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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-K**

 
| **x**                                                 | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934**                                                                                                                                                                                                                                              |   |
|-------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** **                                            | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |   |
| **For the  fiscal year ended December 31, 2008** |
|                                                  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| **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 Registrant as Specified in ItsCharter)

 

| **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**

(Registrant’s Telephone Number, IncludingArea Code)

 

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)

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Exchange Act  Yes o  No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.  Yes o  No x

 

Indicateby check mark whether registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will notbe contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K o

 

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

 
| Large Accelerated Filer | o | Accelerated Filer              | o |
|-----------------------------------|---|-------------------------------------|---|
| Non-Accelerated Filer        | o | Smaller reporting company | x |

 

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

 

Theaggregate market value of the common stock held by non-affiliates of theregistrant was approximately $22,765,733 on June 30, 2008, based on thelast reported sales price of the registrant’s common stock on theOver-the-Counter Bulletin Board on such date. All executive officers, directorsand 10% or more beneficial owners of the registrant’s common stock have beendeemed, solely for the purpose of the foregoing calculation, “affiliates” ofthe registrant.

 

Asof January 31, 2008, there were 22,897,418 shares of the registrant’scommon stock, $0.001 par value, issued and outstanding.

 

 

 

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**TABLE OF CONTENTS**

 
|     |   | PART I                                                                                                         |   |   |
|----------|--------|---------------------------------------------------------------------------------------------------------------------|--------|--------|
| ITEM 1.  |   | BUSINESS                                                                                                            |   | 3      |
| ITEM 1A. |   | RISK FACTORS                                                                                                        |   | 16     |
| ITEM 1B. |   | UNRESOLVED STAFF  COMMENTS                                                                                          |   | 22     |
| ITEM 2.  |   | PROPERTIES                                                                                                          |   | 22     |
| ITEM 3.  |   | LEGAL PROCEEDINGS                                                                                                   |   | 22     |
| ITEM 4.  |   | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |   | 23     |
|     |   |                                                                                                                |   |   |
|     |   | PART II                                                                                                        |   |   |
| ITEM 5.  |   | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |   | 23     |
| ITEM 6.  |   | SELECTED FINANCIAL  DATA                                                                                            |   | 25     |
| ITEM 7.  |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPEATION                           |   | 25     |
| ITEM 7A. |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |   | 31     |
| ITEM 8.  |   | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        |   | 31     |
| ITEM 9.  |   | CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |   | 31     |
| ITEM 9A. |   | CONTROLS AND  PRODECURES                                                                                            |   | 31     |
| ITEM 9B. |   | OTHER INFORMATION                                                                                                   |   | 32     |
|     |   |                                                                                                                |   |   |
|     |   | PART III                                                                                                       |   |   |
| ITEM 10. |   | DIRECTORS AND  EXECUTIVE OFFICERS AND CORPORATE GOVERANCE                                                           |   | 32     |
| ITEM 11. |   | EXECUTIVE COMPENSATION                                                                                              |   | 36     |
| ITEM 12. |   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    |   | 39     |
| ITEM 13. |   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          |   | 40     |
| ITEM 14. |   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             |   | 41     |
|     |   |                                                                                                                |   |   |
|     |   | PART IV                                                                                                        |   |   |
| ITEM 15. |   | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                                            |   | 42     |
|     |   |                                                                                                                |   |   |
|     |   | SIGNATURES                                                                                                          |   | 45     |

 

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**PART I**

 

**ITEM 1.  BUSINESS**

 

***Cautionary Note About Forward-LookingStatements***

 

*Certain matters discussed herein may constituteforward-looking statements and as such may involve risks anduncertainties.  In this Annual Report on Form 10-K, the words “anticipates,”“believes,” “expects,” “intends,” “future” and similar expressions identifycertain forward-looking statements.  These forward-looking statementsrelate to, among other things, expectations of the business environment inwhich we operate, projections of future performance, perceived opportunities inthe market and statements regarding our mission and vision.  Ouractual results, performance, or achievements may differ significantly from theresults, performance or achievements expressed or implied in such forward-lookingstatements.  For discussion of the factors that might cause such adifference, see Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operation.”  We undertake no obligation toupdate or revise such forward-looking statements.  We urge readers toreview carefully the risk factors described in this Annual Report found in Item1A. and the other documents that we file with the Securities and ExchangeCommission (“SEC”). These documents can be read at www.sec.gov.*

 

**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 believes it is the leader in the research,development and future commercialization of new flat panel displays using TMOSarchitecture as the means to improve the performance and reduce the bill ofmaterials costs realized in the production of flat panel display systems.  It is envisioned that TMOS displays will bedesigned to be consistent in form and fit with current Liquid Crystal Display(LCD) technology in order to allow TMOS based display panels to be used in thesame display applications that currently use LCD display panels.

 

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

 

·                  Significantlylower manufacturing cost;

·                  Greaterpower efficiency;

·                  Improvedpicture quality;

·                  Increasedbrightness for daylight readability;

·                  Versatileproduction to include a broad range of sizes; and

·                  Flexible,shapeable and transparent displays.

 

We expect the 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 us in development, commercialization, orincorporation of TMOS displays in their products.  These partners should collectively serve tocreate supply and to drive demand for TMOS-based products.

 

Uni-Pixel’s technology leadership and intellectual property position isexpected to enable it to generate revenues from its various technologies in twophases.  For technologies that arelicensed, the initial phase is expected to generate revenue from partnersthrough funded development efforts, and/or up-front licensing fees. The secondphase is expected to include royalties from licensees that produce TMOS panelsor incorporate them into applications for automotive, active signage, andmedical and consumer electronics (i.e., TVs, monitors, personal computers, cameras,games, etc.).  For technologies that willbe produced and supplied, specifically the Company’s Opcuity PerformanceEngineered films, the Company expects to generate revenues initially from jointdevelopment activities with contracted partners.  The second phase is expected to generatesales revenues from customer orders for manufactured film products.  In the case of TMOS targeted film, theCompany will supply a key material component, its OpcuityTM Active Layer film,to its TMOS panel manufacturing partners that will be a revenue source.

 

Through its research and development efforts, the Company hasestablished a portfolio of TMOS and Opcuity film related patents, patentapplications and other intellectual property rights. Uni-Pixel currently has 31issued, 4 allowed and 82 pending patent applications worldwide providing astrong foundation that will support:

 

·                  Further developing proprietary TMOStechnology;

 

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·                  Utilizing contract manufacturing and externalpartners for prototype and product fabrication transitioning to the manufactureof high performance displays for military and commercial applications;

·                  Entering into joint ventures in specificvertical market segments to exploit existing manufacturing and distributionchannels of its targeted partners;

·                  Actively licensing technology to displaymanufacturers, supply chain participants, and device providers for use inapplications such as mobile phones, digital cameras, laptop computers, andother consumer electronic devices; and

·                  Actively licensing film designs andproduction processes to manufacturing partners, or establishing film productioncapabilities to meet customer demand for finished film products.

 

Uni-Pixel’swork developing its TMOS display technology has created a core competency inthe development and production of performance engineered thin films. The firstof these films developed specifically for TMOS is the Opcuity Active Layerfilm.  The capabilities developed byUni-Pixel to create the Opcuity Active Layer film have opened opportunities tobroader applications and markets for film products other than just TMOS.  This has allowed Uni-Pixel to expand itspursuit of performance engineered film products.

 

BeyondTMOS, Uni-Pixel’s performance engineered film designs include finger printresistant protective film covers for touch screen display devices and solarpanel efficiency enhancement films. Uni-Pixel expects that its finger print resistant (FPR) film, “OpcuityFPR”, will be its first product to enter the market.  Uni-Pixel will continue to pursue developmentof its other performance engineered film designs to follow.  In pursuing these film designs, eachadvancing version employs common elements and builds in further uniquecapabilities that Uni-Pixel engineers into the film.  Ultimately these capabilities will culminatein the Opcuity Active Layer Film for TMOS.   In this way, it is an objective of the Company to augment its TMOSspecific efforts with a resulting family of Opcuity performance engineeredfilms that leverage common production processes and techniques initiallydeveloped for TMOS.

 

Through December 31, 2008 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, 2008 we had accumulated a total deficit of $43.5million and expect similar losses to continue through at least 2009. We willfinance our continuing efforts and operations primarily through our existingcash, licensing fees being pursued from strategic partners and additionalfundraising activities.

 

During2008, Uni-Pixel accomplished a number of milestones in both its technical andbusiness advancement.  This included theacquisition of certain key patents from Philips, the development of fingerprint resistant films, the successful development of conductor patterningprocesses that have been recognized as leading edge by the industry, completingdevelopment agreements with a variety of development partners, advancingsubsystem designs for testing within prototype devices, licensing applicableknow-how relative to the assembly of prototype systems, and the successfulassembly, integration, and demonstration 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 

 

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operations and essentiallyno assets. Efforts by Real-Estateforlease.com, Inc. to implement itsbusiness plan ceased 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 since January 18, 2006 under the ticker symbol “UNXL.OB”.

 

**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 have increasingly displacedcathode ray tube (CRT) displays in larger product applications such as desktopcomputer monitors and televisions. FPD’s unique form factor and digitalinterface is enabling the delivery and accurate display of video,telecommunications, information, data, analysis and instructions in both mobileand fixed environments previously unsuitable to CRTs.  This transition is being driven by consumerpreferences for appliances that are thinner and lighter, particularly in largerdisplay sizes.  For example, according toDisplaySearch, an independent market research firm tracking the FPD industry,2002 revenues from the sale of FPD computer monitors exceeded the revenues fromthe sale of CRT computer monitors for the first time and, in 2004, unitshipments of FPD computer monitors exceeded unit shipments of CRT computermonitors for the first time. In the third quarter of 2007, DisplaySearchreported that FPD computer monitors accounted for 95.5% of display 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 with simple,small monochrome displays with limited functionality. As the cost of colordisplays 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.

 

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Theoverall FPD industry is continuing to experience significant growth.  According to DisplaySearch, the worldwide FPDmarket grew from $43.9 billion in 2003 to $109.9 billion in 2008.  DisplaySearch expects this market to grow toan estimated $137.0 billion in 2012.  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 and newer “netbook”computers;

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

·                  Decreasing costs economics, increasingthroughput and improving efficiency of FPD production as newer generation LCDand plasma fabrication plants are increasing production.

 

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

 

**Applications**

 

Withthe proliferation of the Internet, there has not only been an explosion in theamount of available content, but a rapid evolution of the form in which itappears.  No longer is information atwo-dimensional, text-only experience; online content is now being delivered ingraphic rich, animated and video formats. As the sophistication of the user base continues to heighten and bandwidthcontinues to increase, there will be a demand for a superior, high resolutionvisual experiences that only FPDs will be able to deliver — particularly inmobile wireless devices.  Flowing fromthis, new types of applications and functionality will evolve that, in turn,will enhance existing markets and create 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 should fuel demand growth inwhat have become relatively mature markets. For instance, while the mobile phone market has seen relatively slowgrowth rates, a large pool of sophisticated users now exists who are providingthe demand for new technologies such as Phone Cameras and Phone TVs.  These enhanced devices will incorporate highperformance, next generation displays that will see a move away from PassiveMatrix-LCDs towards Active Matrix-LCDs, as well as other emerging display typessuch as organic light emitting diodes (OLEDs). Additionally, FPD technology isincreasingly taking forms beyond consumer electronic devices.  FPDs are increasingly used in emergingapplications including retail signage, car navigation systems, instrumentation,and household appliances.

 

GlobalFPD consumption has grown by the ongoing replacement of 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:

 

·                  Increasing acceptance and penetration of FPDTV’s;

·                  Rapid replacement of CRT monitors and TV’s;

·                  Steady growth of various types of notebookcomputers;

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

·                  Migration to video capable color screens inmobile phones and other handheld devices.

 

TheFPD market is currently dominated by LCDs, which accounted for an estimated 90%of total FPD sales in 2008, 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 |       | + Thin form-  factor

+ Large industry base from PC |       | + Large size

+ Brightness

+ Viewing angle |       | + Superior image: viewing angle, contrast ratio, |       | + Potential cost advantage

+ Thinner than CRT, but |       | + Vivid Color

+ Readability

+ Resolution

+ Energy |

 

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|       |       | lifetime                                                                               |       | segment                                                                                         |       |                                                                                |       | fast  response time

+ Thinnest form factor

+ Potential cost advantage                                   |       | thicker  than LCD or plasma                                                                  |       | 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  |

 

**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.

 

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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 manufacturingprocesses are difficult to manage and are prone to defects.

 

Incontrast, Uni-Pixel anticipates that the TMOS manufacturing process will havefar fewer steps.  Benefiting from largerfeatures and less tightly packed construction, the manufacturing process willhave significantly fewer yield detractors or failure elements, and an enhancedpotential for longer life and resilience over LCD and 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 colorintensity. This method yields a maximum efficiency of light of less than 10%.This means that if 1000 nits (a measure of brightness) are created by thebacklight, less than 100 nits are displayed out the front.

 

ATMOS panel uses light injected into the edge of the glass panel much the sameway a fiber optic cable works. Light is injected into one edge of the TMOSpanel, with mirrors on the other three opposing sides/edges. Light goes intothe guide and travels uninhibited bouncing throughout the plane creating a “photoncloud”. TMOS optical shutters then open and close on the surface of the panelto let the light escape. The ratio of light injected into the panel to lightreleased from the surface is tunable. Uni-Pixel’s modeling and experimentationhas shown that a panel tuned to 61% efficiency provides the most uniformrelease of light across the entire display surface. Therefore if one were toinject 1000 nits of light into a TMOS display panel, at a tuned 61% efficiency,610 nits will 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. During 2008, the Company debuted fullyfunctional TMOS display prototypes at the Society for Informational Display(SID) conference in Los Angeles.  TheCompany’s current prototyping efforts are focused on the process of optimizingthe materials and assembly of the display to advance to manufacturability andthen 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 traditionally encountered in FieldSequential Color display 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.

 

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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 provide electronicbackplane development.  Sub-systemadvances were made in all areas including the light injection system design,OpcuityTM Active Layer materials and implementation requirements, and drivecontrol algorithms and electronics.  In November of2007, Uni-Pixel expanded its relationship with Philips by entering into aknow-how licensing arrangement specific to the assembly of displaysystems.  In December of 2007,Uni-Pixel completed the successful assembly of prototype devices leveraging thecollaborative work conducted in the Eindhoven center.

 

InMay of 2008, Uni-Pixel demonstrated its first 128x160 prototype devices atthe Society for Informational Display (SID) Industry conference in Los Angeles,CA.  Uni-Pixel progressed through theremainder of the year improving the performance characteristics of each newprototype system built.  Uni-Pixelfurther investigated various factors effecting performance that have beendemonstrated in its prototypes and engaged efforts and partners in addressingand improving on these factors.  In early2008, an unexpected by-product of Uni-Pixel’s TMOS development efforts yieldeda discovery specific to Uni-Pixel’s thin film capabilities.  The development led to Uni-Pixel’s FingerPrint Resistant (FPR) film technology and further to the Opcuity FPR filmproduct for touch screen displays.  Byyear end, the Company had developed a number of film designs based on itscommon set of core thin film competencies in optics, mastering and micro-replication.  These capabilities developed for creatingprecision surface modifications have been successfully combined with techniquesto pattern conductors using industry standard ink-jetting techniques.  The resulting micro-optic film designsleveraging precision patterned conductors capable of being produced in roll toroll systems have become the basis of the Company’s enhanced businessdevelopment efforts around performance engineered optical thin films.  By the end of December 2008, the Companyhad executed two Memorandums of Understanding with partnering firms to produceOpcuity films in high volume.

 

Through2009, Uni-Pixel expects to align itself with several development and productionpartners that will assist in advancing TMOS towards commercialization.  The Company believes that it will reachagreements that will generate its first meaningful revenues which will help toaugment the development work investments it has made and will make and move theCompany forward in its commercialization strategy for TMOS.  Additionally, the Company will seek to enterthe market with its first film product, Opcuity FPR.

 

**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. This has been augmented by a strategy topenetrate direct film product markets leveraging the capabilities andcompetencies achieved in the development of its Opcuity family of performanceengineered films as functional application specific films. The Company ispresently focused on the following steps to implement its business strategy:

 

·                  **Develop Strategic Relationships. **Uni-Pixel plans to target strategic partners to further the Company’sefforts in the development and commercialization of TMOS displays and Opcuityfilms. Uni-Pixel believes that if these efforts are successful, they couldresult in TMOS flat panel displays reaching commercial markets in productsfaster 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’s management understands thatgaining the assistance of some of these various technology leaders in thedevelopment of 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,infrastructure, manufacturing and expertise in thin films, optics, controlcircuitry, assembly, and logistics.

 

·                  **Enhance the Company’s Existing TMOS Technology.** Uni-Pixel believes that continuing developmentand enhancement of its TMOS technology is critical to the Company’s success inthe display industry. Consequently, Uni-Pixel will continually seek to enhanceits competitive technology position through internal development efforts thatexpand our intellectual property portfolio, collaborative relationships, andother 

 

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strategic opportunities. Uni-Pixel’s primary focus is to expand ourintellectual property through development of additional prototypes andmaterials that enhance and extend the Company’s product capabilities or theprocesses by which the systems are produced, thereby allowing them to be usedin a broader array of display applications and to maintain performance andmarket leadership over time.

 

·                  **Develop Prototypes Suitable to MilitaryRequirements. **Working 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 ManufacturingProcess.** Uni-Pixel plans to complete the development ofthe core and foundation of its manufacturing processes and protect theintellectual property in the developed processes.  The Company also plans to establish atechnology transfer team to enable the transition of the Company’smanufacturing processes to targeted manufacturing partners and licensees.

 

·                  **Target Leading Manufacturers.** Uni-Pixel plans to target leading display,materials and electronics manufacturers as potential partners and/or licenseesof its TMOS and Opcuity Performance Engineered film technologies. The Companywill provide extensive technical assistance and support to manufacturers whoare early evaluators, developers, or users of its TMOS technology andmaterials. Uni-Pixel believes that successful incorporation of its technologyinto the first military or commercial applications will place competitivepressure on other industry participants to adopt a TMOS display technologysolution. Uni-Pixel believes that this approach will also encourage potentialnew market entrants as licensees seek to capture or defend original equipmentmanufacturer supply contracts.  Uni-Pixelwill support “pull through” of its TMOS technology by actively marketing itsadvantages to end product original equipment manufacturers (OEMs) that incorporate display technology into their devices.  This will allow Uni-Pixel’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.  Uni-Pixelwill also target Original Design Manufacturers (ODMs) targeted to assemble TMOSpanel packages for incorporation into OEM products.

 

·                  **Drive Adoption by End-Product Original EquipmentManufacturers.** Uni-Pixel plans to use prototype devices todemonstrate its technology to original equipment and design manufacturers thatproduce end user products. The Company believes that the significant advantagesthat Uni-Pixel’s displays will offer in performance and packaging design canposition it to be a “plug and play” replacement for existing LCD displays andwill induce original equipment manufacturers to request production of TMOSdisplays from their existing display suppliers. This is considered a “pull-through”approach to gaining market acceptance and entry of TMOS displays into end-userproducts and applications.  This groupwill seek to acquire and integrate the panel packages into end user products.

 

·                  **Build the Company’s Revenue Sources.** Uni-Pixel believes that it will be able toproduce revenues from four distinct sources, consisting of licensing revenues(initial licensing fees and royalties), subcontracted manufacturing revenues(from the Company’s low volume military and commercial production, jointventures, or products produced by third party contract manufacturers),materials and film revenues (from the materials Uni-Pixel plans to supply toprospective partners, contract manufacturers, and licensees), and fundedresearch revenues.

 

Uni-Pixel’scontemplated TMOS initiatives include applications involving flexible displays,transparent displays and unique military applications. Uni-Pixel also plans toconduct research on the use of a variety of different thin-film technology inTMOS applications and the construction of TMOS displays. The Company’s focus onnext-generation technologies is designed to extend Uni-Pixel’s position as theleading provider of TMOS solutions and Opcuity Performance Engineered Films asnew markets and applications 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 production capabilityand capacity.  Over the course of twoyears, Uni-Pixel will pursue a technical development roadmap that includes:

 

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·                  Finalization of display pixel mechanismmaterials;

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

·                  Completion of supporting drive controlcircuitry;

·                  Finalized bonding techniques for completionof the active layer structure;

·                  Assembly and testing of multiple formatprototype devices; and

·                  Finalization of specifications forretrofitting existing LCD manufacturing plants for TMOS production.

 

Specificallythis includes:

**High Level Milestones**

 
| **6 Months**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **12 Months**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **18 Months**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **24 Months**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·                  Finalize potential materials for inclusion in thin film stacks

·                  Engage leading semiconductor partners to provide design and development services for controller chips

·                  Advance targeted partnerships with TFT manufacturers to begin  efforts to develop TMOS  technology for commercialization |       | ·                  Complete development agreements  and partnering efforts for thin film materials

·                  Complete design and implementation of proprietary drive control circuitry

·                  Engage contractors and partners for implementation of manufacturing  systems |       | ·                  Complete assembly and testing of pilot line

·                  Refine specifications of manufacturing system with the help of partnerships with system specialists

·                  Form partnerships with OEM firms to implement TMOS technology in their end user products

  |       | ·                  Refine and test pilot line procedures

**·****                **Implement  manufacturing system

·                  Form partnerships with OEM firms to implement TMOS technology in their end user products

** ** |

 

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

 

**CUSTOMERSAND PARTNERS**

 

Thefuture customers for the TMOS panel “packages” will be the OEMs that currentlyuse existing display technologies such as LCD, Plasma, and OLED in their finalproducts.  Therefore, the end customerfor a Uni-Pixel TMOS panel package will be an integrator, assembler, ODM or theOEM itself.  Initially, Uni-Pixel’sstrategic partners 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 andwith partners that provide comprehensive validation of TMOS technology and thatwill serve as a basis for future customer growth.

 

TheCompany’s future Opcuity Performance Engineered Films customers should includea variety of companies from device OEMs to channel distribution partners.  Uni-Pixel will seek to sell rolls of film inuncut format as well as films that are die-cut and packaged as direct to marketproducts.  The type and variety of filmsales will depend on the nature of the specific buyer and target applicationfor the film.

 

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CurrentPartners

 

·                  *Philips ResearchLab/MiPlaza Open Innovation Center:*Uni-Pixel engaged MiPlaza as a development partner working on certainprototyping tasks to advance the display architecture, provide electronicbackplanes, support the assembly process, and provide engineering developmentsupport.  This effort has and willcontinue to provide Uni-Pixel with further advanced prototypes and additionalsubsystems that further the optimization process for manufacturing.  Uni-Pixel has also purchased certain patentsfrom Philips resulting directly from the interaction between the two companiesand the synergies of the patents with Uni-Pixel’s patent portfolio.

 

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

 

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 theoptimization of existing materials as implemented within the process andsystem.  Initially Uni-Pixel expects tocontract for development work with the objective of reaching a productionagreement or joint venture with one or more thin film manufacturers.  During the course of 2008, Uni-Pixel securedsubcontracted manufacturing capacity for its initial thin film production and signedtwo separate Memorandums of Understanding with production partners to providehigh volume manufacturing capacity.

 

·                  *Drive Control Circuitry:*Uni-Pixel is seeking partners for assistancein the development and manufacturing of its unique drive controlcircuitry.  Uni-Pixel has developed uniqueintellectual property that will be implemented through a “fab-less”semiconductor model.  This may includepotential development of new intellectual property, cross licensing, and theuse of certain existing semiconductor capabilities from one or morepartners.  Uni-Pixel has developed ameans to use off the shelf parts for certain drive control requirements thatwill allow it to produce prototypes in the short term, as well as leveragingthe enhancements that its own unique drive control provides over the longerterm.

 

·                  *Manufacturing and AssemblyPartners:*****Uni-Pixel is seekingstrategic partners that are currently manufacturing other display technologiesor incorporating other display technologies into end user products.

 

TargetCustomers

 

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

 

·                  *Large Computer OEM and ODM:*****Uni-Pixel has delivered a unique proof ofconcept prototype device to a large computer system OEM under the terms of anengineering development agreement.  Thisearly prototype established the first system for testing and evaluation of thearchitecture and operation of the system for gathering direct performance feedback.  Additional work continues specific toadvancing this prototype to implementation within an end user product.

 

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·                  *Large Active Signage OEM:* Uni-Pixel is seeking potential partners inthe vertical market of Active Signage. Two dominant technologies exist in this vertical market, plasma displaysfor indoor applications and LED displays for outdoor applications.  Uni-Pixel’s technology offers unique and newcapabilities that strongly differentiate it from both of these, and canpotentially open a market not currently able to be targeted 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 flatpanels as 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, and a silicon foundry partner thatproduces the display controller semiconductors.

·                  Product revenues — Integrators of displaypanel packages designed and built for small volume requirements such as militaryand avionics applications, or unique custom displays.  Proceeds from the sales of Opcuityperformance engineered film products.

·                  Criticalmaterials — Integrators or manufacturers that produce or assemble display panelpackages.  For integrators this caninclude control driver chips from Uni-Pixel’s foundry partner.  For manufacturers this can include materialssuch as its OpcuityTM thin films featuring micro-optics and transparentconductors to be used in the display 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 advantages that TMOS panels can provide bothin form factor and performance. Uni-Pixel expects to create OEM “pull” bygaining design wins for integration of TMOS display panel technology intoestablished end user devices.

 

Uni-Pixelwill advance its “Simply Superior” tag line and actively demonstrate theelegance and performance advantages of its unique pixel architecture within theindustry in support of its direct sales work with OEMs.  Once the 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, 2008, Uni-Pixel has spent approximately$21.8 million on research and development activities, with $7.5 million and$4.5 million invested in 2008 and 2007, respectively. Uni-Pixel continuesconducting research and development both internally and externally andanticipates significantly higher investments going forward.

 

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Asof December 31, 2008, 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 element thatmakes up Uni-Pixel’s display prototypes. These vendors are to deliver to theCompany the individually contracted elements as specified by Uni-Pixel. Workingwith its strategic partners, Uni-Pixel is advancing the individual elementsinto the Company’s next generation working prototype devices.

 

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 24 to 36 months. Thedevelopment process will also include selecting and completing the preferablemanufacturing processes that will be transferable to joint venture partneroperations or licensees.

 

Uni-Pixelplans to complete the development of the preferred manufacturing process forits film products within the Company’s laboratory environment and has engaged asmall-scale pilot production line that will be the research and developmentproving ground for a continuous flow manufacturing process followed potentiallyby a roll to roll manufacturing process for all of its Opcuity performanceengineered films.

 

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 LCD and Plasma currentlydominate the marketplace, Uni-Pixel will be more specifically competing againstother emerging technologies such as OLED and Liquid Crystal on Silicon, or LCoS.  It is Uni-Pixel’s objective to enable the LCDmanufacturing infrastructure to evolve forward into TMOS production as aforward extension of its current operation. In this way, TMOS competes with inertia within the LCD industry and theresistance to change.  However, given thepotentially compelling advantages TMOS offers, the Company believes that thiscan be overcome.

 

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

 

·                  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 iscurrently the dominant technology in the FPD sector with 90% market share in2008. Samsung Electronics and LG Philips LCD Co. Ltd. are market leaders whileadditional competitors include:  SharpElectronics Corp., NEC Corp., Hitachi Ltd., AU Optronics Corp., Chi MeiOptoelectronics Corp., Chunghwa Picture Tubes Ltd., Quanta Corp. and HannStarDisplay Corp.

 

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·                  *Plasma Competitors*: Plasma technology is another technology inthe FPD market suffering from high power consumption and limited life span.Major competitors include:  MatsushitaElectric Industry Co. Ltd., LG Electronics, Inc., Hitachi Ltd., LG PhilipsLCD Co. Ltd., Samsung Electronics, Pioneer Electronics and Sony Corp.

 

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

 

·                  *High TemperaturePolysilicon LCD (HTPS-LCD) Competitors*: The HTPS-LCD technology, a transmissive FPD technology, is championedby Epson Corp., Sony Corp, Panasonic Corp., Hitachi Ltd., Skyworth DigitalHld., and Konka Group.  HTPS-LCD worksespecially well and has gained popularity in near-to-eye displays (for use in acamcorder viewfinder), front projectors (which uses a front-lens to stretch theimage), and rear-projection TV sets.

 

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 manufacture polymerOLEDs, CDT has been acquired by Sumitomo.

 

·                  *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 International; “Non-Organic Thick Film Dielectric ElectroLuminescent Technology” developed by iFire Technologies, a unit of WestaimCorporation; and flat CRT and silicon based MEMs systems from Qualcomm andPixtronix.

 

**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, Uni-Pixel often creates a new invention whensolving a technology issue.  Uni-Pixelhas engaged one of the industry’s largest and most experienced IP firms toassist in the prosecution of our patent filings.  TMOS represents a “green field” technology inthat it is a new approach to displays leveraging well known concepts in newways.  This has created an unexploredarena for Uni-Pixel to innovate and generate IP on a continuing basis.

 

Relating to TMOSTM technology, the Company currently owns 31patents and 4 allowed patent applications in the following 15 patent families:

 

·                  Optical Display

·                  Field SequentialColor Efficiency

·                  Enhancing aField Sequential Color Palette in an Optical Display

·                  Air GapAutogenesis Method

·                  Extended GamutField Sequential Color

·                  Curved ScreenFTIR Display Mechanism

·                  Enhancements toOptical Flat Panel Displays

·                  Double-ElectretMEMS Actuator

·                  ElectromechanicalDynamic Force Profile Articulating Mechanism

·                  OpticalMicrostructures for Light Extraction and Control

·                  Corner-CubeRetroreflectors for Displays

 

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·                  Display DeviceComprising a Light Guide

·                  Display DeviceComprising a Light Guide With Electrode Voltages Dependent on PreviouslyApplied Electrode Voltages

·                  Display DeviceComprising a Light Guide

·                  Display DeviceComprising an Optical Waveguide Plate and Method of Operating for the Same

 

**EMPLOYEES**

 

As of January 31, 2009, we have 23 full-time employees and no part-timeemployees. None of these employees are covered by a collective bargainingagreement, and we believe our relationship with our employees is good. We alsoemploy consultants on an as-needed basis to supplement existing staff.

 

**OUR COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS**

 

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

 

**ITEM 1A. RISK FACTORS**

 

*Set forth below are certain risks and uncertainties relatingto our business.*

 

*You should carefully consider the following informationabout risks described below, together with the other information contained inthis Annual Report on Form 10-K and in our other filings with the SEC,before you decide to buy or maintain an investment in our common stock. Webelieve the risks described below are the risks that are material to us as ofthe filing date of this Annual Report on Form 10-K.  If any ofthe following risks actually occur, our business financial condition, operatingresults and future growth prospects would likely be materially and adverselyaffected. In these circumstances, the market price of our common stock coulddecline, and you may lose all or part of the money you paid to buy our commonstock.*

 

**Risks Related to our Business and Industry**

 

**Our independent registered public accounting firm has issuedan unqualified opinion with an explanatory paragraph, to the effect that thereis substantial doubt about our ability to continue as a going concern.**

 

Ourindependent registered public accounting firm has issued an unqualified opinionwith an explanatory paragraph, to the effect that there is substantial doubtabout our ability to continue as a going concern. This unqualified opinion withan explanatory paragraph could have a material adverse effect on our business,financial condition, results of operations and cash flows. See “Liquidity andCapital Resources” in Part II, Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and Note 2 toour consolidated financial statements included elsewhere in this Annual Reporton Form 10-K.

 

Wehave no committed sources of capital and do not know whether additionalfinancing will be available when needed on terms that are acceptable, if atall. The addition of this going concern statement from our independentregistered public accounting firm may discourage some investors from purchasingour stock or providing alternative capital financing. The failure to satisfyour capital requirements will adversely affect our business, financialcondition, results of operations and prospects.

 

Unlesswe raise additional funds, either through the sale of equity securities or oneor more collaborative arrangements, we will not have sufficient funds tocontinue operations. Even if we take these actions, they may be insufficient,particularly if our costs are higher than projected or unforeseen expensesarise.

 

**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, 2008, we had anaccumulated total deficit during development stage of $43.5 million.

 

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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 and 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 have incurredlosses since our inception and expect to experience operating losses andnegative cash flow for the foreseeable future. We anticipate our losses willcontinue to increase from current levels because we expect to incur additionalcosts and expenses related to prototype development, consulting costs,laboratory development costs, marketing and other promotional activities, theaddition of engineering and manufacturing personnel, and the continueddevelopment 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 suchtime, if ever, as we are able to achieve sufficient levels of revenue from thecommercial exploitation of our TMOS technology and materials to support ouroperations. However, planned products based upon our 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 stock, warrants or depositary shares, or if weengage in acquisitions involving the issuance of such securities, the issuanceof these shares could, subject to any anti-dilution provisions, dilute theownership of our then-existing stockholders.

 

**Ourbrand name and technology may not be recognized in our marketplace, so ourresults of operations and financial condition may suffer**.

 

Ourbrand name and technology are 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 from usingour 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.

 

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**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.**

 

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 relationship discussionswith display manufacturers are limited to technology exploration and theevaluation of our TMOS technology and materials for possible use in commercialdisplay applications. Some or all of these relationships may not succeed or,even if they are successful, may not result in the display manufacturers’entering into commercial licensing and material supply relationships with us.

 

Underour planned technology development and evaluation agreements, we intend to workwith strategic partners to incorporate their technologies into our products forthe commercial production of TMOS displays. However, many of these technologydevelopment and evaluation agreements may last for limited periods of time,such that our relationships with these partners could expire unless they arecontinually renewed. Our partners may not agree to renew their relationshipswith us on a continuing basis. In addition, we may continue working withcertain strategic partners in evaluating our TMOS technology and materialsafter our existing agreements with them have expired while we are attempting tonegotiate contract extensions or new agreements with them. Should ourrelationships with these partners not materialize, or once in place, notcontinue to be renewed, our business could suffer.

 

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

 

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 completelong term agreements could preclude our ability to support displaymanufacturers that would choose to license our TMOS technology and materialsfor possible commercial use.  Also, a license with a national laboratoryor government agency may be subject to significant United States governmentrights and restrictions that may reduce the Company’s ability to enter intooverseas manufacturing 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 other partiesin that field of use. Any of these occurrences would limit our ability toobtain the full benefits of our TMOS technology.

 

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**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 intellectual propertyrights, even if resolved in our favor, could be substantial, and the litigationwould divert our efforts. Some of our competitors may be able to sustain thecosts of complex patent litigation more effectively than we can because theyhave substantially greater resources. If we do not prevail in this type oflitigation, we or our strategic collaborators may be required to pay monetarydamages; stop commercial activities relating to the affected products orservices; obtain a license in order to continue manufacturing or marketing theaffected products or services; or compete in the market with a substantiallysimilar product.

 

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

 

**If 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, includingmanufacturability the development of feasible TMOS materials for TMOS displaysand issues related to scalability and cost-effective fabrication technologiesfor 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 

 

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displays and products containing them to themarket. If display manufacturers are unable to obtain access to theseadditional technologies, 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.

 

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. However, other companies may succeed inimproving these competing display technologies, or in developing new displaytechnologies, that are superior to our TMOS display technology in variousrespects. We cannot predict the timing or extent to which such improvements ordevelopments may occur. If our TMOS technology is unable to capture asubstantial portion of the overall display market for these competitivereasons, 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, Dan Van Ostrand,Executive Vice President, B. Tod Cox, Vice President of Engineering or RobertPetcavich, Vice President & General Manager Opcuity Films , none ofwhom has an employment agreement with us except for Mr. Killion and Mr. Tassone,could significantly harm our business. We have no present intention ofobtaining key-man life insurance on any of our executive officers ormanagement. Additionally, competition for highly skilled technical, managerialand other personnel is intense. As our business develops, we might not be ableto attract, hire, train, retain and motivate the highly skilled managers andemployees we need to be successful. If we fail to attract and retain the necessarytechnical and managerial personnel, our business will suffer and might fail.

 

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

 

Althoughthe predecessor company to Uni-Pixel and Real-Estateforlease.com, Inc.,Super Shops, Inc., filed for bankruptcy and received plan confirmation forits plan of reorganization on July 31, 2000, Uni-Pixel, Inc. hasnever filed nor been a party to any reorganization, liquidation or 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 former Chairman of the Board of Uni-Pixel, Inc.

 

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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.

 

**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 highly volatile.The sale of a large block of shares could depress the price of our Common Stockto a greater degree than a company that typically has a higher volume oftrading in its securities. The value of your investment could decline due tothe impact of any of the following factors upon the market price of our CommonStock:

 

·                  Disappointing results from our development efforts;

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

·                  Decline in demand for our Common Stock;

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

·                  Technological innovations by competitors or incompeting technologies;

·                  Investor perception of our industry or our prospects;

·                  General economic trends;

·                  Variations in our quarterly operating results;

·                  Our inability to increase revenues:

·                  Announcement of new customer relationships by ourcompetitors;

·                  Departures of our executive officers;

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

·                  Developments in patents or other intellectual propertyrights and litigation;

·                  Developments in our relationships with our customersand suppliers;

·                  Any significant acts of terrorism against the UnitedStates; and

 

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·                  Our currently limited public float.

 

OurCommon Stock has traded as low as $0.38 and as high as $5.50 during a periodfrom February 3, 2005 through December 31, 2008. 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 real-time quotes, last sale prices,and volume information in over-the-counter equity securities like our CommonStock, we are not required to meet or maintain any qualitative or quantitativelisting standards for our Common Stock to be quoted on the OTC**Bulletin Board. Our Common Stock does notpresently meet the minimum listing standards for listing on the NASDAQ StockMarket or any national securities exchange which could affect our stockholders’ability to access trading information about our Common Stock.

 

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

 

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

 

Our Common Stock is subject to certain 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 fact that the broker-dealerhas presumed control 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 1B. UNRESOLVED STAFFCOMMENTS**

 

None

 

**ITEM 2. PROPERTIES**

 

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.

 

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

 

Nomatters were submitted to a vote of security holders during the fourth quarterof 2008.

 

**PART II**

 

**ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

**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 forth the range of high and lowbid quotations or high and low closing prices, as applicable, for our CommonStock for each of the periods indicated as reported by the Pink Sheets or theOTC Bulletin Board. The prices for the Pink Sheets and the OTC Bulletin Boardreflect inter-dealer prices, without retail mark-up, mark-down or commissions.The OTC Bulletin Board and Pink Sheet prices listed below may not representactual transaction prices.

 
| ** **     | ** ** | **Year Ended  December 31, 2008** | ** ** | **Year Ended  December 31, 2007** | ** ** |
|----------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **     | ** ** | **High**                                         | ** ** | **Low**                                          | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $                                                | 1.00       |                                             | $          | 0.47 |   | $ | 1.55 |   | $ | 0.85 |   |
| Second Quarter |       | 1.45                                             |       | 0.77                                             |       | 1.50 |   | 1.10 |   |
| Third Quarter  |       | 1.20                                             |       | 0.50                                             |       | 1.55 |   | 1.03 |   |
| Fourth Quarter |       | 0.70                                             |       | 0.38                                             |       | 1.40 |   | 0.80 |   |
|                |            |                                                  |            |                                                  |            |  |  |  |  |  |  |  |  |

 

Theabove quotations reflect inter-dealer prices, without retail mark-up, markdownor commission and may not necessarily represent actual transactions. As of January 31,2009, we had eleven broker dealers making a market in our common stock.

 

**Holders**

 

Asof January 31, 2009, we had approximately 1,055 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 of262,846 shares of Common Stock.  In 2006,the Company paid accumulated dividends to the holders of Series APreferred Stock in the amount of 134,117 shares of Series A PreferredStock, as well as 16,282 shares of Common Stock.  All shares of Series A Preferred Stockhad been redeemed by the Company as of December 31, 2007.

 

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 

 

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stock of the Company equalto the 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 31,2008 and 2007, there were 3,200,000 shares of Series B Preferred Stockoutstanding, with cumulative unpaid dividends of approximately 481,140 and255,140 shares of Series B Preferred Stock, respectively.

 

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 31,2008 and 2007, there were 892,858 shares of Series C Preferred Stockoutstanding, with cumulative unpaid dividends of approximately 89,824 and18,395 shares of Series C Preferred Stock, respectively.

 

**Securities Authorized ForIssuance Under Equity Compensation Plans**

 

Thefollowing table provides information about shares of Common Stock that may beissued upon the exercise of options under all of the Company’s existing equitycompensation plans as of December 31, 2008.

 
| **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      |       | 4,302,014                                                                                                                                   |       | $                                                                                | 1.65       |                                                                                                                                                               | 1,697,986  |   |
|                                                    |       |                                                                                                                                        |       |                                                                             |       |                                                                                                                                                               |       |
| Equity compensation plans not approved by  stockholders |       | 1,300,000                                                                                                                                   |       | 1.24                                                                             |       | —                                                                                                                                                             |       |
|                                                    |       |                                                                                                                                        |       |                                                                             |       |                                                                                                                                                               |       |
| Total                                                   |       | 5,602,014                                                                                                                                   |       | $                                                                                | 1.56       |                                                                                                                                                               | 1,697,986  |   |

 

*Summary Stock Option and Warrant Information*

 

Information regarding the options and warrantsgranted in 2008 and 2007 is as follows:

 
| ** **                       | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|----------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                            | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Outstanding, beginning of year   |       | 4,712,500                                           |       | 3,661,667                                            |       | 13,846,468 |   | 2,742,900 |   |
| Granted                          |       | 1,145,625                                           |       | 2,062,500                                            |       | — |   | 11,103,568 |   |
| Exercised                        |       | —                                              |       | —                                               |       | — |   | — |   |
| Expired or cancelled             |       | 256,111                                             |       | 1,011,667                                            |       | — |   | — |   |
|                             |       |                                                |       |                                                 |       |   |   |   |   |
| Outstanding, end of year         |       | 5,602,014                                           |       | 4,712,500                                            |       | 13,846,468 |   | 13,846,468 |   |
|                             |       |                                                |       |                                                 |       |   |   |   |   |
| Exercisable, end of year         |       | 3,808,030                                           |       | 2,560,939                                            |       | 13,846,468 |   | 13,846,468 |   |
|                             |       |                                                |       |                                                 |       |   |   |   |   |
| Available for grant, end of year |       | 1,697,986                                           |       | 2,587,500                                            |       |   |   |   |   |

 

The weighted average option and warrant exerciseprice information for 2008 and 2007 is as follows:

 

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| ** **                           | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                            | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Outstanding, beginning of year       |       | $                                                   | 1.65       |                                                 | $          | 1.59 |   | $ | 1.28 |   | $ | 1.44 |   |
| Granted during the year              |       | $                                                   | 1.45       |                                                 | $          | 1.41 |   | $ | — |   | $ | 1.02 |   |
| Exercised during the year            |       | $                                                   | —     |                                                 | $          | — |   | $ | — |   | $ | — |   |
| Expired or cancelled during the year |       | $                                                   | 1.56       |                                                 | $          | 1.26 |   | $ | — |   | $ | — |   |
| Outstanding at end of year           |       | $                                                   | 1.56       |                                                 | $          | 1.58 |   | $ | 1.28 |   | $ | 1.28 |   |
| Exercisable at end of year           |       | $                                                   | 1.62       |                                                 | $          | 1.65 |   | $ | 1.28 |   | $ | 1.28 |   |

 

Significant option and warrant groups outstanding atDecember 31, 2008 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       |                         | 0.91       |   |
| January 10, 2005   |       | —                   |       | 168,750                   |       | 168,750         |       | $                             | 1.38       |                         | 1.00       |   |
| January 26, 2005   |       | —                   |       | 110,250                   |       | 110,250         |       | $                             | 1.38       |                         | 1.08       |   |
| March 5, 2005      |       | 600,000                  |       | —                    |       | 600,000         |       | $                             | 2.00       |                         | 6.17       |   |
| March 5, 2005      |       | 450,000                  |       | —                    |       | 450,000         |       | $                             | 2.00       |                         | 6.17       |   |
| April 19, 2005     |       | 550,000                  |       | —                    |       | 550,000         |       | $                             | 2.00       |                         | 6.33       |   |
| May 23, 2006       |       | 1,000,000                |       | —                    |       | 1,000,000       |       | $                             | 1.25       |                         | 7.58       |   |
| May 24, 2006       |       | —                   |       | 1,500,000                 |       | 1,500,000       |       | $                             | 1.25       |                         | 2.58       |   |
| September 12, 2006 |       | —                   |       | 194,400                   |       | 194,400         |       | $                             | 1.25       |                         | 2.67       |   |
| February 13, 2008  |       | —                   |       | 6,839,279                 |       | 6,839,279       |       | $                             | 1.24       |                         | 8.13       |   |
| February 13, 2008  |       | —                   |       | 1,050,000                 |       | 1,050,000       |       | $                             | 1.10       |                         | 1.13       |   |
| March 16, 2007     |       | 300,000                  |       | —                    |       | 179,167         |       | $                             | 1.19       |                         | 8.21       |   |
| September 13, 2007 |       | 1,610,139                |       | —                    |       | 723,229         |       | $                             | 1.45       |                         | 8.71       |   |
| September 28, 2007 |       | —                   |       | 3,214,289                 |       | 3,214,289       |       | $                             | 1.40       |                         | 8.75       |   |
| December 17, 2007  |       | 22,917                   |       | —                    |       | 22,917          |       | $                             | 1.45       |                         | 8.96       |   |
| January 7, 2008    |       | 500,000                  |       | —                    |       | 166,667         |       | $                             | 1.45       |                         | 9.02       |   |
| January 16, 2008   |       | 60,000                   |       | —                    |       | 19,167          |       | $                             | 1.45       |                         | 9.04       |   |
| April 18, 2008     |       | 275,625                  |       | —                    |       | 65,078          |       | $                             | 1.45       |                         | 9.30       |   |
| May 16, 2008       |       | 13,333                   |       | —                    |       | 5,416           |       | $                             | 1.45       |                         | 9.37       |   |
| May 20, 2008       |       | 100,000                  |       | —                    |       | 20,833          |       | $                             | 1.45       |                         | 9.38       |   |
| June 2, 2008       |       | 40,000                   |       | —                    |       | —          |       | $                             | 1.45       |                         | 9.42       |   |
| October 20, 2008   |       | 80,000                   |       | —                    |       | 5,556           |       | $                             | 1.45       |                         | 9.80       |   |
|                    |       |                     |       |                      |       |            |       |                          |       |                         |       |
| Total                   |       | 5,602,014                |       | 13,846,468                |       | 17,654,498      |       |                          |       |                         |       |

 

**Recent Sales of Unregistered Securities**

 

None.

 

**Issuer Purchases of Equity Securities**

 

None.

 

**ITEM 6. SELECTED FINANCIALDATA**

 

Not Applicable

 

**ITEM 7. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION**

 

*The following discussion of our financial condition andresults of operation should be read in conjunction with the financialstatements and related notes that appear elsewhere in this prospectus. Thisdiscussion contains forward-looking statements and information relating to ourbusiness that reflect our current views and assumptions with respect to future*

 

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*events andare subject to risks and uncertainties, including the risks in the sectionentitled “Risk Factors”, that may cause our or our industry’s actual results,levels of activity, performance or achievements to be materially different fromany future results, levels of activity, performance or achievements expressedor implied by these forward-looking statements.*

 

*These forward-looking statements speak only as of the dateof this report. Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results,levels of activity, or achievements. Except as required by applicable law,including the securities laws of the United States, we expressly disclaim anyobligation or undertaking to disseminate any update or revisions of any of theforward-looking statements to reflect any change in our expectations withregard thereto or to conform these statements to actual results.*

 

*Our financial statements are stated in United States Dollars(US$) and are prepared in accordance with accounting principles generallyaccepted in the United States.*

 

**Overview**

 

Uni-Pixelis a development stage company that has developed, patented and demonstrated anew color display technology in the form of proof of concept prototypes, whichwe call Time Multiplexed Optical Shutter (“TMOS”).  We intend to be aleader in the research, development and commercialization of new flat paneldisplays using TMOS in a variety of applications, such as mobile phones,digital cameras, notebook computers, televisions and other consumer electronicdevices. Our work developing TMOS has led to advances in the thin film arenathat have other marketable applications. We intend to explore the business potential within these applicationsand pursue those thin film markets that offer profitable opportunities eitherthrough licensing or direct production and sales.  As of December 31, 2008, we hadaccumulated a total deficit of $43.5 million from operations in pursuit ofthese objectives.

 

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 $90+ 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 further develop our proprietary TMOS technology to the point ofbeing able to transition the technology to manufacturing partners.  Wehave and will continue to utilize contract manufacturing for prototypefabrication 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.  We planto license our technology to display manufacturers and supporting partnercompanies 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 31 issued patents, 4 allowed patents, and 82 pending patentapplications filed in key venues worldwide including regionally in Europe, AsiaPacific, South Americaand North America. We also contemplate obtaining exclusive field-of-use licenses, (whichwould include the right to sublicense) to complementary technologies fromtargeted, strategic partners and U.S. national laboratories.

 

Duringthe course of 2008, we developed our first independent thin film productopportunity.  This unique variation ofthe thin film developed for TMOS can be applied to a variety of touch screenproduct devices as a protective cover. We intend to market this thin film product under our brand OpcuityTM tovarious potential distribution and channel partners.

 

ThroughDecember 31, 2008, we have been primarily engaged in developing ourinitial product technologies, 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 2009.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 our products beyond proof of conceptto final prototypes, supporting transferable manufacturing processes topartners to produce our products and successfully developing markets andmanufacturing relationships for our products. We may be required to obtain additional capital in the future to expandour operations. No assurance can be given that we will be able to develop ourproducts, successfully develop the markets or profitable manufacturing methodsfor our products, or raise any 

 

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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 or to support our growth.If adequate capital cannot be obtained on satisfactory terms, our operationscould be negatively impacted.

 

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

 

Asof December 31, 2008, we had cash and cash equivalents of $2.0million.  We believe that our existing capital resources are adequate tofinance our operations until May 2009. Our working capital may not be sufficient to meet all of the needs ofour business objectives through the end of 2009.  We would be able to sustain operations for areasonable period of time (12 months), but it would require significantreductions in our operating expenditures and product development activities, ifwe did not receive additional funding. Management has instituted a cost reduction program that included areduction in labor and operating costs. However, our long-term viability is dependent upon our ability to successfullyoperate our business, develop our manufacturing process, sign partnershipagreements, develop our products and raise additional debt and equity to meetour business objectives.

 

Thefinancial statements presented in this annual report include Uni-Pixel, Inc.and our wholly-owned subsidiary, Uni-Pixel Displays, Inc. All significantintercompany transactions and balances have been eliminated. Uni-Pixel Displays, Inc.was, for accounting purposes, the surviving entity of the merger, andaccordingly for the periods prior to the merger, the financial statementsreflect the financial position, results of operations and cash flows ofUni-Pixel Displays, Inc.  The assets, liabilities, operations andcash flows of Real-Estateforlease.com, Inc. are included in theconsolidated financial statements from December 10, 2004 onward. Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern, as further discussed in Note 2.This basis of accounting contemplates the recovery of the Company’s assets andthe satisfaction of liabilities in the normal course of business but does notinclude any adjustments to reflect the possible future effects on therecoverability and classification of assets or the amounts and classificationof liabilities that might be necessary should the Company be unable to continueas a going concern.

 

**Critical Accounting Policies**

 

Thefollowing discussion and analysis of financial condition and results ofoperations is based upon our consolidated financial statements, which have beenprepared in conformity with accounting principles generally accepted in theUnited States of America. Our significant accounting policies are more fullydescribed in Note 3 of Notes to the audited Consolidated FinancialStatements. However, certain accounting policies and estimates are particularlyimportant to the understanding of our financial position and results ofoperations and require the application of significant judgment by our managementor can be materially affected by changes from period to period in economicfactors or conditions that are outside of our control.  As a result, theyare subject to an inherent degree of uncertainty. In applying these policies,our management uses their judgment to determine the appropriate assumptions tobe used in the determination of certain estimates. Those estimates are based onour historical operations, our future business plans and projected financialresults, the terms of existing contracts, our observance of trends in theindustry, information provided by our customers and information available fromother outside sources, as appropriate. The following discusses our significantaccounting policies and estimates.

 

*Revenue Recognition:*  We recognize revenue over the periodthe service is performed in accordance with SEC Staff Accounting Bulletin No. 104,“Revenue Recognition in Financial Statements” (“SAB 104”). In general, SAB 104requires that four basic criteria must be met before revenue can be recognized:(1) persuasive evidence that an arrangement exists, (2) delivery hasoccurred or services rendered, (3) the fee is fixed and determinable, and (4) collectabilityis reasonably assured.

 

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

 

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

 

*Cost of Sales and Selling, General and AdministrativeExpenses and Research and Development Expenses:*  In an effort to consolidate ourexecutive management team, we moved our headquarters from Austin, Texas to TheWoodlands, Texas during the third quarter of 2005.  The primary purpose ofour facility in The Woodlands, Texas is to conduct research on the development,testing and delivery of our prototype devices and to take the steps necessaryfor the commercialization of our products. Therefore, the costs incurred in operating our facility in TheWoodlands, Texas have been classified as research and development expenses.

 

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

 

*Research and Development Expenses:*  Research and development costs areexpensed 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 in somecases from estimated costs and are adjusted for in the period in which theybecome known.

 

*Intangible Assets:*  Our intangible assets represent patents and patent applications,acquired from third parties, which are recorded at cost and amortized over thelife of the patent.  We review the value recorded for intangible assets toassess recoverability 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.

 

*Stock-Based Compensation:*  We recognize the cost of stock optionsand restricted stock in accordance with SFAS No. 123 (Revised 2004) (“SFASNo. 123(R)”), “Share Based Payment.” SFAS No. 123(R) requires us to measure the cost of employeeservices received in exchange for an award of equity instruments based on thegrant-date fair value of the award.  Thatcost will be recognized over the period during which an employee is required toprovide service in exchange for the reward—known as the requisite serviceperiod. No compensation cost is recognized for equity instruments for whichemployees do not render the requisite service. The grant-date fair value ofemployee share options and similar instruments will be estimated usingoption-pricing models adjusted for the unique characteristics of thoseinstruments. SFAS No. 123 must be applied to all options granted ormodified after its effective date and also to recognize the cost associatedwith the portion of any option awards made before its effective date for whichthe associated service has not been rendered as of its effective date.

 

**Results of Operations**

 

Comparisonof Fiscal Years Ending December 31, 2008 and 2007

 

REVENUES.  We are a development stage company that has developed,patented and demonstrated a new color display technology in the form of proofof concept prototypes which we call Time Multiplexed Optical Shutter (“TMOS”). We intend to be a leader in the research, development and commercialization ofnew flat panel displays using TMOS in a variety of applications, such as mobilephones, digital cameras, notebook computers, televisions and other consumerelectronic devices. From inception, we have had a limited amount of revenue,all of which has been derived from development contracts.

 

Revenues stayed constant at $0 for the year ended December 31,2008, as compared to the year ended December 31, 2007.

 

COST OF REVENUES.  Costof revenues include all direct expenses associated with the delivery ofproducts or services including internal labor costs. Cost of revenues for theyear ended December 31, 2008 and December 31, 2007 was $0.

 

SELLING, GENERAL ANDADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreasedby 45% or $2,665,325, to $3,293,362 for the year ended December 31, 2008from $5,958,687 for the year ended December 31, 2007. The major componentsof the decrease are as follows:

 

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a) Salaries and benefits decreased by approximately $1,994,000 to $1,593,000 forthe year ended December 31, 2008 from $3,587,000 for the year ended December 31,2007, due to a) stock compensation expense decreased to $602,000 for the twelvemonths ended December 31, 2008 from $1,821,000 for the twelve months endedDecember 31, 2007, b) a severance payment paid to the former ExecutiveChairman of $287,500 in 2007 and c) bonus expense decreased to $44,000 for thetwelve months ended December 31, 2008 from $281,000 for the twelve monthsended December 31, 2007;

 

b) Contractlabor decreased by approximately $63,000 to $8,000 for the year ended December 31,2008 from $71,000 for the year ended December 31, 2007;

 

c) Legalexpense increased by approximately $135,000 to $466,000 for the year ended December 31,2008 from $331,000 for the year ended December 31, 2007 as a result ofincreased patent work;

 

d) Accounting expense increased by approximately $16,000 to$81,000 for the year ended December 31, 2008 from $65,000 for the yearended December 31, 2007;

 

e) Officeexpense decreased by approximately $72,000 to $69,000 for the year ended December 31,2008 from $141,000 for the year ended December 31, 2007;

 

f) Travelexpense decreased by approximately $53,000 to $43,000 for the year ended December 31,2008 from $96,000 for the year ended December 31, 2007;

 

g) Depreciationand amortization expense increased by approximately $31,000 to $300,000 for theyear ended December 31, 2008 from $269,000 for the year ended December 31,2007 as a result of an increase in property and equipment during the twelvemonths ended December 31, 2008 and the increase in the amortization ofintangible assets during the twelve months ended December 31, 2008; and

 

h) Professionalfees for a strategic business advisor decreased to $0 for the year ended December 31,2008 from $697,000 for the year ended December 31, 2007 for cash paid andwarrants issued for services rendered.

 

RESEARCHAND DEVELOPMENT. Research and development expenses increased by $3,012,303during the year ended December 31, 2008 to $7,475,529 from $4,463,226 forthe year ended December 31, 2007. The major components of the increase areas follows:

 

a) Salaries and benefits attributable to research and developmentincreased by approximately $1,327,000 to $2,866,000 for the year ended December 31,2008 from $1,539,000 for the year ended December 31, 2007 due to a)an increase in the number of research and development employees, b) stockcompensation expense increased to $436,000 for the twelve months ended December 31,2008 from $208,000 for the twelve months ended December 31, 2007, and c)bonus expense decreased to $84,000 for the twelve months ended December 31,2008 from $178,000 for the twelve months ended December 31, 2007;

 

b) Consultingexpense attributable to research and development decreased by approximately$470,000 to $1,083,000 for the year ended December 31, 2008 from$1,553,000 for the year ended December 31, 2007 primarily due to decreasedservices related to prototype development;

 

c) Labexpense increased by approximately $2,155,000 to $2,942,000 for the year ended December 31,2008 from $787,000 for the year ended December 31, 2007 primarily due toincreased services related to prototype development; and

 

d) Travelexpense attributable to research and development decreased by approximately$58,000 to $319,000 for the year ended December 31, 2008 from $377,000 forthe year ended December 31, 2007.

 

OTHERINCOME (EXPENSE).

 

a) Netdecrease in fair value of derivative liabilities was an income of $382,920 forthe year ended December 31, 2007, relating to the warrant issued inconnection with the 12% Senior Secured Convertible Debentures in May 2006and the warrant issued in connection with the 10% Senior Unsecured ConvertibleDebentures in September 2006.

 

b) Debtissuance expense increased to $94,189 for the year ended December 31, 2007due to the debt raised in May 2006 and September 2006.

 

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c)** **Interest expense, net increased toincome of $184,475 for the year ended December 31, 2008 as compared to aninterest expense, net of $762,664 for the year ended December 31, 2007primarily due 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.**  **Netloss decreased to $10,584,416 for the year ended December 31, 2008, ascompared to $10,895,846 for the year ended December 31, 2007. We computeour net loss per share on the basis of net loss attributable to commonstockholders, which included the effects of certain items not included in thedetermination of net loss. Net loss attributable to common stockholders for theyear ended December 31, 2008 was $15,354,514 as compared to a net lossattributable to common stockholders of $14,088,058 for the year ended December 31,2007. The net loss attributable to common stockholders for the twelve monthsended December 31, 2008 and December 31, 2007, includes $4,770,098and $3,192,212 of accrued but unpaid preferred stock dividends and amortizationof preferred stock discount, respectively.

 

**Off-Balance Sheet Transactions**

 

Wedo not engage in material off-balance sheet transactions.

 

**Liquidity and Capital Resources**

 

OperatingActivities

 

Cashused in operating activities during the year ended December 31, 2008increased to $9,039,712 as compared to $7,745,786 used for the year ended December 31,2007. The increase is primarily a result of increases in research anddevelopment spending.

 

InvestingActivities

 

Cashused for investing activities during the year ended December 31, 2008amounted to $622,166, as compared to $95,036 used for investing activities forthe year ended December 31, 2007. This is primarily attributable to theacquisition of patents and patent applications in the second quarter of 2008 inthe amount of approximately $197,000 and the acquisition of approximately$426,000 of property and equipment during the year ended December 31,2008.

 

FinancingActivities

 

Wehave financed our operating and investing activities primarily from theproceeds of private placements of common stock, convertible investor notes, anda preferred stock offering which we closed in December 2004, January 2005,February 2007 and September 2007.

 

Thetotal net cash provided by financing activities was $0 for the year ended December 31,2008.

 

Thetotal net cash provided by financing activities was $19,518,059 for the yearended December 31, 2007, which includes:

 

·                  $2,401,280payments on notes payable: and

·                  $21,919,339proceeds from the issuance of preferred stock.

 

WorkingCapital

 

As of December 31, 2008, we had a cash balance of $2.0million. In the 4th quarter of 2008, the Company’s managementbegan to reduce operating expenses and delay planned expenditures to preservethe Company’s working capital.  Weproject that current cash reserves will sustain our operations at least throughMay 2009. Our working capital may not be sufficient to meet all of theneeds of our business objectives through the end of 2009.  We would be able to sustain operations for areasonable period of time (12 months), but it would require significantreductions in our operating expenditures and product development activities, ifwe did not receive additional funding. Management has instituted a cost reduction program that included areduction in labor and operating costs.

 

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On February 13, 2007, we entered into a Securities PurchaseAgreement (the “Purchase Agreement”) with The Raptor Global Portfolio Ltd., TheTudor BVI Global Portfolio Ltd., Tudor Proprietary Trading, L.L.C. and TheAltar Rock Fund L.P. (collectively, the “Purchasers”) pursuant to which we soldon that date in a private placement to the Purchasers (a) 3,200,000 sharesof the Company’s Series B Preferred Stock, par value $0.001 per share (the“Series BPreferred Stock”), and (b) warrants (the “Warrants”) to purchase,in aggregate, up to 6,839,279 shares of the Company’s common stock, par value$0.001, at $1.24 per share, for an aggregate purchase price of $12,000,000.

 

On September 28, 2007, the Company entered into a SecuritiesPurchase Agreement (the “ ML Purchase Agreement”) with Merrill Lynch Pierce,Fenner & Smith Incorporated (the “ ML Purchaser”) pursuant to whichthe Company sold on that date in a private placement to the ML Purchaser (a) 892,858shares of the Company’s Series C Preferred Stock, par value $0.001 pershare (the “Series CPreferred Stock”), and (b) warrants (the “ML Warrants”) topurchase, in aggregate, up to 3,214,289 shares of the Company’s common stock,par value $0.001, for an aggregate purchase price of $10,000,010.

 

Weare a development stage company and have not experienced significant operationssince our formation. We reached a positive working capital position as of thefirst quarter of 2005 as a result of our financing activities. We have incurredsignificant operating losses during the years ended December 31, 2002,2003, 2004, 2005, 2006, 2007 and 2008. We intend to utilize a proprietarymethodology for development of our displays. Our principal activities, from thebeginning of the development stage, have been organizational matters, capitalraising activities including issuance of stock, product research anddevelopment, fund raising, and market research.

 

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

 

Managementwill work to establish specific applications for our display technology that webelieve will generate significant revenues and cash flows to supportoperations.

 

**ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

**Exchange Rate, Interest Rate and Supply Risks**

 

TheCompany has no exchange rate risks as we conduct 100% of our operations in theUnited States of America, and we conduct our transactions in USdollars.  The Company is exposed to extensive market risk in theareas of financing and interest cost.  Please refer to Item1A.  Risk Factors for additional disclosure aboutrisk.  Increases in our borrowing rates, as small as 100 basispoints, could significantly increase our losses and hinder our ability togenerate sufficient working capital.  The slightest disruption in oursupply chain could also significantly increase our losses and hinder ourability to purchase our products for resale and application.  The Companyhas no protection against interest rate risk or supply disruptions.

 

**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

Ourconsolidated financial statements and the related notes thereto called for bythis item appear under the caption “Financial Statements” beginning on page F-1of this Annual Report on Form 10-K.

 

**ITEM 9. CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND****FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A. CONTROLS AND PROCEDURES**

 

**(a) Evaluation of Disclosure Controls and Procedures**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our reports filed or submitted underthe Exchange Act is recorded, processed, summarized and reported within thetime 

 

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periods specified in the Securities andExchange Commission’s rules and forms and that such information isaccumulated and communicated to our management, including our Chief ExecutiveOfficer, who serves as our principal executive officer and our Chief FinancialOfficer, who servers as our principal financial officer, as appropriate, toallow timely decisions regarding required disclosure.

 

OurChief Executive Officer and Chief Financial Officer reviewed and evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined by Rule 240.13a-15(e) or 15d-15(e)) as of theend of the period covered by this report.  Based upon this evaluation, ourinterim Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures are effective as of the end of the fiscalyear covered by this Form 10-K.

 

**(b) Management’s Annual Report on Internal Control overFinancial Reporting**

 

TheCompany’s management is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) of the Exchange Act and for assessing the effectiveness ofinternal control over financial reporting.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. In addition, projections of any evaluation ofeffectiveness of internal control over financial reporting to future periodsare subject to the risk that controls may become inadequate because of changesin conditions or a deterioration in the level of compliance with the policiesor procedures.

 

Managementhas assessed the effectiveness of the Company’s internal control over financialreporting as of December 31, 2008.  In making its assessment,management used the criteria established in Internal Control — IntegratedFramework, issued by the Committee of Sponsoring Organizations of the TreadwayCommission.  This assessment included an evaluation of the design ofthe Company’s internal control over financial reporting and testing of theoperational effectiveness of those controls.  Based on the results ofthis assessment, management has concluded that the Company’s internal controlover financial reporting was effective as of December 31, 2008.

 

 ThisAnnual Report on Form 10-K does not include an attestation report of theCompany’s registered public accounting firm regarding internal control overfinancial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the SEC that permit the Company to provide onlymanagement’s report in this Annual Report on Form 10-K.

 

**(c) Changes in Internal Control over Financial Reporting**

 

 Therewere no changes in the Company’s internal control over financial reporting thatoccurred during the fourth quarter of the year ended December 31, 2008that have materially affected, or that are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**ITEM 9B. OTHER INFORMATION**

 

None

 

**PART III**

 

**ITEM 10. DIRECTORS, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE**

 

Thefollowing table sets forth the names and ages of all of our directors andexecutive officers as of January 31, 2009. Our officers are appointed by,and serve at the pleasure of, the Board of Directors.

 
| **Name**             | ** ** | **Age** | ** ** | **Title**                                                                     |
|----------------------|------------|---------|------------|-------------------------------------------------------------------------------|
| Reed  J. Killion     |       | 46      |       | Chief  Executive Officer, President, Principal Executive Officer and Director |
| James  A. Tassone    |       | 45      |       | Chief  Financial Officer                                                      |
| B.  Tod Cox          |       | 39      |       | Vice  President Engineering                                                   |
| Dan  Van Ostrand     |       | 50      |       | Vice  President Research & Development                               |
| Robert  J. Petcavich |       | 54      |       | Vice  President and General Manager Opcuity Films                             |
| Carl  J. Yankowski   |       | 60      |       | Director                                                                      |
| Rob  Broggi          |       | 36      |       | Director                                                                      |
| Victor  Calaba       |       | 33      |       | Director                                                                      |
| Bernard  Marren      |       | 73      |       | Chairman                                                                      |
| Bruce  Berkoff       |       | 48      |       | Director                                                                      |
| Ross  Young          |       | 43      |       | Director                                                                      |

 

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

 

***Reed J. Killion, Chief ExecutiveOfficer, President, Principal Executive Officer and Director*** — Mr. Killion is a member ofUni-Pixel’s board of directors and has served as the President and PrincipalExecutive Officer of the Company since September 2004. As of May 1,2008, Mr. Killion was promoted to Chief Executive Officer.  Mr. Killion is also the Chairman of theBoard for Animal Innovations. Mr. Killion is an active Board Member andTrustee of the Texas A&M Research Foundation. Previously Mr. Killionserved as Uni-Pixel’s Executive Vice President of Business Development and hasbeen a member of its Board of Directors since April 2002.  Prior tojoining Uni-Pixel, Mr. Killion was Vice President of Business Developmentfor LogiCom from 1999 until 2002.  HP/Compaq, Dell, DEC, Siemens, NVIDIA,Vanguard, Atmel, Foxconn, Seiko (SMOS) and DCM Technologies are among thecompanies Mr. Killion has represented and consulted with over his 20 yearsin the high tech industry.  Mr. Killion holds a Bachelors Degree inFinance from the University of Mississippi.

 

***James A. Tassone, Chief FinancialOfficer*** — Mr. Tassonehas been the Chief Financial Officer of Uni-Pixel since he joined the Companyin August 2003. Mr. Tassone served as a part-time consultant to theCompany from June 2002 to August 2003. Mr. Tassone was appointedSecretary of the Company in January 2005. From June 1999 to August 2003,Mr. Tassone was the Managing Director and Chief Financial Officer ofMindwave Research, Inc., a company he founded in June 1999, and forwhich he continues to serve on the board of directors. Mindwave Research is aprimary market research and consulting company for high technology clients.From 1997 until June 1999, Mr. Tassone was the Director of Researchfor Reality Research, a subsidiary of CMP Media (a high tech industry-focusedpublishing company). Prior to Reality Research, Mr. Tassone heldmanagement positions at IntelliQuest, Gartner Group, Dataquest, and Comdisco, Inc. Mr. Tassone has a Bachelors Degree in Finance and Engineering Managementfrom the University of Texas at Austin.

 

***B. Tod Cox, Vice PresidentEngineering*** — Mr. Coxhas been the Vice President Engineering of Uni-Pixel since he joined theCompany in December of 2004.  Mr. Coxwas at Hewlett-Packard (formerly Compaq) where he served most recently as theDirector of Blade Server Engineering leading the initiative to design anddeliver enterprise class blade servers.  Mr. Cox’s prior hardwareengineering leadership at Compaq resulted in the introduction of numerousproducts in the company’s server lines.  Mr. Cox holds a BS and an MSin Electrical Engineering from Texas A&M University, an MS in IndustrialEngineering from the University of Houston, and an MBA from Rice University.

 

***Dan Van Ostrand, Vice President Research &Development*** — Mr. VanOstrand is a co-founder of Uni-Pixel and has served in a Sr. Executive positionsince its inception in February of 1998.  Mr. Van Ostrand hasover twenty-six years experience in corporate operations, project management,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 with adouble major in Math and Computer Science from Mid-America Nazarene University.

 

***Robert J. Petcavich, Vice Presidentand General Manager***— Dr. Petacavich has been the Vice President and General Manager ofUni-Pixel since he joined the Company in January 2008.   Dr Petcavich was also the cofounderof Health Beacons Inc. in Kirkland, Washington a company developing leading edgeimplantable RFID technology for the medical surgical cancer field. Dr Petcavichwas Senior Vice President and Chief Technology Officer 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 1988 untilSeptember 1995, Dr. Petcavich was President and CEO of AlphascribeExpress Inc., an electronic medical records service enterprise, which wassubsequently sold to Rodeer Systems.  Dr. Petcavich was also founder,Chairman and CTO of Planet Polymer Technologies Inc. (Nasdaq:POLY now PLNT)from 1992 until 2002, an advanced materials intellectual property developmentcompany which merged with Allergy Free Inc. of 

 

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Houston, TX.  Dr. Petcavichwas also founder, CEO and Chairman from 1996 until 2001 of Alife Medical Inc aNatural Language Processing software services provider for the medical billingindustry now majority owned by Medquist (NASDAQ:MEDQ) a subsidiary of PhilipsElectronics. Dr. Petcavich was also founder and Board member of MolecularReflections Inc., a MEMS based biotech design and discovery Platform Company aswell as Polytronix Inc., a custom LCD manufacturer of Richardson, Texas. DrPetcavich has a Ph.D. degree in Polymer Science, a Master of Science Degree inSolid State Science, and a B.S. degree in Chemistry from the Pennsylvania StateUniversity, and completed the PMD executive management degree program atHarvard.  Dr. Petcavich holds 24 issued United States patents infields such as electro optic LCD displays, biotechnology MEMS devices, timereleased animal neutraceuticals, fruit shelf life extension technology, andhandheld wireless devices. Dr. Petcavich is also on the Board of Directorsof the College of Science and College of Material Science and Engineering atthe Pennsylvania State University and Carbon Nanoprobes Inc. in Seattle,Washington.

 

***Carl J. Yankowski, Director***— Mr. Yankowski has served as aUni-Pixel Director since March 16, 2007. Mr. Yankowski is the CEO of Ambient Devices, Inc. since August 2007.  Mr. Yankowski was named as Palm, Inc. CEO in December 1999,three months before its $1 Billion + IPO. He profitably grew the Company to a $2 Billion sales rate, drove unaidedawareness to over 65%, and then executed a restructuring after the spring 2001global economic downturn.  Immediatelyprior to joining Palm, Mr. Yankowski was CEO of the Reebok Brand, where heled the worldwide Reebok-brand business, a multibillion dollar enterprise thatrecently merged with Adidas.  During histenure at Reebok, Mr. Yankowski successfully reorganized the Company forgrowth, 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 a Uni-PixelDirector since March 16, 2007. Mr. Broggi is Vice President and Director of Technology,Media and Telecommunications Research at Tudor Investment Corporation. Prior tojoining Tudor in 2002, he was an Executive Director at Morgan Stanley where hestarted the firm’s Institutional Technology Sales group. Mr. Broggi isalso a non executive director at Plastic Logic and Netronome Systems, and holdsa Bachelor’s Degree from Harvard University.

 

***Victor Calaba, Director***— Mr. Calaba has served as a Uni-PixelDirector since 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. Marren has served as a Uni-PixelDirector since March 16, 2007 and has been Chairman of the Board since May 1,2008.  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.   Extendinghis executive leadership to the electronics industry as a whole, Mr. Marrenwas a founder and the first President of the Semiconductor IndustryAssociation. He is also a past President and Chairman of the NationalElectronic Distributors Association and a past President of the ElectronicIndustry Show Corporation.  Mr. Marrenis a graduate of the Illinois Institute of Technology (BSEE).

 

***Bruce Berkoff, Director***— Mr. Berkoff has served as a Uni-PixelDirector since March 16, 2007. Mr. Berkoff is the Chairman of the LCDTV Association which is a global not-for-profit marketing tradeassociation to help “inform, promote, improve, and connect” the entire supplychain involved with the large and growing multibillion dollar LCD TVindustry.  Mr. Berkoff is also a Director of LG Display.  Previously, Mr. Berkoff was the CEO andlater Chairman of Enuclia Semiconductor, a fab-less semiconductor startup inthe HDTV video processor space, and prior to that for 6 years in Seoul 

 

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Korea he was the Executive Vice-President andChief Marketing Officer (CMO) of LG.Philips LCD, one of the world’s leadingTFT-LCD manufacturers. Before that, Mr. Berkoff served as general managerof Philips Flat Display Systems’ software and electronics business unit inSilicon Valley. He has also held executive management positions at severaltechnology companies, including UMAX Computer Corporation, Radius, and SuperMacTechnologies.  Mr. Berkoff is well-known for his visionary keynoteaddresses, panel chairmanships and other roles at display and electronicsindustry events, including the Symposium on Information Displays (SID) Business &Investor Conferences, USDC (US Display Consortium) Conferences, DisplayForumEurope, HDTV Forum, Asia SID (ASID), EuroDisplays (ESID), the U.S. Flat PanelDisplay (US FPD) Conference, the Flat Information Display (FID) Conference andthe Consumer Electronics Show (CES) in Las Vegas.   Mr. Berkoffholds undergraduate and graduate degrees in physics and biophysics fromPrinceton and the University of California, Berkeley, respectively, and alsohas display-related patents both granted and pending in the U.S. and China.

 

***Ross Young, Director***— Mr. Young has served as a Uni-PixelDirector since May 20, 2008.  Mr. Young founded DisplaySearch, the leading provider of market intelligence ondisplays and related technology, in 1996 and is credited with building the firmto what it is today. Mr. Young has made multiple appearances ontelevision, including NBC’s **The Today Show** as a display industryexpert, and has been an invited speaker at over 30 different conferencesworldwide. Mr. Young received The NPD Group’s prestigious John ByingtonAward for outstanding creativity and innovation in November 2006, wasappointed to the Board of Directors at Westar Display Technologies in February 2005and was named to the VLSI Research Executive All-Star Team in 1994. Prior tofounding DisplaySearch in 1996, he served in senior marketing positions at OWLDisplays, Brooks Automation, Fusion Semiconductor and GCA in the driver IC,flat panel automation, etch and strip and lithography markets. He is also apublished author, having written a book on U.S. - Japanese competition titled *Silicon Sumo: U.S.-Japan Competition and IndustrialPolicy in the Semiconductor Equipment Industry*. As of September 2008,Mr. Young is currently a Vice President at Samsung Electronics. Mr. Youngholds a Bachelor Degree in economics from the University of California at SanDiego.

 

TheBoard members serve for a period of one year.  So long as the issued and outstanding shares of our Series BPreferred Stock represent at least 25% of our outstanding equity interests onfully diluted and an as converted basis, the holders of those shares, voting asa separate class, are entitled to elect two members of our Board pursuant tothe terms of our certificate 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.

 

Ourexecutive officers are appointed by our board of directors and hold officeuntil removed by the board.

 

**AuditCommittee Financial Expert**

 

Weare not currently a listed company within the meaning of Rule 10A-3 of theExchange Act and, therefore, are not required to have an audit committee or,accordingly, an audit committee financial expert. Nevertheless, our Board ofDirectors performs the functions of an audit committee and Carl Yankowski, oneof our directors, serves in a capacity similar to that of an audit committeefinancial 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, on a timely basis, all reports required by Section 16(a) ofthe Exchange Act with respect to the year ended December 31, 2008.

 

**Code ofEthics Disclosure**

 

Wehave adopted a Code of Ethics, a copy of which is filed as an exhibit to our2005 Annual Report on Form 10-KSB, for our principal executive, financialand accounting officers or persons performing similar functions.

 

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**ITEM 11. EXECUTIVECOMPENSATION**

 

**Executive Officer Compensation.**

 

The table below summarizes the total compensation paid to or earned byour principal executive officer, our principal financial officer and each ofour three most highly compensated executive officers other than our principalexecutive officer and principal financial officer.  The amounts represented in the “Option Awards”column reflect 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**                                                                  |       | 2008     |       | $                   | 238,937    |               | $          | 125,000                 |       | $                                                 | 330,152    |                                               | —     |                                  | —     |      | $          | 12,000 |   | $ | 706,089 |   |
| Chief Executive Officer,  President (Principal Executive Officer) & Director |       | 2007     |       | 203,979             |       | 175,000            |       | 308,721                 |       | —                                            |       | —                                             |       | 12,000                                |       | 699,700   |       |
| ** **                                                                            |       |     |       |                |       |               |       |                    |       |                                              |       |                                               |       |                                  |       |      |       |
| **James A.  Tassone**                                                                 |       | 2008     |       | 171,175             |       | 45,000             |       | 80,337                  |       | —                                            |       | —                                             |       | 12,000                                |       | 308,512   |       |
| Chief Financial  Officer                                                              |       | 2007     |       | 149,821             |       | 63,000             |       | 138,388                 |       | —                                            |       | —                                             |       | 12,000                                |       | 363,209   |       |
| ** **                                                                            |       |     |       |                |       |               |       |                    |       |                                              |       |                                               |       |                                  |       |      |       |
| **B. Tod  Cox**                                                                       |       | 2008     |       | 171,708             |       | 45,000             |       | 99,658                  |       | —                                            |       | —                                             |       | —                                |       | 316,366   |       |
| Vice President  Engineering                                                           |       | 2007     |       | 138,875             |       | 63,000             |       | 115,714                 |       | —                                            |       | —                                             |       | —                                |       | 317,589   |       |
| ** **                                                                            |       |     |       |                |       |               |       |                    |       |                                              |       |                                               |       |                                  |       |      |       |
| **Dan Van  Ostrand**                                                                  |       | 2008     |       | 155,000             |       | 28,000             |       | —                  |       | —                                            |       | —                                             |       | —                                |       | 183,000   |       |
| Vice President  Research & Development                                       |       | 2007     |       | 135,942             |       | 39,200             |       | —                  |       | —                                            |       | —                                             |       | —                                |       | 175,142   |       |
| ** **                                                                            |       |     |       |                |       |               |       |                    |       |                                              |       |                                               |       |                                  |       |      |       |
| **Robert  Petcavich**                                                                 |       | 2008     |       | 188,250             |       | 48,750             |       | 125,075                 |       | —                                            |       | —                                             |       | —                                |       | 362,075   |       |
| Vice  President & General Manager Opcuity Films                              |       | 2007     |       | —              |       | —             |       | —                  |       | —                                            |       | —                                             |       | —                                |       |      |       |
|                                                                                       |            |          |            |                     |            |                    |            |                         |            |                                                   |            |                                                    |            |                                       |            |           |            |  |  |  |  |  |

 

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

 

(2)                                Amountsreflect the aggregate annual cash bonus earned by each of our named executiveofficers for fiscal years 2008 and 2007. The annul cash bonuses for fiscal year 2008 are payable as follows:

 
| **Name**             | ** ** | **Portion Paid  in 2008** | ** ** | **Portion  Payable  in 2009** | ** ** |
|----------------------|------------|-------------------------------------|------------|------------------------------------|------------|
| Mr.  Killion    |       | $                                   | —     |                               | $          | 125,000 |   |
|                 |       |                                |       |                               |       |
| Mr. Tassone     |       | —                              |       | 45,000                             |       |
|                 |       |                                |       |                               |       |
| Mr. Cox         |       | —                              |       | 45,000                             |       |
|                 |       |                                |       |                               |       |
| Mr. Van Ostrand |       | —                              |       | 28,000                             |       |
|                 |       |                                |       |                               |       |
| Mr. Petcavich   |       | —                              |       | 48,750                             |       |
|                      |            |                                     |            |                                    |            |  |  |

 

(3)                                For 2008 and 2007, the amounts reflect thecompensation cost recognized in 2008 and 2007, respectively, for stock optionsin accordance with FAS 123R, which reflects the fair value of all stock-basedcompensation in earnings 

 

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based on the related vesting schedule. For additional information relating to the assumptions made by us inconnection with the valuation of these awards for 2008, refer to Note 3 of ourfinancial statements herein.  Foradditional information relating to the assumptions made by us in connectionwith the valuation of these awards for 2007, refer to Note 3 of our financialstatements in our Annual Report on Form 10-KSB for the year ended December 31,2007.

 

(4)                                Excludes perquisites and other personalbenefits unless such compensation was greater than $10,000.  For Mr. Killion and Mr. Tassone, amountsinclude a car allowance.

 

**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 2008 or2007.

 

**Employment Agreements**

 

The Company and Mr. Killion, President and Chief ExecutiveOfficer, entered into an employment agreement dated March 5, 2005, with aninitial term ending December 31, 2008, and providing for an initial basesalary of $195,000, subject to the right of the Board of Directors to increasehis salary from time to time. Mr. Killion is entitled to receive an annualbonus in an amount to be determined by the Board of Directors. If Mr. Killion’sperformance satisfies criteria to be established by the Board of Directors, histarget bonus will be a percentage of his annual salary. On September 13,2007, the Board of Directors increased the base salary of Mr. Killion to$250,000 effective September 16, 2007 and determined the target bonusamount 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 accelerateand Mr. Killion would be entitled to a severance payment equal to his basesalary for six months, if Mr. Killion were terminated without “Cause,” orif Mr. Killion were to terminate his employment with Uni-Pixel for “GoodReason” (each of the terms as defined in the agreement).  Mr. Killion receives no additionalcompensation for serving on our Board of Directors.

 

The Company and Mr. Tassone, Chief Financial Officer, entered intoan employment 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).

 

As of December 31, 2008, there was a $170,000 bonus accrual for Messrs. Killionand Tassone.

 

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**OutstandingEquity Awards at December 31, 2008**

 
| ** **           | ** ** | **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**  |       | 450,000                                                                       |       | —                                                                          |       | $ | 2.00 |   | 3/15/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 348,750                                                                       | (a)        | 461,250                                                                         | (a)        | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 47,813                                                                        | (b)        | 154,687                                                                         | (b)        | 1.45 |   | 4/18/2018 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **James A. Tassone** |       | 200,000                                                                       |       | —                                                                          |       | 2.00 |   | 4/19/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 45,208                                                                        | (a)        | 59,792                                                                          | (a)        | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 6,198                                                                         | (b)        | 20,052                                                                          | (b)        | 1.45 |   | 4/18/2018 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **B. Tod Cox**       |       | 150,000                                                                       |       | —                                                                          |       | 2.00 |   | 4/19/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 80,729                                                                        | (a)        | 106,771                                                                         | (a)        | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 11,068                                                                        | (b)        | 35,807                                                                          | (b)        | 1.45 |   | 4/18/2018 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dan Van Ostrand**  |       | —                                                                        |       | —                                                                          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Robert Petcavich** |       | 166,667                                                                       | (c)        | 333,333                                                                         | (c)        | 1.45 |   | 1/7/2018 |   | — |   | — |   | — |   | — |   |
|                      |            |                                                                               |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(a)          vests monthly over 36months beginning September 13, 2007

(b)         vests monthly over 36months beginning April 18,2008

(c)          vests monthly over 36months beginning January 7, 2008

 

**Director Compensation**

 

The table below summarizes the total compensation paid to or earned byour directors during 2008. 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 Mr. Killion whose compensation is described in theSummary 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**  |       | $                                                    | 33,333     |              | —     |               | $          | 27,184                                            |       | —                                             |       | —                           |       | —    |       | $ | 60,517 |   |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |      |       |
| **Rob Broggi**     |       | 33,333                                               |       | —            |       | —             |       | —                                            |       | —                                             |       | —                           |       | 33,333    |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |      |       |
| **Victor Calaba**  |       | 33,333                                               |       | —            |       | —             |       | —                                            |       | —                                             |       | —                           |       | 33,333    |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |      |       |
| **Bernard Marren** |       | 33,333                                               |       | —            |       | 27,184             |       | —                                            |       | —                                             |       | —                           |       | 60,517    |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |      |       |
| **Carl Yankowski** |       | 33,333                                               |       | —            |       | 27,184             |       | —                                            |       | —                                             |       | —                           |       | 60,517    |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |      |       |
| **Ross Young**     |       | 16,667                                               |       | —            |       | 17,835             |       | —                                            |       | —                                             |       | —                           |       | 34,502    |       |
| ** **         |       |                                                 |       |              |       |               |       |                                              |       |                                               |       |                             |       |      |       |
| **Frank DeLape**   |       | 13,333                                               |       | —            |       | —             |       | —                                            |       | —                                             |       | —                           |       | 13,333    |       |
|                    |            |                                                      |            |                   |            |                    |            |                                                   |            |                                                    |            |                                  |            |           |            |  |  |  |

 

Overview

 

Uni-Pixel’sdirector compensation program consists of cash-based as well as equity-basedcompensation. The Board of Directors recognizes that cash compensation is anintegral part of the compensation program and has instituted a fixed fee

 

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structure to providecompensation relative to the required time commitment of each director. Theequity component of Uni-Pixel’s director compensation program is designed tobuild an ownership stake in the Company while conveying an incentive todirectors relative to the returns recognized by our shareholders.

 

Cash-Based Compensation

 

Companynon-employee directors receive an annual stipend of $40,000 paid monthly.   All directors are reimbursed ordinary andreasonable expenses incurred in exercising their responsibilities in accordancethe Company’s Travel and Entertainment Expense Reimbursement policy applicableto all employees of the Company.  Thenon-employee directors waived their cash compensation fees in November 2008and December 2008.

 

Equity-Based Compensation

 

Underprovisions adopted by the Board of Directors, each non-employee directorreceives an option to purchase 100,000 shares of our common stock issued uponhis first election to the Board of Directors. These options vest monthly over three years. Stock options granted underthe plan are priced at the closing market price of the Company’s stock on theday of grant, but in no case lower than $1.45 per share.

 

Pension and Benefits

 

Thenon-employee directors are not eligible to participate in the Company’sbenefits plans, including the 401(k) plan.

 

Indemnification Agreements

 

TheCompany’s certificate of incorporation requires the Company to indemnify boththe directors and officers of the Company to the fullest extent permitted byDelaware state law.

 

**ITEM 12. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Wehave set forth in the following table certain information regarding our commonstock, on an as converted basis, beneficially owned as of January 31, 2009for (i) each stockholder we know to be the beneficial owner of 5% or moreof our outstanding Common Stock, (ii) each of our directors and namedexecutive officers, and (iii) all executive officers and directors as agroup. Generally, a person is deemed to be a “beneficial owner” of a securityif that person has or shares the power to dispose or to direct the dispositionof such security. A person is also deemed to be a beneficial owner of anysecurities of which the person has the right to acquire beneficial ownershipwithin 60 days pursuant to options, warrants, conversion privileges orsimilar rights. At January 31, 2009, we had 22,897,418 issued andoutstanding shares of Common Stock, 3,200,000 issued and outstanding shares of Series BConvertible Preferred Stock, which were convertible, as of January 31,2009, 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, 2009, 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                                                                                                     |       | 1,505,938                                        | (2)        | 3.2                            | %          |
| James A. Tassone                                                                                                    |       | 663,594                                          | (3)        | 1.4                            | %          |
| B. Tod Cox                                                                                                          |       | 286,328                                          | (4)        | 0.6                            | %          |
| Dan Van Ostrand                                                                                                     |       | 852,500                                          | (5)        | 1.9                            | %          |
| Robert J. Petcavich                                                                                                 |       | 233,333                                          | (6)        | 0.5                            | %          |
| Carl J. Yankowski                                                                                                   |       | 1,068,056                                        | (7)        | 2.3                            | %          |
| Rob Broggi                                                                                                          |       | —                                           |       | —                         | %          |
| Victor Calaba                                                                                                       |       | —                                           |       | —                         | %          |
| Bernard Marren                                                                                                      |       | 68,056                                           | (8)        | 0.1                            | %          |
| Bruce Berkoff                                                                                                       |       | 68,056                                           | (9)        | 0.1                            | %          |
| Ross Young                                                                                                          |       | 29,167                                           | (10)       | 0.1                            | %          |
| All Directors and Executive Officers as a  Group (11 persons)                                                       |       | 4,775,028                                        |       | 10.2                           | %          |
| *5% Stockholders:*                                                                                                  |       |                                             |       |                           |       |
| Tudor Investment Corporation  50 Rowes Wharf  6th Floor  Boston, MA 02110                                      |       | 22,839,279                                       | (11)       | 43.2                           | %          |
| Merrill Lynch Pierce, Fenner &  Smith Incorporated  4 World Financial Center  Floor 24  New York, NY 10080 |       | 10,357,153                                       | (12)       | 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 955,938 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (3)    | Includes  options to purchase 287,344 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (4)    | Includes  options to purchase 286,328 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (5)    | Includes  options to purchase 25,000 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (6)    | Includes  options to purchase 233,333 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (7)    | Includes  options to purchase 1,068,056 shares of Common Stock exercisable within 60  days from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (8)    | Includes  options to purchase 68,056 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (9)    | Includes  options to purchase 68,056 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (10)   | Includes  options to purchase 29,167 shares of Common Stock exercisable within 60 days  from January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (11)   | Includes  2,409,526.40 shares of our Series B Preferred Stock held by The Raptor  Global Portfolio; 769,974.40 shares of our Series B Preferred Stock held  by The Tudor BVI Global Portfolio L.P.; 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, 2009. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (12)   | 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, 2009.                                                                                                                                                                                                                                             |

 

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

**The Merger Agreement**

 

***The Agreement.*** We entered into a Merger Agreement withUni-Pixel Displays, 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 to the Merger, Merger Sub and Gemini Vwere merged with and into Uni-Pixel Displays, Inc. with Uni-Pixel Displays, Inc.as the surviving corporation, and Uni-Pixel Displays, Inc. became awholly-owned subsidiary of the Company. Prior to the Merger, we had nooperations and no material assets or liabilities. Pursuant to the Merger, ofthe total number of shares of our Common Stock outstanding immediatelysubsequent to the Merger (12,800,580), former Uni-Pixel stockholders ownedapproximately 68.6% of our Common Stock, former Gemini V stockholders ownedapproximately 22.8% of our Common Stock, and the stockholders of the Companyowned 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, the formerPresident, Secretary, Treasurer and sole board member for the Company; and (ii) fromand including November 15, 2004 going forward from Frank M. DeLape, thecurrent Chairman of the Board of the Company. Frank M. DeLape will alsoindemnify the Uni-Pixel Indemnitees for inaccuracies or breaches of certainterms of the Merger Agreement by the Company, for breaches of covenants orobligations of the Merger Agreement by the Company, for costs 

 

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and expenses incurred in connection with any stockholder suitchallenging the validity of the Merger Agreement, and for any claims by brokersor finders for fees or commissions alleged to be due from the Company inconnection with the Merger.

 

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

 

**Placement Agent Agreements**

 

Inconnection with the private offering of up to 3,495,000 shares of our Series APreferred, we entered into a Placement Agent Agreement, dated November 22,2004, with Fordham Financial Management, Inc., the Company’s exclusiveplacement agent in connection with the offering and the beneficial owner ofmore than 5% of our outstanding capital stock. As consideration for theplacement agent’s services in connection with the offering, the placement agentreceived a warrant to purchase 4,500 shares of our common stock for every 15,000shares of Series A Preferred sold in the offering. Each warrant willexpire five years after the respective closing of the offering and will have anexercise price of $1.75 per share. The offering was fully subscribed for3,495,000 shares of our Series A Preferred (gross proceeds of $12,232,500)and we issued to the placement agent warrants to purchase 1,048,500 shares ofour common stock.

 

Inaddition, the placement agent received a commission equal to 10%, or $5,250 per15,000 shares of Series A Preferred sold, a non-accountable expenseallowance equal to 3% or $1,575 per 15,000 shares of Series A Preferredsold and a financial consulting fee, pursuant to the consulting agreementdescribed below, of 1% or $525 per 15,000 shares of Series A Preferred sold,payable in advance at each closing of the offering. Pursuant to the placementagent agreement, the placement agent was also entitled to receive reimbursementfor travel and travel-related expenses on an accountable basis up to a maximumof $10,000. In connection with the sale of 3,495,000 shares of our Series APreferred, we paid to the placement agent a total of $1,714,050 pursuant to theplacement agent agreement ($1,223,250 in commissions, $366,975 as anon-accountable expense allowance, $122,325 in consulting fees, and $1,500 intravel reimbursement).

 

Inaccordance with the terms and provisions of the placement agent agreement, weagreed to indemnify and hold harmless the placement agent and each person whocontrols the placement agent against any and all losses, claims, damages orliabilities resulting from any untrue statement in or omission from theoffering memorandum.

 

**Director Independence**

 

TheOver-the-Counter Bulletin Board does not have rules regarding directorindependence.  Our determination of independence of directors is madeusing the definition of “independent director” contained in the Marketplace Rules ofthe NASDAQ Stock Market (“NASDAQ”), even though such definitions do notcurrently apply to us because we are not listed on NASDAQ.  We havedetermined that Mr. Yankowski, Mr. Marren, Mr. Berkoff and Mr. Youngare “independent” within the meaning of such rules. Mr. Killion is not “independent”under these rules, due to his position as an executive officer of ourCompany.  Mr. Broggi and Mr. Calabaare not “independent” under these rules, due to the amount of equity theycontrol of the Company.

 

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

 

**AuditFees**

 

Theaggregate fees billed by PMB Helin Donovan, LLP (“PMBHD”), previously known asHelin, Donovan, Trubee & Wilkinson, LLP, for professional servicesrendered for the audit of our annual consolidated financial statements duringthe fiscal year ended December 31, 2008, and for the reviews of theconsolidated financial statements included in our quarterly reports on Form 10-Qfor that fiscal year were $57,600.  Theaggregate fees billed by PMBHD for professional services rendered for the auditof our annual consolidated financial statements and for the reviews of theconsolidated financial statements included in our quarterly reports on Form 10-QSBduring the fiscal year ended December 31, 2007, were $51,075.  These fees include fees billed forprofessional services rendered by PMBHD for the review of registrationstatements or services that are normally provided in connection with statutoryand regulatory filings or engagements for those fiscal years.

 

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**AuditRelated Fees**

 

PMBHDdid not bill us for any professional services that were reasonably related tothe performance of the audit or review of financial statements for either thefiscal year ended December 31, 2008, or the fiscal year ended December 31,2007, that are not included under Audit Fees above.

 

**TaxFees**

 

PMBHDbilled $5,150 and $5,000 for the fiscal years ended December 31, 2008 and2007, respectively, for professional services rendered for tax compliance, taxadvice, and tax planning.

 

**AllOther Fees**

 

PMBHDdid not perform any services for us or charge any fees other than the servicesdescribed above for either the fiscal year ended December 31, 2008, or thefiscal year ended December 31, 2007.

 

**PART IV**

 

**ITEM 15. EXHIBITS, FINANCIALSTATEMENT SCHEDULES**

 
| **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)                                                                                                                                                                                                                                                                    |

 

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| 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., 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 Chief Executive Officer, 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 Chief Executive Officer, 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)                                                                                                                                                                                                                                                                                                                                          |

 

----

| (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.               |

 

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| (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                                                                                                                              |

 

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**SIGNATURES**

 

Inaccordance with Section 13 or 15(d) of the Exchange Act, theRegistrant has caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
| UNI-PIXEL,  INC. |                                                                         |
|------------------|------------------------------------------------------------------------------|
|             |                                                                         |
| By:              | /s/  JAMES  A. TASSONE                                             |   |
|             | James  A. Tassone, Chief Financial Officer and  Principal Accounting Officer |   |
|             |                                                                         |   |
| Date:            | March 6,  2009                                                          |   |

 

Inaccordance with the Exchange Act, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated.

 
| **Signature**                       | ** ** | **Title**                                            | ** ** | **Date**            |
|-------------------------------------|------------|------------------------------------------------------|------------|---------------------|
|                                |       |                                                 |       |                |
| /s/  REED J. KILLION                |       | President,  Principal Executive Officer and Director |       | March 6,  2009 |
| Reed  J. Killion                    |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  JAMES A. TASSONE               |       | Chief  Financial Officer                             |       | March 6,  2009 |
| James  A. Tassone                   |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  B. TOD COX                     |       | Vice  President Engineering                          |       | March 6,  2009 |
| B.  Tod Cox                         |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  DAN  VAN OSTRAND     |       | Vice  President Research & Development      |       | March 6,  2009 |
| Dan  Van Ostrand                    |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  ROBERT  J. PETCAVICH |       | Vice  President and General Manager                  |       | March 6,  2009 |
| Robert  J. Petcavich                |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  CARL  J. YANKOWSKI   |       | Director                                             |       | March 6,  2009 |
| Carl  J. Yankowski                  |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  ROB  BROGGI          |       | Director                                             |       | March 6,  2009 |
| Rob  Broggi                         |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  VICTOR  CALABA       |       | Director                                             |       | March 6,  2009 |
| Victor  Calaba                      |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  BERNARD  MARREN      |       | Chairman  of the Board                               |       | March 6,  2009 |
| Bernard  Marren                     |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  BRUCE  BERKOFF       |       | Director                                             |       | March 6,  2009 |
| Bruce  Berkoff                      |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  ROSS  YOUNG          |       | Director                                             |       | March 6,  2009 |
| Ross  Young                         |       |                                                 |       |                |

 

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**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

**OFUNI-PIXEL, INC.**

 
| Report  of Independent Registered Public Accounting Firm                                                                                                                                        |   | 47     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                                                            |   |   |
| Consolidated  Balance Sheets, December 31, 2008 and 2007                                                                                                                                   |   | 48     |
|                                                                                                                                                                                            |   |   |
| Consolidated Statements of Operations for the years  ended December 31, 2008 and 2007 and the cumulative period from  February 17, 1998 (date of inception) to December 31, 2008 |   | 49     |
|                                                                                                                                                                                            |   |   |
| Consolidated Statements of Shareholders’ Equity  (Deficit) for the period February 17, 1998 (date of inception) to December 31,  2008                                            |   | 50     |
|                                                                                                                                                                                            |   |   |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2008 and 2007 and the cumulative period from  February 17, 1998 (date of inception) to December 31, 2008 |   | 51     |
|                                                                                                                                                                                            |   |   |
| Notes to Consolidated Financial Statements                                                                                                                                                      |   | 52     |

 

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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 consolidated balancesheets of Uni-Pixel, Inc. (the Company) (a development stage company) asof December 31, 2008 and 2007, and the related consolidated statements ofoperations, shareholders’ equity (deficit), and cash flows for the years ended December 31,2008 and 2007, and the period from inception (February 17, 1998) through December 31,2008. The Company’s management is responsible for these consolidated financialstatements.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

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, the consolidatedfinancial position of Uni-Pixel, Inc. as of December 31, 2008 and2007, and the results of its operations and its cash flows for the years ended December 31,2008 and 2007, and the period from inception (February 17, 1998) through December 31,2008, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

The accompanying consolidated financial statementshave been prepared assuming that the Company will continue as a goingconcern.  The Company has sustained losses and negative cash flows fromoperations for the period from inception (February 17, 1998) through December 31,2008, whereby its accumulated deficit during the development stage isapproximately $43.5 million.  The Company’s ability to meet its obligationsin the ordinary course of business is dependent upon its ability to establishprofitable operations, raise additional financing through public or privateequity financings, enter into collaborative or other arrangements withcorporate sources, or secure other sources of financing to fundoperations.  These matters raise substantial doubt about the Company’sability to continue as a going concern.  The consolidated financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty.

 
| **PMB Helin Donovan, LLP** |   |
|----------------------------|--------|
|                       |   |
| /s/ PMB Helin Donovan, LLP |   |
|                       |   |
| March 3, 2009         |   |
| Houston, Texas             |   |

 

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Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedBalance Sheets

 
| ** **                                                                                                                                                                                                                                                                                                                                      | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                      | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                        |       |
| Current assets                                                                                                                                                                                                                                                                                                                                  |       |                        |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                       |       | $                           | 2,035,547  |                        | $          | 11,697,425 |   |
| Prepaid expenses                                                                                                                                                                                                                                                                                                                                |       | 3,400                       |       | 23,672                      |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Total current assets                                                                                                                                                                                                                                                                                                                            |       | 2,038,947                   |       | 11,721,097                  |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Property and equipment, net of accumulated  depreciation of $1,013,967 and $725,338, at December 31, 2008 and 2007,  respectively                                                                                                                                                                                                          |       | 592,056                     |       | 455,108                     |       |
| Restricted cash                                                                                                                                                                                                                                                                                                                                 |       | 34,877                      |       | 34,877                      |       |
| Intangible assets                                                                                                                                                                                                                                                                                                                               |       | 185,252                     |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Total assets                                                                                                                                                                                                                                                                                                                                    |       | $                           | 2,851,132  |                        | $          | 12,211,082 |   |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Current liabilities                                                                                                                                                                                                                                                                                                                             |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                                                                                |       | $                           | 731,022    |                        | $          | 526,959 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                |       | 383,039                     |       | 405,996                     |       |
| Deferred revenue                                                                                                                                                                                                                                                                                                                                |       | 33,333                      |       | 33,333                      |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                       |       | 1,147,394                   |       | 966,288                     |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Total liabilities                                                                                                                                                                                                                                                                                                                               |       | 1,147,394                   |       | 966,288                     |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Commitments and contingencies (Note 7)                                                                                                                                                                                                                                                                                                          |       | —                      |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Redeemable convertible Series B  Preferred stock, $0.001 par value; $3.75 liquidation preference; 3,200,000  shares authorized, issued and outstanding at December 31, 2008 and  December 31, 2007, less unamortized discount of $4,644,502 and  $6,130,743 at December 31, 2008 and December 31, 2007,  respectively. |       | 9,159,771                   |       | 6,713,531                   |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Redeemable convertible Series C  Preferred stock, $0.001 par value; $11.20 liquidation preference; 892,858 shares  authorized, issued and outstanding at December 31, 2008 and  December 31, 2007, less unamortized discount of $5,714,466 and  $7,238,324 at December 31, 2008 and December 31, 2007,  respectively.  |       | 5,210,901                   |       | 2,887,043                   |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                             |       |                        |       |                        |       |
| Preferred stock, Series A, $0.001 par  value; $3.50 liquidation preference; 10,000,000 shares authorized, 0 issued  and outstanding at December 31, 2008 and 2007                                                                                                                                                                     |       | —                      |       | —                      |       |
| Common stock, $0.001 par value; 100,000,000  shares authorized, 22,897,418 issued and outstanding at December 31,  2008 and 2007                                                                                                                                                                                                           |       | 22,897                      |       | 22,897                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                      |       | 30,785,560                  |       | 34,512,298                  |       |
| Accumulated deficit during development  stage                                                                                                                                                                                                                                                                                                   |       | (43,475,391                 | )          | (32,890,975                 | )          |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Total shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                       |       | (12,666,934                 | )          | 1,644,220                   |       |
|                                                                                                                                                                                                                                                                                                                                            |       |                        |       |                        |       |
| Total liabilities and shareholders’ equity  (deficit)                                                                                                                                                                                                                                                                                      |       | $                           | 2,851,132  |                        | $          | 12,211,082 |   |

 

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

 

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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,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|-------------|-------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                               | ** **  | **2007**                                                                                                                | ** ** | **2008** | ** ** |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Development contract revenue                                            |       | $                                      | —      |                                                                                                                    | $          | — |   | $ | 1,158,201 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Cost of development contract revenue                                    |       | —                                 |        | —                                                                                                                  |       | 456,648 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Gross margin                                                            |       | —                                 |        | —                                                                                                                  |       | 701,553 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Selling, general and administrative  expenses                           |       | 3,293,362                              |        | 5,958,687                                                                                                               |       | 19,641,969 |   |
| Research and development                                                |       | 7,475,529                              |        | 4,463,226                                                                                                               |       | 21,767,878 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Operating loss                                                          |       | (10,768,891                            | )           | (10,421,913                                                                                                             | )          | (40,708,294 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Other income (expense)                                                  |       |                                   |        |                                                                                                                    |       |   |   |
| Net decrease in fair value of derivative  liability                     |       | —                                 |        | 382,920                                                                                                                 |       | 845,079 |   |
| Other income                                                            |       | —                                 |        | —                                                                                                                  |       | 886,886 |   |
| Debt issuance expense                                                   |       | —                                 |        | (94,189                                                                                                                 | )          | (644,346 | ) |
| Interest income (expense), net                                          |       | 184,475                                |        | (762,664                                                                                                                | )          | (2,087,990 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Net loss                                                                |       | $                                      | (10,584,416 | )                                                                                                                       | $          | (10,895,846 | ) | $ | (41,708,665 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Preferred stock dividends and amortization  of discount                 |       | (4,770,098                             | )           | (3,192,212                                                                                                              | )          | (9,269,680 | ) |
| Net loss attributable to common  shareholders                           |       | $                                      | (15,354,514 | )                                                                                                                       | $          | (14,088,058 | ) | $ | (50,978,345 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Per share information                                                   |       |                                   |        |                                                                                                                    |       |   |   |
| Net loss — basic and diluted                                       |       | $                                      | (0.46       | )                                                                                                                       | $          | (0.60 | ) | $ | (4.37 | ) |
| Preferred stock dividends and amortization  of discount                 |       | (0.21                                  | )           | (0.17                                                                                                                   | )          | (0.97 | ) |
| Net loss attributable to common  shareholders — basic and diluted  |       | $                                      | (0.67       | )                                                                                                                       | $          | (0.77 | ) | $ | (5.34 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Weighted average number of basic and  diluted common shares outstanding |       | 22,897,418                             |        | 18,255,742                                                                                                              |       | 9,539,381 |   |

 

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

 

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Uni-Pixel, Inc.

(ADevelopment Stage Company)

Consolidated Statements of Shareholders’ Equity (Deficit)

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

 

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

 

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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,** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------|-------------|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                               | ** **  | **2007**                                                                                                        | ** ** | **2008** | ** ** |
| Cash flows from operating activities                                           |       |                                   |        |                                                                                                            |       |   |   |
| Net loss                                                                       |       | $                                      | (10,584,416 | )                                                                                                               | $          | (10,895,846 | ) | $ | (41,708,665 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:   |       |                                   |        |                                                                                                            |       |   |   |
| Interest forgiven                                                              |       | —                                 |        | —                                                                                                          |       | (91,421 | ) |
| Employee compensation notes payable  forgiven                                  |       | —                                 |        | —                                                                                                          |       | (795,465 | ) |
| Depreciation and amortization                                                  |       | 299,966                                |        | 269,146                                                                                                         |       | 1,101,423 |   |
| Stock issued for services                                                      |       | —                                 |        | 52,400                                                                                                          |       | 512,462 |   |
| Stock compensation expense                                                     |       | 1,037,441                              |        | 2,029,326                                                                                                       |       | 3,981,522 |   |
| Non-cash compensation expense                                                  |       | —                                 |        | —                                                                                                          |       | 1,100,000 |   |
| Amortization of debt issuance costs                                            |       | —                                 |        | 94,189                                                                                                          |       | 644,346 |   |
| Amortization of discounts on notes payable                                     |       | —                                 |        | 955,389                                                                                                         |       | 1,480,448 |   |
| Net decrease in fair value of derivatives                                      |       | —                                 |        | (382,920                                                                                                        | )          | (845,077 | ) |
| Issuance of warrants to consultants                                            |       | 5,919                                  |        | 297,891                                                                                                         |       | 303,810 |   |
| Change in operating assets and liabilities:                                    |       |                                   |        |                                                                                                            |       |   |   |
| (Increase) decrease in cash restricted for  note payable and lease obligations |       | —                                 |        | 5,123                                                                                                           |       | (34,877 | ) |
| (Increase) decrease in prepaid expenses and  other current assets              |       | 20,272                                 |        | (6,706                                                                                                          | )          | (147,745 | ) |
| Increase in accounts payable                                                   |       | 204,063                                |        | 98,226                                                                                                          |       | 731,017 |   |
| Increase in accrued interest payable                                           |       | —                                 |        | —                                                                                                          |       | 180,943 |   |
| Increase (decrease) in accrued expenses and  other liabilities                 |       | (22,957                                | )           | (262,004                                                                                                        | )          | 1,178,504 |   |
| Increase in deferred revenue                                                   |       | —                                 |        | —                                                                                                          |       | 33,333 |   |
| Net cash used in operating activities                                          |       | (9,039,712                             | )           | (7,745,786                                                                                                      | )          | (32,375,442 | ) |
|                                                                           |       |                                   |        |                                                                                                            |       |   |   |
| Cash flows from investing activities                                           |       |                                   |        |                                                                                                            |       |   |   |
| Purchase of property and equipment                                             |       | (425,578                               | )           | (95,036                                                                                                         | )          | (1,654,352 | ) |
| Proceeds from the sale of property and  equipment                              |       | —                                 |        | —                                                                                                          |       | 27,792 |   |
| Purchases of patents, trademarks and  organization costs                       |       | (196,588                               | )           | —                                                                                                          |       | (264,336 | ) |
| Net cash used in investing activities                                          |       | (622,166                               | )           | (95,036                                                                                                         | )          | (1,890,896 | ) |
|                                                                           |       |                                   |        |                                                                                                            |       |   |   |
| Cash flows from financing activities                                           |       |                                   |        |                                                                                                            |       |   |   |
| Proceeds from notes payable to related  party                                  |       | —                                 |        | —                                                                                                          |       | 115,103 |   |
| Payments on notes payable to related party                                     |       | —                                 |        | —                                                                                                          |       | (164,328 | ) |
| Proceeds from convertible notes payable                                        |       | —                                 |        | —                                                                                                          |       | 3,390,000 |   |
| Payments on convertible notes payable                                          |       | —                                 |        | —                                                                                                          |       | (1,470,672 | ) |
| Net repayments from notes payable                                              |       | —                                 |        | (2,401,280                                                                                                      | )          | (62,833 | ) |
| Issuance of warrants to placement agent                                        |       | —                                 |        | —                                                                                                          |       | 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                                                                                                      |       | 36,301,885 |   |
|                                                                           |       |                                   |        |                                                                                                            |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                          |       | (9,661,878                             | )           | 11,677,237                                                                                                      |       | 2,035,547 |   |
| Cash and cash equivalents, beginning of  period                                |       | 11,697,425                             |        | 20,188                                                                                                          |       | — |   |
| Cash and cash equivalents, end of period                                       |       | $                                      | 2,035,547   |                                                                                                            | $          | 11,697,425 |   | $ | 2,035,547 |   |
|                                                                           |       |                                   |        |                                                                                                            |       |   |   |
| Supplemental disclosures of cash flow  information:                            |       |                                   |        |                                                                                                            |       |   |   |
| Cash paid for interest                                                         |       | $                                      | —      |                                                                                                            | $          | 134,434 |   | $ | 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                         |       | $                                      | 4,770,098   |                                                                                                            | $          | 3,192,212 |   | $ | 9,269,680 |   |
| 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 NASDAQ Over theCounter — 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. Our work developing TMOS has led to advances in the thin film arenathat have other marketable applications. We intend to explore the business potential within these applicationsand pursue those thin film markets that offer profitable opportunities eitherthrough licensing or direct production and sales.  As of December 31, 2008, we hadaccumulated a total deficit of $43.5 million from operations in pursuit ofthese objectives.

 

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 $90+ 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, and 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 futher develop our proprietary TMOS technology to the point ofbeing able to transition the technology to manufacturing partners.  Wehave and will continue to utilize contract manufacturing for prototypefabrication 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.  We planto license our technology to display manufacturers and supporting partnercompanies for use in applications such as mobile phones, digital cameras, laptopcomputers, and other consumer electronic devices. Through our internal researchand development efforts we have established a portfolio of TMOS-related patentsand patent applications and other intellectual property rights that supportthese joint venture and licensing strategies.  We currently have 31 issuedpatents, 4 allowed patents, and 82 pending patent applications filed in keyvenues worldwide including regionally in Europe, Asia Pacific, South Americaand North America. We also contemplate obtaining exclusive field-of-uselicenses (which would include the right to sublicense) to complementarytechnologies from targeted strategic partners and U.S. national laboratories.

 

Duringthe course of 2008 we have developed our first independent thin film productopportunity.  This unique variation ofthe thin film developed for TMOS can be applied to a variety of touch screenproduct devices as a protective cover. We intend to market this thin film product under our brand, OpcuityTM, tovarious potential distribution and channel partners.

 

Sinceour inception, we have been primarily engaged in developing our initial producttechnologies, recruiting personnel, commencing our U.S. operations andobtaining sufficient capital to meet our working capital needs. In the courseof our development activities, we have sustained losses and expect such losses tocontinue through at least May 2009. We will finance our operationsprimarily through our existing cash and possible future financing transactions.

 

Ourability to operate profitably under our current business plan is largelycontingent upon our success in developing our products beyond proof of conceptto final prototypes, supporting transferable manufacturing processes topartners to produce our products and successfully developing markets andmanufacturing relationships for our products. We may be required to obtain additional capital in the future to expandour operations. No assurance can be given that we will be able to develop ourproducts, successfully develop the markets or profitable manufacturing methodsfor our products, or raise any such additional capital as we might need, eitherthrough equity or debt financing, on satisfactory terms or at all.Additionally, no assurance can be given that any such financing, if obtained,will be adequate to meet our ultimate capital needs or to 

 

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supportour growth. If adequate capital cannot be obtained on satisfactory terms, ouroperations could be negatively impacted.

 

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

 

*Acquisition and merger*

 

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

 

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

 

Ourwholly-owned subsidiary, Uni-Pixel Displays, Inc., was originallyincorporated as Tralas Technologies, Inc., a Texas corporation, on February 17,1998. Tralas Technologies, Inc. changed its name to Uni-Pixel Displays, Inc.during 2001. On December 7, 2004, Real-Estateforlease.com, Inc.entered into a merger agreement with Uni-Pixel Displays, Inc. and certainother parties pursuant to which Uni-Pixel Displays, Inc. became awholly-owned subsidiary of Real-Estateforlease.com, Inc. Pursuant to themerger, we changed our name to “Uni-Pixel, Inc.” at the annual meeting ofour stockholders held in January 2005.

 

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

 

*Basis of Presentation*

 

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.  The accompanyingconsolidated financial statements have been prepared assuming that the Companywill continue as a going concern, as further discussed in Note 2. This basis ofaccounting contemplates the recovery of the Company’s assets and thesatisfaction of liabilities in the normal course of business and this does notinclude any adjustments to reflect the possible future effects on therecoverability and classification of assets or the amounts and classificationof liabilities that might be necessary should the Company be unable to continueas a going concern.

 

*Development Stage Company*

 

Wehave not generated any significant operating revenue since inception.  The accompanying financial statements have,therefore, been prepared using the accounting formats prescribed by SFAS No. 7for a development stage enterprise 

 

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(“DSE”).  Although, we have recognized some nominalamounts of revenue, the Company still believes it is devoting, substantially,all its efforts on developing the business and, therefore, still qualifies as aDSE.

 

**Note 2 -****                 ****Going Concern**

 

Our accompanying consolidated financial statementshave been prepared assuming that we will continue as a going concern, whichcontemplates realization of assets and the satisfaction of liabilities in thenormal course of business.  However,Uni-Pixel has sustained losses and negative cash flows from operations sinceits inception.  As shown in theaccompanying consolidated financial statements, Uni-Pixel incurred recurringnet losses chargeable to common shareholders of $10.6 million and $10.9 millionin fiscal 2008 and 2007, respectively, and has an accumulated deficit of $43.5million as of December 31, 2008. The Company’s ability to meet its obligations in the ordinary course ofbusiness is dependent upon its ability to establish profitable operations,raise additional financing through public or private equity financings, enterinto collaborative or other arrangements with corporate sources, or secureother sources of financing to fund operations. The Company’s management may be forced to reduce operating expenses ordelay planned expenditures commensurate with its level of working capital.

 

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 management believeswill enable the Company to continue operations until May 2009.

 

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

 

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

 

Theconditions described above create substantial doubt as to Uni-Pixel’s abilityto continue as a going concern.  The 2008 consolidated financialstatements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets or the amounts andclassifications of liabilities that may result from the outcome of thisuncertainty.

 

**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 that affectthe reported amounts of assets and liabilities, disclosures of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Examples includeprovisions for bad debts, useful lives of property and equipment and intangibleassets, impairment of property and equipment and intangible assets, deferredtaxes, and the provision for and disclosure of litigation and losscontingencies, derivative liabilities and stock based compensation. Actualresults may differ materially from those estimates.

 

*Statements of cash flows*

 

For purposes of thestatements of cash flows, we consider all highly liquid investments (i.e.,investments which, 

 

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when purchased, have original maturities of threemonths or less) to be cash equivalents.

 

*Concentration of credit risk*

 

We maintain our cash primarilywith major U.S. domestic banks and other financial institutions. The amountsheld in interest bearing accounts periodically exceed the insured limit of$250,000 at December 31, 2008 and $100,000 at December 31, 2007.  The amounts held in these banks exceeded theinsured limits December 31, 2008 and 2007 by $0 and $250,538,respectively.  The terms of otherdeposits are on demand and are subject to guarantees in full by the FDIC underthe Transaction Account Guarantee Program. We have not incurred losses related to these deposits.

 

In addition, on December 31,2008 and 2007, we held an investment account of $1,662,973 and $11,528,987,respectively, with a financial institution other than a bank.  These funds are invested in money marketfunds.  We have not incurred lossesrelated to these deposits.

 

*Restricted cash*

 

Asof December 31, 2008 and December 31, 2007, we had restricted cash of$34,877.  This amount secured certainobligations under our lease agreement for our principal facility located in TheWoodlands, Texas as of both December 31, 2008 and December 31,2007.  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*

 

Ourintangible assets represent patents and patent applications acquired from thirdparties, which are recorded at cost and amortized over the life of thepatent.  We review the value recorded for intangible assets to assessrecoverability from future operations using undiscounted cash flows.Impairments are recognized in operating results to the extent the carryingvalue exceeds fair value determined based on the net present value of estimatedfuture cash flows.  Impairment would thenbe measured as the difference between the fair value of the fixed or amortizingintangible asset and the carrying value to determine the amount of theimpairment.

 

*Derivativeinstruments*

 

Weaccount for all derivative instruments under Statement of Financial AccountingStandards No. 133, *Accounting forDerivative Instruments and Hedging Activities*, and related EmergingIssues Task Force (EITF) interpretations and Securities and Exchange Commission(SEC) rules, which require that certain embedded and freestanding derivativeinstruments be classified as a liability and measured at fair value withchanges in fair value recognized currently in earnings. The Company hasrecorded changes in fair value as an other expense in the consolidatedstatements of operations.

 

*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.

 

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Revenuefrom development contracts are recognized when the contract is completed andcollectability is reasonably assured. Deferred revenue on these contracts of $33,333 as of December 31,2008 and December 31, 2007 consists of a development contract to produceand deliver a prototype device.

 

*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*

 

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

 

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 of the underlying common stock at the end of the period, and anysubsequent changes in the market price of the underlying common stock throughthe valuation date is reflected in the expense recorded in the subsequentperiod 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.*

 

TheCompany grants stock options to employees that allow them to purchase shares ofthe Company’s common stock. Options are also granted to members of the Board ofDirectors.  The Company determines thefair value of stock options at the date of grant using the Black-Scholesvaluation model.  Most options vestannually over a three-year service period. The Company will issue new shares upon the exercise of stock options.

 

Totalcompensation expense recognized for options was approximately $1.0 millionand $2.0 million for the twelve months ended December 31, 2008 and December 31,2007, respectively.

 

*Income taxes*

 

An asset and liabilityapproach is used for financial accounting and reporting for income taxes. Deferredincome taxes arise from temporary differences between income tax and financialreporting and principally relate to recognition of revenue and expenses indifferent periods for financial and tax accounting purposes and are measuredusing currently enacted 

 

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tax rates and laws. In addition, a deferred taxasset 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.

 

TheCompany has losses carried forward for income tax purposes to December 31,2008. There are no current or deferred tax expenses for the twelve monthperiods ended December 31, 2008 and 2007 due to the Company’s lossposition. The Company has fully reserved for any benefits of these losses. Thedeferred tax consequences of temporary differences in reporting items forfinancial statement and income tax purposes are recognized, as appropriate.Realization of the future tax benefits related to the deferred tax assets isdependent on many factors, including the Company’s ability to generate taxableincome within the net operating loss carryforward period. Management hasconsidered these factors in reaching its conclusion as to the valuationallowance for financial reporting purposes. Accordingly, no benefit has beenrecognized on the net loss as the realization of the net operating losscarryforward cannot be assured.

 

EffectiveJanuary 1, 2007, the Company adopted the provision of FIN 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”(“FIN 48”).  FIN 48 contains a two-stepapproach to recognizing and measuring uncertain tax positions accounted for inaccordance with 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 likely of being realizedupon 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.

 

*Loss per share data*

 

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

 

At 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.

 

AtDecember 31, 2008, options and warrants to purchase 19,448,482 shares ofcommon stock at exercise prices ranging from $1.10 to $2.00 per share wereoutstanding, but were not included in the computation of diluted earnings pershare as their effect would be antidilutive. Further, at December 31, 2008, 18,405,699 shares of common stock,convertible from Series B Convertible Preferred Stock and associateddividends, were not included in the computation of diluted earnings per shareas there effect would be antidilutive. Further, at December 31, 2008, 7,861,456 shares of common stock,convertible from Series C Convertible Preferred Stock and associateddividends, were not included in the computation of diluted earnings per shareas there effect would be 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.

 

*Recently adopted accountingpronouncements*

 

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.

 

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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.

 

EffectiveJanuary 1, 2008, the Company partially adopted SFAS 157, which provides aframework for measuring fair value. Fair value is defined as the price thatwould be received for an asset or paid to transfer a liability (an exit price)in the principal or most advantageous market for the asset or liability in anorderly transaction between market participants at the measurement date. Thepartial adoption of this standard only resulted in additional disclosurerequirements and had no financial statement impact. Delayed application of thisstatement is permitted for nonfinancial assets and nonfinancial liabilities,except for items that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually), until fiscalyears beginning after November 15, 2008, and interim periods within thosefiscal years. The Company has not applied the provisions of SFAS 157 forintangible assets and long-lived assets measured for fair value for impairmentassessment under Statement 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets.*

 

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 159, *The Fair Value Option for Financial Assets andLiabilities — Including an Amendment of SFAS No. 115*(SFAS159). This standard permits an entity to choose to measure many financialinstruments and certain other items at fair value. Most of the provisions inSFAS No. 159 are elective; however, the amendment to SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities,*applies to all entities with available-for-sale andtrading securities. The fair value option established by SFAS 159 permits theCompany to choose to measure eligible items at fair value at specified electiondates. The Company will report unrealized gains and losses on items for whichthe fair value option has been elected in earnings at each subsequent reportingdate. The fair value option: (a) may be applied instrument by instrument,with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable(unless a new election date occurs); and (c) is applied only to entireinstruments and not to portions of instruments. In connection with the adoptionof this standard, the Company did not elect any additional financialinstruments to be recorded at fair value.

 

EffectiveDecember 31, 2008, the Company adopted the Emerging Issues Task Force (“EITF”) IssueNo. ****08-4:******Transition Guidance for Conforming Changes toIssue No. 98-5 (EITF 08-4)**, which was ratifiedby the consensus of the FASB in June 2008.  The objectiveof EITF 08-4 is to provide transition guidance for conforming changes madeto Issue No. 98-5 “Accounting for Convertible Securities with BeneficialConversion Features or Contingently Adjustable Conversion Ratios” that resultedfrom Issue No. 00-27, “Application of Issue No. 98-5 to CertainConvertible Instruments,” and FASB Statement No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity*. This transitionguidance is unique in that the current changes reflect matters that should havebeen addressed in the past, but were missed. Issue No. 08-4 concludes thatconforming changes made to Issue No. 98-5 that result from Issue No. 00-27and Statement No. 150 are effective for financial statements issued forfiscal  years ending after December 15, 2008. The effect of thesechanges is to be applied retrospectively with the cumulative effect of thechange being reported in retained earnings. If a company must make a change inits accounting to implement these changes, then the disclosure requirements inFAS 154 should be followed. The Company is currently evaluating the impact ofadoption of EITF 08-4.   The adoption of EITF 08-4 did notimpact the Company’s consolidated financial statements.

 

*Recently issued accounting pronouncements*

 

InMarch 2008, the Financial Accounting Standards Board issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities — an Amendment of Statement No. 133*(SFAS161). SFAS 161 enhances disclosure requirements about (a) how and why anentity uses derivative instruments, (b) how derivative instruments andrelated hedged items are accounted for under SFAS No. 133 and its relatedinterpretations, and (c) how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance and cashflows. This statement is effective for financial statements issued for fiscalyears and interim periods beginning after November 15, 2008, with earlyapplication encouraged. The Company is currently evaluating the impact ofadoption of SFAS 161.

 

InMay 2008, the FASB issued Staff Position (FSP) EITF 03-6-1, *Determining Whether Instruments Granted inShare-Based Payment Transactions are Participating Securities*. Thisstaff position addresses whether instruments granted in share-based paymenttransactions are participating securities prior to vesting and, therefore, needto be included in the allocation in computing earnings per share under thetwo-class method described in SFAS 128, *EarningsPer Share.*The FASB concluded that all outstanding unvested share-basedpayment awards that contain rights to nonforfeitable dividends participate inundistributed earnings with common shareholders. If awards are consideredparticipating securities, the Company is required to apply the two-class methodof computing basic and diluted earnings per share. FSP EITF 03-6-1 is 

 

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effectivefor fiscal years beginning after December 15, 2008 and interim periodswithin those fiscal years. Early adoption is prohibited. The Company iscurrently evaluating the impact of adoption of this guidance.

 

InNovember 2007, FASB issued EITF 07-1, “**Accounting for Collaborative Arrangements”**(“EITF 07-1”)**.”**  EITF 07-1 requires additionaldisclosures related to collaborative arrangements. EITF 07-1 is effective forfiscal years beginning after December 15, 2008.  The Company iscurrently assessing the impact the adoption of EITF 07-1 will have on the Company’sconsolidated financial statements.

 

InDecember 2007, the FASB issued SFAS No. 141 (Revised 2007), BusinessCombinations - Revised 2007. SFAS 141 R provides guidance on improving therelevance, representational faithfulness, and comparability of information thata 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’sconsolidated financial statements.

 

InDecember 2007, the FASB also issued SFAS No. 160, NoncontrollingInterests in Consolidated Financial Statements, which establishes accountingand reporting standards to improve the relevance, comparability, andtransparency of financial information in its consolidated financial statementsthat include an outstanding noncontrolling interest in one or moresubsidiaries. SFAS 160 is effective for fiscal years, and the interim periodswithin those fiscal years, beginning on or after December 15, 2008.Management of the Company does not expect the adoption of this pronouncement tohave a material impact on its consolidated financial statements.

 

InMay 2008, the FASB released SFAS No. 162, **“The Hierarchy of Generally AcceptedAccounting Principles.”**  SFAS No. 162 identifies thesources of accounting principles and the framework for selecting the principlesused in the preparation of financial statements of nongovernmental entitiesthat presented in conformity with generally accepted accounting principles inthe United States of America. SFAS No. 162 will be effective 60 daysfollowing the SEC’s approval of the PCAOB amendments to AU Section 411, **The Meaning ofPresent Fairly in Conformity With Generally Accepted Accounting Principles**. The Company does not believe SFAS 162 will have a significant impact on theCompany’s consolidated financial statements.

 

**Note 4 — Property and Equipment**

 

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

 
| ** **                         | ** ** | **Estimated  Useful  Lives** | ** ** | **2008**   | ** ** | **2007**  | ** ** |
|------------------------------------|------------|------------------------------|------------|------------|------------|-----------|------------|
| Research and development equipment |       | 3 to 5 years                 |       | $          | 1,203,053  |      | $          | 788,326 |   |
| Leasehold improvements             |       | 5 years                      |       | 210,086    |       | 210,086   |       |
| Computer equipment                 |       | 5 years                      |       | 97,740     |       | 97,740    |       |
| Office equipment                   |       | 3 to 5 years                 |       | 95,144     |       | 84,294    |       |
|                               |       |                         |       | 1,606,023  |       | 1,180,446 |       |
| Accumulated depreciation           |       |                         |       | (1,013,967 | )          | (725,338  | )          |
| Property and equipment, net        |       |                         |       | $          | 592,056    |      | $          | 455,108 |   |

 

Depreciation and amortization expense of property and equipment for theyears ended December 31, 2008 and 2007 and the period from inception (February 17,1998) through December 31, 2008 was $0.3 million, $0.3 million, and $1.1million, respectively.

 

**Note 5 — Patents**

 

Patents consists ofthe following at December 31, 2008 and 2007:

 
| ** **                    | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Patents                       |       | $        | 196,588    |     | $          | — |   |
| Less accumulated amortization |       | (11,335  | )          | —   |       |
| Patents, net                  |       | $        | 185,253    |     | $          | — |   |

 

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The patents have an estimated useful life through2022.  The patent amortization expensefor the years ended December 31, 2008 and 2007 was $11,335 and $0,respectively. Future amortization expense is expected to be as follows for December 31:

 
| 2009       |   | $       | 17,003  |   |
|------------|--------|---------|---------|--------|
| 2010       |   | 17,003  |    |
| 2011       |   | 17,003  |    |
| 2012       |   | 17,003  |    |
| 2013       |   | 17,003  |    |
| Thereafter |   | 100,238 |    |
|       |   | $       | 185,253 |   |

 

**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 cumulative net operatingloss for financial accounting purposes of approximately $37.4 million and$26.8 million at December 31, 2008 and 2007, respectively. TheCompany has a potential deferred tax asset of approximately $12.7 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 $3.6 million and $4.1 million for the years ended December 31,2008 and 2007, respectively.

 

The following table sets forth a reconciliation of the statutoryfederal income tax for the year ended December 31 (in thousands):

 
| ** **                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                      |       |     |       |     |       |
| Income tax expense (benefit) computed at  statutory rates |       | $        | 3,599      |     | $          | 3,944 |   |
| Increase in valuation allowance                           |       | (3,599   | )          | (4,149   | )          |
| Other                                                     |       | 0        |       | 205      |       |
| Tax provision for income taxes                            |       | $        | 0          |     | $          | 0 |   |

 

The Company’s deferred tax assets consist of the following (inthousands) as of December 31:

 
| ** **                       | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Deferred tax assets:             |       |     |       |     |       |
| Net operating loss carryforwards |       | $        | 12,728     |     | $          | 9,129 |   |
| Valuation allowance              |       | (12,728  | )          | (9,129   | )          |
| Net deferred tax assets          |       | $        | 0          |     | $          | 0 |   |

 

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.

 

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**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. Futureminimum lease commitments are as follows as of December 31, 2008:

 
| **Year Ending December 31** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2009                                       |       | $          | 206,000    |   |
| 2010                                       |       | 192,000    |       |
| 2011                                       |       | —     |       |
| 2012                                       |       | —     |       |
| 2013                                       |       | —     |       |
| Thereafter                                 |       | —     |       |
| Total                                      |       | $          | 398,000    |   |

 

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

 

Rent expense for 2008 and 2007 was $209,000 and$183,000, 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 and Chief Executive Officer, 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 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 accelerateand Mr. Killion would be entitled to a severance payment equal to his basesalary for six months, if Mr. Killion were terminated without “Cause,” orif Mr. Killion were to terminate his employment with Uni-Pixel for “GoodReason” (each of the terms as defined in the agreement).

 

Mr. Tassone,Chief Financial Officer, entered into an employment agreement dated April 15,2005, with an initial term ending December 31, 2008 and providing for 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 of Directors.If Mr. Tassone’s performance satisfies criteria to be established by theBoard of Directors, his target bonus will be a percentage of his annual salary.On September 13, 2007, the Board of Directors increased the basesalary of Mr. Tassone to $180,000 effective September 16, 2007 anddetermined 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).

 

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Asof December 31, 2008, there was a $125,000 bonus accrual for Mr. Killionand there was a $45,000 bonus accrual for Mr. Tassone included in thetotal $383,039 bonus accrual.  Theaccrual is for a potential bonus for all eligible employees and officers contingentupon achieving certain defined milestones within a specified timeframe.

 

**Note 8 -  Redeemable Preferred Stock, 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:

 

·                  EffectiveJanuary 15, 2007, we requested and Lusierna Asset Management, Ltd. (the “Consultant”)agreed to provide consulting and advisory services to us pursuant to and inaccordance with our request, including but not limited to, advice regardingcorporate structuring, the identification of potential candidates for our boardof directors and transaction structuring. In consideration of the consulting services, we agreed that at the timeof, and subject to, the closing of no less than gross proceeds of $12,000,000from the sale of the Company’s equity in a private placement, (the “**Offering Threshold Closing**”), theCompany (i) issued to the Consultant, simultaneously with the OfferingThreshold Closing, initial closing, a three year warrant to purchase 750,000shares (the “**Option Shares**”) of our commonstock, at an exercise price of $1.10 per Option Share, with a cashless exerciseprovision and no anti-dilution adjustment and (ii) paid to the Consultanta fee of $480,000.  The Company utilizedthe Black-Scholes methodology in determining the fair market value ofthe warrants of $217,007 and recorded the expense in the first quarter of2007.  The Consultants’ fee of $480,000was paid from the proceeds of the Purchase Agreement, described below, andexpensed in the first quarter of 2007.

 

·                  EffectiveFebruary 13, 2007 we entered into an Investor Relations Agreement withLusierna Asset Management, Ltd. (the “Consultant”) which provides that theAgreement will terminate on the date twelve (12) months from the CommencementDate, unless otherwise subject to earlier termination.  During the term of this Agreement, the Consultantshall provide public and investor relations services (collectively, the “**Services**”) to us, to result inimproved investor recognition of Uni-Pixel, Inc., a broader following byanalysts and institutions to include providing directly, or managing the deliveryof, a wide range of services, including, but not limited to:

 

·                  Proactivemarketing of the Company directly to security analysts, stockbrokers andportfolio managers and investors.

·                  Assistingthe Company in gaining media coverage both locally and nationally.

·                  Assistingin the preparation of press releases, including monitoring wire servicecoverage of the Company for accuracy and pickup.

·                  Preparingpresentations relating to the Company for meetings with analysts, registeredrepresentatives and portfolio managers, other large investors, and sponsoredforums.

·                  Assistingin preparing information kits about the Company in response to press and/orinvestor inquiries.

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

 

TheConsultant 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 anda three (3) year warrant (the “**Warrant**”)to purchase 300,000 shares of restricted Uni-Pixel, Inc. common stock atan exercise price of $1.10 per share, with a cashless exercise provision and noanti-dilution adjustment. The Warrant shall vest in twelve (12) monthlyinstallments on the tenth (10th) day of each month, commencing in the FirstPayment Month. The initial payment shall be for 75,000 shares, with theremaining 225,000 shares equally divided into the remaining eleven (11) installments.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the warrantsof $86,803 and this amount is expensed over 12 months.  By mutual agreement, the $10,000 monthlypayment ceased in October 2007.

 

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*Common Stock*

 

During the year ended December 31,2008, (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; (3) issued no shares of commonstock in connection with the conversion of Series B Preferred Stock andaccrued dividends; and (4) issued no shares of common stock in connectionwith the conversion of Series C Preferred Stock and accrued dividends.

 

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 inexchange for cashless exercise of warrants; (3) issued 6,545,445 shares ofcommon stock in connection with the conversion of 2,369,451 shares of Series APreferred Stock and accrued dividends and (4) issued 40,000 shares of commonstock for consulting services.

 

*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.

 

Duringthe year ended December 31, 2007, the Company did not issue any shares of Series APreferred Stock in lieu of cash for payment of accrued dividends on the Series APreferred Stock.  We paid $460,485 inPreferred Stock accrued dividends through the issuance of 262,846 common sharesduring 2007.

 

*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 of December 31,2008 and 2007, there were 3,200,000 shares of Series B Preferred Stockoutstanding, with cumulative unpaid dividends of approximately $1,804,274 or481,140 shares of Series B Preferred Stock and $844,274 or 255,140 sharesof Series B Preferred Stock, respectively.

 

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*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, 2008 and 2007, therewere 892,858 shares of Series C Preferred Stock outstanding, withcumulative unpaid dividends of approximately $1,006,028 or 89,824 shares of Series CPreferred Stock and $206,028 or 18,395 shares of Series C Preferred Stock,respectively.

 

*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 2007, a total of 1,667 stock options with anexercise price of $2.00 per share to one employee were forfeited.  In the second quarter of 2007, a total of10,000 stock options with an exercise price of $1.90 per share to one employeewere forfeited.  In the third quarter of2007, we granted a total of 350,000 options under the 2005 Stock Incentive Planto purchase our common stock with an exercise price of $1.45 per share to eightemployees.  These options vest monthlyover 36 months.

 

In the third quarter of 2008, 50,000 options to purchase our commonstock with an exercise price of $2.00 per share were retired.

 

*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.

 

In the first quarter of 2008, we granted a total of 600,000 options topurchase our common stock with an exercise price of $1.45 per share to threeemployees.  These options vest monthlyover 36 months.  In the second quarter of2008, we granted a total of 465,625 options to purchase our common stock withan exercise price of $1.45 per share to nine employees.

 

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Of these 465,625 options,425,625 vest monthly over 36 months and 1/3rd of the remaining 40,000 vest on each of thefirst, second and third year anniversaries of the date of grant.  In the third quarter of 2008, 48,889 optionsto purchase our common stock with an exercise price of $1.45 per share wereretired.   In the fourth quarter of 2008,we granted a total of 80,000 options to purchase our common stock with anexercise price of $1.45 per share to two employees.  These options vest monthly over 36months.   In the fourth quarter of 2008,157,222 options to purchase our common stock with an exercise price of $1.45 pershare were retired.

 

*Other Stock Options*

 

On May 23, 2006, we granted a total of 1,000,000 options topurchase our common stock with an exercise price of $1.75 per share to Mr. CarlYankowski, a member of the Company’s board of directors.  Of these 1,000,000 options, 250,000 vest onthe date Mr. Yankowski is appointed CEO of Uni-Pixel, an additional250,000 shall vest on the one year anniversary of the date Mr. Yankowskiis appointed CEO of Uni-Pixel and the remaining 500,000 shall vest monthly overa 24 month period beginning on the one year anniversary of the date Mr. Yankowskiis appointed 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.  The options have a ten year life from thedate of grant.

 

On September 5, 2006, the Board of Directors of Uni-Pixel reducedthe exercise price of 1,000,000 stock options issued to Mr. Yankowski,from an exercise price of $1.75 per share to an exercise price of $1.25 pershare.  This resulted in an additionalcompensation expense of approximately $104,000 to be recorded over theremaining 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.  All of these options vestupon the occurrence of any of the following events: (i) by no later than January 1,2010, upon the closing of the sale of substantially all of the assets ofUni-Pixel or the reorganization, consolidation, merger, dissolution orliquidation of Uni-Pixel; provided that the event results in the payment ordistribution of consideration valued in good faith by the Uni-Pixel Board ofDirectors at $15 per share (on a fully diluted basis) or more; (ii) by nolater than January 1, 2010, upon the closing of a tender offer or exchangeoffer to purchase 50% or more of the issued and outstanding shares of Uni-Pixelcommon stock at a price per share valued in good faith by the Uni-Pixel Boardof Directors at $15 per share (on a fully diluted basis) or more; or (iii) byno later than January 1, 2010, upon the common stock of Uni-Pixel, Inc.trading at $15 per share or more for 60 (or more) consecutive days and having adaily trading volume of 200,000 shares or more for 60 (or more) consecutivedays. If (i), (ii) or (iii), as detailed above, do not occur on or before January 1,2010, these options will be cancelled in full. If Mr. Yankowski does not become Chief Executive Officer ofUni-Pixel, Inc. by January 31, 2007, these options will be cancelledin full.  These options were cancelled onFebruary 1, 2007 as Mr. Yankowski did not become Chief ExecutiveOfficer 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, 2006have all vested due to the Company’s completion of an equity financing of $10million or more.  The Company utilizedthe Black-Scholes methodology in determining the fair market value ofthe options of $726,241 and this amount was expensed in the first quarterof 2007.

 

*Summary Stock Option and Warrant Information*

 

Information regarding the options and warrantsgranted in 2008 and 2007 is as follows:

 
| ** **                       | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|----------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                            | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Outstanding, beginning of year   |       | 4,712,500                                           |       | 3,661,667                                            |       | 13,846,468 |   | 2,742,900 |   |
| Granted                          |       | 1,145,625                                           |       | 2,062,500                                            |       | — |   | 11,103,568 |   |
| Exercised                        |       | —                                              |       | —                                               |       | — |   | — |   |
| Expired or cancelled             |       | 256,111                                             |       | 1,011,667                                            |       | — |   | — |   |
|                             |       |                                                |       |                                                 |       |   |   |   |   |
| Outstanding, end of year         |       | 5,602,014                                           |       | 4,712,500                                            |       | 13,846,468 |   | 13,846,468 |   |
|                             |       |                                                |       |                                                 |       |   |   |   |   |
| Exercisable, end of year         |       | 3,808,030                                           |       | 2,560,939                                            |       | 13,846,468 |   | 13,846,468 |   |
|                             |       |                                                |       |                                                 |       |   |   |   |   |
| Available for grant, end of year |       | 1,697,986                                           |       | 2,587,500                                            |       |   |   |   |   |

 

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The weighted average option and warrant exerciseprice information for 2008 and 2007 is as follows:

 
| ** **                           | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                            | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Outstanding, beginning of year       |       | $                                                   | 1.58       |                                                 | $          | 1.59 |   | $ | 1.28 |   | $ | 1.44 |   |
| Granted during the year              |       | $                                                   | 1.45       |                                                 | $          | 1.41 |   | $ | — |   | $ | 1.02 |   |
| Exercised during the year            |       | $                                                   | —     |                                                 | $          | — |   | $ | — |   | $ | — |   |
| Expired or cancelled during the year |       | $                                                   | 1.56       |                                                 | $          | 1.26 |   | $ | — |   | $ | — |   |
| Outstanding at end of year           |       | $                                                   | 1.56       |                                                 | $          | 1.58 |   | $ | 1.28 |   | $ | 1.28 |   |
| Exercisable at end of year           |       | $                                                   | 1.62       |                                                 | $          | 1.65 |   | $ | 1.28 |   | $ | 1.28 |   |

 

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

 
| ** **                                      | ** ** | **Year  ended  December 31,  2008** | ** ** | **Year  ended  December 31,  2007** | ** ** |
|-------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| Expected life (years)                           |       | 5 years                             |       | 5 years                             |       |
| Interest rate                                   |       | 0.42 to 3.27%                            |       | 4.52 to 5.10%                            |       |
| Dividend yield                                  |       | —                                   |       | —                                   |       |
| Volatility                                      |       | 108.47%                                  |       | 82.12%                                   |       |
| Forfeiture rate                                 |       | —                                   |       | —                                   |       |
| Weighted average fair value of options  granted |       | $1.45                                    |       | $1.41                                    |       |

 

AtDecember 31, 2008, there was $1.5 million of total unrecognizedcompensation cost related to non-vested stock option awards which is expectedto be recognized over a weighted-average period of 1.04 years.  There were 1,247,091 options that becamevested during the twelve months ended December 31, 2008.

 

Significant option and warrant groups outstanding atDecember 31, 2008, 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       |                         | 0.91       |   |
| January 10, 2005   |       | —                   |       | 168,750                   |       | 168,750         |       | $                             | 1.38       |                         | 1.00       |   |
| January 26, 2005   |       | —                   |       | 110,250                   |       | 110,250         |       | $                             | 1.38       |                         | 1.08       |   |
| March 5, 2005      |       | 600,000                  |       | —                    |       | 600,000         |       | $                             | 2.00       |                         | 6.17       |   |
| March 5, 2005      |       | 450,000                  |       | —                    |       | 450,000         |       | $                             | 2.00       |                         | 6.17       |   |
| April 19, 2005     |       | 550,000                  |       | —                    |       | 550,000         |       | $                             | 2.00       |                         | 6.33       |   |
| May 23, 2006       |       | 1,000,000                |       | —                    |       | 1,000,000       |       | $                             | 1.25       |                         | 7.58       |   |
| May 24, 2006       |       | —                   |       | 1,500,000                 |       | 1,500,000       |       | $                             | 1.25       |                         | 2.58       |   |
| September 12, 2006 |       | —                   |       | 194,400                   |       | 194,400         |       | $                             | 1.25       |                         | 2.67       |   |
| February 13, 2007  |       | —                   |       | 6,839,279                 |       | 6,839,279       |       | $                             | 1.24       |                         | 8.13       |   |
| February 13, 2007  |       | —                   |       | 1,050,000                 |       | 1,050,000       |       | $                             | 1.10       |                         | 1.13       |   |
| March 16, 2007     |       | 300,000                  |       | —                    |       | 179,167         |       | $                             | 1.19       |                         | 8.21       |   |
| September 13, 2007 |       | 1,610,139                |       | —                    |       | 723,229         |       | $                             | 1.45       |                         | 8.71       |   |
| September 28, 2007 |       | —                   |       | 3,214,289                 |       | 3,214,289       |       | $                             | 1.40       |                         | 8.75       |   |
| December 17, 2007  |       | 22,917                   |       | —                    |       | 22,917          |       | $                             | 1.45       |                         | 8.96       |   |
| January 7, 2008    |       | 500,000                  |       | —                    |       | 166,667         |       | $                             | 1.45       |                         | 9.02       |   |
| January 16, 2008   |       | 60,000                   |       | —                    |       | 19,167          |       | $                             | 1.45       |                         | 9.04       |   |
| April 18, 2008     |       | 275,625                  |       | —                    |       | 65,078          |       | $                             | 1.45       |                         | 9.30       |   |
| May 16, 2008       |       | 13,333                   |       | —                    |       | 5,416           |       | $                             | 1.45       |                         | 9.37       |   |
| May 20, 2008       |       | 100,000                  |       | —                    |       | 20,833          |       | $                             | 1.45       |                         | 9.38       |   |
| June 2, 2008       |       | 40,000                   |       | —                    |       | —          |       | $                             | 1.45       |                         | 9.42       |   |
| October 20, 2008   |       | 80,000                   |       | —                    |       | 5,556           |       | $                             | 1.45       |                         | 9.80       |   |
|                    |       |                     |       |                      |       |            |       |                          |       |                         |       |
| Total                   |       | 5,602,014                |       | 13,846,468                |       | 17,654,498      |       |                          |       |                         |       |

 

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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 and did not make any matchingemployer contribution to the 401(k) Plan in 2008 or 2007.

 

**Note 10 — Subsequent Events**

 

On January 30, 2009, the Companygranted a total of 575,000 options to purchase our common stock with an exerciseprice of $1.45 per share to twenty-three employees.   These options vest immediately as of January 31,2009 and expire on January 31, 2019.

 

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