Table of Contents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**For the Quarterly Period Ended June 30, 2010**

 

**or**

 

| **o** | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For theTransition Period from****                     ****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

 

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

 

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

 

Asof July 30, 2010, the issuer had 52,100,535 shares of issued andoutstanding common stock, par value $0.001 per share.

 

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

 

| Large accelerated filer o                |   | Accelerated 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**

 
| Part I.  | Financial Information                                                                                                                    | 3      |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                     |   |
| Item 1.       | Condensed Consolidated Financial  Statements                                                                                             | 3      |
|          |                                                                                                                                     |   |
|          | Condensed  Consolidated Balance Sheets  June 30, 2010 (unaudited) and December 31, 2009                                        | 3      |
|          |                                                                                                                                     |   |
|          | Condensed  Consolidated Statements of Operations  Six months ended June 30, 2010 (unaudited) and June 30, 2009  (unaudited)    | 4      |
|          |                                                                                                                                     |   |
|          | Three months ended June 30, 2010 (unaudited) and June 30,  2009 (unaudited)                                                    | 5      |
|          |                                                                                                                                     |   |
|          | Condensed Consolidated Statements of Shareholders’  Equity (Deficit)  From December 31, 2008 to June 30, 2010 (unaudited) | 6      |
|          |                                                                                                                                     |   |
|          | Condensed Consolidated Statements of Cash Flows  Six months ended June 30, 2010 (unaudited) and June 30, 2009  (unaudited)     | 7      |
|          |                                                                                                                                     |   |
|          | Notes to Unaudited Condensed Consolidated Financial  Statements                                                                          | 8      |
|          |                                                                                                                                     |   |
| Item 2.       | Management’s  Discussion and Analysis or Plan of Operation                                                                          | 18     |
|          |                                                                                                                                     |   |
| Item 3.       | Quantitative and  Qualitative Disclosures About Market Risk                                                                              | 23     |
|          |                                                                                                                                     |   |
| Item 4.       | Controls and  Procedures                                                                                                                 | 23     |
|          |                                                                                                                                     |   |
| Part II. | Other Information                                                                                                                        | 23     |
|          |                                                                                                                                     |   |
| Item 6.       | Exhibits                                                                                                                                 | 23     |

 

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**PART I- FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

Uni-Pixel, Inc.

Condensed ConsolidatedBalance Sheets

 
| ** **                                                                                                                                                               | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                               | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                               |       |                    |       |                        |       |
| Current assets                                                                                                                                                           |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                                                |       | $                       | 1,934,802  |                        | $          | 307,850 |   |
| Restricted cash                                                                                                                                                          |       | 34,877                  |       | 34,877                      |       |
| Accounts receivable                                                                                                                                                      |       | 17,375                  |       | —                      |       |
| Deferred loan costs                                                                                                                                                      |       | 232,781                 |       | 385,549                     |       |
| Prepaid expenses                                                                                                                                                         |       | 3,400                   |       | 3,400                       |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Total current assets                                                                                                                                                     |       | 2,223,235               |       | 731,676                     |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Property and equipment, net of accumulated  depreciation of $1,457,218 and $1,328,662, at June 30, 2010 and December 31,  2009, respectively                   |       | 148,805                 |       | 277,361                     |       |
| Intangible assets, net of accumulated amortization  of $0 and $61,640, at June 30, 2010 and December 31, 2009,  respectively                                   |       | —                  |       | 168,250                     |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Total assets                                                                                                                                                             |       | $                       | 2,372,040  |                        | $          | 1,177,287 |   |
|                                                                                                                                                                     |       |                    |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                                                                                                                           |       |                    |       |                        |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Current liabilities                                                                                                                                                      |       |                    |       |                        |       |
| Accounts payable                                                                                                                                                         |       | $                       | 809,848    |                        | $          | 927,641 |   |
| Deferred revenue                                                                                                                                                         |       | 33,333                  |       | 33,333                      |       |
| Convertible notes payable, net of unamortized  discounts of $20,574 and $41,807 at June 30, 2010 and December 31,  2009, respectively                          |       | 3,079,426               |       | 2,283,193                   |       |
| Interest payable                                                                                                                                                         |       | 174,200                 |       | 61,317                      |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Total current liabilities                                                                                                                                                |       | 4,096,807               |       | 3,305,484                   |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Total liabilities                                                                                                                                                        |       | 4,096,807               |       | 3,305,484                   |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Commitments  and contingencies (Note 4)                                                                                                                                  |       | —                  |       | —                      |       |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Shareholders’ deficit                                                                                                                                               |       |                    |       |                        |       |
| Common stock, $0.001 par value; 100,000,000 shares  authorized, 52,100,535 shares issued and outstanding at June 30, 2010  and December 31, 2009, respectively |       | 52,101                  |       | 52,101                      |       |
| Additional paid-in capital                                                                                                                                               |       | 49,602,627              |       | 47,728,226                  |       |
| Accumulated deficit                                                                                                                                                      |       | (51,379,495             | )          | (49,908,524                 | )          |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Total shareholders’ deficit                                                                                                                                         |       | (1,724,767              | )          | (2,128,197                  | )          |
|                                                                                                                                                                     |       |                    |       |                        |       |
| Total liabilities and shareholders’ deficit                                                                                                                         |       | $                       | 2,372,040  |                        | $          | 1,177,287 |   |

 

*See accompanying notes to thesecondensed consolidated financial statements.*

 

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Uni-Pixel, Inc.

Condensed ConsolidatedStatements of Operations

(unaudited)

 
| ** **                                                              | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                              | ** ** | **2010**                            | ** ** | **2009** | ** ** |
|                                                                    |       |                                |       |   |   |
| Revenues                                                                |       |                                |       |   |   |
| Development contract revenue                                            |       | $                                   | 102,764    |   | $ | — |   |
|                                                                    |       |                                |       |   |   |
| Total revenues                                                          |       | —                              |       | — |   |
|                                                                    |       |                                |       |   |   |
| Cost of revenues                                                        |       | —                              |       | — |   |
|                                                                    |       |                                |       |   |   |
| Gross margin                                                            |       | 102,764                             |       | — |   |
|                                                                    |       |                                |       |   |   |
| Selling, general and administrative expenses                            |       | 1,704,805                           |       | 1,434,726 |   |
| Research and development                                                |       | 1,491,428                           |       | 1,758,170 |   |
|                                                                    |       |                                |       |   |   |
| Operating loss                                                          |       | (3,093,469                          | )          | (3,192,896 | ) |
|                                                                    |       |                                |       |   |   |
| Other income (expense)                                                  |       |                                |       |   |   |
| Gain on sale of intellectual property                                   |       | 2,088,835                           |       | — |   |
| Debt issuance expense                                                   |       | (322,046                            | )          | (6,551 | ) |
| Interest income (expense), net                                          |       | (144,291                            | )          | 683 |   |
|                                                                    |       |                                |       |   |   |
| Net loss                                                                |       | $                                   | (1,470,971 | ) | $ | (3,198,764 | ) |
|                                                                    |       |                                |       |   |   |
| Preferred stock dividends and amortization of  discount                 |       | —                              |       | (2,372,996 | ) |
| Net loss attributable to common shareholders                            |       | $                                   | (1,470,971 | ) | $ | (5,571,760 | ) |
|                                                                    |       |                                |       |   |   |
| Per share information                                                   |       |                                |       |   |   |
| Operating loss — basic and diluted                                 |       | $                                   | (0.06      | ) | $ | (0.14 | ) |
| Net loss — basic and diluted                                       |       | (0.03                               | )          | (0.14 | ) |
| Preferred stock dividends                                               |       | —                              |       | (0.10 | ) |
| Net loss attributable to common shareholders —  basic and diluted  |       | $                                   | (0.03      | ) | $ | (0.24 | ) |
|                                                                    |       |                                |       |   |   |
| Weighted average number of basic and diluted  common shares outstanding |       | 52,100,535                          |       | 22,897,418 |   |

 

*Seeaccompanying notes to these condensed consolidated financial statements.*

 

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Uni-Pixel, Inc.

Condensed ConsolidatedStatements of Operations

(unaudited)

 
| ** **                                                                      | ** ** | **Three Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                      | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                                                                            |       |                                  |       |   |   |
| Revenues                                                                        |       |                                  |       |   |   |
| Development contract revenue                                                    |       | $                                     | 39,228     |   | $ | — |   |
|                                                                            |       |                                  |       |   |   |
| Total revenues                                                                  |       | —                                |       | — |   |
|                                                                            |       |                                  |       |   |   |
| Cost of revenues                                                                |       | —                                |       | — |   |
|                                                                            |       |                                  |       |   |   |
| Gross margin                                                                    |       | 39,228                                |       | — |   |
|                                                                            |       |                                  |       |   |   |
| Selling, general and administrative expenses                                    |       | 554,049                               |       | 621,956 |   |
| Research and development                                                        |       | 640,316                               |       | 747,824 |   |
|                                                                            |       |                                  |       |   |   |
| Operating loss                                                                  |       | (1,155,137                            | )          | (1,369,780 | ) |
|                                                                            |       |                                  |       |   |   |
| Other income (expense)                                                          |       |                                  |       |   |   |
| Gain on sale of intellectual property                                           |       | 2,088,835                             |       | — |   |
| Debt issuance expense                                                           |       | (179,434                              | )          | (6,551 | ) |
| Interest income (expense), net                                                  |       | (77,964                               | )          | (2,847 | ) |
|                                                                            |       |                                  |       |   |   |
| Net income (loss)                                                               |       | $                                     | 676,300    |   | $ | (1,379,178 | ) |
|                                                                            |       |                                  |       |   |   |
| Preferred stock dividends and amortization of  discount                         |       | —                                |       | (1,191,320 | ) |
| Net income (loss) attributable to common  shareholders                          |       | $                                     | 676,300    |   | $ | (2,570,498 | ) |
|                                                                            |       |                                  |       |   |   |
| Per share information                                                           |       |                                  |       |   |   |
| Operating loss — basic and diluted                                         |       | $                                     | (0.02      | ) | $ | (0.06 | ) |
| Net income (loss) — basic and diluted                                      |       | 0.01                                  |       | (0.06 | ) |
| Preferred stock dividends                                                       |       | —                                |       | (0.05 | ) |
| Net income (loss) attributable to common  shareholders — basic and diluted |       | $                                     | 0.01       |   | $ | (0.11 | ) |
| Weighted average common shares outstanding — basic  and diluted            |       | 52,100,535                            |       | 22,897,418 |   |

 

*Seeaccompanying notes to these condensed consolidated financial statements.*

 

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Uni-Pixel, Inc.

Condensed ConsolidatedStatements of Shareholders’ Equity (Deficit)

 
| ** **                                                                                                                            | ** ** | **Common Stock** | ** ** | ** ** | ** ** | ** **           | ** ** | **Total**                | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------|------------|----------------------|------------|--------------------------|------------|
| ** **                                                                                                                            | ** ** | **Number**       | ** ** | ** ** | ** ** | **Additional**       | ** ** | ** **               | ** ** | **Shareholders’** | ** ** |
| ** **                                                                                                                            | ** ** | **of  Shares**   | ** ** | **Amount** | ** ** | **Paid-In  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Equity  (Deficit)** | ** ** |
| Balance, December 31, 2008                                                                                                       |       | 22,897,418       |       | $          | 22,897     |                 | $          | 30,785,560               |       | $ | (43,475,391 | ) | $ | (12,666,934 | ) |
| Conversion of Series B & C Preferred  Stock                                                                             |       | 29,203,117       |       | 29,204     |       | 17,910,605           |       | —                   |       | 17,939,809 |   |
| Additional warrants and dividends issued to  Series B & C Preferred Stock holders to induce conversion to  common stock |       | —           |       | —     |       | 1,060,295            |       | (1,060,295               | )          | — |   |
| Stock compensation expense                                                                                                            |       | —           |       | —     |       | 1,234,419            |       | —                   |       | 1,234,419 |   |
| Issuance of warrants to convertible note investors                                                                                    |       | —           |       | —     |       | 61,389               |       | —                   |       | 61,389 |   |
| Issuance of warrants to placement agent                                                                                               |       | —           |       | —     |       | 245,094              |       | —                   |       | 245,094 |   |
| Amortization of discount of Series B  Preferred Stock                                                                            |       | —           |       | —     |       | (1,114,681           | )          | —                   |       | (1,114,681 | ) |
| Amortization of discount of Series C  Preferred Stock                                                                            |       | —           |       | —     |       | (1,142,893           | )          | —                   |       | (1,142,893 | ) |
| Series B Preferred Stock dividends                                                                                               |       | —           |       | —     |       | (715,397             | )          | —                   |       | (715,397 | ) |
| Series C Preferred Stock dividends                                                                                               |       | —           |       | —     |       | (596,165             | )          | —                   |       | (596,165 | ) |
| Net loss                                                                                                                              |       | —           |       | —     |       | —               |       | (5,372,838               | )          | (5,372,838 | ) |
| Balance, December 31, 2009                                                                                                       |       | 52,100,535       |       | $          | 52,101     |                 | $          | 47,728,226               |       | $ | (49,908,524 | ) | $ | (2,128,197 | ) |
| Stock compensation expense                                                                                                            |       | —           |       | —     |       | 1,801,838            |       | —                   |       | 1,801,838 |   |
| Issuance of warrants to convertible note investors                                                                                    |       | —           |       | —     |       | 12,010               |       | —                   |       | 12,010 |   |
| Issuance of warrants to placement agent                                                                                               |       | —           |       | —     |       | 60,553               |       | —                   |       | 60,553 |   |
| Net loss                                                                                                                              |       | —           |       | —     |       | —               |       | (1,470,971               | )          | (1,470,971 | ) |
| Balance, June 30, 2010 (unaudited)                                                                                               |       | 52,100,535       |       | $          | 52,101     |                 | $          | 49,602,627               |       | $ | (51,379,495 | ) | $ | (1,724,767 | ) |

 

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

 

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Uni-Pixel, Inc.

Condensed ConsolidatedStatements of Cash Flows

(unaudited)

 
| ** **                                                                   | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                            | ** ** | **2009** | ** ** |
| Cash flows from operating activities                                         |       |                                |       |   |   |
| Net loss                                                                     |       | $                                   | (1,470,971 | ) | $ | (3,198,764 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                |       |   |   |
| Depreciation and amortization                                                |       | 135,641                             |       | 166,114 |   |
| Stock compensation expense                                                   |       | 1,801,838                           |       | 845,746 |   |
| Amortization of deferred loan costs                                          |       | 322,046                             |       | 6,551 |   |
| Amortization of discounts on notes payable                                   |       | 33,244                              |       | 786 |   |
| Issuance of warrants to placement agent                                      |       | —                              |       | 74,674 |   |
| Gain on sale of intellectual property                                        |       | (2,088,835                          | )          | — |   |
| Change in operating assets and liabilities:                                  |       |                                |       |   |   |
| Increase in deferred financing costs                                         |       | —                              |       | (164,674 | ) |
| Increase in accounts receivable                                              |       | (17,375                             | )          | — |   |
| Increase (decrease) in accounts payable                                      |       | (117,793                            | )          | 61,615 |   |
| Increase in accrued interest payable                                         |       | 112,883                             |       | 2,678 |   |
| Increase in accrued expenses and other liabilities                           |       | —                              |       | 200,075 |   |
| Net cash used in operating activities                                        |       | (1,289,322                          | )          | (2,005,199 | ) |
|                                                                         |       |                                |       |   |   |
| Cash flows from investing activities                                         |       |                                |       |   |   |
| Proceeds from the sale of intellectual property                              |       | 2,250,000                           |       | — |   |
| Net cash provided by investing activities                                    |       | 2,250,000                           |       | — |   |
|                                                                         |       |                                |       |   |   |
| Cash flows from financing activities                                         |       |                                |       |   |   |
| Proceeds from convertible notes payable                                      |       | 775,000                             |       | 650,000 |   |
| Payment of deferred loan costs                                               |       | (108,726                            | )          | — |   |
| Net cash provided by financing activities                                    |       | 666,274                             |       | 650,000 |   |
|                                                                         |       |                                |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                        |       | 1,626,952                           |       | (1,355,199 | ) |
| Cash and cash equivalents, beginning of period                               |       | 307,850                             |       | 2,035,547 |   |
| Cash and cash equivalents, end of period                                     |       | $                                   | 1,934,802  |   | $ | 680,348 |   |
|                                                                         |       |                                |       |   |   |
| Supplemental disclosures of cash flow information:                           |       |                                |       |   |   |
| Preferred stock dividend and amortization of  discount                       |       | $                                   | —     |   | $ | 2,372,996 |   |
| Issuance of warrants to convertible note investors                           |       | $                                   | 12,010     |   | $ | — |   |
| Issuance of warrants to Placement Agent                                      |       | $                                   | 60,553     |   | $ | 74,674 |   |

 

*See accompanying notes to these condensedconsolidated financial statements.*

 

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**Uni-Pixel, Inc.**

**Notes to Unaudited CondensedConsolidated Financial Statements**

 

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

 

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

 

Uni-Pixelis a production stage company delivering its Clearly SuperiorTM PerformanceEngineered Films to the Lighting & Display, Solar and FlexibleElectronics market segments. We have approximately 13 patents issued or filedand have extensive expertise, technology know-how and trade secrets—protectingits performance engineered film development and manufacturing platforms.

 

Uni-Pixel’snewly developed UniBossTM thin film high volume roll to roll or continuous flowmanufacturing process offers high fidelity replication of advanced micro-opticstructures and surface characteristics over large area, combined with a thinfilm conductive element. We will sell our films as sub components for use inLCD, FSC — LCD and are own Time Multiplexed Optical Shutter (“TMOS”) developeddisplay technology as a back light film and active film sub-component.   We are currently shipping our ClearlySuperior TM Finger Print Resistant protective cover films for multiple touchenabled devices. We sell our films under the Clearly SuperiorTM brand as well asprivate label and OEM.

 

Uni-Pixelis developing 3D Films, ITO-Less Touch Films, Privacy Films and FlexibleElectronic Films based on our newly-developed UniBossTM  manufacturing process for flexible thin-filmconductors. In addition, our work in developing TMOS has led to advances in thethin-film and advanced optics arenas that can be leveraged for other marketableapplications.  Uni-Pixel intends to explore the business potential withinthese applications and pursue those markets that offer profitable opportunitieseither through licensing or direct production and sales.  As of June 30,2010, Uni-Pixel had accumulated a total deficit of $51.4 million fromoperations in pursuit of these objectives.

 

Uni-Pixelanticipates that its initial film sales will allow us to fund and supportfurther technology developments in the Lighting & Display, 3Ddisplays, Solar photovoltaics, Avionics and Flexible Electronics marketsegments.

 

Uni-Pixeldeveloped TMOS display offerings will enable thin, lightweight andpower-efficient devices, which are highly suitable for use in full-colordisplay applications.  Uni-Pixel believes TMOS displays will be able tocapture a share of the growing $100+ billion flat panel display market due tothe significant advantages it has the potential to provide over competingdisplay technologies with respect to manufacturing and materials cost,brightness, power efficiency, viewing angle and video response time and imagequality.   In May of 2010 Uni-Pixel sold its TMOS displayportfolio patent to Rambus Inc. (“Rambus”).  Rambus intends to license thetechnology to global lighting and display manufacturers and have Uni-Pixelsupport their efforts with engineering services and optical PerformanceEngineered Film sales. Uni-Pixel has no further obligation to provideengineering services to Rambus related to the patents sold.  Any engineering services and film sales toRambus would be entered into under new agreements between Rambus and Uni-Pixel.

 

Uni-Pixel’sstrategy is to further develop its proprietary Clearly SuperiorTM PerformanceEngineered Films technology around the 5 -6 vertical markets that the Companyhas identified as high growth profitable market opportunities.  We haveand will continue to utilize contract manufacturing for prototype fabricationto augment its internal capabilities in the short term. Uni-Pixel also plans tosupply its key thin film components and enter into joint developments orventures in key vertical market segments to exploit the existing manufacturingand distribution channels of our targeted partners. Through Uni-Pixel’sinternal research and development efforts, we have established a strongportfolio of TMOS-related patents and patent applications, as well as otherintellectual property rights that support these joint venture,  licensingand manufacturing strategies.

 

Sinceour inception, we have been primarily engaged in developing our initial producttechnologies, recruiting personnel, commencing our U.S. operations andobtaining sufficient capital to meet our working capital needs. In the courseof our development activities, we have sustained losses and expect such lossesto continue through at least December 31, 2010. We will finance ouroperations primarily through our existing cash and possible future financingtransactions.

 

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing our products beyond proof of conceptto final prototypes, supporting transferable manufacturing processes topartners to produce our products and successfully developing markets andmanufacturing relationships for our products. We may be required to obtain additional capital in the future to expandour operations. No assurance can be given that we will be able to develop ourproducts, successfully develop the markets or profitable manufacturing methodsfor our products, or raise any such additional capital as we

 

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mightneed, either through equity or debt financing, on satisfactory terms or at all.Additionally, no assurance can be given that any such financing, if obtained,will be adequate to meet our ultimate capital needs or to support our growth.If adequate capital cannot be obtained on satisfactory terms, our operationscould be negatively impacted.

 

Ifwe achieve growth in our operations in the next few years, such growth couldplace a strain on our management, administrative, operational and financialinfrastructure. Our ability to manage our current operations and future growthrequires the continued improvement of operational, financial and managementcontrols, reporting systems and procedures. In addition, we may find itnecessary to hire additional management, financial and sales and marketingpersonnel to manage our expanding operations. If we are unable to manage thisgrowth effectively, our business, operating results and financial condition maybe materially adversely affected.

 

Asof June 30, 2010, we had cash and cash equivalents of $1.9 million. We believe that our existing capital resources are adequate to finance ouroperations until December 31, 2010. However, our long-term viability is dependent upon our ability tosuccessfully operate our business, develop our manufacturing process, signpartnership agreements, develop our products and raise additional debt andequity to meet our business objectives.

 

*Corporate History*

 

Uni-Pixel, Inc.was originally incorporated in the State of Nevada as Super Shops, Inc. OnNovember 15, 1999, Super Shops and its sister companies filed an amendedpetition under Chapter 11 of the United States Bankruptcy Code. On July 31,2000, the court approved Super Shops’ Amended Joint Plan of Reorganization. OnOctober 13, 2000, and in accordance with the Plan of Reorganization, themanagement of Super Shops changed its state of incorporation from Nevada toDelaware by merging with and into NEV Acquisition Corp., a Delaware corporationformed solely for the purpose of effecting the reincorporation. OnJune 13, 2001, NEV Acquisition Corp. changed its corporate name toReal-Estateforlease.com, Inc., as a result of the merger transactiondiscussed 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 withReal-Estateforlease.com, Inc. pursuant to which the sole stockholder andfounder of Real-Estateforlease.com, Inc. exchanged his equity ownershipinterest in Real-Estateforlease.com, Inc. for 9,500,000 shares (orapproximately 96%) of NEV Acquisition Corp.’s common stock. At the time of themerger between Real-Estateforlease.com, Inc. and NEV Acquisition Corp.,Real-Estateforlease.com, Inc. had no operations and essentially no assets.Efforts by Real-Estateforlease.com, Inc. to implement its business planceased in June 2002. Prior to Real-Estateforlease.com, Inc.’s mergerwith Uni-Pixel Displays, Inc., as described in the next paragraph,Real-Estateforlease.com, Inc. had no operations and no material assets orliabilities.

 

Ourwholly-owned subsidiary, Uni-Pixel Displays, Inc., was originallyincorporated as Tralas Technologies, Inc., a Texas corporation, on February 17,1998. Tralas Technologies, Inc. changed its name to Uni-PixelDisplays, Inc. during 2001. On December 7, 2004,Real-Estateforlease.com, Inc. entered into a merger agreement withUni-Pixel Displays, Inc. and certain other parties pursuant to whichUni-Pixel Displays, Inc. became a wholly-owned subsidiary ofReal-Estateforlease.com, Inc. Pursuant to the merger, we changed our nameto “Uni-Pixel, Inc.” at the annual meeting of our stockholders held inJanuary 2005.

 

*Basis of Presentation*

 

Theconsolidated financial statements presented in this quarterly report includeUni-Pixel, Inc. and our wholly-owned subsidiary, Uni-PixelDisplays, Inc. All significant intercompany transactions and balances havebeen eliminated. Uni-Pixel Displays, Inc. was, for accounting purposes,the surviving entity of the merger, and accordingly for the periods prior tothe merger, the financial statements reflect the financial position, results ofoperations and cash flows of Uni-Pixel Displays, Inc.  The assets,liabilities, operations and cash flows of Real-Estateforlease.com, Inc.are included in the consolidated financial statements from December 10,2004 onward.  During the first quarter of2010 we began to manufacture, market and sell our thin film product, and we areno longer considered a developmental stage entity as defined by the FinancialAccounting Standards Board.

 

**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 $1.5 million and $3.2 million for the six months ended June 30,2010 and 2009, respectively, has negative working capital of $1.9 million andhas an accumulated deficit of $51.4 million as of June 30, 2010.  The Company’s ability to meet its obligationsin the ordinary course of business is dependent upon its ability 

 

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toestablish profitable operations, raise additional financing through public orprivate equity financings, enter into collaborative or other arrangements withcorporate sources, or secure other sources of financing to fund operations.  Starting in the fourth quarter of 2008, theCompany’s management began to reduce operating expenses and delay plannedexpenditures to maximize cash available for working capital needs.

 

In2009, the Company raised a total of $2,325,000 in convertible notes.  In the first quarter of 2010, the Companyraised a total of $775,000 in convertible notes.  In the second quarter of 2010, the Companysold various intellectual property recorded at $161,165, net, to Rambus, Inc.for $2,250,000.  Management believes thatit has sufficient cash to enable the Company to continue operations until December 31,2010.

 

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

 

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

 

Theconditions described above create substantial doubt as to Uni-Pixel’s abilityto continue as a going concern.  The June 30, 2010 condensedconsolidated financial statements do not include any adjustments to reflect thepossible future effects on the recoverability and classification of assets orthe amounts and classifications of liabilities that may result from the outcomeof this uncertainty.

 

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

 

*Interim financial information*

 

Thecondensed consolidated financial statements included herein, which have notbeen audited pursuant to the rules and regulations of the Securities andExchange Commission, reflect all adjustments which, in the opinion ofmanagement, are necessary for a fair presentation of financial position,results of operations and cash flows for the interim periods on a basisconsistent with the annual audited statements. All such adjustments are of anormal recurring nature. The results of operations for interim periods are notnecessarily indicative of the results that may be expected for any otherinterim period or for a full year. Certain information, accounting policies andfootnote disclosures normally included in consolidated financial statementsprepared in conformity with accounting principles generally accepted in theUnited States of America have been omitted pursuant to such rules and regulations,although we believe that the disclosures are adequate to make the informationpresented not misleading. These consolidated financial statements should beread in conjunction with our audited consolidated financial statements includedin our Form 10-K, for the year ended December 31, 2009, filed withthe Securities and Exchange Commission on March 12, 2010.

 

Theaccounting and reporting policies of the Company conform to U.S. generallyaccepted accounting principles (GAAP) and to the practices within thetechnology industry.  There have been nosignificant changes in the Company’s significant accounting policies during thesix months ended June 30, 2010 compared to what was previously disclosedin the Company’s Annual Report on 10-K for the year ended December 31,2009. The consolidated financial information as of December 31, 2009included herein has been derived from the Company’s audited consolidatedfinancial statements as of, and for the fiscal year ended, December 31,2009.

 

*Use of estimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires us to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosures of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Examples include provisions for bad debts, usefullives of property and equipment and intangible assets, 

 

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impairmentof property and equipment and intangible assets, deferred taxes, and theprovision for and disclosure of litigation and loss contingencies. Actualresults may differ materially from those estimates.

 

*Statement of cash flows*

 

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

 

*Concentration of credit risk*

 

Wemaintain our cash primarily with major U.S. domestic banks.   The amounts held in interest bearingaccounts periodically exceed the insured limit of $250,000 at June 30,2010 and December 31, 2009.  Theamounts held in these banks did exceed the insured limit of $250,000 as of June 30,2010. The amounts held in these banks did not exceed the insured limit of$250,000 as of December 31, 2009.   The terms of other deposits are on demand and are subject to guaranteesin full by FDIC under the Transaction Account Guarantee Program.   We have not incurred losses related to thesedeposits.  In addition, on June 30,2010 and December 31, 2009, we held an investment account of $0 and$211,441, respectively, with a financial institution other than a bank.  These funds are invested in money marketfunds.  We have not incurred losses relatedto these deposits.

 

*Restricted cash*

 

Asof June 30, 2010 and December 31, 2009, we had restricted cash of$34,877.  This amount secured certainobligations under our lease agreement for our principal facility located in TheWoodlands, Texas as of both June 30, 2010 and December 31, 2009.

 

*Revenue Recognition*

 

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

 

Advancepayments are deferred until shipment.

 

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

 

*Research and development expenses*

 

Researchand development costs are expensed as incurred and include salaries andbenefits, costs paid to third-party contractors for research, development andmanufacturing of materials and devices, and a portion of facilities cost.Prototype development costs are a significant component of research anddevelopment expenses and include costs associated with third-party contractors.Invoicing from third-party contractors for services performed can lag severalmonths.  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 from estimated costs in some cases and are adjusted for in theperiod in which they become known.

 

*Income taxes*

 

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

 

TheCompany has losses carried forward for income tax purposes to June 30,2010. There are no current or deferred tax expenses for the six month periodsended June 30, 2010 and 2009 due to the Company’s loss position. TheCompany has fully reserved for any benefits of these losses. The deferred taxconsequences of temporary differences in reporting items for financialstatement and income tax purposes are recognized, as appropriate. Realizationof the future tax benefits related to the deferred tax assets is dependent onmany factors, including the Company’s ability to generate taxable income withinthe net operating loss carryforward period. Management has considered thesefactors in reaching its conclusion as to the valuation allowance for financialreporting purposes. Accordingly, no benefit has been recognized on the net lossas the realization of the net operating loss carryforward cannot be assured.

 

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*Income and loss per share data*

 

Basicincome (loss) per share is calculated based on the weighted average commonshares outstanding during the period, after giving effect to the manner inwhich the merger was accounted for as described in Note 1. Dilutedearnings per share also gives effect to the dilutive effect of stock options,warrants (calculated based on the treasury stock method) and convertible notesand convertible preferred stock. The Company does not present diluted earningsper share for years in which it incurred net losses as the effect is antidilutive.

 

AtJune 30, 2010, options and warrants to purchase 28,986,858 shares ofcommon stock at exercise prices ranging from $0.50 to $2.00 per share wereoutstanding.  Further, at June 30,2010, convertible debt of $3,100,000 plus accrued interest of $174,200 wereoutstanding, which in total may convert, at the holder’s option, into 6,548,400common shares.  These amounts were notincluded in the computation of diluted earnings per share as their effect wouldbe antidilutive for the six months ending June 30, 2010 and 2009, as wellas the three months ended June 30, 2010 and 2009 as the Company hasincurred an operating loss during these periods.

 

*Fair value of financial instruments*

 

Ourfinancial instruments consist of accounts receivable, accounts payable, notespayable and derivative liabilities. We believe the fair values of our accountsreceivable, accounts payable and notes payable reflect their respectivecarrying amounts. The fair value of derivative liabilities, due to certainembedded features (conversion option) and free standing derivatives (warrants)is calculated using the Black-Scholes valuation model.

 

*Recently issued accounting pronouncements*

 

InAugust 2009, the FASB issued Accounting Standards Update (“ASU”)No. 2009-05, *Fair Value Measurementsand Disclosures (Topic 820) — Measuring Liabilities at Fair Value*. ThisASU provides amendments for fair value measurements of liabilities. Itprovides clarification that in circumstances in which a quoted price in anactive market for the identical liability is not available, a reporting entityis required to measure fair value using one or more techniques. ASU2009-05 also clarifies that when estimating a fair value of a liability, areporting entity is not required to include a separate input or adjustment toother inputs relating to the existence of a restriction that prevents thetransfer of the liability. ASU 2009-05 is effective for the firstreporting period (including interim periods) beginning after issuance or fourthquarter 2009. The adoption of ASU 2009-05 had no effect on the Company’sconsolidated financial statements.

 

InSeptember 2009, the FASB issued additional guidance on measuring the fairvalue of liabilities effective for the first reporting period (includinginterim periods) beginning after issuance. Implementation had no effect on theCompany’s consolidated financial statements.

 

InSeptember 2009, the FASB issued additional guidance on measuring fairvalue of certain alternative investments effective for the first reporting period(including interim periods) ending after December 15, 2009. Implementationhad no effect on the Company’s consolidated financial statements.

 

*Accounting Guidance Not YetEffective*

 

InApril 2010, the FASB issued ASU No. 2010-17 which establishes authoritativeguidance permitting use of the milestone method of revenue recognition forresearch or development arrangements that contain payment provisions orconsideration contingent on the achievement of specified events. This guidanceis effective for milestones achieved in fiscal years beginning on or afterJune 15, 2010 and allows for either prospective or retrospectiveapplication, with early adoption permitted. Management is currently evaluatingthe impact that adoption of this guidance will have on the Company’sconsolidated Financial Statements.

 

InJanuary 2010, the FASB issued ASU 2010-06 to improve disclosures aboutfair value measurements. ASU 2010-6 clarifies certain existing disclosures andrequires new disclosure regarding significant transfers in and out of Level 1and Level 2 of fair value measurements and the reasons for the transfer. Theamendments in ASU 2010-06 will be effective for fiscal years beginning afterDecember 15, 2010, and for interim periods within those fiscal periods.

 

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InOctober 2009, the FASB issued ASU 2009-14 to amend ASC 605, “RevenueRecognition.” The amendments in this update change the accounting model forrevenue arrangements that include both tangible products and software elements.The amendments in ASU 2009-14 will be effective for us beginningJanuary 1, 2011, with early adoption permitted.

 

InOctober 2009, the FASB issued ASU 2009-13 amending ASC 605 related torevenue arrangements with multiple deliverables. Among other things, ASU2009-13 provides guidance for entities in determining the selling price of adeliverable and clarifies that the allocation of revenue is based onentity-specific assumptions rather than assumptions of a marketplaceparticipant.

 

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

 

**Note 4 -****                 ****Commitments and Contingencies**

 

*Leases*

 

TheCompany has entered into a lease for office, warehouse and laboratoryfacilities in The Woodlands, Texas under a third party non-cancelable operatinglease through November 30, 2010. Future minimum lease commitments as of June 30,2010 are as follows:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| Six months ending 2010           |       | $          | 87,193     |   |
| 2011                             |       | —     |       |
| 2012                             |       | —     |       |
| 2013                             |       | —     |       |
| 2014                             |       | —     |       |
| Thereafter                       |       | —     |       |
| Total                            |       | $          | 87,193     |   |

 

Thislease provides the Company with a 5-year renewal option.

 

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

 

*Equity instruments issued to non-employees*

 

Fromtime to time, in order to preserve cash and to fund our operating activities,common stock or other equity instruments may be issued for cash or in exchangefor goods or services. Equity instruments issued for goods or services arerecorded at the fair value of the goods or services received or the fair valueof the equity instruments issued, whichever is more reliably measurable.

 

*Common Stock*

 

Duringthe six months ended June 30, 2010 (1) we issued no shares of commonstock for cash in connection with the exercise of stock options; and (2) issuedno shares of common stock in exchange for cashless exercise of warrants.

 

*Stock Options*

 

OnJanuary 15, 2010, the Company decreased the exercise price on 4,963,750options to $0.50 a share to incentivize current employees.  The Company utilized the Black-Scholesmethodology in determining the fair market value ofthe modification to these options of $0.3 million.   This amount was expensed in the firstquarter of 2010.

 

*2005 Stock Incentive Plan*

 

EffectiveJanuary 27, 2005, we adopted the Uni-Pixel, Inc. 2005 Stock IncentivePlan. The Stock Incentive Plan is discretionary and allows for an aggregate ofup to 2,000,000 shares of our common stock to be awarded through incentive andnon-qualified stock options and stock appreciation rights. The Stock IncentivePlan is administered by our Board of Directors, which has exclusive discretionto select participants who will receive the awards and to determine the type,size and terms of each award granted.

 

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Inthe first quarter of 2010, we did not grant any options under the 2005 StockIncentive Plan.  In the first quarter of2010, 45,138 options to purchase our common stock with an exercise price of$0.50 per share were retired.

 

Inthe second quarter of 2010, 204,862 options to purchase our common stock withan exercise price of $0.50 per share were retired.

 

*2007 Stock Incentive Plan*

 

EffectiveAugust 21, 2007, we adopted the Uni-Pixel, Inc. 2007 Stock IncentivePlan. The Stock Incentive Plan is discretionary and allows for an aggregate ofup to 4,000,000 shares of our common stock to be awarded through incentive andnon-qualified stock options and stock appreciation rights. The Stock IncentivePlan is administered by our Board of Directors, which has exclusive discretionto select participants who will receive the awards and to determine the type,size and terms of each award granted.

 

Inthe first quarter of 2010, we granted a total of 25,000 options to purchase ourcommon stock with an exercise price of $0.50 per share to one consultant.  In the first quarter of 2010, 29,549 optionsto purchase our common stock with an exercise price of $0.50 per share wereretired.

 

Inthe second quarter of 2010, we granted a total of 50,000 options to purchaseour common stock with an exercise price of $0.52 per share to twoconsultants.  In the second quarter of2010, 361,180 options to purchase our common stock with an exercise price of$0.50 per share were retired.

 

*2010 Stock Incentive Plan*

 

EffectiveJanuary 15, 2010, we adopted the Uni-Pixel, Inc. 2010 Stock IncentivePlan. The Stock Incentive Plan is discretionary and allows for an aggregate ofup to 9,000,000 shares of our common stock to be awarded through incentive andnon-qualified stock options and stock appreciation rights. The Stock IncentivePlan is administered by our Board of Directors, which has exclusive discretionto select participants who will receive the awards and to determine the type,size and terms of each award granted.

 

OnJanuary 28, 2010, the Company granted a total of 7,200,000 options topurchase our common stock with an exercise price of $0.50 per share totwenty-four employees and directors.  These options vest 25% immediately as of January 28, 2010; 25% onthe one year anniversary of the date of grant; 25% on the two year anniversaryof the date of grant; and 25% on the three year anniversary of the date ofgrant.  The options expire on January 28,2020.

 

Inthe first quarter of 2010, 1,505,000 options to purchase our common stock withan exercise price of $0.50 per share were retired.

 

Inthe second quarter of 2010, we granted a total of 1,565,000 options to purchaseour common stock with an exercise price of $0.50 per share to fiveemployees.    These options vest 25%immediately as of May 19, 2010; 25% on the one year anniversary of thedate of grant; 25% on the two year anniversary of the date of grant; and 25% onthe three year anniversary of the date of grant.  The options expire on May 19, 2020.  In the second quarter of 2010, 335,000options to purchase our common stock with an exercise price of $0.50 per sharewere retired.

 

*Other Stock Options*

 

Inthe first and second quarters of 2010, we did not grant any other stockoptions.

 

Thefollowing disclosures provide information regarding the Company’s stock-basedcompensation awards, all of which are classified as equity awards:

 

*Stock options.*The Company grants stockoptions to employees that allow them to purchase shares of the Company’s commonstock. Options are also granted to members of the Board of Directors.  The Company determines the fair value ofstock options at the date of grant using the Black-Scholes valuation model.  Most options vest annually over a three-yearservice period.  The Company will issuenew shares upon the exercise of stock options.

 

Totalcompensation expense recognized for options was approximately $1.8 millionand $0.8 million for the six months ended June 30, 2010 and June 30,2009, respectively.  The Company has recordedapproximately $1.1 million of stock compensation expense in selling, generaland administrative expenses and approximately $0.7 million in research anddevelopment expense for the six months ended June 30, 2010 andapproximately $0.3 million of stock compensation expense in selling, general

 

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andadministrative expenses and approximately $0.5 million in research anddevelopment expense for the six months ended June 30, 2009.

 

Asummary of the changes in the total stock options outstanding during the sixmonths ended June 30, 2010 follows:

 
| ** **                                   | ** ** | ** **  | ** ** | **Weighted**       | ** ** |
|----------------------------------------------|------------|-------------|------------|--------------------|------------|
| ** **                                   | ** ** | ** **  | ** ** | **Average**        | ** ** |
| ** **                                   | ** ** | **Options** | ** ** | **Exercise Price** | ** ** |
| Outstanding at December 31, 2009        |       | 5,851,119   |       | $                  | 1.55       |   |
| Granted                                      |       | 8,840,000   |       | 0.50               |       |
| Forfeited or expired                         |       | (2,480,729  | )          | 0.50               |       |
| Exercised                                    |       | —      |       | —             |       |
| Outstanding at June 30, 2010            |       | 12,210,390  |       | $                  | 0.60       |   |
| Vested and exercisable at June 30, 2010 |       | 7,082,646   |       | $                  | 0.68       |   |

 

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

 
| ** **            | ** ** | **Three Months  ended  June 30,********2010** | ** ** | **Three Months  ended  June 30,********2009** | ** ** | **Six Months  ended  June 30,********2010** | ** ** | **Six Months  ended  June 30,********2009** | ** ** |
|-----------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Expected life (years) |       | 5 years                                       |       | 5 years                                       |       | 5 years                                     |       | 5 years                                     |       |
| Interest rate         |       | 2.13 to 2.18                                       | %          | 1.85                                               | %          | 2.13 to 2.41                                     | %          | 1.85                                             | %          |
| Dividend yield        |       | —                                             |       | —                                             |       | —                                           |       | —                                           |       |
| Volatility            |       | 143.79                                             | %          | 135.15                                             | %          | 143.79                                           | %          | 135.15                                           | %          |
| Forfeiture rate       |       | —                                             |       | —                                             |       | —                                           |       | —                                           |       |

 

AtJune 30, 2010, there was $1.9 million of total unrecognized compensationcost related to non-vested stock option awards which is expected to berecognized over a weighted-average period of 1.35 years.  There were 1,958,211 options that becamevested during the six months ended June 30, 2010.

 

**Note 6 — Notes Payable**

 

Uni-Pixel, Inc. (the “Company”) entered into a GUARANTEE ANDCOLLATERAL AGREEMENT dated as of March 15, 2010 (this “***Agreement***”), withUNI-PIXEL DISPLAYS, INC., a Texas corporation and wholly-owned subsidiaryof the Company (together with the Company, “***Grantors***”)and MERRILL LYNCH PIERCE, FENNER & SMITH INC. (“***MerrillLynch***”), as collateral agent (in such capacity, the “***Collateral Agent***”) for each holderof the Company’s 8% Convertible Debentures due December 31, 2010 (the “***Debentures***”) that has executed theAgreement, either on the date thereof or in the future pursuant to a joinderagreement (a “***Secured Party Joinder Agreement***”)(the Collateral Agent, each Holder party to this Agreement or to a SecuredParty Joinder Agreement, and their respective successors and assigns,collectively, the “***Secured Parties***”).  Pursuant to the Agreement, in considerationof the extension of loans to the Company evidenced by the debentures, theGrantors have granted to the Collateral Agent, for the ratable benefit of allSecured Parties, a perfected first priority security interest in certainproperty of the Grantors to secure the prompt payment, performance anddischarge in full of all of the Company’s obligations under the debentures.

 

In addition, participants in the Company’s prior debenture offerings pursuantto its Private Placement Memorandums dated April 30, 2009, August 27,2009 and December 4, 2009, those investors can participate in theAgreement, and be entitled to the benefits thereunder, by signing the Agreementand agreeing to extend the maturity date of their Debentures to December 31,2010, the same maturity date as those debentures issued pursuant to the December 2009private placement memorandum.

 

Commencingin June 2009, the Company entered into subscription agreements (the “SubscriptionAgreements”) with accredited individual investors (each, an “Investor” andcollectively, the “Investors”), pursuant to which the Company commenced aprivate placement (the “Private Placement”) of its 8% convertible promissorynotes maturing on July 9, 2010. The Private Placement offering was closedeffective July 9, 2009.

 

OnJune 10, 2009 and June 30, 2009, the Company entered into aSubscription Agreement with various accredited individual investors (the “1st Closing Investors”) in a first closing of the PrivatePlacement and issued convertible promissory notes in the original aggregateprincipal amount of $650,000 (the “1st Closing Notes”).  The convertible promissory notes mature on July 9,2010. Investors purchased for $650,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $650,000 together with warrants (the “Warrants”)to purchase an aggregate of 325,000 shares of Common Stock for $0.50 per 

 

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share.The 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-goingoperations.   As of July 30, 2010,$475,000 of the 1st Closing Notes are due and in default, and$175,000 of the 1st Closing Notes are participating in theAgreement and have extended the maturity date of their Debentures to December 31,2010.

 

TheDebentures did not contain a beneficial conversion feature at the time ofissuance.

 

Totalfunds received of $650,000 were allocated $20,001 to the Warrants and $629,999to the Debenture. The relative fair value of the Warrants is $20,001 which wasdetermined using the Black-Scholes option-pricing model.  The discount on the Debenture attributable tothe Warrants of $20,001 is being amortized to interest expense over the term ofthe Debenture using the effective interest method.

 

AtJune 30, 2010, the unamortized discount on the Debenture is $0. Thefollowing table reflects the convertible debt at June 30, 2010:

 
| Convertible Debt                       |   | $      | 650,000 |   |
|----------------------------------------|--------|--------|---------|--------|
| Less: Current portion of debt discount |   | — |    |
|                                   |   |   |    |
| Value of debt at June 30, 2010    |   | $      | 650,000 |   |

 

Thefollowing table summarizes the charges to interest, amortization and otherexpense, net for the six months ended June, 2010:

 
| Interest expense on debt   |   | $ | 26,000 |   |
|----------------------------|--------|---|--------|--------|
| Accretion of debt discount |   | $ | 9,608  |   |

 

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

 

Commencingin August 2009, the Company entered into subscription agreements (the “SubscriptionAgreements”) with accredited individual investors (each, an “Investor” andcollectively, the “Investors”), pursuant to which the Company commenced aprivate placement (the “Private Placement”) of its 8% convertible promissorynotes maturing on October 22, 2010. The Private Placement offering wasclosed effective October 22, 2009.

 

OnAugust 31, 2009, September 30, 2009 and October 2, 2009, theCompany entered into a Subscription Agreement with various accreditedindividual investors (the “2nd Closing Investors”) in a firstclosing of the Private Placement and issued convertible promissory notes in theoriginal aggregate principal amount of $1,425,000 (the “2nd Closing Notes”).  The convertible promissory notes mature on October 22,2010. Investors purchased for $1,425,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $1,425,000 together with warrants (the “Warrants”)to purchase an aggregate of 712,500 shares of Common Stock for $0.50 per share.The convertible notes are convertible by the holders at any time at aconversion price of $0.50 per share into the Company’s common stock.  The convertible notes are due and payable atmaturity together with interest at the rate of 8% per annum. The Companyexpects to use the proceeds of the financing to finance on-goingoperations.  As of July 30, 2010,$350,000 of the 2nd Closing Notes are due on October 22, 2010and $1,075,000 of the 2nd Closing Notes are participating in theAgreement and have extended the maturity date of their Debentures to December 31,2010.

 

TheDebentures did not contain a beneficial conversion feature at the time ofissuance.

 

Totalfunds received of $1,425,000 were allocated $33,824 to the Warrants and$1,241,176 to the Debenture. The relative fair value of the Warrants is $36,244which was determined using the Black-Scholes option-pricing model.  The discount on the Debenture attributable tothe Warrants of $36,244 is being amortized to interest expense over the term ofthe Debenture using the effective interest method.

 

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AtJune 30, 2010, the unamortized discount on the Debenture is approximately$10,822. The following table reflects the convertible debt at June 30,2010:

 
| Convertible Debt                       |   | $       | 1,425,000 |   |
|----------------------------------------|--------|---------|-----------|--------|
| Less: Current portion of debt discount |   | (10,822 | )         |
|                                   |   |    |      |
| Value of debt at June 30, 2010    |   | $       | 1,414,178 |   |

 

Thefollowing table summarizes the charges to interest, amortization and otherexpense, net for the six months ended June 30, 2010:

 
| Interest expense on debt   |   | $ | 57,000 |   |
|----------------------------|--------|---|--------|--------|
| Accretion of debt discount |   | $ | 16,233 |   |

 

Inconsideration for services rendered as the placement agent in the PrivatePlacement, the Company issued to Fordham Financial Management, Inc.(“Fordham”)ten-year warrants to purchase 427,500 shares of the Company’s Common Stock atan exercise price of $0.50 per share (the “Fordham Warrants”), for the 2nd Closing of the Private Placement. Fordham alsoreceived, in consideration for services rendered as placement agent cashcommissions aggregating $156,750, which represents 11% of the aggregate grossproceeds of the 2nd Closing. The Company utilized theBlack-Scholes methodology in determining the fair market value of the FordhamWarrants, which is $147,306, and this amount is expensed over the expected lifeof the convertible notes.  The Company alsopaid $10,180 in other issuance costs. The placement agent cash commission,other issuance costs and Fordham warrants are recorded as deferred loan costsin the accompanying balance sheet.

 

Commencingin December 2009, the Company entered into subscription agreements (the “SubscriptionAgreements”) with accredited individual investors (each, an “Investor” andcollectively, the “Investors”), pursuant to which the Company commenced aprivate placement (the “Private Placement”) of its 8% convertible promissorynotes maturing on December 31, 2010. The Private Placement offering wasclosed effective April 5, 2010.

 

OnDecember 31, 2009, January 29, 2010, February 2, 2010, March 15,2010 and March 29, 2010 the Company entered into a Subscription Agreementwith various accredited individual investors (the “3rd ClosingInvestors”) in a first closing of the Private Placement and issued convertiblepromissory notes in the original aggregate principal amount of $1,025,000 (the “3rd Closing Notes”).  The convertible promissory notes mature on December 31,2010. Investors purchased for $1,025,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $1,025,000 together with warrants (the “Warrants”)to purchase an aggregate of 512,500 shares of Common Stock for $0.50 per share.The convertible notes are convertible by the holders at any time at aconversion price of $0.50 per share into the Company’s common stock.  The convertible notes are due and payable atmaturity together with interest at the rate of 8% per annum. The Companyexpects to use the proceeds of the financing to finance on-goingoperations.  As of July 30, 2010,$1,025,000 of the 3rd Closing Notes are participating in theAgreement and their maturity date of their Debentures is December 31,2010.

 

TheDebentures did not contain a beneficial conversion feature at the time ofissuance.

 

Totalfunds received of $1,025,000 were allocated $5,144 to the Warrants and $244,856to the Debenture. The relative fair value of the Warrants is $17,154 which wasdetermined using the Black-Scholes option-pricing model.  The discount on the Debenture attributable tothe Warrants of $17,154 is being amortized to interest expense over the term ofthe Debenture using the effective interest method.

 

AtJune 30, 2010, the unamortized discount on the Debenture is approximately$9,751. The following table reflects the convertible debt at June 30,2010:

 
| Convertible Debt                       |   | $      | 1,025,000 |   |
|----------------------------------------|--------|--------|-----------|--------|
| Less: Current portion of debt discount |   | (9,752 | )         |
|                                   |   |   |      |
| Value of debt at June 30, 2010    |   | $      | 1,015,248 |   |

 

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Thefollowing table summarizes the charges to interest, amortization and other expense,net for the six months ended June 30, 2010:

 
| Interest expense on debt   |   | $ | 29,833 |   |
|----------------------------|--------|---|--------|--------|
| Accretion of debt discount |   | $ | 7,403  |   |

 

Inconsideration for services rendered as the placement agent in the PrivatePlacement, the Company issued to Fordham Financial Management, Inc.(“Fordham”)ten-year warrants to purchase 307,500 shares of the Company’s Common Stock atan exercise price of $0.50 per share (the “Fordham Warrants”), for the 3rd Closing of the Private Placement. Fordham alsoreceived, in consideration for services rendered as placement agent cashcommissions aggregating $133,250, which represents 13% of the aggregate grossproceeds of the 3rd Closing. The Company utilized theBlack-Scholes methodology in determining the fair market value of the Fordham Warrants,which is $83,667, and this amount is expensed over the expected life of theconvertible notes.  The Company also paid$23,960 in other issuance costs. The placement agent cash commission, otherissuance costs and Fordham warrants are recorded as deferred loan costs in theaccompanying balance sheet.

 

**Note 7 -****                 ****Patents**

 

In May 2010, Uni-Pixel sold its TMOSdisplay portfolio patents to Rambus, Inc. for $2,250,000. The intellectualproperty had a carrying value of $161,165 on the date of sale.  Rambus intends to license the technology toglobal lighting and display manufacturers and have Uni-Pixel support theirefforts with engineering services and optical Performance Engineered Filmsales.  Uni-Pixel has no futureobligation to provide engineering services to Rambus related to the patentssold.  Any engineering services and filmsales to Rambus would be entered into under new agreements between Rambus andUni-Pixel.

 

**Note 8 -****                 ****Fair Value Measurements**

 

The Company remeasures its financial assets and liabilities at fair value at eachreporting period and non-financial assets and liabilities that are remeasuredand reported at fair value at least annually.

 

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

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATON.**

 

**ForwardLooking Statements**

 

Someof the information in this report contains forward-looking information thatinvolve risks and uncertainties.  Ourforward-looking statements express our current expectations or forecasts ofpossible future results or events, including projections of future performance,statements of management’s plans and objectives, future contracts, andforecasts of trends and other matters. You can identify these statements by the fact that they do not relatestrictly to historic or current facts and often use words such as “anticipate,”“believe,” “plan,” “expect,” “future,” “intend,” “may,” “will,” “should,” “estimate,”“predict,” “potential,” “continue,” and other words and expressions of similarmeaning.  No assurance can be given thatthe results in any forward-looking statement will be achieved and actualresults could be affected by one or more factors, which could cause them todiffer materially.  For these statements,we claim the protection of the safe harbor for forward-looking statementscontained in the Private Securities Litigation Reform Act. You should alsoconsider carefully the statements under “Description of Business - Risk Factors”in our 2009 Form 10-K, which address factors that could cause our actualresults to differ from those set forth in the forward-looking statements.

 

*CRITICAL ACCOUNTING POLICIES*

 

Thefollowing discussion and analysis of financial condition and results ofoperations is based upon our consolidated financial statements, which have beenprepared in conformity with accounting principles generally accepted in theUnited States of America. Our significant accounting policies are more fullydescribed in Note 3 of Notes to the unaudited Consolidated FinancialStatements. However, certain accounting policies and estimates are particularlyimportant to the understanding of our financial position and results ofoperations and require the application of significant judgment by ourmanagement or can be materially affected by changes from period to period ineconomic factors or conditions that are outside of our control.  As aresult, they are subject to an inherent degree of uncertainty. In applyingthese policies, our management uses their judgment to determine the

 

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appropriateassumptions to be used in the determination of certain estimates. Thoseestimates are based on our historical operations, our future business plans andprojected financial results, the terms of existing contracts, our observance oftrends in the industry, information provided by our customers and informationavailable from other outside sources, as appropriate. The following discussesour significant accounting policies and estimates.

 

*Revenue Recognition:*  We recognize revenueover the period the service is performed. In general, this requires that fourbasic criteria must be met before revenue can be recognized:(1) persuasive evidence that an arrangement exists, (2) delivery hasoccurred or services rendered, (3) the fee is fixed and determinable, and(4) collectibility is reasonably assured.

 

Advancepayments are deferred until shipment.

 

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

 

*Cost of Revenues and Selling, General and AdministrativeExpenses and Research and Development Expenses:*  In an effort toconsolidate our executive management team, we moved our headquarters fromAustin, Texas to The Woodlands, Texas during the third quarter of 2005. The primary purpose of our facility in The Woodlands, Texas is to conductresearch on the development, testing and delivery of our prototype devices, andthe commercialization of our products.

 

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

 

*Research and Development Expenses:*  Researchand development costs are expensed as incurred and include salaries andbenefits, costs paid to third-party contractors for research, development andmanufacturing of materials and devices, and a portion of facilities cost.Prototype development costs are a significant component of research anddevelopment expenses and include costs associated with third-party contractors.Invoicing from third-party contractors for services performed can lag severalmonths. We accrue the costs of services rendered in connection with third-partycontractor activities based on our estimate of management fees, site managementand monitoring costs and data management costs. Actual costs may differ in somecases from estimated costs and are adjusted for in the period in which theybecome known.

 

*Intangible Assets:*  Our intangible assetsrepresent patents and patent applications, acquired from third parties, whichare recorded at cost and amortized over the life of the patent.  We reviewthe value recorded for intangible assets to assess recoverability from futureoperations using undiscounted cash flows. Impairments are recognized inoperating results to the extent the carrying value exceeds fair valuedetermined based on the net present value of estimated future cash flows.  Impairment would then be measured as thedifference between the fair value of the fixed or amortizing intangible assetand the carrying value to determine the amount of the impairment.

 

*Stock-Based Compensation:*  We recognize the costof stock options and restricted stock which requires us to measure the cost ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award. That cost will be recognized over the period during which an employee isrequired to provide service in exchange for the reward—known as the requisiteservice period. No compensation cost is recognized for equity instruments forwhich employees do not render the requisite service. The grant-date fair valueof employee share options and similar instruments will be estimated usingoption-pricing models adjusted for the unique characteristics of thoseinstruments. We apply to all options granted or modified after its effectivedate and also to recognize the cost associated with the portion of any optionawards made before its effective date for which the associated service has notbeen rendered as of its effective date.

 

*Derivatives*: We record and carry certain derivatives (embeddedand free standing instruments) on the balance sheet as either liabilities orassets at fair value.  Derivatives aremeasured at fair value with changes in fair value recognized through earningsas they occur.

 

*RESULTS OF OPERATIONS*

 

Comparisonof the six months ending June 30, 2010 and 2009

 

REVENUES. During the first quarter of 2010 we began to manufacture, market and sell ourthin film product, and we are no longer considered a developmental stage entityas defined by the Financial Accounting Standards Board.

 

Revenueswere $102,764 for the six months ended June 30, 2010 and $0 for the sixmonths ended June 30, 2009.  Therevenue for the six months ended June 30, 2010 was primarily related tothe sale and marketing of our thin film product.

 

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COSTOF REVENUES.  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, 2010 and the six months ended June 30,2009 was $0.  We did not incur any costof revenue for the six months ended June 30, 2010 related to our thin filmsales, as the thin film was recorded as research and development expense in2009.  We will incur cost of revenuesrelated to revenue earned from thin film sales occurring after June 30,2010.

 

SELLING,GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrativeexpenses increased by 19% or approximately $270,000, to $1,704,805 for the sixmonths ended June 30, 2010 from $1,434,726 for the six months ended June 30,2009.  The major components of the increase are as follows:

 

a) Salaries and benefits increased by approximately $428,000 to $1,290,000 for thesix months ended June 30, 2010 compared to $862,000 for the six monthsended June 30, 2009 due to a decrease in salaries to $175,000 for the sixmonths ended June 30, 2010 compared to $312,000 for the six months ended June 30,2009; and stock compensation expense increased to $1,057,000 for the six monthsended June 30, 2010 compared to $364,000 for the six months ended June 30,2009;

 

b)Legal expense increased by approximately $13,000 to $94,000 for the six monthsended June 30, 2010 compared to $81,000 for the six months ended June 30,2009;

 

c)Accounting expense increased by approximately $1,000 to $45,000 for the sixmonths ended June 30, 2010 compared to $44,000 for the six months ended June 30,2009;

 

d)Office expense increased by approximately $1,000 to $9,000 for the six monthsended June 30, 2010 compared to $8,000 for the six months ended June 30,2009;

 

e)Travel expense decreased by approximately $4,000 to $5,000 for the six monthsended June 30, 2010 compared to $9,000 for the six months ended June 30,2009;

 

f)Depreciation and amortization expense decreased by approximately $30,000 to$136,000 for the six months ended June 30, 2010 compared to $166,000 forthe six months ended June 30, 2009.

 

RESEARCHAND DEVELOPMENT. Research and development expenses decreased by approximately$267,000 during the six months ended June 30, 2010 to $1,491,428 from$1,758,170 for the six months ended June 30, 2009. The major components ofthe decrease are as follows:

 

a)Salaries and benefits attributable to research and development decreased byapproximately $136,000 to $1,237,000 for the six months ended June 30,2010 compared to $1,373,000 for the six months ended June 30, 2009 due toa decrease in salaries to $407,000 for the six months ended June 30, 2010compared to $658,000 for the six months ended June 30, 2009; and stockcompensation expense increased to $744,000 for the six months ended June 30,2010 compared to $482,000 for the six months ended June 30, 2009;

 

b)Consulting expense attributable to research and development decreased byapproximately $63,000 to $40,000 for the six months ended June 30, 2010compared to $103,000 for the six months ended June 30, 2009;

 

c)Lab expense decreased by approximately $56,000 to $63,000 for the six monthsended June 30, 2010 compared to $119,000 for the six months ended June 30,2009 primarily due to decreased services related to prototype development; and

 

d)Travel expense attributable to research and development decreased by $6,000 to$56,000 for the six months ended June 30, 2010 compared to $62,000 for thesix months ended June 30, 2009.

 

OTHERINCOME (EXPENSE).

 

a)In May 2010, the Company sold various intellectual property recorded at$161,165, net, to Rambus, Inc. for $2,250,000.  Rambus intends to license the technology toglobal lighting and display manufacturers and have Uni-Pixel support theirefforts with engineering services and optical Performance Engineered Film sales.  Uni-Pixel has no future obligation to provideengineering services to Rambus related to the patents sold.  Any engineering services and film sales toRambus would be entered into under new agreements between Rambus and Uni-Pixel.

 

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b)Debt issuance expense increased to an expense of $322,046 for the six monthsended June 30, 2010 as compared to $6,551 during the six months ended June 30,2009, due to the debt raised in the 2nd, 3rd and 4th quarter of 2009 and 1st quarter of 2010.

 

c)****Interest income (expense), net decreasedto an expense of ($144,291) for the six months ended June 30, 2010 ascompared to income of $683 for the six months ended June 30, 2009primarily due to less cash on hand and interest expense associated with thedebt raised in the 2nd, 3rd and 4th quarter of2009 and 1st quarter of 2010.

 

NETLOSS.**  **Net lossdecreased to $1,470,971 for the six months ended June 30, 2010, ascompared to $3,198,764 for the six months ended June 30, 2009. We computeour net income (loss) per share on the basis of net loss attributable to commonstockholders, which included the effects of certain items not included in thedetermination of net loss. Net loss attributable to common stockholders for thesix months ended June 30, 2010 was $1,470,971 as compared to a net lossattributable to common stockholders of $5,571,760 for the six months ended June 30,2009. The net loss attributable to common stockholders for the six months endedJune 30, 2009 includes $2,372,996 of accrued but unpaid preferred stockdividends.

 

Comparisonof the three months ending June 30, 2010 and 2009

 

REVENUES. During the first quarter of 2010 we began to manufacture, market and sell ourthin film product, and we are no longer considered a developmental stage entityas defined by the Financial Accounting Standards Board.

 

Revenueswere $39,228 for the three months ended June 30, 2010 and $0 for the threemonths ended June 30, 2009.

 

COSTOF REVENUES.  Cost of revenues include all direct expenses associated withthe delivery of services including internal labor costs. Cost of revenues forthe three months ended June 30, 2010 and the three months ended June 30,2009 was $0.  We did not incur any costof revenue for the three months ended June 30, 2010 related to our thinfilm sales, as the thin film was recorded as research and development expensein 2009.  We will incur cost of revenuesrelated to revenue earned from thin film sales occurring after June 30,2010.

 

SELLING,GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrativeexpenses decreased by 11% or approximately $68,000, to $554,049 for the threemonths ended June 30, 2010 from $621,956 for the three months ended June 30,2009.  The major components of the decrease are as follows:

 

a) Salaries and benefits decreased by approximately $11,000 to $364,000 for thethree months ended June 30, 2010 compared to $375,000 for the three monthsended June 30, 2009 due to a decrease in salaries to $110,000 for thethree months ended June 30, 2010 compared to $163,000 for the three monthsended June 30, 2009; and stock compensation expense increased to $226,000for the three months ended June 30, 2010 compared to $126,000 for thethree months ended June 30, 2009;

 

b)Legal expense increased by approximately $7,000 to $50,000 for the three monthsended June 30, 2010 compared to $43,000 for the three months ended June 30,2009;

 

c)Accounting expense increased by approximately $1,000 to $19,000 for the threemonths ended June 30, 2010 compared to $18,000 for the three months ended June 30,2009;

 

d)Office expense increased by approximately $2,000 to $7,000 for the three monthsended June 30, 2010 compared to $5,000 for the three months ended June 30,2009;

 

e)Travel expense decreased by approximately $1,000 to $3,000 for the three monthsended June 30, 2010 compared to $4,000 for the three months ended June 30,2009;

 

f)Depreciation and amortization expense decreased by approximately $25,000 to$58,000 for the three months ended June 30, 2010 compared to $83,000 forthe three months ended June 30, 2009.

 

RESEARCHAND DEVELOPMENT. Research and development expenses decreased by approximately$108,000 during the three months ended June 30, 2010 to $640,316 from$747,824 for the three months ended June 30, 2009. The major components ofthe decrease are as follows:

 

a)Salaries and benefits attributable to research and development decreased byapproximately $30,000 to $494,000 for the three months ended June 30, 2010compared to $524,000 for the three months ended June 30, 2009 due to adecrease in salaries to $236,000 for the three months ended June 30, 2010compared to $340,000 for the three months ended June 30, 2009; and stock 

 

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compensationexpense increased to $221,000 for the three months ended June 30, 2010compared to $84,000 for the three months ended June 30, 2009;

 

b)Consulting expense attributable to research and development decreased byapproximately $49,000 to $18,000 for the three months ended June 30, 2010compared to $67,000 for the three months ended June 30, 2009;

 

c)Lab expense decreased by approximately $13,000 to $53,000 for the three monthsended June 30, 2010 compared to $66,000 for the three months ended June 30,2009 primarily due to decreased services related to prototype development; and

 

d)Travel expense attributable to research and development decreased by $6,000 to$30,000 for the three months ended June 30, 2010 compared to $36,000 forthe three months ended June 30, 2009.

 

OTHERINCOME (EXPENSE).

 

a)In May 2010, the Company sold various intellectual property recorded at$161,165, net, to Rambus, Inc. for $2,250,000.  Rambus intends to license the technology toglobal lighting and display manufacturers and have Uni-Pixel support theirefforts with engineering services and optical Performance Engineered Filmsales.  Uni-Pixel has no futureobligation to provide engineering services to Rambus related to the patentssold.  Any engineering services and filmsales to Rambus would be entered into under new agreements between Rambus andUni-Pixel.

 

a)Debt issuance expense increased to an expense of $179,434 for the three monthsended June 30, 2010 as compared to $6,551 during the three months ended June 30,2010, due to the debt raised in the 2nd, 3rd and 4th quarter of 2009 and 1st quarter of 2010.

 

c)****Interest income (expense), net decreasedto an expense of ($77,964) for the three months ended June 30, 2010 ascompared to an expense of $2,847 for the three months ended June 30, 2009primarily due to less cash on hand and interest expense associated with thedebt raised in the 2nd, 3rd and 4th quarter of2009 and 1st quarter of 2010.

 

NETINCOME (LOSS).**  **Netincome increased to $676,300 for the three months ended June 30, 2010, ascompared to net loss of $1,379,178 for the three months ended June 30,2009. We compute our net income (loss) per share on the basis of net income(loss) attributable to common stockholders, which included the effects ofcertain items not included in the determination of net income (loss). Netincome attributable to common stockholders for the three months ended June 30,2010 was $676,300 as compared to a net loss attributable to common stockholdersof $2,570,498 for the three months ended June 30, 2009. The net lossattributable to common stockholders for the three months ended June 30,2009 includes $1,191,320 of accrued but unpaid preferred stock dividends.

 

**Off-Balance Sheet Transactions**

 

Wedo not engage in material off-balance sheet transactions.

 

*LIQUIDITY AND CAPITAL RESOURCES*

 

OperatingActivities

 

Cashused in operating activities during the six months ended June 30, 2010decreased to $1,289,322 as compared to $2,005,199 used for the six months endedJune 30, 2009. This is primarily attributable to a decrease in researchand development expense for the six months ended June 30, 2010.

 

InvestingActivities

 

Cashflows for investing activities during the six months ended June 30, 2010increased to $2,250,000 as compared to $0 for the six months ended June 30,2009.  In May 2010, the Company soldvarious intellectual property to Rambus, Inc. for $2,250,000.

 

FinancingActivities

 

Wehave financed our operating and investing activities primarily from theproceeds of private placements of common stock, convertible investor notes, Series AConvertible Preferred Stock offering which we closed in December 2004 andJanuary 2005 and Series B Convertible Preferred Stock offering whichwe closed in February 2007 and Series C Convertible Preferred Stockoffering we closed in September 2007 and various convertible notesoffering which closed in 2009. During the six 

 

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monthsended June 30, 2010, the total net cash provided by financing activitieswas $666,274, from the net proceeds received from convertible notes.  During the six months ended June 30,2009, the total net cash provided by financing activities was $650,000, allfrom proceeds from convertible notes.

 

WorkingCapital

 

Asof June 30, 2010, we had a cash balance of $1.9 million. In the 4th quarter of 2008, the Company’s managementbegan to reduce operating expenses and delay planned expenditures to preservethe Company’s working capital.  In thesecond quarter of 2009, the Company raised a total of $650,000 in convertiblenotes.  In the third quarter of 2009, theCompany raised a total of $1,275,000 in convertible notes.  In the fourth quarter of 2009, the Companyraised a total of $400,000 in convertible notes.  In the first quarter of 2010, the Companyraised a total of $775,000 in convertible notes.    In the second quarter of 2010, the Companyraised a total $2,250,000 in sale of intellectual property.  We project that current cash reserves willsustain our operations at least through December 31, 2010, and we are notaware of any trends or potential events that are likely to impact our shortterm liquidity through this term.

 

Wehave incurred significant operating losses during the years endedDecember 31, 2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009 and the sixmonths ended June 30, 2010. Our principal activities have beenorganizational matters, capital raising activities including issuance of stock,product research and development, fund raising, and market research.

 

Todate, we have had only a few revenue-generating services or developmentcontracts.  See “Risk Factors” included in our 2009 Form 10-K.

 

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

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK.**

 

Notapplicable.

 

**ITEM 4.  CONTROLS AND PROCEDURES.**

 

DisclosureControls and Procedures

 

Asof June 30, 2010, management, including our Chief Executive Officer andChief Financial Officer, performed an evaluation of the effectiveness of thedesign and operation of our disclosure controls and procedures, as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934.  Based on their evaluation,management concluded that, as of June 30, 2010, our disclosure controlsand procedures are effective to ensure that material information required to bedisclosed by us in the reports that we file or submit under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported,within the time periods specified in the Securities and Exchange Commission’srules and forms, and that it is accumulated and communicated tomanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure.

 

Changesin Internal Control Over Financial Reporting

 

Wemaintain a system of internal control over financial reporting that is designedto provide reasonable assurance regarding the reliability of financialreporting and the preparation of consolidated financial statements for externalpurposes in accordance with accounting principles generally accepted in theUnited States.  Based on the most recentevaluation, our Chief Executive Officer and Chief Financial Officer havedetermined that no significant changes in our internal control over financialreporting occurred during our most recent fiscal quarter that have materiallyaffected, or are reasonably like to materially affect, our internal controlover financial reporting.

 

**PART II - OTHER INFORMATION**

**ITEM 6. EXHIBITS.**

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

 

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| 4.3  |   | Common  Stock Purchase Warrant No. 1 (1)                                                                                                                                             |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.4  |   | Common  Stock Purchase Warrant No. 2 (1)                                                                                                                                             |
| 4.5  |   | Common  Stock Purchase Warrant No. 3 (1)                                                                                                                                             |
| 4.6  |   | Form of  Common Stock certificate (2)                                                                                                                                                |
| 4.7  |   | Uni-Pixel, Inc.  12% Senior Secured Convertible Debenture No. 1 issued to Trident Growth  Fund, L.P., dated May 24, 2006. (3)                                              |
| 4.8  |   | Uni-Pixel, Inc.  12% Senior Secured Convertible Debenture No. 1 issued to CapSource Fund,  L.P., dated May 24, 2006. (3)                                                   |
| 4.9  |   | Uni-Pixel, Inc.  10% Senior Unsecured Convertible Debenture dated September 12, 2006. (4)                                                                                       |
| 4.10 |   | Common  Stock Purchase Warrant No. 1 issued to Trident Growth Fund, L.P., dated  May 24, 2006. (3)                                                                              |
| 4.11 |   | Common  Stock Purchase Warrant No. 1 issued to CapSource Fund, L.P., dated  May 24, 2006. (3)                                                                                   |
| 4.12 |   | Common  Stock Purchase Warrant dated September 12, 2006. (4)                                                                                                                         |
| 10.1 |   | Securities  Purchase Agreement dated May 24, 2006, by and between  Uni-Pixel, Inc., Uni-Pixel Displays, Inc., Trident Growth  Fund, L.P. and CapSource Fund, L.P. (3) |
| 10.2 |   | Security  Agreement dated May 24, 2006, by and between Uni-Pixel, Inc.,  Uni-Pixel Displays, Inc., Trident Growth Fund, L.P. and CapSource Fund,  L.P. (3)                 |
| 10.3 |   | Securities  Purchase Agreement dated September 12, 2006 (4)                                                                                                                          |
| 31.1 |   | Certification  of the President and Principal Executive Officer of Uni-Pixel, Inc.,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (5)                              |
| 31.2 |   | Certification  of the Chief Financial Officer of Uni-Pixel, Inc., pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 (5)                                                |
| 32.1 |   | Certification  of the President and Principal Executive Officer of Uni-Pixel, Inc.,  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (5)                              |
| 32.2 |   | Certification  of the Chief Financial Officer of Uni-Pixel, Inc., pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (5)                                                |

 

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| (1) |   | Previously  filed as an exhibit to the Company’s Form 10-SB, filed on February 18,  2005, and incorporated by reference hereto. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Previously  filed as an exhibit to the Company’s Form 10-KSB, filed on March 28,  2006, and incorporated by reference hereto.   |
| (3) |   | Previously  filed as an exhibit to the Company’s Form 10-QSB, filed on August 14,  2006, and incorporated by reference hereto.  |
| (4) |   | Previously  filed as an exhibit to the Company’s Form 8-K, filed on September, 2006,  and incorporated by reference hereto.          |
| (5) |   | Filed  herewith                                                                                                                                |

 

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Table of Contents

 

**SIGNATURES**

 

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

 
|                | **UNI-PIXEL, INC.** |
|---------------------|--------------------------|
|                |                     |   |
|                |                     |   |
| July 30,  2010 |                     | By: | /s/ Reed  Killion |
| Date                |                     | Reed  Killion, Chief Executive Officer and President |
|                     |                          |  |  |

 

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