**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM10-KSB**
| **x**                                            | ** ** | **ANNUAL REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                         |
|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                       | ** ** | ** **                                                                                                                                                                                  |
| **For the  fiscal year ended December 31, 2006** |
|                                             |       |                                                                                                                                                                                        |
| **or**                                           |
| ** **                                       | ** ** | ** **                                                                                                                                                                                  |
| **o**                                            | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                    |
| ** **                                       | ** ** | ** **                                                                                                                                                                                  |
|                                             | ** ** | **For the Transition Period  from                         to** |
|                                             |       |                                                                                                                                                                                        |
|                                             | ** ** | **COMMISSION FILE NUMBER: 0-49737**                                                                                                                                                         |

 

**UNI-PIXEL, INC.**

(Exact Name of SmallBusiness Issuer as Specified in Its Charter)

| **DELAWARE**                                                                  |   | **75-2926437**                        |
|-------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization)              |   | (I.R.S. Employer  Identification No.) |
|                                                                          |   |                                  |
| **8708  Technology Forest Place, Suite 100  The Woodlands, Texas 77381** |
| (Address of  Principal Executive Offices)                                     |
|                                                                          |
| **(281)  825-4500**                                                           |
| (Issuer’s  Telephone Number, Including Area Code)                        |

 

Securities Registered Pursuant to Section 12(b) of the Act: **None**

Securities Registered Pursuant to Section 12(g) of the Act:

**COMMONSTOCK, PAR VALUE $0.001 PER SHARE**

(Title of Class)

Check whether the issuer: (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Actduring the past 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   x  Yes   o  No

Check if there is no disclosure of delinquent filersin response to Item 405 of Regulation S-B contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-KSB or any amendment to this Form 10-KSB.   x

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

The registrant’s revenue for its most recent fiscalyear were: $200,000

As of February 26, 2007, the aggregate market value ofthe voting and non-voting common equity held by non-affiliates of theregistrant based upon the price at which such common equity was sold on theOver-the-Counter Bulletin Board Exchange as of such date was $12,908,423.

As of February 26, 2007, the registrant had 17,056,755shares of common stock, par value $0.001, outstanding.

Documents incorporated by Reference: None

Transitional Small Business Disclosure Format (CheckOne):   Yes  o   No  x

 

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**TABLE OFCONTENTS**
|           |   | PART I                                                                                           |   |   |
|-----------|--------|--------------------------------------------------------------------------------------------------|--------|--------|
| ITEM 1.   |   | DESCRIPTION OF  BUSINESS                                                                         |   |   |
| ITEM 2.   |   | DESCRIPTION OF  PROPERTY                                                                         |   |   |
| ITEM 3.   |   | LEGAL PROCEEDINGS                                                                                |   |   |
| ITEM 4.   |   | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             |   |   |
|      |   |                                                                                             |   |   |
|      |   | PART II                                                                                          |   |   |
| ITEM 5.   |   | MARKET FOR  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                        |   |   |
| ITEM 6.   |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                  |   |   |
| ITEM 7.   |   | FINANCIAL STATEMENTS                                                                             |   |   |
| ITEM 8.   |   | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            |   |   |
| ITEM 8A.  |   | CONTROLS AND PROCEDURES                                                                          |   |   |
| ITEM 8B.  |   | OTHER INFORMATION                                                                                |   |   |
|      |   |                                                                                             |   |   |
|      |   | PART III                                                                                         |   |   |
| ITEM 9.   |   | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                              |   |   |
| ITEM 10.  |   | EXECUTIVE  COMPENSATION                                                                          |   |   |
| ITEM 11.  |   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS |   |   |
| ITEM 12.  |   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                  |   |   |
| ITEM  13. |   | EXHIBITS                                                                                         |   |   |
| ITEM 14.  |   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                          |   |   |

 

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**CautionaryStatement for Purposes of the “Safe Harbor” Provisions of the PrivateSecurities Litigation Reform Act of 1995**

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 relatedstrictly 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”,which address factors that could cause our actual results to differ from thoseset forth in the forward-looking statements.

**PART I**

**ITEM 1. DESCRIPTION OF BUSINESS**

**OVERVIEW**

Uni-Pixel, Inc. is a development stage companythat has patented a next generation color display technology it calls TimeMultiplexed Optical Shutter (“TMOS”). The Company is a leader in the research,development and future commercialization of new flat panel displays using TMOSfor a variety of applications including:

·                  Mobile phones

·                  Digital cameras

·                  Notebook computers

·                  Televisions

·                  Consumer electronicdevices

·                  Digital Signage

Uni-Pixel’s TMOS technology offers significantadvantages over existing alternatives including:

·                  **SignificantlyLower Manufacturing Cost**

·                  **Greater PowerEfficiency**

·                  **ImprovedPicture Quality**

·                  **IncreasedBrightness for Daylight Readability**

·                  **VersatileProduction to include a broad range of sizes**

·                  **Flexible,Shapeable and Transparent Displays**

We expect our advantages in reduced cost, enhancedviewing quality, unique design attributes, and improved performance of the TMOSdisplay architecture over current Flat Panel Display alternatives to motivatepartners to engage with Uni-Pixel in development, commercialization, or toincorporate TMOS displays in their products. These partners should collectively serve to create the supply and todrive the demand for TMOS-based products. 

Uni-Pixel’s technology leadership and intellectualproperty position is expected to enable it to generate revenues in two phases.The initial phase is expected to generate revenue from partners through fundeddevelopment efforts, and/or up-front license fees. The second phase is expectedto include royalties from licensees that produce TMOS panels or incorporatethem into applications for automotive, active signage, medical and consumerelectronics (i.e., TVs, monitors, personal computers, cameras, games,etc.).  Additionally, the Company expectsto supply a key material component to its panel manufacturing partners thatwill also be a revenue source.

Through its research and development efforts, theCompany has established a portfolio of TMOS-related patents, patentapplications and other intellectual property rights. Uni-Pixel currently has 9issued, 1 allowed and 40 pending patent applications worldwide providing adefensible strategy that will support:

·                  Furtherdeveloping proprietary TMOS technology

·                  Utilizingcontract manufacturing and external partners for prototype and productfabrication transitioning to the manufacture of high performance displays formilitary and commercial applications

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·                  Entering intojoint ventures in specific vertical market segments to exploit existingmanufacturing and distribution channels of its targeted partners

·                  Activelylicensing technology to display manufacturers and device providers for use inapplications such as mobile phones, digital cameras, laptop computers, andother consumer electronic devices

Through December 31, 2006 we have been primarilyengaged in research and development efforts that have expanded our portfolio ofintellectual property, building prototype devices that demonstrate thetechnology, recruiting personnel, engaging various strategic partners, andraising capital consistent with our strategy. As of December 31, 2006 we had accumulated a total deficit of $21.5million and expect such losses to continue through at least 2007. We willfinance our continuing efforts and operations primarily through our existingcash, through license fees being pursued from strategic partners and additionalfund raising activities.

Duringthe 2006 year, Uni-Pixel accomplished a number of milestones in both itstechnical and business advancement. This included construction of enhanced 32 x32 pixel prototype display devices further demonstrating our TMOS technology’sattributes to the industry and potential partners.   A joint development agreement was completedwith the Palo Alto Research Center (PARC) pursuant to which Uni-Pixel and PARCagreed to work on certain subsystems specific to UniPixel’s prototype devicesand to advance the research and development of such technology.  Uni-Pixel closed its laboratory operations inNew Mexico and moved the metrology equipment from that facility to itsheadquarters facility.  Additionally,UniPixel engaged with a series of strategic partners to assist in fund raisingactivities.

**Formation History**

Uni-Pixel, Inc. was originally incorporated inthe State of Nevada as Super Shops, Inc. On November 15, 1999, SuperShops and its sister companies filed an amended petition under Chapter 11of the United States Bankruptcy Code. On July 31, 2000, the court approvedSuper Shops’ Amended Joint Plan of Reorganization. On October 13, 2000,and in accordance with the Plan of Reorganization, the management of SuperShops changed its state of incorporation from Nevada to Delaware by mergingwith and into NEV Acquisition Corp., a Delaware corporation formed solely forthe purpose of effecting the reincorporation. On June 13, 2001, NEVAcquisition 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 onMay 24, 2001, in the State of Delaware to serve as a business-to-businessinternet information intermediary providing turnkey marketing services tofacilitate the leasing of commercial real estate properties. On June 13,2001, the management of NEV Acquisition Corp. entered into an Agreement andPlan of Merger with Real-Estateforlease.com, Inc. pursuant to which thesole stockholder and founder of Real-Estateforlease.com, Inc. exchangedhis equity ownership interest in Real-Estateforlease.com, Inc. for9,500,000 shares (or approximately 96%) of NEV Acquisition Corp.’s commonstock. At the time of the merger between Real-Estateforlease.com, Inc. andNEV Acquisition Corp., Real-Estateforlease.com, Inc. had no operations andessentially no assets. Efforts by Real-Estateforlease.com, Inc. toimplement its business plan ceased in June 2002. Prior to Real-Estateforlease.com, Inc.’smerger with Uni-Pixel Displays, Inc., as described in the next paragraph,Real-Estateforlease.com, Inc. had no operations and no material assets orliabilities.

Our wholly owned subsidiary, Uni-PixelDisplays, Inc. was originally incorporated as TralasTechnologies, Inc., a Texas corporation, on February 17, 1998. TralasTechnologies, Inc. changed its name to Uni-Pixel Displays, Inc.during 2001. On December 7, 2004, Real-Estateforlease.com, Inc. enteredinto a merger agreement with Uni-Pixel Displays, Inc. and certain otherparties pursuant to which Uni-Pixel Displays, Inc. became a wholly-ownedsubsidiary of Real-Estateforlease.com, Inc. Pursuant to the merger, wechanged our name to “Uni-Pixel, Inc.” at the annual meeting of our stockholdersheld in January 2005.

Uni-Pixel, Inc. is now the parent company of ourwholly-owned operating subsidiary, Uni-Pixel Displays, Inc. As usedin this document, “Uni-Pixel,” “we,” “us,” and “our” refer toUni-Pixel, Inc. and our wholly-owned consolidated subsidiary,Uni-Pixel Displays, Inc.

The common stock, par value $0.001 per share, ofUni-Pixel is quoted on the Bulletin Board as of January 18, 2006 under theticker symbol “UNXL.OB”. Between December 7, 2004 and January 18, 2006,Uni-Pixel traded on the pink sheets as a result of a merger between publiclyheld Real-Estateforlease.com and privately held Uni-Pixel Displays, Inc.

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**INDUSTRY OVERVIEW**

***The Flat Panel Display Market***

**History**

Thecommercialization of the liquid crystal display (LCD) began in 1973, with thelaunch of the world’s first electronic calculator, incorporating a segmented,black-and-white (monochrome) display. The technology was quickly adopted in applications such as watches, andevolved into more complex dot matrix displays using passive addressing — orpassive matrix (PM) — systems.  In time,the emergence of passive Super Twisted Nematic (STN) PM-LCDs and thedevelopment of color STN (CSTN) PM-LCDs, facilitated new applications such asnotebook PCs.  Eventually, the demand forhigher resolution, full-color video images and faster refresh rates, saw thecommercialization of active matrix (AM) amorphous, (a-Si) Thin-Film-Transistor(TFT) LCDs.  This technology quicklygained acceptance in the notebook PC market, where it completely replaced theincumbent CSTN technology.  Similarly,there has been rapid, supply driven penetration of TFT-LCDs in desktop monitorsand TVs as a substitute for the traditional cathrode ray tube (CRT) screen.

**Replacementof Older CRT Technology by FPDs**

Althoughflat panel displays (FPDs) were initially adopted in the mobile consumerelectronics market and in notebook computers, they are displacing cathode raytube displays in larger product applications such as desktop computer monitorsand televisions. FPD’s unique form factor and digital interface is enabling thedelivery and accurate display of video, telecommuting, information, data,analysis and instructions in both mobile and fixed environments previouslyunsuitable to CRTs.  This transition isbeing driven by consumer preferences for appliances that are thinner andlighter, particularly in larger display sizes. For example, according to DisplaySearch, an independent market researchfirm tracking the FPD industry, the 2002 revenues from the sale of FPD computermonitors exceeded the revenues from the sale of cathode ray tube computermonitors for the first time and, in 2004, unit shipments of FPD computermonitors exceeded unit shipments of cathode ray tube computer monitors for thefirst time.

**Proliferationof Mobile Consumer Electronics Devices**

Consumersthroughout the world are rapidly adopting mobile consumer electronics devicessuch as mobile phones, personal digital assistants, or PDAs, MP3 players,portable DVD players, mobile gaming devices and digital cameras and camcorders.Advances in component technology are driving down the cost of these productsand expanding their functionality. Early mobile devices were equipped withsimple, small monochrome displays with limited functionality. As the cost ofcolor displays decreased and quality improved, consumers began rapidly adoptingmobile devices with color displays. This trend towards greater displayfunctionality in mobile devices continues with the introduction of new phoneswith dual displays, embedded cameras and television tuner video functionality.

Theoverall FPD industry is currently experiencing significant growth.  According to industry research companyDisplaySearch, the worldwide FPD market grew from $43.9 billion in 2003 to$74.8 billion in 2006.  DisplaySearchexpects this market to grow to an estimated $114.4 billion in 2009.  In addition to the rapid replacement of CRTapplications such as monitors and TVs, the FPD industry growth is being drivenby a number of other market forces including:

·                  Increased demandfor large format high resolution TV’s and computer monitors;

·                  Steady growth inusage of notebook computers;

·                  A migration tocolor screens for mobile phones and other handheld devices; and

·                  Decreasingcost economics, increasing throughput and improving efficiency of FPDproduction as newer generation LCD and plasma fabs are increasing production.

Thesefactors in combination with additional market forces are driving overall growthand a shifting mix of product applications within the FPD industry.

**Applications**

Withthe proliferation of the Internet, there has not only been an explosion in theamount of available content, but a rapid paced evolution of the form in whichit appears.  No longer a two-dimensional,text-only experience, online content is being delivered in graphic rich,animated and video formats.  As thesophistication of the user continues to heighten, and bandwidth continues toincrease, there will be a demand for a superior, high resolution visualexperience that only FPDs will be able to deliver — particularly in mobilewireless devices.  Flowing from this, newtypes of applications and functionality will evolve, that in turn will enhanceexisting markets and create new ones.

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Industrydrivers such as new content explosion, high resolution capability, increasedbandwidth and improved manufacturing efficiencies are driving new functionalityin existing applications, as well as enabling the creation of new applicationmarkets that will drive the FPD industry through high volumes.

Withthe emergence of new technologies such as MP3 Players, TV Tuners and Bluetooth,new functionality in existing applications will be enabled that willcontinually fuel demand growth in what have become relatively mature markets.  For instance, while the mobile phone markethas seen relatively slow growth rates, a large pool of relatively sophisticatedusers now exists who are providing the demand for new technologies such asPhone Cameras and Phone TVs.  Theseenhanced devices will incorporate high performance, next generation displaysthat will see a move away from Passive Matrix-LCDs towards Active Matrix-LCDsas well as other emerging display types such as OLEDs.  Additionally, FPD technology is increasinglytaking forms beyond consumer electronic devices.  FPDs are increasingly used in emergingapplications including retail signage, car navigation systems, instrumentation,and household appliances.

GlobalFPD consumption has grown by the ongoing replacement of cathode ray tube (CRT)monitors and TV’s, as well as by the increasing popularity of notebooks(laptops) and portable handheld devices. In summary, the FPD industry is currently being driven by 5 majortrends:

·                  Increasingacceptance and penetration of FPD TV’s;

·                  Rapidreplacement of CRT monitors and TV’s;

·                  Steady growth ofnotebooks;

·                  Movement tolarger screen areas in FPD TV’s, computer monitors and notebooks; and

·                  Migrationto video capable color screens in mobile phones and other handheld devices.

TheFPD market is currently dominated by liquid crystal displays (LCDs), whichaccounted for an estimated 80.5% of total FPD sales in 2005 and demand isincreasing across multiple applications with FPD formats generatingindustry-wide momentum.

Belowis a display technology continuum which illustrates the pros and cons ofvarious technologies.  As a disruptivetechnology entering the FPD landscape, TMOS has strong technological advantageswhen compared against its competition.
| ** ** | ** ** | **CRT**                                                                                                                                                               | ** ** | **LCD**                                                                                                                                                                        | ** ** | **PLASMA**                                                                                                                                                             | ** ** | **OLED**                                                                                                                                                                                                                                            | ** ** | **DLP / LCoS**                                                                                                                                             | ** ** | **TMOS**                                                                                                                                                                                                                                                                                                                                                                                                |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Pros**   |       | ·       Inexpensive

·       Proven technology with long lifetime                               |       | ·       Thin form- factor

·       Large industry base from PC segment                                   |       | ·       Large size

·       Brightness

·       Viewing angle |       | ·       Superior image: viewing angle, contrast ratio,  fast response time

·       Thinnest form factor

·       Potential cost advantage |       | ·       Potential cost advantage Thinner than CRT, but  thicker than LCD or plasma                                                |       | ·       Vivid Color

·       Readability

·       Resolution

·       Energy Efficiency

·       Ruggedness

·       Size

·       Miniaturization |
| ** ** |       |                                                                                                                                                                  |       |                                                                                                                                                                           |       |                                                                                                                                                                   |       |                                                                                                                                                                                                                                                |       |                                                                                                                                                                 |       |                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Cons**   |       | ·       Thickness, weight, bulky form-factor

·       Brightness drops as screen size increases |       | ·       Ghosting effect with moving images

·       Higher price relative to plasma and rear  projection |       | ·       Lifespan issues, dimming with age 

·       High power consumption relative to others    |       | ·       Only in small form factors in commercial  production

·       Brightness

·       Material lifetime                                |       | ·       Limited viewing angle

·       Rear projection technique limits form factors  and size |       | ·       Not yet in commercial production                                                                                                                                                                                                                                                                                                                             |

 

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As theleading technology, LCD is facing increased pressure and competition fromexisting and emerging technologies. Industry analysts indicate that this trend will continue in the nearterm.  The proliferation of newer FPDtechnologies is primarily driving the adoption of FPD technology into newerapplications.

**TECHNOLOGY**

**Overview**: Uni-Pixel, Inc. hasdeveloped a new color display technology it calls Time Multiplexed OpticalShutter (“TMOS”). A TMOS display is constructed by layering a series ofmaterials on top of a single planar surface constructed of glass or apolycarbonate substrate. .Currently layers are composed of:

·                  Transparentconductor, currently indium tin oxide (ITO);

·                  A layer ofpolyester film, or PET film, with surface micro-optic features;

·                  Thin FilmTransistors (or “TFT”s similar to those used in LCDs or OLEDs) with connectionsto ITO pads; and

·                  Aprotective top layer.

Theselayers of material create a matrix of optical shutters on the surface that areopened or closed as controlled by the TFTs. The panel unit should be simpler to manufacture than Plasma or LiquidCrystal Displays (“LCD”) as the single PET film included in the system replacesseveral other materials and steps required for the production of Plasma or LCD.

**Reduced Complexity**: In contrast to plasmaor LCD, a TMOS single pixel shutter emits the three primary colors (red, green,and blue) without the use of three separate sub-pixels. Because TMOS displayshave one-third the number of features for the same number of pixels, theybenefit from reduced manufacturing complexity.

LCDand plasma complexity is also driven through their use of Thin Film Transistors(“TFT”). Currently LCD or plasma displays require each individual sub-pixel tobe driven by a single TFT, (three TFTs per each pixel) which increases thenecessity of additional electrical traces from the control mechanism.

Incontrast, a TMOS panel will have a single TFT per pixel which will control thevoltage differential between the parallel conductive planes created by thecapacitor structure/optical shutter (also known as the pixel). Thisarchitecture advancement radically improves manufacturing tolerances andreduces the numbers of steps in the process.

Uni-Pixel’sTMOS technology will offer significant advantages over existing flat paneldisplay technologies including:

·                  Proprietarytechnology protected by Uni-Pixel’s patent portfolio;

·                  Significantlylower manufacturing costs when compared to existing technologies;

·                  Significantlybetter power efficiency over existing technologies (i.e., resulting in longerbattery life);

·                  Picture qualitythat is daylight readable in portable devices (i.e., cell phones, PDAs, andnotebook computers);

·                  Future displayscapable of being flexible, shapeable and transparent;

·                  Increaseddurability and reliability; and

·                  Abilityto be manufactured in a wide range of sizes spanning from cell phone screens totelevision displays.

Uni-Pixel’sadvantages in its TMOS technology over LCD or plasma are derived from therelative simplicity of the architecture and material make up. This advantagewill translate into a more economical manufacturing process requiring lesscapital investment for the construction of a plant and significantly lower costfor raw materials.

Currently,LCD or plasma panel displays take over 100 individual steps in themanufacturing process. This process is necessary to yield intricatelydeveloped, small and tightly packed features. However, these manufacturingprocesses are difficult to manage and are prone to defects.

Incontrast, Uni-Pixel anticipates that the TMOS manufacturing process will havefar fewer steps.  Benefiting from largerfeatures and less tightly packed construction, the manufacturing process willhave significantly fewer yield detractors or fail elements, and an enhancedpotential for longer life and resilience over LCD or plasma panels.

**Light Efficiency**: LCD display technologiesfunctions by emitting light from a back plane (a back light) and thenscreening, masking, polarizing, and filtering the light until it is emittedfrom the front of the panel in the appropriate color intensity. This methodyields a maximum efficiency of light of less than 10%. This means that if 1000nits (a measure of brightness) are created by the backlight, less than 100 nitsare displayed out the front.

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A TMOSpanel uses light injected into the edge of the glass panel much the way a fiberoptic cable works. Light is injected into one edge of the TMOS panel, withmirrors on the other three opposing sides/edges. Light goes into the guide andtravels uninhibited bouncing throughout the plane creating a “photon cloud”.TMOS optical shutters then open and close on the surface of the panel to letthe light escape. The ratio of light injected into the panel to light releasedfrom the surface is tunable. Uni-Pixel’s modeling and experimentation haveshown that a panel tuned to 61% efficiency provides the most uniform release oflight across the entire display surface. Therefore if one were to inject 1000nits of light into a TMOS display panel, at a tuned 61% efficiency, 610 nitswill be displayed out of the front of the display panel.

**Power Efficiency**: Plasma display technologyfunctions by using high voltage electricity to excite encapsulated gases thatemit electrons. These electrons excite phosphors that emit photons, which arethe light elements that are seen by the viewer. This process of continuedmaterials excitement requires significant amounts of energy that convert tophotonic light.

TMOStechnology uses a series of industry standard light emitting diodes, or LEDs,attached to one edge of the panel to inject light into the system. LEDs requirevery little power to create light and have a very high efficiency in convertingpower to light. Therefore, very little power translates into a very high lightoutput for Uni-Pixel’s TMOS displays.

**Successful Prototypes**: Uni-Pixel has builtprototypes that have demonstrated proof of concept, technical viability, andthe operation of the sub-systems within its TMOS technology. The Company’scurrent prototyping efforts are focused on the process of optimizing thematerials and assembly of the display to advance to manufacturability and thenon to commercialization.

**Technology Progress**: In early 2004,Uni-Pixel delivered its first proof of concept prototype device under adevelopment contract.  In mid 2004,Uni-Pixel was awarded a Phase II SBIR contract by the US Air force to advanceits designs as modeled during its Phase I contract in an effort to solve imagebreak-up issues traditional in Field Sequential Color display systems.  In December 2004, Uni-Pixel closed its firstsignificant funding round and began work on opening its own developmentlaboratories including metrology capabilities. These efforts continued into 2005 and resulted in the first recognitionof the viability of our TMOS invention by external partners and the firstopportunity for Uni-Pixel to materially implement its display architecturedesign.

In2005, Uni-Pixel built its development platform capability, advanced its displayprototypes, and signed its first development partner and commercializationagreements.  During early 2005, Uni-Pixeladvanced its development efforts through its small advanced materialslaboratory in Albuquerque, NM which was adjacent to Sandia NationalLaboratory.  In July of 2005, Uni-Pixelmoved into new facilities including electronics labs, clean room space, andmachining systems in Houston, TX.  Duringthe course of this time, the initial 8x8 pixel prototypes were dramaticallyimproved and advanced in their operation, optical system models were built,electronic control designs completed and implemented, and the prototypes werescaled up to a fully operational, full color, 32x32 pixel device.  Uni-Pixel has successfully constructed andtested the sub-systems in the display architecture and is in position to advancethe display materials and the assembly techniques.

Through2006, Uni-Pixel continued its research and development efforts within varyingdisplay prototypes that expanded both the size of the panels and the pixelcounts, demonstrated multiple pixel pitches in prototypes, and completed thedesign and implementation of the micro-optics that will optimize the opticalperformance of the TMOS pixels.  Theseefforts resulted in designs for the final materials implementation of thearchitecture that will advance display performance and manufacturability.

Through2007, Uni-Pixel expects to align itself with several development partners thatwill assist in advancing TMOS towards commercialization.  The Company believes that it will reachagreements that will generate its first meaningful revenues to augment thedevelopment work investments and move the Company forward in itscommercialization strategy.

**STRATEGY**

Uni-Pixel’sbusiness strategy is to penetrate existing display applications with its TMOStechnology for widespread use in all varieties of color displays and otherrelated display applications. The Company is presently focused on the followingsteps to implement its business strategy:

·                  **Develop Strategic Relationships. **Uni-Pixel plans to targetstrategic partners to further the Company’s efforts in the development andcommercialization of TMOS displays. Uni-Pixel believes that if these effortsare successful, they could result in TMOS flat panel displays reachingcommercial markets in products faster than other display technologiespreviously.  Uni-Pixel’s displayarchitecture leverages the application of existing materials and opticaltechnologies in new ways that have previously been mastered by other companiesin other 

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applications.  Uni-Pixel management understands that gainingthe assistance of some of these various technology leaders in the developmentof TMOS can accelerate the commercialization effort dramatically.  As a result, Uni-Pixel will seek to buildrelationships that will allow it to leverage existing knowledge, scale, andexpertise in thin films, control circuitry, assembly, and logistics.

·                  **Enhance the Company’s Existing TMOS Technology.** Uni-Pixel believes that continuing developmentand enhancement of its TMOS technology is critical to the Company’s success inthe display industry. Consequently, Uni-Pixel will continually seek to enhanceits competitive technology position through internal development efforts thatexpand our intellectual property portfolio, collaborative relationships, andother strategic opportunities. Uni-Pixel’s primary focus is to expand ourintellectual property through development of additional prototypes andmaterials that enhance and extend the Company’s product capabilities or theprocesses by which the systems are produced, thereby allowing them to be usedin a broader array of display applications and to maintain performance andmarket leadership over time.

·                  **Develop Prototypes Suitable to MilitaryRequirements. **Working withLockheed Martin, Uni-Pixel plans to produce prototypes that will demonstrate theCompany’s ability to meet the most demanding military requirements with asuperior performing display system.**** Uni-Pixel plans to find partners to engage asmall volume pilot production line that will provide limited quantities ofdisplays to meet Lockheed’s demand for existing military applications.

·                  **Finalize a Transferable, Licensable ManufacturingProcess.** Uni-Pixel plans tocomplete the development of its manufacturing processes and protect theintellectual property in the developed processes; and establish a technologytransfer team to enable transition of the Company’s manufacturing processes totargeted manufacturing partners and licensees.

·                  **Target Leading Manufacturers.** Uni-Pixel plans to target leading display,materials and electronics manufacturers as potential partners and/or licenseesof its TMOS technology. The Company will provide extensive technical assistanceand support to manufacturers who are early evaluators, developers, or users ofits TMOS technology and materials. Uni-Pixel believes that successfulincorporation of its technology into the first military or commercialapplications will place competitive pressure on other industry participants toadopt a TMOS display technology solution. Uni-Pixel believes that this approachwill also encourage potential new market entrants as licensees seek to captureor defend original equipment manufacturer supply contracts.  Uni-Pixel will support “pull through” of itsTMOS technology by actively marketing its advantages to end product OEMs thatincorporate display technology into their devices.  This will allow UniPixel’s productionpartners to gain access to the original equipment manufacturer supply chaindriven by end OEMs seeking the competitive product advantages offered by theCompany’s TMOS technology.  This group istargeted to construct TMOS panel packages for incorporation into OEM products.

·                  **Drive Adoption by End-Product Original EquipmentManufacturers.** Uni-Pixelplans to use prototype devices to demonstrate its technology to originalequipment manufacturers that produce end user products. The Company believesthat the significant advantages that Uni-Pixel’s displays will offer inperformance and packaging design can position it to be a “plug and play”replacement for existing LCD displays and will induce original equipmentmanufacturers to request production of TMOS displays from their existingdisplay suppliers. This is considered a “pull-through” approach to gainingmarket acceptance and entry of TMOS displays into end-user products andapplications.  This group will acquireand integrate the panel packages into end user products.

·                  **Build the Company’s Four Revenue Sources.** Uni-Pixel believes that it will be able toproduce revenues from four distinct sources, including licensing revenues(initial license fees and royalties), subcontracted manufacturing revenues(from the Company’s low volume military production, joint ventures, or productsproduced by third party contract manufacturers), materials revenues (from thematerials Uni-Pixel plans to supply to prospective partners, contractmanufacturers, and licensees), and funded research revenues.

Uni-Pixel’scontemplated TMOS future initiatives include applications involving flexibledisplays, transparent displays and unique military applications. Uni-Pixel alsoplans to conduct research on the use of a variety of different thin-filmtechnology in TMOS applications and the construction of TMOS displays. TheCompany’s focus on next-generation technologies is designed to extend Uni-Pixel’sposition as the leading provider of TMOS solutions as new markets andapplications emerge.

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**MILESTONESTO COMMERCIALIZATION**

Uni-Pixelwill continue to focus on technical and business development milestones. Theexecution of its overall business plan includes a planned push (targeting panelmanufacturers) and pull (targeting end device OEMs) strategy for acceleratingproduct development, supporting market entry, and the expansion of productioncapability and capacity.  Over the courseof two years, Uni-Pixel will pursue a technical development roadmap thatincludes:

·                  Finalization of display pixelmechanism materials;

·                  Optimization of the light managementsystem (light injection and micro-optics designs);

·                  Completion of supporting drivecontrol circuitry;

·                  Finalized bonding techniques forcompletion of the active layer structure;

·                  Assembly and testing of multipleformat prototype devices; and

·                  Finalizationof specifications for retrofitting existing LCD manufacturing plants to TMOS.

Specifically thisincludes:

**High Level Post Financing Milestones**
| **6 Months**                                                                                                                                   | ** ** | **12 Months**                                                                                                         | ** ** | **18 Months**                                                                                                                                 | ** ** | **24 Months**                                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|
| ·       Identify potential materials for inclusion in thin  film stacks                                          |       | ·       Complete development agreements and partnering  efforts for thin film materials |       | ·       Complete assembly and testing of pilot line                                                             |       | ·       Refine and test pilot line procedures                                                     |
|                                                                                                                                                |       |                                                                                                                       |       |                                                                                                                                               |       |                                                                                                                                 |
| ·       Identify leading semiconductor partners to  provide design and development services for controller chips |       | ·       Complete design and implementation of proprietary  drive control circuitry      |       | ·       Refine specifications manufacturing system  with the help of partnerships with system  specialists |       | ·       Implement Manufacturing system                                                            |
|                                                                                                                                                |       |                                                                                                                       |       |                                                                                                                                               |       |                                                                                                                                 |
| ·       Identify targeted partnerships with OEM firms  who could benefit from TMOS technology                    |       | ·       Identify  contractors and partners for implementation of Manufacturing Systems  |       | ·       Form  partnerships with OEM firms to implement TMOS technology in their end user products               |       | ·       Form partnerships with OEM firms to implement  TMOS technology in their end user products |

 

Uni-Pixel’ssenior management team will work with various targeted strategic partners ineach step of the process to provide certain market and technical supportresources.  Over time, Uni-Pixel expectsit will pursue discussions with a variety of potential assembly andmanufacturing partners.  Uni-Pixel willseek to leverage access to potential partner pilot lines in exploring andgrowing a continuous flow manufacturing system. It is expected that this pilot line will be the initial platform for thefinalization of the specifications to be included in the continuous flowmanufacturing system.

**CUSTOMERSAND PARTNERS**

Thefuture customers for the TMOS panel “packages” will be the OEMs that currentlyuse existing display technologies such as LCD, Plasma, and OLED in their finalproducts.  Therefore the end customer fora Uni-Pixel TMOS panel package will be an integrator, assembler, or the OEMitself.  Initially, Uni-Pixel’s strategicpartners will be its primary customers through the commercializationprocess.  This will include itsdevelopment partners such as Lockheed Martin, its manufacturing partners, andits other vertical market partners.

Uni-Pixelexpects that it will pursue discussions with a variety of potential assemblyand manufacturing partners as it achieves its technical milestones.  This will include the demonstration of panelpackages that can either directly displace alternative technologies, or allowfor unique new design implementations. Once design wins for its panels are secured, Uni-Pixel will leveragethese OEM customers for product unit demand to target potential manufacturingpartners to expand production capacity. Uni-Pixel has completed development work within several contracts andpartners that provide comprehensive validation of TMOS technology and willserve as a basis for future customer growth.

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Current Partners

·                  *Xerox PARC:*Uni-Pixel engaged Xerox PARCas a development partner working on certain prototyping tasks to advance thedisplay architecture, assembly process, and engineering development system testbed.  It is expected that this effortwill provide Uni-Pixel with a next wave of further advanced prototypes and withadditional subsystems that further the optimization process for the manufacturingmaterials.

·                  *Sandia National Laboratory:*Sandia hasbeen engaged with Uni-Pixel directly and through a Lockheed Martin CooperativeResearch and Development Agreement (CRADA). Sandia has explored developing an aerogel formulation as one layerwithin the display architecture that could potentially meet Uni-Pixel’soperational and production requirements. In 2005, Sandia and Uni-Pixel reached an Agreement to License the Sandiaaerogel patents exclusively within the display industry.  Under this agreement, Sandia will receive aroyalty from Uni-Pixel tied to the net sales price of unit sales once Uni-Pixelreaches commercial production if aerogel is included as a component of thesystem.

·                  *Lockheed Martin:*Uni-Pixel reached itsfirst targeted vertical market milestone by securing Lockheed Martin as itsfirst exclusive partner for Military and Aerospace applications. A License andStrategic Business Agreement was executed on October 5, 2005 (“the Agreement”),pursuant to which Uni-Pixel granted Lockheed the exclusive market rights forUni-Pixel’s flat panel display technology in the Military/Aerospace Field inexchange for certain financial and engineering resources provided by Lockheedfor the research and development of Uni-Pixel’s TMOS display technology.  Lockheed Martin has committed resources toassist Uni-Pixel with electronics development, environmental, life cycletesting and ruggedization of displays for military requirements.  It is expected that TMOS displays will beinherently more rugged off the shelf than LCD displays and would not requirethe significant cost required for LCD to become ruggedized for militaryapplications.  Lockheed will be able toderive significantly higher yields supplying displays to the military usingTMOS in place of LCD technology as well as being able to design unique systemsleveraging TMOS capabilities and attributes that other military contractorswill not be able to match.

Target Partners

·                  *Optical Thin Film Production:*Uni-Pixelhas entered into discussions with a set of potential partners for assistance inthe development and manufacturing of its thin film layer.  Implementation of the TMOS architecture canbe accomplished using a variety of materials that can achieve the requiredproperties’ relationship between layers. No new or unique materials will be required, rather just theoptimization of existing materials as implemented within the process andsystem.  Initially Uni-Pixel willcontract for development work with the objective of reaching a productionagreement or joint venture with one or more thin film manufacturers.

·                  *Drive Control Circuitry:*Uni-Pixel hasentered into discussions with a set of potential partners for assistance in thedevelopment and manufacturing of its unique drive control circuitry.  Uni-Pixel has developed unique IP that willbe implemented through a “fabless” semiconductor model.  This may include potential development of newIP, cross licensing, and the use of certain existing semiconductor capabilitiesfrom one or more partners.  Uni-Pixel hasdeveloped a means to use off the shelf parts for certain drive controlrequirements that will allow it to produce prototypes in the short term, aswell as leveraging the enhancements that its own unique drive control providesover the longer term.  Uni-Pixel isworking with its potential partners to negotiate terms and plans for both theshort and longer term execution of its strategy.

·                  *Manufacturing and Assembly Partners:*****Uni-Pixel is engaged in initialdiscussions with a set of strategic partners that are currently manufacturingother display technologies or incorporating other display technologies into enduser products.

Target Customers

·                  *Lockheed Martin:* Uni-Pixel plans to sellTMOS panels to Lockheed Martin for implementation into unique military andavionics systems for resale to the government and industry.  These panels are expected to be produced insmall volumes and sold to Lockheed at relatively high margins attributable totheir unique capabilities and lesser ruggedization requirements.

·                  *Large Computer OEM:*****Uni-Pixel has delivered a unique proof ofconcept prototype device to a large computer system OEM under the terms of anengineering development agreement.  Thisearly prototype established the first system for testing and evaluation of thearchitecture and operation of the system for gathering direct performance 

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feedback.  Additional work continues specific toadvancing this prototype to implementation within an end user product.

·                  *Large Active Signage OEM:* Uni-Pixel is indiscussions with various potential partners in the vertical market of ActiveSignage.  Two dominant technologies existin this vertical market, plasma displays for indoor applications and LEDdisplays for outdoor applications. Uni-Pixel’s technology offers unique and new capabilities that stronglydifferentiate it from both of these, and can potentially open a market notcurrently able to be targeted by either.

·                  *Consumer Electronics Manufacturers (OEMs*):Uni-Pixel has held initial exploratory meetings with a variety of consumerelectronics OEMs that have all expressed a desire to leverage TMOS’ uniqueattributes in their products.  Thisincludes cell phone manufacturers, a PDA manufacturer, and a television systemproducer.  Each of these interactions hasresulted in an invitation to return for further engineering specific meetingsas product development advances at Uni-Pixel.

**SALES ANDMARKETING**

Uni-Pixelhas begun discussions with end user product OEMs that have expressed a desireto integrate TMOS flat panels into their products once available and demonstratingtheir superior performance.  The OEMsthat have been parties to these discussions are enthused by the advantages ofTMOS flat panels as a significant differentiator for their products relative totheir competition in their individual market segments.   Uni-Pixel believes that the proven entryinto a single vertical market or application will drive the demand for expandedapplications of TMOS flat panels to other product markets.

Uni-Pixel’ssales strategy intends to build a diverse revenue base that will deriverevenues from multiple sources:

·                  Licensingrevenues – Strategic manufacturing partners that license Uni-Pixelmanufacturing processes for a manufacturing operation, cross licensed partnersthat produce portions of the materials or technology incorporated into TMOSdisplays, a silicon foundry partner that produces the display controllersemiconductors.

·                  Productrevenues – Integrators of display panel packages designed and built for smallvolume requirements such as military and avionics applications, or uniquecustom displays.

·                  Criticalmaterials – Integrators or manufacturers that produce or assemble display panelpackages.  For integrators this caninclude control driver chips from Uni-Pixel’s foundry partner.  For manufacturers this can include materialssuch as its thin film featuring micro-optics and transparent conductors to beused in the display panel.

·                  Researchcontracts – Integrators that are seeking to leverage unique attributes thatTMOS can potentially provide such as curved or shaped displays, transparentdisplays, or uniquely applied displays. Uni-Pixel expects that initially the US Government will be a principalcustomer of this variety.

TheCompany plans to continue to create demand for its products by utilizing a “pullthrough” strategy with specific targeted OEMs in various market segments.  Uni-Pixel will actively pursue OEMs by usingits prototypes to demonstrate the advantages that TMOS panels can provide bothin form factor and performance. Uni-Pixel expects to create OEM “pull” bygaining design wins for integration of TMOS display panel technology intoestablished end user devices.

Uni-Pixelwill advance its “Simply Superior” tag line and actively demonstrate theelegance and performance advantages of its unique pixel architecture within theindustry in support of its direct sales work with OEMs.  Once the initial products reach the marketfeaturing TMOS displays and Uni-Pixel begins to build momentum andmanufacturing capacity within the industry, a marketing program will belaunched to drive awareness of Uni-Pixel’s TMOS displays as a component “brand”within the end user products.   Thismarketing program will be designed to drive awareness and education among endusers supporting TMOS’ unique capabilities and enhanced performance.  Uni-Pixel believes that it will be able topromote its brand as a valued component brand included within the OEM productsas a part of its relationship with the end product OEMs.  Ultimately the goal of this marketing programwill be to establish Uni-Pixel and its unique displays independently as adifferentiating factor in end user products and to help promote the TMOScomponent value proposition for Uni-Pixel and its partner OEMs that implementTMOS displays in their products similar to what has been done in the PCindustry by certain semiconductor companies.

**RESEARCHAND DEVELOPMENT**

Frominception through December 31, 2006, Uni-Pixel has spent approximately $9.8million on research and development activities with $2.9 million and $2.8 millioninvested in 2006 and 2005, respectively. Uni-Pixel continues conductingresearch and development both internally and externally and anticipatessignificantly higher investments going forward.

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As ofDecember 31, 2006, Uni-Pixel has one principal location conducting internalresearch.  The Company’s headquarters andprimary development site are located in Houston, TX.  The headquarters location includes a Class100 clean room where display materials testing and assembly is conducted, anelectronics lab, optical testing facilities, test and measurement equipment,and electronics development systems. 

Currently,Uni-Pixel is engaged in the development of second phase prototypes todemonstrate the full functionality of the TMOS technology across multiple pixelsizes and a variety of commercial applications. The Company has engaged a setof external vendors to produce the material requirements of each layer thatmakes up Uni-Pixel’s display prototypes. These vendors will deliver to theCompany the individually contracted elements as specified. Working withLockheed Martin and other strategic partners, Uni-Pixel is advancing theindividual elements into the Company’s next generation working prototypedevices.

Uni-Pixelexpects that these prototype devices will demonstrate the image and colorgeneration capabilities of the Company’s TMOS displays in three pixel sizes,..25mm, .5mm, and 1mm. These devices will then be used to identify the specificissues related to performance optimization and to their integration into uniqueend-product applications.

Thephase two prototypes will be the next phase of a product roadmap that targetsthe production of viable commercial display panels within twenty-four to thirtysix months. The development process will also include selecting and completingthe preferable manufacturing processes that will be transferable to jointventure partner operations or licensees.

Uni-Pixelplans to complete the development of the preferred manufacturing process withinthe Company’s laboratory environment and engage a small-scale pilot productionline that will be the research and development proving ground for a continuousflow manufacturing process followed potentially by a roll to roll manufacturingprocess.

Researchand development costs are expensed as incurred and include salaries andbenefits, costs to third party contractors to perform research or otheractivities related to the Company’s research, professional fees related tointellectual property work, and a portion of facilities costs.

**COMPETITION**

Thedisplay industry in which Uni-Pixel operates is highly competitive. Whileexisting flat panel display technologies such as LCDs and Plasma currentlydominate the marketplace, Uni-Pixel will be more specifically competing againstother emerging technologies such as OLED and LCoS.

Comparedto its competition, Uni-Pixel believes it follows a more developed businessmodel allowing the Company to benefit from the following factors:

·                  A wide range ofopportunity to enter the market;

·                  The flexibilityto pursue any and all market segments;

·                  The ability tobe a supplier of key materials;

·                  The ability toprofitably produce small volumes of unique displays; and

·                  Theability to enable localized manufacturing.

At thesame time Uni-Pixel’s competitors typically follow only one or a subset ofthese factors providing a strategic advantage to Uni-Pixel.

ExistingTechnologies:

·                  *Liquid Crystal Display (LCD) Competitors:*LCD is currently the dominant technology in the FPD sector with 88% marketshare in 2005. Samsung Electronics and LG Philips LCD Co. Ltd. are marketleaders while additional competitors include: Sharp Electronics Corp., NEC Corp., Hitachi Ltd., AU Optronics Corp.,Chi Mei Optoelectronics Corp., Chunghwa Picture Tubes Ltd., Quanta Corp. and HannStarDisplay Corp.

·                  *Plasma*: Another technology in the FPDmarket suffering from high power consumption and limited life span. Majorcompetitors include:  Matsushita ElectricIndustry Co. Ltd., LG Electronics, Inc., Hitachi Ltd., LG Philips LCD Co. Ltd.,Samsung Electronics, Pioneer Electronics and Sony Corp.

·                  *Digital Light Processing (DLP) Competitors:*Texas Instruments has pioneered the DLP technology, which is a micro-mechanicalstructure of moving mirrors on a silicon backplane. Texas Instruments has hadsignificant success selling its DLP products to its customers in the businessfront projector market and the rear projection television market.  Its customers include:  Toshiba Corp., Thomson Multimedia, MitsubishiDigital Electronics, LG Electronics and Samsung Electronics.

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·                  *High Temperature Polysilicon LCD (HTPS-LCD)Competitors*: The HTPS-LCD technology, a transmissive FPD technology,is championed by Epson Corp., Sony Corp, Panasonic Corp., Hitachi Ltd.,Skyworth Digital Hld., and Konka Group. HTPS-LCD work especially well and have gained popularity in near-to-eyedisplays (for use in a camcorder viewfinder), front projectors (which uses afront-lens to stretch the image), and rear-projection TV sets.

·                  *Amorphous Silicon (A-Si LCD):*Operatesthrough depositing amorphous silicon materials onto glass, building arrays ofField Effect Transistors (FETs). Competitors in this market include: SamsungElectronics, Sanyo Epson, International Display Technology Co. Ltd. and IBMCorp.

EmergingTechnologies:

·                  *OLED Competitors:* Eastman Kodak Companyhas licensed a fluorescent OLED technology and other patents for displayapplications to a number of display manufacturers. In addition, Eastman Kodakand Sanyo Electric, through a joint venture known as SK Display Corporation,Samsung NEC Mobile Display Co., Ltd., RiTdisplay and Pioneer are presentlymanufacturing OLED products using OLED technologies. Eastman Kodak, CovionOrganic Semiconductors GmbH, Universal Display Corp., and Idemitsu Kosan Co.are selling and licensing various forms of OLED materials and processes thatwill compete with Uni-Pixel’s proprietary TMOS technology. Another OLEDindustry participant, Cambridge Display Technology (CDT), Ltd., haslicensed and is working with a number of display manufacturers on its polymerOLED technology. CDT recently formed a joint venture with Sumitomo Chemicals toproduce and manufacture P-OLEDs.

·                  *Liquid Crystal on Silicon (LCoS) Competitors:*Thesecompanies are all producing different forms of a liquid crystal display on asilicon backplane, which are considered reflective technologies.  Companies competing in the reflectivemicrodisplay market include Sony, JVC, Aurora, Syntax-Brillian, Spatialight,eLCOS and others.  We believe LCoS hasbeen perceived as a very difficult technology to manufacture as multiple majorcorporations have terminated their LCoS manufacturing efforts.

·                  *Other Technologies*: There are a number ofother technologies under development that may some day compete with Uni-Pixel.These include “electronic paper,” “Non-Organic Thick Film Dielectric ElectroLuminescent Technology” developed by iFire Technologies a unit of WestaimCorporation and flat CRT.

**INTELLECTUAL PROPERTY**

Startingin 2004, Uni-Pixel began a significant expansion of its Intellectual Property(IP) portfolio.  As a pioneer in thearena of near field optics applied to a MEMS based display technology, in manycases when Uni-Pixel solves a technology issue it creates a new invention.  Uni-Pixel has engaged one of the technologyindustry’s largest and most experienced IP firms to assist in the prosecutionof a lengthy list of potential inventions recently discovered in addition toover 30 new patent filings as of the end of 2006.  TMOS represents a “green field” technology inthat it is a new approach to displays leveraging well known concepts in newways.  This has created an unexploredarena for Uni-Pixel bearing new inventions and IP on a continuing basis.

TheCompany currently holds 9 granted patents relating to its TMOS technology. Thesepatents have been filed in the United States as well as the largest marketsacross Europe including Austria, Belgium, Switzerland, Germany, France andGreat Britain. These existing patents will begin to expire 2011.

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**Patent Table**
|                                                                                                                                                 | ** ** | **Number of Patents** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| **Description**                                                                                                                                 | ** ** | **Patents Issued**              | ** ** | **Patents Allowed** | ** ** | **Patents Pending** | ** ** | **Total Patents** | ** ** |
| Optical Display  (base TMOS Patent)                                                                                                             |       | 7                               |       |   |   |   |   | 7 |   |
| Field Sequential  Color Efficiency Enhancement                                                                                                  |       | 1                               |       |   |   | 5 |   | 6 |   |
| Common Ground  Plane Discharge Circuit                                                                                                          |       | 1                               |       |   |   | 3 |   | 4 |   |
| Double-Electret  MEMS Actuator                                                                                                                  |       |                            |       |   |   | 2 |   | 2 |   |
| Z-Axis Redundant  Display/Multilayer Display                                                                                                    |       |                            |       |   |   | 7 |   | 7 |   |
| Simple Matrix  Addressing                                                                                                                       |       |                            |       |   |   | 7 |   | 7 |   |
| Enhanced  Bandwidth Data Encoding Method                                                                                                        |       |                            |       |   |   | 3 |   | 3 |   |
| Reducing Light  Leakage and Improving Contrast Ratio Performance in FTIR Display Devices                                                        |       |                            |       |   |   | 1 |   | 1 |   |
| Electromechanical  Dynamic Force Profile Articulating Mechanism                                                                                 |       |                            |       |   |   | 3 |   | 3 |   |
| Optical  Microstructures for More Optical Light Extraction and Control (combined  Microlens Extraction Structure & Microlens Anti-Stiction) |       |                            |       |   |   | 1 |   | 1 |   |
| Mechanism to  Mitigate Color Breakup Artifacts in Field Sequential Color Display Systems                                                        |       |                            |       |   |   | 1 |   | 1 |   |
| Other Patents                                                                                                                                   |       |                            |       | 1 |   | 7 |   | 8 |   |
|                                                                                                                                            |       | 9                               |       | 1 |   | 40 |   | 50 |   |

 

**EMPLOYEES**

We have twelve full-time employees and two part-timeemployees. None of these employees is covered by a collective bargainingagreement, and we believe our relations with our employees are good. We mayalso employ consultants on an as-needed basis to supplement existing staff.

**OUR COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS**

We are not aware of any current federal, state orlocal environmental compliance regulations that have a material effect on ourbusiness activities. We have not expended material amounts to comply with anyenvironmental protection statutes and do not anticipate having to do so in theforeseeable future.

**RISKFACTORS**

Certainfactors that may affect our business and could cause actual results to differmaterially from those expressed in any forward-looking statements include thefollowing:

**Risks Related to our Business and Industry**

**We are adevelopment stage company with limited operating history and our futureprofitability is uncertain and we anticipate future losses and negative cashflow, which may limit or delay our ability to become profitable.**

We areattempting to obtain the necessary working capital for operations, but therecan be no assurance we will obtain such financing. We have not yet demonstratedour ability to generate revenue, and there is no assurance that we will produceany material revenues for ourselves or our stockholders, or that we willoperate on a profitable basis. As of December 31, 2006, we had an accumulatedtotal deficit during development stage of $21.5 million.

We area development stage company with a limited operating history and no significantrevenues to date. To date, we have had only a few revenue-generating servicesor development contracts.  We expect toexpend significant resources on consultants, intellectual property protection,research and development, advertising, hiring of personnel and startup costs.As a result, we have incurred losses since our inception and expect toexperience operating losses and negative cash flow for the foreseeable future.We anticipate our losses will continue to increase from current levels becausewe expect to incur additional costs and expenses related to prototypedevelopment, consulting costs, laboratory development costs, marketing andother promotional activities, the addition of engineering and manufacturingpersonnel, and the continued development of relationships with strategicbusiness partners.

Sinceinception, we have generated limited revenues while incurring significantlosses. We expect to incur losses for the foreseeable future and until suchtime, if ever, as we are able to achieve sufficient levels of revenue from thecommercial exploitation of our TMOS technology and materials to support ouroperations. However, planned products based upon our 

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TMOS technologymay never become commercially viable. Markets for flat panel displays utilizingour proprietary TMOS technology may be limited. We may never generatesufficient revenues from the commercial exploitation of our TMOS technology andmaterials to become profitable. Even if we find commercially viableapplications for our TMOS technology and materials, we may never recover ourresearch and development expenses.

**If we donot receive additional financing when and as needed in the future, we may notbe able to continue the research, development and commercialization of our TMOStechnology and materials.**

Ourcapital requirements have been and will continue to be significant. We willlikely require substantial additional funds in excess of our current financialresources in the future for research, development and commercialization of ourTMOS technology and materials, to obtain and maintain patents and otherintellectual property rights in these technologies and materials, and forworking capital and other purposes, the timing and amount of which aredifficult to ascertain. Our cash on hand will likely not be sufficient to meetall of our future needs. When and as we need additional funds, such funds maynot be available on commercially reasonable terms or at all. If we cannotobtain additional funding when and as needed, our business might fail. Additionally,if we attempt to raise funds in a future offering of shares of our commonstock, preferred stock, warrants or depositary shares, or if we engage inacquisitions involving the issuance of such securities, the issuance of theseshares could, subject to any anti-dilution provisions, dilute the ownership ofour then-existing stockholders.

**Ourquarterly operating results are subject to substantial fluctuations, and youshould not rely on them as an indication of our future results**.

Ourquarterly operating results may fluctuate significantly in the future as aresult of a variety of factors, many of which are outside our control. Thesefactors include the level of demand for our technology and products; ourability to attract and retain personnel with the necessary strategic, technicaland creative skills required for effective operations; the amount and timing ofexpenditures by customers; the amount and timing of capital expenditures andother costs relating to the expansion of our operations; government regulationand legal developments; improvement of existing LCD and OLED technologies andintroduction of other new flat panel display technologies; and general economicconditions. As a strategic response to changes in the competitive environment,we may from time to time make certain pricing, service, technology or marketingdecisions or business or technology acquisitions that could have a materialadverse effect on our quarterly results. Due to all of these factors, ouroperating results may fall below the expectations of securities analysts,stockholders and investors in any future quarter.

**Our brandname and technology may not be recognized in our marketplace so our results ofoperations and financial condition may suffer**.

Ourbrand name and technology is new and unproven. If we are unable to effectivelydevelop and timely promote our brand and technology and establish a leadingposition in our marketplace, our results of operations and financial conditionwill suffer. We believe that the importance of brand recognition and technologywill increase over time. In order to gain brand recognition, we may increaseour marketing and advertising budgets to create and maintain brand loyalty.

**We mayfail to protect adequately our proprietary technology, which would allow ourcompetitors to take advantage of our research and development efforts.**

Ourlong-term success largely depends on our ability to market technologicallycompetitive processes and products. We rely on a combination of patent, tradesecret and other intellectual property laws, confidentiality and securityprocedures and contractual provisions to establish and protect our proprietaryrights in our technology, products and processes. If we fail to obtain ormaintain these protections, we may not be able to prevent third parties fromusing our proprietary technologies. Our currently pending or future patentapplications may not result in issued patents. In addition, our issued patentsmay not contain claims sufficiently broad to protect us against third partieswith similar technologies or products or from third parties infringing ourpatents or misappropriating our trade secrets or provide us with anycompetitive advantage. In addition, effective patent and other intellectualproperty protection may be unenforceable or limited in foreign countries. If athird party initiates litigation regarding the validity of our patents, and issuccessful, a court could revoke our patents or limit the scope of coverage forthose patents.

Wealso rely upon trade secrets, proprietary know-how and continuing technologicalinnovation to remain competitive. We protect this information with reasonablesecurity measures, including the use of confidentiality and inventionassignment agreements with our employees and consultants and confidentialityagreements with strategic partners. It is possible that these individuals orcompanies will breach these agreements and that any remedies for a breach willbe 

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insufficient toallow us to recover our costs. Furthermore, our trade secrets, know-how andother technology may otherwise become known or be independently discovered byour competitors.

**If wefail to enter cooperative research agreements, which we are presentlynegotiating with our projected research partners, we might not succeed incommercializing our TMOS technology and materials.**

Researchand development of commercially viable applications for our TMOS technology andmaterials may at some point depend substantially on the success of the workconducted by and with our present and future research partners. We cannot becertain that these research partners will make the additional advances in theresearch and development of these technologies and materials that may beessential to successfully commercialize our TMOS technology and materials.Moreover, although we fund TMOS technology research, the scope of and technicalaspects of this research and the resources and efforts directed to thisresearch currently are and may remain in large part subject to the control ofour research partners.

**If wecannot form and maintain lasting business relationships with flat panel displaymanufacturers or other targeted partners, or if we cannot obtain proprietaryTMOS materials, our business strategy could suffer or fail.**

Ourbusiness strategy includes some dependence upon our development and maintenanceof commercial licensing and material supply relationships with high-volumemanufacturers of flat panel displays. All of our current relationshipdiscussions with display manufacturers are limited to technology explorationand the evaluation of our TMOS technology and materials for possible use incommercial display applications. Some or all of these relationships may notsucceed or, even if they are successful, may not result in the display manufacturers’entering into commercial licensing and material supply relationships with us.

Underour planned technology development and evaluation agreements, we intend to workwith strategic partners to incorporate their technologies into our products forthe commercial production of TMOS displays. However, many of these technologydevelopment and evaluation agreements may last for limited periods of time,such that our relationships with these partners could expire unless theycontinually are renewed. Our partners may not agree to renew theirrelationships with us on a continuing basis. In addition, we may continueworking with certain strategic partners in evaluating our TMOS technology andmaterials after our existing agreements with them have expired while we areattempting to negotiate contract extensions or new agreements with them. Shouldour relationships with these partners not materialize, or once in place, notcontinue to be renewed, our business could suffer.

Ourability to enter into commercial licensing and material supply relationships,or to maintain our existing technology development and evaluationrelationships, may require us to make financial or other commitments. We mightnot be able, for financial or other reasons, to enter into or continue theserelationships on commercially acceptable terms, or at all. Failure to do sowill likely harm our business strategy, operating results and long-termbusiness prospects.

Ourbusiness prospects depend significantly on our ability to obtain proprietarymaterials for our own use and for potential sale to display manufacturers. Ourcurrently proposed development and license agreement with the nationallaboratory may provide us with a source for certain of these materials forresearch, development and evaluation purposes. The current agreement with thenational laboratory will potentially provide us with a source for thesematerials for commercial purposes. However, this license agreement is not yeteffective. Our inability to reach a further agreement to obtain these certainmaterials from this national laboratory or another source would have amaterially adverse effect on our ability to generate revenues from sales ofthese materials, as well as on our ability to perform research and developmentwork. Further, failure to complete an agreement could preclude our ability tosupport display manufacturers that would choose to license our TMOS technologyand materials for possible commercial use. Also, a license from the nationallaboratory may be subject to significant United States government rights andrestrictions that may reduce the Company’s ability to enter into overseasmanufacturing agreements and licenses.

**TheUnited States government will have certain rights to our TMOS technology thatmight prevent us from realizing the benefits of these technologies**.

TheUnited States government, through various government agencies, has provided andcontinues to provide funding to us for research activities related to certainapplications of our TMOS technology. Because we have been provided with thisfunding, the government has rights to certain applications of our technologythat could restrict our ability or our licenses to market products to thegovernment for military and other applications, or to third parties forcommercial applications. Moreover, if the government determines that we havenot taken effective steps to achieve practical application of our patentedinventions that were funded by the government in any field-of-use in areasonable time, the government could 

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require us togrant licenses to other parties in that field of use. Any of these occurrenceswould limit our ability to obtain the full benefits of our TMOS technology.

**We mayincur substantial costs as a result of litigation or other proceedings relatingto patent and other intellectual property rights.**

Athird party may sue us or one of our strategic collaborators for infringing itsintellectual property rights. Likewise, we may need to resort to litigation toenforce our patent rights or to determine the scope and validity of third-partyintellectual property rights.

Thecost to us of any litigation or other proceeding relating to intellectualproperty rights, even if resolved in our favor, could be substantial, and thelitigation would divert our efforts. Some of our competitors may be able tosustain the costs of complex patent litigation more effectively than we canbecause they have substantially greater resources. If we do not prevail in thistype of litigation, we or our strategic collaborators may be required to paymonetary damages; stop commercial activities relating to the affected productsor services; obtain a license in order to continue manufacturing or marketingthe affected products or services; or compete in the market with a substantiallysimilar product.

Uncertaintiesresulting from the initiation and continuation of any litigation could limitour ability to continue some of our operations. In addition, a court mayrequire that we pay expenses or damages, and litigation could disrupt ourcommercial activities.

**If we areunable to keep up with rapid technological changes, our processes, products orservices may become obsolete.**

Theflat panel display market is characterized by significant and rapidtechnological change. Although we will continue to expand our technologicalcapabilities in order to remain competitive, research and discoveries by othersmay make our processes, products or services less attractive or even obsolete.If we cannot compete effectively in the marketplace, our potential forprofitability and financial position will suffer.

**If ourTMOS technology and materials are not technically and commercially feasible forbroad-based product applications, we may never generate revenues sufficient tosupport ongoing operations**.

Togenerate revenues sufficient to support ongoing operations, our businessstrategy ultimately requires the development and maintenance of commerciallicensing and material supply relationships with high-volume displaymanufacturers. Before display manufacturers will agree to utilize our TMOStechnology and materials for wide-scale commercial production, they will likelyrequire us to demonstrate to their satisfaction that our TMOS technology andmaterials are feasible for broad-based product applications of which there canbe no assurances given. This, in turn, will require substantial advances in ourresearch and development efforts in a number of areas, including:manufacturability; the development of feasible TMOS materials for TMOSdisplays; and issues related to scalability and cost-effective fabricationtechnologies for product applications.

**Ourefforts may never demonstrate the feasibility of our TMOS technology andmaterials for broad-based product applications.**

Ourresearch and development efforts remain subject to all of the risks associatedwith the development of new products based on emerging and innovativetechnologies, including, without limitation, unanticipated technical or otherproblems and the possible insufficiency of funds for completing development ofthese products. Technical problems may result in delays and cause us to incuradditional expenses that would increase our losses. If we cannot complete, orif we experience significant delays in completing, research and development ofour TMOS technology and materials for use in potential commercial applications,particularly after incurring significant expenditures, our business may fail.

**Even ifour TMOS technology is technically feasible, it may not be adopted by displaymanufacturers**.

Thepotential size, timing and viability of market opportunities targeted by us areuncertain at this time. Market acceptance of our TMOS technology and materialswill depend, in part, upon the technology’s providing benefits greater than orcomparable to cathode ray tubes, or CRT, plasma display and LCD technologies(the current standard display technologies) at an appropriate cost, and theadoption of our TMOS technology by consumers and manufacturers, neither ofwhich has been achieved. Also, many potential licensees of our TMOS technologycurrently manufacture flat panel displays utilizing competing technologies, andmay, therefore, be reluctant to redesign their products or manufacturingprocesses to 

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incorporate ourTMOS technology. Moreover, there may be a number of additional technologiesthat display manufacturers need to utilize in production or may need to be usedin conjunction with our TMOS technology in order to bring TMOS displays andproducts containing them to the market. If display manufacturers are unable toobtain access to these additional technologies, they may not utilize our TMOStechnology.

Theflat panel display market is currently, and we believe will likely continue tobe for some time, dominated by displays based on LCD technology. Numerouscompanies are making substantial investments in, and conducting research toimprove characteristics of LCDs. Additionally, several other flat panel displaytechnologies have been, or are being, developed, including technologies for theproduction of field emission, inorganic electroluminescence, gas plasma andvacuum fluorescent displays. Of particular note, competing OLED technologieshave entered the marketplace prior to TMOS and may become entrenched in theflat panel industry before our TMOS technology has a chance to become widelyutilized. In each case, advances in LCD, OLED, or other flat panel displaytechnologies could result in technologies that are more cost-effective, havefewer display limitations, or can be brought to market faster than our TMOStechnology. These advances in competing technologies might cause displaymanufacturers to avoid entering into commercial relationships with us, or notrenew planned or existing relationships with us.

Webelieve that TMOS display technologies ultimately may be able to overcomecertain existing limitations of LCD and other flat panel display technologies,such as high power consumption, costly manufacturing methods, poor contrastratios and limited viewing angles, for many product applications. However,other companies may succeed in improving these competing display technologies,or in developing new display technologies, that are superior to our TMOSdisplay technology in various respects. We cannot predict the timing or extentto which such improvements or developments may occur. If our TMOS technology isunable to capture a substantial portion of the overall display market for thesecompetitive reasons, our business strategy may fail.

**Many ofour competitors have greater resources, and it may be difficult to competeagainst them.**

Theflat panel display industry is characterized by intense competition. Many ofour competitors have better name recognition and substantially greaterfinancial, technical, manufacturing, marketing, personnel and/or researchcapabilities than we do. They have made and continue to make substantialinvestments in improving their technologies and manufacturing processes. Inaddition, we believe that at times in the past, some plasma and LCD displaypanel manufacturers have priced their products below the marginal cost ofproduction in an attempt to establish, retain or increase market share. Becauseof these circumstances, it may be difficult to compete successfully in thedisplay market.

**The lossof the services of our key management and personnel or the failure to attractadditional key personnel could adversely affect our ability to operate ourbusiness**.

A lossof one or more of our current officers or key employees could severely andnegatively impact our operations. Specifically, the loss of services ofFrank M. DeLape, Chairman of the Board, Reed J. Killion, President, JimTassone, Chief Financial Officer, Martin G. Selbrede, Chief ScienceOfficer, Dan Van Ostrand, Executive Vice President or B. Tod Cox, Vice Presidentof Engineering, none of whom has an employment agreement with us except for Mr.DeLape, Mr. Killion and Mr. Tassone, could significantly harm our business. Wehave no present intention of obtaining key-man life insurance on any of ourexecutive officers or management. While we intend to enter into new employmentagreements with our management and other key personnel, there is no guaranteethat these will be found to be enforceable if challenged. Additionally,competition for highly skilled technical, managerial and other personnel isintense. As our business develops, we might not be able to attract, hire,train, retain and motivate the highly skilled managers and employees we need tobe successful. If we fail to attract and retain the necessary technical andmanagerial personnel, our business will suffer and might fail.

**Uni-Pixelis receiving limited indemnification from certain current and former principalsof our predecessor company, Real-Estateforlease.com, Inc.**

Althoughthe predecessor company to Uni-Pixel and Real-Estateforlease.com, Inc.,Super Shops, Inc., filed for bankruptcy and received plan confirmation forits plan of reorganization on July 31, 2000, Uni-Pixel, Inc. hasnever filed nor been a party to any reorganization, liquidation or other proceedingunder the Federal Bankruptcy Code and may therefore have liabilities of whichwe are currently unaware. Uni-Pixel received typical representations andwarranties from the former principals of Real-Estateforlease.com, Inc.pursuant to the merger agreement by and amongReal-Estateforlease.com, Inc., Uni-Pixel Displays, Inc., GeminiV, Inc. and Uni-Pixel Merger Sub, Inc. However, Uni-Pixel will onlyreceive the following indemnification protection from the former principals ofReal-Estateforlease.com, Inc. for its liabilities and claims: (i) forthe period of July 31, 2000 (the confirmation date of SuperShops, Inc.’s plan of reorganization) through June 13, 2001 fromHalter Financial Group, Inc., a stockholder ofReal-Estateforlease.com, Inc.; (ii) for the period of June 14,2001 through 

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November 14,2004 from David DiSalvo, the former President, Secretary, Treasurer and soleboard member for Real-Estateforlease.com, Inc.; and (iii) for theperiod of November 15, 2004 going forward from Frank M. DeLape, thecurrent Chairman of the Board of Uni-Pixel, Inc.

Theindemnification protection provided by Halter Financial Group, Inc., DavidDiSalvo and Frank M. DeLape is further limited, in the aggregate, to thevalue of our Common Stock received by each of the indemnitors in the mergertransaction with Real-Estateforlease.com, Inc. determined by multiplyingthe number of shares of Common Stock received by each pursuant to the merger by$1.75. Frank M. DeLape received approximately 1,812,800 shares of Common Stock,Halter Financial Group received approximately 380,000 shares of Common Stockand David DiSalvo received approximately 75,000 shares of Common Stock.Therefore, the highest dollar amount that any one of these parties willindemnify us for during his or its indemnification period as described in thepreceding paragraph, is $3,172,400.

Ifindemnification claims do arise with respect to any liabilities or claims of oragainst Real-Estateforlease.com, Inc., and either(i) Messrs. DiSalvo, Halter and DeLape are unable to satisfy theirindemnification obligations to us, or (ii) such liabilities or claimsexceed $3,172,400, we would suffer a loss, which loss would impact ourfinancial condition and the value of our Common Stock and Series A PreferredStock. If the liability or claim is substantially in excess of $3,172,400, wemight be forced to seek bankruptcy protection.

**The flatpanel display industry has historically experienced significant downturns,which may adversely affect the demand for and pricing of our TMOS technologyand materials.**

Theflat panel display industry has experienced significant periodic downturns,often in connection with, or in anticipation of, declines in general economicconditions. These downturns have been characterized by lower product demand,production overcapacity and erosion of average selling prices. Our businessstrategy to some degree is dependent on display manufacturers building andselling displays that incorporate our TMOS technologies and materials.Industry-wide fluctuations and downturns in the demand for flat panel displays,and low power consumption or high performance displays in particular, wouldlikely affect the demand for and pricing of our TMOS technologies and materialsand could cause significant harm to our business.

**Risks Related to Owning Our Securities**

**Since first trading on February 3, 2005, ourCommon Stock has traded only sporadically and is expected to experiencesignificant price and volume volatility in the future which substantiallyincreases the risk of loss to persons owning our Common Stock.**

Therewas no public market for our Common Stock prior to February 3, 2005. At best,only a limited market has developed and is expected to continue to develop inthe foreseeable future for our Common Stock. Because of the limited tradingmarket for our Common Stock, and the possible price volatility, you may not beable to sell your shares of Common Stock when you desire to do so. Theinability to sell your shares in a rapidly declining market may substantiallyincrease your risk of loss because of such illiquidity and because the pricefor our Common Stock may suffer greater declines because of its pricevolatility.

Wecannot predict the extent to which investor interest in our stock will createor sustain an active and orderly trading market. If such a market were todevelop, the market price of our Common Stock may continue to be highlyvolatile. The sale of a large block of shares could depress the price of ourCommon Stock to a greater degree than a company that typically has a highervolume of trading in its securities. The value of your investment could declinedue to the impact of any of the following factors upon the market price of ourCommon Stock:

·                                          Disappointing results from our development efforts;

·                                          Failure to meet our revenue or profit goals oroperating budget;

·                                          Decline in demand for our Common Stock;

·                                          Downward revisions in securities analysts’ estimatesor changes in general market conditions;

·                                          Technological innovations by competitors or in competingtechnologies;

·                                          Investor perception of our industry or our prospects;

·                                          General economic trends;

·                                          Variation in our quarterly operating results,including our inability to increase revenues;

·                                          Announcement of new customerrelationships by our competitors;

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·                                          Departures of our executive officers;

·                                          General conditions in the worldwide economy, includingfluctuations in interest rates;

·                                          Developments in patents or other intellectual propertyrights and litigation;

·                                          Developments in our relationships with our customersand suppliers;

·                                          Any significant acts of terrorism against the UnitedStates; and

·                                          Our currently limited public float.

OurCommon Stock has traded as low as $1.03 and as high as $5.50 during a periodfrom February 3, 2005 through December 31, 2006. In addition to volatilityassociated with Bulletin Board securities in general, the markets for hightechnology stocks have experienced extreme volatility that has often beenunrelated to the operating performance of the particular companies. These broadmarket fluctuations may adversely affect the trading price of our commonshares.

**We arenot required to meet or maintain any listing standards for our Common Stock tobe quoted on the OTC Bulletin Board, which could affect our stockholders’ability to access trading information about our Common Stock**

TheOTC**Bulletin Board is separateand distinct from the Nasdaq Stock Market. Although the OTC Bulletin Board is aregulated quotation service operated by the National Association of SecuritiesDealers, Inc. (“NASD”) that displays real-time quotes, last sale prices, andvolume information in over-the-counter equity securities like our Common Stock,we are not required to meet or maintain any qualitative or quantitative listingstandards for our Common Stock to be quoted on the OTC**Bulletin Board. Our Common Stock does notpresently meet the minimum listing standards for listing on the Nasdaq StockMarket or any national securities exchange which could affect our stockholders’ability to access trading information about our Common Stock.

TheOTC**Bulletin Board is generallyconsidered to be a less efficient market than the established exchanges or theNasdaq markets. While we anticipate seeking to be listed on the Nasdaq StockMarket or a national exchange at some time in the future, it is impossible atthis time to predict when, if ever, such application will be made or whethersuch application will be successful.

**Our Common Stock may be subject to penny stockrules, which make it more difficult for our stockholders to sell their CommonStock**

Our Common Stock is subject to certain rulesand regulations relating to “penny stocks” (generally defined as any equitysecurity that is not quoted on the Nasdaq Stock Market and that has a priceless than $5.00 per share, subject to certain exemptions). Broker-dealers whosell penny stocks are subject to certain “sales practice requirements” forsales in certain non-exempt transactions *(i.e.,*sales to persons other than established customers and institutional “accreditedinvestors”), including requiring delivery of a standardized risk disclosuredocument relating to the penny stock market and monthly statements disclosingrecent bid and offer quotations for the penny stock held in the account, andcertain other restrictions. If the broker-dealer is the sole market maker, thebroker-dealer must disclose this, as well as the broker-dealer’s presumedcontrol over the market. In addition, the penny stock rules generally requirethat prior to a transaction in a penny stock the broker-dealer make a specialwritten determination that the penny stock is a suitable investment for thepurchaser and receive the purchaser’s written agreement to the transaction.These disclosure requirements may have the effect of reducing the level oftrading activity in the secondary market for a stock that becomes subject tothe penny stock rules. For as long as our securities are subject to the ruleson penny stocks, the liquidity of our Common Stock could be significantlylimited. This lack of liquidity may also make it more difficult for us to raisecapital in the future.

**ITEM 2. DESCRIPTION OF PROPERTY**

Ourmain corporate offices and research and development facility are located at8708 Technology Forest Place, Suite 100, The Woodlands, TX 77381. We currentlylease approximately 13,000 square feet of space at this facility.

**ITEM 3. LEGAL PROCEEDINGS**

TheCompany from time to time may be involved in litigation relating to claimsarising out of its ordinary course of business. Management believes that thereare no claims or actions pending or threatened against the Company, theultimate disposition of which would have a material impact on the Company’sfinancial position, results of operations or cash flows.

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**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Nomatters were submitted to a vote of security holders during the fourth quarterof 2006.

**PART II**

**ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERMATTERS**

**MarketInformation**

SinceJanuary 18, 2006, our Common Stock has been traded on the OTC Bulletin Boardunder the symbol “UNXL”. From February 3, 2005 to January 18, 2006, our CommonStock was quoted on the “pink sheets” published by the Pink Sheets LLC underthe symbol “UNXL.” Prior to February 3, 2005, our shares of Common Stockwere traded under the symbol “REFL.” We changed our name to “Uni-Pixel, Inc.”from “Real-Estateforlease.com, Inc.” at the annual meeting of ourstockholders held in January 2005. The market for our common stock islimited and volatile. The following table sets forth the range of high and lowbid quotations or high and low closing prices, as applicable, for our CommonStock for each of the periods indicated as reported by the Pink Sheets or theOTC Bulletin Board. The prices for the Pink Sheets and the OTC Bulletin Boardreflect inter-dealer prices, without retail mark-up, mark-down or commissions.The OTC Bulletin Board and Pink Sheet prices listed below may not representactual transaction prices.
|                | ** ** | **Year Ended  December 31, 2006** | ** ** | **Year Ended  December 31, 2005** | ** ** |
|----------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **     | ** ** | **High**                                         | ** ** | **Low**                                          | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $                                                | 4.25       |                                             | $          | 2.05 |   | $ | 4.00 |   | $ | 0.15 |   |
| Second Quarter |       | 2.05                                             |       | 1.40                                             |       | 5.20 |   | 4.40 |   |
| Third Quarter  |       | 1.85                                             |       | 1.25                                             |       | 5.50 |   | 3.75 |   |
| Fourth Quarter |       | 1.60                                             |       | 1.03                                             |       | 5.00 |   | 3.00 |   |
|                |            |                                                  |            |                                                  |            |  |  |  |  |  |  |  |  |

 

**Holders**

As of February 26, 2007, we had approximately 1,093stockholders of record of our Common Stock.

**Dividends**

TheCompany has never paid dividends on Common Stock. Currently, the Companyanticipates that it will retain earnings, if any, to support operations and tofinance the growth and development of its business and does not anticipatepaying cash dividends on the Common Stock in the foreseeable future. Theholders of Series A Preferred Stock will receive cumulative annual dividends,payable in shares of Series A Preferred Stock or cash, at the option of theBoard of Directors, at an annual rate of 6% ($0.21 per share), payable onDecember 31 of each year commencing December 31, 2005. Unpaid dividends willaccumulate and be payable prior to the payment of dividends on shares of CommonStock. Cash dividends will only be payable from funds legally availabletherefore, when and as declared by the Board of Directors of the Company, andunpaid dividends will accumulate until the Company can legally pay thedividends. In 2006, the Company paid accumulated dividends to the holders ofSeries A Preferred Stock in the amount of 134,117 shares of Series A PreferredStock, as well as 16,282 common shares. In 2005, the Company paid accumulated dividends to the holders of SeriesA Preferred Stock in the amount of 156,507 shares of Series A Preferred Stock,as well as 149,479 common shares.  

**Recent Sales of Unregistered Securities**

Theinformation set forth below describes our issuance of securities withoutregistration under the Securities Act of 1933 during the year ended December31, 2006, that were not previously disclosed in one of our periodic reportsduring the year.

None.

**ITEM 6. MANAGEMENT’S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION**

Thefollowing discussion and analysis should be read in conjunction with theconsolidated financial statements including the notes thereto.

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Overview

Uni-Pixelis a development stage company that has developed, patented and demonstrated anew color display technology in the form of proof of concept prototypes whichwe call Time Multiplexed Optical Shutter (“TMOS”).  We intend to be aleader in the research, development and commercialization of new flat paneldisplays using TMOS in a variety of applications, such as mobile phones,digital cameras, notebook computers, televisions and other consumer electronicdevices. As of December 31, 2006, we had accumulated a total deficit of $21.5million from operations in pursuit of this objective.

Weanticipate that our TMOS displays will be thin, lightweight, andpower-efficient devices, which are highly suitable for use in full-colordisplay applications.  We believe TMOS displays will be able to capture ashare of the growing $60+ billion flat panel display market due to thesignificant advantages it should provide over competing displays with respectto manufacturing and materials cost, brightness, power efficiency, viewingangle, video response time and image quality.  We believe that ourtechnology leadership and intellectual property position will enable us togenerate revenues initially from TMOS displays for existing vertical marketsegments such as the military, avionics, and automotive segments, and thensubsequently from consumer electronics markets (i.e., TVs, monitors, personalcomputers, cameras, games, etc.).

Ourstrategy is to develop further our proprietary TMOS technology to the point ofinitially manufacturing small volumes of high performance displays for militaryapplications.  We intend to utilize contract manufacturing for productfabrication to augment our internal capabilities in the short term.  Wealso plan to enter into joint ventures in certain vertical market segments toexploit the existing manufacturing and distribution channels of our targetedpartners.  We further plan to license our technology to displaymanufacturers for use in applications such as mobile phones, digital cameras,laptop computers, and other consumer electronic devices. Through our internalresearch and development efforts we have established a portfolio ofTMOS-related patents and patent applications and other intellectual propertyrights that support these joint venture and licensing strategies.  Wecurrently have seven issued patents and fifteen pending patent applicationsworldwide and contemplate obtaining exclusive field-of-use licenses, with theright to sublicense, to complementary technologies from targeted strategicpartners and U.S. national laboratories.

ThroughDecember 31, 2006, we have been primarily engaged in developing our initialproduct technology, recruiting personnel, commencing our U.S. operations andraising capital. In the course of our development activities, we have sustainedlosses and expect such losses to continue through at least 2007. We willfinance our operations primarily through our existing cash and possible futurefinancing transactions.

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing beyond proof of concept to finalprototypes and manufacturing for sale our products and upon our successfuldevelopment of markets for our products and profitable manufacturingprocesses.  We may be required to obtain additional capital in the futureto expand our operations. No assurance can be given that we will be able todevelop our products, successfully develop the markets for our products orprofitable manufacturing methods, or raise any such additional capital as wemight need, either through equity or debt financing, on satisfactory terms orat all. Additionally, no assurance can be given that any such financing, ifobtained, will be adequate to meet our ultimate capital needs and to supportour growth. If adequate capital cannot be obtained on satisfactory terms, ouroperations could be negatively impacted.

If weachieve growth in our operations in the next few years, such growth could placea 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 and successfully, our business, operating results andfinancial condition may be materially adversely affected.

As ofDecember 31, 2006, we had cash and cash equivalents of $20,188.  Webelieve that our existing capital resources are adequate to finance ouroperations until February 2007, however our long-term viability is dependentupon successful operation of our business, our ability to develop ourmanufacturing process, the development of our products and our ability to raiseadditional debt and equity to meet our business objectives.

Thefinancial statements presented in this annual 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.  

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The assets,liabilities, operations and cash flows of Real-Estateforlease.com, Inc.are included in the consolidated financial statements from December 10,2004 onward.

*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 audited Consolidated FinancialStatements. However, certain accounting policies and estimates are particularlyimportant to the understanding of our financial position and results ofoperations and require the application of significant judgment by ourmanagement or can be materially affected by changes from period to period ineconomic factors or conditions that are outside of our control.  As aresult, they are subject to an inherent degree of uncertainty. In applyingthese policies, our management uses their judgment to determine the appropriateassumptions to be used in the determination of certain estimates. Thoseestimates are based on our historical operations, our future business plans andprojected financial results, the terms of existing contracts, our observance oftrends in the industry, information provided by our customers and informationavailable from other outside sources, as appropriate. The following discussesour significant accounting policies and estimates.

*Revenue Recognition:*  We recognizerevenue over the period the service is performed in accordance with SEC StaffAccounting Bulletin No. 104, “Revenue Recognition in Financial Statements”(“SAB 104”). In general, SAB 104 requires that four basic criteria must be metbefore revenue can be recognized: (1) persuasive evidence that anarrangement exists, (2) delivery has occurred or services rendered,(3) the fee is fixed and determinable, and (4) collectibility isreasonably assured.

Advancepayments are deferred until shipment. The amount of the revenue deferredrepresents the fair value of the remaining undelivered products measured inaccordance with Emerging Issues Task Force Issue (“EITF”) 00-21, *“Accounting for Revenue Arrangements with MultipleDeliverables,”* which addresses the issue of accounting forarrangements that involve the delivery of multiple products or services.

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

*Cost of Sales and Selling, General and AdministrativeExpenses and Research and Development Expenses:*  In aneffort to consolidate our executive management team, we moved our headquartersfrom Austin, Texas to The Woodlands, Texas during the third quarter of2005.  The primary purpose of our facility in The Woodlands, Texas is toconduct research on the development, testing and delivery of our prototypedevices, and the commercialization of our products so the costs incurred inoperating our facility in The Woodlands, Texas have been classified as researchand development expenses.

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

*Research and Development Expenses:* Research and development costs are expensed as incurred and include salariesand benefits, costs paid to third-party contractors for research, developmentand manufacturing 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 intangibleassets represent patent applications which are recorded at cost. We have filedapplications for patents in connection with technologies being developed. Thepatent applications and any patents issued as a result of these applicationsare important to the protection of our technologies that may result from ourresearch and development efforts. Costs associated with patent applications andmaintaining patents are capitalized and will be amortized over the life of thepatents. We review the value recorded for intangibles to assess recoverabilityfrom future operations using undiscounted cash flows. Impairments arerecognized in operating results to the extent the carrying value exceeds fairvalue determined based on the net present value of estimated future cash flows.The projection of future cash flows requires us to make estimates about whenproduct approvals may be obtained, and the amount of future revenues. Theactual future results could differ significantly from these estimates, andresulting changes in the estimates of future cash flows could be significantand could affect the recoverability of intangible assets.

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*Stock-Based Compensation:* In December 2004, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), *“Share Based Payment,”* which eliminatesthe use of APB Opinion No. 25 and 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 overthe period during which an employee is required to provide service in exchangefor the reward—known as the requisite service period. No compensation cost isrecognized for equity instruments for which employees do not render therequisite service. The grant-date fair value of employee share options andsimilar instruments will be estimated using option-pricing models adjusted forthe unique characteristics of those instruments. We have implemented SFASNo. 123(R) effective January 1, 2006. 

We may, from timeto time, issue common stock, stock options or common stock warrants to acquireservices or goods from non-employees. Common stock, stock options and commonstock warrants issued to persons other than employees or directors are recordedon the basis of their fair value, as required by SFAS No. 123 (“SFAS No.123”), “*Accounting for Stock Based Compensation”,*which is measured as of the date required by EITF Issue 96-18 (“EITF 96-18”),*“Accounting for Equity Instruments That AreIssued to Other Than Employees for Acquiring, or in Conjunction with Selling,Goods or Services.”*  In accordance with EITF 96-18, thestock options or common stock warrants are valued using the Black-Scholes modelon the basis of the market price of the underlying common stock on the “valuationdate,” which for options and warrants related to contracts that havesubstantial disincentives to non-performance, is the date of the contract, andfor all other contracts is the vesting date. Expense related to the options andwarrants is recognized on a straight-line basis over the shorter of the periodover which services are to be received or the vesting period. Where expensemust be recognized prior to a valuation date, the expense is computed under theBlack-Scholes model on the basis of the market price of the underlying commonstock at the end of the period, and any subsequent changes in the market priceof the underlying common stock through the valuation date is reflected in theexpense recorded in the subsequent period in which that change occurs.

*RESULTS OF OPERATIONS*

Comparison of Fiscal Years Ending December 31, 2006and 2005

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

Revenuesincreased to $200,000 for the year ended December 31, 2006, as compared to$19,689 for the year ended December 30, 2005, due to the revenuesrecognized from the work specific to a development contract during each ofthose respective periods.

COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery ofproducts or services including internal labor costs. Cost of revenues for theyear ended December 31, 2006 decreased to $0 as compared to $9,844 for theprevious year.  No cost of revenues wasrecognized in 2006 as the cost of revenues was expensed in the period incurredprior to 2006 as a component of research and development expenses.  

SELLING, GENERAL ANDADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increasedby 51% or $1,177,420, to $3,509,163 for the year ended December 31, 2006from $2,331,743 for the year ended December 31, 2005. The major componentsof the increase are as follows:

a) Salaries and benefits increased by approximately $1,239,000 to $2,244,000 forthe year ended December 31, 2006 from $1,005,000 for the year ended December 31,2005, due to a stock compensation expense of $731,000 for the twelve monthsended December 31, 2006 and a 2006 bonus expense of $483,000;

b)Contract labor increased by approximately $47,000 to $230,000 for the yearended December 31, 2006 from $183,000 for the year ended December 31, 2005;

c)Legal expense decreased by approximately $118,000 to $284,000 for the yearended December 31, 2006 from $402,000 for the year ended December 31, 2005;

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d) Accounting expense increased by approximately$19,000 to $55,000 for the year ended December 31, 2006 from $36,000 for theyear ended December 31, 2005;

e)Office expense increased by approximately $15,000 to $103,000 for the yearended December 31, 2006 from $88,000 for the year ended December 31, 2005;

f)Travel expense increased by approximately $16,000 to $95,000 for the year endedDecember 31, 2006 from $79,000 for the year ended December 31, 2005; and

g)Depreciation and amortization expense increased by approximately $71,000 to$261,000 for the year ended December 31, 2006 from $190,000 for the year endedDecember 31, 2005 as a result of an increase in property and equipment duringthe twelve months ended December 31, 2005.

RESEARCHAND DEVELOPMENT. Research and development expenses increased by approximately $109,198during the year ended December 31, 2006 to $2,867,937 from $2,758,739 for theyear ended December 31, 2005. The major components of the increase are asfollows:

a) Salaries and benefits attributable to research anddevelopment increased by approximately $212,000 to $1,415,000 for the yearended December 31, 2006 from $1,203,000 for the year ended December 31, 2005due to a stock compensation expense of $183,000 for the twelve months endedDecember 31, 2006 and a 2006 bonus expense of $185,000;

b) Consultingexpense attributable to research and development increased by approximately$81,000 to $1,045,000 for the year ended December 31, 2006 from $964,000 forthe year ended December 31, 2005 primarily due to increased services related toprototype development;

c) Labexpense decreased by approximately $100,000 to $102,000 for the year endedDecember 31, 2006 from $202,000 for the year ended December 31, 2005; and

d)Travel expense attributable to research and development decreased byapproximately $104,000 to $97,000 for the year ended December 31, 2006 from$201,000 for the year ended December 31, 2005.

OTHERINCOME (EXPENSE).

a) Netdecrease in fair value of derivative liabilities decreased to an income of$462,159 for the twelve months ended December 31, 2006 as compared to $0 duringthe twelve months ended December 31, 2005, due to the Warrant issued inconnection with the 12% Senior Secured Convertible Debentures in May 2006 andthe Warrant issued in connection with the 10% Senior Unsecured ConvertibleDebentures in September 2006.   TheWarrants are freestanding derivative financial instruments. These derivativeliabilities are marked-to-market each quarter with the change in fair valuerecorded in the income statement.  

b)Debt issuance expense increased to $50,157 for the year ended December 31, 2006as compared to $0 for the year ended December 31, 2005, due to the debt raisedin May 2006 and September 2006.  

c)****Interest income (expense), net decreasedto ($720,520) for the year ended December 31, 2006 as compared to income of$113,847 for the year ended December 31, 2005 primarily due to less cash onhand, the payment of interest on the $1,500,000 loan received in May 2006, theamortization of the discount on the Warrant issued in connection with the 12%Senior Secured Convertible Debentures in May 2006, the payment of interest onthe $900,000 loan received in September 2006, and the amortization of thediscount on the Warrant issued in connection with the 10% Senior UnsecuredConvertible Debentures in September 2006. 

NETLOSS.**  **Net lossincreased to $6,485,618 for the year ended December 31, 2006, as compared to$4,966,790 for the year ended December 31, 2005. We compute our net loss pershare on the basis of net loss attributable to common stockholders, whichincluded the effects of certain items not included in the determination of netloss. Net loss attributable to common stockholders for the year ended December31, 2006 was $6,983,546 as compared to a net loss attributable to common stockholdersof $5,740,517 for the year ended December 31, 2005. The net loss attributableto common stockholders for the twelve months ended December 31, 2006 andDecember 31, 2005, includes $497,928 and $773,727 of accrued but unpaidpreferred stock dividends, respectively.

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Comparison of Fiscal Years Ending December 31, 2005and 2004

REVENUES. Revenues decreased to $19,689 for the year ended December 31, 2005, ascompared to $290,387 for the year ended December 30, 2004, due to therevenues recognized from the work specific to a development contract duringeach of those respective periods.

COST OF REVENUES. Cost of revenues include all direct expenses associated with the delivery ofproducts or services including internal labor costs. Cost of revenues for the yearended December 31, 2005 decreased to $9,844 as compared to $145,194 forthe previous year, due to the decrease in revenues recognized from the workspecific to a development contract.

SELLING, GENERAL ANDADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increasedby 39% or $651,121, to $2,331,743 for the year ended December 31, 2005from $1,680,622 for the year ended December 31, 2004. The major componentsof the increase are as follows:

a) Salaries and benefits decreased by approximately $72,000 to $1,005,000 for theyear ended December 31, 2005 from $1,077,000 for the year ended December 31,2004, due to a decrease in the number of selling, general and administrativeemployees;

b)Contract labor increased by approximately $132,000 to $183,000 for the yearended December 31, 2005 from $51,000 for the year ended December 31, 2004;

c)Legal expense decreased by approximately $16,000 to $402,000 for the year endedDecember 31, 2005 from $418,000 for the year ended December 31, 2004;

d) Accounting expenseincreased by approximately $12,000 to $36,000 for the year ended December 31,2005 from $24,000 for the year ended December 31, 2004 due to an increase inaccounting expenses related to audits and

reporting required for the preparation of theForm 10-SB, as amended, filed with the Securities and Exchange Commissionon July 22, 2005;

e)Office expense increased by approximately $64,000 to $88,000 for the year endedDecember 31, 2005 from $24,000 for the year ended December 31, 2004;

f) Travelexpense increased by approximately $54,000 to $79,000 for the year endedDecember 31, 2005 from $25,000 for the year ended December 31, 2004; and

g)Depreciation and amortization expense increased by approximately $178,000 to$190,000 for the year ended December 31, 2005 from $12,000 for the year endedDecember 31, 2004 as a result of an increase in property and equipment duringthe twelve months ended December 31, 2005.

RESEARCHAND DEVELOPMENT. Research and development expenses increased by approximately$1,617,400 during the year ended December 31, 2005 to $2,758,739 from$1,141,339 for the year ended December 31, 2004. The major components of theincrease are as follows:

a)Salaries and benefits attributable to research and development increased byapproximately $285,000 to $1,203,000 for the year ended December 31, 2005 from$918,000 for the year ended December 31, 2004 due to an increase in the numberof research and development employees and the level of compensation for theseemployees, including executive pay increases;

b)Consulting expense attributable to research and development increased byapproximately $817,000 to $964,000 for the year ended December 31, 2005 from$147,000 for the year ended December 31, 2004 primarily due to increased servicesrelated to prototype development;

c) Labexpense increased by approximately $197,000 to $202,000 for the year endedDecember 31, 2005 from $5,000 for the year ended December 31, 2004; and

d)Travel expense attributable to research and development increased byapproximately $164,000 to $201,000 for the year ended December 31, 2005 from$37,000 for the year ended December 31, 2004.

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OTHERINCOME (EXPENSE).

a)Other income decreased to $0 for the year ended December 31, 2005 as comparedto $886,886 for the year ended December 31, 2004, primarily due to a one timegain on forgiveness of accrued wages, employee notes and related accruedinterest.

b)Debt issuance expense decreased to $0 for the year ended December 31, 2005 ascompared to $125,000 for the year ended December 31, 2004, due to thefinalization of debt utilization for funding in 2004.

c)****Interest income (expense), net increasedto $113,847 for the year ended December 31, 2005 as compared to an expense of$400,450 for the year ended December 31, 2004 primarily due to the investmentof proceeds from the sale of shares of our Series A Preferred Stock 2005. During 2004, we incurred interest expense because of the impact of debtassociated with loans that were repaid in December 2004 with the proceedsfrom the sale of our Series A Preferred Stock.

NETLOSS.**  **Net lossincreased to $4,966,790 for the year ended December 31, 2005, as compared to$2,315,332 for the year ended December 31, 2004. We compute our net loss pershare on the basis of net loss attributable to common stockholders, whichincluded the effects of certain items not included in the determination of netloss. Net loss attributable to common stockholders for the year ended December31, 2005 was $5,740,517 as compared to a net loss attributable to commonstockholders of $2,351,047 for the year ended December 31, 2004. The net lossattributable to common stockholders for the twelve months endedDecember 31, 2005 and December 31, 2004, includes $773,727 and $35,715 ofaccrued but unpaid preferred stock dividends, respectively.

**Off-Balance Sheet Transactions**

We donot engage in material off-balance sheet transactions.

*LIQUIDITY AND CAPITAL RESOURCES*

Operating Activities

Cashused in operating activities during the year ended December 31, 2006 decreasedto $4,434,496 as compared to $4,852,594 used for the year ended December 31,2005. The decrease is primarily a result of decreases in research anddevelopment spending and general and administrative expenses.

Investing Activities

Cashused for investing activities during the year ended December 31, 2006 amountedto $48,187, as compared to $1,018,191 used for investing activities for theyear ended December 31, 2005 due to our increased spending on computers,furniture, laboratory, metrology and testing equipment in Fiscal 2005.

Financing Activities

Wehave financed our operating and investing activities primarily from theproceeds of private placements of common stock, convertible investor notes, anda preferred stock offering which we closed in December 2004 andJanuary 2005.

Thetotal net cash provided by financing activities was $2,176,651 for the yearended December 31, 2006, which includes:

·                  $39,761 paymentson notes payable to a related party; 

·                  $2,174,486 netproceeds from notes payable: and

·                  $37,596for issuance of warrants to placement agent.

Thetotal net cash provided by financing activities was $2,856,529 for the yearended December 31, 2005, which includes:

·                  $104,567payments on notes payable to a related party;

·                  $161,796 netproceeds from a note payable from Bank of America to purchase equipment; and

·                  $2,799,300net from cash sales of shares of our Series A Preferred Stock.

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Working Capital

As of December 31, 2006, we had a cash balance of$20,188.  We project that current cash reserves will sustain ouroperations at least through February 2007, and we are not aware of any trendsor potential events that are likely to impact our short term liquidity throughthis term.  

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

We area development stage company and have not experienced significant operationssince our formation. We reached a positive working capital position as of thefirst quarter of 2005 as a result of our financing activities. We have incurredsignificant operating losses during the years ended December 31, 2002,2003, 2004, 2005 and 2006. We intend to utilize a proprietary methodology fordevelopment of our displays. Our principal activities, from the beginning ofthe development stage, have been organizational matters, capital raisingactivities including issuance of stock, product research and development, fundraising, and market research.

Todate, we have had only a few revenue-generating services or developmentcontracts.  These include a prototype development agreement with a largepersonal computer company, and a Small Business Innovation Research (SBIR)Phase One agreement with the U.S. Air Force for $98,214 and a follow-on PhaseTwo agreement for $686,966.  We also entered into a prototype developmentagreement with Lockheed Martin, a large military contractor, inOctober 2005, for which we have received full payment from LockheedMartin.  Our immediate customer prospects are limited to Lockheed Martin,with which we entered into a License and Strategic Business Agreement datedOctober 5, 2005.  See “Risk Factors”included in this report.

Managementwill work to establish specific applications for our display technology thatwill generate significant revenues, and cash flows to support operations. Ourability to continue as a going concern will be dependent upon achievingprofitable operations, and obtaining additional funding from currentshareholders and new investors.

**ITEM 7. FINANCIAL STATEMENTS**

Thefinancial statements of the Company, including the notes thereto and report ofthe independent auditors thereon, are included in this report as set forth inthe “Index to Financial Statements.” See F-1 for Index to ConsolidatedFinancial Statements.

**ITEM 8. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

**ITEM 8A. CONTROLS AND PROCEDURES**

Theterm “disclosure controls and procedures” is defined in Rules 13a -15(e) and15d — 15(e) of the Securities Exchange Act of 1934 (the Act). The rules referto the controls and other procedures designed to ensure that informationrequired to be disclosed in reports that we file or submit under the Act isrecorded, processed, summarized and reported within the time period specified.As of December 31, 2006, management, including the Principal Executive Officerand the Chief Financial Officer, performed an evaluation of the effectivenessof the design and operation of our disclosure controls and procedures. Based onthat evaluation, management, including the Principal Executive Officer and theChief Financial Officer, concluded that as of December 31, 2006, our disclosurecontrols and procedures were effective at ensuring that material informationrelated to us or our consolidated subsidiaries is made known to them and isdisclosed on a timely basis in our reports filed under the Act.

Wemaintain a system of internal control over financial reporting that is designedto provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with accounting principles, generally accepted in the United States.Based on the most recent evaluation, we have concluded 

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that nosignificant changes in our internal control over financial reporting occurredduring the last fiscal quarter that have materially affected, or are reasonablylikely to materially affect , our internal control over financial reporting.

**ITEM 8B. OTHER INFORMATION**

None.

**PART III**

**ITEM 9. DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

Thefollowing table sets forth the names and ages of all of our directors andexecutive officers as of January 31, 2007. Our officers are appointed by, andserve at the pleasure of, the Board of Directors.
| Name             | ** ** | **Age** | ** ** | **Title**                                           |
|------------------|------------|---------|------------|-----------------------------------------------------|
| Reed J. Killion  |       | 44      |       | President, Principal Executive Officer and Director |
| Frank DeLape     |       | 53      |       | Chairman of the Board                               |
| James A. Tassone |       | 43      |       | Chief Financial Officer                             |

 

Biographicalinformation with respect to our executive officers and directors is providedbelow. There are no family relationships between any of our executive officersor directors.

***Reed J. Killion, President, PrincipalExecutive Officer and Director*** – Mr. Killion is a memberof Uni-Pixel’s board of directors and has served as the President and PrincipalExecutive Officer of the Company since September 2004. Previously,Mr. Killion served as Uni-Pixel’s Executive Vice President of BusinessDevelopment and has been a member of Uni-Pixel’s Board of Directors sinceApril 2002. Prior to joining Uni-Pixel, Mr. Killion was VicePresident of Business Development for LogiCom from 1999 until 2002. LogiCom isa technology consulting firm and manufacturers’ representative based in Austin,Texas. Compaq, Dell, Siemens, NVIDIA, Vanguard, Atmel, Foxconn, Seiko (SMOS)and DCM Technologies are among the companies Mr. Killion has worked withover the years. Mr. Killion holds a Bachelors Degree in Finance from theUniversity of Mississippi.

***Frank DeLape, Chairman***–Mr. DeLape has served as Uni-Pixel’s Chairman of the Board sinceNovember 15, 2004. Mr. DeLape has been Founder, Chairman and CEO ofBenchmark Equity Group, Inc. since 1994. Benchmark provides private equityand debt financing from various funds and other investors. Prior to foundingBenchmark in 1994, Mr. DeLape spent eleven years in executive managementroles for various companies. Mr. DeLape is also Founder and ManagingGeneral Partner of Trident Growth Fund, a government-licensed SmallBusiness Investment Corporation, SBIC. From August 2001 to November 2005,Mr. DeLape served as Executive Chairman of the Board and a majorshareholder of Isolagen, Inc., a company listed on the American Stock Exchange(symbol: ILE). Isolagen, Inc. specializes in the development andcommercialization of autologous cellular therapies for soft and hard tissueregeneration.

***James A. Tassone, Chief Financial Officer***– Mr. Tassone has been the Chief Financial Officer of Uni-Pixel since he joinedthe Company in August 2003. Mr. Tassone served as a part-timeconsultant to the Company from June 2002 to August 2003.Mr. Tassone was appointed Secretary of the Company in January 2005.From June 1999 to August 2003, Mr. Tassone was the ManagingDirector and Chief Financial Officer of Mindwave Research, Inc., a companyhe founded in June 1999, and for which he continues to serve on the boardof directors. Mindwave Research is a primary market research company for hightechnology clients. From 1997 until June 1999, Mr. Tassone was theDirector of Research for Reality Research, a subsidiary of CMP Media (a hightech industry-focused publishing company). Mr. Tassone has a BachelorsDegree in Finance and Engineering Management from the University of Texas atAustin.

TheBoard members serve for a period of one year until the next annual meeting ofour shareholders. Our executive officers are appointed by our board ofdirectors and hold office until removed by the board.

**AuditCommittee Financial Expert**

We arenot currently a listed company within the meaning of Rule 10A-3 of the ExchangeAct and, therefore, are not required to have an audit committee or,accordingly, an audit committee financial expert. Nevertheless, our Board ofDirectors performs the functions of an audit committee and Frank DeLape, one ofour directors, serves in a capacity similar to that of an audit committeefinancial expert.

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**Section16(a) Beneficial Ownership Reporting Compliance**

Section16(a) of the Exchange Act requires the Company’s directors and executiveofficers and persons who beneficially own more than 10% of the registered classof the Company’s equity securities to file with the SEC reports of ownershipand changes in ownership of the Company’s Common Stock. Directors, executiveofficers and greater than 10% beneficial stockholders are required by SECregulations to furnish the Company with copies of all Section 16(a) forms theyfile. Based solely on a review of the copies of these reports furnished, managementbelieves that the directors, executive officers and greater than 10%stockholders filed all reports required by Section 16(a) of the Exchange Actwith respect to the year ended December 31, 2006 on a timely basis.

**Code ofEthics Disclosure**

As ofMarch 15, 2006, we have adopted a Code of Ethics, and is filed as an exhibit toour 2005 10K-SB for our principal executive, financial and accounting officersor persons performing similar functions, as required for listed issuers bysections 406 and 407 of the Sarbanes-Oxley Act of 2002.

**ITEM 10. EXECUTIVE COMPENSATION**

**Executive Officer Compensation.**

Thefollowing table sets forth information regarding annual and long-termcompensation with respect to the fiscal years ended December 31, 2006 and2005, paid or accrued by us to or on behalf of those persons who were, duringthe fiscal year ended December 31, 2006, our President and our most highlycompensated executive officers (the “Named Executive Officers”).

**Summary Compensation Table**
| ** **                                            | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long Term Compensation Awards** | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------------------------|------------|--------------------------------------------------|------------|
| **Name and Principal Position**        | ** ** | **Year**   | ** ** | **Salary ($)**          | ** ** | **Bonus  ($)**                                   | ** ** | **Other Annual  Compensation  ($) (1)** | ** ** | **Restricted  Stock  Awards ($)** | ** ** | **Securities  Underlying  Options (#)** | ** ** |
| Reed J. Killion                                       |       | 2006       |       | 177,394                      |       | 120,500                                          |       | 12,000 |   | — |   | — |   |
| President  (Principal Executive Officer) and Director |       | 2005       |       | 195,000                      |       | 12,000                                           |       | 12,000 |   | — |   | 450,000 | (2) |
|                                                  |       |       |       |                         |       |                                             |       |   |   |   |   |   |   |
| Frank DeLape                                          |       | 2006       |       | 234,146                      |       | 154,000                                          |       | 18,000 |   | — |   | — |   |
| Chairman of the  Board of Directors                   |       | 2005       |       | 250,000                      |       | —                                           |       | 15,000 |   | — |   | 600,000 | (3) |
|                                                  |       |       |       |                         |       |                                             |       |   |   |   |   |   |   |
| James A. Tassone                                      |       | 2006       |       | 135,231                      |       | 92,000                                           |       | 12,000 |   | — |   | — |   |
| Chief Financial Officer                               |       | 2005       |       | 145,000                      |       | 5,000                                            |       | 6,000 |   | — |   | 200,000 | (4) |

 

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(1).            Excludes perquisites and other personalbenefits unless such compensation was greater than $50,000 or 10% of the totalannual salary and bonus of the individual.

(2).            Mr. Killion was granted 450,000 stock optionson March 5, 2005 at $4.00 per share of which 150,000 options vest on March 5,2006, 150,000 options vest on March 5, 2007 and 150,000 options vest on March5, 2008.  These options were repriced at$2.00 per share on September 5, 2006 by the Board of Directors.

(3).            Mr. DeLape was granted 600,000 stock optionson March 5, 2005 at $4.00 per share which vest monthly over 46 months beginningMarch 31, 2005.  These options wererepriced at $2.00 per share on September 5, 2006 by the Board of Directors.

(4).            Mr. Tassone was granted 200,000 stock optionson April 19, 2005 at $4.00 per share of which 66,667 options vest on April 19,2006, 66,667 options vest on April 19, 2007 and 66,666 options vest on April19, 2008.  These options were repriced at$2.00 per share on September 5, 2006 by the Board of Directors.

**StockOptions**

Thefollowing table sets forth information concerning individual grants of stockoptions made during our last fiscal year to our Named Executive Officers. Nostock appreciation rights were issued during the fiscal year.

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**OptionGrants in Last Fiscal Year**

**Individual Grants**
| Name             | ** ** | **Number of  securities  underlying  options  granted (#)** | ** ** | **Percent of total  options  granted to   employees  in fiscal year** | ** ** | **Market  price on  date of  issuance  ($/Sh)** | ** ** | **Exercise  or  base price  ($/Sh)** | ** ** | **Expiration  date** | ** ** |
|------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------|------------|----------------------|------------|
| Reed J. Killion  |       | —                                                                |       | —                                                                                              | %          | —                                                    |       | —                                    |       | —               |       |
| Frank DeLape     |       | —                                                                |       | —                                                                                              | %          | —                                                    |       | —                                    |       | —               |       |
| James A. Tassone |       | —                                                                |       | —                                                                                              | %          | —                                                    |       | —                                    |       | —               |       |

 

Duringfiscal year ended December 31, 2006, there were no options exercised. OnSeptember 5, 2006, the Board of Directors of Uni-Pixel, Inc., reduced theexercise price of 1,660,000 stock options issued to eight employees, with anexercise price of $4.00 per share to an exercise price of $2.00 per share.  The following table sets forth informationconcerning option holdings as of December 31, 2006 with respect to ourNamed Executive Officers.

**Aggregated Option Exercises in LastFiscal Year and FY-End Option Values**
| ** **       | ** ** | **Shares  Acquired on** | ** ** | **Value**             | ** ** | **Number of Securities  Underlying  Unexercised Options  at FY-End (#)** | ** ** | **Value of Unexercised  In-the-Money  Options at FY-End ($)(1)** | ** ** |
|------------------|------------|------------------------------|------------|-----------------------|------------|---------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| **Name**         | ** ** | **Exercise (#)**        | ** ** | **Realized ($)** | ** ** | **Exercisable**                                                                                   | ** ** | **Unexercisable**                                                                         | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| Reed J. Killion  |       | —                       |       | —                |       | 150,000                                                                                           |       | 300,000                                                                                   |       | — |   | — |   |
| Frank DeLape     |       | —                       |       | —                |       | 286,957                                                                                           |       | 313,043                                                                                   |       | — |   | — |   |
| James A. Tassone |       | —                       |       | —                |       | 66,667                                                                                            |       | 133,333                                                                                   |       | — |   | — |   |

 

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(1)          Based on the closingprice of our common stock on December 31, 2006 of $1.10 per share less theexercise price payable for such shares.

**Compensation ofDirectors**

We currently have no non-employee directors. Eachof our directors receives compensation pursuant to the terms of his respectiveemployment agreement described below, and receives no additional compensationfor serving on our board.

**Employment agreements**

TheCompany has entered into employment agreements with Frank DeLape, Reed Killionand James Tassone.

Mr. DeLape,Chairman of the Board, entered into an employment agreement dated March 5,2005, with an initial term ending December 31, 2008, and providing for a baseannual salary of $250,000, subject to the right of the Board of Directors toincrease his salary from time to time. Mr. Delape’s base annual salary shallautomatically be raised to $350,000 on the date the company raises or acquiredcumulative equity or licensing arrangements of $20 Million.  Upon receiptof the $12,000,000 Preferred B Series financing on February 13, 2007,cumulative equity exceeded $20 Million, thus enacting this clause in Mr. Delape’scontract.**** ****Mr. DeLapeis entitled to receive an annual bonus in an amount to be determined by theBoard of Directors. If Mr. DeLape’s performance satisfies criteria to beestablished by the Board of Directors, his target bonus will be 45% of hisannual salary with a minimum of 25% of his current base salary. The agreementalso provides that Mr. DeLape will receive employee stock options topurchase 600,000 shares of common stock at an exercise price of $4.00 pershare. The option has a term of ten years and will vest and become exercisableratably over 46 months beginning on March 31, 2005. The agreement also providesMr. DeLape with disability and life insurance benefits, a car allowanceand wireless communications benefits. Mr. DeLape’s employment may beterminated at any time, provided that if his employment is terminated without “Cause,”or if he terminates his employment for “Good Reason,” as those terms aredefined in the agreement, he will be entitled to receive a severance paymentequal to the greater of (i) the salary payable over the remaining term ofhis agreement or (ii) twenty four months salary, as well as a bonuscomputed on the basis of the greater of (a) the amount determined underthe agreement by the Board of Directors; or (b) $70,000.

Mr. Killion,President, entered into an employment agreement dated March 5, 2005, with aninitial term ending December 31, 2008, and providing for a base salary of$195,000, subject to the right of the Board of Directors to increase his salaryfrom time to time. Mr. Killion is entitled to receive an annual bonus inan amount to be determined by the Board of 

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Directors. IfMr. Killion’s performance satisfies criteria to be established by theBoard of Directors, his target bonus will be 35% of his annual salary. Theagreement also provides that Mr. Killion will receive employee stockoptions to purchase 450,000 shares of common stock at an exercise price of$4.00 per share. The option has a term of ten years and vests ratably on anannual basis over three years. The agreement also provides Mr. Killionwith disability and life insurance benefits, a car allowance and wirelesscommunications benefits. The vesting provisions of the option would accelerateand Mr. Killion would be entitled to a severance payment equal to his basesalary for six months, if Mr. Killion were terminated without “Cause,” orif Mr. Killion were to terminate his employment with Uni-Pixel for “GoodReason” (each of the terms as defined in the Agreement).

Mr. Tassone,Chief Financial Officer, entered into an employment agreement dated April 15,2005, with an initial term ending December 31, 2008 and providing for a basesalary of $145,000, subject to the right of the Board of Directors to increasehis salary from time to time. Mr. Tassone is entitled to receive an annualbonus in an amount to be determined by the Board of Directors. IfMr. Tassone’s performance satisfies criteria to be established by theBoard of Directors, his target bonus will be 30% of his annual salary. Theagreement also provides that Mr. Tassone will receive employee stockoptions to purchase 200,000 shares of common stock at an exercise price of$4.00 per share. The option has a term of ten years and vests ratably on anannual basis over three years. The agreement also provides Mr. Tassonewith disability and life insurance benefits, a car allowance and wirelesscommunications benefits. The vesting provisions of the option would accelerateand Mr. Tassone would be entitled to a severance payment equal to his base salaryfor six months, if Mr. Tassone were terminated without “Cause,” or ifMr. Tassone were to terminate his employment with Uni-Pixel for “GoodReason” (each of the terms as defined in the Agreement).

As ofDecember 31, 2006, there was a $366,500 bonus accrual for Mr. DeLape, Mr.Killion and Mr. Tassone.

**ITEM 11. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

Wehave set forth in the following table certain information regarding our commonstock, on an as converted basis, beneficially owned as of January 31, 2007 for(i) each stockholder we know to be the beneficial owner of 5% or more ofour outstanding Common Stock, (ii) each of our directors and namedexecutive officers, and (iii) all executive officers and directors as agroup. Generally, a person is deemed to be a “beneficial owner” of a securityif that person has or shares the power to dispose or to direct the dispositionof such security. A person is also deemed to be a beneficial owner of anysecurities of which the person has the right to acquire beneficial ownershipwithin 60 days pursuant to options, warrants, conversion privileges andsimilar rights. At January 31, 2007, we had 16,311,973 issued and outstandingshare of Common Stock and 2,369,451 issued and outstanding shares ofSeries A Convertible Preferred Stock, which were convertible, as ofJanuary 31, 2007, into 4,738,902 shares of our Common Stock.
| **Name and  Address of Beneficial Owner**   | ** ** | **Amount of Beneficial  Ownership(1)** | ** ** | **Percent of Class** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------|------------|
| *Directors  and Officers:*                                      |       |                                             |       |                           |       |
| Frank M. DeLape                                                 |       | 2,338,887                                        | (2)        | 10.9                           | %          |
| Reed J. Killion                                                 |       | 850,000                                          | (3)        | 4.0                            | %          |
| James A. Tassone                                                |       | 442,917                                          | (4)        | 2.1                            | %          |
| All Directors  and Executive Officers as a Group (3 persons)    |       | 3,631,804                                        |       | 17.0                           | %          |
| *5%  Stockholders:*                                             |       |                                             |       |                           |       |
| Bob Weatherly  14505 Torrey Chase  Suite 325  Houston, TX 77014 |       | 1,102,023                                        | (5)        | 8.6                            | %          |
| James Herndon  14505 Torrey Chase  Suite 325  Houston, TX 77014 |       | 1,102,023                                        | (5)        | 8.6                            | %          |

 

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(1)                          Beneficialownership is determined in accordance with Rule 13d-3 under the SecuritiesExchange Act of 1934, as amended, and is generally determined by voting powersand/or investment powers with respect to securities. Unless otherwise noted,all of such shares of Common Stock listed above are owned of record by eachindividual named as beneficial owner and such individual has sole voting anddispositive power with respect to the shares of Common Stock owned by each ofthem.

(2)                          Includes900,300 shares of Common Stock owned by Benchmark Equity Group of which FrankM. DeLape is the Chief Executive Officer and sole owner; 312,500 shares ofCommon Stock held by Lakeview Investment Trust, a 

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United Statestrust fund, of which Mr. DeLape’s children are the beneficiaries andMr. DeLape is the Trustee; 400,000 shares of Common Stock owned byMagnolia Growth Trust and Mr. DeLape is the Trustee; 200,000 shares of CommonStock owned by Alexander C. DeLape Beehive Trust and Mr. DeLape is the Trustee;and 200,000 shares of Common Stock owned by Brianna N DeLape Trust and Mr.DeLape is the Trustee. Also consists of options to purchase 326,087 shares ofCommon Stock exercisable within 60 days from January 31, 2007.

(3)                          Includesoptions to purchase 300,000 shares of Common Stock exercisable within 60 daysfrom January 31, 2007.

(4)                          Includesoptions to purchase 66,667 shares of Common Stock exercisable within 60 daysfrom January 31, 2007.

(5)                          Includes23,327 shares of Common Stock held by CapSources, Inc., 250,000 shares ofCommon Stock held by CapSource Fund, L.P. and 250,000 shares of Common Stockheld by CapSource 2000 Fund, L.P. Also includes 144,674 shares of ourSeries A Preferred held by CapSource Fund, L.P. and 144,674 shares of ourSeries A Preferred held by CapSource 2000 Fund, L.P., on an as-convertedto Common Stock basis, for a total number of shares of our Common Stockbeneficially owned by Messrs. Weatherly and Herndon of 1,102,023.Messrs. Weatherly and Herndon are the sole shareholders ofCapSources, Inc., the limited partners of CapSource Fund, L.P. andCapSource 2000 Fund, L.P. and the sole shareholders of the general partner foreach of CapSource Fund, L.P. and CapSource 2000 Fund, L.P.  Also consists of warrants to purchase 750,000shares of Common Stock exercisable within 60 days from January 31, 2007 held byCapSource Fund, L.P.

**EquityCompensation Plan Information**

The following table provides information about shares of Common Stockthat may be issued upon the exercise of options under all of the Company’sexisting equity compensation plans as of December 31, 2006. For a completedescription of the Company’s equity compensation plans, see Note 9 to theConsolidated Financial Statements included under Item 7 of this Report.
| **Plan Category**                                  | ** ** | **Number of shares of  Common Stock to be  issued upon exercise of  outstanding options** | ** ** | **Weighted-average  exercise price of  outstanding  options ($)** | ** ** | **Number of shares of  Common Stock remaining  available for future issuance  under equity compensation  plans** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by stockholders     |       | 1,661,667                                                                                                                                   |       | $                                                                                | 2.00       |                                                                                                                                                               | 338,333    |   |
|                                                    |       |                                                                                                                                        |       |                                                                             |       |                                                                                                                                                               |       |
| Equity  compensation plans not approved by stockholders |       | 2,000,000                                                                                                                                   |       | 1.25                                                                             |       | —                                                                                                                                                             |       |
|                                                    |       |                                                                                                                                        |       |                                                                             |       |                                                                                                                                                               |       |
| Total                                                   |       | 3,661,667                                                                                                                                   |       | $                                                                                | 1.59       |                                                                                                                                                               | 338,333    |   |

 

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

**The Merger Agreement**

***The Agreement.***We entered into a Merger Agreement with Uni-Pixel Displays, Inc.,Uni-Pixel Merger Sub, Inc. (“Merger Sub”), Gemini V, Inc. (“Gemini V”)and certain of our principal stockholders, which was effective onDecember 8, 2004 (the “*Merger*”).Pursuant to the Merger, Merger Sub and Gemini V were merged with and intoUni-Pixel Displays, Inc. with Uni-Pixel Displays, Inc. as thesurviving corporation, and Uni-Pixel Displays, Inc. became a wholly-ownedsubsidiary of the Company. Prior to the Merger, we had no operations and nomaterial assets or liabilities. Pursuant to the Merger, of the total number ofshares of our Common Stock outstanding immediately subsequent to the Merger(12,800,580), former Uni-Pixel stockholders owned approximately 68.6% of ourCommon Stock, former Gemini V stockholders owned approximately 22.8% of ourCommon Stock, and the stockholders of the Company owned approximately 8.6% ofour Common Stock.

***Indemnification.***The Merger Agreement provides for limited indemnification of Uni-PixelDisplays, Inc. and its officers, directors, employees, attorneys,representatives, stockholders, controlling persons and affiliates (the “Uni-PixelIndemnitees”) from certain of the Company’s stockholders for possibleliabilities and claims in connection with the operation and ownership of theCompany including (i) from and including June 14, 2001 through andincluding November 14, 2004 from David DiSalvo, the former President,Secretary, Treasurer and sole board member for the Company; and (ii) fromand including November 15, 2004 going forward from Frank M. DeLape, thecurrent Chairman of the Board of the Company. Frank M. DeLape will alsoindemnify the Uni-Pixel Indemnitees for inaccuracies or breaches of certainterms of the Merger Agreement by the Company, for breaches of covenants orobligations of the Merger Agreement by the Company, for costs 

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and expenses incurred in connection with anystockholder suit challenging the validity of the Merger Agreement, and for anyclaims by brokers or finders for fees or commissions alleged to be due from theCompany in connection with the Merger.

The indemnification protection provided by David DiSalvo and Frank M.DeLape is further limited, in the aggregate, to the value of the our commonstock received by each of the indemnitors as merger consideration in theproposed Merger, determined by multiplying the number of shares of our commonstock received by each by $1.75. As consideration in the Merger, Frank M.DeLape beneficially owns approximately 1,812,800 shares of our common stock andDavid DiSalvo beneficially owns approximately 75,000 shares of our commonstock. Therefore, the highest dollar amount that any one of these parties willindemnify the Uni-Pixel Indemnitees for during his or its indemnificationperiod as described in the preceding paragraph, is $3,172,400. None of theparties shall be entitled to indemnification unless and until the aggregateamount of all of their damages subject to indemnification exceeds $50,000.

**Conversion of CapSource Notes**

We issued promissory notes to CapSource Fund, L.P. and CapSource 2000Fund, L.P. (collectively “CapSource”) in the aggregate principal amount of$1,398,250 during 2001. As of December 2004, the notes had accruedapproximately $181,692 in unpaid interest. CapSource agreed to convert $898,250of the indebtedness we owed to CapSource into an aggregate of 256,643 shares ofour Series A Preferred Stock at the issuance price of $3.50 per share in theprivate offering thereof which initially closed on December 9, 2004.Additionally, we paid to CapSource, for the remaining principal and interestdue on the notes, $671,692 in cash out of the proceeds of the private offeringof shares of our Series A Preferred Stock, and the notes have been cancelled.CapSource also exercised warrants for approximately 1,000,000 shares of ourcommon stock, which converted to 500,000 shares of our common stock pursuant tothe Merger. The aggregate exercise price for the warrants was $10,000, whichwas netted against the amounts we owed to CapSource pursuant to the notes.

**Payment of Accrued Salaries and Reduction of TradeDebt**

As of December 31, 2003, we owed accrued payroll of $651,749 to ourthen employees, Ken Loudermilk, Ann Loudermilk, Kevin Derichs, Reed J. Killion,Dan Van Ostrand, Martin G. Selbrede and Lance Parker, and entered into a seriesof promissory notes bearing interest at 13%. Effective October 2004, these pastand present employees agreed to cancel amounts we owed to them which wererepresented by promissory notes aggregating $447,230 plus accrued interestthereon of $83,500 and additional accrued wages payable of $364,735 (for atotal aggregate accrued payroll of $895,465), except for approximately $100,000which was paid out of the proceeds of the Series A Preferred Stock offering. Wehad accrued interest payable related to the employee notes payable of $47,164at December 31, 2003. During 2004, the employee notes payable accruedadditional interest of $44,257. Employees agreed to cancel these notes in full,including accrued interest of $91,400, and to settle accrued payrollobligations, representing a total forgiveness of debt of $886,885, which wasrecorded on our books as other income in 2004. The Company did not assume anyrelated liabilities as a result of the transaction.

**Settlementof Employee Payroll**

As of December 31, 2003, we had loaned $117,846 to our officers, ReedJ. Killion, Dan Van Ostrand and Martin G. Selbrede. Effective November 2004, wesettled the loans receivable between the Company and all employees. Weprocessed the employee loans through our 2004 payroll and we were fully repaidby the employees. We have disclosed these amounts as changes in operatingassets and liabilities in our Consolidated Statements of Cash Flows for 2004.

**Leased Office Space**

During 2004 and 2003, the Company leased office space from astockholder of the Company under a month-to-month lease for $3,900 per month.Effective December 15, 2004, this lease was terminated and the Companybegan leasing office space from an unrelated lesser.

**Placement Agent Agreements**

In connection with the private offering of up to 3,495,000 shares ofour Series A Preferred, we entered into a Placement Agent Agreement, datedNovember 22, 2004, with Fordham Financial Management, Inc., theCompany’s exclusive placement agent in connection with the offering and thebeneficial owner of more than 5% of our outstanding capital stock. Asconsideration for the placement agent’s services in connection with theoffering, the placement agent received a warrant to purchase 4,500 shares ofour common stock for every 15,000 shares of Series A Preferred sold in theoffering. Each warrant will expire five years after the respective closing ofthe offering and will have an exercise price of

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$1.75 per share. The offering was fully subscribed for3,495,000 shares of our Series A Preferred (gross proceeds of $12,232,500)and we issued to the placement agent warrants to purchase 1,048,500 shares ofour common stock.

In addition, the placement agent received a commission equal to 10%, or$5,250 per 15,000 shares of Series A Preferred sold, a non-accountableexpense allowance equal to 3% or $1,575 per 15,000 shares of Series APreferred sold and a financial consulting fee, pursuant to the consultingagreement described below, of 1% or $525 per 15,000 shares of Series APreferred sold, payable in advance at each closing of the offering. Pursuant tothe placement agent agreement, the placement agent was also entitled to receivereimbursement for travel and travel-related expenses on an accountablebasis up to a maximum of $10,000. In connection with the sale of 3,495,000shares of our Series A Preferred, we paid to the placement agent a totalof $1,714,050 pursuant to the placement agent agreement ($1,223,250 incommissions, $366,975 as a non-accountable expense allowance, $122,325 inconsulting fees, and $1,500 in travel reimbursement).

In accordance with the terms and provisions of the placement agentagreement, we agreed to indemnify and hold harmless the placement agent andeach person who controls the placement agent against any and all losses,claims, damages or liabilities resulting from any untrue statement in oromission from the offering memorandum.

**ITEM 13. EXHIBITS**
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1          |       | Amended and Restated Certificate of Incorporation of  Real-Estateforlease.com, Inc. (1)                                                                                                                                                                                                                                                                                                                                                                     |
| 3.2          |       | Amended and Restated Bylaws of Uni-Pixel, Inc.  (1)                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1          |       | Certificate of Designations of Real-Estateforlease.com,  Inc. Series A Convertible Preferred Stock (1)                                                                                                                                                                                                                                                                                                                                                      |
| 4.2          |       | Junior Subordinated Unsecured Promissory Note (1)                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.3          |       | Common Stock Purchase Warrant No. 1 (1)                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.4          |       | Common Stock Purchase Warrant No. 2 (1)                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.5          |       | Common Stock Purchase Warrant No. 3 (1)                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.6          |       | Form of Common Stock certificate (6)                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.7          |       | Uni-Pixel, Inc. 12% Senior Secured Convertible  Debenture No. 1 issued to Trident Growth Fund, L.P., dated May 24, 2006. (7)                                                                                                                                                                                                                                                                                                                                |
| 4.8          |       | Uni-Pixel, Inc. 12% Senior Secured Convertible  Debenture No. 1 issued to CapSource Fund, L.P., dated May 24, 2006. (7)                                                                                                                                                                                                                                                                                                                                     |
| 4.9          |       | Common Stock Purchase Warrant No. 1 issued to  Trident Growth Fund, L.P., dated May 24, 2006. (7)                                                                                                                                                                                                                                                                                                                                                           |
| 4.10         |       | Common Stock Purchase Warrant No. 1 issued to  CapSource Fund, L.P., dated May 24, 2006. (7)                                                                                                                                                                                                                                                                                                                                                                |
| 4.11         |       | Uni-Pixel, Inc. 10% Senior Unsecured Convertible  Debenture dated September 12, 2006. (8)                                                                                                                                                                                                                                                                                                                                                                   |
| 4.12         |       | Common Stock Purchase Warrant dated September 12,  2006. (8)                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.1         |       | Cancellation and Transfer Agreement (1)                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2         |       | Placement Agent Agreement (1)                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3         |       | Uni-Pixel Display, Inc. Lock-Up  Agreement (1)                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.4         |       | Consulting Agreement (1)                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5         |       | Office Lease Agreement for Synergy North By and  Between First Metro Limited Partnership (“Landlord”) and Uni-Pixel  Displays, Inc. (“Tenant”) (1)                                                                                                                                                                                                                                                                                      |
| 10.6         |       | Employee Intellectual Property Assignment and  Nondisclosure Agreement (1) (5)                                                                                                                                                                                                                                                                                                                                                                              |
| 10.7         |       | Uni-Pixel, Inc. 2005 Stock Incentive Plan (1)  (5)                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.8         |       | Uni-Pixel, Inc. 2005 Stock Incentive Plan –  Notice of Stock Option Award (1) (5)                                                                                                                                                                                                                                                                                                                                                                      |
| 10.9         |       | Agreement and Plan of Merger and Reorganization  Among Real-Estateforlease.com, Inc., Uni-Pixel Merger Sub, Inc.,  Gemini V, Inc., Uni-Pixel Displays, Inc. and those Stockholders of Real-Estateforlease.com,  Inc. Listed on Exhibit “A” as “Company Stockholders” (1)                                                                                                                                                                |
| 10.10        |       | Employment Agreement – Frank M. DeLape (2) (5)                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.11        |       | Employment Agreement – Reed J. Killion (2) (5)                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.12        |       | Lockheed Martin Purchase Order (2) (portions of this  exhibit have been omitted pursuant to a request for confidential treatment)                                                                                                                                                                                                                                                                                                                           |
| 10.13        |       | Small Business Innovation Research Phase I Contract  (3)                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.14        |       | Small Business Innovation Research Phase II Contract  (3)                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.15        |       | License and Strategic Business Agreement between  Uni-Pixel Displays, Inc. and Lockheed Martin Corporation, acting by and  through Lockheed Martin Systems Integration-Owego, dated as of October 5,  2005.(4) (The portions of this Exhibit marked “******” have been omitted and  confidentially filed with the Securities and Exchange Commission pursuant to  Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as  amended.) |

 

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| 10.16 |   | Employment Agreement – James A. Tassone (5) (6)                                                                                                                      |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17 |   | 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. (7) |
| 10.18 |   | 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. (7)                 |
| 10.19 |   | Securities Purchase Agreement dated September 12,  2006 (8)                                                                                                               |
| 10.20 |   | Employment Agreement – Carl Yankowski (5) (9)                                                                                                                        |
| 14    |   | Code of Ethics (6)                                                                                                                                                        |
| 21    |   | Subsidiaries (6)                                                                                                                                                          |
| 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 (10)             |
| 31.2  |   | Certification of the Chief Financial Officer of  Uni-Pixel, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 (10)                               |
| 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 (10)             |
| 32.2  |   | Certification of the Chief Financial Officer of  Uni-Pixel, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 (10)                               |

 

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(1)                                  Previouslyfiled as an exhibit to the Company’s Form 10-SB, filed on February 18, 2005,and incorporated by reference hereto.

(2)                                  Previouslyfiled as an exhibit to the Company’s Amendment #1 Form 10-SB, filed on April 1,2005, and incorporated by reference hereto.

(3)                                  Previouslyfiled as an exhibit to the Company’s Amendment #2 Form 10-SB, filed on April27, 2005, and incorporated by reference hereto.

(4)                                  Previouslyfiled as an exhibit to the Company’ Form 10-QSB, filed on November 10, 2005,and incorporated by reference hereto.

(5)                                  Managementcontract or compensation plan or arrangement

(6)                                  Previouslyfiled as an exhibit to the Company’ Form 10-KSB, filed on March 28, 2006, andincorporated by reference hereto

(7)                                  Previouslyfiled as an exhibit to the Company’ Form 10-QSB, filed on August 14, 2006, andincorporated by reference hereto.

(8)                                  Previouslyfiled as an exhibit to the Company’ Form 10-QSB, filed on November 13, 2006,and incorporated by reference hereto.

(9)                                  Previouslyfiled as an exhibit to the Company’s Form 8-K, filed on May 31, 2006, andincorporate by reference hereto.

(10)                            Filedherewith

**ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES**

**AuditFees**

The following table presents aggregate fees for professional auditservices rendered by PMB Helin Donovan, LLP (“PMB”), previously known as Helin,Donovan, Trubee & Wilkinson, LLP for the audit of the Company’s annualfinancial statements for the fiscal years ended December 31, 2006 and2005, respectively, and fees billed for other services rendered by PMB.
| ** **         | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit Fee (1)      |       | $        | 27,000     |     | $          | 21,775 |   |
| Audit-Related Fees |       | $        | —     |     | $          | — |   |
| Tax Fees           |       | $        | 6,000      |     | $          | 6,000 |   |
| All Other Fees     |       | $        | —     |     | $          | — |   |

 

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(1)          Audit fees represent theaggregate fees billed for professional services rendered by PMB for the auditof our annual financial statements, review of financial statements included inour quarterly reports, review of registration statements or services that arenormally provided in connection with statutory and regulatory filings orengagements for those fiscal years.

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**SIGNATURES**

In accordance with Section 13 or 15(d) of the Exchange Act, theRegistrant has caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
| UNI-PIXEL, INC. |
|-----------------|
|            |   |   |
| By:             |   | /s/ JAMES A. TASSONE |   |
|            |   | James A. Tassone, Chief Financial Officer and |
|            |   | Principal Accounting Officer |
|            |   |   |
| Date:           |   | March 5, 2007 |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the Registrant and in the capacities andon the dates indicated.
| Signature                       | ** ** | **Title**                                                 | ** ** | **Date**      |
|---------------------------------|------------|-----------------------------------------------------------|------------|---------------|
|                            |       |                                                      |       |          |
| /s/  REED J. KILLION  |       | President, Principal Executive Officer and Director       |       | March 5, 2007 |
| Reed J. Killion                 |       |                                                      |       |          |
|                            |       |                                                      |       |          |
| /s/  FRANK DELAPE     |       | Chairman of the Board and Director                        |       | March 5, 2007 |
| Frank DeLape                    |       |                                                      |       |          |
|                            |       |                                                      |       |          |
| /s/  JAMES A. TASSONE |       | Chief Financial Officer and Principal Accounting  Officer |       | March 5, 2007 |
| James A. Tassone                |       |                                                      |       |          |

 

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**INDEX TO FINANCIAL STATEMENTS**

**OF UNI-PIXEL, INC.**
| Report of Independent  Registered Public Accounting Firm                                                                                   |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                       |   |   |
| Consolidated Balance Sheets, December 31, 2006 and  2005                                                                                   |   |   |
|                                                                                                                                       |   |   |
| Consolidated  Statements of Operations for the period February 17, 1998 (date of inception)  to December 31, 2006                          |   |   |
|                                                                                                                                       |   |   |
| Consolidated  Statements of Shareholders’ Equity (Deficit) for the period February 17, 1998  (date of inception) to December 31, 2006 |   |   |
|                                                                                                                                       |   |   |
| Consolidated  Statements of Cash Flows for the period February 17, 1998 (date of inception)  to December 31, 2006                          |   |   |
|                                                                                                                                       |   |   |
| Notes to Financial Statements                                                                                                              |   |   |

 

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***Report of Independent Registered Public Accounting Firm***

TheBoard of Directors and Shareholders

Uni-Pixel, Inc.

We have audited the accompanying balance sheets ofUni-Pixel, Inc. (the Company) (a development stage company) as ofDecember 31, 2006 and 2005, and the related consolidated statements ofoperations, shareholders’ equity (deficit), and cash flows for the years endedDecember 31, 2006 and 2005, and the period from inception(February 17, 1998) through December 31, 2006. These consolidatedfinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Uni-Pixel, Inc. as of December 31, 2006 and 2005, and theresults of their operations and their cash flows for the years endedDecember 31, 2006 and 2005, and the period from inception(February 17, 1998) through December 31, 2006, in conformity with generallyaccepted accounting principles in the United States of America.

For the period from inception (February 17, 1998)through December 31, 2006, the Company has a deficit accumulated during thedevelopment stage of approximately $21.5 million.

As discussed in Note 2, the Company completed a $12million fundraising in February 2007.
| **PMB Helin Donovan, LLP**  |
|-----------------------------|
|                        |
| /s/ PMB Helin  Donovan, LLP |   |
|                        |
| February 13,  2007     |
| Houston, Texas              |

 

40

----

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Balance Sheets
| ** **                                                                                                                                                                                   | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                   |       |                        |       |                        |       |
| Current assets                                                                                                                                                                               |       |                        |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                   |       | $                           | 20,188     |                        | $          | 2,328,385 |   |
| Current portion  of restricted cash                                                                                                                                                          |       | 5,123                       |       | 40,000                      |       |
| Interest  receivable                                                                                                                                                                         |       | —                      |       | 6,297                       |       |
| Deferred loan  costs, net                                                                                                                                                                    |       | 94,189                      |       | —                      |       |
| Prepaid expenses                                                                                                                                                                             |       | 16,965                      |       | 16,965                      |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Total current  assets                                                                                                                                                                        |       | 136,465                     |       | 2,391,647                   |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Property and equipment,  net of accumulated depreciation of $464,564 and $203,709, at December 31,  2006 and 2005, respectively                                                              |       | 641,385                     |       | 854,052                     |       |
| Restricted cash, less  current portion                                                                                                                                                       |       | 34,877                      |       | 260,000                     |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Total assets                                                                                                                                                                                 |       | $                           | 812,727    |                        | $          | 3,505,699 |   |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                     |       |                        |       |                        |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Current liabilities                                                                                                                                                                          |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                                             |       | $                           | 428,733    |                        | $          | 278,749 |   |
| Accrued expenses                                                                                                                                                                             |       | 668,000                     |       | 10,812                      |       |
| Deferred revenue                                                                                                                                                                             |       | 33,333                      |       | 200,000                     |       |
| Derivative  liabilities for Warrants                                                                                                                                                         |       | 943,288                     |       | —                      |       |
| Current portion  of note payable, net of unamortized discounts of $955,419 and $0 at December  31, 2006 and 2005, respectively                                                               |       | 1,448,571                   |       | 144,019                     |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Total current  liabilities                                                                                                                                                                   |       | 3,521,925                   |       | 633,580                     |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Note payable, less  current portion                                                                                                                                                          |       | 9,487                       |       | 57,537                      |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Total  liabilities                                                                                                                                                                           |       | 3,531,412                   |       | 691,117                     |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Commitments and  contingencies (Note 7)                                                                                                                                                      |       | —                      |       | —                      |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Shareholders’ equity  (deficit)                                                                                                                                                         |       |                        |       |                        |       |
| Preferred stock,  $0.001 par value; $3.50 liquidation preference; 10,000,000 shares authorized,  2,369,451 and 2,685,651 issued and outstanding at December 31, 2006 and 2005,  respectively |       | 2,369                       |       | 2,686                       |       |
| Common stock,  $0.001 par value; 40,000,000 shares authorized, 16,311,973 and 15,395,057  issued and outstanding at December 31, 2006 and 2005, respectively                                 |       | 16,312                      |       | 15,395                      |       |
| Additional  paid-in capital                                                                                                                                                                  |       | 18,798,407                  |       | 17,348,728                  |       |
| Accumulated  deficit during development stage                                                                                                                                                |       | (21,535,773                 | )          | (14,552,227                 | )          |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Total  shareholders’ equity (deficit)                                                                                                                                                   |       | (2,718,685                  | )          | 2,814,582                   |       |
|                                                                                                                                                                                         |       |                        |       |                        |       |
| Total liabilities and shareholders’ equity (deficit)                                                                                                                                    |       | $                           | 812,727    |                        | $          | 3,505,699 |   |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

41

----

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements of Operations
| ** **                                                              | ** ** | **Year Ended   December 31,** | ** ** | **Cumulative   Period from   February 17, 1998  (date of inception)   to December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2006**                                     | ** ** | **2005**                                                                                                                                  | ** ** | **2006** | ** ** |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Development contract  revenue                                           |       | $                                            | 200,000    |                                                                                                                                      | $          | 19,689 |   | $ | 1,158,201 |   |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Cost of development  contract revenue                                   |       | —                                       |       | 9,844                                                                                                                                     |       | 456,648 |   |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Gross margin                                                            |       | 200,000                                      |       | 9,845                                                                                                                                     |       | 701,553 |   |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Selling, general and  administrative expenses                           |       | 3,509,163                                    |       | 2,331,743                                                                                                                                 |       | 10,389,920 |   |
| Research and  development                                               |       | 2,867,937                                    |       | 2,758,739                                                                                                                                 |       | 9,829,123 |   |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Operating loss                                                          |       | (6,177,100                                   | )          | (5,080,637                                                                                                                                | )          | (19,517,490 | ) |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Other income (expense)                                                  |       |                                         |       |                                                                                                                                      |       |   |   |
| Net decrease in  fair value of derivatives                              |       | 462,159                                      |       | —                                                                                                                                    |       | 462,159 |   |
| Other income                                                            |       | —                                       |       | —                                                                                                                                    |       | 886,886 |   |
| Debt issuance  expense                                                  |       | (50,157                                      | )          | —                                                                                                                                    |       | (550,157 | ) |
| Interest income  (expense), net                                         |       | (720,520                                     | )          | 113,847                                                                                                                                   |       | (1,509,801 | ) |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Net loss                                                                |       | $                                            | (6,485,618 | )                                                                                                                                         | $          | (4,966,790 | ) | $ | (20,228,403 | ) |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Preferred stock  dividends                                              |       | (497,928                                     | )          | (773,727                                                                                                                                  | )          | (1,307,370 | ) |
| Net loss  attributable to common shareholders                           |       | $                                            | (6,983,546 | )                                                                                                                                         | $          | (5,740,517 | ) | $ | (21,535,773 | ) |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Per share information                                                   |       |                                         |       |                                                                                                                                      |       |   |   |
| Net loss – basic  and diluted                                      |       | $                                            | (0.40      | )                                                                                                                                         | $          | (0.39 | ) | $ | (2.87 | ) |
| Preferred stock  dividends                                              |       | (0.04                                        | )          | (0.06                                                                                                                                     | )          | (0.19 | ) |
| Net loss  attributable to common shareholders – basic and diluted  |       | $                                            | (0.44      | )                                                                                                                                         | $          | (0.45 | ) | $ | (3.06 | ) |
|                                                                    |       |                                         |       |                                                                                                                                      |       |   |   |
| Weighted average number of basic and diluted common shares  outstanding |       | 16,032,591                                   |       | 12,854,968                                                                                                                                |       | 7,047,713 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

42

----

Uni-Pixel, Inc.

(A Development StageCompany)

Consolidated Statements of Shareholders’ Equity(Deficit)
| ** **                                                                               | ** ** | **Series A**        | ** ** | ** ** | ** ** | ** **            | ** ** | ** **     | ** ** | ** **   | ** ** | **Accumulated**  | ** ** | ** **             | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------|------------|------------|------------|-----------------------|------------|----------------|------------|--------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                               | ** ** | **Preferred Stock** | ** ** | ** ** | ** ** | ** **            | ** ** | ** **     | ** ** | ** **   | ** ** | **Deficit**      | ** ** | **Total**              | ** ** |
| ** **                                                                               | ** ** | **Number**               | ** ** | ** ** | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **During**       | ** ** | **Shareholders’** | ** ** |
| ** **                                                                               | ** ** | **of**                   | ** ** | ** ** | ** ** | **Number of**    | ** ** | ** **     | ** ** | **Paid-In**  | ** ** | **Stock-Based**  | ** ** | **Development**        | ** ** | **Equity** | ** ** |
| ** **                                                                               | ** ** | **Shares**               | ** ** | **Amount** | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Capital**  | ** ** | **Compensation** | ** ** | **Stage**              | ** ** | **(Deficit)** | ** ** |
| Founder shares issued at  inception at February 17, 1998                                 |       | —                   |       | $          | —     |                  | 4,500,000  |           | $          | 4,500        |       | $                | (500       | )                      | $          | — |   | $ | — |   | $ | 4,000 |   |
| Stock  issued during 1999 (prices ranging from $0.50 - $0.62 per share)                  |       | —                   |       | —     |       | 180,000               |       | 180            |       | 183,820      |       | —           |       | —                 |       | 184,000 |   |
| Stock  issued during 2000 (prices ranging from $11.34 - $17.00 per share)                |       | —                   |       | —     |       | 63,750                |       | 64             |       | 956,186      |       | —           |       | —                 |       | 956,250 |   |
| Stock  issued during 2001 (prices ranging from $10.00 - $17.00 per share)                |       | —                   |       | —     |       | 28,176                |       | 28             |       | 404,227      |       | —           |       | —                 |       | 404,255 |   |
| Stock  issued during 2002 (prices ranging from $2.00 - $10.00 per share)                 |       | —                   |       | —     |       | 157,327               |       | 157            |       | 353,783      |       | —           |       | —                 |       | 353,940 |   |
| Deferral  of stock-based compensation                                                    |       | —                   |       | —     |       | —                |       | —         |       | 1,100,000    |       | (1,100,000       | )          | —                 |       | — |   |
| Amortization  of stock-based compensation                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | 206,250          |       | —                 |       | 206,250 |   |
| Net  loss                                                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | —           |       | (3,968,540             | )          | (3,968,540 | ) |
| Balance, December 31,  2002                                                              |       | —                   |       | $          | —     |                  | 4,929,253  |           | $          | 4,929        |       | $                | 2,997,516  |                   | $          | (893,750 | ) | $ | (3,968,540 | ) | $ | (1,859,845 | ) |
| Stock  issued during 2003 (prices ranging from $1.00 - $2.00 per share)                  |       | —                   |       | —     |       | 210,827               |       | 211            |       | 263,943      |       | —           |       | —                 |       | 264,154 |   |
| Amortization  of stock-based compensation                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | 275,000          |       | —                 |       | 275,000 |   |
| Warrants  issued                                                                         |       | —                   |       | —     |       | —                |       | —         |       | 500,000      |       | —           |       | —                 |       | 500,000 |   |
| Net  loss                                                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | —           |       | (2,492,123             | )          | (2,492,123 | ) |
| Balance, December 31,  2003                                                              |       | —                   |       | $          | —     |                  | 5,140,080  |           | $          | 5,140        |       | $                | 3,761,459  |                   | $          | (618,750 | ) | $ | (6,460,663 | ) | $ | (3,312,814 | ) |
| Issuance  of common stock for services                                                   |       | —                   |       | —     |       | 738,309               |       | 738            |       | 316,975      |       | —           |       | —                 |       | 317,713 |   |
| Conversion  of note payable for common stock                                             |       | —                   |       | —     |       | 51,008                |       | 51             |       | 95,052       |       | —           |       | —                 |       | 95,103 |   |
| Exercise  of stock options                                                               |       | —                   |       | —     |       | 1,490,000             |       | 1,490          |       | 28,310       |       | —           |       | —                 |       | 29,800 |   |
| Exercise  of warrants                                                                    |       | —                   |       | —     |       | 512,500               |       | 513            |       | 34,487       |       | —           |       | —                 |       | 35,000 |   |
| Amortization  of stock-based compensation                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | 618,750          |       | —                 |       | 618,750 |   |
| Conversion  of bridge loans                                                              |       | 256,643                  |       | 257        |       | 850,625               |       | 851            |       | 1,834,242    |       | —           |       | —                 |       | 1,835,350 |   |
| Issuance  of preferred stock                                                             |       | 2,565,000                |       | 2,565      |       | —                |       | —         |       | 7,646,765    |       | —           |       | —                 |       | 7,649,330 |   |
| Issuance  of common stock for net assets of REFL                                         |       | —                   |       | —     |       | 1,100,808             |       | 1,101          |       | (1,101       | )          | —           |       | —                 |       | — |   |
| Issuance  of common stock for net assets of Gemini                                       |       | —                   |       | —     |       | 2,917,250             |       | 2,917          |       | 26,255       |       | —           |       | —                 |       | 29,172 |   |
| Net  loss                                                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | —           |       | (2,315,332             | )          | (2,315,332 | ) |
| Balance, December 31,  2004                                                              |       | 2,821,643                |       | $          | 2,822      |                  | 12,800,580 |           | $          | 12,801       |       | $                | 13,742,444 |                   | $          | — |   | $ | (8,775,995 | ) | $ | 4,982,072 |   |
| Issuance  of preferred stock                                                             |       | 930,000                  |       | 930        |       | —                |       | —         |       | 2,798,370    |       | —           |       | —                 |       | 2,799,300 |   |
| Conversion  of preferred stock into common stock and payment of preferred stock dividend |       | (1,222,499               | )          | (1,223     | )          | 2,594,477             |       | 2,594          |       | 260,296      |       | —           |       | (261,667               | )          | — |   |
| Issuance  of preferred stock for dividends                                               |       | 156,507                  |       | 157        |       | —                |       | —         |       | 547,618      |       | —           |       | (547,775               | )          | — |   |
| Net  loss                                                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | —           |       | (4,966,790             | )          | (4,966,790 | ) |
| Balance, December 31,  2005                                                              |       | 2,685,651                |       | $          | 2,686      |                  | 15,395,057 |           | $          | 15,395       |       | $                | 17,348,728 |                   | $          | — |   | $ | (14,552,227 | ) | $ | 2,814,582 |   |
| Conversion  of preferred stock into common stock and payment of preferred stock dividend |       | (450,317                 | )          | (451       | )          | 916,916               |       | 917            |       | 28,039       |       | —           |       | (28,505                | )          | — |   |
| Stock  compensation expense                                                              |       | —                   |       | —     |       | —                |       | —         |       | 914,755      |       | —           |       | —                 |       | 914,755 |   |
| Issuance  of warrants to placement agent                                                 |       | —                   |       | —     |       | —                |       | —         |       | 37,596       |       | —           |       | —                 |       | 37,596 |   |
| Issuance  of preferred stock for dividends                                               |       | 134,117                  |       | 134        |       | —                |       | —         |       | 469,289      |       | —           |       | (469,423               | )          | — |   |
| Net  loss                                                                                |       | —                   |       | —     |       | —                |       | —         |       | —       |       | —           |       | (6,485,618             | )          | (6,485,618 | ) |
| Balance, December 31, 2006                                                               |       | 2,369,451                |       | $          | 2,369      |                  | 16,311,973 |           | $          | 16,312       |       | $                | 18,798,407 |                   | $          | — |   | $ | (21,535,773 | ) | $ | (2,718,685 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

43

----

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows
| ** **                                                                     | ** ** | **Year Ended  December 31,** | ** ** | **Cumulative   Period  from   February 17,  1998 (date of  inception) to  December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2006**                               | ** ** | **2005**                                                                                                                    | ** ** | **2006** | ** ** |
| Cash flows from  operating activities                                          |       |                                   |       |                                                                                                                        |       |   |   |
| Net loss                                                                       |       | $                                      | (6,485,618 | )                                                                                                                           | $          | (4,966,790 | ) | $ | (20,228,403 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities:   |       |                                   |       |                                                                                                                        |       |   |   |
| Interest  forgiven                                                             |       | —                                 |       | —                                                                                                                      |       | (91,421 | ) |
| Interest earned,  but not received                                             |       | 6,297                                  |       | (6,297                                                                                                                      | )          | — |   |
| Employee  compensation notes payable forgiven                                  |       | —                                 |       | —                                                                                                                      |       | (795,465 | ) |
| Depreciation and  amortization                                                 |       | 260,854                                |       | 190,135                                                                                                                     |       | 532,311 |   |
| Stock issued for  services                                                     |       | —                                 |       | —                                                                                                                      |       | 460,062 |   |
| Stock  compensation expense                                                    |       | 914,755                                |       | —                                                                                                                      |       | 914,755 |   |
| Non-cash  compensation expense                                                 |       | —                                 |       | —                                                                                                                      |       | 1,100,000 |   |
| Amortization of  debt issuance costs                                           |       | 50,157                                 |       | —                                                                                                                      |       | 550,157 |   |
| Amortization of  discounts on notes payable                                    |       | 525,059                                |       | —                                                                                                                      |       | 525,059 |   |
| Net decrease in  fair value of derivatives                                     |       | (462,157                               | )          | —                                                                                                                      |       | (462,157 | ) |
| Change in  operating assets and liabilities:                                   |       |                                   |       |                                                                                                                        |       |   |   |
| (Increase)  decrease in prepaid expenses and other current assets              |       | (144,346                               | )          | 1,198                                                                                                                       |       | (161,311 | ) |
| (Increase)  decrease in cash restricted for note payable and lease obligations |       | 260,000                                |       | (300,000                                                                                                                    | )          | (40,000 | ) |
| Increase in  accounts payable                                                  |       | 149,982                                |       | 245,533                                                                                                                     |       | 428,728 |   |
| Increase  (decrease) in accrued interest payable                               |       | —                                 |       | (7,635                                                                                                                      | )          | 180,943 |   |
| Increase  (decrease) in accrued expenses and other liabilities                 |       | 657,188                                |       | (8,738                                                                                                                      | )          | 1,463,465 |   |
| Increase  (decrease) in deferred revenue                                       |       | (166,667                               | )          | —                                                                                                                      |       | 33,333 |   |
| Net cash used in  operating activities                                         |       | (4,434,496                             | )          | (4,852,594                                                                                                                  | )          | (15,589,944 | ) |
|                                                                           |       |                                   |       |                                                                                                                        |       |   |   |
| Cash flows from  investing activities                                          |       |                                   |       |                                                                                                                        |       |   |   |
| Purchase of  property and equipment                                            |       | (48,187                                | )          | (1,018,191                                                                                                                  | )          | (1,133,738 | ) |
| Proceeds from  the sale of property and equipment                              |       | —                                 |       | —                                                                                                                      |       | 27,792 |   |
| Purchases of  patents, trademarks and organization costs                       |       | —                                 |       | —                                                                                                                      |       | (67,748 | ) |
| Net cash used in  investing activities                                         |       | (48,187                                | )          | (1,018,191                                                                                                                  | )          | (1,173,694 | ) |
|                                                                           |       |                                   |       |                                                                                                                        |       |   |   |
| Cash flows from  financing activities                                          |       |                                   |       |                                                                                                                        |       |   |   |
| Proceeds from  notes payable to related party                                  |       | —                                 |       | —                                                                                                                      |       | 115,103 |   |
| Payments on  notes payable to related party                                    |       | (39,761                                | )          | (104,567                                                                                                                    | )          | (164,328 | ) |
| Proceeds from convertible  notes payable                                       |       | —                                 |       | —                                                                                                                      |       | 3,390,000 |   |
| Payments on  convertible notes payable                                         |       | —                                 |       | —                                                                                                                      |       | (1,470,672 | ) |
| Net proceeds  from notes payable                                               |       | 2,176,651                              |       | 161,796                                                                                                                     |       | 2,338,447 |   |
| Issuance of  warrants to placement agent                                       |       | 37,596                                 |       | —                                                                                                                      |       | 37,596 |   |
| Proceeds from  the issuance of preferred stock, net                            |       | —                                 |       | 2,799,300                                                                                                                   |       | 10,448,630 |   |
| Proceeds from  the issuance of common stock, net                               |       | —                                 |       | —                                                                                                                      |       | 2,089,050 |   |
| Net cash  provided by financing activities                                     |       | 2,174,486                              |       | 2,856,529                                                                                                                   |       | 16,783,826 |   |
|                                                                           |       |                                   |       |                                                                                                                        |       |   |   |
| Net increase (decrease)  in cash and cash equivalents                          |       | (2,308,197                             | )          | (3,014,256                                                                                                                  | )          | 20,188 |   |
| Cash and cash  equivalents, beginning of period                                |       | 2,328,385                              |       | 5,342,641                                                                                                                   |       | — |   |
| Cash and cash  equivalents, end of period                                      |       | $                                      | 20,188     |                                                                                                                        | $          | 2,328,385 |   | $ | 20,188 |   |
|                                                                           |       |                                   |       |                                                                                                                        |       |   |   |
| Supplemental  disclosures of cash flow information:                            |       |                                   |       |                                                                                                                        |       |   |   |
| Cash paid for  interest                                                        |       | $                                      | 84,300     |                                                                                                                        | $          | 19,808 |   | $ | 826,293 |   |
| Debt issuance  cost for warrant issued                                         |       | $                                      | —     |                                                                                                                        | $          | — |   | $ | 500,000 |   |
| Preferred stock  dividend paid with preferred and common stock                 |       | $                                      | 497,928    |                                                                                                                        | $          | 773,727 |   | $ | 1,307,370 |   |
| Conversion of  notes payable for preferred stock                               |       | $                                      | —     |                                                                                                                        | $          | — |   | $ | 898,250 |   |
| Conversion of  notes payable for common stock                                  |       | $                                      | —     |                                                                                                                        | $          | — |   | $ | 980,103 |   |
| Stock issued for  services                                                     |       | $                                      | —     |                                                                                                                        | $          | — |   | $ | 1,560,062 |   |
| Stock issued for  interest                                                     |       | $                                      | —     |                                                                                                                        | $          | — |   | $ | 81,272 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

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**UNI-PIXEL, INC.**

**(A Development Stage Company)**

**Notes tothe Audited Consolidated Financial Statements**

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

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

Uni-Pixel is adevelopment stage company that has developed, patented and demonstrated a newcolor display technology in the form of proof of concept prototypes which wecall Time Multiplexed Optical Shutter (“TMOS”).  We intend to be a leaderin the research, development and commercialization of new flat panel displaysusing TMOS in a variety of applications, such as mobile phones, digitalcameras, notebook computers, televisions and other consumer electronic devices.As of December 31, 2006, we had accumulated a total deficit of $21.5 millionfrom operations in pursuit of this objective.

We anticipate thatour TMOS displays will be thin, lightweight, and power-efficient devices, whichare highly suitable for use in full-color display applications.  Webelieve TMOS displays will be able to capture a share of the growing$60+ billion flat panel display market due to the significant advantagesit should provide over competing displays with respect to manufacturing andmaterials cost, brightness, power efficiency, viewing angle, video responsetime and image quality.  We believe that our technology leadership andintellectual property position will enable us to generate revenues initiallyfrom TMOS displays for existing vertical market segments such as the military,avionics, and automotive segments, and then subsequently from consumerelectronics markets (i.e., TVs, monitors, personal computers, cameras, games,etc.).

Our strategy is todevelop further our proprietary TMOS technology to the point of initiallymanufacturing small volumes of high performance displays for militaryapplications.  We intend to utilize contract manufacturing for productfabrication to augment our internal capabilities in the short term.  Wealso plan to enter into joint ventures in certain vertical market segments toexploit the existing manufacturing and distribution channels of our targetedpartners.  We further plan to license our technology to displaymanufacturers for use in applications such as mobile phones, digital cameras,laptop computers, and other consumer electronic devices. Through our internalresearch and development efforts we have established a portfolio ofTMOS-related patents and patent applications and other intellectual propertyrights that support these joint venture and licensing strategies.  Wecurrently have nine issued patents and forty pending patent applicationsworldwide and contemplate obtaining exclusive field-of-use licenses, with theright to sublicense, to complementary technologies from targeted strategicpartners and U.S. national laboratories.

Through December31, 2006, we have been primarily engaged in developing our initial producttechnology, recruiting personnel, commencing our U.S. operations and raisingcapital. In the course of our development activities, we have sustained lossesand expect such losses to continue through at least 2007. We will finance ouroperations primarily through our existing cash and possible future financingtransactions.

Our ability tooperate profitably under our current business plan is largely contingent uponour success in developing beyond proof of concept to final prototypes andmanufacturing for sale our products and upon our successful development ofmarkets for our products and profitable manufacturing processes.  We maybe required to obtain additional capital in the future to expand ouroperations. No assurance 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 and to support our growth. If adequatecapital cannot be obtained on satisfactory terms, our operations could benegatively impacted.

If we achievegrowth in our operations in the next few years, such growth could place astrain 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 and successfully, our business, operating results andfinancial condition may be materially adversely affected.

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As of December 31,2006, we had cash and cash equivalents of $20,188.  We believe that ourexisting capital resources are adequate to finance our operations untilFebruary 2007.  However, our long-termviability is dependent upon successful operation of our business, our abilityto develop our manufacturing process, the development of our products and ourability to raise additional debt and equity to meet our business objectives.

*Acquisitionand merger and basis of presentation*

Uni-Pixel, Inc.was originally incorporated in the State of Nevada as Super Shops, Inc. OnNovember 15, 1999, Super Shops and its sister companies filed an amendedpetition under Chapter 11 of the United States Bankruptcy Code. OnJuly 31, 2000, the court approved Super Shops’ Amended Joint Plan ofReorganization. On October 13, 2000, and in accordance with the Plan ofReorganization, the management of Super Shops changed its state ofincorporation from Nevada to Delaware by merging with and into NEV AcquisitionCorp., a Delaware corporation formed solely for the purpose of effecting thereincorporation. On June 13, 2001, NEV Acquisition Corp. changed itscorporate name to Real-Estateforlease.com, Inc., as a result of the mergertransaction discussed in the following paragraph.

Real-Estateforlease.com, Inc.was incorporated on May 24, 2001, in the State of Delaware to serve as abusiness-to-business internet information intermediary providing turnkeymarketing services to facilitate the leasing of commercial real estateproperties. On June 13, 2001, the management of NEV Acquisition Corp.entered into an Agreement and Plan of Merger with Real-Estateforlease.com, Inc.pursuant to which the sole stockholder and founder ofReal-Estateforlease.com, Inc. exchanged his equity ownership interest inReal-Estateforlease.com, Inc. for 9,500,000 shares (or approximately 96%)of NEV Acquisition Corp.’s common stock. At the time of the merger betweenReal-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.

Our wholly-ownedsubsidiary, Uni-Pixel Displays, Inc., was originally incorporated asTralas Technologies, Inc., a Texas corporation, on February 17, 1998.Tralas Technologies, Inc. changed its name to Uni-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.

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

**Note2 -****                  Liquidity**

Uni-Pixel has sustained losses and negative cash flowsfrom operations since its inception. The Company’s ability to meet itsobligations in the ordinary course of business is dependent upon its ability 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.

On February 13,2007, the Company raised $12 million in a private placement of its Series BConvertible Preferred Stock (see Note 9) which management believes will enablethe Company to continue operations for at least the next eighteen months.

**Note3 -****                  Summaryof Significant Accounting Policies**

*Use ofestimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Examples include provisions for bad debts, useful lives ofproperty and equipment and 

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intangible assets, impairment of property andequipment and intangible assets, deferred taxes, and the provision for anddisclosure of litigation and loss contingencies, derivative liabilities andstock based compensation. Actual results may differ materially from thoseestimates.

*Statementof cash flows*

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

*Concentrationof credit risk*

We maintain our cashprimarily with major U.S. domestic banks. The amounts held in these banksexceed the insured limit of $100,000 from time to time and exceeded thatbalance at December 31, 2006 and December 31, 2005 by $7,411 and $2,062,767,respectively.  The terms of thesedeposits are on demand to minimize risk.  We have not incurred lossesrelated to these deposits.

*Restricted cash*

As of December 31,2006 and December 31, 2005, we had restricted cash of $40,000 and $300,000,respectively.  Of these amounts, $40,000 and $80,000, respectively,secured certain obligations under our lease agreement for our principalfacility located in The Woodlands, Texas at both December 31, 2006 and December31, 2005.  The remaining $220,000 atDecember 31, 2005 collateralized a long-term note payable for the purchase ofmeasurement equipment.  The restrictedcash has been segregated into current and long-term classifications based onits anticipated liquidation.

*Propertyand equipment*

Property andequipment, consisting primarily of lab equipment, computer equipment, software,leasehold improvements, and office furniture and fixtures is carried at costless accumulated depreciation and amortization. Depreciation and amortizationfor financial reporting purposes is provided by the straight-line method overthe estimated useful lives of three to five years. Leasehold improvements areamortized using the straight-line method over the remaining lease term or thelife of the asset, whichever is shorter. The cost of repairs and maintenance ischarged as an expense as incurred.  Gainsor losses related to retirements or dispositions of fixed assets are recognizedin the period incurred.

*Intangibleassets*

Our intangible assetsrepresent patent applications which are recorded at cost.  We have filedapplications for patents in connection with technologies being developed. Thepatent applications and any patents issued as a result of these applicationsare important to the protection of our technologies that may result from ourresearch and development efforts. Costs associated with patent applications andmaintaining patents are capitalized and will be amortized over the life of thepatents.  We review the value recorded for intangibles to assessrecoverability from future operations using undiscounted cash flows.Impairments are recognized in operating results to the extent the carryingvalue exceeds fair value determined based on the net present value of estimatedfuture cash flows.

*Derivative instruments*

We account for allderivative financial instruments in accordance with SFAS No.  133, “Accounting for Derivative Instrumentsand Hedging Activities.” Derivative financial instruments are recorded asliabilities in the consolidated balance sheet and are measured at fair value.When available, quoted market prices are used in determining fair value.However, if quoted market prices are not available, we estimate fair valueusing either quoted market prices of financial instruments with similarcharacteristics or other valuation techniques. These derivative liabilities are marked-to-market each quarter with thechange in fair value recorded in the income statement.

We utilize theBlack-Scholes option-pricing model to determine the fair value of ourfreestanding derivative instruments. Key assumptions of the Black-Scholesoption-pricing model include applicable volatility rates, risk-free interestrates and the instruments’ expected remaining life. We also determined a fairvalue for our various embedded derivatives within our $1.5 million and $0.9million convertible notes by using a layered discounted probability-weightedcash flow model.  The assumptions used inboth modeling techniques required significant management judgment and estimatesof future fluctuation in stock price as well as changes in future interestrates. The reader should reference Note 5 for further details in regards to ourderivative liabilities.

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*Revenuerecognition*

We recognizerevenue over the period the service is performed in accordance with SEC StaffAccounting Bulletin No. 104, “Revenue Recognition in Financial Statements”(“SAB 104”). In general, SAB 104 requires that four basic criteriamust be met before revenue can be recognized: (1) persuasive evidence thatan arrangement exists, (2) delivery has occurred or services rendered,(3) the fee is fixed and determinable, and (4) collectibility isreasonably assured.

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

Revenue fromdevelopment contracts are recognized when the contract is completed andcollectibility is reasonably assured. Deferred revenue on these contracts of $33,333 and $200,000 at December31, 2006 and December 31, 2005, respectively, consists of a developmentcontract to produce and deliver a prototype device.   During the first quarter ended March 31,2006, the Company fulfilled its obligation with a customer in providing aproduct prototype, and has released deferred income of $200,000 into earnedrevenues during the period.  The costs incurred with this prototype wereincurred in prior periods as a component of research and development expenses.

*Researchand development expenses*

Research and developmentcosts are expensed as incurred and include salaries and benefits, costs paid tothird-party contractors for research, development and manufacturing ofmaterials and devices, and a portion of facilities cost. Prototype developmentcosts are a significant component of research and development expenses andinclude costs associated with third-party contractors. Invoicing from third-partycontractors for services performed can lag several months.  We accrue thecosts of services rendered in connection with third-party contractor activitiesbased on our estimate of management fees, site management and monitoring costsand data management costs. Actual costs may differ from estimated costs in somecases and are adjusted for in the period in which they become known.

*Stock-basedcompensation*

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123 (Revised 2004) (“SFAS No.123(R)”), *“Share Based Payment,”*which eliminates the use of APB Opinion No. 25 and will require us tomeasure the cost of employee services received in exchange for an award ofequity instruments based on the grant-date fair value of the award. That costwill be recognized over the period during which an employee is required toprovide service in exchange for the reward—known as the requisite serviceperiod. No compensation cost is recognized for equity instruments for whichemployees do not render the requisite service. The grant-date fair value ofemployee share options and similar instruments will be estimated usingoption-pricing models adjusted for the unique characteristics of thoseinstruments. We have implemented SFAS No. 123(R) effective January 1,2006.

We may, from timeto time, issue common stock, stock options or common stock warrants to acquireservices or goods from non-employees. Common stock, stock options and commonstock warrants issued to persons other than employees or directors are recordedon the basis of their fair value, as required by SFAS No. 123 (“SFAS No.123”), “*Accounting for Stock Based Compensation”,*which is measured as of the date required by EITF Issue 96-18 (“EITF 96-18”),*“Accounting for Equity Instruments That AreIssued to Other Than Employees for Acquiring, or in Conjunction with Selling,Goods or Services.”*  In accordance with EITF 96-18, thestock options or common stock warrants are valued using the Black-Scholes modelon the basis of the market price of the underlying common stock on the “valuationdate,” which for options and warrants related to contracts that havesubstantial disincentives to non-performance, is the date of the contract, andfor all other contracts is the vesting date. Expense related to the options andwarrants is recognized on a straight-line basis over the shorter of the periodover which services are to be received or the vesting period. Where expensemust be recognized prior to a valuation date, the expense is computed under theBlack-Scholes model on the basis of the market price of the underlying commonstock at the end of the period, and any subsequent changes in the market priceof the underlying common stock through the valuation date is reflected in theexpense recorded in the subsequent period in which that change occurs.

The followingtable presents information on net loss and diluted loss per share for the yearended December 31, 2006 determined in accordance with SFAS No. 123(R),compared to the pro forma information determined under SFAS No. 123 for theyear ended December 31, 2005:

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|                                                                                                                                                                                     | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
|                                                                                                                                                                                |       |                                       |       |   |   |
| Net loss attributable  to common shareholders – as reported                                                                                                                    |       | $                                          | (6,983,546 | ) | $ | (5,740,517 | ) |
| Add: stock–based  compensation                                                                                                                                                 |       | NA                                         |       | — |   |
| Less: stock–based  employee compensation expense determined under fair value based method for  all awards granted to employees and directors, net of related tax effect of  $0 |       | NA                                         |       | (540,806 | ) |
| Net loss – pro  forma                                                                                                                                                          |       | $                                          | (6,983,546 | ) | $ | (6,281,323 | ) |
|                                                                                                                                                                                |       |                                       |       |   |   |
| Net loss per  share attributable to common shareholders – as reported                                                                                                          |       |                                       |       |   |   |
| Basic and diluted                                                                                                                                                                   |       | $                                          | (0.44      | ) | $ | (0.45 | ) |
| Net loss per  share attributable to common shareholders – pro forma                                                                                                            |       |                                       |       |   |   |
| Basic and  diluted                                                                                                                                                                  |       | $                                          | (0.44      | ) | $ | (0.49 | ) |

 

As required under SFAS 123and SFAS 148, the pro forma effects of stock-based compensation on netloss per share have been estimated at the date of grant using the Black Scholesoption-pricing model based on the following weighted average assumptions:
|                        | ** ** | **Year  ended  December 31  2006** | ** ** | **Year  ended  December 31,  2005** | ** ** |
|------------------------|------------|-----------------------------------------|------------|------------------------------------------|------------|
| Expected life  (years) |       | 5 years                            |       | 5 years                                  |       |
| Interest rate          |       | 4                                       | %          | 4                                        | %          |
| Dividend yield         |       | —                                  |       | —                                   |       |
| Volatility             |       | 63.74                                   | %          | 40.05                                    | %          |

 

*Incometaxes*

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

No benefit has beenrecognized on the net loss as the realization of the net operating losscarryforward cannot be reasonably assured.

*Lossper share data*

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

At December 31, 2006,options and warrants to purchase 6,404,567 shares of common stock at exerciseprices ranging from $1.25 to $2.00 per share were outstanding, but were notincluded in the computation of diluted earnings per share as their effect wouldbe antidilutive.

*FairValue of Financial Instruments*

Our financial instrumentsconsist of accounts receivable, accounts payable, notes payable, and derivativeliabilities. The fair values of our accounts receivable, accounts payable andnote payable, in our opinion, reflect their respective carrying amounts.

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*Recentaccounting pronouncements*

In July 2006, theFASB released FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48prescribes a comprehensive model for the financial statement recognition,measurement, presentation and disclosure of income tax uncertainties withrespect to positions taken or expected to be taken in income tax returns. TheCompany must adopt FIN 48 in the first quarter of fiscal 2007, and managementcurrently does not expect the impact to be material to its consolidatedfinancial statements.

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, “FairValue Measurements” (“FAS 157”), which addresses how companies should measurefair value when they are required to use a fair value measure for recognitionor disclosure purposes under generally accepted accounting principles (“GAAP”).As a result of FAS 157, there is now a common definition of fair value to beused throughout GAAP, which is expected to make the measurement of fair valuemore consistent and comparable. The Company must adopt FAS 157 in fiscal 2008,and management currently does not expect the impact to be material to itsconsolidated financial statements.

Effective July 1,2005, the Company adopted SFAS No. 153, Exchanges of Nonmonetary Assets, anamendment of Accounting Principles Board (“APB”) Opinion No. 29 (“SFAS 153”).SFAS 153 amended prior guidance to eliminate the exception for nonmonetaryexchanges of similar productive assets and replaced it with a general exceptionfor exchanges of nonmonetary assets that do not have commercial substance. Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange. Theprovisions of SFAS 153 were required to be applied prospectively. SFAS 153 didnot have a material impact on the Company’s consolidated financial statements.

In May 2005, FASBissued SFAS No. 154, Accounting Changes and Error Corrections, a replacement ofAPB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). The statementrequires retrospective application to prior periods’ financial statements for avoluntary change in accounting principle unless it is deemed impracticable. Italso requires that a change in the method of depreciation, amortization, ordepletion for long-lived, non-financial assets be accounted for as a change inaccounting estimate rather than a change in accounting principle. SFAS 154 is effectivefor accounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005. SFAS 154 did not have a material impact on the Company’sconsolidated financial statements.

In February 2006,the FASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments—an amendment of FASB Statements No. 133 and 140,” to permit fairvalue remeasurement for any hybrid financial instrument that contains anembedded derivative that otherwise would require bifurcation in accordance withthe provisions of SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities.” The Company will adopt SFAS No. 155 in fiscal year 2007.SFAS 155 is not expected to have a material impact on the Company’sconsolidated financial statements.

****InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities”, which permits entities to chooseto measure many financial instruments and certain other items at fair value.The objective is to improve financial reporting by providing entities with theopportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions.  The statement amends SFAS No. 115, “Accountingfor Certain Investments in Debt and Equity”.****

In December 2006,the FASB issued the FASB Staff Position (FSP) No. EITF 00-19-2, (“FSP EITF00-19-2”), Accounting for Registration Payment Arrangements. This FSP addressesan issuer’s accounting for registration payment arrangements. This FSPspecifies that the contingent obligation to make future payments or otherwisetransfer consideration under a registration payment arrangement, whether issuedas a separate agreement or included as a provision of a financial instrument orother agreement, should be separately recognized and measured in accordancewith FASB Statement No. 5, Accounting for Contingencies. The guidance in thisFSP amends FASB Statements No. 133, Accounting for Derivative Instruments andHedging Activities, and No. 150, Accounting for Certain Financial Instrumentswith Characteristics of both Liabilities and Equity, and FASB InterpretationNo. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others, to include scopeexceptions for registration payment arrangements. This FSP further clarifiesthat a financial instrument subject to a registration payment arrangementshould be accounted for in accordance with other applicable generally acceptedaccounting principles (GAAP) without regard to the contingent obligation totransfer consideration pursuant to the registration payment arrangement. ThisFSP shall be effective immediately for registration payment arrangements andthe financial instruments subject to those arrangements that are entered intoor modified subsequent to the date of issuance of this FSP, or for financialstatements issued for fiscal years beginning after December 15, 2006, and interimperiods within those fiscal years.

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The Companyintends to adopt FSP EITF 00-19-2 beginning in 2007. The adoption of this FSPwill not have a material effect upon the Company’s financial statements.

**Note 4 –Property and Equipment**

A summary of the components of property and equipmentat December 31:
| ** **                          | ** ** | **Estimated  Useful  Lives** | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|-------------------------------------|------------|------------------------------|------------|-----------|------------|-----------|------------|
| Research and  development equipment |       | 3  to 5 years                |       | $         | 715,712    |      | $          | 698,452 |   |
| Leasehold  improvements             |       | 5  years                     |       | 210,086   |       | 186,708   |       |
| Computer  equipment                 |       | 5  years                     |       | 86,485    |       | 86,485    |       |
| Office equipment                    |       | 3  to 5 years                |       | 73,575    |       | 66,025    |       |
| Automobile                          |       | 5  years                     |       | 20,091    |       | 20,091    |       |
|                                |       |                         |       | 1,105,949 |       | 1,057,761 |       |
| Accumulated  depreciation           |       |                         |       | (464,564  | )          | (203,709  | )          |
| Property and equipment,  net        |       |                         |       | $         | 641,385    |      | $          | 854,052 |   |

 

Depreciation and amortization expense of property andequipment, organizational and patent costs for the years endedDecember 31, 2006 and 2005 and the period from inception throughDecember 31, 2006 was $0.3 million, $0.2 million, and $0.5 million,respectively.

**Note 5 –Notes Payable**

Note payables consist of the following:
|                                     | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|------------------------|------------|
| Unsecured note  payable             |       | $                           | —     |                   | $          | 39,761 |   |
| Vehicle secured  note payable       |       | 13,477                      |       | 17,166                 |       |
| Equipment  secured note payable     |       | —                      |       | 144,629                |       |
| Secured  convertible note payable   |       | 1,500,000                   |       | —                 |       |
| Unsecured  convertible note payable |       | 900,000                     |       | —                 |       |
|                                |       |                        |       |                   |       |
| Notional  balances                  |       | 2,413,477                   |       | 201,556                |       |
| Less:  unamortized discount         |       | 955,419                     |       | —                 |       |
| Less: current  portion              |       | 1,448,571                   |       | 144,019                |       |
| Notes payable,  long-term portion   |       | $                           | 9,487      |                   | $          | 57,537 |   |

 

During 2004, the Company entered into an unsecurednote payable agreement with a third party with an original balance of $150,000,that is repayable in monthly installments of principal and interest of $6,922at 10.00% per annum and matures July 2006. This note payable had anoutstanding balance of $0 at December 31, 2006 and $39,761 at December 31,2005.

During 2005, the Company entered into a note payableagreement to purchase a vehicle with an original balance of $20,092, that isrepayable in monthly installments of principal and interest of $391 at 6.31%per annum and matures March 2010.  Thisnote payable had an outstanding balance of $13,477 at December 31, 2006 and$17,166 at December 31, 2005.

During 2005, the Company entered into a note payableagreement to purchase measurement equipment with an original balance of$200,000, that is repayable in monthly installments of principal and interestof $8,979 at 7.27% per annum and matures May 2007.  This note payable had an outstanding balanceof $0 at December 31, 2006 and $144,629 at December 31, 2005 and was secured bythe related measurement equipment and a long-term certificate of deposit.

*Secured convertible note -*

On May 26, 2006,Uni-Pixel, Inc. entered into Securities Purchase Agreements with Trident GrowthFund, L.P. and CapSource Fund, L.P. pursuant to which Uni-Pixel issued 12%Senior Secured Convertible Debentures (the “Convertible 

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Note”) for the principalamount of $1,500,000.  The principal sumof $1,500,000 is due on the earlier of (a) May 23, 2007; (b) the consummationof a Change of Control Transaction; or (c) upon the closing of a QualifyingTransaction, all as defined in the Securities Purchase Agreement.  The Convertible Note is convertible at anytime at a price equal to the lesser of (a) $1.75 per share or (b) 90% of theaverage price per share of the Common Stock and Common Stock Equivalents soldto any Person in the first Qualifying Transaction to be consummated followingthe Initial Exercise Date, as defined in the Securities Purchase Agreements.

The ConvertibleNote bears interest at 12% and is payable monthly, in arrears.

The conversionprice and number of shares to be issued upon conversion shall be subject toadjustment upon the occurrence of the following events during the period thatthis conversion right remains outstanding: common stock reclassification; stocksplits, combinations and dividends; and share issuances.  Share issuances would include options,warrants or other issuances of shares to third parties or employees for anoffer price less than the conversion price. The occurrence of one of these events would result in the conversionprice or number of shares convertible to be adjusted, or reset, to the loweroffer price at the time of share issuance.

In connection withthe financing, Trident Growth Fund, L.P. and CapSource Fund, L.P. have acontinuing security interest in all of the assets of Uni-Pixel, Inc.

Events of defaultunder the Convertible Note include, among other provisions, bankruptcy,material adverse event, breach of Covenant, and change in control, whereby uponoccurrence, Trident Growth Fund, L.P. and CapSource Fund, L.P. may demandimmediate repayment of the Convertible Note and accrued interest. Following theoccurrence and during the continuance of an Event of Default, Trident GrowthFund, L.P. and CapSource Fund, L.P., at their option, may demand repayment infull of all obligations and liabilities owing by Uni-Pixel, Inc. The defaultpayment shall be 100% of the outstanding principal amount of the ConvertibleNote. Additionally, Uni-Pixel, Inc. must pay additional interest on theConvertible Note equal to 6% per month on all outstanding amounts until theevents of default are cured or waived. On September 9, 2006, Trident Growth Fund, L.P and CapSource Fund, L.P.agreed to waive compliance of Section 6(m) of the Convertible Note, provided,however, that such waiver is only temporary and shall expire on December 31,2006 at which time Uni-Pixel must be in compliance with such provision.  If Uni-Pixel fails to comply with suchprovision on or by December 31, 2006, Trident Growth Fund, L.P and CapSourceFund, L.P. shall have the right to declare the Convertible Note indefault.  As a result of this Waiver, Uni-Pixel,Inc. fixed the total number of warrants to be issued to Trident Growth Fund,L.P. and CapSource Fund, L.P. at 1,500,000 warrants.  Effective September 9, 2006, the Common StockPurchase Warrants may be exercised at any time within 5 years at a price equalto the lesser of (a) $1.25 per shares or (b) 100% of the average price pershare of the Common Stock and Common Stock Equivalents sold to any Person inthe first Qualifying Transaction to be consummated following the InitialExercise Date, as defined in the Common Stock Purchase Warrants.  Further, in consideration to induce TridentGrowth Fund, L.P and CapSource Fund, L.P. to grant the Waiver, Uni-Pixel agreedto pay Trident Growth Fund, L.P and CapSource Fund, L.P. an amount equal to$37,500 each, such amount being due and payable on the earlier to occur ofDecember 31, 2006, the Maturity Date of the Convertible Note, or the date uponwhich the loan is otherwise repaid in full. On December 31, 2006, Trident Growth Fund, L.P and CapSource Fund, L.P.agreed to waive compliance of Section 6(m) of the Convertible Note, provided,however, that such waiver is only temporary and shall expire on February 28,2007 at which time Uni-Pixel must be in compliance with such provision.  If Uni-Pixel fails to comply with suchprovision on or by February 28, 2007, Trident Growth Fund, L.P and CapSourceFund, L.P. shall have the right to declare the Convertible Note indefault.  In consideration to induceTrident Growth Fund, L.P and CapSource Fund, L.P. to grant the Waiver,Uni-Pixel agreed to pay Trident Growth Fund, L.P and CapSource Fund, L.P. anamount equal to $50,000 each, such amount being due and payable on the earlierto occur of February 28, 2007, the Maturity Date of the Convertible Note, orthe date upon which the loan is otherwise repaid in full.  The Convertible Note was paid in full inFebruary 2007.

The ConvertibleNote is a hybrid instrument which contains both freestanding derivativefinancial instruments and an embedded derivative feature which wouldindividually warrant separate accounting as a derivative instrument under SFASNo. 133. The freestanding derivative financial instrument includes the TridentGrowth Fund, L.P. Warrant and the CapSource Fund, L.P. Warrant, which werevalued individually, and totaled $1,298,031 at inception on May 24, 2006. TheCompany identified an embedded derivative feature related to the conversionprice within the Convertible Note. However, its fair market value isinsignificant at inception.

Uni-Pixel, Inc.also incurred closing costs of $96,750 in connection with the closing of theConvertible Note.  Net fees and costs tonon-lenders in the amount of $21,750 were capitalized as deferred loan costs atinception on May 24, 2006, and shall be recognized over the life of theConvertible Note, or 12 months, by using the effective interest method. Theremaining financing costs of $75,000 paid to Trident Growth Fund, L.P. andCapSource Fund, L.P. were recorded to 

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unamortized discount onthe Convertible Note and are amortized to interest expense over 12 months underthe effective interest method.

Common stock purchasewarrants-

In connection withthe Securities Purchase Agreement, both Trident Growth Fund, L.P. and CapSourceFund, L.P. received Common Stock Purchase Warrants (“Warrant”) to purchase anumber of shares of our Common Stock subject to adjustments as follows: 750,000divided by the lesser of (a) $1.75 per share or (b) 70% of the average priceper share of the Common Stock and Common Stock Equivalents sold to anyPerson in the first Qualifying Transaction to be consummated following theOriginal Issue Date, all as defined in the Common Stock Purchase Warrants.  The Common Stock Purchase Warrants may beexercised at any time within 5 years at a price equal to the lesser of (a)$1.75 per share or (b) 90% of the average price per share of the Common Stockand Common Stock Equivalents sold to any Person in the first QualifyingTransaction to be consummated following the Initial Exercise Date, as definedin the Common Stock Purchase Warrants. In September 2006, the total number of warrants to be issued to TridentGrowth Fund, L.P. and CapSource Fund, L.P. was fixed at 1,500,000warrants.  However, the Company believesthat the ultimate amount of warrants was negotiable until the $12 millionplacement was complete in February 2007. As such, the Company has continued to classify the warrants asderivative liabilities at December 31, 2006. Effective February 13, 2007, the Company expects to reclassify thederivative liabilities for warrants to additional paid in capital.  Effective in September 2006, the Common StockPurchase Warrants may be exercised at any time within 5 years at a price equalto the lesser of (a) $1.25 per shares or (b) 100% of the average price pershare of the Common Stock and Common Stock Equivalents sold to any Person inthe first Qualifying Transaction to be consummated following the InitialExercise Date, as defined in the Common Stock Purchase Warrants.

The Warrant is afreestanding derivative financial instrument. Using the Black-Scholes Method, thefair value of the derivative was computed at $1,298,031 at inception on May 24,2006 and recorded as a derivative liability which resulted in a reduction ofthe initial carrying amount (as unamortized discount) of the Convertible Note.   This derivative liability ismarked-to-market each quarter with the change in fair value recorded in theincome statement.  Unamortized discountis amortized to interest expense using the effective interest method over thelife of the Convertible Note, or 12 months. If the Warrant is exercised during this 12 month period, the derivativeliability will be released and recorded as additional paid in capital.

The components of Notespayable at inception and at December 31, 2006 are as follows:

Convertible Note at Inception(May 24, 2006) -

As a result ofthese contract provisions, the Convertible Note balance at Inception (May 24,2006) was adjusted as follows:
| Notional balance of  Convertible Note at May 24, 2006                               |   | $          | 1,500,000 |   |
|-------------------------------------------------------------------------------------|--------|------------|-----------|--------|
| Adjustments:                                                                        |   |       |      |
| Discount for derivative liability - Warrant                                         |   | (1,298,031 | )         |
| Discount for deferred loan costs paid to Trident and  CapSource on Convertible Note |   | (75,000    | )         |
|                                                                                |   |       |      |
| Convertible Note  balance, net of unamortized discount at May 24, 2006              |   | $          | 126,969   |   |

 

Convertible Note atDecember 31, 2006 -

The Convertible Notebalance on the consolidated balance sheet as of December 31, 2006 is comprisedof the following:
| Notional balance of  Convertible Note at December 31, 2006                  |   | $        | 1,500,000 |   |
|-----------------------------------------------------------------------------|--------|----------|-----------|--------|
| Adjustments:                                                                |   |     |      |
| Unamortized discount                                                        |   | (876,896 | )         |
|                                                                        |   |     |      |
| Convertible Note  balance, net of unamortized discount at December 31, 2006 |   | $        | 623,104   |   |

 

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Change in unamortizeddiscount and loan costs of Notes payable -

For the year endedDecember 31, 2006, the discount on Notes payable changed for amortization ofdiscounts for derivative liabilities related to the Convertible Note andWarrant and for amortization of loan costs paid to the lender in connectionwith the Convertible Note. The total discount on Notes payable changed from$1,373,031 at inception to $876,896 at December 31, 2006.
| Accretion of unamortized  discount to Convertible Note for derivative liabilities for Warrant            |   | $       | (451,175 | ) |
|----------------------------------------------------------------------------------------------------------|--------|---------|----------|---|
| Amortization of  unamortized discount of loan costs                                                      |   | (44,960 | )        |
|                                                                                                     |   |    |     |
| Total change in  discount on Notes Payable for the period from Note inception through December  31, 2006 |   | $       | (496,135 | ) |

 

The followingassumptions were used in the preparation of the Warrant valuations at inception(May 24, 2006) and December 31, 2006:

Black-ScholesMethodology:
|                          | ** ** | **Inception** | ** ** | **December 31, 2006** | ** ** |
|--------------------------|------------|---------------|------------|---------------------------------|------------|
| **Assumptions**          | ** ** | **Warrant**   | ** ** | **Warrant**                     | ** ** |
|                     |       |          |       |                            |       |
| Dividend yield           |       | 0.00          | %          | 0.00                            | %          |
| Risk-free  interest rate |       | 4.93          | %          | 5.10                            | %          |
| Volatility               |       | 63.74         | %          | 63.74                           | %          |
| Expected Term            |       | 5.00 years    |       | 4.39 years                      |       |

 

Change in fair value ofderivatives instruments-

The net decreasein derivative liability for the Warrant (marked-to-market) of $439,864 for theyear ended December 31, 2006, has been recorded under Other income in theaccompanying consolidated statements of operations.

The values of thisderivative liability is subject to the changes in the trading value of theCompany’s common stock. As a result, our financial statements may fluctuatefrom quarter to quarter based on factors, such as the trading value of ourcommon stock and the amount of shares which may be converted by Trident GrowthFund, L.P. and CapSource Fund, L.P. in connection with the Convertible Note orexercised in connection with the Warrants. Consequently, our consolidated financial position and results ofoperations may vary significantly from quarter to quarter, based on factorsother than our revenues and expenses.

*Unsecured convertible note -*

On September 12,2006, Uni-Pixel, Inc. entered into Securities Purchase Agreements with variousinvestors pursuant to which Uni-Pixel issued 10% Senior Unsecured ConvertibleDebentures (the “Unsecured Convertible Note”) for the principal amount of$900,000.  The principal sum of $900,000is due on the earlier of (a) September 11, 2007; (b) the consummation of aChange of Control Transaction; or (c) upon the closing of an equity Offering of$10 million or more, all as defined in the Securities Purchase Agreement.  The Unsecured Convertible Note is convertibleat any time into shares of the Offering at a price equal to the shares beingsold in the Offering.

In connection withthe Securities Purchase Agreement, the Company issued 144,000 warrants at $1.25per share to the investors.  The warrantswill expire in five years.

As considerationfor the Placement Agent services in connection with the Securities PurchaseAgreement, the Company issued 50,400 warrants at $1.25 to the Placement Agentor its designees.  The warrants willexpire in five years.   In addition, thePlacement Agent received a commission equal to 5%, or $45,000.

The UnsecuredConvertible Note bears interest at 10% and is payable at the Maturity Date, asdefined in the Securities Purchase Agreement.

The conversionprice and number of shares to be issued upon conversion shall be subject toadjustment upon the occurrence of the following events during the period thatthis conversion right remains outstanding: common stock 

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reclassification; stocksplits, combinations and dividends; and share issuances.  Share issuances would include options,warrants or other issuances of shares to third parties or employees for anoffer price less than the conversion price. The occurrence of one of these events would result in the conversionprice or number of shares convertible to be adjusted, or reset, to the loweroffer price at the time of share issuance.

Events of defaultunder the Unsecured Convertible Note include, among other provisions,bankruptcy, material adverse event, breach of Covenant, and change in control,whereby upon occurrence, the investors may demand immediate repayment of theUnsecured Convertible Note and accrued interest.

The UnsecuredConvertible Note is a hybrid instrument which contains both freestandingderivative financial instruments and an embedded derivative feature which wouldindividually warrant separate accounting as a derivative instrument under SFASNo. 133. The freestanding derivative financial instrument includes the investor’swarrants, which were valued individually, and totaled $107,416 at inception onSeptember 12, 2006. The Company identified an embedded derivative featurerelated to the conversion price within the Unsecured Convertible Note. However,its fair market value is insignificant at inception.

Uni-Pixel, Inc.also incurred closing costs of $85,000 in connection with the closing of theUnsecured Convertible Note.  Net fees andcosts to non-lenders in the amount of $85,000 were capitalized as deferred loancosts at inception on September 12, 2006, and shall be recognized over the lifeof the Unsecured Convertible Note, or 12 months, by using the effectiveinterest method.

Common stock purchasewarrants-

In connection withthe Securities Purchase Agreement, the investors received Common Stock PurchaseWarrants (“Warrant”) to purchase 144,000 shares of our Common Stock at $1.25.

The Warrant is afreestanding derivative financial instrument. Using the Black-Scholes Method,the fair value of the derivative was computed at $107,416 at inception onSeptember 12, 2006 and recorded as a derivative liability which resulted in areduction of the initial carrying amount (as unamortized discount) of theUnsecured Convertible Note.   Thisderivative liability is marked-to-market each quarter with the change in fairvalue recorded in the income statement. Unamortized discount is amortized to interest expense using theeffective interest method over the life of the Unsecured Convertible Note, or12 months.  If the Warrant is exercisedduring this 12 month period, the derivative liability will be released andrecorded as additional paid in capital.

The components of Notespayable at inception and at December 31, 2006 are as follows:

Unsecured ConvertibleNote at Inception (September 12, 2006) -

As a result ofthese contract provisions, the Unsecured Convertible Note balance at Inception(September 12, 2006) was adjusted as follows:
| Notional balance of  Unsecured Convertible Note at September 12, 2006                  |   | $        | 900,000 |   |
|----------------------------------------------------------------------------------------|--------|----------|---------|--------|
| Adjustments:                                                                           |   |     |    |
| Discount for derivative liability - Warrant                                            |   | (107,416 | )       |
|                                                                                   |   |     |    |
| Unsecured Convertible  Note balance, net of unamortized discount at September 12, 2006 |   | $        | 792,584 |   |

 

Unsecured ConvertibleNote at December 31, 2006 -

The Unsecured ConvertibleNote balance on the consolidated balance sheet as of December 31, 2006 iscomprised of the following:
| Notional balance of  Unsecured Convertible Note at December 31, 2006                  |   | $       | 900,000 |   |
|---------------------------------------------------------------------------------------|--------|---------|---------|--------|
| Adjustments:                                                                          |   |    |    |
| Unamortized discount                                                                  |   | (78,493 | )       |
|                                                                                  |   |    |    |
| Unsecured Convertible  Note balance, net of unamortized discount at December 31, 2006 |   | $       | 821,507 |   |

 

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Change in unamortizeddiscount and loan costs of Notes payable -

For the year endedDecember 31, 2006, the discount on Notes payable changed for amortization ofdiscounts for derivative liabilities related to the Unsecured Convertible Noteand Warrant and for amortization of loan costs paid in connection with both theUnsecured Convertible Note. The total discount on Notes payable changed from$107,416 at inception to $78,493 at December 31, 2006.
| Accretion of unamortized  discount to Unsecured Convertible Note for derivative liabilities for Warrant |   | $ | (28,923 | ) |
|---------------------------------------------------------------------------------------------------------|--------|---|---------|---|
| Total change in  discount on Notes Payable during year ended December 31, 2006                          |   | $ | (28,923 | ) |

 

The followingassumptions were used in the preparation of the Warrant valuations at Inception(September 12, 2006) and December 31, 2006:

Black-ScholesMethodology:
|                          | ** ** | **Inception** | ** ** | **December 31, 2006** | ** ** |
|--------------------------|------------|---------------|------------|---------------------------------|------------|
| **Assumptions**          | ** ** | **Warrant**   | ** ** | **Warrant**                     | ** ** |
| Dividend yield           |       | 0.00          | %          | 0.00                            | %          |
| Risk-free  interest rate |       | 5.10          | %          | 5.10                            | %          |
| Volatility               |       | 63.74         | %          | 63.74                           | %          |
| Expected Term            |       | 5.00 years    |       | 4.70 years                      |       |

 

Change in fair value ofderivatives instruments-

The net decreasein derivative liability for the Warrant (fair value) of $22,295 for the yearended December 31, 2006, has been recorded under Other income in theaccompanying consolidated statements of operations.

The value of thisderivative liability is subject to the changes in the trading value of theCompany’s common stock. As a result, our financial statements may fluctuate fromquarter to quarter based on factors, such as the trading value of our commonstock and the amount of shares which may be the various investors in connectionwith the Unsecured Convertible Note or exercised in connection with theWarrants.  Consequently, our consolidatedfinancial position and results of operations may vary significantly fromquarter to quarter, based on factors other than our revenues and expenses.

Future payments under outstanding notes payable as ofDecember 31, 2006 are as follows:

| Year ended December 31: | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
| 2007                                   |       | $          | 2,403,960  |   |
| 2008                                   |       | 4,218      |       |
| 2009                                   |       | 4,492      |       |
| 2010                                   |       | 777        |       |
| 2011                                   |       | —     |       |
| Thereafter                             |       | —     |       |
|                                   |       | $          | 2,413,447  |   |

 

**Note 6 –Income Taxes**

The Company accounts for income taxes in accordancewith SFAS No. 109, *Accounting forIncome Taxes*. This Statement prescribes the use of the liabilitymethod whereby deferred tax asset and liability account balances are determinedbased on differences between financial reporting and tax bases of assets andliabilities and are measured using the enacted tax rates and laws that will bein effect when the differences are expected to reverse. The Company has a netoperating loss for financial accounting purposes of approximately$18.3 million and $11.8 million at December 31, 2006 and 2005,respectively. The Company has a potential deferred tax asset of approximately$6.4 million as a result of this net operating loss carry forward. Inassessing the realization of deferred tax assets, management considers whetherit is likely that some portion or all of the deferred tax assets will berealized. The ultimate realization of deferred tax assets is dependent upon the

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Companyattaining future taxable income during periods in which those temporarydifferences become deductible. Due to the uncertainty surrounding therealization of the benefits of its tax attributes, including net operating losscarryforwards, in future tax returns, the Company has provided a 100% valuationallowance on its deferred tax assets. The valuation allowance increased byapproximately $2.3 million and $1.4 million for the years endedDecember 31, 2006 and 2005, respectively.

The net operating loss carryforward will begin toexpire in 2015, if not utilized. The Internal Revenue Code Section 382limits net operating loss and tax credit carryforwards when an ownership changeof more than fifty percent of the value of the stock in a loss corporationoccurs within a three-year period. This change occurred during the year endedDecember 31, 2004. It is possible that additional changes in control mayresult in additional Section 382 limits. Accordingly, the ability to utilize remaining net operating loss and taxcredit carryforwards has been significantly restricted with the recent equity transactions.

**Note 7 –Commitments and Contingencies**

*Leases*

The Company has enteredinto a lease for office, warehouse and laboratory facility in The Woodlands,Texas, under a third party non-cancelable operating lease through 2010. Futureminimum lease commitments are as follows as of December 31, 2006:

| Year Ending December 31 | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
| 2007                                   |       | $          | 200,000    |   |
| 2008                                   |       | 203,000    |       |
| 2009                                   |       | 206,000    |       |
| 2010                                   |       | 192,000    |       |
| 2011                                   |       | —     |       |
| Thereafter                             |       | —     |       |
| Total                                  |       | $          | 801,000    |   |

 

This lease provides theCompany with one 5-year renewal option.

Rent expense for 2006 and 2005 was $201,000 and$193,000, respectively.

*Litigation*

The Company from time to time may be involved inlitigation relating to claims arising out of its ordinary course of business.Management believes that there are no claims or actions pending or threatenedagainst the Company, the ultimate disposition of which would have a materialimpact on the Company’s financial position, results of operations or cashflows.

*Employmentagreements*

The Company has enteredinto employment agreements with Frank DeLape, Reed Killion and James Tassone.

Mr. DeLape, Chairman ofthe Board, entered into an employment agreement dated March 5, 2005, with aninitial term ending December 31, 2008, and providing for a base annual salaryof $250,000, subject to the right of the Board of Directors to increase hissalary from time to time. Mr. DeLape’s base annual salary shall automaticallybe raised to $350,000 on the date the company raises or acquired cumulativeequity or licensing arrangements of $20 Million.  Upon receipt of the$12,000,000 Preferred B Series financing on February 13, 2007, cumulativeequity exceeded $20 Million, thus enacting this clause in Mr. Delape’scontract.**** ****Mr. DeLapeis entitled to receive an annual bonus in an amount to be determined by theBoard of Directors. If Mr. DeLape’s performance satisfies criteria to beestablished by the Board of Directors, his target bonus will be 45% of hisannual salary with a minimum of 25% of his current base salary. The agreementalso provides that Mr. DeLape will receive employee stock options topurchase 600,000 shares of common stock at an exercise price of $4.00 pershare.  The option has a term of tenyears and will vest and become exercisable ratably over 46 months beginning onMarch 31, 2005.  The agreement alsoprovides Mr. DeLape with disability and life insurance benefits, a carallowance and wireless communications benefits. Mr. DeLape’s employmentmay be terminated at any time, provided that if his employment is terminatedwithout “Cause,” or if he terminates his employment for “Good Reason,” as thoseterms are defined in the agreement, he will be entitled to receive a severancepayment equal to the greater of (i) the salary payable over the remainingterm of his agreement or (ii) twenty four months salary, as well as abonus computed on the basis of the greater of (a) the amount determinedunder the agreement by the Board of Directors; or (b) $70,000.

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Mr. Killion, President,entered into an employment agreement dated March 5, 2005, with an initial termending December 31, 2008, and providing for a base salary of $195,000, subjectto the right of the Board of Directors to increase his salary from time totime. Mr. Killion is entitled to receive an annual bonus in an amount tobe determined by the Board of Directors. If Mr. Killion’s performancesatisfies criteria to be established by the Board of Directors, his targetbonus will be 35% of his annual salary. The agreement also provides thatMr. Killion will receive employee stock options to purchase 450,000 sharesof common stock at an exercise price of $4.00 per share.  The option has a term of ten years and vestratably on an annual basis over three years. The agreement also provides Mr. Killion with disability and lifeinsurance benefits, a car allowance and wireless communications benefits. Thevesting provisions of the option would accelerate and Mr. Killion would beentitled to a severance payment equal to his base salary for six months, ifMr. Killion were terminated without “Cause,” or if Mr. Killion wereto terminate his employment with Uni-Pixel for “Good Reason” (each of the termsas defined in the Agreement).

Mr. Tassone, Chief Financial Officer, entered into anemployment agreement dated April 15, 2005, with an initial term ending December31, 2008 and providing for a base salary of $145,000, subject to the right ofthe Board of Directors to increase his salary from time to time.Mr. Tassone is entitled to receive an annual bonus in an amount to bedetermined by the Board of Directors. If Mr. Tassone’s performancesatisfies criteria to be established by the Board of Directors, his targetbonus will be 30% of his annual salary. The agreement also provides thatMr. Tassone will receive employee stock options to purchase 200,000 sharesof common stock at an exercise price of $4.00 per share.  The option has a term of ten years and vestratably on an annual basis over three years. The agreement also provides Mr. Tassone with disability and lifeinsurance benefits, a car allowance and wireless communications benefits. Thevesting provisions of the option would accelerate and Mr. Tassone would beentitled to a severance payment equal to his base salary for six months, ifMr. Tassone were terminated without “cause,” or if Mr. Tassone wereto terminate his employment with Uni-Pixel for “good reason” (each of the termsas defined in the Agreement).

As of December 31, 2006, there was a $366,500 bonusaccrual for Mr. DeLape, Mr. Killion and Mr. Tassone.

**Note 8 -  Equity, Stock Plan and Warrants**

*Equityinstruments issued to non-employees*

From time to time, inorder to preserve cash and to fund our operating activities, common stock orother equity instruments may be issued for cash or in exchange for goods orservices. Equity instruments issued for goods or services are recorded at thefair value of the goods or services received or the fair value of the equityinstruments issued, whichever is more reliably measurable.  During the years ended December 31, 2006 andDecember 31, 2005, we did not issue equity instruments to non-employees forservices.  On September 5, 2006, theBoard of Directors of Uni-Pixel, Inc., reduced the exercise price of 1,660,000stock options issued to eight employees, with an exercise price of $4.00 per shareto an exercise price of $2.00 per share.

*CommonStock*

During the year endedDecember 31, 2006, (1) we issued no shares of common stock for cash inconnection with the exercise of stock options; (2) issued no shares of commonstock in exchange for cashless exercise of warrants; and (3) issued 916,916shares of common stock in connection with the conversion of 450,317 shares ofSeries A Preferred Stock and accrued dividends.

During the year endedDecember 31, 2005, (1) we issued no shares of common stock for cash inconnection with the exercise of stock options; (2) issued no shares of commonstock in exchange for cashless exercise of warrants; and (3) issued 2,594,477shares of common stock in connection with the conversion of 1,222,499 shares ofSeries A Preferred Stock and accrued dividends.

*Series AConvertible Preferred Stock*

In January 2005, the Company completed a privateoffering of 3,495,000 shares of Series A Convertible Preferred Stock (“Series APreferred Stock”) at $3.50 per share for total proceeds of $12,232,500, net ofoffering costs of $2,066,222 which includes the fair market value of warrantsto the placement agent of $352,172.   Each share of SeriesA Preferred Stock is convertible into two shares of common stock at anytime after issuance, together with accrued dividends at 6% per annum payable incash or additional shares of Series A Preferred Stock at the option of theCompany. On December 31, 2007, all 

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outstanding shares of Series A Preferred Stock,if any, shall automatically convert on that date into common stock. Cumulativeannual dividends, payable in shares of Series A Preferred Stock or cash atthe option of the Board of Directors, accrue at an annual rate of 6% ($0.21 pershare). The shares of Series A Preferred Stock have a liquidationpreference of $3.50 per share over the common stock, plus all accumulated andunpaid dividends in arrears. The shares of Series A Preferred Stock areentitled to a number of votes equal to the number of shares of common stockinto which such shares are convertible. The holders of the Series APreferred Stock also have the right to receive all information, includingnotices, reports, and other information, provided to the holders of commonstock.  The offering costs comprise thecommissions and fees to the placement agent, as well as the Company’s issuanceof warrants to the placement agent to purchase 1,048,500 shares of common stockat an exercise price of $1.75 per share.  The warrants are exercisableimmediately upon grant and expire five yearsthereafter.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the warrantsof $352,172, which was charged to additional paid-in capital.

During the year ended December 31, 2006, theCompany issued an additional 134,117 shares of Series A Preferred Stock inlieu of cash for payment of accrued dividends on the Series A PreferredStock totaling $469,410.  We also paid$28,494 in Preferred Stock accrued dividends through the issuance of 16,282common shares during 2006.

During the year ended December 31, 2005, theCompany issued an additional 156,507 shares of Series A Preferred Stock inlieu of cash for payment of accrued dividends on the Series A PreferredStock totaling $547,775.  We also paid$261,667 in Preferred Stock accrued dividends through the issuance of 149,479common shares during 2005.

*2005Stock 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.

In the first quarter of2005, we issued under the Stock Incentive Plan a total of 1,050,000 options topurchase our common stock with an exercise price of $4.00 per share to twoemployees.  The options vest over periods of a maximum of 36 to 46 monthsfrom the date of grant.  In the secondquarter of 2005, we issued under the Stock Incentive Plan a total of 625,000options to purchase our common stock with an exercise price of $4.00 per shareto four employees.  The options vest over periods of a maximum of 36months from the date of grant.  In thethird quarter of 2005, we did not issue any options.  In the fourth quarter of 2005, we issuedunder the Stock Incentive Plan a total of 130,000 options to purchase ourcommon stock with an exercise price of $4.00 per share to five employees. The options vest over periods of a maximum of 36 months from the date of grant.

In the first quarter of 2006, we did not grant anyoptions.  In the second quarter of 2006,we granted a total of 10,000 options to purchase our common stock with anexercise price of $1.90 per share to one employee under the Stock IncentivePlan.   The options vest overperiods of 36 months from the date of grant. In the third quarter of 2006, a total of 145,000 stock options with anexercise price of $4.00 per share to four employees were forfeited.  In the fourth quarter of 2006, a total of8,333 stock options with an exercise price of $2.00 per share to two employeeswere forfeited.

On September 5, 2006, the Board of Directors ofUni-Pixel, Inc., reduced the exercise price of 1,660,000 stock options issuedto eight employees, with an exercise price of $4.00 per share to an exerciseprice of $2.00 per share.  This resultedin an additional compensation expense of approximately $140,000 in the thirdquarter of 2006 and an additional compensation expense of approximately$213,000 to be recorded over the remaining vesting period.

*Other Stock Options*

In the second quarter of 2006, we granted a total of1,000,000 options to purchase our common stock with an exercise price of $1.75per share to Mr. Carl Yankowski.  250,000of these options vest on the date Mr. Yankowski is appointed CEO of Uni-Pixel;an additional 250,000 options of such options shall vest on the one yearanniversary of the date Mr. Yankowski is appointed CEO of Uni-Pixel, Inc.; andthe remaining 500,000 options of such options shall vest monthly over a 24month period beginning on the one year anniversary of the date Mr. Yankowski isappointed CEO of Uni-Pixel.  If Mr.Yankowski never becomes CEO of Uni-Pixel, the 1,000,000 options will becancelled.   Due to these performancecriteria, compensation expense will not be recognized for these stock optionsuntil such time as Mr. Yankowski is appointed CEO.  Mr. Yankowski has joined the Companyeffective April 1, 2006 as a Consultant and under the terms of the agreement 

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willbecome the CEO and a member of the Company’s Board of Directors, at hiselection, upon the Company completing a minimum equity round of $10 million.

On September 5, 2006, the Board of Directors ofUni-Pixel, Inc., reduced the exercise price of 1,000,000 stock options issuedto Mr. Yankowski, with an exercise price of $1.75 per share to an exerciseprice of $1.25 per share.  This resultedin an additional compensation expense of approximately $0 in the third quarterof 2006 and an additional compensation expense of approximately $104,000 to berecorded over the remaining vesting period if Mr. Yankowski becomes CEO.

On October 1,2006, we granted a total of 1,000,000 options to purchase our common stock withan exercise price of $1.25 per share to Mr. Carl Yankowski.  1,000,000 of these options vest upon theoccurrence of any of the following events: (i) by no later than January 1,2010, upon the closing of the sale of substantially all of the assets ofUni-Pixel or the reorganization, consolidation, merger, dissolution orliquidation of Uni-Pixel; provided that the event results in the payment ordistribution of consideration valued in good faith by the Uni-Pixel Board ofDirectors at $15 per share (on a fully diluted basis) or more; (ii) by no laterthan January 1, 2010, upon the closing of a tender offer or exchange offer topurchase 50% or more of the issued and outstanding shares of Uni-Pixel commonstock at a price per share valued in good faith by the Uni-Pixel Board ofDirectors at $15 per share (on a fully diluted basis) or more; or (iii) by nolater than January 1, 2010, upon the common stock of Uni-Pixel, Inc. trading at$15 per share or more for 60 (or more) consecutive days and having a dailytrading volume of 200,000 shares or more for 60 (or more) consecutive days. If(i), (ii) or (iii), as detailed above, do not occur on or before January 1, 2010,this Option will be cancelled in full. If Mr. Yankowski does not become Chief Executive Officer of Uni-Pixel,Inc. by January 31, 2007, this Option will be cancelled in full.  These options were cancelled on February 1,2007 as Mr. Yankowski did not become Chief Executive Officer of Uni-Pixel, Inc.by January 31, 2007.

*Summary Stock Option and Warrant Information*

Information regarding the options and warrants grantedin 2006 and 2005 is as follows:
|                                   | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                            | ** ** | **2005**                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| Outstanding,  beginning of year   |       | 1,805,000                                           |       | —                                               |       | 1,048,500 |   | 769,500 |   |
| Granted                           |       | 2,010,000                                           |       | 1,805,000                                            |       | 1,694,400 |   | 279,000 |   |
| Exercised                         |       | —                                              |       | —                                               |       | — |   | — |   |
| Expired or  cancelled             |       | 153,333                                             |       | —                                               |       | — |   | — |   |
|                              |       |                                                |       |                                                 |       |   |   |   |   |
| Outstanding, end  of year         |       | 3,661,667                                           |       | 1,805,000                                            |       | 2,742,900 |   | 1,048,500 |   |
|                              |       |                                                |       |                                                 |       |   |   |   |   |
| Exercisable, end  of year         |       | 671,958                                             |       | 130,435                                              |       | 2,742,900 |   | 1,048,500 |   |
|                              |       |                                                |       |                                                 |       |   |   |   |   |
| Available for grant,  end of year |       | 338,333                                             |       | 195,000                                              |       |   |   |   |   |

 

The weighted average option and warrant exercise priceinformation for 2006 and 2005 is as follows (On September 5, 2006, the Board ofDirectors of Uni-Pixel, Inc., reduced the exercise price of 1,660,000 stockoptions issued to eight employees, with an exercise price of $4.00 per share toan exercise price of $2.00 per share.):
|                                       | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                            | ** ** | **2005**                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| Outstanding,  beginning of year       |       | $                                                   | 4.00       |                                                 | $          | — |   | $ | 1.75 |   | $ | 1.75 |   |
| Granted during  the year              |       | $                                                   | 1.25       |                                                 | $          | 4.00 |   | $ | 1.25 |   | $ | 1.75 |   |
| Exercised during  the year            |       | $                                                   | —     |                                                 | $          | — |   | $ | — |   | $ | — |   |
| Expired or  cancelled during the year |       | $                                                   | 3.57       |                                                 | $          | — |   | $ | — |   | $ | — |   |
| Outstanding at  end of year           |       | $                                                   | 1.59       |                                                 | $          | 4.00 |   | $ | 1.44 |   | $ | 1.75 |   |
| Exercisable at end of  year           |       | $                                                   | 2.00       |                                                 | $          | 4.00 |   | $ | 1.44 |   | $ | 1.75 |   |

 

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Significant option and warrant groups outstanding atDecember 31, 2006, and related weighted average exercise price and lifeinformation is as follows:
| **Grant date** | ** ** | **Options  Outstanding** | ** ** | **Warrants  Outstanding** | ** ** | **Exercisable** | ** ** | **Weighted  Exercise  Price** | ** ** | **Remaining  Life  (Years)** | ** ** |
|---------------------|------------|--------------------------|------------|---------------------------|------------|-----------------|------------|-------------------------------|------------|------------------------------|------------|
| December 9, 2004    |       | —                   |       | 769,500                   |       | 769,500         |       | $                             | 1.75       |                         | 2.91       |   |
| January 10, 2005    |       | —                   |       | 168,750                   |       | 168,750         |       | $                             | 1.75       |                         | 3.00       |   |
| January 26, 2005    |       | —                   |       | 110,250                   |       | 110,250         |       | $                             | 1.75       |                         | 3.08       |   |
| March 5, 2005       |       | 600,000                  |       | —                    |       | 286,957         |       | $                             | 2.00       |                         | 8.17       |   |
| March 5, 2005       |       | 450,000                  |       | —                    |       | 150,000         |       | $                             | 2.00       |                         | 8.17       |   |
| April 19, 2005      |       | 600,000                  |       | —                    |       | 233,334         |       | $                             | 2.00       |                         | 8.33       |   |
| November 15,  2005  |       | 1,667                    |       | —                    |       | 1,667           |       | $                             | 2.00       |                         | 8.83       |   |
| May 23, 2006        |       | 1,000,000                |       | —                    |       | —          |       | $                             | 1.25       |                         | 9.58       |   |
| May 24, 2006        |       | —                   |       | 1,500,000                 |       | 1,500,000       |       | $                             | 1.25       |                         | 4.58       |   |
| June 15, 2006       |       | 10,000                   |       | —                    |       | —          |       | $                             | 1.90       |                         | 9.50       |   |
| September 12,  2006 |       | —                   |       | 194,400                   |       | 194,400         |       | $                             | 1.25       |                         | 4.67       |   |
| October 1, 2006     |       | 1,000,000                |       | —                    |       | —          |       | $                             | 1.25       |                         | 9.75       |   |
|                |       |                     |       |                      |       |            |       |                          |       |                         |       |
| Total               |       | 3,661,667                |       | 2,742,900                 |       | 3,414,858       |       |                          |       |                         |       |

 

**Note 9 -****Subsequent Events**

*Amendment to Certificate ofIncorporation*

Effective February1, 2007, we further amended our Amended and Restated Certificate ofIncorporation to increase the number of authorized shares of capital stock to110,000,000, consisting of 100,000,000 shares of common stock and 10,000,000shares of preferred stock.

*Financing*

On February 13,2007, we entered into a Securities Purchase Agreement (the “Purchase Agreement”)with The Raptor Global Portfolio Ltd., The Tudor BVI Global Portfolio Ltd.,Tudor Proprietary Trading, L.L.C. and The Altar Rock Fund L.P. (collectively,the “Purchasers”) pursuant to which we sold on that date in a private placementto the Purchasers (a) 3,200,000 authorized but unissued shares of the Company’sSeries B Preferred Stock, par value $0.001 per share (the “Series B PreferredStock”), and (b) warrants (the “Warrants”) to purchase, in aggregate, upto 6,839,279 shares at $1.24 per share, of the Company’s common stock, parvalue $0.001, for an aggregate purchase price of $12,000,000.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the warrantsof $4,609,790, which was credited to additional paid-in capital in the firstquarter of 2007.

In connection withthe Purchase Agreement, the Company and the Purchasers also entered into anInvestors’ Rights Agreement dated as of February 13, 2007 (the “Investors’Rights Agreement”), pursuant to which the Company granted to the Purchaserscertain rights with respect to the Series B Preferred Stock and the Warrantssold (including the shares of common stock issuable upon exercise of theWarrants) under the Purchase Agreement.

Subsequent to the$12 million financing, we paid approximately $2.8 million to repay existingnotes payable and related accrued interest.

*Consulting Agreement*

Effective January15, 2007, we have requested and Lusierna Asset Management, Ltd. (the “Consultant”)has agreed to provide consulting and advisory services to us pursuant to and inaccordance with our request, including but not limited to, advice regardingcorporate structuring, the identification of potential candidates for our boardof directors and transaction structuring. In consideration of the consulting services, at the time of, and subjectto, the closing of no less than gross proceeds of $12,000,000 from the sale ofthe Company’s services in a private placement, (the “**OfferingThreshold Closing**”), we shall (i) issue to the Consultant,simultaneously with the Offering Threshold Closing, initial closing, a three 

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year warrant to purchase750,000 shares (the “**Option Shares**”)of our common stock, at an exercise price of $1.10 per Option Share, with acashless exercise provision and no anti-dilution adjustment, and (ii) pay tothe Consultant a fee of $480,000.  TheCompany utilized the Black-Scholes methodology in determining thefair market value of the warrants of $294,052.

*Investor Relations*

Effective February13, 2007 we entered into an Investor Relations Agreement with Lusierna AssetManagement, Ltd. (the “Consultant”) and the Agreement terminates on the datetwelve (12) months from the Commencement Date, subject to earliertermination.  During the term of thisAgreement, the Consultant shall provide public and investor relations services(collectively, the “**Services**”)to us, to result in improved investor recognition of Uni-Pixel, Inc., a broaderfollowing by analysts and institutions and providing directly, or managing thedelivery of, a wide range of services, including, but not limited to:

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

·                  Assisting the Company in gainingmedia coverage both locally and nationally.

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

·                  Preparing presentations relating tothe Company for meetings with analysts, registered representatives andportfolio managers, other large investors, and sponsored forums.

·                  Assisting in preparing informationkits about the Company in response to press and/or investor inquiries.

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

The Consultantshall receive $10,000 per month payable monthly on the tenth (10th) day of each month,commencing on the tenth (10th)day of the month following the month in which the Commencement Date occurs anda three (3) year warrant (the “**Warrant**”)to purchase 300,000 shares of restricted Uni-Pixel, Inc. common stock at anexercise price of $1.10 per share, with a cashless exercise provision and noanti-dilution adjustment. The Warrant shall vest in twelve (12) monthlyinstallments on the tenth (10th)day of each month, commencing in the First Payment Month. The initial paymentshall be for 75,000 shares, with the remaining 225,000 shares equally dividedinto the remaining eleven (11) installments. The Company utilized the Black-Scholesmethodology in determining the fair market value of the warrantsof $117,621.

*Other Stock Options*

On February 1,2007, the 1,000,000 options with an exercise price of $1.25 per share grantedto Mr. Carl Yankowski on October 1, 2006, were cancelled as Mr. Yankowski didnot become Chief Executive Officer of Uni-Pixel, Inc. by January 31, 2007.

On February 13,2007, the 1,000,000 options with an exercise price of $1.25 per share grantedto Mr. Carl Yankowski on May 23, 2006 have all vested due to the Companycompletion of an equity financing of $10 million or more.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the warrantsof $726,241.

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