** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-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, 2007** |
|                                                  |       |                                                                                                                                                                                                                                                                                                                                              |
| **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 Small Business Issuer asSpecified in Its Charter)

 

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

 

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

(Address of Principal Executive Offices)

 

**(281)825-4500**

(Issuer’s Telephone Number, Including AreaCode)

 

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

 

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

 

**COMMON STOCK, PAR VALUE $0.001 PER SHARE**

(Title of Class)

 

Checkwhether the issuer: (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.   x Yes o No

 

Checkif there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B contained in this form, and no disclosure will be contained, tothe best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSBor any amendment to this Form 10-KSB.  x

 

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

 

Theregistrant’s revenue for its most recent fiscal year were: **$0**

 

Asof February 20, 2008, the aggregate market value of the voting andnon-voting common equity held by non-affiliates of the registrant based uponthe price at which such common equity was sold on the Over-the-Counter BulletinBoard Exchange as of such date was $10,670,485.

 

Asof February 20, 2008, the registrant had 22,897,418 shares of commonstock, par value $0.001, outstanding.

 

Documentsincorporated by Reference: **None**

 

TransitionalSmall Business Disclosure Format (Check One):   Yes o   No x

 

 

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**TABLE OFCONTENTS**

 
|     | PART I                                                                                      |   |
|----------|--------------------------------------------------------------------------------------------------|--------|
| ITEM 1.  | DESCRIPTION OF BUSINESS                                                                          | 3      |
| ITEM 2.  | DESCRIPTION OF PROPERTY                                                                          | 22     |
| ITEM 3.  | LEGAL PROCEEDINGS                                                                                | 22     |
| ITEM 4.  | SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS                                             | 22     |
|     |                                                                                             |   |
|     | PART II                                                                                     |   |
| ITEM 5.  | MARKET FOR COMMON EQUITY AND  RELATED STOCKHOLDER MATTERS                                        | 22     |
| ITEM 6.  | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                  | 24     |
| ITEM 7.  | FINANCIAL STATEMENTS                                                                             | 31     |
| ITEM 8.  | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            | 31     |
| ITEM 8A. | CONTROLS AND  PROCEDURES                                                                         | 31     |
| ITEM 8B. | OTHER INFORMATION                                                                                | 31     |
|     |                                                                                             |   |
|     | PART III                                                                                    |   |
| ITEM 9.  | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                              | 31     |
| ITEM 10. | EXECUTIVE  COMPENSATION                                                                          | 35     |
| ITEM 11. | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS | 37     |
| ITEM 12. | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                  | 39     |
| ITEM 13. | EXHIBITS                                                                                         | 40     |
| ITEM 14. | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                          | 42     |

 

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**FORWARD LOOKING STATEMENTS**

 

Thisannual report contains forward-looking statements about our business, financialcondition and prospects that reflect our management’s assumptions and beliefsbased on information currently available. 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.

 

Noassurance can be given that the results in any forward-looking statement willbe achieved and actual results could be affected by one or more factors, whichcould cause them to differ materially. If any of our assumptions should prove incorrect, or if any of the risksand uncertainties underlying such expectations should materialize, the Company’sactual results may differ materially from those indicated by theforward-looking statements.

 

Youshould also consider carefully the statements under “Description of Business -Risk Factors”, which address factors that could cause our actual results todiffer from those set forth in the forward-looking statements.

 

**PART I**

 

**ITEM 1.  DESCRIPTION OF BUSINESS**

 

**OVERVIEW**

 

Uni-Pixel, Inc. is a development stage company that has patented anext generation color display technology it calls Time Multiplexed OpticalShutter (“TMOS”). The Company is the leader in the research, development andfuture commercialization of new flat panel displays using TMOS for a variety ofapplications including:

 
|   | · | Mobile  phones              |   | · | Televisions                            |
|--------|--------|-----------------------------|--------|--------|----------------------------------------|
|   | · | Consumer electronic devices |   | · | Dot Matrix and Segment display devices |
|   | · | Notebook computers          |   | · | Digital Signage                        |

 

Uni-Pixel’s TMOS technology offers significant advantages over existingalternatives including:

 

·      Significantlylower manufacturing cost;

·      Greaterpower efficiency;

·      Improvedpicture quality;

·      Increased brightness for daylightreadability;

·      Versatileproduction to include a broad range of sizes; and

·      Flexible, shapeable and transparentdisplays.

 

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

 

Uni-Pixel’s technology leadership and intellectual property position isexpected to enable it to generate revenues in two phases. The initial phase isexpected to generate revenue from partners through funded development efforts,and/or up-front license fees. The second phase is expected to include royaltiesfrom licensees that produce TMOS panels or incorporate them into applicationsfor automotive, active signage, medical and consumer electronics (i.e., TVs,monitors, personal computers, cameras, games, etc.).  Additionally, the Company expects to supply akey material component, its OpcuityTM Active Layer films, to its panelmanufacturing partners that will also be a revenue source.

 

Through its research and development efforts, the Company hasestablished a portfolio of TMOS-related patents, patent applications and otherintellectual property rights. Uni-Pixel currently has 14 issued, 1 allowed and50 pending patent applications worldwide providing a defensible strategy thatwill support:

 

·      Furtherdeveloping proprietary TMOS technology;

 

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

·     Enteringinto joint ventures in specific vertical market segments to exploit existingmanufacturing and distribution channels of its targeted partners; and

·     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, 2007 we have been primarily engaged inresearch and development efforts that have expanded our portfolio ofintellectual property, building prototype devices that demonstrate thetechnology, recruiting key personnel, engaging various strategic partners, andraising capital consistent with our strategy. As of December 31, 2007 we had accumulated a total deficit of $32.9million and expect similar losses to continue through at least 2008. We willfinance our continuing efforts and operations primarily through our existingcash, license fees being pursued from strategic partners and additional fundraising activities.

 

During2007, Uni-Pixel accomplished a number of milestones in both its technical andbusiness advancement.  This includedsuccessfully raising $22.0 million in new funding, completing joint developmentagreements with a variety of development partners, advancing subsystem designsfor testing within prototype devices, licensing applicable know-how relative tothe assembly of prototype systems, and the successful assembly anddemonstration of prototype systems.

 

**Formation History**

 

Uni-Pixel was originally incorporated in the State of Nevada as SuperShops, Inc. On November 15, 1999, Super Shops and its sistercompanies filed an amended petition under Chapter 11 of the United StatesBankruptcy Code. On July 31, 2000, the court approved Super Shops’ AmendedJoint Plan of Reorganization. On October 13, 2000, and in accordance withthe Plan of Reorganization, 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, Real-Estateforlease.com, Inc., a Delawarecorporation, merged with and into NEV Acquisition Corp.  Following the merger, NEV Acquisition Corp.changed its name to Real-Estateforlease.com, Inc.  Real-Estateforlease.com, Inc. wasincorporated 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.

 

Pursuant to the Agreement and Plan of Merger between NEV AcquisitionCorp. and Real-Estateforlease.com, Inc., the sole stockholder and founderof Real-Estateforlease.com, Inc. exchanged his equity ownership interestin Real-Estateforlease.com, Inc. for 9,500,000 shares (or approximately96%) 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.

 

Our wholly owned subsidiary, Uni-Pixel Displays, Inc. wasoriginally incorporated as Tralas Technologies, Inc., a Texas corporation,on February 17, 1998. Tralas Technologies, Inc. changed its name toUni-Pixel Displays, 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. At the time of this merger,Real-Estateforlease.com, Inc. had no operations and no material assets orliabilities.  Pursuant to the merger, wechanged our name from Real-Estateforlease.com, Inc. to Uni-Pixel, Inc.at the annual meeting of our stockholders held in January 2005.

 

Uni-Pixel, Inc. is now the parent company of our wholly-ownedoperating subsidiary, Uni-Pixel Displays, Inc. As used in this document, “Uni-Pixel,”“we,” “us,” and “our” refer to Uni-Pixel, Inc. and our wholly-ownedconsolidated subsidiary, Uni-Pixel Displays, Inc.

 

The common stock, par value $0.001 per share, of Uni-Pixel is quoted onthe Bulletin Board as of January 18, 2006 under the ticker symbol “UNXL.OB”.

 

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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 all forms ofdisplay applications specifically as demonstrated in desktop monitors and TVsas a substitute for the traditional cathode ray tube (CRT) screen.

 

**Replacement of 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 (CRT) displays in larger product applications such as desktop computermonitors and televisions. FPD’s unique form factor and digital interface isenabling the delivery and accurate display of video, telecommuting,information, data, analysis and instructions in both mobile and fixedenvironments previously unsuitable to CRTs. This transition is being driven by consumer preferences for appliancesthat are thinner and lighter, particularly in larger display sizes.  For example, according to industry researchcompany DisplaySearch, an independent market research firm tracking the FPDindustry, the 2002 revenues from the sale of FPD computer monitors exceeded therevenues from the sale of CRT computer monitors for the first time and, in2004, unit shipments of FPD computer monitors exceeded unit shipments of CRTcomputer monitors for the first time. In the third quarter of 2007,DisplaySearch reported that FPD computer monitors accounted for 95.5% ofdisplay shipments while CRT monitors accounted for only 4.5%.

 

**Proliferation of 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 DisplaySearch, the worldwide FPDmarket grew from $43.9 billion in 2003 to $74.8 billion in 2006.  DisplaySearch expects this market to grow toan estimated $114.4 billion in 2009.  Inaddition to the rapid replacement of CRT applications such as monitors and TVs,the FPD industry growth is being driven by a number of other market forcesincluding:

 

·      Increased demand for large format highresolution TV’s and computer monitors;

·      Steady growth in usage of notebook computers;

·      A migration to color screens for mobilephones and other handheld devices; and

·      Decreasing cost economics, increasingthroughput and improving efficiency of FPD production as newer generation LCDand plasma fabs are increasing production.

 

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

 

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**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, animatedand video formats.  As the sophisticationof the user continues to heighten, and bandwidth continues to increase, therewill be a demand for a superior, high resolution visual experience that onlyFPDs will be able to deliver – particularly in mobile wireless devices.  Flowing from this, new types of applicationsand functionality will evolve, that in turn will enhance existing markets andcreate new ones.

 

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 should continueto 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 sophisticated users nowexists who are providing the demand for new technologies such as Phone Camerasand Phone TVs.  These enhanced deviceswill incorporate high performance, next generation displays that will see amove away from Passive Matrix-LCDs towards Active Matrix-LCDs as well as otheremerging display types such as organic light emitting diodes (OLEDs).Additionally, FPD technology is increasingly taking forms beyond consumerelectronic devices.  FPDs are increasinglyused in emerging applications including retail signage, car navigation systems,instrumentation, and household appliances.

 

GlobalFPD consumption has grown by the ongoing replacement of CRT monitors and TV’s,as well as by the increasing popularity of notebook computers and portablehandheld devices.  In summary, the FPDindustry is currently being driven by 5 major trends:

 

·      Increasingacceptance and penetration of FPD TV’s;

·      Rapidreplacement of CRT monitors and TV’s;

·      Steadygrowth of notebook computers;

·      Movementto larger screen areas in FPD TV’s, computer monitors and notebook computers;and

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

 

TheFPD market is currently dominated by LCDs, which accounted for an estimated 91%of total FPD sales in 2007 and demand is increasing across multipleapplications with FPD formats generating industry-wide momentum.

 

Belowis a display technology continuum which illustrates the pros and cons ofvarious technologies.  As a disruptivetechnology entering the FPD landscape, we believe TMOS has strong technologicaladvantages when compared against the 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  + Thin |
| ** ** |       |                                                                                          |       |                                                                                                    |       |                                                                                       |       |                                                                                                                     |       |                                                                                         |       |                                                                                            |
| **Con**    |       | – 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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**TECHNOLOGY**

 

**Overview**: Uni-Pixel has developed a new color display technology it calls TimeMultiplexed Optical Shutter (“TMOS”). A TMOS display is constructed by theaddition of a single thin film layer positioned above the planar surface of alight guide constructed of glass or a polycarbonate substrate.  This positioning and bonding of the thin filmforms a drum type of structure at each individual pixel.  The drum structure places two conductorsparallel to each other with a dielectric air gap separation.  The light guide’s conductor at each pixel iseither driven by local transistors (in the form of Thin Film Transistors, TFTs)or through connection to transistors that are off the light guide. The thinfilm layer comprising the drum head is targeted to be composed of a basesubstrate layer of polyester film, or PET film, the addition of surfacemicro-optic features, and a conductor.

 

Theimplementation of the thin film layer of material creates a matrix of opticalshutters on the surface that are opened or closed as controlled by theTFTs.  This opening and closing processis the oscillation of the thin film in and out of contact with the light guideallowing the frustration of totally internally reflected (TIR) light.  Once the TIR light is frustrated, themicro-optic structures couple and direct the light to the viewer.  The panel unit should be simpler tomanufacture than Plasma or Liquid Crystal Displays (“LCD”) as the single PETfilm included in the system replaces several other materials and steps requiredfor the production of Plasma or LCD.

 

**Reduced Complexity**: In contrast to plasma or LCD, a TMOS single pixel shutter emits thethree primary colors (red, green, and blue) without the use of three separatesub-pixels. Because TMOS displays have one-third the number of features for thesame number of pixels, they benefit from reduced manufacturing complexity.

 

LCDand plasma complexity is also driven through their use of TFTs. Currently LCDor plasma displays require each individual sub-pixel to be driven by a singleTFT, (three TFTs per each pixel) which increases the necessity of additionalelectrical 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);

·      Picturequality that is daylight readable in portable devices (i.e., cell phones, PDAs,and notebook computers);

·      Futuredisplays capable 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 can take over 100 individual steps in themanufacturing process. This process is necessary to yield intricatelydeveloped, small and tightly packed features. However, these manufacturing processesare 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 failure elements, and an enhancedpotential for longer life and resilience over LCD or plasma panels.

 

**Light Efficiency**: LCD display technologies function by emitting light from a back plane(a back light) and then screening, masking, polarizing, and filtering the lightuntil it is emitted from the front of the panel in the appropriate color 

 

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intensity.This method yields a maximum efficiency of light of less than 10%. This meansthat if 1000 nits (a measure of brightness) are created by the backlight, lessthan 100 nits are displayed out the front.

 

ATMOS panel uses light injected into the edge of the glass panel much the way afiber optic cable works. Light is injected into one edge of the TMOS panel,with mirrors on the other three opposing sides/edges. Light goes into the guideand travels 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 technology functions by using high voltage electricityto excite encapsulated gases that emit electrons. These electrons excitephosphors that emit photons, which are the light elements that are seen by theviewer. This process of continued materials excitement requires significantamounts of energy that is converted to photonic 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 built prototypes that havedemonstrated proof of concept, technical viability, and the operation of thesub-systems within its TMOS technology. The Company’s current prototypingefforts are focused on the process of optimizing the materials and assembly ofthe display to advance to manufacturability and then on to commercialization.

 

**Technology Progress**: In early 2004, Uni-Pixel delivered its first proof of conceptprototype device under a development contract. In mid 2004, Uni-Pixel was awarded a Phase II SBIR contract by the USAir force to advance its designs as modeled during its Phase I contract in aneffort to solve image break-up issues traditional in Field Sequential Colordisplay systems.  In December 2004,Uni-Pixel closed its first significant funding round and began work on openingits own development laboratories including metrology capabilities.  These efforts continued into 2005 andresulted in the first recognition of the viability of our TMOS invention byexternal partners and the first opportunity for Uni-Pixel to materiallyimplement its display architecture design.

 

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, New Mexico, which was adjacent to Sandia NationalLaboratory.  In July of 2005,Uni-Pixel moved into new facilities including electronics labs, clean roomspace, and machining systems in The Woodlands, Texas.  During the course of this time, the initial8x8 pixel prototypes were significantly improved and advanced in theiroperation, optical system models were built, electronic control designscompleted and implemented, and the prototypes were scaled up to a fullyoperational, full color, 32x32 pixel device. Uni-Pixel has successfully constructed and tested the sub-systems in thedisplay architecture and is in position to advance the display materials andthe 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.  During 2006, Uni-Pixel engaged the Palo AltoResearch Center (PARC) division of Xerox Corporation to provide suitableelectronic backplanes for TMOS prototypes to prove the ability to drive a TMOSsystem with a TFT implementation.

 

In2007, Uni-Pixel completed two rounds of funding which provided additional fundsto advance the development of TMOS.  In April of2007, Uni-Pixel ended its work with PARC and contracted with Philips ResearchLabs MiPlaza Open Innovation Center in Eindhoven, Netherlands to provideelectronic backplane development. Sub-system advances were made in all areas including the light injectionsystem design, OpcuityTM Active Layer materials and implementation requirements,and drive control algorithms and electronics. In November of 2007, Uni-Pixel expanded its relationship withPhilips by entering into a know-how licensing arrangement specific to theassembly of display systems.  In December of2007, Uni-Pixel completed the successful assembly of prototype devicesleveraging the collaborative work conducted in the Eindhoven center.

 

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Through2008, 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 StrategicRelationships. **Uni-Pixel plans to target strategic partnersto further the Company’s efforts in the development and commercialization ofTMOS displays. Uni-Pixel believes that if these efforts are successful, theycould result in TMOS flat panel displays reaching commercial markets inproducts faster than other previous display technologies.  Uni-Pixel’s display architecture leveragesthe application of existing materials and optical technologies in new ways thathave previously been mastered by other companies in other applications.  Uni-Pixel management understands that gainingthe assistance of some of these various technology leaders in the developmentof TMOS can accelerate the commercialization effort significantly.  As a result, Uni-Pixel will seek to buildrelationships that will allow it to leverage existing knowledge, scale, andexpertise in thin films, optics, control circuitry, assembly, and logistics.

 

·      **Enhance the Company’sExisting 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 Suitableto Military Requirements. **Working with Lockheed Martin, Uni-Pixel plansto produce prototypes that will demonstrate the Company’s ability to meet themost demanding military requirements with a superior 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 Manufacturing Process.** Uni-Pixel plans to complete thedevelopment of the core and foundation of its manufacturing processes andprotect the intellectual property in the developed processes; and establish atechnology transfer team to enable transition of the Company’s manufacturingprocesses to targeted manufacturing partners and licensees.

 

·     **Target LeadingManufacturers.** 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 successful incorporationof its technology into the first military or commercial applications will placecompetitive pressure on other industry participants to adopt a TMOS displaytechnology solution. Uni-Pixel believes that this approach will also encouragepotential new market entrants as licensees seek to capture or defend originalequipment manufacturer supply contracts. Uni-Pixel will support “pull through” of its TMOS technology by activelymarketing its advantages to end product original equipment manufacturers (OEMs) that incorporate 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 byEnd-Product Original Equipment Manufacturers.** Uni-Pixel plans to use prototype devices todemonstrate its technology to original equipment manufacturers that produce enduser products. The Company believes that the significant advantages thatUni-Pixel’s displays will offer in performance and 

 

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packaging design can position it to be a “plug and play” replacementfor existing LCD displays and will induce original equipment manufacturers torequest production of TMOS displays from their existing display suppliers. Thisis considered a “pull-through” approach to gaining market acceptance and entryof TMOS displays into end-user products and applications.  This group will acquire and integrate thepanel packages into end user products.

 

·     **Build the Company’s Revenue Sources.** Uni-Pixel believes that it will be able to producerevenues from four distinct sources, consisting of licensing revenues (initiallicense fees and royalties), subcontracted manufacturing revenues (from theCompany’s low volume military production, joint ventures, or products producedby third party contract manufacturers), materials revenues (from the materialsUni-Pixel plans to supply to prospective partners, contract manufacturers, andlicensees), 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.

 

**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 pixel mechanism materials;

·      Optimization of the light management system (light injection andmicro-optics designs);

·      Completion of supporting drive control circuitry;

·      Finalized bonding techniques for completion of the active layerstructure;

·      Assembly and testing of multiple format prototype devices; and

·      Finalization of specifications for retrofitting existing LCDmanufacturing plants to TMOS.

 

Specificallythis includes:

 

**High Level Milestones**

 

| **6 Months**   | ** **                                                                                                             | **12 Months** | ** ** | **18 Months**                                                              | ** ** | **24 Months** |
|---------------------|------------------------------------------------------------------------------------------------------------------------|--------------------|------------|---------------------------------------------------------------------------------|------------|--------------------|
| ·    | Finalize 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 |
|                |                                                                                                                   |               |       |                                                                            |       |               |   |   |   |   |
| ·              | Engage  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 |
|                |                                                                                                                   |               |       |                                                                            |       |               |   |   |   |   |
| ·              | Advance targetedpartnerships with TFT Manufacturers to begin  efforts to develop TMOS technology for commercialization | ** **         | ·     | Engage 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 |

 

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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 customerfor a 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.

 

CurrentPartners

 

·     *Philips Research Lab/MiPlaza Open Innovation Center:*Uni-Pixelengaged MiPlaza as a development partner working on certain prototyping tasksto advance the display architecture, provide electronic backplanes, support theassembly process, and engineering development support.  This effort has and will continue to provideUni-Pixel with further advanced prototypes and with additional subsystems thatfurther the optimization process for manufacturing.

 

·     *Sandia National Laboratory:*Sandia wasengaged with Uni-Pixel directly and through a Lockheed Martin CooperativeResearch and Development Agreement (CRADA). Current efforts with Sandia were ended during 2007.

 

·      *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 (“theAgreement”), pursuant to which Uni-Pixel granted Lockheed the exclusive marketrights for Uni-Pixel’s flat panel display technology in the Military/AerospaceField in exchange for certain financial and engineering resources provided byLockheed for the research and development of Uni-Pixel’s TMOS displaytechnology.  Lockheed Martin hascommitted resources to assist Uni-Pixel with electronics development,environmental, life cycle testing and rugged-ization of displays for militaryrequirements.  It is expected that TMOSdisplays will be inherently more rugged off the shelf than LCD displays and wouldnot require the significant cost required for LCD to become ruggedized formilitary applications.  Lockheed will beable to derive significantly higher yields supplying displays to the militaryusing TMOS in place of LCD technology as well as being able to design uniquesystems leveraging TMOS capabilities and attributes that other militarycontractors will not be able to match.

 

TargetPartners

 

·     *Optical Thin Film Production:*Uni-Pixel is seeking partners for assistancein the 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 the optimizationof existing materials as implemented within the process and system.  Initially Uni-Pixel expects to contract fordevelopment work with the objective of reaching a production agreement or jointventure with one or more thin film manufacturers.

 

·      *Drive Control Circuitry:*Uni-Pixel is seeking partners for assistancein the development and manufacturing of its unique drive controlcircuitry.  Uni-Pixel has developedunique intellectual property that will be implemented through a “fab-less”semiconductor model.  This may includepotential development of new intellectual property, 

 

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cross licensing, and the use of certain existing semiconductorcapabilities from one or more partners. Uni-Pixel has developed a means to use off the shelf parts for certaindrive control requirements that will allow it to produce prototypes in theshort term, as well as leveraging the enhancements that its own unique drivecontrol provides over the longer term.

 

·     *Manufacturing and Assembly Partners:*****Uni-Pixel is seeking strategic partnersthat are currently manufacturing other display technologies or incorporatingother display technologies into end user products.

 

TargetCustomers

 

·     *Lockheed Martin:* Uni-Pixel plans to sellor support the sale of TMOS panels to Lockheed Martin for implementation intounique military and avionics systems for resale to the government andindustry.  These panels are expected tobe produced in small volumes and sold to Lockheed at relatively high marginsattributable to their unique capabilities and lesser rugged-izationrequirements.

 

·     *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 performancefeedback.  Additional work continuesspecific to advancing this prototype to implementation within an end userproduct.

 

·     *Large Active Signage OEM:* Uni-Pixel isseeking potential partners in the vertical market of Active Signage.  Two dominant technologies exist in thisvertical market, plasma displays for indoor applications and LED displays foroutdoor applications.  Uni-Pixel’stechnology offers unique and new capabilities that strongly differentiate itfrom both of these, and can potentially open a market not currently able to betargeted by either.

 

·     *Consumer Electronics Manufacturers (OEMs*): Uni-Pixel has held initial exploratorymeetings with a variety of consumer electronics OEMs that have all expressed adesire to leverage TMOS’ unique attributes in their products.  This includes cell phone manufacturers, a PDAmanufacturer, and a television system producer. Each of these interactions has resulted in an invitation to return forfurther engineering specific meetings as product development advances atUni-Pixel.

 

**SALESAND MARKETING**

 

Uni-Pixelis seeking end user product OEMs that desire to integrate TMOS flat panels intotheir products once available and demonstrating their superiorperformance.  Uni-Pixel believes thatthere are OEMs that will be interested in pursuing the advantages of TMOS flat panelsas a significant differentiator for their products relative to theircompetition 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:

 

·      Licensing revenues – Strategic manufacturingpartners that license Uni-Pixel manufacturing processes for a manufacturingoperation, cross licensed partners that produce portions of the materials ortechnology incorporated into TMOS displays, a silicon foundry partner thatproduces the display controller semiconductors.

 

·      Product revenues – Integrators of displaypanel packages designed and built for small volume requirements such asmilitary and avionics applications, or unique custom displays.

 

·      Critical materials – Integrators ormanufacturers that produce or assemble display panel packages.  For integrators this can include controldriver chips from Uni-Pixel’s foundry partner. For manufacturers this can include materials such as its OpcuityTM thinfilms featuring micro-optics and transparent conductors to be used in thedisplay panel.

 

·      Research contracts – Integrators that areseeking to leverage unique attributes that TMOS can potentially provide such ascurved or shaped displays, transparent displays, or uniquely applieddisplays.  Uni-Pixel expects thatinitially the US Government will be a principal customer 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 

 

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advantagesthat TMOS panels can provide both in form factor and performance. Uni-Pixelexpects to create OEM “pull” by gaining design wins for integration of TMOSdisplay panel technology into established 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 initialproducts reach the market featuring TMOS displays and Uni-Pixel begins to buildmomentum and manufacturing capacity within the industry, a marketing programwill be launched to drive awareness of Uni-Pixel’s TMOS displays as a component“brand” within the end user products.  This marketing program will be designed to drive awareness and educationamong end users supporting TMOS’ unique capabilities and enhancedperformance.  Uni-Pixel believes that itwill be able to promote its brand as a valued component brand included withinthe OEM products as a part of its relationship with the end product OEMs. Ultimately the goal of this marketing program will be to establish Uni-Pixeland its unique displays independently as a differentiating factor in end userproducts and to help promote the TMOS component value proposition for Uni-Pixeland its partner OEMs that implement TMOS displays in their products similar towhat has been done in the PC industry by certain semiconductor companies.

 

**RESEARCHAND DEVELOPMENT**

 

Frominception through December 31, 2007, Uni-Pixel has spent approximately$14.3 million on research and development activities with $4.5 million and $2.9million invested in 2007 and 2006, respectively. Uni-Pixel continues conductingresearch and development both internally and externally and anticipatessignificantly higher investments going forward.

 

Asof December 31, 2007, Uni-Pixel has one principal location conductinginternal research.  The Company’sheadquarters and primary development site are located in The Woodlands,Texas.  The headquarters locationincludes a Class 100 clean room where display materials testing andassembly is conducted, an electronics lab, optical testing facilities, test andmeasurement 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 severalexternal vendors to produce the material requirements of each layer that makesup Uni-Pixel’s display prototypes. These vendors are to deliver to the Companythe individually contracted elements as specified by Uni-Pixel. 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 Liquid Crystal on Silicon, orLCoS.

 

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

 

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·      A wide range of opportunity to enter themarket;

·      The flexibility to pursue any and all marketsegments;

·      The ability to be a supplier of keymaterials;

·      The ability to profitably produce smallvolumes of unique displays; and

·      The ability to enable localizedmanufacturing.

 

Atthe same 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 inthe FPD sector with 91% market share in 2007. Samsung Electronics and LGPhilips LCD Co. Ltd. are market leaders while additional competitorsinclude:  Sharp Electronics Corp., NECCorp., Hitachi Ltd., AU Optronics Corp., Chi Mei Optoelectronics Corp.,Chunghwa Picture Tubes Ltd., Quanta Corp. and HannStar Display Corp.

 

·      *Plasma Competitors*: Plasma technology is another technology in the FPD market sufferingfrom high power consumption and limited life span. Major competitorsinclude:  Matsushita Electric IndustryCo. 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 DLPtechnology, which is a micro-mechanical structure of moving mirrors on asilicon backplane. Texas Instruments has had significant success selling itsDLP products to its customers in the business front projector market and therear projection television market.  Itscustomers include:  Toshiba Corp.,Thomson Multimedia, Mitsubishi Digital Electronics, LG Electronics and SamsungElectronics.

 

·      *High Temperature Polysilicon LCD (HTPS-LCD) Competitors*: The HTPS-LCD technology, a transmissive FPDtechnology, is championed by Epson Corp., Sony Corp, Panasonic Corp., HitachiLtd., 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) Competitors:*Operates through depositing amorphous siliconmaterials onto glass, building arrays of Field Effect Transistors (FETs).Competitors in this market include: Samsung Electronics, Sanyo Epson,International Display Technology Co. Ltd. and IBM Corp.

 

EmergingTechnologies:

 

·      *OLED Competitors:* Eastman Kodak Company has licensed afluorescent OLED technology and other patents for display applications to anumber of display manufacturers. In addition, Eastman Kodak and Sanyo Electric,through a joint venture known as SK Display Corporation, Samsung NEC MobileDisplay Co., Ltd., RiTdisplay and Pioneer are presently manufacturing OLEDproducts using OLED technologies. Eastman Kodak, Covion Organic SemiconductorsGmbH, Universal Display Corp. (UDC), and Idemitsu Kosan Co. are selling andlicensing various forms of OLED materials and processes that will compete withUni-Pixel’s proprietary TMOS technology. Samsung SDI has launched production ofOLED displays in a relationship leveraging licenses from UDC.  Another OLED industry participant, CambridgeDisplay Technology (CDT), Ltd., has licensed and is working with a numberof display manufacturers on its polymer OLED technology. Following the creationof a CDT joint venture with Sumitomo Chemicals to produce and manufactureP-OLEDs, CDT has been acquired by Sumitomo.

 

·      *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 reflective microdisplay market include Sony, JVC, Aurora, Syntax-Brillian, Spatialight, eLCOSand others.  We believe LCoS has beenperceived as a very difficult technology to manufacture as multiple majorcorporations have terminated their LCoS manufacturing efforts.

 

·      *Other TechnologiesCompetitors*: There are anumber of other technologies under development that may some day compete withUni-Pixel. These include “electronic paper” implementations from E-Ink, Sipix,and Prime View 

 

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International, “Non-Organic Thick Film Dielectric Electro LuminescentTechnology” developed by iFire Technologies a unit of Westaim Corporation andflat 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 micro electronic mechanical systems(MEMS) -based display technology, in many cases when Uni-Pixel solves a technologyissue it creates a new invention. Uni-Pixel has engaged one of the industry’s largest and most experiencedIP firms to assist in the prosecution of 50 new patent filings as of the end of2007.  TMOS represents a “green field”technology in that it is a new approach to displays leveraging well knownconcepts in new ways.  This has createdan unexplored arena for Uni-Pixel to innovate and generate IP on a continuingbasis.

 

TheCompany currently holds 14 granted patents relating to its TMOS technology.These patents have been filed in the United States as well as the largestmarkets across Europe and Asia.  Theseexisting patents will begin to expire in 2011.

 

**Patent Table**

 
| ** **                                                                                                                                      | ** ** | **Number of Patents** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| **Description**                                                                                                                                 | ** ** | **Patents****Issued**           | ** ** | **Patents****Allowed** | ** ** | **Patents Pending** | ** ** | **Total** | ** ** |
| Optical Display (base TMOS Patent)                                                                                                              |       | 7                               |       |   |   |   |   | 7 |   |
| Field Sequential Color Efficiency  Enhancement                                                                                                  |       | 3                               |       |   |   | 4 |   | 7 |   |
| Common Ground Plane Discharge Circuit                                                                                                           |       | 2                               |       |   |   | 2 |   | 4 |   |
| Double-Electret MEMS Actuator                                                                                                                   |       | 1                               |       |   |   | 1 |   | 2 |   |
| Z-Axis Redundant Display/Multilayer Display                                                                                                     |       |                            |       |   |   | 7 |   | 7 |   |
| Simple Matrix Addressing                                                                                                                        |       |                            |       |   |   | 8 |   | 8 |   |
| Enhanced Bandwidth Data Encoding Method                                                                                                         |       |                            |       |   |   | 8 |   | 8 |   |
| Reducing Light Leakage and Improving  Contrast Ratio Performance in FTIR Display Devices                                                        |       |                            |       |   |   | 1 |   | 1 |   |
| Electromechanical Dynamic Force Profile  Articulating Mechanism                                                                                 |       |                            |       | 1 |   | 2 |   | 3 |   |
| Optical Microstructures for More Optical  Light Extraction and Control (combined Microlens Extraction Structure &  Microlens Anti-Stiction) |       |                            |       |   |   | 3 |   | 3 |   |
| Mechanism to Mitigate Color Breakup  Artifacts in Field Sequential Color Display Systems                                                        |       |                            |       |   |   | 4 |   | 4 |   |
| Corner-Cube Retroreflectors for Displays                                                                                                        |       |                            |       |   |   | 1 |   | 1 |   |
| Backside Reflection Optical Display                                                                                                             |       |                            |       |   |   | 3 |   | 3 |   |
| Field Sequential Color Palette Enhancement                                                                                                      |       |                            |       |   |   | 2 |   | 2 |   |
| Airgap Autogenesis Method                                                                                                                       |       | 1                               |       |   |   |   |   | 1 |   |
| Extending the Gamut Color Generation in an  Optical Flat Panel Display                                                                          |       |                            |       |   |   | 2 |   | 2 |   |
| Visible Plus Non-Visible Field Sequential  Color                                                                                                |       |                            |       |   |   | 1 |   | 1 |   |
| Curved Screen FTIR Display Mechanism                                                                                                            |       |                            |       |   |   | 1 |   | 1 |   |
|                                                                                                                                            |       | 14                              |       |   |   | 50 | ** ** | 65 | ** ** |

 

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**EMPLOYEES**

 

We have twenty-six full-time employees and zero part-time employees.None of these employees is covered by a collective bargaining agreement, and webelieve our relations with our employees are good. We also employ consultantson an as-needed basis to supplement existing staff.

 

**OUR COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS**

 

We are not aware of any current federal, state or local environmentalcompliance regulations that have a material effect on our business activities.We have not expended material amounts to comply with any environmentalprotection statutes and do not anticipate having to do so in the foreseeablefuture.

 

**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 area development 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.**

 

Weare attempting to obtain the necessary working capital for operations, butthere can be no assurance we will obtain such financing. We have not yetdemonstrated our ability to generate revenue, and there is no assurance that wewill produce any material revenues for ourselves or our stockholders, or thatwe will operate on a profitable basis. As of December 31, 2007, we had anaccumulated total deficit during development stage of $32.9 million.

 

Weare a development stage company with a limited operating history and nosignificant revenues to date. To date, we have had only a fewrevenue-generating services or development contracts.  We expect to expend significant resources onconsultants, intellectual property protection, research and development,advertising, hiring of personnel and startup costs. As a result, we haveincurred losses since our inception and expect to experience operating lossesand negative cash flow for the foreseeable future. We anticipate our losseswill continue to increase from current levels because we expect to incuradditional costs and expenses related to prototype development, consultingcosts, laboratory development costs, marketing and other promotionalactivities, the addition of engineering and manufacturing personnel, and thecontinued development of relationships with strategic business partners.

 

Sinceinception, we have generated limited revenues while incurring significantlosses. We expect to incur losses for the foreseeable future and until such time,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 TMOS technology may neverbecome commercially viable. Markets for flat panel displays utilizing ourproprietary TMOS technology may be limited. We may never generate sufficientrevenues from the commercial exploitation of our TMOS technology and materialsto become profitable. Even if we find commercially viable applications for ourTMOS technology and materials, we may never recover our research anddevelopment expenses.

 

**If wedo not receive additional financing when and as needed in the future, we maynot be able to continue the research, development and commercialization of ourTMOS technology 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 ofour common stock, preferred 

 

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stock,warrants or depositary shares, or if we engage in acquisitions involving theissuance of such securities, the issuance of these shares could, subject to anyanti-dilution provisions, dilute the ownership of our then-existingstockholders.

 

**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.

 

**Ourbrand name and technology may not be recognized in our marketplace so ourresults of operations 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 insufficient to allow us to recover our costs. Furthermore, our tradesecrets, know-how and other technology may otherwise become known or beindependently discovered by our competitors.

 

**If wefail to enter cooperative research agreements, 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 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.**

 

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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 displaymanufacturers’ entering into commercial licensing and material supplyrelationships 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-term businessprospects.

 

Our business prospects depend significantly on our ability to obtain orproduce proprietary materials for our own use and for potential sale to displaymanufacturers.  A previously proposed development and license agreementwith a national laboratory was terminated in 2007 after it was determined thatthe targeted material was no longer applicable to the function it was evaluatedto provide and therefore there was no need to conclude a furtheragreement.  Our inability to reach agreements to obtain certain othermaterials from other sources could have a materially adverse effect on ourability to generate revenues from sales of these materials, as well as on ourability to perform research and development work. Further, failure to complete longterm agreements could preclude our ability to support display manufacturersthat would choose to license our TMOS technology and materials for possiblecommercial use.  Also, a license with a national laboratory or governmentagency 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 require us to grant licenses to otherparties in that field of use. Any of these occurrences would limit our abilityto 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 asubstantially similar product.

 

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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 weare unable to keep up with rapid technological changes, our processes, productsor services 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 incorporate our TMOS technology. Moreover, there may be a numberof additional technologies that display manufacturers need to utilize inproduction or may need to be used in conjunction with our TMOS technology inorder to bring TMOS displays and products containing them to the market. Ifdisplay manufacturers are unable to obtain access to these additionaltechnologies, they may not utilize our TMOS technology.

 

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.

 

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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.

 

**Theloss of the services of our key management and personnel or the failure toattract additional key personnel could adversely affect our ability to operateour business**.

 

Aloss of one or more of our current officers or key employees could severely andnegatively impact our operations. Specifically, the loss of services of Reed J.Killion, President, Jim Tassone, Chief Financial Officer, Martin G.Selbrede, Chief Science Officer, Dan Van Ostrand, Executive Vice President orB. Tod Cox, Vice President of Engineering, none of whom has an employmentagreement with us except for Mr. Killion and Mr. Tassone, couldsignificantly harm our business. We have no present intention of obtainingkey-man life insurance on any of our executive officers or management.Additionally, competition for highly skilled technical, managerial and otherpersonnel is intense. As our business develops, we might not be able toattract, hire, train, retain and motivate the highly skilled managers andemployees we need to be successful. If we fail to attract and retain thenecessary technical and managerial personnel, our business will suffer andmight 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 otherproceeding under the Federal Bankruptcy Code and may therefore have liabilitiesof which we are currently unaware. Uni-Pixel received typical representationsand warranties from the former principals of Real-Estateforlease.com, Inc.pursuant to the merger agreement by and among Real-Estateforlease.com, Inc.,Uni-Pixel Displays, Inc., Gemini V, Inc. and Uni-Pixel Merger Sub, Inc.However, Uni-Pixel will only receive the following indemnification protectionfrom the former principals of Real-Estateforlease.com, Inc. for itsliabilities and claims: (i) for the period of July 31, 2000 (theconfirmation date of Super Shops, Inc.’s plan of reorganization) through June 13,2001 from Halter Financial Group, Inc., a stockholder ofReal-Estateforlease.com, Inc.; (ii) for the period of June 14,2001 through November 14, 2004 from David DiSalvo, the former President,Secretary, Treasurer and sole board member for Real-Estateforlease.com, Inc.;and (iii) for the period of November 15, 2004 going forward fromFrank M. DeLape, the current 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 CommonStock, Halter Financial Group received approximately 380,000 shares of CommonStock and 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 their indemnification obligations tous, or (ii) such liabilities or claims exceed $3,172,400, we would suffera loss, which loss would impact our financial condition and the value of ourCommon Stock and our Preferred Stock. If the liability or claim issubstantially in excess of $3,172,400, we might be forced to seek bankruptcyprotection.

 

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**Theflat panel 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**

 

**Our Common Stock has traded only sporadically and is expected toexperience significant price and volume volatility in the future whichsubstantially increases the risk of loss to persons owning our Common Stock.**

 

Therewas no public market for our Common Stock prior to February 3, 2005. Atbest, only a limited market has developed and is expected to continue todevelop in the foreseeable future for our Common Stock. Because of the limitedtrading market for our Common Stock, and the possible price volatility, you maynot be able 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:

 

·              Disappointingresults from our development efforts;

·              Failureto meet our revenue or profit goals or operating budget;

·              Decline in demand for our Common Stock;

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

·              Technologicalinnovations by competitors or in competing technologies;

·              Investorperception of our industry orour prospects;

·              Generaleconomic trends;

·              Variationin our quarterly operating results, including our inability to increaserevenues;

·              Announcementof new customer relationships by our competitors;

·              Departuresof our executive officers;

·              Generalconditions in the worldwide economy, including fluctuations in interest rates;

·              Developmentsin patents or other intellectualproperty rights and litigation;

·              Developmentsin our relationships with our customers and suppliers;

·              Anysignificant acts of terrorismagainst the United States; and

·              Ourcurrently limited public float.

 

OurCommon Stock has traded as low as $0.80 and as high as $5.50 during a periodfrom February 3, 2005 through December 31, 2007. In addition tovolatility associated with Bulletin Board securities in general, the marketsfor high technology stocks have experienced extreme volatility that has oftenbeen unrelated to the operating performance of the particular companies. Thesebroad market 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 

 

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real-timequotes, last sale prices, and volume information in over-the-counter equitysecurities like our Common Stock, we are not required to meet or maintain anyqualitative or quantitative listing standards for our Common Stock to be quotedon the OTC**Bulletin Board. OurCommon Stock does not presently meet the minimum listing standards for listingon the Nasdaq Stock Market or any national securities exchange which couldaffect our stockholders’ ability to access trading information about our CommonStock.

 

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 rules and regulations relatingto “penny stocks” (generally defined as any equity security that is not quotedon the Nasdaq Stock Market and that has a price less than $5.00 per share,subject to certain exemptions). Broker-dealers who sell penny stocks aresubject to certain “sales practice requirements” for sales in certainnon-exempt transactions *(i.e.,*salesto 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 generallyrequire that prior to a transaction in a penny stock the broker-dealer make aspecial written determination that the penny stock is a suitable investment forthe purchaser 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 rules onpenny stocks, the liquidity of our Common Stock could be significantly limited.This lack of liquidity may also make it more difficult for us to raise capitalin the future.

 

**We do not expect to pay dividends in the foreseeable future.**

 

Wehave never paid cash dividends on our shares of Common Stock, and have no plansto do so in the foreseeable future. We intend to retain earnings, if any, todevelop and expand our business operations.

 

**ITEM 2. DESCRIPTION OFPROPERTY**

 

Ourmain corporate offices and research and development facility are located at8708 Technology Forest Place, Suite 100, The Woodlands, Texas 77381. Wecurrently lease 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.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

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

 

**PART II**

 

**ITEM 5. MARKET FOR COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS**

 

**Market Information**

 

SinceJanuary 18, 2006, our Common Stock has been traded on the OTC BulletinBoard under the symbol “UNXL”. From February 3, 2005 to January 18,2006, our Common Stock was quoted on the “pink sheets” published by the PinkSheets LLC under the symbol “UNXL.” Prior to February 3, 2005, our sharesof Common Stock were 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 

 

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forththe range of high and low bid quotations or high and low closing prices, asapplicable, for our Common Stock for each of the periods indicated as reportedby the Pink Sheets or the OTC Bulletin Board. The prices for the Pink Sheetsand the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up,mark-down or commissions. The OTC Bulletin Board and Pink Sheet prices listedbelow may not represent actual transaction prices.

 
| ** **     | ** ** | **Year Ended  December 31, 2007** | ** ** | **Year Ended  December 31, 2006** | ** ** |
|----------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **     | ** ** | **High**                                         | ** ** | **Low**                                          | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $                                                | 1.55       |                                             | $          | 0.85 |   | $ | 4.25 |   | $ | 2.05 |   |
| Second Quarter |       | 1.50                                             |       | 1.10                                             |       | 2.05 |   | 1.40 |   |
| Third Quarter  |       | 1.55                                             |       | 1.03                                             |       | 1.85 |   | 1.25 |   |
| Fourth Quarter |       | 1.40                                             |       | 0.80                                             |       | 1.60 |   | 1.03 |   |
|                |            |                                                  |            |                                                  |            |  |  |  |  |  |  |  |  |

 

Theabove quotations reflect inter-dealer prices, without retail mark-up, markdownor commission and may not necessarily represent actual transactions. As of February 19,2008, we had eleven broker dealers making a market in our common stock.

 

**Holders**

 

Asof February 19, 2008, we had approximately 1,073 stockholders of record ofour Common Stock.

 

**Dividends**

 

TheCompany has never paid dividends on its 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 received cumulative annual dividends,payable in shares of Series A Preferred Stock or cash, at the option ofthe Board of Directors, at an annual rate of 6% ($0.21 per share), payable on December 31of each year commencing December 31, 2005 through December 31, 2007.Unpaid dividends will accumulate and be payable prior to the payment ofdividends on shares of Common Stock. Cash dividends will only be payable fromfunds legally available therefore, when and as declared by the Board ofDirectors of the Company, and unpaid dividends will accumulate until theCompany can legally pay the dividends. In 2007, the Company paid accumulateddividends to the holders of Series A Preferred Stock in the amount of 0shares of Series A Preferred Stock, as well as 262,846 common shares.  In 2006, the Company paid accumulateddividends to the holders of Series A Preferred Stock in the amount of134,117 shares of Series A Preferred Stock, as well as 16,282 commonshares.  As of December 31, 2007,there were no Series A Preferred Stock outstanding.

 

The holders of Series B Preferred Stock will receive cumulativeannual dividends.  Dividends shallaccrue, whether or not declared and paid, on the Series B Preferred Stockat the rate per annum of 8%, and shall be cumulative as to any dividends notdeclared and paid in any year, compounding annually at the same rate.  Each share of Series B Preferred Stockmay, at the option of the holder, be converted at any time into a number offully paid and non-assessable shares of common stock of the Company equal tothe quotient obtained by dividing the original issue price of $3.75 for the Series BPreferred Shares, plus all accrued and unpaid Series B Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series BPreferred Stock conversion price, which is $0.75 but is subject to adjustmentfrom time to time in accordance with the Certificate of Designations. As of December 31,2007, there were 3,200,000 shares of Series B Preferred Stock outstanding,with cumulative unpaid dividends of approximately 225,140 shares of Series BPreferred Stock.

 

The holders of Series C Preferred Stock will receive cumulativeannual dividends.  Dividends shallaccrue, whether or not declared and paid, on the Series C Preferred Stockat the rate per annum of 8%, and shall be cumulative as to any dividends notdeclared and paid in any year, compounding annually at the same rate.  Each share of Series C Preferred Stockmay, at the option of the holder, be converted at any time into a number offully paid and non-assessable shares of common stock of the Company equal tothe quotient obtained by dividing the original issue price of $11.20 for the Series CPreferred Shares, plus all accrued and unpaid Series C Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series CPreferred Stock conversion price, which is $1.40 but is subject to adjustmentfrom time to time in accordance with the Certificate of Designations. As of December 31,2007, there were 892,858 shares of Series C Preferred Stock outstanding,with cumulative unpaid dividends of approximately 18,395 shares of Series CPreferred Stock.

 

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**Equity Compensation Plan Information**

 

The following tableprovides information about shares of Common Stock that may be issued upon theexercise of options under all of the Company’s existing equity compensationplans as of December 31, 2007. For a complete description of the Company’sequity compensation plans, see Note 8 to the Consolidated Financial Statementsincluded 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     |       | 3,412,500                                                                                                                                   |       | $                                                                                      | 1.72       |                                                                                                                                                               | 2,587,500  |   |
|                                                   |       |                                                                                                                                        |       |                                                                                   |       |                                                                                                                                                               |       |
| Equity compensation plans not approved by stockholders |       | 1,300,000                                                                                                                                   |       | 1.24                                                                                   |       | —                                                                                                                                                             |       |
|                                                   |       |                                                                                                                                        |       |                                                                                   |       |                                                                                                                                                               |       |
| Total                                                  |       | 4,712,500                                                                                                                                   |       | $                                                                                      | 1.58       |                                                                                                                                                               | 2,587,500  |   |

 

**RecentSales of Unregistered Securities**

 

The information set forthbelow describes our issuance of securities without registration under theSecurities Act of 1933 during the year ended December 31, 2007, that werenot previously disclosed in one of our periodic reports during the year.

 

None.

 

**ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION**

 

The following discussionand analysis should be read in conjunction with the consolidated financialstatements including the notes thereto.

 

Overview

 

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, 2007, we had accumulated a total deficit of $32.9million from operations in pursuit of this objective.

 

We anticipate that ourTMOS displays will be thin, lightweight, and power-efficient devices, which arehighly suitable for use in full-color display applications.  We believeTMOS displays will be able to capture a share of the growing $60+ billionflat panel display market due to the significant advantages it should provideover competing displays with respect to manufacturing and materials cost,brightness, power efficiency, viewing angle, video response time and imagequality.  We believe that our technology leadership and intellectualproperty position will enable us to generate revenues initially from TMOSdisplays for existing vertical market segments such as the military, avionics,and automotive segments, and then subsequently from consumer electronicsmarkets (i.e., TVs, monitors, personal computers, cameras, games, etc.).

 

Our strategy is 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 14 issued, 1 allowed and 50 pending patent applications worldwideand contemplate obtaining exclusive field-of-use licenses, with the right tosublicense, to complementary technologies from targeted strategic partners andU.S. national laboratories.

 

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Through December 31,2007, 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 2008. We will finance ouroperations primarily through our existing cash and possible future financingtransactions.

 

Our ability to operateprofitably under our current business plan is largely contingent upon oursuccess 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 ourproducts, successfully develop the markets for our products or profitablemanufacturing methods, or raise any such additional capital as we might need,either through equity or debt financing, on satisfactory terms or at all.Additionally, no assurance can be given that any such financing, if obtained,will be adequate to meet our ultimate capital needs and to support our growth.If adequate capital cannot be obtained on satisfactory terms, our operationscould be negatively impacted.

 

If we achieve growth inour operations in the next few years, such growth could place a strain on ourmanagement, administrative, operational and financial infrastructure. Ourability to manage our current operations and future growth requires thecontinued improvement of operational, financial and management controls,reporting systems and procedures. In addition, we may find it necessary to hireadditional management, financial and sales and marketing personnel to manageour expanding operations. If we are unable to manage this growth effectivelyand successfully, our business, operating results and financial condition maybe materially adversely affected.

 

As of December 31,2007, we had cash and cash equivalents of $11.7 million.  We believe thatour existing capital resources are adequate to finance our operations through December 2008;however our long-term viability is dependent upon successful operation of ourbusiness, our ability to develop our manufacturing process, the development ofour products and our ability to raise additional debt and equity to meet ourbusiness objectives.

 

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

 

*CRITICALACCOUNTING POLICIES*

 

The following discussionand analysis of financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in conformity with accountingprinciples generally accepted in the United States of America. Our significantaccounting policies are more fully described in Note 3 of Notes to theaudited Consolidated Financial Statements. However, certain accounting policiesand estimates are particularly important to the understanding of our financialposition and results of operations and require the application of significantjudgment by our management or can be materially affected by changes from periodto period in economic factors or conditions that are outside of ourcontrol.  As a result, they are subject to an inherent degree ofuncertainty. In applying these policies, our management uses their judgment todetermine the appropriate assumptions to be used in the determination of certainestimates. Those estimates are based on our historical operations, our futurebusiness plans and projected financial results, the terms of existingcontracts, our observance of trends in the industry, information provided byour customers and information available from other outside sources, asappropriate. The following discusses our significant accounting policies andestimates.

 

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

 

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

 

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Revenue from licenses andother up-front fees are recognized on a ratable basis over the term of therespective agreement.

 

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

 

If, in the future, thepurposes for which we operate our facility in The Woodlands, Texas, or any newfacilities we open, changes, the allocation of the costs incurred in operatingthat facility between cost of sales and research and development expenses couldchange to reflect such operational changes.

 

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

 

*IntangibleAssets:*  Ourintangible assets represent patent applications which are recorded at cost. Wehave filed applications for patents in connection with technologies beingdeveloped. The patent applications and any patents issued as a result of theseapplications are important to the protection of our technologies that mayresult from our research and development efforts. Costs associated with patentapplications and maintaining patents are capitalized and will be amortized overthe life of the patents. 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. The projection of future cash flows requires us to makeestimates about when product approvals may be obtained, and the amount offuture revenues. The actual future results could differ significantly fromthese estimates, and resulting changes in the estimates of future cash flowscould be significant and could affect the recoverability of intangible assets.

 

*Stock-BasedCompensation:* 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 SFAS No. 123(R) effectiveJanuary 1, 2006.

 

We may, from time totime, 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 have substantialdisincentives to non-performance, is the date of the contract, and for allother 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.

 

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*RESULTSOF OPERATIONS*

 

Comparison of FiscalYears Ending December 31, 2007 and 2006

 

REVENUES.  Revenuesdecreased to $0 for the year ended December 31, 2007, as compared to$200,000 for the year ended December 30, 2006, due to the revenuesrecognized from the work specific to a development contract performed during2006.

 

COST OF REVENUES.  Cost of revenues include alldirect expenses associated with the delivery of products or services includinginternal labor costs. Cost of revenues for the year ended December 31,2007 and December 31, 2006 was $0. No cost of revenues was recognized in 2006 as the cost of revenues forthat year was expensed in the period incurred prior to 2006 as a component ofresearch and development expenses.

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,general and administrative expenses increased by 70% or $2,449,524, to$5,958,687 for the year ended December 31, 2007 from $3,509,163 for theyear ended December 31, 2006. The major components of the increase are asfollows:

 

a)  Salaries andbenefits increased by approximately $1,343,000 to $3,587,000 for the year endedDecember 31, 2007 from $2,244,000 for the year ended December 31,2006, due to a) an increase in the number of selling, general andadministrative employees, b) stock compensation expense increased to $1,821,000for the twelve months ended December 31, 2007 from $731,000 for the twelvemonths ended December 31, 2006, c) a severance payment paid to the formerExecutive Chairman of $287,500 in 2007 and d) bonus expense decreased to $281,000for the twelve months ended December 31, 2007 from $483,000 for the twelvemonths ended December 31, 2006;

 

b) Contract labordecreased by approximately $159,000 to $71,000 for the year ended December 31,2007 from $230,000 for the year ended December 31, 2006;

 

c) Legal expenseincreased by approximately $47,000 to $331,000 for the year ended December 31,2007 from $284,000 for the year ended December 31, 2006;

 

d) Accountingexpense increased by approximately $10,000 to $65,000 for the year ended December 31,2007 from $55,000 for the year ended December 31, 2006;

 

e) Office expenseincreased by approximately $38,000 to $141,000 for the year ended December 31,2007 from $103,000 for the year ended December 31, 2006;

 

f) Travel expenseincreased by approximately $1,000 to $96,000 for the year ended December 31,2007 from $95,000 for the year ended December 31, 2006; and

 

g) Depreciation andamortization expense increased by approximately $8,000 to $269,000 for the yearended December 31, 2007 from $261,000 for the year ended December 31,2006 as a result of an increase in property and equipment during the twelvemonths ended December 31, 2007.

 

h) Professional fees fora strategic business advisor totaling approximately $697,000 and $0 for theyears ended December 31, 2007 and 2006, respectively, for cash paid andwarrants issued for services rendered.

 

RESEARCH AND DEVELOPMENT.Research and development expenses increased by $1,595,289 during the year endedDecember 31, 2007 to $4,463,226 from $2,867,937 for the year ended December 31,2006. The major components of the increase are as follows:

 

a)Salaries and benefits attributable to research and development increased byapproximately $124,000 to $1,539,000 for the year ended December 31, 2007from $1,415,000 for the year ended December 31, 2006 due to a) an increase in the number ofresearch and development employees, b) stock compensation expense increased to$208,000 for the twelve months ended December 31, 2007 from $183,000 forthe twelve months ended December 31, 2006, and c) bonus expense decreasedto $178,000 for the twelve months ended December 31, 2007 from $185,000for the twelve months ended December 31, 2006;

 

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b) Consulting expenseattributable to research and development increased by approximately $508,000 to$1,553,000 for the year ended December 31, 2007 from $1,045,000 for theyear ended December 31, 2006 primarily due to increased services relatedto prototype development;

 

c) Lab expense increasedby approximately $685,000 to $787,000 for the year ended December 31, 2007from $102,000 for the year ended December 31, 2006 primarily due toincreased services related to prototype development; and

 

d) Travel expenseattributable to research and development increased by approximately $280,000 to$377,000 for the year ended December 31, 2007 from $97,000 for the yearended December 31, 2006.

 

OTHER INCOME (EXPENSE).

 

a) Net decrease in fairvalue of derivative liabilities decreased to an income of $382,920 for thetwelve months ended December 31, 2007 as compared to an income of $462,159for the twelve months ended December 31, 2006, due to the Warrant issuedin connection with the 12% Senior Secured Convertible Debentures in May 2006and the Warrant issued in connection with the 10% Senior Unsecured ConvertibleDebentures in September 2006.   TheWarrants are freestanding derivative financial instruments. These derivativeliabilities are marked-to-market each quarter with the change in fair value recordedin the income statement.

 

b) Debt issuance expenseincreased to $94,189 for the year ended December 31, 2007 as compared toan expense of $50,157 for the year ended December 31, 2006, due to thedebt raised in May 2006 and September 2006.

 

c)****Interest expense, net increased to$762,664 for the year ended December 31, 2007 as compared to an interestexpense, net of $720,520 for the year ended December 31, 2006 primarilydue the payment of interest on the $1,500,000 loan received in May 2006,the amortization of the discount on the Warrant issued in connection with the12% Senior Secured Convertible Debentures in May 2006, the payment ofinterest on the $900,000 loan received in September 2006, and theamortization of the discount on the Warrant issued in connection with the 10%Senior Unsecured Convertible Debentures in September 2006.

 

NET LOSS.**  **Net loss increased to$10,895,846 for the year ended December 31, 2007, as compared to$6,485,618 for the year ended December 31, 2006. We compute our net lossper share 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 December 31,2007 was $14,088,058 as compared to a net loss attributable to commonstockholders of $6,983,546 for the year ended December 31, 2006. The netloss attributable to common stockholders for the twelve months ended December 31,2006 and December 31, 2005, includes $3,192,212 and $497,928 of accruedbut unpaid preferred stock dividends and amortization of preferred stockdiscount, respectively.

 

Comparison of FiscalYears Ending December 31, 2006 and 2005

 

REVENUES.  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 alldirect expenses associated with the delivery of products or services includinginternal labor costs. Cost of revenues for the year ended December 31,2006 decreased to $0 as compared to $9,844 for the previous year.  No cost of revenues was recognized in 2006 asthe cost of such revenues was expensed in the period incurred prior to 2006 asa component of research and development expenses.

 

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

 

a)  Salaries andbenefits increased by approximately $1,239,000 to $2,244,000 for the year endedDecember 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 laborincreased by approximately $47,000 to $230,000 for the year ended December 31,2006 from $183,000 for the year ended December 31, 2005;

 

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

 

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

 

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

 

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

 

g) Depreciation andamortization expense increased by approximately $71,000 to $261,000 for theyear ended December 31, 2006 from $190,000 for the year ended December 31,2005 as a result of an increase in property and equipment during the twelvemonths ended December 31, 2005.

 

RESEARCH AND DEVELOPMENT.Research and development expenses increased by approximately $109,198 duringthe 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 and developmentincreased by approximately $212,000 to $1,415,000 for the year ended December 31,2006 from $1,203,000 for the year ended December 31, 2005 due to a stockcompensation expense of $183,000 for the twelve months ended December 31,2006 and a 2006 bonus expense of $185,000;

 

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

 

c) Lab expense decreasedby approximately $100,000 to $102,000 for the year ended December 31, 2006from $202,000 for the year ended December 31, 2005; and

 

d) Travel expenseattributable to research and development decreased by approximately $104,000 to$97,000 for the year ended December 31, 2006 from $201,000 for the yearended December 31, 2005.

 

OTHER INCOME (EXPENSE).

 

a) Net decrease in fairvalue of derivative liabilities decreased to an income of $462,159 for thetwelve months ended December 31, 2006 as compared to $0 during the twelvemonths ended December 31, 2005, due to the Warrant issued in connectionwith the 12% Senior Secured Convertible Debentures in May 2006 and theWarrant 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 expenseincreased to $50,157 for the year ended December 31, 2006 as compared to$0 for the year ended December 31, 2005, due to the debt raised in May 2006and September 2006.

 

c)****Interest income (expense), net decreasedto ($720,520) for the year ended December 31, 2006 as compared to incomeof $113,847 for the year ended December 31, 2005 primarily due to lesscash on hand, the payment of interest on the $1,500,000 loan received in May 2006,the amortization of the discount on the Warrant issued in connection with the12% Senior Secured Convertible Debentures in May 2006, the payment ofinterest on the $900,000 loan received in September 2006, and theamortization of the discount on the Warrant issued in connection with the 10%Senior Unsecured Convertible Debentures in September 2006.

 

NET LOSS.**  **Net loss increased to$6,485,618 for the year ended December 31, 2006, as compared to $4,966,790for the year ended December 31, 2005. We compute our net loss per share onthe basis of net loss attributable to common stockholders, which included theeffects of certain items not included in the determination of net loss. Netloss attributable to common stockholders for the year ended December 31,2006 was $6,983,546 as compared to a net loss attributable to commonstockholders of $5,740,517 for the year ended December 31, 2005. The netloss attributable to common 

 

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stockholders for thetwelve months ended December 31, 2006 and December 31, 2005, includes$497,928 and $773,727 of accrued but unpaid preferred stock dividends,respectively.

 

**Off-BalanceSheet Transactions**

 

We do not engage inmaterial off-balance sheet transactions.

 

*LIQUIDITYAND CAPITAL RESOURCES*

 

Operating Activities

 

Cash used in operatingactivities during the year ended December 31, 2007 increased to $7,745,786as compared to $4,434,496 used for the year ended December 31, 2006. Theincrease is primarily a result of increases in research and developmentspending and general and administrative expenses.

 

Investing Activities

 

Cash used for investingactivities during the year ended December 31, 2007 amounted to $95,036, ascompared to $48,187 used for investing activities for the year ended December 31,2006 due to our increased spending on computers, furniture, laboratory,metrology and testing equipment in Fiscal 2007.

 

Financing Activities

 

We have financed ouroperating and investing activities primarily from the proceeds of privateplacements of common stock, convertible investor notes, and a preferred stockoffering which we closed in December 2004, January 2005, February 2007and September 2007.

 

The total net cashprovided by financing activities was $19,518,059 for the year ended December 31,2007, which includes:

 
| · | $2,401,280 payments on  notes payable: and                  |
|--------|-------------------------------------------------------------|
| · | $21,919,339 proceeds  from the issuance of preferred stock. |

 

The total net cashprovided by financing activities was $2,174,486 for the year endedDecember 31, 2006, which includes:

 
| · | $39,761 payments on  notes payable to a related party; |
|--------|--------------------------------------------------------|
| · | $2,176,651 net proceeds  from notes payable: and       |
| · | $37,596 for issuance of  warrants to placement agent.  |

 

Working Capital

 

As of December 31,2007, we had a cash balance of $11.7 million.  We project that currentcash reserves will sustain our operations at least through December 2008,and we are not aware of any trends or potential events that are likely toimpact our short term liquidity through this term.

 

We are a developmentstage company and have not experienced significant operations since ourformation. We reached a positive working capital position as of the firstquarter of 2005 as a result of our financing activities. We have incurredsignificant operating losses during the years ended December 31, 2002,2003, 2004, 2005, 2006 and 2007. We intend to utilize a proprietary methodologyfor development of our displays. Our principal activities, from the beginningof the development stage, have been organizational matters, capital raisingactivities including issuance of stock, product research and development, fundraising, and market research.

 

To date, we have had onlya few revenue-generating services or development contracts.  These includea prototype development agreement with a large personal computer company, and aSmall Business Innovation Research (SBIR) Phase One agreement with the U.S. AirForce for $98,214 and a follow-on Phase Two agreement for $686,966.  Wealso entered into a prototype development agreement with Lockheed Martin, alarge military contractor, in October 2005, for which we have receivedfull payment from Lockheed Martin.  Our immediate customer prospects arelimited to Lockheed Martin, with 

 

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which we entered into aLicense and Strategic Business Agreement dated October 5, 2005.  See “Risk Factors” included in this report.

 

Management will work toestablish specific applications for our display technology that will generatesignificant revenues, and cash flows to support operations. Our ability tocontinue as a going concern will be dependent upon achieving profitableoperations, and obtaining additional funding from current shareholders and newinvestors.

 

**ITEM7. FINANCIAL STATEMENTS**

 

The financial statementsof the Company, including the notes thereto and report of the independentauditors thereon, are included in this report as set forth in the “Index toFinancial Statements.” See F-1 for Index to Consolidated Financial Statements.

 

**ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 8A. CONTROLS AND PROCEDURES**

 

Disclosure Controls

 

As of the end ofthe period covered by this report, we carried out an evaluation, under thesupervision and with the participation of our management, including theprincipal executive officer and chief financial officer, of the effectivenessof our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).   The rules refer to the controls andother procedures designed to ensure that information required to be disclosedin reports that we file or submit under the Act is recorded, processed,summarized and reported within the time period specified. Based on thatevaluation, management, including the Principal Executive Officer and the ChiefFinancial Officer, concluded that as of December 31, 2007, our disclosurecontrols and procedures were effective to provide reasonable assurance thatinformation we are required to disclose in reports that we file or submit underthe Securities Exchange Act of 1934, as amended, is accurately recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and that suchinformation is accumulated and communicated to our management, including ourprincipal executive officer and chief financial officer, as appropriate, toallow timely decisions regarding required disclosure.

 

Internal Controls

 

We maintain a system ofinternal control over financial reporting that is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withaccounting principles, generally accepted in the United States. Based on themost recent evaluation, we have concluded that no significant changes in ourinternal control over financial reporting occurred during the last fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**ITEM 8B. OTHER INFORMATION**

 

None.

 

**PART III**

 

**ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

 

The following table setsforth the names and ages of all of our directors and executive officers as of January 31,2008. Our officers are appointed by, and serve at the pleasure of, the Board ofDirectors.

 
| **Name**         | ** ** | **Age** | ** ** | **Title**                                            | ** ** |
|------------------|------------|---------|------------|------------------------------------------------------|------------|
| Reed J. Killion  |       | 45      |       | President, Principal  Executive Officer and Director |       |
| James A. Tassone |       | 44      |       | Chief Financial Officer                              |       |
| B. Tod Cox       |       | 38      |       | Vice President Engineering                           |       |
| Dan Van Ostrand  |       | 49      |       | Vice President  Research & Development      |       |

 

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| Robert J. Petcavich |   | 53 |   | Vice President and General  Manager |   |
|---------------------|--------|----|--------|-------------------------------------|--------|
| Frank DeLape        |   | 53 |   | Chairman of the Board               |   |
| Carl J. Yankowski   |   | 59 |   | Director                            |   |
| Rob Broggi          |   | 35 |   | Director                            |   |
| Victor Calaba       |   | 32 |   | Director                            |   |
| Bernard Marren      |   | 72 |   | Director                            |   |
| Bruce Berkoff       |   | 47 |   | Director                            |   |

 

Biographical informationwith respect to our executive officers and directors is provided below. Thereare no family relationships between any of our executive officers or directors.

 

***Reed J. Killion, President, Principal Executive Officer andDirector*** – Mr. Killionis a member of Uni-Pixel’s board of directors and has served as the Presidentand Principal Executive Officer of the Company since September 2004. Mr. Killionis also the Chairman of the Board for Animal Innovations. Mr. Killion isan active Board Member and Trustee of the Texas A&M Research Foundation.Previously Mr. Killion served as UniPixel’s Executive Vice President ofBusiness Development and has been a member of its Board of Directors since April 2002. Prior to joining UniPixel, Mr. Killion was Vice President of BusinessDevelopment for LogiCom from 1999 until 2002.  HP/Compaq, Dell, DEC,Siemens, NVIDIA, Vanguard, Atmel, Foxconn, Seiko (SMOS) and DCM Technologiesare among the companies Mr. Killion has represented and consulted withover his 20 years in the high tech industry.  Mr. Killion holds aBachelors Degree in Finance from the University of Mississippi.

 

***James A. Tassone, Chief Financial Officer*** – Mr. Tassone has beenthe Chief Financial Officer of Uni-Pixel since he joined the Company in August 2003.Mr. Tassone served as a part-time consultant to the Company from June 2002to August 2003. Mr. Tassone was appointed Secretary of the Company inJanuary 2005. From June 1999 to August 2003, Mr. Tassonewas the Managing Director and Chief Financial Officer of Mindwave Research, Inc.,a company he founded in June 1999, and for which he continues to serve onthe board of directors. Mindwave Research is a primary market research andconsulting company for high technology clients. From 1997 until June 1999,Mr. Tassone was the Director of Research for Reality Research, asubsidiary of CMP Media (a high tech industry-focused publishing company).Prior to Reality Research, Mr. Tassone held management positions atIntelliQuest, Gartner Group, Dataquest, and Comdisco, Inc.  Mr. Tassonehas a Bachelors Degree in Finance and Engineering Management from theUniversity of Texas at Austin.

 

***B. Tod Cox, Vice President Engineering*** – Mr. Cox has been the VicePresident Engineering of Uni-Pixel since he joined the Company in December of2004.  Mr. Cox was atHewlett-Packard (formerly Compaq) where he served most recently as the Directorof Blade Server Engineering leading the initiative to design and deliverenterprise class blade servers.  Mr. Cox’s prior hardware engineeringleadership at Compaq resulted in the introduction of numerous products in thecompany’s server lines.  Mr. Cox holds a BS and an MS in ElectricalEngineering from Texas A&M University, an MS in Industrial Engineering fromthe University of Houston, and an MBA from Rice University.

 

***Dan Van Ostrand, Vice President Research &Development*** –Mr. Van Ostrand is a co-founder of Uni-Pixel and has served in a Sr.Executive position since its inception in February of 1998.  Mr. VanOstrand has over twenty-six years experience in corporate operations, projectmanagement, systems engineering and systems design and has been involved in theestablishment, funding and management of Uni-Pixel.  Since 2004, he hasbeen leading TMOS R&D activities and Intellectual Property development. As co-owner from 1984 through 1992 of a closely-held company thatdesigned ruggedized VME-based tactical computer systems for the United StatesArmy, he was exposed to and became interested in the design, development andengineering principles of flat panel display technology.  Mr. VanOstrand was a Systems Engineer from 1980 until 1992 for Informatics General,Magnavox, Teledyne and the Jet Propulsion Laboratory.  He has a BA Degreewith a double major in Math and Computer Science from Mid-America NazareneUniversity.

 

***Robert J. Petcavich, Vice President and General Manager*** – Dr. Petacavich has been the VicePresident and General Manager of Uni-Pixel since he joined the Company in January 2008.   Dr Petcavich was also thecofounder of Health Beacons Inc in Kirkland, Washington a company developingleading edge implantable RFID technology for the medical surgical cancer field.Dr Petcavich was Senior Vice President and CTO of Lumera Corporation(NASDAQ:LMRA) in Bothell, Washington a publicly traded nanotechnology polymerplatform bioscience and molecular photonics technology Company. Dr. Petcavichhas been the Chairman, CEO and CTO of several advanced materials and medicalinformatics technology companies. Dr. Petcavich was Vice President ofDeposition Technologies Inc from 1982 to 1988 an advanced materials companyinvolved in electro optic and aerospace thin film materials development andmanufacturing which was subsequently acquired by Brunswick Defense (NYSE:BC)and Material Sciences Corporation (NYSE:MSC) in 1986. From August 1988until September 1995, Dr. Petcavich was President and CEO ofAlphascribe Express Inc an electronic medical records service enterprise, whichwas subsequently sold to Rodeer Systems.  Dr. Petcavich was alsofounder, Chairman and 

 

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CTOof Planet Polymer Technologies Inc (Nasdaq:POLY now PLNT) from 1992 until 2002an advanced materials intellectual property development company merged withAllergy Free Inc of Houston, TX.  Dr. Petcavich was also founder, CEOand Chairman from 1996 until 2001 of Alife Medical Inc a Natural Language Processingsoftware services provider for the medical billing industry now majority ownedby Medquist (NASDAQ:MEDQ) a subsidiary of Philips Electronics. Dr. Petcavichwas also founder and Board member of Molecular Reflections Inc a MEMS basedbiotech design and discovery Platform Company as well as Polytronix Inc acustom LCD manufacturer of Richardson Texas. Dr Petcavich has a Ph.D. degree inPolymer Science, a Master of Science Degree in Solid State Science, and a B.S.degree in Chemistry from the Pennsylvania State University, and completed thePMD executive management degree program at Harvard.  Dr. Petcavichholds 24 issued United States patents in fields such as electro optic LCDdisplays, biotechnology MEMS devices; time released animal neutraceuticals, fruitshelf life extension technology, and handheld wireless devices. Dr. Petcavichis also on the Board of Directors of the College of Science and College ofMaterial Science and Engineering at the Pennsylvania State University andCarbon Nanoprobes Inc in Seattle, Washington.

 

***Frank DeLape, Chairman***– Mr. DeLape has served as Uni-Pixel’s Chairmanof the Board since November 15, 2004. Mr. DeLape is Chairman and CEO of Benchmark Equity Group, acompany he founded in 1994.   Prior toBenchmark, Mr. DeLape spent 11 years in the executive management roles ofmanaging turnarounds for various companies. He acted on behalf of the Board of Directors or the sponsoring bank torecapitalize the companies, return them to profitability or maximize cashrepayment through an orderly liquidation. Benchmark provides private equity and debt financings from various fundsas well as a syndicate of investors.  Mr. DeLapewas a founder and financier of Think New Ideas, a NASDAQ NMS listed company,which later sold for over $300 million. At Benchmark, Mr. DeLape has formed and been instrumental in thegrowth of eighteen companies.  Of these,seven became NASDAQ listed, one listed on the American Stock Exchange, threewere sold, creating in total over $3 billion in market value.  Mr. DeLape is Founder and ManagingGeneral Partner of Trident Growth Fund, a government licensed Small BusinessInvestment Corporation, (SBIC).   Mr. DeLapetook control of Isolagen in August 2001 at a value of approximately $10million.  Over the last three years asChairman and a major shareholder, Mr. DeLape has listed the company on theAmerican Stock Exchange and raised over $194 million in debt/ equity financingsfor the company. Most recently Mr. DeLape is serving as Chairman andrecently as Executive Chairman of UniPixel and is a major shareholder.  He raised the Company $12.2 million in a Series APreferred Stock and in February 2007 raised $12 million Series BConvertible Preferred Stock and later in 2007 raised $12 million of Series CConvertible Preferred Stock. Mr. DeLape is currently on the Board ofDirectors for PolyMedix and serves as the Chairman of the CompensationCommittee.  He completed raisingPolyMedix $21 million in a Series A Preferred Stock offering in January 2006.  Mr. DeLape also serves as Director,President and CEO of Influmedix.   He isthe Chairman and Founder of Six Diamond Resorts International which was formedin March 2007.  Mr. DeLape is amember of the National Association of Corporate Directors.

 

***Carl J. Yankowski, Director***– Mr. Yankowski has served asUni-Pixel’s Director since March 16, 2007. Mr. Yankowski is the CEO of Ambient Devices, Inc. since August 2007.  Mr. Yankowski wasnamed as Palm, Inc. CEO in December 1999, three months before its $1Billion + IPO.  He profitably grew theCompany to a $2 Billion sales rate, drove unaided awareness to over 65%, andthen executed a restructuring after the spring 2001 global economicdownturn.  Immediately prior to joiningPalm, Mr. Yankowski was CEO of the Reebok Brand, where he led theworldwide Reebok-brand business, a multibillion dollar enterprise that recentlymerged with Adidas.  During his tenure atReebok, Mr. Yankowski successfully reorganized the Company for growth,significantly streamlined operations, and improved profitability.  Mr. Yankowski spent over four years atSony Electronics, Inc. as President and COO where he was responsible forthe development and launch of numerous successful products in growing marketsand new business categories for Sony, including DVD, CDMA, digital imaging, andVAIO personal computers.  He also oversawthe initial U.S. launch of PlayStation.  Mr. Yankowskiled Sony to profitable U.S. revenue growth from $6+ Billion to over $10Billion, and oversaw a dramatic expansion of U.S. manufacturing.  In an earlier position as Chairman ofPolaroid’s Asia Pacific Region, Mr. Yankowski led growth in the businessimaging market globally, and set up the Company’s Asia Pacificheadquarters.  Mr. Yankowski hasheld marketing and strategic leadership positions in several other prestigioustechnology and consumer-products companies, including General Electric Co.,Pepsi, Memorex and Procter & Gamble. Mr. Yankowski earned simultaneous bachelors of Science degrees inelectrical engineering materials science and management from MassachusettsInstitute of Technology (“MIT”).  He is aDirector of Informatica, Avidyne, and several other firms.  He serves or has served on the visitingcommittee of MIT Media Lab, and on the Boards of the Boston College CarrollSchool of Business and MIT Sloan School.

 

***Rob Broggi, Director***– Mr. Broggi has served as Uni-Pixel’s Directorsince March 16, 2007. Mr. Broggi is VicePresident and Director of Technology, Media and Telecommunications Research atTudor Investment Corporation. Prior to joining Tudor in 2002, he was anExecutive Director at Morgan Stanley where he started the firm’s InstitutionalTechnology Sales group. Mr. Broggi is also a non executive director atPlastic Logic and Netronome Systems, and holds a Bachelor’s Degree from HarvardUniversity.

 

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***Victor Calaba, Director***– Mr. Calaba has served as Uni-Pixel’s Directorsince March 16, 2007.  Mr. Calabajoined Tudor Investment Corporation in 2003 and focuses on private equityinvestments across a variety of industries and growth stages. Mr. Calabaholds a JD from Loyola Law School and a Bachelor’s Degree in economics fromUCLA.

 

***Bernard Marren, Director*******– Mr. Marrenhas served as Uni-Pixel’s Director since March 16, 2007.  Mr. Marren is currentlythe President and CEO of OPTi, Inc., a company that licenses intellectualproperty for logic chips. He is also a Director of Microtune, Inc. andInFocus Corporation.  In a career thatspans more than 40 years, Mr. Marren was both a founder of and the topexecutive with multiple companies that pioneered new semiconductortechnologies. He also served as chief executive with a number of high-techfirms, and is widely regarded for his leadership in sales and marketing,engineering and operations. He has been associated in his career with WesternMicro Technology, Inc., Silicon Engineering, Inc., INNO COMMWireless, American MicroSystems, Inc., and Fairchild Semiconductor.   Extending his executive leadership to the electronicsindustry as a whole, Mr. Marren was a founder and the first President ofthe Semiconductor Industry Association. He is also a past President andChairman of the National Electronic Distributors Association and a pastPresident of the Electronic Industry Show Corporation.  Mr. Marren is a graduate of the IllinoisInstitute of Technology (BSEE).

 

***Bruce Berkoff, Director***– Mr. Berkoff has served as Uni-Pixel’s Directorsince March 16, 2007. Mr. Berkoff is the Chairman of the LCD TVAssociation which is a global not-for-profit marketing trade associationto help “inform, promote, improve, and connect” the entire supply chaininvolved with the large and growing multibillion dollar LCD TV industry.  Mr.Berkoff is also a Director of LG Display. Previously, Mr. Berkoff was the CEO and later Chairman of EnucliaSemiconductor, a fab-less semiconductor startup in the HDTV video processorspace, and prior to that for 6 year in Seoul Korea he was the ExecutiveVice-President and Chief Marketing Officer (CMO) of LG.Philips LCD, one of theworld’s leading TFT-LCD manufacturers. Before that, Mr. Berkoff served asgeneral manager of Philips Flat Display Systems’ software and electronicsbusiness unit in Silicon Valley. He has also held executive managementpositions at several technology companies, including UMAX Computer Corporation,Radius, and SuperMac Technologies.  Mr. Berkoff is well-known for hisvisionary keynote addresses, panel chairmanships and other roles at display andelectronics industry events, including the Symposium on Information Displays(SID) Business & Investor Conferences, USDC (US Display Consortium)Conferences, DisplayForum Europe, HDTV Forum, Asia SID (ASID), EuroDisplays(ESID), the U.S. Flat Panel Display (US FPD) Conference, the Flat InformationDisplay (FID) Conference and the Consumer Electronics Show (CES) in Las Vegas.  Mr. Berkoff holds undergraduate and graduate degrees inphysics and biophysics from Princeton and the University of California,Berkeley, respectively and also has display-related patents both granted andpending in the U.S. and China.

 

The Board members servefor a period of one year until the next annual meeting of our shareholders. Solong as the issued and outstanding shares of our Series B Preferred Stockrepresent at least 25% of our outstanding equity interests on fully diluted andan as converted basis, the holders of those shares, voting as a separate class,are entitled to elect two members of our Board pursuant to the terms of ourcertificate of incorporation, as amended.  If and when the issued and outstanding sharesof our Series B Preferred Stock represent at least 10% but less than 25%of our outstanding equity interests on fully diluted and an as converted basis,the holders of those shares, voting as a separate class, will be entitled toelect one member of our Board pursuant to the terms of our certificate ofincorporation, as amended.

 

Our executive officersare appointed by our board of directors and hold office until removed by theboard.

 

**Audit Committee Financial Expert**

 

We are not currently alisted company within the meaning of Rule 10A-3 of the Exchange Act and,therefore, are not required to have an audit committee or, accordingly, anaudit committee financial expert. Nevertheless, our Board of Directors performsthe functions of an audit committee and Carl Yankowski, one of our directors,serves in a capacity similar to that of an audit committee financial expert.

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) ofthe Exchange Act requires the Company’s directors and executive officers andpersons who beneficially own more than 10% of the registered class of theCompany’s equity securities to file with the SEC reports of ownership andchanges 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) formsthey file. Based solely on a review of the copies of these reports furnished,management believes that the directors, executive officers and greater than 10%stockholders filed all reports required by Section 16(a) of theExchange Act with respect to the year ended December 31, 2007 on a timelybasis.

 

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**Code of Ethics Disclosure**

 

We have adopted a Code ofEthics, a copy of which is filed as an exhibit to our 2005 Annual Report on Form 10K-SB,for our principal executive, financial and accounting officers or personsperforming similar functions.

 

**ITEM 10. EXECUTIVE COMPENSATION**

 

**ExecutiveOfficer Compensation.**

 

Thetable below summarizes the total compensation paid to or earned by ourprincipal executive officer and each of our three most highly compensatedexecutive officers other than our principal executive officer.  The table also includes Mr.  DeLape, whoserved as Executive Chairman of the Board of Directors until August 31,2007 (collectively, the named executive officers).  The amounts represented in the “Option Awards”column reflects the expense recorded by the company pursuant to FAS 123R anddoes not necessarily equate to the income that will ultimately be realized bythe named executive officers for such awards. For a description of the employment agreements between the company and Messrs. Killionand Tassone, see “Employment Agreements” below.

 

**Summary Compensation Table**

 
| **Name and  Principal Position**                                      | ** ** | **Year**   | ** ** | **Salary (1)** | ** **       | **Bonus (2)** | ** ** | **Option  Awards  (3)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** **       | **Nonqualified  Deferred  Compensation  Earnings** | ** **     | **All Other  Compensation  (4)** | ** **     | **Total**        | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|---------------------|------------------|--------------------|------------|-------------------------|------------|---------------------------------------------------|------------------|----------------------------------------------------|----------------|---------------------------------------|----------------|------------------|------------|
| ** **                                                                      | ** ** | ** ** | ** ** | ** **          | ** **       | ** **         | ** ** | ** **              | ** ** | ** **                                        | ** **       | ** **                                         | ** **     | ** **                            | ** **     | ** **       | ** ** |
| **Reed J. Killion**President (Principal  Executive Officer) & Director |       | 2007  2006 |       | $                   | 203,979  177,394 |               | $          | 175,000  120,500        |       | $                                                 | 308,721  223,482 |                                               | —  — |                                  | —  — |             | $          | 12,000  12,000 |   | $ | 699,700  533,376 |   |
| **James A. Tassone**Chief Financial Officer                                     |       | 2007  2006 |       | 149,821  135,231    |             | 63,000  92,000     |       | 138,388  129,730        |       | —  —                                    |             | —  —                                     |           | 12,000  12,000                        |           | 363,209  368,961 |       |
| **B. Tod Cox**Vice President Engineering                                        |       | 2007  2006 |       | 138,875  103,750    |             | 63,000  84,000     |       | 115,714  97,297         |       | —  —                                    |             | —  —                                     |           | —  —                        |           | 317,589  285,047 |       |
| **Dan Van Ostrand**Vice President  Research & Development              |       | 2007  2006 |       | 135,942  111,295    |             | 39,200  30,000     |       | —  —          |       | —  —                                    |             | —  —                                     |           | —  —                        |           | 175,142  141,295 |       |
| **Frank DeLape**Chairman of Board of  Directors                                 |       | 2007  2006 |       | 215,625  234,146    |             | —  154,500    |       | 439,967  242,877        |       | —  —                                    |             | —  —                                     |           | 312,832  18,000                       |           | 968,424  649,523 |       |
|                                                                                 |            |            |            |                     |                  |                    |            |                         |            |                                                   |                  |                                                    |                |                                       |                |                  |            |  |  |  |  |  |

 

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(1)           Effective September 16,2007, the Board of Directors approved an increase to the base salaries of eachof Reed J. Killion, President & Director, from $195,000 to $250,000,James A. Tassone, Chief Financial Officer, from $145,000 to $180,000, B. TodCox, Vice President Engineering, from $130,000 to $180,000 and Dan Van Ostrand,Vice President Research & Development, from $130,000 to $160,000.

 

(2)           Amounts reflectthe aggregate annual cash bonus earned by each of our named executive officersfor fiscal years 2007 and 2006.  Theannul cash bonuses for fiscal year 2007 are payable as follows:

 
| **Name**                      | ** ** | **Portion Paid  in 2007** | ** ** | **Portion Payable  in 2008** | ** ** |
|-------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|
| Mr.  Killion   |       | $                                   | 25,000     |                                   | $          | 150,000    |   |
|                          |       |                                |       |                                   |       |   |   |
| Mr. Tassone              |       | 9,000                               |       | 54,000                                 |       |
|                          |       |                                |       |                                   |       |
| Mr. Cox                  |       | 9,000                               |       | 54,000                                 |       |
|                          |       |                                |       |                                   |       |
| Mr. Van Ostrand          |       | 5,600                               |       | 33,600                                 |       |

 

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(3)           For 2007 and2006, the amounts reflect the compensation cost recognized in 2007 and 2006,respectively, for stock options in accordance with FAS 123R, which reflects thefair value of all stock-based compensation in earnings based on the relatedvesting schedule.  For additionalinformation relating to the assumptions made by us in connection with thevaluation of these awards for 2007, refer to Note 3 of our financial statementsherein.  For additional informationrelating to the assumptions made by us in connection with the valuation ofthese awards for 2006, refer to Note 3 of our financial statements in ourAnnual Report on Form 10-KSB for the year ended December 31, 2006.

 

(4)           Excludesperquisites and other personal benefits unless such compensation was greaterthan $10,000.  For Mr. Killionand Mr. Tassone, amounts include a car allowance.  For Mr. DeLape, amount includes a one-timeseverance payment in the amount of $287,500 received in connection with hisresignation as Executive Chairman of the Board of Directors, effective August 31,2007 and a car allowance through August 31, 2007.  Effective September 1, 2007, Mr. DeLapereceives $3,333 per month for his position of Chairman of the Board ofDirectors, which is included in this table.

 

**401(k) Plan**

 

Effective February 2007,the Company created an employee benefit plan available to all full-timeemployees under Section 401(k) of the Internal Revenue Code (“401(k) plan”).Employees may make contributions up to a specified percentage of theircompensation, as defined. The Company is not obligated to make contributionsunder the 401(k) plan. In addition, the Company did not make any matchingemployer contribution to the 401(k) Plan in 2007 or 2006.

 

**Employment Agreements**

 

TheCompany and Mr. Killion, President, entered into an employment agreementdated March 5, 2005, with an initial term ending December 31, 2008,and providing for an initial base salary of $195,000, subject to the right ofthe Board of Directors to increase his salary from time to time. Mr. Killionis entitled to receive an annual bonus in an amount to be determined by theBoard of Directors. If Mr. Killion’s performance satisfies criteria to beestablished by the Board of Directors, his target bonus will be a percentage ofhis annual salary. On September 13, 2007, the Board of Directors increasedthe base salary of Mr. Killion to $250,000 effective September 16,2007 and determined the target bonus amount to be 100% of base salary. Mr. Killionalso received employee stock options to purchase 450,000 shares of common stockat an exercise price of $4.00 per share. Effective September 5, 2006, the exercise price was lowered to$2.00 per share.  The option has a termof ten years and vests ratably on an annual basis over three years. Theagreement also provides Mr. Killion with disability and life insurancebenefits, a car allowance and wireless communications benefits. The vestingprovisions of the option would accelerate and Mr. Killion would beentitled to a severance payment equal to his base salary for six months, if Mr. Killionwere terminated without “Cause,” or if Mr. Killion were to terminate hisemployment with Uni-Pixel for “Good Reason” (each of the terms as defined inthe Agreement).  Mr. Killionreceives no additional compensation for serving on our Board of Directors.

 

TheCompany and Mr. Tassone, Chief Financial Officer, entered into anemployment agreement dated April 15, 2005, with an initial term ending December 31,2008 and providing for an initial base salary of $145,000, subject to the rightof the Board of Directors to increase his salary from time to time. Mr. Tassoneis entitled to receive an annual bonus in an amount to be determined by theBoard of Directors. If Mr. Tassone’s performance satisfies criteria to beestablished by the Board of Directors, his target bonus will be a percentage ofhis annual salary. On September 13, 2007, the Board of Directors increasedthe base salary of Mr. Tassone to $180,000 effective September 16,2007 and determined the target bonus amount to be 50% of base 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. Effective September 5, 2006, the exercise price waslowered to $2.00 per share.  The optionhas a term of ten years and vests ratably on an annual basis over three years.The agreement also provides Mr. Tassone with disability and life insurancebenefits, a car allowance and wireless communications benefits. The vestingprovisions of the option would accelerate and Mr. Tassone would beentitled to a severance payment equal to his base salary for six months, if Mr. Tassonewere terminated without “Cause,” or if Mr. Tassone were to terminate hisemployment with Uni-Pixel for “Good Reason” (each of the terms as defined inthe Agreement).

 

Asof December 31, 2007, there was a $204,000 bonus accrual for Messrs. Killionand Tassone.

 

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**Outstanding Equity Awards at December 31,2007**

 
| ** **           | ** ** | **Option Awards**                                                        | ** ** | **Stock Awards**                                                           | ** ** |
|----------------------|------------|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| **Name**             | ** ** | **Number of  Securities  Underlying  Unexercised  Options  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  Unexercisable** | ** ** | **Option  Exercise  Price** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of Shares  or Units  of Stock  That  Have Not  Vested** | ** ** | **Market  Value of  Shares or  Units of  Stock  That  Have Not  Vested** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Unearned  Shares,  Units or  Other  Rights  That Have  Not Vested** | ** ** | **Equity Incentive  Plan Awards:  Market or  Payout Value of  Unearned  Shares, Units or  Other Rights  That Have Not  Vested** | ** ** |
| ** **           | ** ** | ** **                                                                    | ** ** | ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Reed J. Killion**  |       | 300,000                                                                       |       | 150,000                                                                         |       | $ | 2.00 |   | 3/15/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **           |       | 78,750                                                                        |       | 731,250                                                                         |       | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **James A. Tassone** |       | 133,334                                                                       |       | 66,666                                                                          |       | 2.00 |   | 4/19/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **           |       | 10,208                                                                        |       | 94,792                                                                          |       | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **B. Tod Cox**       |       | 100,000                                                                       |       | 50,000                                                                          |       | 2.00 |   | 4/19/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **           |       | 18,229                                                                        |       | 169,271                                                                         |       | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dan Van Ostrand**  |       | —                                                                        |       | —                                                                          |       | — |   | — |   | — |   | — |   | — |   | — |   |
|                      |            |                                                                               |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Director Compensation**

 

Thetable below summarizes the total compensation paid to or earned by ourdirectors during 2007. The amounts represented in the “Option Awards” columnreflects the expense recorded by the company pursuant to FAS 123R and does notnecessarily equate to the income that will ultimately be realized by thedirector for such awards.   The tabledoes not include Messrs. Killion and DeLape whose compensation isdescribed in the Summary Compensation Table above.

 

**Director Summary Compensation Table**

 
| **Name**           | ** ** | **Fees Earned or  Paid in Cash** | ** ** | **Stock  Awards** | ** ** | **Option  Awards** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation** | ** ** | **Total**  | ** ** |
|--------------------|------------|------------------------------------------------------|------------|-------------------|------------|--------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **         | ** ** | ** **                                           | ** ** | ** **        | ** ** | ** **         | ** ** | ** **                                        | ** ** | ** **                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Bruce Berkoff**  |       | $                                                    | 31,667     |              | —     |               | $          | 21,521                                            |       | —                                             |       | —                           |       | —     |       | $ | 53,188 |   |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |       |       |
| **Rob Broggi**     |       | 31,667                                               |       | —            |       | —             |       | —                                            |       | —                                             |       | —                           |       | 31,667     |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |       |       |
| **Victor Calaba**  |       | 31,667                                               |       | —            |       | —             |       | —                                            |       | —                                             |       | —                           |       | 31,667     |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |       |       |
| **Bernard Marren** |       | 31,667                                               |       | —            |       | 21,521             |       | —                                            |       | —                                             |       | —                           |       | 53,188     |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |       |       |
| **Carl Yankowski** |       | 31,667                                               |       | —            |       | 21,521             |       | —                                            |       | —                                             |       | —                           |       | 53,188     |       |
|                    |            |                                                      |            |                   |            |                    |            |                                                   |            |                                                    |            |                                  |            |            |            |  |  |  |

 

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

We have set forth in thefollowing table certain information regarding our common stock, on an asconverted basis, beneficially owned as of January 31, 2008 for (i) eachstockholder we know to be the beneficial owner of 5% or more of our outstandingCommon Stock, (ii) each of our directors and named executive officers, and(iii) all executive officers and 

 

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directors as a group.Generally, a person is deemed to be a “beneficial owner” of a security if thatperson has or shares the power to dispose or to direct the disposition of suchsecurity. A person is also deemed to be a beneficial owner of any securities ofwhich the person has the right to acquire beneficial ownership within60 days pursuant to options, warrants, conversion privileges and similarrights. At January 31, 2008, we had 22,897,418 issued and outstandingshares of Common Stock, 3,200,000 issued and outstanding shares of Series BConvertible Preferred Stock, which were convertible, as of January 31,2008, into 16,000,000 shares of our Common Stock, and 892,858 issued andoutstanding shares of Series C Convertible Preferred Stock, which wereconvertible, as of January 31, 2008, into 7,142,864 shares of our CommonStock.

 
| **Name and  Address of Beneficial Owner**                                                      | ** ** | **Amount of Beneficial  Ownership(1)** | ** ** | **Percent of Class** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------|------------|
| *Directors and Officers:*                                                                                          |       |                                             |       |                           |       |
| Reed J. Killion                                                                                                    |       | 1,146,250                                        | (2)        | 2.5                            | %          |
| James A. Tassone                                                                                                   |       | 528,542                                          | (3)        | 1.1                            | %          |
| B. Tod Cox                                                                                                         |       | 133,854                                          | (4)        | 0.3                            | %          |
| Dan Van Ostrand                                                                                                    |       | 827,500                                          |       | 1.8                            | %          |
| Robert J. Petcavich                                                                                                |       | 41,667                                           | (5)        | 0.1                            | %          |
| Frank M. DeLape                                                                                                    |       | 2,612,800                                        | (6)        | 5.6                            | %          |
| Carl J. Yankowski                                                                                                  |       | 1,168,576                                        | (7)        | 2.5                            | %          |
| Rob Broggi                                                                                                         |       | —                                           |       | —                         | %          |
| Victor Calaba                                                                                                      |       | —                                           |       | —                         | %          |
| Bernard Marren                                                                                                     |       | 34,722                                           | (8)        | 0.1                            | %          |
| Bruce Berkoff                                                                                                      |       | 34,722                                           | (9)        | 0.1                            | %          |
| All Directors and Executive Officers as a Group (11 persons)                                                       |       | 6,528,633                                        |       | 14.0                           | %          |
| *5% Stockholders:*                                                                                                 |       |                                             |       |                           |       |
| Tudor Investment Corporation  50 Rowes Wharf  6th Floor  Boston, MA 02110                                          |       | 22,839,279                                       | (10)       | 43.2                           | %          |
| Merrill Lynch Pierce, Fenner & Smith Incorporated  4 World Financial Center  Floor 24  New York, NY 10080 |       | 10,357,153                                       | (11)       | 21.0                           | %          |

 

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| (1)    | ** ** | Beneficial ownership is  determined in accordance with Rule 13d-3 under the Securities Exchange  Act of 1934, as amended, and is generally determined by voting powers and/or  investment powers with respect to securities. Unless otherwise noted, all of  such shares of Common Stock listed above are owned of record by each  individual named as beneficial owner and such individual has sole voting and  dispositive power with respect to the shares of Common Stock owned by each of  them.                                                                                                                                                                                                                                                                                                   |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (2)    |       | Includes options to  purchase 596,250 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (3)    |       | Includes options to  purchase 152,292 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (4)    |       | Includes options to  purchase 133,854 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (5)    |       | Includes options to  purchase 41,667 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (6)    |       | Includes 900,300 shares  of Common Stock owned by Benchmark Equity Group of which Frank M. DeLape is  the Chief Executive Officer and sole owner; 312,500 shares of Common Stock  held by Lakeview Investment Trust, a United States trust fund, of which  Mr. DeLape’s children are the beneficiaries and Mr. DeLape is the  Trustee; 400,000 shares of Common Stock owned by Magnolia Growth Trust and  Mr. DeLape is the Trustee; 200,000 shares of Common Stock 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 600,000  shares of Common Stock exercisable within 60 days from January 31, 2008. |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (7)    |       | Includes options to  purchase 1,168,576 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (8)    |       | Includes options to  purchase 34,722 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (9)    |       | Includes options to  purchase 34,722 shares of Common Stock exercisable within 60 days from  January 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (10)   |       | Includes 2,409,526.40 shares  of our Series B Preferred Stock held by The Raptor Global Portfolio;  500,499.20 shares of our Series B Preferred Stock held by The Tudor BVI  Global Portfolio Ltd.; 267,475.20 shares of our Series B                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

38

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|   |   | Preferred Stock held by  Tudor Proprietary Trading, LLC; and 20,499.20 shares of our Series B  Preferred Stock held by The Altar Rock Fund L.P.  On an as-converted to Common Stock basis,  these shares of Series B Preferred Stock convert into 16,000,000 shares  of our Common Stock.  Also consists of  warrants to purchase 6,839,279 shares of Common Stock exercisable within 60  days from January 31, 2008. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (11)   |   | Includes 892,858 shares  of our Series C Preferred Stock.   On an as-converted to Common Stock basis, these shares of Series C  Preferred Stock convert into 7,142,864 shares of our Common Stock.  Also consists of warrants to purchase  3,214,289 shares of Common Stock exercisable within 60 days from January 31,  2008.                                                                                        |

 

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

 

**TheMerger Agreement**

 

***The Agreement.*** We entered into a Merger Agreement with Uni-PixelDisplays, Inc., Uni-Pixel Merger Sub, Inc. (“Merger Sub”), Gemini V, Inc.(“Gemini V”) and certain of our principal stockholders, which was effective on December 8,2004 (the “*Merger*”). Pursuant tothe Merger, Merger Sub and Gemini V were merged with and into Uni-PixelDisplays, Inc. with Uni-Pixel Displays, Inc. as the survivingcorporation, and Uni-Pixel Displays, Inc. became a wholly-owned subsidiaryof the Company. Prior to the Merger, we had no operations and no materialassets or liabilities. Pursuant to the Merger, of the total number of shares ofour Common Stock outstanding immediately subsequent to the Merger (12,800,580),former Uni-Pixel stockholders owned approximately 68.6% of our Common Stock,former Gemini V stockholders owned approximately 22.8% of our Common Stock, andthe stockholders of the Company owned approximately 8.6% of our Common Stock.

 

***Indemnification.*** The Merger Agreement provides for limitedindemnification of Uni-Pixel Displays, Inc. and its officers, directors,employees, attorneys, representatives, stockholders, controlling persons andaffiliates (the “Uni-Pixel Indemnitees”) from certain of the Company’sstockholders for possible liabilities and claims in connection with theoperation and ownership of the Company including (i) from and including June 14,2001 through and including November 14, 2004 from David DiSalvo, theformer President, Secretary, Treasurer and sole board member for the Company;and (ii) from and including November 15, 2004 going forward fromFrank M. DeLape, the current Chairman of the Board of the Company. Frank M.DeLape will also indemnify the Uni-Pixel Indemnitees for inaccuracies orbreaches of certain terms of the Merger Agreement by the Company, for breachesof covenants or obligations of the Merger Agreement by the Company, for costsand expenses incurred in connection with any stockholder suit challenging thevalidity of the Merger Agreement, and for any claims by brokers or finders forfees or commissions alleged to be due from the Company in connection with theMerger.

 

The indemnificationprotection provided by David DiSalvo and Frank M. DeLape is further limited, inthe aggregate, to the value of the our common stock received by each of theindemnitors as merger consideration in the proposed Merger, determined bymultiplying the number of shares of our common stock received by each by $1.75.As consideration in the Merger, Frank M. DeLape beneficially owns approximately1,812,800 shares of our common stock and David DiSalvo beneficially ownsapproximately 75,000 shares of our common stock. Therefore, the highest dollaramount that any one of these parties will indemnify the Uni-Pixel Indemniteesfor during his or its indemnification period as described in the precedingparagraph, is $3,172,400. None of the parties shall be entitled toindemnification unless and until the aggregate amount of all of their damagessubject to indemnification exceeds $50,000.

 

**PlacementAgent Agreements**

 

In connection with theprivate offering of up to 3,495,000 shares of our Series A Preferred, weentered into a Placement Agent Agreement, dated November 22, 2004, withFordham Financial Management, Inc., the Company’s exclusive placementagent in connection with the offering and the beneficial owner of more than 5%of our outstanding capital stock. As consideration for the placement agent’sservices in connection with the offering, the placement agent received a warrantto purchase 4,500 shares of our common stock for every 15,000 shares of Series APreferred sold in the offering. Each warrant will expire five years after therespective closing of the offering and will have an exercise price of $1.75 pershare. The offering was fully subscribed for 3,495,000 shares of our Series APreferred (gross proceeds of $12,232,500) and we issued to the placement agentwarrants to purchase 1,048,500 shares of our common stock.

 

In addition, theplacement agent received a commission equal to 10%, or $5,250 per 15,000 sharesof Series A Preferred sold, a non-accountable expense allowance equal to3% or $1,575 per 15,000 shares of Series A Preferred sold and a financialconsulting fee, pursuant to the consulting agreement described below, of 1% or$525 per 15,000 shares of Series A Preferred sold, payable in advance ateach closing of the offering. Pursuant to the placement agent agreement, theplacement agent was also entitled to receive reimbursement for travel andtravel-related expenses on an accountable basis up to a maximum of $10,000. Inconnection with the sale of 3,495,000 shares of our Series A Preferred, wepaid to the 

 

39

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placement agent atotal of $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 theterms and provisions of the placement agent agreement, we agreed to indemnifyand hold harmless the placement agent and each person who controls theplacement agent against any and all losses, claims, damages or liabilitiesresulting from any untrue statement in or omission from the offeringmemorandum.

 

**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)                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.3              |       | Certificate of Amendment  to the Amended and Restated Certificate of Incorporation of  Uni-Pixel, Inc. (10)                                                                                                                                                                                                                                                                                                                                                                     |
| 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)                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.13             |       | Certificate of  Designations of the Series B Preferred Stock (Par Value $0.001 Per Share)  of Uni-Pixel, Inc., as filed on February 13, 2007. (11)                                                                                                                                                                                                                                                                                                                    |
| 4.14             |       | Certificate of  Designations of the Series C Preferred Stock (Par Value $0.001 Per Share)  of Uni-Pixel, Inc., as filed on September 28, 2007. (13)                                                                                                                                                                                                                                                                                                                   |
| 4.15             |       | Amended and Restated  Certificate of Designations of the Series B Preferred Stock (Par Value  $0.001 Per Share) of Uni-Pixel, Inc., as filed on September 28,  2007. (13)                                                                                                                                                                                                                                                                                             |
| 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.) |
| 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.,                                                                                                                                                                                                                                                                                                                                                    |

 

40

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|   |   | 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)                                                                                                                                                                                               |
| 10.21  |   | Securities Purchase  Agreement dated as of February 13, 2007, by and among  Uni-Pixel, Inc., The Raptor Global Portfolio Ltd., The Tudor BVI Global  Portfolio Ltd., Tudor Proprietary Trading, L.L.C. and The Altar Rock Fund  L.P. (11)    |
| 10.22  |   | Investors’ Rights  Agreement dated as of February 13, 2007, by and among  Uni-Pixel, Inc., The Raptor Global Portfolio Ltd., The Tudor BVI Global  Portfolio Ltd., Tudor Proprietary Trading, L.L.C. and The Altar Rock Fund  L.P. (11) |
| 10.23  |   | Form of Warrant dated  as of February 13, 2007. (11)                                                                                                                                                                                         |
| 10.24  |   | Severance Agreement  between Uni-Pixel, Inc. and Frank DeLape dated September 11, 2007.  (5) (12)                                                                                                                                       |
| 10.25  |   | Securities Purchase  Agreement dated as of September 28, 2007, by and among  Uni-Pixel, Inc. and Merrill Lynch Pierce, Fenner & Smith  Incorporated. (13)                                                                           |
| 10.26  |   | Investors’ Rights  Agreement dated as of September 28, 2007, by and among  Uni-Pixel, Inc. and Merrill Lynch Pierce, Fenner & Smith  Incorporated. (13)                                                                        |
| 10.27  |   | Form of Warrant dated  as of September 28, 2007. (13)                                                                                                                                                                                        |
| 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 (14)                                                                                          |
| 31.2   |   | Certification of the Chief  Financial Officer of Uni-Pixel, Inc., pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002 (14)                                                                                                            |
| 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 (14)                                                                                          |
| 32.2   |   | Certification of the Chief  Financial Officer of Uni-Pixel, Inc., pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 (14)                                                                                                            |

 

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| (1)  |   | Previously filed as an  exhibit to the Company’s Form 10-SB, filed on February 18, 2005,  and incorporated by reference hereto.          |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Previously filed as an  exhibit to the Company’s Amendment#1 Form 10-SB, filed on April 1,  2005, and incorporated by reference hereto.  |
| (3)  |   | Previously filed as an  exhibit to the Company’s Amendment#2 Form 10-SB, filed on April 27,  2005, and incorporated by reference hereto. |
| (4)  |   | Previously filed as an  exhibit to the Company’ Form 10-QSB, filed on November 10, 2005,  and incorporated by reference hereto.          |
| (5)  |   | Management contract or  compensation plan or arrangement                                                                                                |
| (6)  |   | Previously filed as an  exhibit to the Company’ Form 10-KSB, filed on March 28, 2006, and  incorporated by reference hereto              |
| (7)  |   | Previously filed as an  exhibit to the Company’ Form 10-QSB, filed on August 14, 2006, and  incorporated by reference hereto.            |
| (8)  |   | Previously filed as an  exhibit to the Company’ Form 10-QSB, filed on November 13, 2006,  and incorporated by reference hereto.          |
| (9)  |   | Previously filed as an  exhibit to the Company’s Form 8-K, filed on May 31, 2006, and  incorporate by reference hereto.                  |
| (10) |   | Previously filed as an  exhibit to the Company’s Form 8-K, filed on February 6, 2007, and  incorporate by reference hereto.              |
| (11) |   | Previously filed as an  exhibit to the Company’s Form 8-K, filed on February 16, 2007, and  incorporate by reference hereto.             |
| (12) |   | Previously filed as an  exhibit to the Company’s Form 8-K, filed on September 20, 2007, and  incorporate by reference hereto.            |
| (13) |   | Previously filed as an  exhibit to the Company’s Form 8-K, filed on October 2, 2007, and  incorporate by reference hereto.               |
| (14) |   | Filed herewith                                                                                                                                          |

 

41

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

 

**Audit Fees**

 

The aggregate fees billedby PMB Helin Donovan, LLP (“PMB”), previously known as Helin, Donovan, Trubee &Wilkinson, LLP, for professional services rendered for the audit of our annualconsolidated financial statements during the fiscal year ended December 31,2007, and for the reviews of the consolidated financial statements included inour quarterly reports on Form 10-QSB for that fiscal year were$51,075.  The aggregate fees billed byPMB for professional services rendered for the audit of our annual consolidatedfinancial statements and for the reviews of the consolidated financialstatements included in our quarterly reports on Form 10-QSB during thefiscal year ended December 31, 2006, were $27,000.  These fees include fees billed forprofessional services rendered by PMB for the review of registration statementsor services that are normally provided in connection with statutory andregulatory filings or engagements for those fiscal years.

 

**Audit Related Fees**

 

PMB did not bill us forany professional services that were reasonably related to the performance ofthe audit or review of financial statements for either the fiscal year ended December 31,2007, or the fiscal year ended December 31, 2006, that are not includedunder Audit Fees above.

 

**Tax Fees**

 

PMB billed $5,000 and$6,000 for the fiscal years ended December 31, 2007 and 2006,respectively, for professional services rendered for tax compliance, taxadvice, and tax planning.

 

**Other Fees**

 

PMB did not perform anyservices for us or charge any fees other than the services described above foreither the fiscal year ended December 31, 2007, or the fiscal year ended December 31,2006.

 

42

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**SIGNATURES**

 

In accordance with Section 13or 15(d) of the Exchange Act, the Registrant has caused this report to besigned 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 6, 2008 |

 

In accordance with theExchange Act, this report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated.

 
| **Signature**                       | ** ** | **Title**                                            | ** **         | **Date** |
|-------------------------------------|------------|------------------------------------------------------|--------------------|----------|
|                                |       |                                                 |               |
| /s/ REED J. KILLION                 |       | President, Principal  Executive Officer and Director | March 6, 2008 |
| Reed J. Killion                     |       |                                                 |               |
|                                |       |                                                 |               |
| /s/ JAMES A. TASSONE                |       | Chief Financial Officer                              | March 6, 2008 |
| James A. Tassone                    |       |                                                 |               |
|                                |       |                                                 |               |
| /s/ B. TOD COX                      |       | Vice President  Engineering                          | March 6, 2008 |
| B. Tod Cox                          |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  DAN VAN  OSTRAND     |       | Vice President  Research & Development      | March 6, 2008 |
| Dan Van Ostrand                     |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  ROBERT  J. PETCAVICH |       | Vice President and  General Manager                  | March 6, 2008 |
| Robert J. Petcavich                 |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  FRANK M.  DELAPE     |       | Chairman of the Board                                | March 6, 2008 |
| Frank M. DeLape                     |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  CARL J.  YANKOWSKI   |       | Director                                             | March 6, 2008 |
| Carl J. Yankowski                   |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  ROB  BROGGI          |       | Director                                             | March 6, 2008 |
| Rob Broggi                          |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  VICTOR  CALABA       |       | Director                                             | March 6, 2008 |
| Victor Calaba                       |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  BERNARD  MARREN      |       | Director                                             | March 6, 2008 |
| Bernard Marren                      |       |                                                 |               |
|                                |       |                                                 |               |
| /s/  BRUCE  BERKOFF       |       | Director                                             | March 6, 2008 |
| Bruce Berkoff                       |       |                                                 |               |

 

43

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**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

**OFUNI-PIXEL, INC.**

 
| Report  of Independent Registered Public Accounting Firm                                                                                                                                        | 45     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                            |   |
| Consolidated  Balance Sheets, December 31, 2007 and 2006                                                                                                                                   | 46     |
|                                                                                                                                                                                            |   |
| Consolidated Statements of Operations for the years  ended December 31, 2007 and 2006 and the cumulative period from  February 17, 1998 (date of inception) to December 31, 2007 | 47     |
|                                                                                                                                                                                            |   |
| Consolidated Statements of Shareholders’ Equity  (Deficit) for the period February 17, 1998 (date of inception) to  December 31, 2007                                            | 48     |
|                                                                                                                                                                                            |   |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2007 and 2006 and the cumulative period from  February 17, 1998 (date of inception) to December 31, 2007 | 49     |
|                                                                                                                                                                                            |   |
| Notes  to Consolidated Financial Statements                                                                                                                                                     | 50     |

 

44

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***Report ofIndependent Registered Public Accounting Firm***

 

The Board of Directors and Shareholders of

Uni-Pixel, Inc.

 

We have audited the accompanying consolidatedbalance sheets of Uni-Pixel, Inc. (the Company) (a development stagecompany) as of December 31, 2007 and 2006, and the related consolidatedstatements of operations, shareholders’ equity (deficit), and cash flows forthe years ended December 31, 2007 and 2006, and the period from inception(February 17, 1998) through December 31, 2007. The Company’smanagement is responsible for these consolidated financial statements.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement. The Company is not required to have, nor were we engagedto perform, an audit of its internal control over financial reporting. Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the consolidated financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall consolidated financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, theconsolidated financial position of Uni-Pixel, Inc. as of December 31,2007 and 2006, and the results of its operations and its cash flows for theyears ended December 31, 2007 and 2006, and the period from inception (February 17,1998) through December 31, 2007, in conformity with accounting principlesgenerally accepted in the United States of America.

 

For the period from inception (February 17,1998) through December 31, 2007, the Company has a deficit accumulatedduring the development stage of approximately $32.9 million.

 
| **PMB Helin Donovan, LLP** |
|----------------------------|
|                       |
| /s/ PMB Helin Donovan, LLP |   |
|                       |
| February 27, 2008     |
| Houston, Texas             |

 

45

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedBalance Sheets

 
|                                                                                                                                                                                                                                                                                                                 | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                           |       |                        |       |                        |       |
| Current assets                                                                                                                                                                                                                                                                                                       |       |                        |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                            |       | $                           | 11,697,425 |                        | $          | 20,188 |   |
| Current portion of restricted cash                                                                                                                                                                                                                                                                                   |       | —                      |       | 5,123                       |       |
| Deferred loan costs, net                                                                                                                                                                                                                                                                                             |       | —                      |       | 94,189                      |       |
| Prepaid expenses                                                                                                                                                                                                                                                                                                     |       | 23,672                      |       | 16,965                      |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Total current assets                                                                                                                                                                                                                                                                                                 |       | 11,721,097                  |       | 136,465                     |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Property and equipment, net of accumulated depreciation of $725,338  and $464,564, at December 31, 2007 and 2006, respectively                                                                                                                                                                                  |       | 455,108                     |       | 641,385                     |       |
| Restricted cash, less current portion                                                                                                                                                                                                                                                                                |       | 34,877                      |       | 34,877                      |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Total assets                                                                                                                                                                                                                                                                                                         |       | $                           | 12,211,082 |                        | $          | 812,727 |   |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                                                                                                              |       |                        |       |                        |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Current liabilities                                                                                                                                                                                                                                                                                                  |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                                                     |       | $                           | 526,959    |                        | $          | 428,733 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                     |       | 405,996                     |       | 668,000                     |       |
| Deferred revenue                                                                                                                                                                                                                                                                                                     |       | 33,333                      |       | 33,333                      |       |
| Derivative liabilities for Warrants                                                                                                                                                                                                                                                                                  |       | —                      |       | 943,288                     |       |
| Current portion of note payable, net of unamortized discounts of $0  and $955,419 at December 31, 2007 and 2006, respectively                                                                                                                                                                                   |       | —                      |       | 1,448,571                   |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Total current liabilities                                                                                                                                                                                                                                                                                            |       | 966,288                     |       | 3,521,925                   |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Note payable, less current portion                                                                                                                                                                                                                                                                                   |       | —                      |       | 9,487                       |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Total liabilities                                                                                                                                                                                                                                                                                                    |       | 966,288                     |       | 3,531,412                   |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Commitments and contingencies (Note 7)                                                                                                                                                                                                                                                                               |       | —                      |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Redeemable  convertible Series B Preferred stock, $0.001 par value; $3.75  liquidation preference; 3,200,000 shares authorized, 3,200,000 and 0 issued and  outstanding at December 31, 2007 and December 31, 2006,  respectively, less unamortized discount of $6,103,743 at December 31,  2007 |       | 6,713,531                   |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Redeemable  convertible Series C Preferred stock, $0.001 par value; $11.20  liquidation preference; 892,858 shares authorized, 892,858 and 0 issued and  outstanding at December 31, 2007 and December 31, 2006,  respectively, less unamortized discount of $7,238,324 at December 31,  2007    |       | 2,887,043                   |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                  |       |                        |       |                        |       |
| Preferred stock, Series A, $0.001 par value; $3.50 liquidation  preference; 10,000,000  shares authorized, 0 and 2,369,451 issued and outstanding at  December 31, 2007 and 2006, respectively                                                                                                             |       | —                      |       | 2,369                       |       |
| Common stock, $0.001 par value; 100,000,000 shares authorized, 22,897,418  and 16,311,973 issued and outstanding at December 31, 2007 and 2006,  respectively                                                                                                                                                   |       | 22,897                      |       | 16,312                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                           |       | 34,512,298                  |       | 18,798,407                  |       |
| Accumulated deficit during development stage                                                                                                                                                                                                                                                                         |       | (32,890,975                 | )          | (21,535,773                 | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Total shareholders’ equity (deficit)                                                                                                                                                                                                                                                                            |       | 1,644,220                   |       | (2,718,685                  | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                        |       |                        |       |
| Total liabilities and shareholders’ equity (deficit)                                                                                                                                                                                                                                                            |       | $                           | 12,211,082 |                        | $          | 812,727 |   |

 

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

 

46

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements of Operations

 
| ** **                                                              | ** ** | **Year Ended   December 31,** | ** **  | **Cumulative   Period from   February 17, 1998  (date of inception)   to December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------|-------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                     | ** **  | **2006**                                                                                                                                  | ** ** | **2007** | ** ** |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Development  contract revenue                                           |       | $                                            | —      |                                                                                                                                      | $          | 200,000 |   | $ | 1,158,201 |   |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Cost  of development contract revenue                                   |       | —                                       |        | —                                                                                                                                    |       | 456,648 |   |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Gross  margin                                                           |       | —                                       |        | 200,000                                                                                                                                   |       | 701,553 |   |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Selling,  general and administrative expenses                           |       | 5,958,687                                    |        | 3,509,163                                                                                                                                 |       | 16,348,607 |   |
| Research  and development                                               |       | 4,463,226                                    |        | 2,867,937                                                                                                                                 |       | 14,292,349 |   |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Operating  loss                                                         |       | (10,421,913                                  | )           | (6,177,100                                                                                                                                | )          | (29,939,403 | ) |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Other  income (expense)                                                 |       |                                         |        |                                                                                                                                      |       |   |   |
| Net  decrease in fair value of derivative liability                     |       | 382,920                                      |        | 462,159                                                                                                                                   |       | 845,079 |   |
| Other  income                                                           |       | —                                       |        | —                                                                                                                                    |       | 886,886 |   |
| Debt  issuance expense                                                  |       | (94,189                                      | )           | (50,157                                                                                                                                   | )          | (644,346 | ) |
| Interest  expense, net                                                  |       | (762,664                                     | )      | (720,520                                                                                                                                  | )          | (2,272,465 | ) |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Net  loss                                                               |       | $                                            | (10,895,846 | )                                                                                                                                         | $          | (6,485,618 | ) | $ | (31,124,249 | ) |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Preferred  stock dividends and amortization of discount                 |       | (3,192,212                                   | )           | (497,928                                                                                                                                  | )          | (4,499,582 | ) |
| Net  loss attributable to common shareholders                           |       | $                                            | (14,088,058 | )                                                                                                                                         | $          | (6,983,546 | ) | $ | (35,623,831 | ) |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Per  share information                                                  |       |                                         |        |                                                                                                                                      |       |   |   |
| Net  loss – basic and diluted                                      |       | $                                            | (0.60       | )                                                                                                                                         | $          | (0.40 | ) | $ | (3.80 | ) |
| Preferred  stock dividends and amortization of discount                 |       | (0.17                                        | )           | (0.04                                                                                                                                     | )          | (0.55 | ) |
| Net  loss attributable to common shareholders – basic and diluted  |       | $                                            | (0.77       | )                                                                                                                                         | $          | (0.44 | ) | $ | (4.35 | ) |
|                                                                    |       |                                         |        |                                                                                                                                      |       |   |   |
| Weighted  average number of basic and diluted common shares outstanding |       | 18,255,742                                   |        | 16,032,591                                                                                                                                |       | 8,182,821 |   |

 

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

 

47

----

 

Uni-Pixel, Inc.

(ADevelopment Stage Company)

Consolidated Statements of Shareholders’ Equity (Deficit)

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

— |   |
| Issuance of  preferred stock for dividends                                               |   | 156,507                                 |   | 157        |         | —                     |       | —         |   | 547,618              |   | —                                               |            | (547,775                                        | )      | — |   |
| Net loss                                                                                 |   | —                                  |   | —     |         | —                     |       | —         |   | —               |   | —                                               |            | (4,966,790                                      | )      | (4,966,790 | ) |
| Balance,  December 31, 2005                                                         |   | 2,685,651                               |   | $          |  2,686  |                       | 15,395,057 |           | $      | 15,395               |   | $                                                    | 17,348,728      |                                            | $      | — |   | $ | (14,552,227 | ) | $ | 2,814,582 |   |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |   | (450,317                                | )      | (451       | )            | 916,916                    |       | 917            |   | 28,039               |   | —                                               |            | (28,505                                         | )      |  — |   |
| Stock  compensation expense                                                              |   | —                                  |   | —     |         | —                     |       | —         |   | 914,755              |   | —                                               |            | —                                          |   | 914,755 |   |
| Issuance of  warrants to placement agent                                                 |   | —                                  |   | —     |         | —                     |       | —         |   | 37,596               |   | —                                               |            | —                                          |   | 37,596 |   |
| Issuance of  preferred stock for dividends                                               |   | 134,117                                 |   | 134        |         | —                     |       | —         |   | 469,289              |   | —                                               |            | (469,423                                        | )      | — |   |
| Net loss                                                                                 |   | —                                  |   | —     |         | —                     |       | —         |   | —               |   | —                                               |            | (6,485,618                                      | )      | (6,485,618 | ) |
| Balance,  December 31, 2006                                                         |   | 2,369,451                               |   | $          | 2,369        |                       | 16,311,973 |           | $      | 16,312               |   | $                                                    | 18,798,407      |                                            | $      | — |   | $ | (21,535,773 | ) | $ | (2,718,685 | ) |
| Conversion of  preferred stock into common stock and payment of preferred stock dividend |   | (2,369,451                              | )      | (2,369     | )            | 6,545,445                  |       | 6,545          |   | 455,180              |   | —                                               |            | (459,356                                        | )      |  — |   |
| Stock  compensation expense                                                              |   | —                                  |   | —     |         | —                     |       | —         |   | 2,029,326            |   | —                                               |            | —                                          |   | 2,029,326 |   |
| Issuance of  warrants to consultants                                                     |   | —                                  |   | —     |         | —                     |       | —         |   | 297,891              |   | —                                               |            | —                                          |   | 297,891 |   |
| Issuance of  warrants to Series B Preferred Stock Investors                         |   | —                                  |   | —     |         | —                     |       | —         |   | 3,715,602            |   | —                                               |            | —                                          |   |  3,715,602 |   |
| Intrinsic value  of beneficial conversion option on Series B Preferred Stock        |   | —                                  |   | —     |         | —                     |       | —         |   | 3,715,602            |   | —                                               |            | —                                          |   |  3,715,602 |   |
| Issuance of  common stock for services                                                   |   | —                                  |   | —     |         | 40,000                     |       | 40             |   | 52,360               |   | —                                               |            | —                                          |   | 52,400 |   |
| Issuance of  warrants to Series C Preferred Stock Investors                         |   | —                                  |   | —     |         | —                     |       | —         |   | 3,809,644            |   | —                                               |            | —                                          |   |  3,809,644 |   |
| Intrinsic value  of beneficial conversion option on Series C Preferred Stock        |   | —                                  |   | —     |         | —                     |       | —         |   | 3,809,644            |   | —                                               |            | —                                          |   |  3,809,644 |   |
| Amortization of  discount of Series B Preferred Stock                               |   | —                                  |   | —     |         | —                     |       | —         |   | (1,300,460           | )      | —                                               |            | —                                          |   |  (1,300,460 | ) |
| Amortization of  discount of Series C Preferred Stock                               |   | —                                  |   | —     |         | —                     |       | —         |   | (380,964             | )      | —                                               |            | —                                          |   |  (380,964 | ) |
| Series B  Preferred Stock dividends                                                 |   | —                                  |   | —     |         | —                     |       | —         |   | (844,274             | )      | —                                               |            | —                                          |   | (844,274 | ) |
| Series C  Preferred Stock dividends                                                 |   | —                                  |   | —     |         | —                     |       | —         |   | (206,028             | )      | —                                               |            | —                                          |   | (206,028 | ) |
| Reclassification  of derivative liabilities to equity                                    |   | —                                  |   | —     |         | —                     |       | —         |   | 560,368              |   | —                                               |            | —                                          |   |  560,368 |   |
| Net loss                                                                                 |   | —                                  |   | —     |         | —                     |       | —         |   | —               |   | —                                               |            | (10,895,846                                     | )      | (10,895,846 | ) |
| Balance,  December 31, 2007                                                         |   | —                                  |   | $          | —       |                       | 22,897,418 |           | $      | 22,897               |   | $                                                    | 34,512,298      |                                            | $      | — |   | $ | (32,890,975 | ) | $ | 1,644,220 |   |

 

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

 

48

----

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements of Cash Flows

 
| ** **                                                                     | ** ** | **Year Ended  December 31,** | ** **       | **Cumulative Period  from   February 17,  1998 (date of  inception) to  December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------|------------------|--------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2007**                          | ** **       | **2006**                                                                                         | ** ** | **2007** | ** ** |
| Cash flows  from operating activities                                          |       |                              |             |                                                                                             |       |   |   |
| Net loss                                                                       |       | $                                 | (10,895,846      | )                                                                                                | $          | (6,485,618 | ) | $ | (31,124,249 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:    |       |                              |             |                                                                                             |       |   |   |
| Interest forgiven                                                              |       | —                            |             | —                                                                                           |       | (91,421 | ) |
| Interest earned, but not received                                              |       | —                            |             | 6,297                                                                                            |       | — |   |
| Employee compensation notes payable forgiven                                   |       | —                            |             | —                                                                                           |       | (795,465 | ) |
| Depreciation and amortization                                                  |       | 269,146                           |             | 260,854                                                                                          |       | 801,457 |   |
| Stock issued for services                                                      |       | 52,400                            |             | —                                                                                           |       | 512,462 |   |
| Stock compensation expense                                                     |       | 2,029,326                         |             | 914,755                                                                                          |       | 2,944,081 |   |
| Non-cash compensation expense                                                  |       | —                            |             | —                                                                                           |       | 1,100,000 |   |
| Amortization of debt issuance costs                                            |       | 94,189                            |             | 50,157                                                                                           |       | 644,346 |   |
| Amortization of discounts on notes payable                                     |       | 955,389                           |             | 525,059                                                                                          |       | 1,480,448 |   |
| Net decrease in fair value of derivatives                                      |       | (382,920                          | )                | (462,157                                                                                         | )          | (845,077 | ) |
| Issuance of warrants to consultants                                            |       | 297,891                           |             | —                                                                                           |       | 297,891 |   |
| Change in operating assets and liabilities:                                    |       |                              |             |                                                                                             |       |   |   |
| (Increase) decrease in cash restricted for note payable and lease  obligations |       | 5,123                             |             | 260,000                                                                                          |       | (34,877 | ) |
| Increase in prepaid expenses and other current assets                          |       | (6,706                            | )           | (144,346                                                                                         | )          | (168,017 | ) |
| Increase in accounts payable                                                   |       | 98,226                            |             | 149,982                                                                                          |       | 526,954 |   |
| Increase in accrued interest payable                                           |       | —                            |             | —                                                                                           |       | 180,943 |   |
| Increase (decrease) in accrued expenses and other liabilities                  |       | (262,004                          | )                | 657,188                                                                                          |       | 1,201,461 |   |
| Increase (decrease) in deferred revenue                                        |       | —                            |             | (166,667                                                                                         | )          | 33,333 |   |
| Net cash used in operating activities                                          |       | (7,745,786                        | )                | (4,434,496                                                                                       | )          | (23,335,730 | ) |
|                                                                           |       |                              |             |                                                                                             |       |   |   |
| Cash flows  from investing activities                                          |       |                              |             |                                                                                             |       |   |   |
| Purchase of property and equipment                                             |       | (95,036                           | )                | (48,187                                                                                          | )          | (1,228,774 | ) |
| 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                                          |       | (95,036                           | )                | (48,187                                                                                          | )          | (1,268,730 | ) |
|                                                                           |       |                              |             |                                                                                             |       |   |   |
| Cash flows  from financing activities                                          |       |                              |             |                                                                                             |       |   |   |
| Proceeds from notes payable to related party                                   |       | —                            |             | —                                                                                           |       | 115,103 |   |
| Payments on notes payable to related party                                     |       | —                            |             | (39,761                                                                                          | )          | (164,328 | ) |
| Proceeds from convertible notes payable                                        |       | —                            |             | —                                                                                           |       | 3,390,000 |   |
| Payments on convertible notes payable                                          |       | —                            |             | —                                                                                           |       | (1,470,672 | ) |
| Net proceeds (repayments) from notes payable                                   |       | (2,401,280                        | )           | 2,176,651                                                                                        |       | (62,833 | ) |
| Issuance of warrants to placement agent                                        |       | —                            |             | 37,596                                                                                           |       | 37,596 |   |
| Proceeds from the issuance of preferred stock, net                             |       | 21,919,339                        |             | —                                                                                           |       | 32,367,969 |   |
| Proceeds from the issuance of common stock, net                                |       | —                            |             | —                                                                                           |       | 2,089,050 |   |
| Net cash provided by financing activities                                      |       | 19,518,059                        |             | 2,174,486                                                                                        |       | 36,301,885 |   |
|                                                                           |       |                              |             |                                                                                             |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                          |       | 11,677,237                        |             | (2,308,197                                                                                       | )          | 11,697,425 |   |
| Cash and  cash equivalents, beginning of period                                |       | 20,188                            |             | 2,328,385                                                                                        |       | — |   |
| Cash and  cash equivalents, end of period                                      |       | $                                 |  11,697,425 |                                                                                             | $          |  20,188 |   | $ |  11,697,425 |   |
|                                                                           |       |                              |             |                                                                                             |       |   |   |
| Supplemental  disclosures of cash flow information:                            |       |                              |             |                                                                                             |       |   |   |
| Cash paid for interest                                                         |       | $                                 | 134,434          |                                                                                             | $          |  84,300 |   | $ | 960,727 |   |
| Cash paid for income taxes                                                     |       | $                                 | —           |                                                                                             | —     |   | — |   |
| Interest capitalized into notes payable                                        |       | $                                 | —           |                                                                                             | —     |   | 8,250 |   |
| Debt issuance cost for warrant issued                                          |       | $                                 |  —     |                                                                                             | $          |  — |   | $ |  500,000 |   |
| Preferred stock dividend and amortization of discount                          |       | $                                 | 3,192,212        |                                                                                             | $          |  497,928 |   | $ | 4,499,582 |   |
| Conversion of notes payable for preferred stock                                |       | $                                 |  —     |                                                                                             | $          | — |   | $ |  898,250 |   |
| Conversion of notes payable for common stock                                   |       | $                                 |  —     |                                                                                             | $          |  — |   | $ |  980,103 |   |
| Stock issued for services                                                      |       | $                                 |  52,400     |                                                                                             | $          |  — |   | $ |  1,612,462 |   |
| Stock issued for interest                                                      |       | $                                 |  —     |                                                                                             | $          |  — |   | $ |  81,272 |   |
| Reclassification of derivatives to equity                                      |       | $                                 |  560,368    |                                                                                             | $          |  — |   | $ | 560,368 |   |
| Intrinsic value of beneficial conversion options on Preferred Stock            |       | $                                 | 7,525,246        |                                                                                             | $          |  — |   | $ | 7,525,246 |   |
| Issuance of warrants to Preferred Stock investors                              |       | $                                 |  7,525,246  |                                                                                             | $          |  — |   | $ | 7,525,246 |   |

 

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

 

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**UNI-PIXEL, INC.**

**(ADevelopment 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 Uni-Pixel Displays, Inc.,its wholly-owned operating subsidiary.  As used herein, “Uni-Pixel,” “we,”“us,” and “our” refer to Uni-Pixel, Inc. and Uni-Pixel Displays, Inc. Our common stock, par value $0.001 per share, is quoted on the Over the Counter— Bulletin Board (“OTCBB”) under the ticker symbol “UNXL.”

 

Uni-Pixelis a development stage company that has developed, patented and demonstrated anew color display technology in the form of proof of concept prototypes whichwe call Time Multiplexed Optical Shutter (“TMOS”).  We intend to be aleader in the research, development and commercialization of new flat paneldisplays using TMOS in a variety of applications, such as mobile phones,digital cameras, notebook computers, televisions and other consumer electronicdevices. As of December 31, 2007, we had accumulated a total deficit of$32.9 million 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 be a supplier of our key thin film component and to enter intojoint ventures in certain vertical market segments to exploit the existingmanufacturing and distribution channels of our targeted partners.  Wefurther plan to license our technology to display manufacturers and supportingpartner companies for use in applications such as mobile phones, digitalcameras, laptop computers, and other consumer electronic devices. Through ourinternal research 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 fifteen issued patents and fifty pending patent applicationsfiled in key venues worldwide including regionally in Europe, Asia Pacific,South and North America and contemplate obtaining exclusive field-of-uselicenses, with the right to sublicense, to complementary technologies fromtargeted strategic partners and U.S. national laboratories.

 

ThroughDecember 31, 2007, we have been primarily engaged in developing ourinitial product technology, recruiting personnel, commencing our U.S.operations and raising capital. In the course of our development activities, wehave sustained losses and expect such losses to continue through at least 2008.We will finance our operations primarily through our existing cash and possiblefuture financing transactions.

 

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing beyond proof of concept to finalprototypes and supporting transferable manufacturing processes to partners toproduce for sale our products and upon our successful development of markets forour products and successful manufacturing relationships.  We may berequired to obtain additional capital in the future to expand our operations.No assurance can be given that we will be able to develop our products,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.

 

Ifwe achieve growth in our operations in the next few years, such growth couldplace a strain on our management, administrative, operational and financialinfrastructure. Our ability to manage our current operations and future growthrequires the continued improvement of operational, financial and managementcontrols, reporting systems and procedures. In addition, we may find itnecessary to hire additional management, financial and sales and marketingpersonnel to manage our 

 

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expandingoperations. If we are unable to manage this growth effectively andsuccessfully, our business, operating results and financial condition may bematerially adversely affected.

 

Asof December 31, 2007, we had cash and cash equivalents of $11.7million.  We believe that our existing capital resources are adequate tofinance our operations until December 2008.  However, our long-term viability is dependentupon successful operation of our business, our ability to develop ourmanufacturing process, our ability to sign partnership agreements, thedevelopment of our products and our ability to raise additional debt and equityto meet our business objectives.

 

*Acquisition and merger and basisof presentation*

 

Uni-Pixel was originally incorporated in the State of Nevada as SuperShops, Inc. On November 15, 1999, Super Shops and its sistercompanies filed an amended petition under Chapter 11 of the United StatesBankruptcy Code. On July 31, 2000, the court approved Super Shops’ AmendedJoint Plan of Reorganization. On October 13, 2000, and in accordance withthe Plan of Reorganization, 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, Real-Estateforlease.com, Inc., a Delawarecorporation, merged with and into NEV Acquisition Corp.  Following the merger, NEV Acquisition Corp.changed its name to Real-Estateforlease.com, Inc.  Real-Estateforlease.com, Inc. was incorporatedon 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.

 

Pursuant to the Agreement and Plan of Merger between NEV AcquisitionCorp. and Real-Estateforlease.com, Inc., the sole stockholder and founderof Real-Estateforlease.com, Inc. exchanged his equity ownership interestin Real-Estateforlease.com, Inc. for 9,500,000 shares (or approximately96%) 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.

 

Our wholly owned subsidiary, Uni-Pixel Displays, Inc. wasoriginally incorporated as Tralas Technologies, Inc., a Texas corporation,on February 17, 1998. Tralas Technologies, Inc. changed its name toUni-Pixel Displays, 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 of Real-Estateforlease.com, Inc.At the time of this merger, Real-Estateforlease.com, Inc. had nooperations and no material assets or liabilities.  Pursuant to the merger, we changed our namefrom Real-Estateforlease.com, Inc. to Uni-Pixel, Inc. at the annualmeeting of our stockholders held in January 2005.

 

Uni-Pixel, Inc.is now the parent company of our wholly-owned operating subsidiary, Uni-PixelDisplays, Inc.

 

Theconsolidated financial statements presented in this annual report includeUni-Pixel, Inc. and our wholly-owned subsidiary, Uni-Pixel Displays, Inc.All significant intercompany transactions and balances have been eliminated.Uni-Pixel Displays, Inc. was, for accounting purposes, the survivingentity of the merger, and accordingly for the periods prior to the merger, theconsolidated financial statements reflect the consolidated financial position,results of operations and cash flows of Uni-Pixel Displays, Inc.  Theassets, liabilities, operations and cash flows of Real-Estateforlease.com, Inc.are included in the consolidated financial statements from December 10,2004 onward.

 

**Note 2 -****     ****Liquidity**

 

Uni-Pixel has sustained losses and negative cashflows from operations since its inception (February 17, 1998). The Company’sability to meet its obligations in the ordinary course of business is dependentupon its ability to establish profitable operations, raise additional financingthrough public or private equity financings, enter into collaborative or otherarrangements with corporate sources, or secure other sources of financing tofund operations.

 

OnFebruary 13, 2007, the Company raised $12 million in a private placementof its Series B Convertible Preferred Stock (see Note 8) and on September 28,2007, the Company raised an additional $10 million in a private placement ofits Series C Convertible Preferred Stock (see Note 8), which managementbelieves will enable the Company to continue operations until December 2008.

 

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

 

*Use of estimates*

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires us to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Examples include provisions for bad debts, useful lives of property andequipment and intangible assets, impairment of property and equipment andintangible assets, deferred taxes, and the provision for and disclosure oflitigation and loss contingencies, derivative liabilities and stock basedcompensation. Actual results may differ materially from those estimates.

 

*Statement of 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.

 

*Concentration of 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, 2007 and December 31, 2006 by $11,279,525 and$7,411, respectively.  The terms of thesedeposits are on demand to minimize risk.  We have not incurred lossesrelated to these deposits.

 

*Restricted cash*

 

Asof December 31, 2007 and December 31, 2006, we had restricted cash of$34,877 and $40,000, respectively.  Theseamounts secured certain obligations under our lease agreement for our principalfacility located in The Woodlands, Texas at both December 31, 2007 and December 31,2006.  The restricted cash has beensegregated into current and long-term classifications based on its anticipatedliquidation.

 

*Property and equipment*

 

Propertyand equipment, consisting primarily of lab equipment, computer equipment,software, leasehold improvements, and office furniture and fixtures is carriedat cost less accumulated depreciation and amortization. Depreciation andamortization for financial reporting purposes is provided by the straight-linemethod over the estimated useful lives of three to five years. Leaseholdimprovements are amortized using the straight-line method over the remaininglease term or the life of the asset, whichever is shorter. The cost of repairsand maintenance is charged as an expense as incurred.  Gains or losses related to retirements ordispositions of fixed assets are recognized in the period incurred.

 

*Intangible assets*

 

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.

 

*Derivativeinstruments*

 

Weaccount for all derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Derivativefinancial instruments are recorded as liabilities in the consolidated balancesheet and are measured at fair value. When available, quoted market prices areused in determining fair value. However, if quoted market prices are not available,we estimate fair value using either quoted market prices of financialinstruments with similar characteristics or other valuation techniques.  These derivative liabilities aremarked-to-market each quarter with the change in fair value recorded in theincome statement.

 

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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 fair value of thederivatives were reclassified to additional paid in capital in February 2007.The assumptions used in both modeling techniques required significantmanagement judgment and estimates of future fluctuation in stock price as wellas changes in future interest rates. The reader should reference Note 5 forfurther details in regards to our derivative liabilities.

 

*Revenue recognition*

 

Werecognize revenue over the period the service is performed in accordance withSEC Staff Accounting Bulletin No. 104, “Revenue Recognition in FinancialStatements” (“SAB 104”). In general, SAB 104 requires that four basiccriteria must be met before revenue can be recognized: (1) persuasiveevidence that an arrangement exists, (2) delivery has occurred or servicesrendered, (3) the fee is fixed and determinable, and (4) collectabilityis reasonably assured.

 

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

 

Revenuefrom development contracts are recognized when the contract is completed andcollectability is reasonably assured. Deferred revenue on these contracts of $33,333 at December 31, 2007and December 31, 2006, respectively, consists of a development contract toproduce and deliver a prototype device.  During the first quarter ended March 31, 2006, the Companyfulfilled its obligation with a customer in providing a product prototype, andhas released deferred income of $200,000 into earned revenues during theperiod.  The costs incurred with this prototype were incurred in priorperiods as a component of research and development expenses.

 

*Research and development expenses*

 

Research and developmentcosts are expensed as incurred and include salaries and benefits, costs paid tothird-party contractors for research, development and manufacturing 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 fromthird-party contractors for services performed can lag several months.  Weaccrue the costs of services rendered in connection with third-party contractoractivities based on our estimate of management fees, site management andmonitoring costs and data management costs. Actual costs may differ fromestimated costs in some cases and are adjusted for in the period in which theybecome known.

 

*Stock-based compensation*

 

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

 

Wemay, from time to time, issue common stock, stock options or common stockwarrants to acquire services or goods from non-employees. Common stock, stockoptions and common stock warrants issued to persons other than employees ordirectors are recorded on the basis of their fair value, as required by SFAS No. 123(“SFAS No. 123”), “*Accounting for Stock BasedCompensation”,* which is measured as of the date required by EITFIssue 96-18 (“EITF 96-18”), *“Accountingfor Equity Instruments That Are Issued to Other Than Employees for Acquiring,or in Conjunction with Selling, Goods or Services.”*  Inaccordance with EITF 96-18, the stock options or common stock warrants arevalued using the Black-Scholes model on the basis of the market price of theunderlying common stock on the “valuation date,” which for options and warrantsrelated to contracts that have substantial disincentives to non-performance, isthe date of the contract, and for all other contracts is the vesting date.Expense related to the options and warrants is recognized on a straight-linebasis over the shorter of the period over which services are to be received orthe vesting period. Where expense must be recognized prior to a valuation date,the expense is computed under the Black-Scholes model on the basis of themarket price 

 

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of the underlying common stock at the end ofthe period, and any subsequent changes in the market price of the underlyingcommon stock through the valuation date is reflected in the expense recorded inthe subsequent period in which that change occurs.

 

Thefollowing disclosures provide information regarding the Company’s stock-basedcompensation awards, all of which are classified as equity awards in accordancewith SFAS No. 123(R):

 

*Stock options.*The Company grants stock options to employees that allow them topurchase shares of the Company’s common stock. Options are also granted tomembers of the Board of Directors.  TheCompany determines the fair value of stock options at the date of grant usingthe Black-Scholes valuation model.  Mostoptions vest annually over a three-year service period.  The Company will issue new shares upon theexercise of stock options.

 

Totalcompensation expense recognized for options was approximately $2.0 millionand $0.9 million for the twelve months ended December 31, 2007 and December 31,2006, respectively.

 

Asummary of the changes in the total stock options outstanding during the twelvemonths ended December 31, 2007 follows:

 
| ** **                                        | ** ** | **Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|---------------------------------------------------|------------|-------------|------------|--------------------------------------------|------------|
| Outstanding at December 31, 2006             |       | 3,661,667   |       | $                                          | 1.59       |   |
| Granted                                           |       | 2,062,500   |       | 1.41                                       |       |
| Forfeited or expired                              |       | (1,011,667  | )          | 1.26                                       |       |
| Exercised                                         |       | —      |       | —                                     |       |
| Outstanding at December 31, 2007             |       | 4,712,500   |       | $                                          | 1.58       |   |
| Vested and exercisable at December 31,  2007 |       | 2,560,939   |       | $                                          | 1.65       |   |

 

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

 
| ** **            | ** ** | **Year   ended   December 31,   2007** | ** ** | **Year   ended   December 31,  2006** | ** ** |
|-----------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| Expected life (years) |       | 5 years                                               |       | 5 years                                         |       |
| Interest rate         |       | 4.52 to 5.10                                               | %          | 5.00                                                 | %          |
| Dividend yield        |       | —                                                     |       | —                                               |       |
| Volatility            |       | 82.12                                                      | %          | 63.74                                                | %          |
| Forfeiture rate       |       | —                                                     |       | —                                               |       |

 

At December 31, 2007, there was $1.9 million of total unrecognizedcompensation cost related to non-vested stock option awards which is expectedto be recognized over a weighted-average period of 1.34 years.  There were 1,890,647 options that becamevested during the twelve months ended December 31, 2007.

 

*Income taxes*

 

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.

 

*Loss per share data*

 

Basic loss per share iscalculated based on the weighted average common shares outstanding during theperiod, after 

 

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giving effect to the mannerin which the merger was accounted for as described in Note 1. Dilutedearnings per share also gives effect to the dilutive effect of stock options,warrants (calculated based on the treasury stock method) and convertible notesand convertible preferred stock. The Company does not present diluted earningsper share for years in which it incurred net losses as the effect isantidilutive.

 

At December 31, 2007,options and warrants to purchase 18,558,968 shares of common stock at exerciseprices ranging from $1.10 to $2.00 per share were outstanding, but were notincluded in the computation of diluted earnings per share as their effect wouldbe antidilutive.

 

*Fair Value of FinancialInstruments*

 

Our financial instrumentsconsist of accounts receivable, accounts payable, notes payable, and derivativeliabilities. The fair values of these assets and liabilities, in the opinion ofCompany’s management, reflect their respective carrying amounts.

 

*Recent accounting pronouncements*

 

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

 

Asa result of the implementation of FIN 48, the Company has not changed any ofits tax accrual estimates.  The Companyfiles U.S. federal and U.S. state tax returns. For state tax returns the Company is generally no longer subject to taxexaminations for years prior to 1996.

 

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement No. 157, “Fair Value Measurements” (“FAS 157”), which addresseshow companies should measure fair value when they are required to use a fairvalue measure for recognition or disclosure purposes under generally acceptedaccounting principles (“GAAP”). As a result of FAS 157, there is now a commondefinition of fair value to be used throughout GAAP, which is expected to makethe measurement of fair value more consistent and comparable. The Company mustadopt FAS 157 in fiscal 2008, and management currently does not expect theimpact to be material to its consolidated financial statements.

 

InFebruary 2006, the FASB issued SFAS No. 155, “Accounting for CertainHybrid Financial Instruments—an amendment of FASB Statements No. 133 and140,” to permit fair value remeasurement for any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcationin accordance with the provisions of SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities.” The Company adopted SFAS No. 155in fiscal year 2007. SFAS 155 did not have a material impact on the Company’sconsolidated financial statements.

 

****In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities”, whichpermits entities to choose to measure many financial instruments and certainother items at fair value. The objective is to improve financial reporting byproviding entities with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently withouthaving to apply complex hedge accounting provisions.  The statement amendsSFAS No. 115, “Accounting for Certain Investments in Debt and Equity”.****

 

InDecember 2006, the FASB issued the FASB Staff Position (FSP) No. EITF00-19-2, (“FSP EITF 00-19-2”), Accounting for Registration PaymentArrangements. This FSP addresses an issuer’s accounting for registrationpayment arrangements. This FSP specifies that the contingent obligation to makefuture payments or otherwise transfer consideration under a registrationpayment arrangement, whether issued as a separate agreement or included as aprovision of a financial instrument or other agreement, should be separatelyrecognized and measured in accordance with FASB Statement No. 5,Accounting for Contingencies. The guidance in this FSP amends FASB Statements No. 133,Accounting for Derivative Instruments and Hedging Activities, and No. 150,Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity, and FASB Interpretation No. 45, Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others, to include scope exceptions forregistration payment arrangements. This FSP further clarifies that a financialinstrument subject to a registration payment arrangement should be accountedfor in accordance with other applicable generally accepted accountingprinciples (GAAP) without regard to the 

 

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contingent obligation to transferconsideration pursuant to the registration payment arrangement. This FSP shallbe effective immediately for registration payment arrangements and thefinancial instruments subject to those arrangements that are entered into ormodified subsequent to the date of issuance of this FSP, or for financialstatements issued for fiscal years beginning after December 15, 2006, andinterim periods within those fiscal years.

 

TheCompany adopted FSP EITF 00-19-2 beginning in 2007. The adoption of this FSPdid not have a material effect upon the Company’s financial statements.

 

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

 

In December 2007, the FASB also issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements, whichestablishes accounting and reporting standards to improve the relevance,comparability, and transparency of financial information in its consolidatedfinancial statements that include an outstanding noncontrolling interest in oneor more subsidiaries. SFAS 160 is effective for fiscal years, and the interimperiods within those fiscal years, beginning on or after December 15,2008. Management of the Company does not expect the adoption of thispronouncement to have a material impact on its financial statements.

 

**Note 4 – Property and Equipment**

 

A summary of the components of property and equipment at December 31:

 
| ** **                         | ** ** | **Estimated   Useful   Lives** | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|------------------------------------|------------|------------------------------------------|------------|-----------|------------|-----------|------------|
| Research and development equipment |       | 3 to 5 years                             |       | $         | 788,326    |      | $          | 715,712 |   |
| Leasehold improvements             |       | 5 years                                  |       | 210,086   |       | 210,086   |       |
| Computer equipment                 |       | 5 years                                  |       | 97,740    |       | 86,485    |       |
| Office equipment                   |       | 3 to 5 years                             |       | 84,294    |       | 73,575    |       |
| Automobile                         |       | 5 years                                  |       | —    |       | 20,091    |       |
|                               |       |                                     |       | 1,180,446 |       | 1,105,949 |       |
| Accumulated depreciation           |       |                                     |       | (725,338  | )          | (464,564  | )          |
| Property and equipment, net        |       |                                     |       | $         | 455,108    |      | $          | 641,385 |   |

 

Depreciation and amortization expense of property and equipment,organizational and patent costs for the years ended December 31, 2007 and2006 and the period from inception (February 17, 1998) through December 31,2007 was $0.3 million, $0.3 million, and $0.8 million, respectively.

 

**Note 5 – Notes Payable**

 

                Notepayables consist of the following:

 
| ** **                         | ** ** | **December 31,   2007** | ** ** | **December 31,   2006** | ** ** |
|------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| Vehicle secured note payable       |       | —                            |       | 13,477                            |       |
| Secured convertible note payable   |       | —                            |       | 1,500,000                         |       |
| Unsecured convertible note payable |       | —                            |       | 900,000                           |       |
|                               |       |                              |       |                              |       |
| Notional balances                  |       | —                            |       | 2,413,477                         |       |
| Less: unamortized discount         |       | —                            |       | 955,419                           |       |
| Less: current portion              |       | —                            |       | 1,448,571                         |       |
| Notes payable, long-term portion   |       | $                                 | —     |                              | $          | 9,487 |   |
|                                    |            |                                   |            |                                   |            |  |  |

 

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During 2005, the Company entered into a note payable agreement topurchase a vehicle with an original balance of $20,092, that is repayable inmonthly installments of principal and interest of $391 at 6.31% per annum andmatures March 2010. The vehicle was sold in the second quarter of 2007.  This note payable had an outstanding balanceof $0 at December 31, 2007 and $13,477 at December 31, 2006.

 

*Securedconvertible notes -*

 

OnMay 26, 2006, Uni-Pixel, Inc. entered into Securities PurchaseAgreements with Trident Growth Fund, L.P. and CapSource Fund, L.P. pursuant towhich Uni-Pixel issued 12% Senior Secured Convertible Debentures (the “ConvertibleNotes”) for the principal amount of $1,500,000. The Convertible Notes were paid in full in February 2007.

 

Thecomponents of the Convertible Notes at inception and at December 31, 2006were as follows:

 

ConvertibleNotes at Inception (May 24, 2006) -

 

Asa result of the contract provisions, the Convertible Notes balance at Inception(May 24, 2006) was adjusted as follows:

 
| Notional balance of Convertible Notes 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 Notes |   | (75,000    | )         |
|                                                                                 |   |       |      |
| Convertible Notes balance, net of  unamortized discount at May 24, 2006         |   | $          | 126,969   |   |

 
| Convertible Notes at December 31, 2006  -                                                                                |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                                          |   |   |   |
| The  Convertible Notes balance on the consolidated balance sheet as of  December 31, 2006 is comprised of the following: |

 
| Notional balance of Convertible Notes at  December 31, 2006                  |   | $        | 1,500,000 |   |
|-----------------------------------------------------------------------------------|--------|----------|-----------|--------|
| Adjustments:                                                                      |   |     |      |
| Unamortized discount                                                              |   | (876,896 | )         |
|                                                                              |   |     |      |
| Convertible Notes balance, net of  unamortized discount at December 31, 2006 |   | $        | 623,104   |   |

 

Commonstock purchase warrants

 

Inconnection with the Securities Purchase Agreement, both Trident Growth Fund,L.P. and CapSource Fund, L.P. received Common Stock Purchase Warrants (the “May Warrants”)to purchase a number of shares of our Common Stock subject to adjustments asfollows: 750,000 divided by the lesser of (a) $1.75 per share or (b) 70%of the average price per share of the Common Stock and Common StockEquivalents sold to any Person in the first Qualifying Transaction to beconsummated following the Original Issue Date, all as defined in the May Warrants.  The May Warrants may be exercised at anytime within five years at a price equal to the lesser of (a) $1.75 pershare or (b) 90% of the average price per share of the Common Stock andCommon Stock Equivalents sold to any Person in the first Qualifying Transactionto be consummated following the Initial Exercise Date, as defined in the May Warrants.  In September 2006, the total number ofshares of our Common Stock issuable to Trident Growth Fund, L.P. and CapSourceFund, L.P. pursuant to the May Warrants was fixed at 1,500,000 warrants inthe aggregate.  However, the Companybelieved that the ultimate amount of shares of our Common Stock issuablepursuant to the May Warrants was negotiable until the $12 millionplacement was complete in February 2007. As such, the Company continued to classify the May Warrants asderivative liabilities at December 31, 2006.  Effective February 13, 2007, the Companyreclassified the derivative liabilities for the May Warrants to additionalpaid in capital.  Effective in September 2006,the May Warrants may be exercised at any time within five years at a priceequal to $1.25 per share.

 

TheMay Warrants are freestanding derivative financial instruments.  Using the Black-Scholes Method, the fairvalue 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 ConvertibleNotes.  This derivative 

 

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liability is marked-to-market each quarterwith the change in fair value recorded in the income statement.  Unamortized discount is amortized to interestexpense using the effective interest method over the life of the ConvertibleNotes, or 12 months.  The remainingunamortized discount was recorded in the income statement in the first quarterof 2007 when the derivative liabilities were reclassified to additional paid incapital.

 

Changein unamortized discount and loan costs of the Convertible Notes -

 

Forthe year ended December 31, 2006, the discount on the Convertible Noteschanged for amortization of discounts for derivative liabilities related to theConvertible Notes and the May Warrants and for amortization of loan costspaid to the lender in connection with the Convertible Notes. The total discounton the Convertible Notes changed from $1,373,031 at inception to $876,896 at December 31,2006, to $0 at December 31, 2007, as the remaining unamortized discountwas recorded in the income statement in the first quarter of 2007 when thederivative liabilities were reclassified to additional paid in capital.

 

Thefollowing assumptions were used in the preparation of the valuation of the May Warrantsat inception (May 24, 2006), December 31, 2006 and February 13,2007:

 

Black-ScholesMethodology:

 
| ** **              | ** ** | **Inception** | ** ** | **December 31, 2006** | ** ** | **February 13, 2007** | ** ** |
|-------------------------|------------|---------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Assumptions**         | ** ** | **Warrant**   | ** ** | **Warrant**                     | ** ** | **Warrant**                     | ** ** |
| Dividend yield          |       | 0.00          | %          | 0.00                            | %          | 0.00                            | %          |
| Risk-free interest rate |       | 4.93          | %          | 5.10                            | %          | 5.10                            | %          |
| Volatility              |       | 63.74         | %          | 63.74                           | %          | 68.80                           | %          |
| Expected Term           |       | 5.00 years    |       | 4.39 years                      |       | 4.27 years                      |       |

 

Changein fair value of derivatives instruments-

 

Thenet decrease in derivative liability for the May Warrants(marked-to-market) of $348,927 for the twelve months ended December 31,2007, has been recorded under Other Income in the accompanying consolidatedstatements of operations.

 

*Unsecuredconvertible notes -*

 

OnSeptember 12, 2006, Uni-Pixel, Inc. entered into Securities PurchaseAgreements with various investors pursuant to which Uni-Pixel issued 10% SeniorUnsecured Convertible Debentures (the “Unsecured Convertible Notes”) for theprincipal amount of $900,000.  TheUnsecured Convertible Notes were paid in full in February 2007.

 

                In connection with theSecurities Purchase Agreement, the Company issued 144,000 warrants at $1.25 pershare to the investors.  The warrantswill expire in five years.

 

Asconsideration for the Placement Agent services in connection with theSecurities Purchase Agreement, the Company issued 50,400 warrants at $1.25 tothe Placement Agent or its designees. The warrants will expire in five years.  In addition, the Placement Agent received a commission equal to 5% ofthe principal amount of $900,000, or $45,000.

 

TheUnsecured Convertible Notes were hybrid instruments which contained bothfreestanding derivative financial instruments and an embedded derivativefeature which individually warranted separate accounting as a derivativeinstrument under SFAS No. 133. The freestanding derivative financial instrumentsincluded the investor’s warrants, which were valued individually, and totaled$107,416 at inception on September 12, 2006. The Company identified anembedded derivative feature related to the conversion price within theUnsecured Convertible Notes. However, its fair market value was insignificantat inception.

 

Commonstock purchase warrants-

 

Inconnection with the Securities Purchase Agreement, the investors receivedCommon Stock Purchase Warrants (“September Warrants”) to purchase 144,000shares of our Common Stock at $1.25.

 

TheSeptember Warrants were freestanding derivative financial instruments.Using the Black-Scholes Method, the fair value of the derivative was computedat $107,416 at inception on September 12, 2006 and recorded as a derivative

 

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liability which resulted in a reduction ofthe initial carrying amount (as unamortized discount) of the UnsecuredConvertible Notes.   This derivativeliability is marked-to-market each quarter with the change in fair valuerecorded in the income statement. Unamortized discount was amortized to interest expense using theeffective interest method over the life of the Unsecured Convertible Notes, or12 months.  The remaining unamortizeddiscount was recorded in the income statement in the first quarter of 2007 whenthe derivative liabilities were reclassified to additional paid in capital.

 

Thecomponents of the Unsecured Convertible Notes at inception and at December 31,2006 were as follows:

 

UnsecuredConvertible Notes at Inception (September 12, 2006) -

 

Asa result of these contract provisions, the Unsecured Convertible Notes balanceat Inception (September 12, 2006) was adjusted as follows:

 
| Notional balance of Unsecured Convertible  Notes at September 12, 2006                  |   | $        | 900,000 |   |
|----------------------------------------------------------------------------------------------|--------|----------|---------|--------|
| Adjustments:                                                                                 |   |     |    |
| Discount for derivative liability - Warrant                                                  |   | (107,416 | )       |
|                                                                                         |   |     |    |
| Unsecured Convertible Notes balance, net of  unamortized discount at September 12, 2006 |   | $        | 792,584 |   |

 

UnsecuredConvertible Notes at December 31, 2006 -

 

TheUnsecured Convertible Notes balance on the consolidated balance sheet as of December 31,2006 is comprised of the following:

 
| Notional balance of Unsecured Convertible  Notes at December 31, 2006                  |   | $       | 900,000 |   |
|---------------------------------------------------------------------------------------------|--------|---------|---------|--------|
| Adjustments:                                                                                |   |    |    |
| Unamortized discount                                                                        |   | (78,493 | )       |
|                                                                                        |   |    |    |
| Unsecured Convertible Notes balance, net of  unamortized discount at December 31, 2006 |   | $       | 821,507 |   |

 

Changein unamortized discount and loan costs of the Unsecured Convertible Notes -

 

Forthe year ended December 31, 2006, the discount on the UnsecuredConvertible Notes changed for amortization of discounts for derivativeliabilities related to the Unsecured Convertible Notes and the September Warrantsand for amortization of loan costs paid in connection with both the UnsecuredConvertible Notes. The total discount on the Unsecured Convertible Noteschanged from $107,416 at inception to $78,493 at December 31, 2006, to $0at December 31, 2007, as the remaining unamortized discount was recordedin the income statement in the first quarter of 2007 when the derivativeliabilities were reclassified to additional paid in capital.

 

Thefollowing assumptions were used in the preparation of the September Warrantsvaluations at Inception (September 12, 2006) and December 31, 2006and February 13, 2007:

 

Black-ScholesMethodology:

 
| ** **              | ** ** | **Inception** | ** ** | **December 31, 2006** | ** ** | **February 13, 2007** | ** ** |
|-------------------------|------------|---------------|------------|----------------------------|------------|----------------------------|------------|
| **Assumptions**         | ** ** | **Warrant**   | ** ** | **Warrant**                | ** ** | **Warrant**                | ** ** |
| Dividend yield          |       | 0.00          | %          | 0.00                       | %          | 0.00                       | %          |
| Risk-free interest rate |       | 5.10          | %          | 5.10                       | %          | 5.10                       | %          |
| Volatility              |       | 63.74         | %          | 63.74                      | %          | 68.80                      | %          |
| Expected Term           |       | 5.00 years    |       | 4.70 years                 |       | 4.57 years                 |       |

 

Changein fair value of derivatives instruments-

 

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Thenet decrease in derivative liability for the September Warrants (fairvalue) of $33,993 for the twelve months ended December 31, 2007, has beenrecorded under Other Income in the accompanying consolidated statements ofoperations.

 

**Note 6 – Income Taxes**

 

The Company accounts for income taxes in accordance with SFAS No. 109,*Accounting for Income Taxes*. ThisStatement prescribes the use of the liability method whereby deferred tax assetand liability account balances are determined based on differences betweenfinancial reporting and tax bases of assets and liabilities and are measuredusing the enacted tax rates and laws that will be in effect when thedifferences are expected to reverse. The Company has a net operating loss forfinancial accounting purposes of approximately $29.9 million and$18.3 million at December 31, 2007 and 2006, respectively. TheCompany has a potential deferred tax asset of approximately $10.5 millionas a result of this net operating loss carry forward. In assessing therealization of deferred tax assets, management considers whether it is likelythat some portion or all of the deferred tax assets will be realized. Theultimate realization of deferred tax assets is dependent upon the 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 $4.1 million and $2.3 million for the years ended December 31,2007 and 2006, respectively.

 

The net operating losscarryforward will begin to expire in 2015, if not utilized. The InternalRevenue Code Section 382 limits net operating loss and tax creditcarryforwards when an ownership change of more than fifty percent of the valueof the stock in a loss corporation occurs within a three-year period. Thischange occurred during the year ended December 31, 2004. It is possiblethat additional changes in control may result in additional Section 382limits.  Accordingly, the ability toutilize remaining net operating loss and tax credit carryforwards has beensignificantly restricted with the recent equity transactions.

 

**Note 7 – Commitments andContingencies**

 

*Leases*

 

The Company has entered intoa lease for office, warehouse and laboratory facility in The Woodlands, Texas,under a third party non-cancelable operating lease through 2010. Future minimumlease commitments are as follows as of December 31, 2007:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2008                                       |       | $          | 203,000    |   |
| 2009                                       |       | 206,000    |       |
| 2010                                       |       | 192,000    |       |
| 2011                                       |       | —     |       |
| 2012                                       |       | —     |       |
| Thereafter                                 |       | —     |       |
| Total                                      |       | $          | 601,000    |   |

 

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

 

Rent expense for 2007 and 2006 was $183,000 and $201,000,respectively.

 

*Litigation*

 

The Company from time totime may be involved in litigation relating to claims arising out of itsordinary course of business. Management believes that there are no claims oractions pending or threatened against the Company, the ultimate disposition ofwhich would have a material impact on the Company’s financial position, resultsof operations or cash flows.

 

*Employment agreements*

 

TheCompany has entered into employment agreements with Reed Killion and JamesTassone.

 

Mr. Killion,President, entered into an employment agreement dated March 5, 2005, withan initial term ending December 31, 2008, and providing for an initialbase salary of $195,000, subject to the right of the Board of Directors to 

 

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increase his salary from time to time. Mr. Killionis entitled to receive an annual bonus in an amount to be determined by theBoard of Directors. If Mr. Killion’s performance satisfies criteria to beestablished by the Board of Directors, his target bonus will be a percentage ofhis annual salary. On September 13, 2007, the Board of Directorsincreased the base salary of Mr. Killion to $250,000 effective September 16,2007 and determined the target bonus amount to be 100% of base salary. Mr. Killion also received employee stockoptions to purchase 450,000 shares of common stock at an exercise price of$4.00 per share.  Effective September 5,2006, the exercise price was lowered to $2.00 per share.  The option has a term of ten years and vestsratably on an annual 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 accelerate andMr. 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 aninitial base salary of $145,000, subject to the right of the Board of Directorsto increase his salary from time to time. Mr. Tassone is entitled toreceive an annual bonus in an amount to be determined by the Board ofDirectors. If Mr. Tassone’s performance satisfies criteria to beestablished by the Board of Directors, his target bonus will be a percentage ofhis annual salary. On September 13, 2007, the Board of Directorsincreased the base salary of Mr. Tassone to $180,000 effective September 16,2007 and determined the target bonus amount to be 50% of base salary. Mr. Tassone also received employeestock options to purchase 200,000 shares of common stock at an exercise priceof $4.00 per share. Effective September 5, 2006, the exercise price waslowered to $2.00 per share.  The optionhas a term of ten years and vests ratably on an annual basis over three years.The agreement also provides Mr. Tassone with disability and life insurancebenefits, a car allowance and wireless communications benefits. The vestingprovisions of the option would accelerate and Mr. Tassone would beentitled to a severance payment equal to his base salary for six months, if Mr. Tassonewere terminated without “Cause,” or if Mr. Tassone were to terminate hisemployment with Uni-Pixel for “Good Reason” (each of the terms as defined inthe Agreement).

 

Asof December 31, 2007, there was a $204,000 bonus accrual for Mr. Killionand Mr. Tassone included in the $405,966 bonus accrual.  The accrual is for a potential bonus for alleligible employees and officers contingent upon achieving certain definedmilestones within a specified timeframe.

 

**Note 8 – Redeemable PreferredStock, Equity, Stock Plan and Warrants**

 

*Equity instruments issued tonon-employees*

 

From time to time, in order to preserve cash and to fund our operatingactivities, common stock or other equity instruments may be issued for cash orin exchange for goods or services. Equity instruments issued for goods orservices are recorded at the fair value of the goods or services received orthe fair value of the equity instruments issued, whichever is more reliablymeasurable.  During the twelve monthsended December 31, 2007, we did the following:

 
| · |   | Effective  January 15, 2007, we requested and Lusierna Asset Management, Ltd. (the  “Consultant”) agreed to provide consulting and advisory services to us  pursuant to and in accordance with our request, including but not limited to,  advice regarding corporate structuring, the identification of potential  candidates for our board of directors and transaction structuring. In  consideration of the consulting services, we agreed that at the time of, and  subject to, the closing of no less than gross proceeds of $12,000,000 from  the sale of the Company’s equity in a private placement, (the “**Offering Threshold Closing**”), the  Company (i) issued to the Consultant, simultaneously with the Offering  Threshold Closing, initial closing, a three year warrant to purchase 750,000  shares (the “**Option Shares**”)  of our common stock, at an exercise price of $1.10 per Option Share, with a  cashless exercise provision and no anti-dilution adjustment, and (ii) we  paid to the Consultant a fee of $480,000. The Company utilized the  Black-Scholes methodology in determining the fair market value of  the warrants of $217,007 and recorded the expense in the first quarter  of 2007. The Consultants’ fee of $480,000 was paid from the proceeds of the  Purchase Agreement, described below, and expensed in the first quarter of  2007. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| · |   | Effective  February 13, 2007 we entered into an Investor Relations Agreement with  Lusierna Asset Management, Ltd. (the “Consultant”) which provides that the  Agreement will terminate on the date twelve (12) months from the Commencement  Date, unless otherwise subject to earlier termination. During the term of  this Agreement, 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  broader following by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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|   | analysts  and institutions to include providing directly, or managing the delivery of,  a wide range of services, including, but not limited to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Proactive  marketing of the Company directly to security analysts, stockbrokers and  portfolio managers and investors. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Assisting  the Company in gaining media coverage both locally and nationally. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Assisting  in the preparation of press releases, including monitoring wire service  coverage of the Company for accuracy and pickup. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Preparing  presentations relating to the Company for meetings with analysts, registered  representatives and portfolio managers, other large investors, and sponsored  forums. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Assisting  in preparing information kits about the Company in response to press and/or  investor inquiries. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Providing  such other services and assistance as Consultant and the Company shall deem  necessary or appropriate to enhance the Company’s business. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|   | The  Consultant shall receive $10,000 per month payable monthly on the tenth (10th)  day of each month, commencing on the tenth (10th) day of the month  following the month in which the Commencement Date occurs and a three  (3) year warrant (the “**Warrant**”)  to purchase 300,000 shares of restricted Uni-Pixel, Inc. common stock at  an exercise price of $1.10 per share, with a cashless exercise provision and  no anti-dilution adjustment. The Warrant shall vest in twelve (12) monthly  installments on the tenth (10th) day of each month, commencing in  the First Payment Month. The initial payment shall be for 75,000 shares, with  the remaining 225,000 shares equally divided into the remaining eleven (11)  installments. The Company utilized the Black-Scholes  methodology in determining the fair market value of  the warrants of $86,803 and this amount is expensed over 12 months. By  mutual agreement, the $10,000 monthly payment ceased in October 2007. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  |  |

 

*Common Stock*

 

During the year ended December 31,2007, (1) we issued no shares of common stock for cash in connection withthe exercise of stock options; (2) issued no shares of common stock in exchangefor cashless exercise of warrants; (3) issued 6,545,445 shares of commonstock in connection with the conversion of 2,369,451 shares of Series APreferred Stock and accrued dividends and (4) issued 40,000 shares ofcommon stock for consulting services.

 

During the year ended December 31,2006, (1) we issued no shares of common stock for cash in connection withthe exercise of stock options; (2) issued no shares of common stock inexchange for cashless exercise of warrants; and (3) issued 916,916 sharesof common stock in connection with the conversion of 450,317 shares of Series APreferred Stock and accrued dividends.

 

*Series A ConvertiblePreferred Stock*

 

EffectiveFebruary 13, 2007, each share of Series A Convertible Preferred Stockis convertible into 2.6515 shares of common stock at any time after issuance,together with accrued dividends at 6% per annum payable in cash or additionalshares of Series A Preferred Stock at the option of the Company.

 

Theexpiration date of the Series A Preferred shares is December 31,2007, whereby the Series A Preferred shareholders no longer had any rightswith respect to these shares other than to convert them to common shares as ofthat date.  There are 3,584,587 commonshares, relating to the conversion of 1,275,402 Series A Preferred sharesplus accrued dividends, reflected as issued and outstanding at December 31,2007 in the accompanying consolidated financial statements.   The Company has reflected these Series APreferred Shares as converted to common shares as of December 31, 2007, assuch shares were physically converted as of the date of this report and the Series APreferred shareholders held no rights other than the ability to convert such Series APreferred shares to the Company’s common stock.

 

During the year ended December 31, 2007, the Companydid not issue any shares of Series A Preferred Stock in lieu of cash forpayment of accrued dividends on the Series A Preferred Stock.  We paid $460,485 in Preferred Stock accrueddividends through the issuance of 262,846 common shares during 2007.

 

During the year ended December 31, 2006, the Companyissued an additional 134,117 shares of Series A Preferred Stock in lieu ofcash for payment of accrued dividends on the Series A Preferred Stocktotaling $469,410.  We also paid $28,494in Preferred Stock accrued dividends through the issuance of 16,282 commonshares during 2006.

 

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*Series B Convertible Preferred Stock*

 

On February 13, 2007, the Company entered into a SecuritiesPurchase Agreement (the “Purchase Agreement”) with The Raptor Global PortfolioLtd., The Tudor BVI Global Portfolio Ltd., Tudor Proprietary Trading, L.L.C.and The Altar Rock Fund L.P. (collectively, the “Purchasers”) pursuant to whichthe Company sold on that date in a private placement to the Purchasers (a) 3,200,000shares of the Company’s Series B Convertible Preferred Stock, par value$0.001 per share (the “Series B Preferred Stock”), and (b) warrants (the “Series BWarrants”) to purchase, in aggregate, up to 6,839,279 shares of the Company’scommon stock, par value $0.001 for an aggregate purchase price of$12,000,000.  As the Series BPreferred Stock is redeemable for cash at the option of the holder after fiveyears, the Series B Preferred Stock is classified as temporary equity onthe balance sheet.  In accordance withEITF 00-27, the Company determined that the Series B Preferred Stock hadan intrinsic value of the conversion of option of $3,715,602, which wascredited to additional paid-in capital in the first quarter of 2007, and isbeing amortized over five years.  TheCompany utilized the Black-Scholes methodology in determining thefair market value of the Series B Warrants of $3,715,602, which wascredited to additional paid-in capital in the first quarter of 2007, and isbeing amortized over five years.

 

Dividends shall accrue, whether or not declared and paid, on the Series BPreferred Stock at the rate per annum of 8%, and shall be cumulative as to anydividends not declared and paid in any year, compounding annually at the samerate.  These dividends are charged toadditional paid-in capital.  Each shareof Series B Preferred Stock may, at the option of the holder, be convertedat any time into a number of fully paid and non-assessable shares of commonstock of the Company equal to the quotient obtained by dividing the originalissue price of $3.75 for the Series B Preferred Shares, plus all accruedand unpaid Series B Preferred Stock dividends and any other declared andunpaid dividends, by the initial Series B Preferred Stock conversion priceof $0.75, which is subject to adjustment from time to time in accordance withthe Certificate of Designations.  As ofDecember 31, 2007, there were 3,200,000 shares of Series B Preferred Stockoutstanding, with cumulative unpaid dividends of approximately $844,274 or255,140 shares of Series B Preferred Stock.

 

*Series C Convertible Preferred Stock*

 

OnSeptember 28, 2007, the Company entered into a Securities PurchaseAgreement (the “ ML Purchase Agreement”) with Merrill Lynch Pierce, Fenner &Smith Incorporated (“Merrill Lynch”) pursuant to which the Company sold on thatdate in a private placement to Merrill Lynch (a) 892,858 shares of theCompany’s Series C Convertible Preferred Stock, par value $0.001 per share(the “Series CPreferred Stock”), and (b) warrants (the “ML Warrants”) topurchase, in aggregate, up to 3,214,289 shares of the Company’s common stock,par value $0.001 for an aggregate purchase price of $10,000,009.60.  As the Series C Preferred Stock isredeemable for cash at the option of the holder after five years, the Series CPreferred Stock is classified as temporary equity on the balance sheet.  In accordance with EITF 00-27, the Companydetermined that the Series C Preferred Stock had an intrinsic value of theconversion of option of $3,809,644, which was credited to additional paid-incapital in the third quarter of 2007, and is being amortized over fiveyears.  The Company utilized theBlack-Scholes methodology in determining the fair market value of the MLWarrants of $3,809,644, which was credited to additional paid-in capital in thethird quarter of 2007, and is being amortized over five years.

 

Dividends shall accrue, whether or not declared and paid, on the Series CPreferred Stock at the rate per annum of 8%, and shall be cumulative as to anydividends not declared and paid in any year, compounding annually at the samerate. These dividends are charged to additional paid-in capital.  Each share of Series C Preferred Stockmay, at the option of the holder, be converted at any time into a number offully paid and non-assessable shares of common stock of the Company equal tothe quotient obtained by dividing the original issue price of $11.20 for the Series CPreferred Shares, plus all accrued and unpaid Series C Preferred Stockdividends and any other declared and unpaid dividends, by the initial Series CPreferred Stock conversion price of $1.40, which is subject to adjustment fromtime to time in accordance with the Certificate of Designations.  As of December 31, 2007, there were 892,858shares of Series C Preferred Stock outstanding, with cumulative unpaiddividends of approximately $206,028 or 18,395 shares of Series C PreferredStock.

 

*2005 Stock Incentive Plan*

 

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

 

In the first quarter of 2006, we did not grant any options.  In the second quarter of 2006, we granted atotal of 10,000 options to purchase our common stock with an exercise price of$1.90 per share to one employee under the Stock Incentive Plan.   The options vest over periods of 36 monthsfrom the date of grant.  In the thirdquarter of 2006, a total of 145,000 

 

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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 of Uni-Pixel, Inc.,reduced the exercise price of 1,660,000 stock options issued to eightemployees, with an exercise price of $4.00 per share to an exercise price of$2.00 per share.  This resulted in anadditional compensation expense of approximately $140,000 in the third quarterof 2006 and an additional compensation expense of approximately $213,000 to berecorded over the remaining vesting period.

 

In the first quarter of 2007, we did not grant any options under the2005 Stock Incentive Plan and a total of 1,667 stock options with an exerciseprice of $2.00 per share to one employee were forfeited.  In the second quarter of 2007, we did notgrant any options under the 2005 Stock Incentive Plan and a total of 10,000stock options with an exercise price of $1.90 per share to one employee wereforfeited.  In the third quarter of 2007,we granted a total of 350,000 options under the 2005 Stock Incentive Plan topurchase our common stock with an exercise price of $1.45 per share to eightemployees.  These options vest monthlyover 36 months.  In the fourth quarter of2007, we did not grant any options under the 2005 Stock Incentive Plan and nostock options were forfeited.

 

*2007 Stock Incentive Plan*

 

Effective August 21, 2007, we adopted the Uni-Pixel, Inc.2007 Stock Incentive Plan. The Stock Incentive Plan is discretionary and allowsfor an aggregate of up to 4,000,000 shares of our common stock to be awardedthrough incentive and non-qualified stock options and stock appreciationrights. The Stock Incentive Plan is administered by our Board of Directors,which has exclusive discretion to select participants who will receive theawards and to determine the type, size and terms of each award granted.

 

In the third quarter of 2007, we granted a total of 1,337,500 optionsto purchase our common stock with an exercise price of $1.45 per share to nineemployees.  These options vest monthlyover 36 months.  In the fourth quarter of2007, we granted a total of 75,000 options to purchase our common stock with anexercise price of $1.45 per share to one employee.  These options vest monthly over 36 months.

 

*Other Stock Options*

 

In the second quarter of 2006, we granted a total of 1,000,000 optionsto purchase our common stock with an exercise price of $1.75 per share to Mr. CarlYankowski.  250,000 of these options veston the date Mr. Yankowski is appointed CEO of Uni-Pixel; an additional250,000 options of such options shall vest on the one year anniversary of thedate Mr. Yankowski is appointed CEO of Uni-Pixel, Inc.; and theremaining 500,000 options of such options shall vest monthly over a 24 monthperiod beginning on the one year anniversary of the date Mr. Yankowski isappointed CEO of Uni-Pixel.  If Mr. Yankowskinever becomes CEO of Uni-Pixel, the 1,000,000 options will be cancelled.   Due to these performance criteria,compensation expense will not be recognized for these stock options until suchtime as Mr. Yankowski is appointed CEO. Mr. Yankowski has joined the Company effective April 1, 2006as a Consultant and under the terms of the agreement will become the CEO and amember of the Company’s Board of Directors, at his election, upon the Companycompleting a minimum equity round of $10 million.

 

On September 5, 2006, the Board of Directors of Uni-Pixel, Inc.,reduced the exercise price of 1,000,000 stock options issued to Mr. Yankowski,with an exercise price of $1.75 per share to an exercise price of $1.25 pershare.  This resulted in an additionalcompensation expense of approximately $0 in the third quarter of 2006 and anadditional compensation expense of approximately $104,000 to be recorded overthe remaining vesting period if Mr. Yankowski becomes CEO.

 

OnOctober 1, 2006, we granted a total of 1,000,000 options to purchase ourcommon stock with an exercise price of $1.25 per share to Mr. CarlYankowski.  1,000,000 of these optionsvest upon the occurrence of any of the following events: (i) by no laterthan January 1, 2010, upon the closing of the sale of substantially all ofthe assets of Uni-Pixel or the reorganization, consolidation, merger,dissolution or liquidation of Uni-Pixel; provided that the event results in thepayment or distribution of consideration valued in good faith by the Uni-PixelBoard of Directors at $15 per share (on a fully diluted basis) or more; (ii) byno later than January 1, 2010, upon the closing of a tender offer orexchange offer to purchase 50% or more of the issued and outstanding shares ofUni-Pixel common stock at a price per share valued in good faith by theUni-Pixel Board of Directors at $15 per share (on a fully diluted basis) ormore; or (iii) by no later than January 1, 2010, upon the commonstock of Uni-Pixel, Inc. trading at $15 per share or more for 60 (or more)consecutive days and having a daily trading volume of 200,000 shares or morefor 60 (or more) consecutive days. If (i), (ii) or (iii), as detailedabove, do not occur on or before January 1, 2010, this Option will becancelled in full.  If Mr. Yankowskidoes not become Chief Executive 

 

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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. Yankowskidid not become Chief Executive Officer of Uni-Pixel, Inc. by January 31,2007.

 

Inthe first quarter of 2007, we granted a total of 300,000 options to purchaseour common stock with an exercise price of $1.19 per share to three boardmembers.  These options vest monthly over36 months.

 

OnFebruary 13, 2007, in connection with the Series B ConvertiblePreferred Stock Purchase Agreement, the 1,000,000 options with an exerciseprice of $1.25 per share granted to Mr. Carl Yankowski on May 23,2006 have all vested due to the Company’s completion of an equity financing of$10 million or more.  The Companyutilized the Black-Scholes methodology in determining the fair marketvalue of the warrants of $726,241 and this amount was expensed in thefirst quarter of 2007.

 

*Summary Stock Option and Warrant Information*

 

Information regarding the options and warrantsgranted in 2007 and 2006 is as follows:

 
| ** **                       | ** ** | **Options   Year Ended December 31,** | ** ** | **Warrants   Year Ended December 31,** | ** ** |
|----------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                                  | ** ** | **2006**                                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| Outstanding, beginning of year   |       | 3,661,667                                                 |       | 1,805,000                                                  |       | 2,742,900 |   | 1,048,500 |   |
| Granted                          |       | 2,062,500                                                 |       | 2,010,000                                                  |       | 11,103,568 |   | 1,694,400 |   |
| Exercised                        |       | —                                                    |       | —                                                     |       |   |   |   |   |
| Expired or cancelled             |       | 1,011,667                                                 |       | 153,333                                                    |       |   |   |   |   |
|                             |       |                                                      |       |                                                       |       |   |   |   |   |
| Outstanding, end of year         |       | 4,712,500                                                 |       | 3,661,667                                                  |       | 13,846,468 |   | 2,742,900 |   |
|                             |       |                                                      |       |                                                       |       |   |   |   |   |
| Exercisable, end of year         |       | 2,560,939                                                 |       | 671,958                                                    |       | 13,846,468 |   | 2,742,900 |   |
|                             |       |                                                      |       |                                                       |       |   |   |   |   |
| Available for grant, end of year |       | 2,587,500                                                 |       | 338,333                                                    |       |   |   |   |   |

 

The weighted average option and warrant exerciseprice information for 2007 and 2006 is as follows (On September 5, 2006,the Board of Directors of Uni-Pixel, Inc., reduced the exercise price of1,660,000 stock options issued to eight employees, with an exercise price of$4.00 per share to an exercise price of $2.00 per share.):

 
| ** **                           | ** ** | **Options   Year Ended December 31,** | ** ** | **Warrants   Year Ended December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                                  | ** ** | **2006**                                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| Outstanding, beginning of year       |       | $                                                         | 1.59       |                                                       | $          | 4.00 |   | $ | 1.44 |   | $ | 1.75 |   |
| Granted during the year              |       | $                                                         | 1.41       |                                                       | $          | 1.25 |   | $ | 1.02 |   | $ | 1.25 |   |
| Exercised during the year            |       | $                                                         | —     |                                                       | $          | — |   | $ | — |   | $ | — |   |
| Expired or cancelled during the year |       | $                                                         | 1.26       |                                                       | $          | 3.57 |   | $ | — |   | $ | — |   |
| Outstanding at end of year           |       | $                                                         | 1.58       |                                                       | $          | 1.59 |   | $ | 1.28 |   | $ | 1.44 |   |
| Exercisable at end of year           |       | $                                                         | 1.65       |                                                       | $          | 2.00 |   | $ | 1.28 |   | $ | 1.44 |   |

 

Significant option and warrant groups outstanding atDecember 31, 2007, 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         |       | $                                       | 1.38       |                                     | 1.91       |   |
| January 10, 2005   |       | —                         |       | 168,750                         |       | 168,750         |       | $                                       | 1.38       |                                     | 2.00       |   |
| January 26, 2005   |       | —                         |       | 110,250                         |       | 110,250         |       | $                                       | 1.38       |                                     | 2.08       |   |
| March 5, 2005      |       | 600,000                        |       | —                          |       | 600,000         |       | $                                       | 2.00       |                                     | 7.17       |   |
| March 5, 2005      |       | 450,000                        |       | —                          |       | 300,000         |       | $                                       | 2.00       |                                     | 7.17       |   |
| April 19, 2005     |       | 600,000                        |       | —                          |       | 416,668         |       | $                                       | 2.00       |                                     | 7.33       |   |
| May 23, 2006       |       | 1,000,000                      |       | —                          |       | 1,000,000       |       | $                                       | 1.25       |                                     | 8.58       |   |
| May 24, 2006       |       | —                         |       | 1,500,000                       |       | 1,500,000       |       | $                                       | 1.25       |                                     | 3.58       |   |
| September 12, 2006 |       | —                         |       | 194,400                         |       | 194,400         |       | $                                       | 1.25       |                                     | 3.67       |   |
| February 13, 2008  |       | —                         |       | 6,839,279                       |       | 6,839,279       |       | $                                       | 1.24       |                                     | 9.13       |   |
| February 13, 2008  |       | —                         |       | 1,050,000                       |       | 1,050,000       |       | $                                       | 1.10       |                                     | 2.13       |   |
| March 16, 2007     |       | 300,000                        |       | —                          |       | 79,167          |       | $                                       | 1.19       |                                     | 9.21       |   |
| September 13, 2007 |       | 1,687,500                      |       | —                          |       | 164,063         |       | $                                       | 1.45       |                                     | 9.71       |   |
| September 28, 2007 |       | —                         |       | 3,214,289                       |       | 3,214,289       |       | $                                       | 1.40       |                                     | 9.75       |   |
| December 17, 2007  |       | 75,000                         |       | —                          |       | 1,042           |       | $                                       | 1.45       |                                     | 9.96       |   |
|                    |       |                           |       |                            |       |            |       |                                    |       |                                     |       |
| Total                   |       | 4,712,500                      |       | 13,846,468                      |       | 16,407,408      |       |                                    |       |                                     |       |

 

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**Note 9 – Employee Benefit Plan**

 

*401(k) Plan*

 

EffectiveFebruary 2007, the Company created an employee benefit plan available toall full-time employees under Section 401(k) of the Internal RevenueCode (“401(k) plan”). Employees may make contributions up to a specifiedpercentage of their compensation, as defined. The Company is not obligated tomake contributions under the 401(k) plan. In addition, the Company did notmake any matching employer contribution to the 401(k) Plan in 2007 or2006.

 

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