******TransitionGuidance for Conforming Changes to Issue No. 98-5 (EITF 08-4)**, whichwas ratified by the consensus of the FASB in June 2008. The objective of EITF 08-4 is to provide transition guidance for conformingchanges made to Issue No. 98-5 “Accounting for Convertible Securities withBeneficial Conversion Features or Contingently Adjustable Conversion Ratios”that resulted from Issue No. 00-27, “Application of Issue No. 98-5 toCertain Convertible Instruments,” and FASB Statement No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity*. This transitionguidance is unique in that the current changes reflect matters that should havebeen addressed in the past, but were missed. Issue No. 08-4 concludes thatconforming changes made to Issue No. 98-5 that result from Issue No. 00-27and Statement No. 150 are effective for financial statements issued forfiscal  years ending after December 15, 2008. The effect of thesechanges is to be applied retrospectively with the cumulative effect of thechange being reported in retained earnings. If a company must make a change inits accounting to implement these changes, then the disclosure requirements inFAS 154 should be followed. The adoption of EITF 08-4 did not impact theCompany’s consolidated financial statements.

 

In May 2008, theFASB issued Staff Position (FSP) EITF 03-6-1, *Determining Whether Instruments Granted in Share-Based PaymentTransactions are Participating Securities*. This staff positionaddresses whether instruments granted in share-based payment transactions areparticipating securities prior to vesting and, therefore, need to be includedin the allocation in computing earnings per share under the two-class methoddescribed in SFAS 128, *Earnings Per Share.*TheFASB concluded that all outstanding unvested share-based payment awards thatcontain rights to nonforfeitable dividends participate in undistributedearnings with common shareholders. If awards are considered participatingsecurities, the Company is required to apply the two-class method of computingbasic and diluted earnings per share. FSP EITF 03-6-1 is effective for fiscalyears beginning after December 15, 2008 and interim periods within those fiscalyears. Early adoption is prohibited. The implementation of EIFT 03-6-1 did notimpact the Company’s consolidated financial statements.

 

In November 2007,FASB issued EITF 07-1, “**Accounting for Collaborative Arrangements”**(“EITF07-1”)**.”**  EITF 07-1 requires additional disclosures related tocollaborative arrangements. EITF 07-1 is effective for fiscal years beginningafter December 15, 2008.  The implementation of EIFT 07-1 did notimpact the Company’s consolidated financial statements.

 

***SFAS No. 141(R) ***— In December 2007, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 141(R), *Business Combinations*, which replaces SFASNo. 141, *Business Combinations*.SFAS No. 141(R) requires the acquirer of a business to recognize andmeasure the identifiable assets acquired, the liabilities assumed, and anynon-controlling interest in the acquiree at fair value. SFAS No. 141(R) alsorequires transaction costs related to the business combination to be expensedas incurred. SFAS No. 141(R) applies prospectively to businesscombinations for which the acquisition date is on or after the beginning of thefirst annual reporting period beginning on or after December 15, 2008. Weadopted SFAS No. 141(R) on January 1, 2009 and it had nomaterial impact on our consolidated financial statements.

 

***SFAS No. 160*** — In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in ConsolidatedFinancial Statements*.  SFAS No. 160 requires all entitiesto report noncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements. Its intention is to eliminate the diversityin practice regarding the accounting for transactions between an entity andnoncontrolling interests. SFAS No. 160 will apply to fiscal years andinterim periods beginning on or after December 15, 2008.  We adoptedSFAS No. 160 on January 1, 2009 and it had no material impact on ourconsolidated financial statements.

 

***SFAS No. 161*** — In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities - an amendment of FASB Statement No. 133.* SFAS No. 161 amends and expands the disclosure requirements 

 

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of SFAS No. 133 toprovide a better understanding of how and why an entity uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor, and their effect on an entity’s financial position, financial performance,and cash flows.  SFAS No. 161 is effective for fiscal years andinterim periods beginning after November 15, 2008.  We adopted SFAS No. 161on January 1, 2009 and it had no material impact on our consolidatedfinancial statements.

 

***SFAS No. 165*** - We adopted SFAS No. 165, *Subsequent Events* for the Quarterly Reportfor the period ending June 30, 2009.  SFAS 165 establishesgeneral standards of accounting for and disclosure of events that occur afterthe balance sheet date but before financial statements are issued, which arereferred to as subsequent events. The statement clarifies existing guidance onsubsequent events, including a requirement that a public entity should evaluatesubsequent events through the issue date of the financial statements, thedetermination of when the effects of subsequent events should be recognized inthe financial statement and disclosures regarding all subsequentevents.  Adoption of SFAS 165 did not have a material affect on ourcondensed consolidated financial statements. We have updated subsequent eventsthrough August 14, 2009, which is the date of this filing.

 

*Recentlyissued accounting pronouncements*

 

In April 2009, theCompany adopted several new pronouncements issued by the FASB related to fairvalue measurement, recording and disclosure. FASB Staff Position, or FSP, No. 107-1,“Interim Disclosures about Fair Value of Financial Instruments,” requiresdisclosures relating to fair value of financial instruments for both interimand annual reporting periods. FSP No. 157-4, “Determining Fair Value Whenthe Volume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly,” providesadditional guidance on estimating the fair value of a financial instrument whenthe volume and level of activity for the asset or liability has significantlydecreased in relation to normal market activity for the asset or liability. FSPNo. 115-2 and FSP No. 124-2, “Recognition and Presentation ofOther-Than-Temporary Impairments,” provide additional guidance for recordingimpairment losses on securities. All of these fair value measurementpronouncements were effective for interim and annual reporting periods endingafter June 15, 2009. The adoption of these pronouncements did not have amaterial impact on the Company’s condensed consolidated financial statements.

 

***SFAS No. 167*** — In June 2009, the FASB issued SFAS No. 167,*Amendments to FASB Interpretation No. 46(R*),which amends FASB Interpretation (FIN) No. 46(R), *Consolidation of Variable Interest Entities*,for variable interest entities to determine whether a variable interest entitymust be consolidated. SFAS No. 167 requires an entity to perform ananalysis to determine whether an entity’s variable interest or interests giveit a controlling financial interest in a variable interest entity. Thisstatement requires ongoing reassessments of whether an entity is the primarybeneficiary of a variable interest entity and enhanced disclosures that providemore transparent information about an entity’s involvement with a variableinterest entity. The new standard will become effective for us on January 1,2010. We are currently evaluating the impact of adopting SFAS No. 167 onthe consolidated financial statements.

 

In June 2009, theFASB issued SFAS No. 168, “The FASB Accounting Standards Codificationand the Hierarchy of Generally Accepted Accounting Principles, a replacement ofFASB Statement No. 162.” The FASB Accounting Standards Codification, orCodification, will become the single official source of authoritativeaccounting principles recognized by the FASB to be applied by nongovernmentalentities in the preparation of financial statements in conformity with GAAP,with the exception of guidance issued by the SEC and its staff. TheCodification did not change GAAP, but reorganizes the thousands of GAAPpronouncements into roughly 90 accounting topics and displays all topics usinga consistent structure. SFAS No. 168 is effective for financial statementsissued for interim and annual reporting periods ending after September 15,2009. The Company does not expect the adoption of SFAS No. 168 to have amaterial impact on its condensed consolidated financial statements.

 

Other recent accountingpronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”),the American Institute of Certified Public Accountants (“AICPA”), and the SECdid not or are not believed by management to have a material impact on ourpresent condensed consolidated financial statements.

 

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

 

*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 June 30, 2009 are as follows:

 

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| **Year Ending December 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| 2009                             |       | $          | 103,270    |   |
| 2010                             |       | 191,825    |       |
| 2011                             |       | —     |       |
| 2012                             |       | —     |       |
| 2013                             |       | —     |       |
| Thereafter                       |       | —     |       |
| Total                            |       | $          | 295,095    |   |

 

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

 

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

 

*Equityinstruments issued to non-employees*

 

From time to time,in order 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.  During 2007, we did the following:

 

·                 Effective January 15, 2007, werequested and Lusierna Asset Management, Ltd. (the “Consultant”) agreed toprovide consulting and advisory services to us pursuant to and in accordancewith our request, including but not limited to, advice regarding corporatestructuring, the identification of potential candidates for our board ofdirectors and transaction structuring. In consideration of the consulting services, we agreed that at the timeof, and subject to, the closing of no less than gross proceeds of $12,000,000from the sale of the Company’s equity in a private placement, (the “**Offering Threshold Closing**”), theCompany (i) issued to the Consultant, simultaneously with the OfferingThreshold Closing, initial closing, a three year warrant to purchase 750,000shares (the “**Option Shares**”) of our commonstock, at an exercise price of $1.10 per Option Share, with a cashless exerciseprovision and no anti-dilution adjustment, and (ii) we paid to theConsultant a fee of $480,000.  TheCompany utilized the Black-Scholes methodology in determining thefair market value of the warrants of $217,007 and recorded the expense inthe first quarter of 2007.  TheConsultants’ fee of $480,000 was paid from the proceeds of the PurchaseAgreement, described below, and expensed in the first quarter of 2007.

 

·                 Effective February 13, 2007 weentered into an Investor Relations Agreement with Lusierna Asset Management,Ltd. (the “Consultant”) which provides that the Agreement will terminate on thedate twelve (12) months from the Commencement Date, unless otherwise subject toearlier termination.  During the term ofthis Agreement, the Consultant shall provide public and investor relationsservices (collectively, the “**Services**”)to us, to result in improved investor recognition of Uni-Pixel, Inc., abroader following by analysts and institutions to include providing directly,or managing the delivery of, a wide range of services, including, but notlimited to:

·                 Proactive marketing of the Companydirectly to security analysts, stockbrokers and portfolio managers andinvestors.

·                 Assisting the Company in gaining mediacoverage both locally and nationally.

·                 Assisting in the preparation of pressreleases, including monitoring wire service coverage of the Company foraccuracy and pickup.

·                 Preparing presentations relating to theCompany for meetings with analysts, registered representatives and portfoliomanagers, other large investors, and sponsored forums.

·                 Assisting in preparing information kitsabout the Company in response to press and/or investor inquiries.

·                 Providing such other services andassistance as Consultant and the Company shall deem necessary or appropriate toenhance the Company’s business.

 

The Consultant shallreceive $10,000 per month payable monthly on the tenth (10th) day of each month, commencing on the tenth (10th) day of the month following the month in which theCommencement Date occurs and a three (3) year warrant (the “**Warrant**”) to purchase 300,000shares of restricted Uni-Pixel, Inc. common stock at an exercise price of$1.10 per share, with a cashless exercise provision and no anti-dilutionadjustment. The Warrant shall vest in twelve (12) monthly installments on thetenth (10th) day of each month, commencing in theFirst Payment Month. The initial payment shall be for 75,000 shares, with theremaining 225,000 shares equally divided into the remaining eleven (11)installments.  The Company 

 

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utilized theBlack-Scholes methodology in determining the fair market value ofthe warrants of $86,803 and this amount was expensed over 12 months.

 

*CommonStock*

 

During the three months ended March 31, 2009 andthe three months ended June 30, 2009, (1) we issued no shares ofcommon stock for cash in connection with the exercise of stock options; (2) issuedno shares of common stock in exchange for cashless exercise of warrants; (3) issuedno shares of common stock in connection with the conversion of Series BPreferred Stock and accrued dividends; and (4) issued no shares of commonstock in connection with the conversion of Series C Preferred Stock andaccrued dividends.

 

*Series 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”)to purchase, in aggregate, up to 6,839,279 shares of the Company’s commonstock, par value $0.001 for an aggregate purchase price of $12,000,000.  As the Series B Preferred Stock isredeemable for cash at the option of the holder after five years, the Series BPreferred Stock is classified as temporary equity on the balance sheet.  In accordance with EITF 00-27, the Companydetermined that the Series B Preferred Stock contained a beneficialconversion feature with an intrinsic value of $3,715,602, which was credited toadditional paid-in capital in the first quarter of 2007, and is being amortizedover five years.  The Company utilizedthe Black-Scholes methodology in determining the fair market value ofthe Series B Warrants of $3,715,602, which was credited to additionalpaid-in capital in the first quarter of 2007, and is being amortized over fiveyears.

 

Dividends shallaccrue, whether or not declared and paid, on the Series B Preferred Stockat the 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 BPreferred Stock dividends and any other declared and unpaid dividends, by theinitial Series B Preferred Stock conversion price of $0.75, which issubject to adjustment from time to time in accordance with the Certificate ofDesignations.  As of June 30, 2009,there were 3,200,000 shares of Series B Preferred Stock outstanding, withcumulative unpaid dividends of approximately $2,277,699 or 607,386 shares of Series BPreferred Stock.

 

*Series CConvertible Preferred Stock*

 

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

 

Dividends shallaccrue, whether or not declared and paid, on the Series C Preferred Stockat the 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 Stockmay, 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 Series CPreferred Shares, plus all accrued and unpaid Series C Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series CPreferred Stock conversion price of $1.40, which is subject to adjustment fromtime to time in accordance with the Certificate of Designations.  As of June 30, 2009, there were 892,858shares of Series C Preferred Stock outstanding, with cumulative unpaiddividends of approximately $1,400,549 or 125,049 shares of Series CPreferred Stock.

 

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*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 andsecond quarter of 2009, we did not grant any options under the 2005 StockIncentive 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 toselect participants who will receive the awards and to determine the type, sizeand terms 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 of grant.    In the first quarter of 2009, 82,639options to purchase our common stock with an exercise price of $1.45 per sharewere retired.

 

In the secondquarter of 2009, we did not grant any options under the 2007 Stock IncentivePlan.

 

*OtherStock Options*

 

In the first andsecond 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 in accordance with SFAS No. 123(R):

 

*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 thefair value of stock options at the date of grant using the Black-Scholesvaluation model.  Most options vestannually over a three-year service period. The Company will issue new shares upon the exercise of stock options.

 

Total compensationexpense recognized for options was approximately $0.8 million and $0.6million for the six months ended June 30, 2009 and June 30, 2008,respectively.  The Company has recordedapproximately $0.3 million of stock compensation expense in selling, generaland administrative expenses and approximately $0.5 million in research anddevelopment expense for the six months ended June 30, 2009 andapproximately $0.4 million of stock compensation expense in selling, generaland administrative expenses and approximately $0.2 million in research anddevelopment expense for the six months ended June 30, 2008.

 

A summary of the changesin the total stock options outstanding during the six months ended June 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                         |       | (112,500    | )          | 1.45                |       |
| Exercised                                     |       | —      |       | —              |       |
| Outstanding  at June 30, 2009            |       | 6,064,514   |       | $                   | 1.55       |   |
| Vested  and exercisable at June 30, 2009 |       | 4,782,300   |       | $                   | 1.58       |   |

 

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:

 

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| ** **             | ** ** | **Three  Months  ended  June 30,********2009** | ** ** | **Three  Months  ended  June 30,********2008** | ** ** | **Six  Months  ended  June 30,********2009** | ** ** | **Six  Months  ended  June 30,********2008** | ** ** |
|------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| Expected  life (years) |       | 5 years                                        |       | 5 years                                        |       | 5 years                                      |       | 5 years                                      |       |
| Interest  rate         |       | 1.85                                                | %          | 0.90 to 1.97                                        | %          | 1.85                                              | %          | 0.90 to 3.27                                      | %          |
| Dividend  yield        |       | —                                              |       | —                                              |       | —                                            |       | —                                            |       |
| Volatility             |       | 135.15                                              | %          | 108.47                                              | %          | 135.15                                            | %          | 108.47                                            | %          |
| Forfeiture  rate       |       | —                                              |       | —                                              |       | —                                            |       | —                                            |       |

 

At June 30,2009, there was $1.1 million of total unrecognized compensation cost related tonon-vested stock option awards which is expected to be recognized over aweighted-average period of 0.81 years. There were 974,270 options that became vested during the six monthsended June 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 September 30,2010. The Private Placement offering will be open to Investors until September 30,2009.

 

On June 10, 2009 andJune 30, 2009, the Company entered into a Subscription Agreement withvarious accredited 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 September 30,2010. 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 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 values assigned tothe warrants of the Debentures followed the guidance of the EITF Issue No. 98-5,“Accounting for Convertible Securities with Beneficial Conversion Features orContingently Adjustable Conversion Ratios”, FSP 00-19-02 and EITF 00-19: “Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock”, FAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity” and EITF IssueNo. 00-27, “Application of Issue No. 98-5 to Certain ConvertibleInstruments” of the FASB’s Emerging Issues Task Force.  The Debentures did not contain a beneficialconversion 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 June 30, 2009,the unamortized discount on the Debenture is approximately $19,215. Thefollowing table reflects the convertible debt at June 30, 2009:

 
| Convertible  Debt                       |   | $       | 650,000 |   |
|-----------------------------------------|--------|---------|---------|--------|
| Less:  Current portion of debt discount |   | (19,215 | )       |
|                                    |   |    |    |
| Value  of debt at June 30, 2009    |   | $       | 630,785 |   |

 

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

 
| Interest  expense on debt   |   | $ | 2,678 |   |
|-----------------------------|--------|---|-------|--------|
| Accretion  of debt discount |   | $ | 786   |   |

 

In consideration forservices rendered as the placement agent in the Private Placement, the Companyissued to Fordham Financial Management, Inc.(“Fordham”) ten-year warrantsto purchase 195,000 shares of the Company’s Common Stock at an 

 

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exercise price of $0.50per 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.

 

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

 

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

 

In general, fair values determined by Level 1 inputs utilize quotedprices (unadjusted) in active markets for identical assets or liabilities.Fair values determined by Level 2 inputs utilize observable inputs other thanLevel 1 prices, such as quoted prices for similar assets or liabilities, quotedprices in markets that are not active or other inputs that are observable orcan be corroborated by observable market data for substantially the full termof the related assets or liabilities. Fair values determined by Level 3 inputsare unobservable data points for the asset or liability, and include situationswhere there is little, if any, market activity for the asset or liability. Thefollowing table presents information about the Company’s financial assets thathave been measured at fair value as of June 30, 2009, and indicates thefair value hierarchy of the valuation inputs utilized to determine such fairvalue (in thousands):

 
| ** **                                          | ** ** | ** **        | ** ** | **Quoted**    | ** ** | **Significant** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|---------------|------------|-----------------|------------|
| ** **                                          | ** ** | **Fair Value**    | ** ** | **Prices in** | ** ** | **Other**       | ** ** |
| ** **                                          | ** ** | **at**            | ** ** | **Active**    | ** ** | **Observable**  | ** ** |
| ** **                                          | ** ** | **June 30,** | ** ** | **Markets**   | ** ** | **Inputs**      | ** ** |
| **Description**                                     | ** ** | **2009**          | ** ** | **(Level 1)** | ** ** | **(Level 2)**   | ** ** |
| Assets:                                             |       |              |       |          |       |            |       |
| Cash and cash equivalents                           |       | $                 | 680,348    |          | $          | 680,348         |       | $ | — |   |
|                                                |       |              |       |          |       |            |       |
| Assets measured at fair value at June 30, 2009 |       | $                 | 680,348    |          | $          | 680,348         |       | $ | — |   |

 

**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 beaffected by one or more factors, which could cause them to differmaterially.  For these statements, weclaim the protection of the safe harbor for forward-looking statementscontained in the Private Securities Litigation Reform Act. You should alsoconsider carefully the statements under “Description of Business - Risk Factors”in our 2008 Form 10-K, which address factors that could cause our actualresults to differ from those set forth in the forward-looking statements.

 

*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 

 

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operations, our futurebusiness plans and projected financial results, the terms of existingcontracts, our observance of trends in the industry, information provided byour customers and information available from other outside sources, asappropriate. The following discusses our significant accounting policies andestimates.

 

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

 

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

 

Revenue 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 forresearch, development and manufacturing of materials and devices, and a portionof facilities cost. Prototype development costs are a significant component ofresearch and development expenses and include costs associated with third-partycontractors. Invoicing from third-party contractors for services performed canlag several months. We 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 thenbe measured as the difference between the fair value of the fixed or amortizingintangible asset and the carrying value to determine the amount of theimpairment.

 

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

 

*RESULTSOF OPERATIONS*

 

Comparison of the sixmonths ending June 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.

 

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Revenues were $0for the six months ended June 30, 2009 and the six months ended June 30,2008.

 

COST OFREVENUES.  Cost of revenues include all direct expenses associated withthe delivery of services including internal labor costs. Cost of revenues forthe six months ended June 30, 2009 and the six months ended June 30,2008 was $0.

 

SELLING, GENERALAND ADMINISTRATIVE EXPENSES. Selling, general and administrative expensesdecreased by 22% or approximately $402,000, to $1,434,726 for the six monthsended June 30, 2009 from $1,837,053 for the six months ended June 30,2008.  The major components of the decrease are as follows:

 

a)  Salariesand benefits decreased by approximately $42,000 to $862,000 for the six monthsended June 30, 2009 compared to $904,000 for the six months ended June 30,2008 due to a decrease in salaries and an increase in stock compensationexpense of approximately $15,000 to $364,000 for the six months ended June 30,2009 compared to $349,000 for the six months ended June 30, 2008;

 

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

 

c) Legal expensedecreased by approximately $124,000 to $81,000 for the six months ended June 30,2009 compared to $205,000 for the six months ended June 30, 2008;

 

d) Accountingexpense decreased by approximately $8,000 to $44,000 for the six months ended June 30,2009 compared to $52,000 for the six months ended June 30, 2008;

 

e) Office expensedecreased by approximately $36,000 to $8,000 for the six months ended June 30,2009 compared to $44,000 for the six months ended June 30, 2008;

 

f) Travel expensedecreased by approximately $21,000 to $9,000 for the six months ended June 30,2009 compared to $30,000 for the six months ended June 30, 2008;

 

g) Depreciationand amortization expense increased by approximately $18,000 to $166,000 for thesix months ended June 30, 2009 compared to $148,000 for the six monthsended June 30, 2008.

 

RESEARCH ANDDEVELOPMENT. Research and development expenses decreased by approximately$2,731,689 during the six months ended June 30, 2009 to $1,758,170 from$4,489,859 for the six months ended June 30, 2008. The major components ofthe decrease are as follows:

 

a) Salaries andbenefits attributable to research and development increased by approximately$33,000 to $1,373,000 for the six months ended June 30, 2009 compared to$1,340,000 for the six months ended June 30, 2008 due to a decrease insalaries and an increase in stock compensation expense of approximately$243,000 to $482,000 for the six months ended June 30, 2009 compared to$239,000 for the six months ended June 30, 2008;

 

b) Consultingexpense attributable to research and development decreased by approximately$667,000 to $103,000 for the six months ended June 30, 2009 compared to$770,000 for the six months ended June 30, 2008;

 

c) Lab expensedecreased by approximately $1,918,000 to $119,000 for the six months ended June 30,2009 compared to $2,037,000 for the six months ended June 30, 2008primarily due to decreased services related to prototype development; and

 

d) Travel expenseattributable to research and development decreased by approximately $148,000 to$62,000 for the six months ended June 30, 2009 compared to $210,000 forthe six months ended June 30, 2008.

 

OTHER INCOME(EXPENSE).

 

a) Debt issuanceexpense increased to an expense of $6,551 for the six months ended June 30,2009 as compared to $0 during the six months ended June 30, 2008, due tothe debt raised in June 2009.

 

b)****Interest income (expense), net decreasedto an income of $683 for the six months ended June 30, 2009 as compared toincome of $142,939 for the six months ended June 30, 2008 primarily due toless cash on hand.

 

NET LOSS.**  **Net loss decreased to$3,198,764 for the six months ended June 30, 2009, as compared to$6,189,973 for the six months ended June 30, 2008. We compute our net lossper share on the basis of net loss attributable to common 

 

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stockholders, whichincluded the effects of certain items not included in the determination of netloss. Net loss attributable to common stockholders for the six months ended June 30,2009 was $5,571,760 as compared to a net loss attributable to commonstockholders of $8,561,789 for the six months ended June 30, 2008. The netloss attributable to common stockholders for the six months ended June 30,2009 includes $2,372,996 of accrued but unpaid preferred stock dividends andamortization of preferred stock discount. The net loss attributable to common stockholders for the six monthsended June 30, 2008 includes $2,377,816 of accrued but unpaid preferredstock dividends.

 

Comparison of the threemonths ending June 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 June 30, 2009 and the three months ended June 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 June 30, 2009 and the three months ended June 30,2008 was $0.

 

SELLING, GENERALAND ADMINISTRATIVE EXPENSES. Selling, general and administrative expensesdecreased by 38% or approximately $378,000, to $621,956 for the three monthsended June 30, 2009 from $1,000,209 for the three months ended June 30,2008.  The major components of the decrease are as follows:

 

a)  Salariesand benefits decreased by approximately $119,000 to $375,000 for the threemonths ended June 30, 2009 compared to $494,000 for the three months endedJune 30, 2008 due to a decrease in salaries an increase in stockcompensation expense of approximately $15,000 to $126,000 for the three monthsended June 30, 2009 compared to $111,000 for the three months ended June 30,2008;

 

b) Contract labordecreased by approximately $5,000 to $0 for the three months ended June 30,2009 compared to $5,000 for the three months ended June 30, 2008;

 

c) Legal expensedecreased by approximately $96,000 to $43,000 for the three months ended June 30,2009 compared to $139,000 for the three months ended June 30, 2008;

 

d) Accountingexpense decreased by approximately $2,000 to $18,000 for the three months endedJune 30, 2009 compared to $20,000 for the three months ended June 30,2008;

 

e) Office expensedecreased by approximately $15,000 to $5,000 for the three months ended June 30,2009 compared to $20,000 for the three months ended June 30, 2008;

 

f) Travel expensedecreased by approximately $12,000 to $4,000 for the three months ended June 30,2009 compared to $16,000 for the three months ended June 30, 2008;

 

g) Depreciationand amortization expense increased by approximately $5,000 to $83,000 for thethree months ended June 30, 2009 compared to $78,000 for the three monthsended June 30, 2008.

 

RESEARCH ANDDEVELOPMENT. Research and development expenses decreased by approximately$1,474,000 during the three months ended June 30, 2009 to $747,824 from$2,221,722 for the three months ended June 30, 2008. The major componentsof the decrease are as follows:

 

a) Salaries andbenefits attributable to research and development decreased by approximately$207,000 to $524,000 for the three months ended June 30, 2009 compared to$731,000 for the three months ended June 30, 2008 due to a decrease insalaries and a decrease in stock compensation expense of approximately $27,000to $84,000 for the three months ended June 30, 2009 compared to $111,000for the three months ended June 30, 2008;

 

b) Consultingexpense attributable to research and development decreased by approximately$196,000 to $67,000 for the three months ended June 30, 2009 compared to$263,000 for the three months ended June 30, 2008;

 

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c) Lab expensedecreased by approximately $985,000 to $66,000 for the three months ended June 30,2009 compared to $1,051,000 for the three months ended June 30, 2008primarily due to decreased services related to prototype development; and

 

d) Travel expenseattributable to research and development decreased by approximately $71,000 to$36,000 for the three months ended June 30, 2009 compared to $107,000 forthe three months ended June 30, 2008.

 

OTHER INCOME(EXPENSE).

 

a) Debt issuanceexpense increased to an expense of $6,551 for the three months ended June 30,2009 as compared to $0 during the three months ended June 30, 2008, due tothe debt raised in June 2009.

 

b)****Interest income (expense), net decreasedto an expense of $2,847 for the three months ended June 30, 2009 ascompared to income of $46,219 for the three months ended June 30, 2008primarily due to less cash on hand.

 

NET LOSS.**  **Net loss decreased to$1,379,178 for the three months ended June 30, 2009, as compared to$3,175,712 for the three months ended June 30, 2008. We compute our netloss per share on the basis of net loss attributable to common stockholders,which included the effects of certain items not included in the determinationof net loss. Net loss attributable to common stockholders for the three monthsended June 30, 2009 was $2,570,498 as compared to a net loss attributableto common stockholders of $4,367,031 for the three months ended June 30,2008. The net loss attributable to common stockholders for the three monthsended June 30, 2009 includes $1,191,320 of accrued but unpaid preferredstock dividends and amortization of preferred stock discount.  The net loss attributable to commonstockholders for the three months ended June 30, 2008 includes $1,191,319of accrued but unpaid preferred stock dividends.

 

**Off-BalanceSheet Transactions**

 

We do not engagein material off-balance sheet transactions.

 

*LIQUIDITYAND CAPITAL RESOURCES*

 

Operating Activities

 

Cash used inoperating activities during the six months ended June 30, 2009 decreasedto $2,005,199 as compared to $5,185,637 used for the six months ended June 30,2008. This is primarily attributable to a decrease in research and developmentexpense for the six months ended June 30, 2009.

 

Investing Activities

 

Cash used forinvesting activities during the six months ended June 30, 2009 amounted to$0, as compared to $440,903 used for investing activities for the six monthsended June 30, 2008. This is primarily attributable to the acquisition ofapproximately $244,000 of property and equipment during the six months ended June 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 six months ended June 30, 2009, the total net cash provided byfinancing activities was $650,000, all from proceeds from convertiblenotes.  During the six months ended June 30,2008, the total net cash provided by financing activities was $0.

 

Working Capital

 

As of June 30,2009, we had a cash balance of $0.7 million. In the 4th quarter of2008, the Company’s management began to reduce operating expenses and delayplanned expenditures to preserve the Company’s working capital.  We project that current cash reserves willsustain our operations at least through August 31, 2009, and we are notaware of any trends or potential events that are likely to impact our shortterm liquidity through this term.

 

On February 13,2007, we entered into a Securities Purchase Agreement (the “Purchase Agreement”)with The Raptor Global Portfolio Ltd., The Tudor BVI Global Portfolio Ltd.,Tudor Proprietary Trading, L.L.C. and The Altar Rock Fund L.P. (collectively,the “Purchasers”) pursuant to which we sold on that date in a private placementto the Purchasers (a) 3,200,000 

 

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authorized but unissuedshares of the Company’s Series B Preferred Stock, par value $0.001 pershare (the “Series BPreferred Stock”), and (b) warrants (the “Warrants”) to purchase,in aggregate, up to 6,839,279 shares at $1.24 per share, of the Company’scommon stock, par value $0.001, for an aggregate purchase price of $12,000,000.

 

On September 28,2007, the Company entered into a Securities Purchase Agreement (the “ MLPurchase Agreement”) with Merrill Lynch Pierce, Fenner & SmithIncorporated (the “ ML Purchaser”) pursuant to which the Company sold on thatdate in a private placement to the ML Purchaser (a) 892,858 authorized butunissued shares of the Company’s Series C Preferred Stock, par value$0.001 per share (the “Series C Preferred Stock”), and (b) warrants (the “MLWarrants”) to purchase, in aggregate, up to 3,214,289 shares of the Company’scommon stock, par value $0.001 for an aggregate purchase price of $10,000,010.

 

We are a developmentstage company and have not experienced significant operations since ourformation. We reached a positive working capital position as of the firstquarter of 2005 as a result of our financing activities. We have incurredsignificant operating losses during the years ended December 31, 2002,2003, 2004, 2005, 2006, 2007 and 2008 and the six months ended June 30,2009. We intend to utilize a proprietary methodology for development of ourdisplays. Our principal activities, from the beginning of the developmentstage, have been organizational matters, capital raising activities includingissuance of stock, product research and development, fund raising, and marketresearch.

 

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 June 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-15(e) and15d-15(e) under the Securities Exchange Act of 1934.  Based on their evaluation, managementconcluded that, as of June 30, 2009, our disclosure controls andprocedures are effective to ensure that material information required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported, within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and that it is accumulated and communicatedto management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

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 have determinedthat no significant changes in our internal control over financial reportingoccurred during our most recent fiscal quarter that have materially affected,or are reasonably like to materially affect, our internal control overfinancial reporting.

 

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**PART II - OTHER INFORMATION**

 

**ITEM 6. EXHIBITS.**

 
| **Exhibit********No.** | ** ** | **Description**                                                                                                                                                                           |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                    |       | Amended and Restated  Certificate of Incorporation of Real-Estateforlease.com, Inc. (1)                                                                                              |
| 3.2                    |       | Amended and Restated  Bylaws of Uni-Pixel, Inc. (1)                                                                                                                                  |
| 4.1                    |       | Certificate of  Designations of Real-Estateforlease.com, Inc. Series A Convertible  Preferred Stock (1)                                                                         |
| 4.2                    |       | Junior Subordinated  Unsecured Promissory Note (1)                                                                                                                                        |
| 4.3                    |       | Common Stock Purchase  Warrant No. 1 (1)                                                                                                                                             |
| 4.4                    |       | Common Stock Purchase  Warrant No. 2 (1)                                                                                                                                             |
| 4.5                    |       | Common Stock Purchase  Warrant No. 3 (1)                                                                                                                                             |
| 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 ofContents

 

**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.** |
|----------------------|------------|----------------------|
|                 |       |                 |
|                 |       |                 |
| August 14, 2009 |       | By:                  | /s/ James A.  Tassone |
| Date                 |       |                 | James A. Tassone, Chief  Financial Officer |

 

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