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**UNITED STATESSECURITIES 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, 2009**                                                                                                                                        |
|                                                                                                                                                                                         |                                                                                                     |
| **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 Its Charter)

 

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

 

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

(Address of Principal Executive Offices)

 

**(281) 825-4500**

(Registrant’s Telephone Number, Including Area Code)

 

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

 

 

SecuritiesRegistered Pursuant to Section 12(g) of the Act:

 

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

(Title of Class)

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Exchange Act  Yes o No x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes o No x

 

Indicate by check markwhether registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files). Yes o No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

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

 

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

 

The aggregate marketvalue of the common stock held by non-affiliates of the registrant wasapproximately $9,303,214 on June 30, 2009, based on the last reportedsales price of the registrant’s common stock on the Over-the-Counter BulletinBoard on such date. All executive officers, directors and 10% or morebeneficial owners of the registrant’s common stock have been deemed, solely forthe purpose of the foregoing calculation, “affiliates” of the registrant.

 

As of February 28,2010, there were 52,100,535 shares of the registrant’s common stock, $0.001 parvalue, 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                                                                | 22     |
|     |                                                                                                                |   |
|     | PART II                                                                                                        |   |
| ITEM 5.  | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES | 22     |
| 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                                                                                              | 35     |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     | 37     |
| ITEM 13. | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          | 38     |
| ITEM 14. | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             | 39     |
|     |                                                                                                                |   |
|     | PART IV                                                                                                        |   |
| ITEM 15. | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                                            | 40     |
|     |                                                                                                                |   |
|     | SIGNATURES                                                                                                          | 43     |

 

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**PART I**

 

**ITEM 1.  BUSINESS**

 

***Cautionary Note About Forward-Looking Statements***

 

*Certainmatters discussed herein may constitute forward-looking statements and as suchmay involve risks and uncertainties.  In this Annual Report on Form 10-K,the words “anticipates,” “believes,” “expects,” “intends,” “future” and similarexpressions identify certain forward-looking statements.  Theseforward-looking statements relate to, among other things, expectations of thebusiness environment in which we operate, projections of future performance,perceived opportunities in the market and statements regarding our mission andvision.  Our actual results, performance, or achievements may differsignificantly from the results, performance or achievements expressed orimplied in such forward-looking statements.  For discussion of thefactors that might cause such a difference, see Item 7. “Management’sDiscussion and Analysis of Financial Condition and Results of Operation.”  Weundertake no obligation to update or revise such forward-lookingstatements.  We urge readers to review carefully the risk factorsdescribed in this Annual Report found in Item 1A. and the other documents thatwe file with the Securities and Exchange Commission (“SEC”). These documentscan be read at www.sec.gov.*

 

**OVERVIEW**

 

Uni-Pixel, Inc.is a development stage company that has patented a next generation colordisplay technology it calls Time Multiplexed Optical Shutter (“TMOS”). TheCompany believes it is the leader in the research, development and futurecommercialization of new flat panel displays using TMOS architecture andtechniques 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.

 

TMOS is a displaysystem that uses Field Sequential Color (FSC) as the means to generate imagesand the full color spectrum.   UniPixel’sresearch into TMOS has generated a wealth of knowledge in systems andtechnology that leverage this unique approach. This has yielded Intellectual Property and know-how that are bothdirectly applicable to other systems including LCD display panels that similarlyuse FSC.  In the past, LCD systems havefaced limitations that prevented effective implementation of FSC.  UniPixel believes that its advances andtechnology can overcome these hurdles and allow LCD to leverage FSC and TMOSsub-system developments as an interim step to the introduction of TMOS in thefuture.

 

TMOS is also apolymer thin film based Micro-Electronic Mechanical System (MEMS) displayarchitecture. UniPixel’s research into TMOS has further generated a wealth ofknowledge in thin films and the creation of precision geometric micro-structureson the surface of these films.  Theunique developments in MEMS and the mastering of supporting micro-structuraltechnology that leverage the unique structures and their production has alsoyielded Intellectual Property and know-how that is broadly applicable to otherapplications including a number of applications for LCD display based devices.

 

We expect theadvantages in reduced manufacturing costs, enhanced viewing quality, uniquedesign attributes, and improved performance of the TMOS display architectureand TMOS derived FSC sub-systems over current non-FSC Flat Panel Displayalternatives to motivate partners to engage us in development,commercialization, or incorporation of FSC-LCD and TMOS sub-components anddisplays in their products.  Thesepartners should collectively serve to create supply and to drive demand forFSC-LCD and TMOS-based products based on licensable Intellectual Property fromUniPixel.

 

Uni-Pixel’stechnology leadership and intellectual property position is expected to enableit to generate revenues from its various technologies in two phases.  For technologies that are licensed, theinitial phase is expected to generate revenue from partners through fundeddevelopment efforts, and/or up-front licensing fees. The second phase isexpected to include royalties from licensees that produce FSC-LCD or TMOSpanels or incorporate them into applications for automotive, active signage,and medical and consumer electronics (i.e., TVs, monitors, personal computers,cameras, games, etc.).  For technologiesthat will be produced and supplied, specifically the Company’s OpcuityPerformance Engineered films, the Company expects to generate revenuesinitially from joint development 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.

 

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Through itsresearch and development efforts, the Company has established a portfolio ofTMOS, FSC-LCD and Opcuity film related know-how, patents, patent applicationsand other intellectual property rights. Uni-Pixel currently has 38 issued, 1allowed and 44 pending patent applications worldwide providing a strongfoundation that will support:

 

·                  Further developing proprietary FSC-LCDand TMOS technology;

·                  Entering into joint developmentefforts  in specific vertical market orproduction arrangements 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’s workdeveloping its TMOS display technology has created a core competency in thedevelopment and production of performance engineered thin films. The first ofthese 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.

 

Beyond TMOS,Uni-Pixel’s performance engineered film designs include finger print resistantprotective film covers for touch screen display devices and other performanceenhancement films.  Uni-Pixel expectsthat its finger print resistant (FPR) film, “Opcuity FPR”, will be its firstproduct to enter the market.  The basisfor the unique aspects of the FPR product is the use of precision geometricmicro-structures to make the film functional. UniPixel has developed the capability to create structures in sizesbetween two and ten microns with precision edges and surfaces that have notbeen accomplished in the industry previously. This unique capability became the basis for the FPR discovery andrecognition of several other functional uses of a micro-structured surface on athin film.

 

Uni-Pixel willcontinue to pursue development of its other performance engineered film designsto follow that can leverage the micro-structuring capability and surface energymodification techniques.  In pursuingthese film designs, each advancing version employs common elements and buildsin further unique capabilities 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 31,2009 we have been primarily engaged in research and development efforts thathave expanded our portfolio of intellectual property, building prototypedevices that demonstrate our technologies, recruiting key personnel, engagingvarious strategic partners, and raising capital consistent with ourstrategy.  As of December 31, 2009we had accumulated a total deficit of $49.9 million and expect similar lossesto continue through at least 2010. We will finance our continuing efforts andoperations primarily through our existing cash, licensing fees being pursuedfrom strategic partners and additional fundraising activities.

 

During 2009, Uni-Pixelaccomplished a number of milestones in both its technical and businessadvancement.  This included thecompletion of agreements for TMOS development, the completion of developmentagreements for unique versions of our finger print resistant films, thesuccessful development of conductor patterning processes that have beenrecognized as leading edge by the industry, completing a supply agreement withour first distribution partner, advancing subsystem designs for testing withinprototype devices, completion of MOU’s and production agreements withmanufacturing partners, and demonstration of prototype systems and films.

 

**FormationHistory**

 

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

 

On June 13,2001, Real-Estateforlease.com, Inc., a Delaware corporation, merged withand into NEV Acquisition Corp.  Followingthe merger, NEV Acquisition Corp. changed its name to Real-Estateforlease.com, Inc.  Real-

 

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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.

 

Pursuant to theAgreement and Plan of Merger between NEV Acquisition Corp. andReal-Estateforlease.com, Inc., the sole stockholder and founder ofReal-Estateforlease.com, Inc. exchanged his equity ownership interest inReal-Estateforlease.com, Inc. for 9,500,000 shares (or approximately 96%)of NEV Acquisition Corp.’s common stock. At the time of the merger betweenReal-Estateforlease.com, Inc. and NEV Acquisition Corp.,Real-Estateforlease.com, Inc. had no operations and essentially no assets.Efforts by Real-Estateforlease.com, Inc. to implement its business planceased in June 2002.

 

Our wholly ownedsubsidiary, Uni-Pixel Displays, Inc. was originally incorporated as TralasTechnologies, Inc., a Texas corporation, on February 17, 1998. TralasTechnologies, Inc. changed its name to Uni-Pixel Displays, Inc.during 2001. On December 7, 2004, Real-Estateforlease.com, Inc.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. At the time ofthis merger, Real-Estateforlease.com, Inc. had no operations and nomaterial assets or liabilities.  Pursuantto the merger, we changed our name from Real-Estateforlease.com, Inc. toUni-Pixel, Inc. at the annual meeting of our stockholders held in January 2005.

 

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

 

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

 

**INDUSTRYOVERVIEW**

 

***The Flat Panel Display Market***

 

**History**

 

The commercialization ofthe liquid crystal display (LCD) began in 1973, with the launch of the world’sfirst electronic calculator, incorporating a segmented, black-and-white(monochrome) display.  The technology wasquickly adopted in applications such as watches, and evolved into more complexdot matrix displays using passive addressing — or passive matrix (PM) — systems.  In time, the emergence of passive SuperTwisted Nematic (STN) PM-LCDs and the development of color STN (CSTN) PM-LCDs,facilitated new applications such as notebook PCs.  Eventually, the demand for higher resolution,full-color video images and faster refresh rates, saw the commercialization ofactive matrix (AM) amorphous, (a-Si) Thin-Film-Transistor (TFT) LCDs.  This technology quickly gained acceptance inthe notebook PC market, where it completely replaced the incumbent CSTNtechnology.  Similarly, there has beenrapid, supply driven penetration of TFT-LCDs in all forms of displayapplications specifically as demonstrated in desktop monitors and large flatpanel TVs as a substitute for the traditional cathode ray tube (CRT) screen.

 

**Replacementof Older CRT Technology by FPDs**

 

Although flat paneldisplays (FPDs) were initially adopted in the mobile consumer electronicsmarket and in notebook computers, they have increasingly displaced cathode raytube (CRT) displays in larger product applications such as desktop computermonitors and televisions. FPD’s unique form factor and digital interface isenabling the delivery and accurate display of video, telecommunications,information, data, analysis and instructions in both mobile and fixedenvironments previously unsuitable to CRTs. In today’s market, the CRT is no longer a viable technology for anyconsumer based application and has all but disappeared from the market.

 

**Proliferationof Mobile Consumer Electronics Devices**

 

Consumers throughout theworld are rapidly adopting mobile consumer electronics devices such as mobilephones, personal digital assistants, or PDAs, MP3 players, portable DVDplayers, mobile gaming devices and digital cameras and camcorders. Advances incomponent technology are driving down the cost of these products and expandingtheir functionality. Early mobile devices were equipped with simple, smallmonochrome displays with limited functionality. As the cost of color displaysdecreased and quality improved, consumers began rapidly adopting mobile deviceswith color displays. 

 

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This trend towardsgreater display functionality in mobile devices continues with the introductionof new phones with dual displays, embedded cameras and television tuner videofunctionality.

 

The overall FPD industryis continuing to experience significant growth. In addition to the rapid replacement of CRT applications such asmonitors and TVs, the FPD industry growth is being driven by a number of othermarket forces including:

 

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

·                  Steady growth in usage of notebook andnewer “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 LCDfabrication plants are increasing production.

 

These factors incombination with additional market forces are driving overall growth andshifting the mix of product applications within the FPD industry.

 

**Applications**

 

With the proliferation ofthe Internet, there has not only been an explosion in the amount of availablecontent, but a rapid evolution of the form in which it appears.  No longer is information a two-dimensional,text-only experience; online content is now being delivered in graphic rich,animated and video formats.  As thesophistication of the user base continues to heighten and bandwidth continuesto increase, there will be a demand for a superior, high resolution visualexperiences that only FPDs will be able to deliver — particularly in mobilewireless devices.  Flowing from this, newtypes of applications and functionality will evolve that, in turn, will enhanceexisting markets and create new ones.

 

Industry drivers such asnew content explosion, high resolution capability, increased bandwidth andimproved manufacturing efficiencies are driving new functionality in existingapplications, as well as enabling the creation of new application markets thatwill drive the FPD industry through high volumes.

 

With the emergence of newtechnologies such as MP3 Players, TV Tuners and Bluetooth, new functionality inexisting applications will should fuel demand growth in what have becomerelatively mature markets.  For instance,while the mobile phone market has seen relatively slow growth rates, a largepool of sophisticated users now exists who are providing the demand for newtechnologies 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.

 

The FPD market iscurrently dominated by LCDs, which accounted for well over 90% of total FPDsales in 2008, and demand is increasing across multiple applications with FPDformats generating industry-wide momentum.

 

**Films in Displays**

 

Glass and plastics arethe principal materials being used as first surfaces for display systems.  As displays are incorporated into devicesthat are used extensively and transportably on daily basis, the displays aresubject to damage and the effects of use. A large and growing business has developed in films that are designed toprovide protection and other functional uses on top of the displaysurface.  UniPixel has found that thetechnologies that it has developed can be applied to a variety of functionaluses in films for display products.  ItsOpcuity FPR product can protect a touch screen device from damage while alsopreventing fingerprints and smudges from obscuring the viewing experience.  Incorporating patterned conductors into thefilm also offers unique functional uses to the film as material for touchscreen control.  Engineering thestructures to specific patterns and distributions can control light output andreflectance.  UniPixel’s Opcuityperformance engineered films have demonstrated that they can be applied tosolutions for all of these aspects.

 

**TECHNOLOGY**

 

**Overview**: Uni-Pixel has developed a new colordisplay technology it calls Time Multiplexed Optical Shutter (“TMOS”). A TMOSdisplay is constructed by the addition of a single thin film layer positionedabove the planar surface of a light guide constructed of glass or apolycarbonate substrate.  Thispositioning and bonding of the thin film forms a drum type 

 

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of structure at eachindividual pixel.  The drum structureplaces two conductors parallel to each other with a dielectric air gapseparation.  The light guide’s conductorat each pixel is either driven by local transistors (in the form of Thin FilmTransistors, TFTs) or through connection to transistors that are off the lightguide. The thin film layer comprising the drum head is targeted to be composedof a base substrate layer of polyester film, or PET film, the addition ofsurface micro-optic features, and a conductor.

 

The implementation of thethin film layer of material creates a matrix of optical shutters on the surfacethat are opened or closed as controlled by the TFTs.  This opening and closing process is theoscillation 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.

 

**ReducedComplexity**: Incontrast to standard LCD, an FSC-LCD or TMOS single pixel shutter emits thethree primary colors (red, green, and blue) without the use of three separatesub-pixels. This color generation technique is called Field SequentialColor.  Because FSC-LCD and TMOS displayshave one-third the number of features for the same number of pixels, theybenefit from reduced manufacturing complexity.

 

LCD complexity is largelydriven through its use of TFTs. Currently LCD displays require each individualsub-pixel to be driven by a single TFT, (three TFTs per each pixel) which increasesthe necessity of additional electrical traces from the control mechanism.  Therefore a reduction in the number offeatures by elimination of sub-pixels reduces complexity.  This is also the case when Field SequentialColor is leveraged in an LCD system.

 

Additionally, a TMOSpanel features a single TFT per pixel which will control the voltagedifferential between the parallel conductive planes created by the capacitorstructure/optical shutter (also known as the pixel). This architectureadvancement radically improves manufacturing tolerances and reduces the numbersof steps in the manufacturing process.

 

Uni-Pixel’s FSC-LCD andTMOS technology both offer significant advantages over existing standard LCDflat panel display technologies including:

 

·                  Proprietary technologies and know-howprotected by Uni-Pixel’s patent portfolio;

·                  Significantly lower manufacturing costswhen compared to standard LCD technologies;

·                  Significantly better power efficiencyover existing technologies (i.e., resulting in longer battery life);

·                  Picture quality that is daylight readablein portable devices (i.e., cell phones, PDAs, and notebook computers);

·                  Increased durability and reliability; and

·                  Ability to be manufactured in a widerange of sizes spanning from cell phone screens to television displays.

 

Uni-Pixel’s advantages inits FSC LCD and TMOS technology over standard LCD are derived from the relativereduction of the complexity of the architecture and material make up. Thisadvantage will translate into a more economical manufacturing process requiringlower costs for production and lower costs for raw materials.

 

Currently, standard LCDpanel displays can take over 100 individual steps in the manufacturing process.This process is necessary to yield intricately developed, small and tightlypacked features. However, these manufacturing processes are difficult to manageand are prone to defects.  A reduction infeature density and removal of the color filter process can significantlyimpact these areas.

 

Uni-Pixel anticipatesthat the FSC-LCD and TMOS manufacturing processes will have fewer steps.  Benefiting from larger features and lesstightly packed construction, the manufacturing process will have significantlyfewer yield detractors or failure elements, and an enhanced potential forlonger life and resilience over standard LCD panels.

 

**LightEfficiency**: LCDdisplay technologies function by emitting light from a back plane (a backlight) and then screening, masking, polarizing, and filtering the light untilit is emitted from the front of the panel in the appropriate color intensity.This method yields a maximum efficiency of light transmission of around 5%.This means that if 1000 nits (a measure of brightness) are created by thebacklight, approximately 50 nits are displayed out the front of the display.

 

An FSC-LCD panel removesthe color filter from the material stack of a standard LCD panel and opens theindividual pixel aperture significantly. One FSC-LCD pixel is the equivalent area of all three sub-pixels in astandard LCD pixel.  By removing thecolor filter and leveraging greater aperture, up to 20% of the light can betransmitted from the 

 

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backlight doubling theefficiency of transmission.  Thisapproach thus yields up to four times the transmission or 200 nits of 1000created by the backlight.

 

A TMOS panel uses lightinjected into the edge of the glass panel much the same way a fiber optic cableworks. Light is injected into one edge of the TMOS panel, with mirrors on theother three opposing sides/edges. Light goes into the guide and travelsuninhibited bouncing throughout the plane creating a “photon cloud”. TMOSoptical shutters then open and close on the surface of the panel to let thelight escape. The ratio of light injected into the panel to light released fromthe surface is tunable. Uni-Pixel’s modeling and experimentation has shown thata panel tuned to 61% efficiency provides the most uniform release of lightacross the entire display surface. Therefore if one were to inject 1000 nits oflight into a TMOS display panel, at a tuned 61% efficiency, 610 nits will bedisplayed out of the front of the display panel.

 

**PowerEfficiency**:Plasma display technology functions by using high voltage electricity to exciteencapsulated gases that emit electrons. These electrons excite phosphors thatemit photons, which are the light elements that are seen by the viewer. Thisprocess of continued materials excitement requires significant amounts ofenergy that is converted to photonic light.

 

LCD technology uses ahigh power backlight system to create a flat uniform backplane of light thattransmits through the LCD panel. Therefore LCD power efficiency is directly tied to the amount of lightthat can transmit through the panel itself to the viewer.  Since the backlight is always on during use,an LCD’s power use is relatively stable and its efficiency is tied to the transmissivityof the panel.  This is why an FSC-LCDsystem is so much more power efficient than standard LCD as it increases paneltransmission of light through by up to four times.

 

TMOS technology uses aseries of industry standard light emitting diodes, or LEDs, attached to oneedge of the panel to inject light into the system. LEDs require very littlepower to create light and have a very high efficiency in converting power tolight. Therefore, very little power translates into a very high light output forUni-Pixel’s TMOS displays.

 

**SuccessfulPrototypes**:Uni-Pixel has built prototypes that have demonstrated proof of concept,technical viability, and the operation of the sub-systems within its TMOStechnology. During 2008, the Company debuted fully functional TMOS displayprototypes at the Society for Informational Display (SID) conference in LosAngeles.  The Company’s currentprototyping efforts have been focused on the process of optimizing thematerials and assembly of the display to advance to manufacturability and thenon to commercialization. In February of 2009, UniPixel and Samsung enteredinto a joint development agreement to advance TMOS technology and prototypes.

 

**TechnologyProgress**: Inearly 2004, Uni-Pixel delivered its first proof of concept prototype deviceunder a development contract.  In mid2004, Uni-Pixel was awarded a Phase II SBIR contract by the US Air force toadvance its designs as modeled during its Phase I contract in an effort tosolve image break-up issues traditionally encountered in Field Sequential Colordisplay systems.  In December 2004,Uni-Pixel closed its first significant funding round and began work on openingits own development laboratories including metrology capabilities.  These efforts continued into 2005 and resultedin the first recognition of the viability of our TMOS invention by externalpartners and the first opportunity for Uni-Pixel to materially implement itsdisplay architecture design.

 

In 2005, Uni-Pixel builtits development platform capability, advanced its display prototypes, andsigned its first development partner and commercialization agreements.  During early 2005, Uni-Pixel advanced itsdevelopment efforts through its small advanced materials laboratory in Albuquerque,New Mexico, which was adjacent to Sandia National Laboratory.  In July of 2005, Uni-Pixel moved intonew facilities including electronics labs, clean room space, and machiningsystems in The Woodlands, Texas.  Duringthe course of this time, the initial 8x8 pixel prototypes were significantlyimproved and advanced in their operation, optical system models were built,electronic control designs completed and implemented, and the prototypes werescaled up to a fully operational, full color, 32x32 pixel device.  Uni-Pixel has successfully constructed andtested the sub-systems in the display architecture and is in position toadvance the display materials and the assembly techniques.

 

Through 2006, Uni-Pixelcontinued its research and development efforts within varying displayprototypes that expanded both the size of the panels and the pixel counts,demonstrated multiple pixel pitches in prototypes, and completed the design andimplementation of the micro-optics that will optimize the optical performanceof the TMOS pixels.  These effortsresulted in designs for the final materials implementation of the architecturethat 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.

 

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

 

In May of 2008,Uni-Pixel demonstrated its first 128x160 prototype devices at the Society forInformational Display (SID) Industry conference in Los Angeles, CA.  Uni-Pixel progressed through the remainder ofthe year improving the performance characteristics of each new prototype systembuilt.  Uni-Pixel further investigatedvarious factors effecting performance that have been demonstrated in itsprototypes and engaged efforts and partners in addressing and improving onthese factors.  In early 2008, anunexpected by-product of Uni-Pixel’s TMOS development efforts yielded adiscovery 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.

 

In February of 2009,Uni-Pixel aligned itself with several development and production partners thathave assisted in the application of TMOS developed technology to FSC-LCDimplementations and thus advancing TMOS towards commercialization.  The Company reached an initial agreement withSamsung and believes that it will reach further agreements that will generateits first meaningful revenues which will help to augment the development workinvestments it has made and will make and move the Company forward in itscommercialization strategy for FSC-LCD systems and TMOS basedtechnologies.  Additionally, the Companyentered an agreement with Targus, Inc. to market its first film product,Opcuity FPR.

 

**STRATEGY**

 

Uni-Pixel’s businessstrategy is to penetrate existing display applications with its TMOS developedtechnologies including FSC-LCD systems and thin film products and supportingtechnology for widespread use in all varieties of color displays and otherrelated display applications. This has been demonstrated by our progress inpenetrating 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 StrategicRelationships. **Uni-Pixel plans to target strategicpartners to further the Company’s efforts in the development andcommercialization of FSC-LCD and TMOS displays and Opcuity films. Uni-Pixelbelieves that if these efforts are successful, they could result in FSC-LCDflat panel displays reaching commercial markets in products within twoyears.  Uni-Pixel’s display solutionsleverage the application of existing materials and optical technologies in newways that have previously been mastered by other companies in otherapplications.  Uni-Pixel’s managementunderstands that gaining the assistance of some of these various technologyleaders in the deployment of FSC-LCD and TMOS is required to support thecommercialization effort.  As a result,Uni-Pixel will seek to build relationships that will allow it to leverageexisting knowledge, scale, infrastructure, manufacturing and expertise in thinfilms, optics, control circuitry, assembly, and logistics.

 

·                  **Enhance the Company’sExisting TMOS and Opcuity film Technology.** Uni-Pixelbelieves that continuing development and enhancement of its TMOS technology iscritical to the Company’s success in the display industry. Consequently,Uni-Pixel will continually seek to enhance its competitive technology positionthrough internal development efforts that expand our intellectual propertyportfolio, collaborative relationships, and other strategic opportunities.Uni-Pixel’s primary focus is to expand our intellectual property throughdevelopment of additional prototypes and materials that enhance and extend theCompany’s product capabilities or the processes by which the systems areproduced, thereby allowing them to be used in a broader array of displayapplications and to maintain performance and market leadership over time.

 

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·                  **Develop PrototypesSuitable for Industry Demonstration. **Uni-Pixel plans to produce prototypesthat will demonstrate the Company’s ability to meet the most demanding militaryrequirements with a superior performing display system and superior performingfilm products.**** Uni-Pixel has developed partners that providea small volume pilot production line that provides limited quantities of filmsto meet demonstrate our production solutions for all applications.

 

·                  **Finalize a Transferable,Licensable Manufacturing Process.** Uni-Pixel hascompleted the development of the core and foundation of its film manufacturingprocesses and has endeavored to protect the know-how and intellectual propertyin the developed processes.  The Companyhas establishes a technology transfer team to enable the transition of theCompany’s manufacturing processes to targeted manufacturing partners andlicensees.

 

·                  **Target LeadingManufacturers.** Uni-Pixel plans to target leading display, materialsand electronics manufacturers as potential partners and/or licensees of itsTMOS and Opcuity Performance Engineered film technologies. The Company willprovide extensive technical assistance and support to manufacturers who areearly evaluators, developers, or users of its TMOS technology and filmmaterials. Uni-Pixel believes that successful incorporation of its technologyinto the first military or commercial applications will place competitivepressure on other industry participants to adopt our technology solutions.Uni-Pixel will support “pull through” of its technologies by actively marketingits advantages to end product original equipment manufacturers (OEMs) that incorporate display or filmtechnology into their devices.  This willallow Uni-Pixel’s production partners to gain access to the original equipmentmanufacturer supply chain driven by end OEMs seeking the competitive productadvantages offered by the Company’s FSC-LCD, TMOS, and Opcuty filmtechnologies.  Uni-Pixel will also targetOriginal Design Manufacturers (ODMs) targeted to assemble its sub-componentsand films into OEM products.

 

·                  **Drive Adoption byEnd-Product Original Equipment Manufacturers.** Uni-Pixel plansto use prototype devices and films to demonstrate its technology to originalequipment and design manufacturers that produce end user products. The Companybelieves that the significant advantages that Uni-Pixel’s displays and filmswill offer in performance and protection can position it to be the standard forexisting LCD based displays and will induce original equipment manufacturers torequest UniPixel solutions from their existing display suppliers. This isconsidered a “pull-through” approach to gaining market acceptance and entry ofFSC-LCD, TMOS, and Opcuity films for displays into end-user products andapplications.

 

·                  **Build the Company’sRevenue 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’s haspreviously contemplated TMOS initiatives include applications involvingflexible displays, transparent displays and unique military applications whichare conceptually possible. Uni-Pixel also plans to conduct research on the useof a variety of different thin-film technology in surface modificationapplications and the construction of multi-layer stacks where micro-structurescan play unique functional roles. The Company’s focus on next-generationtechnologies is designed to extend Uni-Pixel’s position as the leading providerof FSC-LCD, TMOS solutions and Opcuity Performance Engineered Films as newmarkets and applications emerge.

 

**MILESTONES TO COMMERCIALIZATION**

 

Uni-Pixel will continueto focus on technical and business development milestones. The execution of itsoverall business plan includes a planned push (targeting panel manufacturers)and pull (targeting end device OEMs) strategy for accelerating productdevelopment, supporting market entry, and the expansion of productioncapability and capacity.  Over the courseof the last two years, Uni-Pixel has pursued a technical development roadmapspecific to TMOS and FSC-LCD technology that includes:

 

·                  Finalization of display pixel mechanics and materials;

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

 

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·                  Completion of supporting drive control circuitry;

·                  Finalized bonding techniques for completion of theactive layer structure;

·                  Assembly and testing of multiple format prototypedevices; and

·                  Finalization of specifications for retrofittingexisting LCD manufacturing plants for FSC-LCD and TMOS production.

 

Specific to OpcuityPerformance Engineered films we have pursued:

·                  Completion of designs for marketableproducts

·                  Completion of production processes that aretransferable

·                  Completion of Distribution and SalesAgreements

·                  Completion of Supply and ManufacturingAgreements

 

Uni-Pixel’s seniormanagement team will work with various targeted strategic partners in each stepof the process to provide certain market and technical support resources.  Uni-Pixel has established the leverage ofaccess to partner pilot lines in launching and growing a continuous flowmanufacturing system.  This pilot linehas been the initial platform for the finalization of the specifications to beincluded in the continuous flow manufacturing system.

 

**CUSTOMERS AND PARTNERS**

 

The future customers forthe TMOS panel “packages” will be the OEMs that currently use existing displaytechnologies such as LCD, Plasma, and OLED in their final products.  Therefore, the end customer for a Uni-PixelTMOS panel package will be an integrator, assembler, ODM or the OEMitself.  Initially, Uni-Pixel’s strategicpartners will be its primary customers through the commercializationprocess.  This will include itsdevelopment partners such as Lockheed Martin, its manufacturing partners, andits other vertical market partners.

 

Uni-Pixel expects that itwill pursue discussions with a variety of potential assembly and manufacturingpartners 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 leverage theseOEM 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.

 

The Company’s futureOpcuity Performance Engineered Films customers should include a variety ofcompanies 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.

 

Current Partners

 

·                  *Targus, Inc.:*Uni-Pixel engaged Targus, Inc. as anexclusive distribution partner for its Opcutiy FPR product for certain targetdevice markets.

 

·                  *Avery Dennision*: UniPixel engaged Avery Dennison as anexclusive production partner for specific varieties of its Opcuity FPR filmproducts.  Avery provides assistance inthe development and manufacturing of its thin film designs.  Implementation of the Opcutiy performanceengineered films can be accomplished using a variety of materials that canachieve the required properties’ and characteristics.  No new or unique materials will be required,rather just the optimization of existing materials as implemented within theAvery process and system.  InitiallyUni-Pixel engaged for development work with the objective of reaching aproduction agreement or joint venture with one or more thin filmmanufacturers.  During the course of2009, Uni-Pixel secured a subcontracted manufacturing capacity for its initialthin film production and also signed two separate Memorandums of Understandingwith production partners to provide alternative manufacturing capacity.

 

·                  *FlexTech Alliance*: UniPixel secured a grant contract fromthe FlexTech Alliance to bring its uniquely developed conductor patterningtechnology to the industry.  Developedfor TMOS, UniPixel has demonstrated its technique to support the production ofprinted flexible circuitry and printed electronics.  The FlexTech has provided a grant of funds totransition this capability to the Center for Advanced MicroelectronicManufacturing in New York state.

 

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Targeted Partners

 

·                  *Drive Control Circuitry:*Uni-Pixel is seeking partners forassistance in the development and manufacturing of its unique drive controlcircuitry.  Uni-Pixel has developedunique intellectual property that will be implemented through a “fab-less”semiconductor model.  This may includepotential development of new intellectual property, cross licensing, and theuse of certain existing semiconductor capabilities from one or more partners.  Uni-Pixel has developed a means to use offthe shelf parts for certain drive control requirements that will allow it toproduce prototypes in the short term, as well as leveraging the enhancementsthat its own unique drive control provides over the longer term.

 

·                  *Manufacturing andAssembly Partners:*****Uni-Pixel is seeking strategic partners that arecurrently manufacturing  LCD displaytechnologies or incorporating LCD display technologies into end user products.

 

Target Customers

 

·                  *Large Computer OEM andODM:*****Uni-Pixelhas demonstrated unique proof of concept prototype devices and film products tolarge computer system OEMs under non-disclosure agreements to advance theevaluation of the technologies.  Theinitial prototypes established the first products for testing and evaluationand performance characterization for gathering direct performancefeedback.  Additional work continuesspecific to advancing the prototypes to implementation within an end userproduct.

 

·                  *Static and ActiveSignage OEM:*Uni-Pixel is seeking potential partners in the vertical market of GraphicSignage.  Two dominant technologies existin this vertical market, plasma displays for indoor applications and LEDdisplays for outdoor applications. Uni-Pixel’s technology offers unique and new capabilities that stronglydifferentiate it from both of these, and can potentially open a market notcurrently able to be targeted by either. In the Static Signage Market, UniPixel believes that its TMOS displaysystem principals as demonstrated by its Opcuity performance engineered filmsmounted in either a dynamic or static manner can provide low power highperformance signage solutions.  Thisapproach has been presented to targeted partners and is under consideration.

 

·                  *Consumer Electronics Manufacturers(OEMs*): Uni-Pixelhas held initial exploratory meetings with a variety of consumer electronicsOEMs that have all expressed a desire to leverage FSC-LCD, TMOS, and OpcuityFPR films for their unique attributes in their products.  This includes cell phone manufacturers, acomputer OEM, 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.

 

**SALES AND MARKETING**

 

Uni-Pixel is seeking enduser product OEMs that desire to integrate FSC-LCD flat panels, or TMOSdeveloped sub-systems into their products once available and demonstratingtheir superior performance.  Uni-Pixelbelieves that some portion of the OEMs that have been engaged in thesediscussions will be interested in pursuing the advantages of FSC-LCD and TMOSflat panels as a significant differentiator for their products relative totheir competition in their individual market segments over time.   Uni-Pixel believes that the proven entryinto a single vertical market or application will drive the demand for expandedapplications of FSC-LCD and thenTMOS flat panels to other product markets.

 

Uni-Pixel’s salesstrategy intends to build a diverse revenue base that will derive revenues frommultiple sources:

 

·                  Licensing revenues — Strategicmanufacturing partners that license Uni-Pixel manufacturing processes for amanufacturing operation, cross licensed partners that produce portions of thematerials or technology incorporated into FSC-LCD or TMOS subsystems ordisplays, and a silicon foundry partner that produces the display controllersemiconductors.

·                  Product revenues — Proceeds from thesales of Opcuity performance engineered film products.

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

·                  Research contracts — Integrators that areseeking to leverage unique attributes that FSC-LCD, TMOS, or unique Opcuityperformance engineered films can potentially provide.  Uni-Pixel expects that initially the USGovernment 

 

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will be a principalsource of this variety having secured an initial contract with the FlexTechAlliance/United States Display Consortium.

 

The Company plans tocontinue to create demand for its products by utilizing a “pull through”strategy with specific targeted OEMs in various market segments.  Uni-Pixel will actively pursue OEMs by usingits prototypes to demonstrate the advantages that FSC-LCD, TMOS, and Opcuityperformance engineered films can provide in the form of improved efficienciesand performance. Uni-Pixel expects to create OEM “pull” by gaining design winsfor integration of FSC-LCD systems, TMOS sub-component technology, and Opcuityfilms into established end user devices and applications.

 

Uni-Pixel will advanceits “Simply Superior” and “Clearly Superior” tag lines and actively demonstratethe elegance and performance advantages of its unique solutions within theindustry in support of its direct sales work with OEMs.  Once the initialproducts reach the market featuring Opcuity film technology, FSC-LCD systems,all based on TMOS developed display prototypes and Uni-Pixel begins to buildmomentum and manufacturing capacity within the industry, a marketing programwill be launched to drive awareness of Uni-Pixel’s technology as a component “brand”within the end user products.  This cancurrently be seen on packaging developed by Targus, Inc. where UniPixel isa co-owner of the “Clear View Technology” trademark.  This marketing program will be designed todrive awareness and education among end users supporting UniPixel’s uniquecapabilities and enhanced performance. Uni-Pixel believes that it will be able to promote its brand as a valuedcomponent brand included within the OEM products as a part of its relationshipwith the end product OEMs.  Ultimately the goal of this marketing programwill be to establish Uni-Pixel and its unique technologies independently as adifferentiating factor in end user products and to help promote the UniPixelcomponent value proposition through its partner OEMs that implement FSC-LCD, ordisplays with TMOS developed technology in their products similar to what hasbeen done in the PC industry by certain semiconductor companies.

 

**RESEARCH AND DEVELOPMENT**

 

From inception through December 31,2009, Uni-Pixel has spent approximately $24.5 million on research anddevelopment activities, with $2.8 million and $7.5 million invested in 2009 and2008, respectively. Uni-Pixel continues conducting research and developmentboth internally and externally and anticipates significantly higher investmentsgoing forward.

 

As of December 31,2009, Uni-Pixel has one principal location conducting internal research.  The Company’s headquarters and primarydevelopment site are located in The Woodlands, Texas.  The headquarters location includes a Class 100clean room where display materials testing and assembly is conducted, anelectronics lab, optical testing facilities, test and measurement equipment,and electronics development systems.

 

Currently, Uni-Pixel isengaged in the development of next generation prototypes to further demonstratethe full functionality of the TMOS technology across multiple pixel sizes and avariety of implementations. The Company has consolidated its vendors to a smallgroup that assist Uni-Pixel’s prototype efforts.  Working with its strategic partners,Uni-Pixel hopes to advance to the Company’s next generation working prototypedevices.

 

Uni-Pixel prototypedevices have demonstrate the image and color generation capabilities of theCompany’s TMOS displays in multiple pixel sizes, including 0.25mm, 0.5mm, and1mm. These devices have been used to identify the specific issues related toperformance optimization and to their integration into unique end-productapplications.

 

The next phase prototypesshould serve to support a product roadmap that targets the production of viablecommercial display panels within 24 months. The development process is intendedto also include selecting and completing the preferable manufacturing processesthat will be transferable to joint venture partner operations or licensees.

 

Uni-Pixel plans tocomplete the development of the preferred manufacturing process for its filmproducts within the Company’s laboratory environment and has engaged a small-scalepilot production line that has been the research and development proving groundfor a continuous flow manufacturing process followed potentially by a roll toroll manufacturing process for all of its Opcuity performance engineered films.

 

Research and developmentcosts are expensed as incurred and include salaries and benefits, costs tothird party contractors to perform research or other activities related to theCompany’s research, professional fees related to intellectual property work,and a portion of facilities costs.

 

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**COMPETITION**

 

The display industry inwhich Uni-Pixel operates is highly competitive. While existing flat paneldisplay technologies such as LCD, OLED, and Plasma currently dominate themarketplace, Uni-Pixel will be more specifically competing against otheremerging technologies that also seek to improve the performance of displaysystems.  It is Uni-Pixel’s objective toenable the existing LCD manufacturing infrastructure to evolve forward firstinto FSC-LCD systems followed by TMOS production both as a forward extensionsof current operations.  In this way,FSC-LCD and TMOS compete with inertia within the LCD industry and theresistance to change.  However, given thepotentially compelling advantages that FSC-LCD and TMOS offer, the Companybelieves that this can be overcome.

 

Compared to itscompetition, Uni-Pixel believes it follows a more broadly developed businessmodel allowing the Company to benefit from the following factors:

 

·                  A wide range of opportunity to enter themarket;

·                  The flexibility to pursue multiple entrypoints to multiple market segments;

·                  The ability to be a supplier of keymaterials;

·                  The ability to profitably produce smallvolumes of products; and

·                  The ability to enable localizedmanufacturing and to leverage established infrastructures.

 

At the same timeUni-Pixel’s competitors typically follow only one or a subset of these factorsproviding a strategic advantage to Uni-Pixel.

 

Existing Technologies:

 

·                  *Traditional LiquidCrystal Display (LCD) Competitors:* Standard LCD is currently the dominant technology inthe FPD sector with 95% market share. Samsung Electronics and LG Philips LCDCo. Ltd. are market leaders while additional competitors include:  Sharp Electronics Corp., NEC Corp., HitachiLtd., AU Optronics Corp., Chi Mei Optoelectronics Corp., Chunghwa Picture TubesLtd., Quanta Corp. and HannStar Display Corp.

 

·                  *Plasma Competitors*: Plasma technology has been losingmarket share steadily and exists only in large format TVs.

 

·                  *Digital LightProcessing (DLP) Competitors:* Texas Instruments pioneered the DLP technology, whichis a micro-mechanical structure of moving mirrors on a silicon backplane. TexasInstruments initial success selling its DLP products to its customers in thebusiness front projector market maintains however its rear projectiontelevision market has collapsed.  Itscustomers are limited to Mitsubishi Digital Electronics and SamsungElectronics.

 

·                  *OLED Competitors:* Samsung SDI has moved to the leaderhaving launched production of OLED displays in a relationship leveraginglicenses from UDC.  Another OLED industryparticipant, Cambridge Display Technology (CDT), Ltd., was acquired bySumitomo for its patent portfolio following the creation of a CDT joint venturewith Sumitomo Chemicals to produce and manufacture polymer OLEDs.

 

·                  *Other Technologies Competitors*: There are a number of othertechnologies have reached the market in unique applications.  These include “electronic paper”implementations from E-Ink (acquired by Prime View International) primarily ineReader devices like the “Kindle” by Amazon. Additionally a silicon based MEMssystem from Qualcomm called “Mirasol” has found niches in MP3 players and lowcost cell phones and an alternative MEMS system has been in development by acompany called Pixtronix.

 

**INTELLECTUALPROPERTY**

 

Starting in 2004,Uni-Pixel began a significant expansion of its Intellectual Property (IP)portfolio.  As a pioneer in the arena ofnear field optics applied to micro electronic mechanical systems (MEMS) -baseddisplay technology, Uni-Pixel often creates a new invention when solving atechnology issue.  Uni-Pixel has engagedone of the industry’s largest and most experienced IP firms to assist in theprosecution of our patent filings.  TMOSrepresents a “green field” technology in that it is a new approach to displaysleveraging well known concepts in new ways. This has created an unexplored arena for Uni-Pixel to innovate andgenerate IP on a continuing basis.

 

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Relatingto TMOSTM technology, the Company currently owns 38 issued, 1 allowed and 44 pendingpatent applications worldwide, in the following patent families:

 
| Optical Display                                                                                                     |
|---------------------------------------------------------------------------------------------------------------------|
| Field Sequential Color Efficiency                                                                                   |
| Enhancing a Field Sequential Color Palette in an  Optical Display                                                   |
| Airgap Autogenesis Method                                                                                           |
| Extending the Gamut Color Generation in a Display                                                                   |
| Visible Plus Non-Visible Field Sequential Color                                                                     |
| Curved Screen Display Mechanism                                                                                     |
| Enhancements to Optical Flat Panel Displays   (Common Ground Plane)                                       |
| Double-Electret MEMS Actuator                                                                                       |
| Z-Axis Redundant Display/Multilayer Display                                                                         |
| Simple Matrix Addressing in a Display                                                                               |
| Enhanced Bandwidth Data Encoding Method                                                                             |
| Reducing Light Leakage and Improving Contrast Ratio  Performance in FTIR Display Devices                            |
| Electromechanical Dynamic Force Profile Articulating  Mechanism                                                     |
| Optical Microstructures for Light Extraction and  Control                                                           |
| Mechanism to Mitigate Color Breakup Artifacts in  Field Sequential Color Display Systems                            |
| Corner-Cube Retroreflectors for Displays                                                                            |
| Backside Reflection Optical Display                                                                                 |
| Line-At-A-Time Foil Display                                                                                         |
| Display Device Comprising a Light Guide                                                                             |
| Display Device Comprising a Light Guide with  Electrode Voltages Dependent on Previously Applied Electrode Voltages |
| Display Device Comprisng a Light Guide                                                                              |
| Display Device Comprising an Optical Waveguide Plate  and Method of Operating for the Same                          |
| Field Sequential Color Encoding for Displays                                                                        |
| Light Injection System and Method for Uniform  Luminosity of Waveguide-Based Displays                               |
| Apparatus and Method for Reducing Pixel Operational  Voltage in MEMS-based Optical Displays                         |
| Microstructures to Reduce the Appearance of  Fingerprints on Surfaces                                               |
| A Normally Emitting Pixel Architecture for  Frustrated Total Internal Reflection Displays                           |
| Cavity Reflector Light Injection for Flat Panel  Displays                                                           |
| Thin Film Transistor-Driven Frustrated Internal  Reflection Optical Display                                         |
| Privacy Film Mounting Apparatus                                                                                     |
| Fingerprint Resistant Privacy Films                                                                                 |
| Static Signage Display System                                                                                       |
| Selectable Light Source for Common Backlight Systems                                                                |
| Address-Selectable Charging of Capacitive Devices                                                                   |
| Method of Forming Electrically Conductive Lines and  Patterns by Surface Energy Modification                        |
| Interdigitated Backlight for Optical Displays                                                                       |

 

**EMPLOYEES**

 

As of March 1,2010, we have 10 full-time employees and no part-time employees. None of theseemployees are covered by a collective bargaining agreement, and we believe ourrelationship with our employees is good. We also employ consultants on anas-needed basis to supplement existing staff.

 

**OURCOMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS**

 

We are not awareof any current federal, state or local environmental compliance regulationsthat have a material effect on our business activities. We have not expendedmaterial amounts to comply with any environmental protection statutes and donot anticipate having to do so in the foreseeable future.

 

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**ITEM 1A. RISK FACTORS**

 

*Setforth below are certain risks and uncertainties relating to our business.*

 

*Youshould carefully consider the following information about risks describedbelow, together with the other information contained in this Annual Report on Form 10-Kand in our other filings with the SEC, before you decide to buy or maintain aninvestment in our common stock. We believe the risks described below are therisks that are material to us as of the filing date of this Annual Report on Form 10-K.  Ifany of the following risks actually occur, our business financial condition,operating results and future growth prospects would likely be materially andadversely affected. In these circumstances, the market price of our common stockcould decline, and you may lose all or part of the money you paid to buy ourcommon stock.*

 

**RisksRelated to our Business and Industry**

 

**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.**

 

Our independentregistered public accounting firm has issued an unqualified opinion with anexplanatory paragraph, to the effect that there is substantial doubt about ourability to continue as a going concern. This unqualified opinion with anexplanatory 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.

 

We have no committedsources of capital and do not know whether additional financing will beavailable when needed on terms that are acceptable, if at all. The addition ofthis going concern statement from our independent registered public accountingfirm may discourage some investors from purchasing our stock or providingalternative capital financing. The failure to satisfy our capital requirementswill adversely affect our business, financial condition, results of operationsand prospects.

 

Unless we raiseadditional funds, either through the sale of equity securities or one or morecollaborative arrangements, we will not have sufficient funds to continueoperations. Even if we take these actions, they may be insufficient,particularly if our costs are higher than projected or unforeseen expensesarise.

 

**We are a development stagecompany with limited operating history and our future profitability isuncertain and we anticipate future losses and negative cash flow, which maylimit or delay our ability to become profitable.**

 

We are attempting toobtain the necessary working capital for operations, but there can be noassurance we will obtain such financing. We have not yet demonstrated ourability to generate revenue, and there is no assurance that we will produce anymaterial revenues for ourselves or our stockholders, or that we will operate ona profitable basis. As of December 31, 2009, we had an accumulated totaldeficit during development stage of $49.9 million.

 

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

 

Since inception, we havegenerated limited revenues while incurring significant losses. We expect toincur losses for the foreseeable future and until such time, if ever, as we areable to achieve sufficient levels of revenue from the commercial exploitationof our TMOS technology and materials to support our operations. However,planned products based upon our TMOS technology may never become commerciallyviable. Markets for flat panel displays utilizing our proprietary TMOStechnology may be limited. We may never generate sufficient revenues from thecommercial exploitation of our TMOS technology and materials to becomeprofitable. Even if we find commercially viable applications for our TMOS technologyand materials, we may never recover our research and development expenses.

 

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**If we do not receive additionalfinancing when and as needed in the future, we may not be able to continue theresearch, development and commercialization of our TMOS technology andmaterials.**

 

Our capital requirementshave been and will continue to be significant. We will likely requiresubstantial additional funds in excess of our current financial resources inthe future for research, development and commercialization of our TMOStechnology and materials, to obtain and maintain patents and other intellectualproperty rights in these technologies and materials, and for working capitaland other purposes, the timing and amount of which are difficult to ascertain.Our cash on hand will likely not be sufficient to meet all of our future needs.When and as we need additional funds, such funds may not be available oncommercially reasonable terms or at all. If we cannot obtain additional fundingwhen and as needed, our business might fail. Additionally, if we attempt toraise funds in a future offering of shares of our common stock, preferredstock, warrants or depositary shares, or if we engage in acquisitions involvingthe issuance of such securities, the issuance of these shares could, subject toany anti-dilution provisions, dilute the ownership of our then-existingstockholders.

 

**Our brand name and technology maynot be recognized in our marketplace, so our results of operations andfinancial condition may suffer**.

 

Our brand name andtechnology are new and unproven. If we are unable to effectively develop andtimely promote our brand and technology and establish a leading position in ourmarketplace, our results of operations and financial condition will suffer. Webelieve that the importance of brand recognition and technology will increaseover time. In order to gain brand recognition, we may increase our marketingand advertising budgets to create and maintain brand loyalty.

 

**We may fail to protect adequatelyour proprietary technology, which would allow our competitors to take advantageof our research and development efforts.**

 

Our long-term successlargely depends on our ability to market technologically competitive processesand products. We rely on a combination of patent, trade secret and otherintellectual property laws, confidentiality and security procedures andcontractual provisions to establish and protect our proprietary rights in ourtechnology, products and processes. If we fail to obtain or maintain theseprotections, we may not be able to prevent third parties from using ourproprietary technologies. Our currently pending or future patent applicationsmay not result in issued patents. In addition, our issued patents may notcontain claims sufficiently broad to protect us against third parties withsimilar technologies or products or from third parties infringing our patentsor misappropriating our trade secrets or provide us with any competitiveadvantage. In addition, effective patent and other intellectual propertyprotection may be unenforceable or limited in foreign countries. If a thirdparty initiates litigation regarding the validity of our patents, and issuccessful, a court could revoke our patents or limit the scope of coverage forthose patents.

 

We also rely upon tradesecrets, proprietary know-how and continuing technological innovation to remaincompetitive. We protect this information with reasonable security measures,including the use of confidentiality and invention assignment agreements withour employees and consultants and confidentiality agreements with strategicpartners. It is possible that these individuals or companies will breach theseagreements and that any remedies for a breach will be insufficient to allow usto recover our costs. Furthermore, our trade secrets, know-how and othertechnology may otherwise become known or be independently discovered by ourcompetitors.

 

**If we fail to enter cooperativeresearch agreements, we might not succeed in commercializing our TMOStechnology and materials.**

 

Research and developmentof commercially viable applications for our TMOS technology and materials may atsome point depend substantially on the success of the work conducted by andwith our present and future research partners. We cannot be certain that theseresearch partners will make the additional advances in the research anddevelopment of these technologies and materials that may be essential tosuccessfully commercialize our TMOS technology and materials. Moreover,although we fund TMOS technology research, the scope and technical aspects ofthis research and the resources and efforts directed to this research currentlyare and may remain in large part subject to the control of our researchpartners.

 

**If we cannot form and maintainlasting business relationships with flat panel display manufacturers or othertargeted partners, or if we cannot obtain proprietary TMOS materials, ourbusiness strategy could suffer or fail.**

 

Our business strategyincludes some dependence upon our development and maintenance of commerciallicensing and material supply relationships with high-volume manufacturers offlat panel displays. All of our current relationship discussions with displaymanufacturers are limited to technology exploration and the evaluation of ourTMOS technology and materials for possible use in commercial displayapplications. Some or all of these relationships may not succeed or, even 

 

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if they are successful,may not result in the display manufacturers’ entering into commercial licensingand material supply relationships with us.

 

Under our plannedtechnology development and evaluation agreements, we intend to work withstrategic partners to incorporate their technologies into our products for thecommercial 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.

 

Our ability to enter intocommercial licensing and material supply relationships, or to maintain ourexisting technology development and evaluation relationships, may require us tomake financial or other commitments. We might not be able, for financial orother reasons, to enter into or continue these relationships on commerciallyacceptable terms, or at all. Failure to do so will likely harm our businessstrategy, operating results and long-term business prospects.

 

Ourbusiness prospects depend significantly on our ability to obtain or produceproprietary 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 our abilityto generate revenues from sales of these materials, as well as on our abilityto perform research and development work. Further, failure to complete longterm agreements could preclude our ability to support display manufacturersthat would choose to license our TMOS technology and materials for possiblecommercial use.  Also, a license with a national laboratory or governmentagency may be subject to significant United States government rights andrestrictions that may reduce the Company’s ability to enter into overseasmanufacturing agreements and licenses.

 

**The United States government willhave certain rights to our TMOS technology that might prevent us from realizingthe benefits of these technologies**.

 

The United Statesgovernment, through various government agencies, has provided and continues toprovide funding to us for research activities related to certain applicationsof our TMOS technology. Because we have been provided with this funding, thegovernment has rights to certain applications of our technology that couldrestrict our ability or our licenses to market products to the government formilitary and other applications, or to third parties for commercialapplications. Moreover, if the government determines that we have not takeneffective steps to achieve practical application of our patented inventionsthat were funded by the government in any field-of-use in a reasonable time,the government could require us to grant licenses to other parties in thatfield of use. Any of these occurrences would limit our ability to obtain thefull benefits of our TMOS technology.

 

**We may incur substantial costs asa result of litigation or other proceedings relating to patent and otherintellectual property rights.**

 

A third party may sue usor one of our strategic collaborators for infringing its intellectual propertyrights. Likewise, we may need to resort to litigation to enforce our patentrights or to determine the scope and validity of third-party intellectualproperty rights.

 

The cost to us of anylitigation or other proceeding relating to intellectual property rights, evenif resolved in our favor, could be substantial, and the litigation would divertour efforts. Some of our competitors may be able to sustain the costs ofcomplex patent litigation more effectively than we can because they havesubstantially 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.

 

Uncertainties resultingfrom the initiation and continuation of any litigation could limit our abilityto continue some of our operations. In addition, a court may require that wepay expenses or damages, and litigation could disrupt our commercialactivities.

 

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**If we are unable to keep up withrapid technological changes, our processes, products or services may becomeobsolete.**

 

The flat panel displaymarket is characterized by significant and rapid technological change. Althoughwe will continue to expand our technological capabilities in order to remaincompetitive, research and discoveries by others may make our processes,products or services less attractive or even obsolete. If we cannot competeeffectively in the marketplace, our potential for profitability and financialposition will suffer.

 

**If our TMOS technology andmaterials are not technically and commercially feasible for broad-based productapplications, we may never generate revenues sufficient to support ongoingoperations**.

 

To generate revenuessufficient to support ongoing operations, our business strategy ultimatelyrequires the development and maintenance of commercial licensing and materialsupply relationships with high-volume display manufacturers. Before displaymanufacturers will agree to utilize our TMOS technology and materials forwide-scale commercial production, they will likely require us to demonstrate totheir satisfaction that our TMOS technology and materials are feasible forbroad-based product applications of which there can be no assurances given.This, in turn, will require substantial advances in our research anddevelopment efforts in a number of areas, including manufacturability thedevelopment of feasible TMOS materials for TMOS displays and issues related toscalability and cost-effective fabrication technologies for productapplications.

 

**Our efforts may never demonstratethe feasibility of our TMOS technology and materials for broad-based product applications.**

 

Our research anddevelopment efforts remain subject to all of the risks associated with thedevelopment of new products based on emerging and innovative technologies,including, without limitation, unanticipated technical or other problems andthe possible insufficiency of funds for completing development of theseproducts. 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 if our TMOS technology istechnically feasible, it may not be adopted by display manufacturers**.

 

The potential size,timing and viability of market opportunities targeted by us are uncertain atthis time. Market acceptance of our TMOS technology and materials will depend,in part, upon the technology’s providing benefits greater than or comparable tocathode ray tubes, or CRT, plasma display and LCD technologies (the currentstandard display technologies) at an appropriate cost, and the adoption of ourTMOS technology by consumers and manufacturers, neither of which has beenachieved. Also, many potential licensees of our TMOS technology currentlymanufacture flat panel displays utilizing competing technologies, and may,therefore, be reluctant to redesign their products or manufacturing processesto incorporate our TMOS technology. Moreover, there may be a number ofadditional technologies that display manufacturers need to utilize inproduction or may need to be used in conjunction with our TMOS technology inorder to bring TMOS displays and products containing them to the market. Ifdisplay manufacturers are unable to obtain access to these additionaltechnologies, they may not utilize our TMOS technology.

 

The flat panel displaymarket is currently, and we believe will likely continue to be for some time,dominated by displays based on LCD technology. Numerous companies are makingsubstantial investments in, and conducting research to improve characteristicsof LCDs. Additionally, several other flat panel display technologies have been,or are being, developed, including technologies for the production of fieldemission, inorganic electroluminescence, gas plasma and vacuum fluorescentdisplays. Of particular note, competing OLED technologies have entered themarketplace prior to TMOS and may become entrenched in the flat panel industrybefore our TMOS technology has a chance to become widely utilized. In eachcase, advances in LCD, OLED, or other flat panel display technologies couldresult in technologies that are more cost-effective, have fewer displaylimitations, or can be brought to market faster than our TMOS technology. Theseadvances in competing technologies might cause display manufacturers to avoidentering into commercial relationships with us, or not renew planned orexisting relationships with us.

 

We believe that TMOSdisplay technologies ultimately may be able to overcome certain existinglimitations of LCD and other flat panel display technologies, such as highpower consumption, costly manufacturing methods, poor contrast ratios and limitedviewing angles. However, other companies may succeed in improving thesecompeting display technologies, or in developing new display technologies, thatare superior to our TMOS display technology in various respects. We cannotpredict the timing or extent to which such improvements or developments mayoccur. If our TMOS 

 

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technology is unable tocapture a substantial portion of the overall display market for thesecompetitive reasons, our business strategy may fail.

 

**Many of our competitors havegreater resources, and it may be difficult to compete against them.**

 

The flat panel displayindustry is characterized by intense competition. Many of our competitors havebetter name recognition and substantially greater financial, technical,manufacturing, marketing, personnel and/or research capabilities than we do.They have made and continue to make substantial investments in improving theirtechnologies and manufacturing processes. In addition, we believe that at timesin the past some plasma and LCD display panel manufacturers have priced theirproducts below the marginal cost of production in an attempt to establish,retain or increase market share. Because of these circumstances, it may bedifficult to compete successfully in the display market.

 

**The loss of the services of ourkey management and personnel or the failure to attract additional key personnelcould adversely affect our ability to operate our business**.

 

A loss of one or more ofour current officers or key employees could severely and negatively impact ouroperations. Specifically, the loss of services of Reed J. Killion, CEO andPresident, Jim Tassone, Chief Financial Officer, Dan Van Ostrand, ExecutiveVice President or Robert Petcavich, Vice President & General ManagerOpcuity Films, none of whom has an employment agreement with us, couldsignificantly harm our business. We have no present intention of obtainingkey-man life insurance on any of our executive officers or management.Additionally, competition for highly skilled technical, managerial and otherpersonnel is intense. As our business develops, we might not be able toattract, hire, train, retain and motivate the highly skilled managers andemployees we need to be successful. If we fail to attract and retain thenecessary technical and managerial personnel, our business will suffer andmight fail.

 

**Uni-Pixel is receiving limitedindemnification from certain current and former principals of our predecessorcompany, Real-Estateforlease.com, Inc.**

 

Although the predecessorcompany to Uni-Pixel and Real-Estateforlease.com, Inc., Super Shops, Inc.,filed for bankruptcy and received plan confirmation for its plan ofreorganization on July 31, 2000, Uni-Pixel, Inc. has never filed norbeen a party to any reorganization, liquidation or other proceeding under theFederal Bankruptcy Code and may therefore have liabilities of which we arecurrently unaware. Uni-Pixel received typical representations and warrantiesfrom the former principals of Real-Estateforlease.com, Inc. pursuant tothe merger agreement by and among Real-Estateforlease.com, Inc., Uni-PixelDisplays, 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.

 

The indemnificationprotection provided by Halter Financial Group, Inc., David DiSalvo andFrank M. DeLape is further limited, in the aggregate, to the value of ourCommon Stock received by each of the indemnitors in the merger transaction withReal-Estateforlease.com, Inc. determined by multiplying the number of sharesof Common Stock received by each pursuant to the merger by $1.75. Frank M.DeLape received approximately 1,812,800 shares of Common Stock, HalterFinancial Group received approximately 380,000 shares of Common Stock and DavidDiSalvo received approximately 75,000 shares of Common Stock. Therefore, thehighest dollar amount that any one of these parties will indemnify us forduring his or its indemnification period as described in the precedingparagraph, is $3,172,400.

 

If indemnification claimsdo arise with respect to any liabilities or claims of or againstReal-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.

 

**The flat panel display industryhas historically experienced significant downturns, which may adversely affectthe demand for and pricing of our TMOS technology and materials.**

 

The flat panel displayindustry has experienced significant periodic downturns, often in connectionwith, or in anticipation of, declines in general economic conditions. Thesedownturns have been characterized by lower product demand, 

 

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production overcapacityand erosion of average selling prices. Our business strategy to some degree isdependent on display manufacturers building and selling displays thatincorporate our TMOS technologies and materials. Industry-wide fluctuations anddownturns in the demand for flat panel displays, and low power consumption orhigh performance displays in particular, would likely affect the demand for andpricing of our TMOS technologies and materials and could cause significant harmto our business.

 

**RisksRelated to Owning Our Securities**

 

**OurCommon Stock has traded only sporadically and is expected to experiencesignificant price and volume volatility in the future which substantiallyincreases the risk of loss to persons owning our Common Stock.**

 

There was no publicmarket for our Common Stock prior to February 3, 2005. At best, only alimited market has developed and is expected to continue to develop in theforeseeable future for our Common Stock. Because of the limited trading marketfor our Common Stock, and the possible price volatility, you may not be able tosell your shares of Common Stock when you desire to do so. The inability tosell your shares in a rapidly declining market may substantially increase yourrisk of loss because of such illiquidity and because the price for our CommonStock may suffer greater declines because of its price volatility.

 

We cannot predict theextent to which investor interest in our stock will create or sustain an activeand orderly trading market. If such a market were to develop, the market priceof our Common Stock may continue to be highly volatile. The sale of a largeblock of shares could depress the price of our Common Stock to a greater degreethan a company that typically has a higher volume of trading in its securities.The value of your investment could decline due to the impact of any of thefollowing factors upon the market price of our Common Stock:

 

·                  Disappointing results from our development efforts;

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

·                  Decline in demand for our Common Stock;

·                  Downward revisions in securities analysts’ estimates or changes ingeneral market conditions;

·                  Technological innovations by competitors or in competing technologies;

·                  Investor perception of our industry or our prospects;

·                  General economic trends;

·                  Variations in our quarterly operatingresults;

·                  Our inability to increase revenues:

·                  Announcement of new customer relationships by our competitors;

·                  Departures of our executive officers;

·                  General conditions in the worldwide economy, including fluctuations ininterest rates;

·                  Developments in patents or other intellectual property rights andlitigation;

·                  Developments in our relationships with our customers and suppliers;

·                  Any significant acts of terrorism against the United States; and

·                  Our currently limited public float.

 

Our Common Stock hastraded as low as $0.23 and as high as $5.50 during a period from February 3,2005 through December 31, 2009. In addition to volatility associated withBulletin Board securities in general, the markets for high technology stockshave experienced extreme volatility that has often been unrelated to theoperating performance of the particular companies. These broad marketfluctuations may adversely affect the trading price of our common shares.

 

**We are not required to meet ormaintain any listing standards for our Common Stock to be quoted on the OTCBulletin Board, which could affect our stockholders’ ability to access tradinginformation about our Common Stock.**

 

The OTC**Bulletin Board is separate and distinctfrom the NASDAQ Stock Market. Although the OTC Bulletin Board is a regulatedquotation service operated by the National Association of Securities Dealers, Inc.(“NASD”) that displays real-time quotes, last sale prices, and volumeinformation in over-the-counter equity securities like our Common Stock, we arenot required to meet or maintain any qualitative or quantitative listingstandards for our Common Stock to be quoted on the OTC**Bulletin Board. Our Common Stock does notpresently meet the minimum listing standards for listing on the NASDAQ StockMarket or any national securities exchange which could affect our stockholders’ability to access trading information about our Common Stock.

 

The OTC**Bulletin Board is generally considered tobe a less efficient market than the established exchanges or the NASDAQmarkets. While we anticipate seeking to be listed on the NASDAQ Stock Market ora national exchange at some 

 

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time in the future, it isimpossible at this time to predict when, if ever, such application will be madeor whether such application will be successful.

 

**OurCommon Stock may be subject to penny stock rules, which make it more difficultfor our stockholders to sell their Common Stock.**

 

OurCommon Stock issubject to certain rules and regulations relating to “penny stocks”(generally defined as any equity security that is not quoted on the NASDAQStock Market and that has a price less than $5.00 per share, subject to certainexemptions). Broker-dealers who sell penny stocks are subject to certain “salespractice requirements” for sales in certain non-exempt transactions *(i.e.,*sales to persons other thanestablished customers and institutional “accredited investors”), includingrequiring delivery of a standardized risk disclosure document relating to thepenny stock market and monthly statements disclosing recent bid and offerquotations for the penny stock held in the account, and certain otherrestrictions. If the broker-dealer is the sole market maker, the broker-dealermust disclose this, as well as the fact that the broker-dealer has presumedcontrol over the market. In addition, the penny stock rules generallyrequire that prior to a transaction in a penny stock the broker-dealer make aspecial written determination that the penny stock is a suitable investment forthe purchaser and receive the purchaser’s written agreement to the transaction.These disclosure requirements may have the effect of reducing the level oftrading activity in the secondary market for a stock that becomes subject tothe penny stock rules. For as long as our securities are subject to the rules onpenny stocks, the liquidity of our Common Stock could be significantly limited.This lack of liquidity may also make it more difficult for us to raise capitalin the future.

 

**We donot expect to pay dividends in the foreseeable future.**

 

We have never paid cashdividends on our shares of Common Stock, and have no plans to do so in theforeseeable future. We intend to retain earnings, if any, to develop and expandour business operations.

 

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

 

None

 

**ITEM 2. PROPERTIES**

 

Our main corporateoffices and research and development facility are located at 8708 TechnologyForest Place, Suite 100, The Woodlands, Texas 77381. We currently leaseapproximately 13,000 square feet of space at this facility.

 

**ITEM 3. LEGAL PROCEEDINGS**

 

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.

 

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

No matters were submittedto a vote of security holders during the fourth quarter of 2009.

 

**PART II**

 

**ITEM5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES**

 

**MarketInformation**

 

Since January 18,2006, our Common Stock has been traded on the OTC Bulletin Board under thesymbol “UNXL”. From February 3, 2005 to January 18, 2006, our CommonStock was quoted on the “pink sheets” published by the Pink Sheets LLC underthe symbol “UNXL.” Prior to February 3, 2005, our shares of Common Stockwere traded under the symbol “REFL.” We changed our name to “Uni-Pixel, Inc.”from “Real-Estateforlease.com, Inc.” at the annual meeting of ourstockholders held in January 2005. The market for our common stock islimited and volatile. The following table sets forth the range of high and lowbid quotations or high and low closing prices, as applicable, for our CommonStock for each of the periods indicated as reported by the Pink Sheets or theOTC Bulletin Board. The prices for the Pink Sheets and the 

 

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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, 2009** | ** ** | **Year Ended  December 31, 2008** | ** ** |
|----------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **     | ** ** | **High**                               | ** ** | **Low**                                | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $                                      | 0.88       |                                   | $          | 0.55 |   | $ | 1.00 |   | $ | 0.47 |   |
| Second Quarter |       | 0.60                                   |       | 0.35                                   |       | 1.45 |   | 0.77 |   |
| Third Quarter  |       | 0.46                                   |       | 0.33                                   |       | 1.20 |   | 0.50 |   |
| Fourth Quarter |       | 0.63                                   |       | 0.30                                   |       | 0.70 |   | 0.38 |   |
|                |            |                                        |            |                                        |            |  |  |  |  |  |  |  |  |

 

The above quotationsreflect inter-dealer prices, without retail mark-up, markdown or commission andmay not necessarily represent actual transactions. As of February 28,2010, we had eleven broker dealers making a market in our common stock.

 

**Holders**

 

As of February 28,2010, we had approximately 1,100 stockholders of record of our Common Stock.

 

**Dividends**

 

The Company has neverpaid dividends on its Common Stock. Currently, the Company anticipates that itwill retain earnings, if any, to support operations and to finance the growthand development of its business and does not anticipate paying cash dividendson the Common Stock in the foreseeable future.

 

The holders of Series APreferred Stock received cumulative annual dividends, payable in shares of Series APreferred Stock or cash, at the option of the Board of Directors, at an annualrate of 6% ($0.21 per share), payable on December 31 of each yearcommencing December 31, 2005 through December 31, 2007. Unpaiddividends will accumulate and be payable prior to the payment of dividends onshares of Common Stock. Cash dividends will only be payable from funds legallyavailable therefore, when and as declared by the Board of Directors of theCompany, and unpaid dividends will accumulate until the Company can legally paythe dividends. In 2007, the Company paid accumulated dividends to the holdersof Series A Preferred Stock in the amount of 262,846 shares of CommonStock.  In 2006, the Company paidaccumulated dividends to the holders of Series A Preferred Stock in theamount of 134,117 shares of Series A Preferred Stock, as well as 16,282shares of Common Stock.  All shares of Series APreferred Stock had been redeemed by the Company as of December 31, 2007.

 

The holders of Series BPreferred Stock will receive cumulative annual dividends.  Dividends shall accrue, whether or notdeclared and paid, on the Series B Preferred Stock at the rate per annumof 8%, and shall be cumulative as to any dividends not declared and paid in anyyear, compounding annually at the same rate. Each share of Series B Preferred Stock may, at the option of theholder, be converted at any time into a number of fully paid and non-assessableshares of common stock of the Company equal to the quotient obtained bydividing the original issue price of $3.75 for the Series B PreferredShares, plus all accrued and unpaid Series B Preferred Stock dividends andany other declared and unpaid dividends, by the initial Series B PreferredStock conversion price, which is $0.75 but is subject to adjustment from timeto 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. In 2009, theCompany paid accumulated dividends to the holders of Series B PreferredStock in the amount of 4,485,298 shares of Common Stock upon conversion in October 2009.  All shares of Series B Preferred Stockhad been redeemed by the Company as of October 2, 2009.

 

The holders of Series CPreferred Stock will receive cumulative annual dividends.  Dividends shall accrue, whether or notdeclared and paid, on the Series C Preferred Stock at the rate per annumof 8%, and shall be cumulative as to any dividends not declared and paid in anyyear, compounding annually at the same rate. Each share of Series C Preferred Stock may, at the option of theholder, be converted at any time into a number of fully paid and non-assessableshares of common stock of the Company equal to the quotient obtained bydividing the original issue price of $11.20 for the Series C PreferredShares, plus all accrued and unpaid Series C Preferred Stock dividends andany other declared and unpaid dividends, by the initial Series C PreferredStock conversion price, which is $1.40 but is subject to adjustment from timeto 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. In 2009, theCompany paid accumulated dividends to the holders of Series C PreferredStock in the amount of

 

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1,574,955 shares ofCommon Stock upon conversion in October 2009.  All shares of Series C Preferred Stockhad been redeemed by the Company as of October 2, 2009.

 

**Securities Authorized For Issuance Under EquityCompensation Plans**

 

The following tableprovides information about shares of Common Stock that may be issued upon theexercise of options under all of the Company’s existing equity compensationplans as of December 31, 2009.

 
| **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      |       | 4,551,119                                                                                 |       | $                                                                 | 1.64       |                                                                                                             | 1,448,881  |   |
|                                                    |       |                                                                                      |       |                                                              |       |                                                                                                             |       |
| Equity compensation plans not approved by  stockholders |       | 1,300,000                                                                                 |       | 1.24                                                              |       | —                                                                                                           |       |
|                                                    |       |                                                                                      |       |                                                              |       |                                                                                                             |       |
| Total                                                   |       | 5,851,119                                                                                 |       | $                                                                 | 1.55       |                                                                                                             | 1,448,881  |   |

 

*SummaryStock Option and Warrant Information*

 

Informationregarding the options and warrants granted in 2009 and 2008 is as follows:

 
| ** **                       | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2009**                                  | ** ** | **2008**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| Outstanding, beginning of year   |       | 5,602,014                                 |       | 4,712,500                                  |       | 13,846,468 |   | 13,846,468 |   |
| Granted                          |       | 575,000                                   |       | 1,145,625                                  |       | 13,413,568 |   | — |   |
| Exercised                        |       | —                                    |       | —                                     |       | — |   | — |   |
| Expired or cancelled             |       | 325,895                                   |       | 256,111                                    |       | 10,053,568 |   | — |   |
|                             |       |                                      |       |                                       |       |   |   |   |   |
| Outstanding, end of year         |       | 5,851,119                                 |       | 5,602,014                                  |       | 17,206,468 |   | 13,846,468 |   |
|                             |       |                                      |       |                                       |       |   |   |   |   |
| Exercisable, end of year         |       | 5,124,435                                 |       | 3,808,030                                  |       | 17,206,468 |   | 13,846,468 |   |
|                             |       |                                      |       |                                       |       |   |   |   |   |
| Available for grant, end of year |       | 1,448,881                                 |       | 1,697,986                                  |       |   |   |   |   |

 

Theweighted average option and warrant exercise price information for 2009 and2008 is as follows:

 
| ** **                           | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|--------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                  | ** ** | **2008**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| Outstanding, beginning of year       |       | $                                         | 1.56       |                                       | $          | 1.65 |   | $ | 1.62 |   | $ | 1.28 |   |
| Granted during the year              |       | $                                         | 1.45       |                                       | $          | 1.45 |   | $ | 0.50 |   | $ | — |   |
| Exercised during the year            |       | $                                         | —     |                                       | $          | — |   | $ | — |   | $ | — |   |
| Expired or cancelled during the year |       | $                                         | 1.45       |                                       | $          | 1.56 |   | $ | 1.29 |   | $ | — |   |
| Outstanding at end of year           |       | $                                         | 1.55       |                                       | $          | 1.56 |   | $ | 0.66 |   | $ | 1.28 |   |
| Exercisable at end of year           |       | $                                         | 1.57       |                                       | $          | 1.62 |   | $ | 0.66 |   | $ | 1.28 |   |

 

Significantoption and warrant groups outstanding at December 31, 2009 and relatedweighted average exercise price and life information is as follows:

 

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| **Grant  date**         | ** ** | **Options  Outstanding** | ** ** | **Warrants  Outstanding** | ** ** | **Exercisable** | ** ** | **Weighted  Exercise  Price** | ** ** | **Remaining  Life  (Years)** | ** ** |
|-------------------------|------------|--------------------------|------------|---------------------------|------------|-----------------|------------|-------------------------------|------------|------------------------------|------------|
| December 9, 2004   |       | —                   |       | 769,500                   |       | 769,500         |       | $                             | 1.38       |                         | 4.92       |   |
| January 10, 2005   |       | —                   |       | 168,750                   |       | 168,750         |       | $                             | 1.38       |                         | 4.92       |   |
| January 26, 2005   |       | —                   |       | 110,250                   |       | 110,250         |       | $                             | 1.38       |                         | 4.92       |   |
| March 5, 2005      |       | 600,000                  |       | —                    |       | 600,000         |       | $                             | 2.00       |                         | 2.67       |   |
| March 5, 2005      |       | 450,000                  |       | —                    |       | 450,000         |       | $                             | 2.00       |                         | 5.17       |   |
| April 19, 2005     |       | 400,000                  |       | —                    |       | 400,000         |       | $                             | 2.00       |                         | 5.33       |   |
| April 19, 2005     |       | 150,000                  |       | —                    |       | 150,000         |       | $                             | 2.00       |                         | 1.58       |   |
| May 23, 2006       |       | 1,000,000                |       | —                    |       | 1,000,000       |       | $                             | 1.25       |                         | 6.58       |   |
| May 24, 2006       |       | —                   |       | 1,500,000                 |       | 1,500,000       |       | $                             | 1.25       |                         | 1.58       |   |
| September 12, 2006 |       | —                   |       | 194,400                   |       | 194,400         |       | $                             | 1.25       |                         | 1.67       |   |
| February 13, 2008  |       | —                   |       | 1,050,000                 |       | 1,050,000       |       | $                             | 1.10       |                         | 0.13       |   |
| March 16, 2007     |       | 300,000                  |       | —                    |       | 279,167         |       | $                             | 1.19       |                         | 7.21       |   |
| September 13, 2007 |       | 1,487,187                |       | —                    |       | 1,163,715       |       | $                             | 1.45       |                         | 7.71       |   |
| January 7, 2008    |       | 500,000                  |       | —                    |       | 333,333         |       | $                             | 1.45       |                         | 8.02       |   |
| January 16, 2008   |       | 60,000                   |       | —                    |       | 39,167          |       | $                             | 1.45       |                         | 8.04       |   |
| April 18, 2008     |       | 248,932                  |       | —                    |       | 150,442         |       | $                             | 1.45       |                         | 8.30       |   |
| May 20, 2008       |       | 100,000                  |       | —                    |       | 54,167          |       | $                             | 1.45       |                         | 8.38       |   |
| June 2, 2008       |       | 40,000                   |       | —                    |       | 13,333          |       | $                             | 1.45       |                         | 8.42       |   |
| October 20, 2008   |       | 40,000                   |       | —                    |       | 16,111          |       | $                             | 1.45       |                         | 8.80       |   |
| January 30, 2009   |       | 475,000                  |       | —                    |       | 475,000         |       | $                             | 1.45       |                         | 9.08       |   |
| June 10, 2009      |       | —                   |       | 480,000                   |       | 480,000         |       | $                             | 0.50       |                         | 9.42       |   |
| June 30, 2009      |       | —                   |       | 40,000                    |       | 40,000          |       | $                             | 0.50       |                         | 9.42       |   |
| August 31, 2009    |       | —                   |       | 460,000                   |       | 460,000         |       | $                             | 0.50       |                         | 9.67       |   |
| September 30, 2009 |       | —                   |       | 560,000                   |       | 560,000         |       | $                             | 0.50       |                         | 9.83       |   |
| October 2, 2009    |       | —                   |       | 120,000                   |       | 120,000         |       | $                             | 0.50       |                         | 9.83       |   |
| October 2, 2009    |       | —                   |       | 11,553,568                |       | 11,553,568      |       | $                             | 0.50       |                         | 9.83       |   |
| December 31, 2009  |       | —                   |       | 200,000                   |       | 200,000         |       | $                             | 0.50       |                         | 10.00      |   |
|                    |       |                     |       |                      |       |            |       |                          |       |                         |       |
| Total                   |       | 5,851,119                |       | 17,206,468                |       | 22,330,903      |       |                          |       |                         |       |

 

**RecentSales of Unregistered Securities**

 

None.

 

**IssuerPurchases of Equity Securities**

 

None.

 

**ITEM 6. SELECTED FINANCIAL DATA**

 

Not Applicable

 

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

 

*Thefollowing discussion of our financial condition and results of operation shouldbe read in conjunction with the financial statements and related notes thatappear elsewhere in this prospectus. This discussion contains forward-lookingstatements and information relating to our business that reflect our currentviews and assumptions with respect to future events and are subject to risksand uncertainties, including the risks in the section entitled “Risk Factors”,that may cause our or our industry’s actual results, levels of activity,performance or achievements to be materially different from any future results,levels of activity, performance or achievements expressed or implied by theseforward-looking statements.*

 

*Theseforward-looking statements speak only as of the date of this report. Althoughwe believe that the expectations reflected in the forward-looking statementsare reasonable, we cannot guarantee future results, levels of activity, orachievements. Except as required by applicable law, including the securitieslaws of the United States, we expressly disclaim any obligation or undertakingto disseminate any update or revisions of any of the forward-looking statementsto reflect any change in our expectations with regard thereto or to conformthese statements to actual results.*

 

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*Ourfinancial statements are stated in United States Dollars (US$) and are preparedin accordance with accounting principles generally accepted in the UnitedStates.*

 

**Overview**

 

Uni-Pixel is adevelopment stage company that has developed, patented and demonstrated a newcolor display technology in the form of proof of concept prototypes, which wecall Time Multiplexed Optical Shutter (“TMOS”).  We intend to be a leaderin the research, development and commercialization of new flat panel displaysusing TMOS in a variety of applications, such as mobile phones, digitalcameras, notebook computers, televisions and other consumer electronic devices.Our work developing TMOS has led to advances in the thin film arena that haveother marketable applications.  We intendto explore the business potential within these applications and pursue thosethin film markets that offer profitable opportunities either through licensingor direct production and sales.  As of December 31,2009, we had accumulated a total deficit of $49.9 million from operations inpursuit of these objectives.

 

We anticipate that ourTMOS displays will be thin, lightweight, and power-efficient devices, which arehighly suitable for use in full-color display applications.  We believeTMOS displays will be able to capture a share of the growing $90+ billionflat panel display market due to the significant advantages it should provideover competing displays with respect to manufacturing and materials cost,brightness, power efficiency, viewing angle, video response time and imagequality.  We believe that our technology leadership and intellectualproperty position will enable us to generate revenues initially from TMOSdisplays for existing vertical market segments such as the military, avionics,and automotive segments, and then subsequently from consumer electronicsmarkets (i.e., TVs, monitors, personal computers, cameras, games, etc.).

 

Our strategy is tofurther develop our proprietary TMOS technology to the point of being able totransition the technology to manufacturing partners.  We have and willcontinue to utilize contract manufacturing for prototype fabrication to augmentour internal capabilities in the short term.  We also plan to be asupplier of our key thin film component and to enter into joint ventures incertain vertical market segments to exploit the existing manufacturing anddistribution channels of our targeted partners.  We plan to license ourtechnology to display manufacturers and supporting partner companies for use inapplications such as mobile phones, digital cameras, laptop computers, andother consumer electronic devices. Through our internal research anddevelopment efforts, we have established a portfolio of TMOS-related patentsand patent applications and other intellectual property rights that supportthese joint venture and licensing strategies.  We currently have 38 issuedpatents, 1 allowed patents, and 44 pending patent applications filed in keyvenues worldwide including regionally in Europe, Asia Pacific, South AmericaandNorth America.  We also contemplateobtaining exclusive field-of-use licenses, (which would include the right tosublicense) to complementary technologies from targeted, strategic partners andU.S. national laboratories.

 

During the course of2008, we developed our first independent thin film product opportunity.  This unique variation of the thin filmdeveloped for TMOS can be applied to a variety of touch screen product devicesas a protective cover.  We intend tomarket this thin film product under our brand OpcuityTM to various potentialdistribution and channel partners.

 

Through December 31,2009, we have been primarily engaged in developing our initial producttechnologies, recruiting personnel, commencing our U.S. operations and raisingcapital. In the course of our development activities, we have sustained lossesand expect such losses to continue through at least 2010. We will finance ouroperations primarily through our existing cash and possible future financingtransactions.

 

Our ability to operateprofitably under our current business plan is largely contingent upon oursuccess in developing our products beyond proof of concept to final prototypes,supporting transferable manufacturing processes to partners to produce ourproducts and successfully developing markets and manufacturing relationshipsfor our products.  We may be required toobtain additional capital in the future to expand our operations. No assurancecan be given that we will be able to develop our products, successfully developthe markets or profitable manufacturing methods for our products, or raise anysuch additional capital as we might need, either through equity or debtfinancing, on satisfactory terms or at all. Additionally, no assurance can begiven that any such financing, if obtained, will be adequate to meet ourultimate capital needs or to support our growth. If adequate capital cannot beobtained on satisfactory terms, our operations could be negatively impacted.

 

If we achieve growth inour operations in the next few years, such growth could place a strain on ourmanagement, administrative, operational and financial infrastructure. Ourability to manage our current operations and future growth requires thecontinued improvement of operational, financial and management controls,reporting systems and procedures. In addition, we may find it necessary to hireadditional management, financial and sales and marketing personnel to manageour 

 

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expanding operations. Ifwe are unable to manage this growth effectively, our business, operatingresults and financial condition may be materially adversely affected.

 

As of December 31,2009, we had cash and cash equivalents of $0.3 million.  We believe thatour existing capital resources are adequate to finance our operations until March 2010.  Our working capital may not be sufficient tomeet all of the needs of our business objectives through the end of 2010.  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 tosuccessfully operate our business, develop our manufacturing process, signpartnership agreements, develop our products and raise additional debt andequity to meet our business objectives.

 

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

 

The following discussionand analysis of financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in conformity withaccounting principles generally accepted in the United States of America. Oursignificant accounting policies are more fully described in Note 3 ofNotes to the audited Consolidated Financial Statements. However, certainaccounting policies and estimates are particularly important to theunderstanding of our financial position and results of operations and requirethe application of significant judgment by our management or can be materiallyaffected by changes from period to period in economic factors or conditions thatare outside of our control.  As a result, they are subject to an inherentdegree of uncertainty. In applying these policies, our management uses theirjudgment to determine the appropriate assumptions to be used in thedetermination of certain estimates. Those estimates are based on our historicaloperations, our future business plans and projected financial results, theterms of existing contracts, our observance of trends in the industry,information provided by our customers and information available from otheroutside sources, as appropriate. The following discusses our significantaccounting policies and estimates.

 

*RevenueRecognition:* We recognize revenue over the period the service is performed in accordancewith FASB ASC Topic 605 *Revenue Recognition*(“Topic 605”),previously *SEC Staff Accounting Bulletin No. 104, “RevenueRecognition in Financial Statements” (“SAB 104”).*In general, fourbasic criteria must be met before revenue can be recognized: (1) persuasiveevidence that an arrangement exists, (2) delivery has occurred or servicesrendered, (3) the fee is fixed and determinable, and (4) collectabilityis reasonably assured.

 

Advance payments aredeferred until shipment. The amount of the revenue deferred represents the fairvalue of the remaining undelivered products measured Topic 605, previously*Emerging Issues Task Force (“EITF”) 00-21, “Accountingfor Revenue Arrangements with Mutliple Deliverablables,”* whichaddresses the issue of accounting for arrangements that involve the delivery ofmultiple products or services..

 

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

 

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

 

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

 

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

 

*IntangibleAssets:*  Ourintangible assets represent patents and patent applications, acquired fromthird parties, which are recorded at cost and amortized over the life of thepatent.  We review the value recorded for intangible assets to assessrecoverability from future operations using undiscounted cash flows.Impairments are recognized in operating results to the extent the carryingvalue exceeds fair value determined based on the net present value of estimatedfuture cash flows.

 

*Stock-BasedCompensation:* We recognize the cost of stock options and restricted stock with in accordancewith FASB ASC Topic 718 *Compensation — StockCompensation*(“Topic 718”),previously *SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”),“Share Based Payment.”* Topic718 requires us to measure the cost of employee services received in exchangefor an award of equity instruments based on the grant-date fair value of theaward.  That cost will be recognized overthe period during which an employee is required to provide service in exchangefor the reward—known as the requisite service period. No compensation cost isrecognized for equity instruments for which employees do not render therequisite service. The grant-date fair value of employee share options andsimilar instruments will be estimated using option-pricing models adjusted forthe unique characteristics of those instruments. Topic 718  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**

 

Comparison of FiscalYears Ending December 31, 2009 and 2008

 

REVENUES.  Weare a development stage company that has developed, patented and demonstrated anew color display technology in the form of proof of concept prototypes whichwe call Time Multiplexed Optical Shutter (“TMOS”).  We intend to be aleader in the research, development and commercialization of new flat paneldisplays using TMOS in a variety of applications, such as mobile phones,digital cameras, notebook computers, televisions and other consumer electronicdevices. From inception, we have had a limited amount of revenue, all of whichhas been derived from development contracts.

 

Revenues stayedconstant at $0 for the year ended December 31, 2009, as compared to theyear ended December 31, 2008.

 

COST OF REVENUES.  Cost of revenues include alldirect expenses associated with the delivery of products or services includinginternal labor costs. Cost of revenues for the year ended December 31,2009 and December 31, 2008 was $0.

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,general and administrative expenses decreased by 28% or $927,749, to $2,365,613for the year ended December 31, 2009 from $3,293,362 for the year ended December 31,2008. The major components of the decrease are as follows:

 

a)  Salaries andbenefits decreased by approximately $357,000 to $1,236,000 for the year ended December 31,2009 from $1,593,000 for the year ended December 31, 2008, due to a) stockcompensation expense increased to $617,000 for the twelve months ended December 31,2009 from $602,000 for the twelve months ended December 31, 2008 and b)bonus expense decreased to ($201,000) for the twelve months ended December 31,2009 from $44,000 for the twelve months ended December 31, 2008;

 

b) Contract labordecreased by approximately $8,000 to $0 for the year ended December 31,2009 from $8,000 for the year ended December 31, 2008;

 

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c) Legal expensedecreased by approximately $186,000 to $280,000 for the year ended December 31,2009 from $466,000 for the year ended December 31, 2008 as a result ofdecreased patent work;

 

d) Accountingexpense decreased by approximately $11,000 to $70,000 for the year ended December 31,2009 from $81,000 for the year ended December 31, 2008;

 

e) Office expensedecreased by approximately $55,000 to $14,000 for the year ended December 31,2009 from $69,000 for the year ended December 31, 2008;

 

f) Travel expensedecreased by approximately $23,000 to $20,000 for the year ended December 31,2009 from $43,000 for the year ended December 31, 2008;

 

g) Depreciation andamortization expense increased by approximately $32,000 to $332,000 for theyear ended December 31, 2009 from $300,000 for the year ended December 31,2008 as a result of an  increase in theamortization of intangible assets during the twelve months ended December 31,2009; and

 

RESEARCH AND DEVELOPMENT.Research and development expenses decreased by $4,709,871 during the year endedDecember 31, 2009 to $2,765,658 from $7,475,529 for the year ended December 31,2008. The major components of the decrease are as follows:

 

a)Salaries and benefits attributable to research and development decreased byapproximately $894,000 to $1,972,000 for the year ended December 31, 2009from $2,866,000 for the year ended December 31, 2008 due to a) a decrease in the number ofresearch and development employees in 2009, b) stock compensation expenseincreased to $618,000 for the twelve months ended December 31, 2009 from $436,000for the twelve months ended December 31, 2008, and c) bonus expensedecreased to ($182,000) for the twelve months ended December 31, 2009 from$84,000 for the twelve months ended December 31, 2008;

 

b) Consulting expenseattributable to research and development decreased by approximately $878,000 to$205,000 for the year ended December 31, 2009 from $1,083,000 for the yearended December 31, 2008 primarily due to decreased services related toprototype development;

 

c) Lab expense decreasedby approximately $2,669,000 to $273,000 for the year ended December 31,2009 from $2,942,000 for the year ended December 31, 2008 primarily due todecreased services related to prototype development; and

 

d) Travel expenseattributable to research and development decreased by approximately $202,000 to$117,000 for the year ended December 31, 2008 from $319,000 for the year ended December 31,2007.

 

OTHER INCOME (EXPENSE).

 

a) Debt issuance expenseincreased to $164,960 for the year ended December 31, 2009 due to the debtraised in 2009.

 

c)****Interest expense, net decreased to anexpense of $76,607 for the year ended December 31, 2009 as compared to aninterest income, net of $184,475 for the year ended December 31, 2008primarily due to interest expense associated with the debt raised in 2009.

 

NET LOSS.**  **Net loss decreased to$5,372,838 for the year ended December 31, 2009, as compared to$10,584,416 for the year ended December 31, 2008. We compute our net lossper share on the basis of net loss attributable to common stockholders, whichincluded the effects of certain items not included in the determination of netloss. Net loss attributable to common stockholders for the year ended December 31,2009 was $10,002,269 as compared to a net loss attributable to common stockholdersof $15,354,514 for the year ended December 31, 2008. The net lossattributable to common stockholders for the twelve months ended December 31,2009 includes $3,569,136 preferred stock dividends and amortization ofpreferred stock discount and $1,060,295 for additional warrants and dividendsissued to Series B and C Preferred Stock holders to induce conversion to commonstock. The net loss attributable to common stockholders for the twelve monthsended December 31, 2008, includes $4,770,098 of accrued but unpaid preferredstock dividends and amortization of preferred stock discount.

 

**Off-BalanceSheet Transactions**

 

We do not engage inmaterial off-balance sheet transactions.

 

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**Liquidity and Capital Resources**

 

Operating Activities

 

Cash used in operatingactivities during the year ended December 31, 2009 decreased to $3,747,280as compared to $9,039,712 used for the year ended December 31, 2008. Thedecrease is primarily a result of decreases in research and developmentspending.

 

Investing Activities

 

Cash used for investingactivities during the year ended December 31, 2009 amounted to $0, ascompared to $622,166 used for investing activities for the year ended December 31,2008. This is primarily attributable to the acquisition of patents and patentapplications in the second quarter of 2008 in the amount of approximately$197,000 and the acquisition of approximately $426,000 of property andequipment during the year ended December 31, 2008.

 

Financing Activities

 

We have financed ouroperating and investing activities primarily from the proceeds of privateplacements of common stock, convertible investor notes, and a preferred stockoffering which we closed in December 2004, January 2005, February 2007,September 2007, June 2009, August 2009, September 2009, October 2009,and December 2009.

 

The total net cashprovided by financing activities was $2,019,583 for the year ended December 31,2009, which includes:

 

·                  $2,325,000 proceeds from convertiblenotes payable: and

·                  $305,417 payment of deferred loan costs.

 

The total net cashprovided by financing activities was $0 for the year ended December 31,2008.

 

Working Capital

 

As of December 31,2009, we had a cash balance of $0.3 million. In the 4th quarter of2008, the Company’s management began to reduce operating expenses and delayplanned expenditures to preserve the Company’s working capital.  We project that current cash reserves willsustain our operations at least through March 2010. Our working capitalmay not be sufficient to meet all of the needs of our business objectivesthrough the end of 2010.  We would beable to sustain operations for a reasonable period of time (12 months), but itwould require significant reductions in our operating expenditures and productdevelopment activities, if we did not receive additional funding.  Management has instituted a cost reductionprogram that included a reduction in labor and operating costs.  This program included the termination of 10employees which we expect will reduce operating cost by approximately $60,000per month.

 

We are a developmentstage company and have not experienced significant operations since our formation.We reached a positive working capital position as of the first quarter of 2005as a result of our financing activities. We have incurred significant operatinglosses during the years ended December 31, 2002, 2003, 2004, 2005, 2006,2007, 2008 and 2009. We intend to utilize a proprietary methodology fordevelopment of our displays. Our principal activities, from the beginning ofthe development stage, have been organizational matters, capital raisingactivities including issuance of stock, product research and development, fundraising, and market research.

 

To date, we have had onlya few revenue-generating services or development contracts.  These includea prototype development agreement with a large personal computer company, and aSmall Business Innovation Research (SBIR) Phase One agreement with the U.S. AirForce for $98,214 and a follow-on Phase Two agreement for $686,966.  Wealso entered into a prototype development agreement with Lockheed Martin, alarge military contractor, in October 2005, for which we have receivedfull payment.  Our immediate customerprospects are limited to Lockheed Martin, with which we entered into a Licenseand Strategic Business Agreement dated October 5, 2005.

 

Management will work toestablish specific applications for our display technology that we believe willgenerate significant revenues and cash flows to support operations.

 

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**ITEM7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

**ExchangeRate, Interest Rate and Supply Risks**

 

The Company has noexchange rate risks as we conduct 100% of our operations in the United Statesof America, and we conduct our transactions in US dollars.  TheCompany is exposed to extensive market risk in the areas of financing andinterest 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.  TheCompany has no protection against interest rate risk or supply disruptions.

 

**ITEM8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

Our consolidatedfinancial statements and the related notes thereto called for by this itemappear under the caption “Financial Statements” beginning on page F-1 ofthis Annual Report on Form 10-K.

 

**ITEM9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM9A. CONTROLS AND PROCEDURES**

 

**(a) Evaluationof Disclosure Controls and Procedures**

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our reports filed or submitted under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer, who serves as our principal executive officer and ourChief Financial Officer, who servers as our principal financial officer, asappropriate, to allow timely decisions regarding required disclosure.

 

Our Chief ExecutiveOfficer and Chief Financial Officer reviewed and evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures (as definedby Rule 240.13a-15(e) or 15d-15(e)) as of the end of the periodcovered by this report.  Based upon this evaluation, our interim ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures are effective as of the end of the fiscal year coveredby this Form 10-K.

 

**(b) Management’sAnnual Report on Internal Control over Financial Reporting**

 

The Company’s managementis responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) ofthe Exchange Act and for assessing the effectiveness of internal control overfinancial reporting.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect 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.

 

Management has assessedthe effectiveness of the Company’s internal control over financial reporting asof December 31, 2009.  In making itsassessment, management used the criteria established in Internal Control —Integrated Framework, issued by the Committee of Sponsoring Organizations ofthe Treadway Commission.  This assessment included an evaluation ofthe design of the Company’s internal control over financial reporting andtesting of the operational effectiveness of those controls.  Based onthe results of this assessment, management has concluded that the Company’sinternal control over financial reporting was effective as of December 31,2009.

 

This Annual Report on Form 10-Kdoes not include an attestation report of the Company’s registered publicaccounting firm regarding internal control over financialreporting.  Management’s report was not subject to attestation by the

 

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Company’s registeredpublic accounting firm pursuant to temporary rules of the SEC that permitthe Company to provide only management’s report in this Annual Report on Form 10-K.

 

**(c) Changesin Internal Control over Financial Reporting**

 

There were no changes inthe Company’s internal control over financial reporting that occurred duringthe fourth quarter of the year ended December 31, 2009 that havematerially affected, or that are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

**ITEM9B. OTHER INFORMATION**

 

None

 

**PART III**

 

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE**

 

The following table setsforth the names and ages of all of our directors and executive officers as of February 28,2010. Our officers are appointed by, and serve at the pleasure of, the Board ofDirectors.

 
| **Name**            | ** ** | **Age** | ** ** | **Title**                                                                     |
|---------------------|------------|---------|------------|-------------------------------------------------------------------------------|
| Reed J. Killion     |       | 47      |       | Chief Executive  Officer, President, Principal Executive Officer and Director |
| James A. Tassone    |       | 46      |       | Chief Financial Officer                                                       |
| Dan Van Ostrand     |       | 51      |       | Vice President  Research & Development                               |
| Robert J. Petcavich |       | 55      |       | Vice President and  General Manager Opcuity Films                             |
| Carl J. Yankowski   |       | 61      |       | Director                                                                      |
| Bernard Marren      |       | 74      |       | Chairman                                                                      |
| Bruce Berkoff       |       | 49      |       | Director                                                                      |
| Ross Young          |       | 44      |       | Director                                                                      |

 

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

 

***Reed J. Killion, Chief Executive Officer, President,Principal Executive Officer and Director*** — Mr. Killion is a member of Uni-Pixel’sboard of directors and has served as the President and Principal ExecutiveOfficer of the Company since September 2004. As of May 1, 2008, Mr. Killionwas promoted to Chief Executive Officer. Mr. Killion is also the Chairman of the Board for AnimalInnovations. Mr. Killion is an active Board Member and Trustee of theTexas A&M Research Foundation. Previously Mr. Killion served as Uni-Pixel’sExecutive Vice President of Business Development and has been a member of itsBoard of Directors since April 2002.  Prior to joining Uni-Pixel, Mr. Killionwas Vice President of Business Development for 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 Financial Officer*** — Mr. Tassone has beenthe Chief Financial Officer of Uni-Pixel since he joined the Company in August 2003.Mr. Tassone served as a part-time consultant to the Company from June 2002to August 2003. Mr. Tassone was appointed Secretary of the Company in January 2005.From June 1999 to August 2003, Mr. Tassone was the ManagingDirector and Chief Financial Officer of Mindwave Research, Inc., a companyhe founded in June 1999, and for which he continues to serve on the boardof directors. Mindwave Research is a primary market research and consultingcompany for high technology clients. From 1997 until June 1999, Mr. Tassonewas the Director of Research for Reality Research, a subsidiary of CMP Media (ahigh tech industry-focused publishing company). Prior to Reality Research, Mr. Tassoneheld management 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.

 

***Dan Van Ostrand, Vice President Research &Development*** —Mr. Van Ostrand is a co-founder of Uni-Pixel and has served in a Sr.Executive position since its inception in February of 1998.  Mr. VanOstrand has many years of experience in corporate operations, projectmanagement, systems engineering and systems design and has been involved in theestablishment, funding and management of Uni-Pixel.  Since 2004, he hasbeen leading corporate R&D activities, including 

 

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microstructure masteringand Intellectual Property development. In 2009 he also took over responsibility for all Engineering activitiesin the company.  As co-owner from 1984 through 1992 of a closely-heldcompany that designed ruggedized VME-based tactical computer systems for theUnited States Army, he was exposed to and became interested in the design,development and engineering 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 President and General Manager*** — Dr. Petacavich has been the VicePresident and General Manager of Uni-Pixel since he joined the Company in January 2008.  Dr Petcavich was also thecofounder of Health Beacons Inc. in Kirkland, Washington a company developingleading edge implantable RFID technology for the medical surgical cancer field.Dr Petcavich was Senior Vice President and Chief Technology Officer of LumeraCorporation (NASDAQ:LMRA) in Bothell, Washington, a publicly tradednanotechnology polymer platform bioscience and molecular photonics technologycompany. Dr. Petcavich has been the Chairman, CEO and CTO of several advancedmaterials and medical informatics technology companies. Dr. Petcavich was VicePresident of Deposition Technologies Inc. from 1982 to 1988, an advancedmaterials company involved in electro optic and aerospace thin film materialsdevelopment and manufacturing which was subsequently acquired by BrunswickDefense (NYSE:BC) and Material Sciences Corporation (NYSE:MSC) in 1986. From August 1988until September 1995, Dr. Petcavich was President and CEO ofAlphascribe Express Inc., an electronic medical records service enterprise,which was subsequently sold to Rodeer Systems.  Dr. Petcavich wasalso founder, Chairman and CTO of Planet Polymer Technologies Inc. (Nasdaq:POLYnow PLNT) from 1992 until 2002, an advanced materials intellectual propertydevelopment company which merged with Allergy Free Inc. of 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 wasnamed as Palm, Inc. CEO in December 1999, three months before its $1Billion + IPO.  He profitably grew theCompany to a $2 Billion sales rate, drove unaided awareness to over 65%, andthen executed a restructuring after the spring 2001 global economicdownturn.  Immediately prior to joiningPalm, Mr. Yankowski was CEO of the Reebok Brand, where he led theworldwide Reebok-brand business, a multibillion dollar enterprise that recentlymerged with Adidas.  During his tenure atReebok, Mr. Yankowski successfully reorganized the Company for growth,significantly streamlined operations, and improved profitability.  Mr. Yankowski spent over four years atSony Electronics, Inc. as President and COO where he was responsible forthe development and launch of numerous successful products in growing marketsand new business categories for Sony, including DVD, CDMA, digital imaging, andVAIO personal computers.  He also oversawthe initial U.S. launch of PlayStation.  Mr. Yankowskiled Sony to profitable U.S. revenue growth from $6+ Billion to over $10Billion, and oversaw a dramatic expansion of U.S. manufacturing.  In an earlier position as Chairman ofPolaroid’s Asia Pacific Region, Mr. Yankowski led growth in the businessimaging market globally and set up the Company’s Asia Pacificheadquarters.  Mr. Yankowski has heldmarketing 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 Carroll Schoolof Business and MIT Sloan School.

 

***Bernard Marren, Director***— Mr. Marren has served as a Uni-Pixel Directorsince 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 

 

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FairchildSemiconductor.  Extending his executive leadership to theelectronics industry as a whole, Mr. Marren was a founder and the firstPresident of the Semiconductor Industry Association. He is also a pastPresident and Chairman of the National Electronic Distributors Association anda past President of the Electronic Industry Show Corporation.  Mr. Marren is a graduate of the IllinoisInstitute of Technology (BSEE).

 

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

 

***Ross Young, Director***— Mr. Young has served as a Uni-Pixel Directorsince May 20, 2008.  Mr. Young founded DisplaySearch, the leading provider of marketintelligence on displays and related technology, in 1996 and is credited withbuilding the firm to what it is today. Mr. Young has made multipleappearances on television, including NBC’s **The Today Show** as adisplay industry expert, and has been an invited speaker at over 30 differentconferences worldwide. Mr. Young received The NPD Group’s prestigious JohnByington Award for outstanding creativity and innovation in November 2006,was appointed 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.

 

The Board members servefor a period of one year.

 

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

 

**Audit Committee Financial Expert**

 

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

 

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

 

Section 16(a) ofthe Exchange Act requires the Company’s directors and executive officers andpersons who beneficially own more than 10% of the registered class of the Company’sequity securities to file with the SEC reports of ownership and changes inownership of the Company’s Common Stock. Directors, executive officers andgreater than 10% beneficial stockholders are required by SEC regulations tofurnish the Company with copies of all Section 16(a) forms they file.Based solely on a review of the copies of these reports furnished, managementbelieves 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, 2009.

 

**Code of Ethics Disclosure**

 

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

 

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**ITEM 11. EXECUTIVE COMPENSATION**

 

**ExecutiveOfficer Compensation.**

 

Thetable below summarizes the total compensation paid to or earned by ourprincipal executive officer, our principal financial officer and each of ourthree most highly compensated executive officers other than our principalexecutive officer and principal financial officer.  The amounts represented in the “Option Awards”column reflect the stock compensation expense recorded by the company pursuantto Topic 718 and does not necessarily equate to the income that will ultimatelybe realized by the named executive officers for such awards.  For a description of the employmentagreements between the company and Messrs. Killion and Tassone, see “EmploymentAgreements” 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**                                                                  |       | 2009     |       | $               | 213,542    |               | $          | —                  |       | $                                                 | 323,143    |                                               | —     |                              | —     |      | $          | 11,500 |   | $ | 548,185 |   |
| Chief Executive Officer,  President (Principal Executive Officer) & Director |       | 2008     |       | 238,937         |       | —             |       | 330,152                 |       | —                                            |       | —                                             |       | 12,000                            |       | 581,089   |       |
|                                                                                  |       |     |       |            |       |               |       |                    |       |                                              |       |                                               |       |                              |       |      |       |
| **James A.  Tassone**                                                                 |       | 2009     |       | 150,875         |       | —             |       | 57,986                  |       | —                                            |       | —                                             |       | 11,500                            |       | 220,361   |       |
| Chief Financial  Officer                                                              |       | 2008     |       | 171,175         |       | —             |       | 80,337                  |       | —                                            |       | —                                             |       | 12,000                            |       | 263,512   |       |
|                                                                                  |       |     |       |            |       |               |       |                    |       |                                              |       |                                               |       |                              |       |      |       |
| **Dan Van  Ostrand**                                                                  |       | 2009     |       | 136,667         |       | —             |       | 18,494                  |       | —                                            |       | —                                             |       | —                            |       | 155,161   |       |
| Vice President  Research & Development                                       |       | 2008     |       | 155,000         |       | —             |       | —                  |       | —                                            |       | —                                             |       | —                            |       | 155,000   |       |
|                                                                                  |       |     |       |            |       |               |       |                    |       |                                              |       |                                               |       |                              |       |      |       |
| **Robert  Petcavich**                                                                 |       | 2009     |       | 167,963         |       | —             |       | 143,569                 |       | —                                            |       | —                                             |       | —                            |       | 311,532   |       |
| Vice  President & General Manager Opcuity Films                              |       | 2008     |       | 188,250         |       | —             |       | 125,075                 |       | —                                            |       | —                                             |       | —                            |       | 313,325   |       |
|                                                                                       |            |          |            |                 |            |                    |            |                         |            |                                                   |            |                                                    |            |                                   |            |           |            |  |  |  |  |  |

 

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

 

(2)                                  Amounts reflectthe aggregate annual cash bonus earned by each of our named executive officersfor fiscal years 2009 and 2008.  Therewere no cash bonus paid for fiscal years 2009 and 2008.

 

(3)                                  For 2009 and2008, the amounts reflect the compensation cost recognized in 2009 and 2008,respectively, for stock options in accordance with FAS 123R, which reflects thefair value of all stock-based compensation in earnings based on the relatedvesting schedule.  For additionalinformation relating to the assumptions made by us in connection with thevaluation of these awards for 2009, refer to Note 3 of our financial statementsherein.  For additional informationrelating to the assumptions made by us in connection with the valuation ofthese awards for 2008, refer to Note 3 of our financial statements in ourAnnual Report on Form 10-KSB for the year ended December 31, 2008.

 

(4)                                  Excludesperquisites and other personal benefits unless such compensation was greaterthan $10,000.  For Mr. Killionand Mr. Tassone, amounts include a car allowance.

 

**401(k) Plan**

 

Effective February 2007,the Company created an employee benefit plan available to all full-time employeesunder Section 401(k) of the Internal Revenue Code (“401(k) plan”).Employees may make contributions up to a specified percentage of theircompensation, as defined. The Company is not obligated to make contributionsunder the 401(k) plan. In addition, the Company did not make any matchingemployer contribution to the 401(k) Plan in 2009 or 2008.

 

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**Employment Agreements**

 

As of December 31,2009, the Company does not have any employment agreements outstanding.

 

**OutstandingEquity Awards at December 31, 2009**

 
| ** **           | ** ** | **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 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 618,750                                                                       | (a)        | 191,250                                                                         | (a)        | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 115,313                                                                       | (b)        | 87,187                                                                          | (b)        | 1.45 |   | 4/18/2018 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 25,000                                                                        |       | —                                                                          |       | 1.45 |   | 1/30/2019 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **James A. Tassone** |       | 200,000                                                                       |       | —                                                                          |       | 2.00 |   | 4/19/2015 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 80,208                                                                        | (a)        | 24,792                                                                          | (a)        | 1.45 |   | 9/13/2017 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 14,948                                                                        | (b)        | 11,302                                                                          | (b)        | 1.45 |   | 4/18/2018 |   | — |   | — |   | — |   | — |   |
| ** **           |       | 25,000                                                                        |       | —                                                                          |       | 1.45 |   | 1/30/2019 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dan Van Ostrand**  |       | 25,000                                                                        |       | —                                                                          |       | 1.45 |   | 1/30/2019 |   | — |   | — |   | — |   | — |   |
| ** **           |       |                                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Robert Petcavich** |       | 333,333                                                                       | (c)        | 166,667                                                                         | (c)        | 1.45 |   | 1/7/2018 |   | — |   | — |   | — |   | — |   |
|                 |       | 25,000                                                                        |       | —                                                                          |       | 1.45 |   | 1/30/2019 |   |   |   |   |   |   |   |   |   |
|                      |            |                                                                               |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)          vests monthly over 36 monthsbeginning September 13, 2007

(b)         vests monthly over 36 monthsbeginning April 18, 2008

(c)          vests monthly over 36 monthsbeginning January 7, 2008

 

**Director Compensation**

 

Thetable below summarizes the total compensation paid to or earned by ourdirectors during 2009. The amounts represented in the “Option Awards” columnreflects the stock compensation expense recorded by the company 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**  |       | $                                | —     |              | —     |               | $          | 27,184                                       |       | —                                             |       | —                      |       | —    |       | $ | 27,184 |   |
| **Bernard Marren** |       | —                           |       | —            |       | 27,184             |       | —                                       |       | —                                             |       | —                      |       | 27,184    |       |
| **Carl Yankowski** |       | —                           |       | —            |       | 27,184             |       | —                                       |       | —                                             |       | —                      |       | 27,184    |       |
| **Ross Young**     |       | —                           |       | —            |       | 30,574             |       | —                                       |       | —                                             |       | —                      |       | 30,574    |       |
|                    |            |                                  |            |                   |            |                    |            |                                              |            |                                                    |            |                             |            |           |            |  |  |  |

 

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Overview

 

Uni-Pixel’s directorcompensation 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 feestructure to provide compensation relative to the required time commitment ofeach director. The equity component of Uni-Pixel’s director compensationprogram is designed to build an ownership stake in the Company while conveyingan incentive to directors relative to the returns recognized by ourshareholders.

 

Cash-Based Compensation

 

Company non-employeedirectors 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 and for all of fiscal 2009.

 

Equity-Based Compensation

 

Under provisions adopted bythe Board of Directors, each non-employee director receives an option topurchase 100,000 shares of our common stock issued upon his first election tothe Board of Directors.  These optionsvest monthly over three years. Stock options granted under the plan are pricedat the closing market price of the Company’s stock on the day of grant, but inno case lower than $1.45 per share.

 

Pension and Benefits

 

The non-employee directorsare not eligible to participate in the Company’s benefits plans, including the401(k) plan.

 

Indemnification Agreements

 

The Company’s certificate ofincorporation requires the Company to indemnify both the directors and officersof the Company to the fullest extent permitted by Delaware state law.

 

**ITEM 12. SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

We have set forth in thefollowing table certain information regarding our common stock, on an asconverted basis, beneficially owned as of February 28, 2010 for (i) eachstockholder we know to be the beneficial owner of 5% or more of our outstandingCommon Stock, (ii) each of our directors and named executive officers, and(iii) all executive officers and directors as a group. Generally, a personis deemed to be a “beneficial owner” of a security if that person has or sharesthe power to dispose or to direct the disposition of such security. A person isalso deemed to be a beneficial owner of any securities of which the person hasthe right to acquire beneficial ownership within 60 days pursuant tooptions, warrants, conversion privileges or similar rights. At February 28,2010, we had 52,100,535 issued and outstanding shares of Common Stock and nopreferred stock outstanding.

 
| **Name  and  Address of Beneficial Owner**                                                                                                    | ** ** | **Amount of Beneficial  Ownership(1)** | ** ** | **Percent of Class** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|
| *Directors and Officers:*                                                                                                                     |       |                                   |       |                 |       |
| Reed J. Killion                                                                                                                               |       | 2,121,563                              | (2)        | 4.0                  | %          |
| James A. Tassone                                                                                                                              |       | 960,990                                | (3)        | 1.8                  | %          |
| Dan Van Ostrand                                                                                                                               |       | 977,500                                | (4)        | 1.9                  | %          |
| Robert J. Petcavich                                                                                                                           |       | 713,889                                | (5)        | 1.4                  | %          |
| Carl J. Yankowski                                                                                                                             |       | 1,155,000                              | (6)        | 2.2                  | %          |
| Bernard Marren                                                                                                                                |       | 175,000                                | (7)        | 0.3                  | %          |
| Bruce Berkoff                                                                                                                                 |       | 155,000                                | (8)        | 0.3                  | %          |
| Ross Young                                                                                                                                    |       | 120,278                                | (9)        | 0.2                  | %          |
| All Directors and Executive Officers as a Group (8  persons)                                                                                  |       | 6,379,220                              |       | 12.0                 | %          |
| *5% Stockholders:*                                                                                                                            |       |                                   |       |                 |       |
| The Raptor Global Portfolio Ltd.  50 Rowes Wharf  6th Floor  Boston, MA 02110                                                            |       | 21,359,770                             | (10)       | 36.8                 | %          |
| The Altar Rock Fund Liquidating Trust  50 Rowes Wharf  6th Floor  Boston, MA 02110                                                       |       | 181,719                                | (11)       | 0.3                  | %          |
| The Tudor BVI Global Portfolio, L.P.  1275 King Street  Greenwich, CT 06831                                                                   |       | 6,825,606                              | (12)       | 12.6                 | %          |
| Merrill Lynch Pierce, Fenner & Smith  Incorporated  Bank of America, 15th Floor  600 Montgomery Street  San Francisco, CA 94111 |       | 12,389,590                             | (13)       | 22.2                 | %          |

 

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----

(1)                          Beneficial ownership is determined inaccordance with Rule 13d-3 under the Securities Exchange Act of 1934, asamended, and is generally determined by voting powers and/or investment powerswith respect to securities. Unless otherwise noted, all of such shares ofCommon Stock listed above are owned of record by each individual named asbeneficial owner and such individual has sole voting and dispositive power withrespect to the shares of Common Stock owned by each of them.

 

(2)                          Includes options to purchase 1,571,563shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(3)                          Includes options to purchase 584,740shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(4)                          Includes options to purchase 150,000shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(5)                          Includes options to purchase 713,889shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(6)                          Includes options to purchase 1,155,000shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(7)                          Includes options to purchase 175,000shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(8)                          Includes options to purchase 155,000shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(9)                          Includes options to purchase 120,278shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(10)                    Includes warrants to purchase 5,934,812shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(11)                    Includes warrants to purchase 50,490shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(12)                    Includes warrants to purchase 1,896,495shares of Common Stock exercisable within 60 days from February 28, 2010.

 

(13)                    Includes warrants to purchase 3,671,771shares of Common Stock exercisable within 60 days from February 28, 2010.

 

**ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

**TheMerger Agreement**

 

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

 

***Indemnification.*** The Merger Agreement provides for limitedindemnification of Uni-Pixel Displays, Inc. and its officers, directors,employees, attorneys, representatives, stockholders, controlling persons andaffiliates (the “Uni-Pixel Indemnitees”) from certain of the Company’sstockholders for possible liabilities and claims in connection with theoperation

 

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and ownership ofthe Company including (i) from and including June 14, 2001 throughand including November 14, 2004 from David DiSalvo, the former President,Secretary, Treasurer and sole board member for the Company; and (ii) fromand including November 15, 2004 going forward from Frank M. DeLape, the currentChairman of the Board of the Company. Frank M. DeLape will also indemnify theUni-Pixel Indemnitees for inaccuracies or breaches of certain terms of theMerger Agreement by the Company, for breaches of covenants or obligations ofthe Merger Agreement by the Company, for costs and expenses incurred inconnection with any stockholder suit challenging the validity of the MergerAgreement, and for any claims by brokers or finders for fees or commissionsalleged to be due from the Company in connection with the Merger.

 

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

 

**PlacementAgent Agreements**

 

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

 

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

 

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

 

**DirectorIndependence**

 

The Over-the-CounterBulletin Board does not have rules regarding director independence. Our determination of independence of directors is made using the definition of “independentdirector” contained in the Marketplace Rules of the NASDAQ Stock Market (“NASDAQ”),even though such definitions do not currently apply to us because we are notlisted on NASDAQ.  We have determined that Mr. Yankowski, Mr. Marren,Mr. Berkoff and Mr. Young are “independent” within the meaning ofsuch rules. Mr. Killion is not “independent” under these rules, due to hisposition as an executive officer of our Company.

 

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

 

**Audit Fees**

 

The aggregate fees billedby PMB Helin Donovan, LLP (“PMBHD”) for professional services rendered for theaudit of our annual consolidated financial statements during the fiscal yearended December 31, 2009, and for the reviews of the consolidated financialstatements included in our quarterly reports on Form 10-Q for that fiscalyear were $51,975.  The aggregate feesbilled by PMBHD for professional services rendered for the audit of our annualconsolidated financial statements and for the reviews of the consolidatedfinancial statements included in our quarterly reports on Form 10-QSB

 

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during the fiscal yearended December 31, 2008, were $57,600. These fees include fees billed for professional services rendered byPMBHD for the review of registration statements or services that are normallyprovided in connection with statutory and regulatory filings or engagements forthose fiscal years.

 

**Audit Related Fees**

 

PMBHD did not bill us forany professional services that were reasonably related to the performance ofthe audit or review of financial statements for either the fiscal year ended December 31,2009, or the fiscal year ended December 31, 2008, that are not includedunder Audit Fees above.

 

**Tax Fees**

 

PMBHD billed $4,950 and $5,150for the fiscal years ended December 31, 2009 and 2008, respectively, forprofessional services rendered for tax compliance, tax advice, and taxplanning.

 

**All Other Fees**

 

PMBHD did not perform anyservices for us or charge any fees other than the services described above foreither the fiscal year ended December 31, 2009, or the fiscal year ended December 31,2008.

 

**PART IV**

 

**ITEM 15. EXHIBITS, FINANCIAL STATEMENT 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,                                                                        |

 

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|   |   | Inc., Gemini  V, Inc., Uni-Pixel Displays, Inc. and those Stockholders of  Real-Estateforlease.com, Inc. Listed on Exhibit “A” as “Company  Stockholders” (1)                                                                                                                                                                                                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.10  |   | Employment Agreement —  Frank M. DeLape (2) (5)                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.11  |   | Employment Agreement —  Reed J. Killion (2) (5)                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.12  |   | Lockheed Martin  Purchase Order (2) (portions of this exhibit have been omitted pursuant  to a request for confidential treatment)                                                                                                                                                                                                                                                                                                                                              |
| 10.13  |   | Small Business  Innovation Research Phase I Contract (3)                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.14  |   | Small Business  Innovation Research Phase II Contract (3)                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.15  |   | License and Strategic  Business Agreement between Uni-Pixel Displays, Inc. and Lockheed Martin  Corporation, acting by and through Lockheed Martin Systems Integration-Owego,  dated as of October 5, 2005.(4) (The portions of this  Exhibit marked “******” have been omitted and confidentially filed with  the Securities and Exchange Commission pursuant to Rule 24b-2  promulgated under the Securities Exchange Act of 1934, as amended.) |
| 10.16  |   | Employment Agreement —  James A. Tassone (5) (6)                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.17  |   | Securities Purchase  Agreement dated May 24, 2006, by and between  Uni-Pixel, Inc., Uni-Pixel Displays, Inc., 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 theCompany’s Form 10-SB, filed on February 18, 2005, and incorporated byreference hereto.

(2)                                  Previously filed as an exhibit to theCompany’s Amendment #1 Form 10-SB, filed on April 1, 2005, andincorporated by reference hereto.

(3)                                  Previously filed as an exhibit to theCompany’s Amendment #2 Form 10-SB, filed on April 27, 2005, andincorporated by reference hereto.

(4)                                  Previously filed as an exhibit to theCompany’ Form 10-QSB, filed on November 10, 2005, and incorporated byreference hereto.

(5)                                  Management contract or compensation planor arrangement

(6)                                  Previously filed as an exhibit to theCompany’ Form 10-KSB, filed on March 28, 2006, and incorporated byreference hereto

(7)                                  Previously filed as an exhibit to the Company’Form 10-QSB, filed on August 14, 2006, and incorporated by referencehereto.

(8)                                  Previously filed as an exhibit to theCompany’ Form 10-QSB, filed on November 13, 2006, and incorporated byreference hereto.

 

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(9)                                  Previously filed as an exhibit to theCompany’s Form 8-K, filed on May 31, 2006, and incorporate byreference hereto.

(10)                            Previously filed as an exhibit to theCompany’s Form 8-K, filed on February 6, 2007, and incorporate byreference hereto.

(11)                            Previously filed as an exhibit to theCompany’s Form 8-K, filed on February 16, 2007, and incorporate byreference hereto.

(12)                            Previously filed as an exhibit to theCompany’s Form 8-K, filed on September 20, 2007, and incorporate byreference hereto.

(13)                            Previously filed as an exhibit to theCompany’s Form 8-K, filed on October 2, 2007, and incorporate byreference hereto.

(14)                            Filed herewith

 

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**SIGNATURES**

 

In accordance with Section 13or 15(d) of the Exchange Act, the Registrant has caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
| UNI-PIXEL,  INC.  |
|-------------------|
|              |   |
| By:               | /s/  JAMES A.  TASSONE |   |
|              | James A. Tassone, Chief  Financial Officer and  Principal Accounting Officer |   |
|              |   |   |
| Date:   | March 12, 2010 |   |

 

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

 
| **Signature**                       | ** ** | **Title**                                            | ** ** | **Date**            |
|-------------------------------------|------------|------------------------------------------------------|------------|---------------------|
|                                |       |                                                 |       |                |
| /s/ REED J. KILLION                 |       | President, Principal  Executive Officer and Director |       | March 12, 2010 |
| Reed J. Killion                     |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/ JAMES A. TASSONE                |       | Chief Financial Officer                              |       | March 12, 2010 |
| James A. Tassone                    |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  DAN VAN  OSTRAND     |       | Vice President  Research & Development      |       | March 12, 2010 |
| Dan Van Ostrand                     |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  ROBERT  J. PETCAVICH |       | Vice President and  General Manager                  |       | March 12, 2010 |
| Robert J. Petcavich                 |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  CARL J.  YANKOWSKI   |       | Director                                             |       | March 12, 2010 |
| Carl J. Yankowski                   |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  BERNARD  MARREN      |       | Chairman of the Board                                |       | March 12, 2010 |
| Bernard Marren                      |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  BRUCE BERKOFF        |       | Director                                             |       | March 12, 2010 |
| Bruce Berkoff                       |       |                                                 |       |                |
|                                |       |                                                 |       |                |
| /s/  ROSS  YOUNG          |       | Director                                             |       | March 12, 2010 |
| Ross Young                          |       |                                                 |       |                |

 

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**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

**OF UNI-PIXEL, INC.**

 
| Report  of Independent Registered Public Accounting Firm                                                                                                                                         | 45     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                             |   |
| Consolidated  Balance Sheets, December 31, 2009 and 2008                                                                                                                                    | 46     |
|                                                                                                                                                                                             |   |
| Consolidated Statements of  Operations for the years ended December 31, 2009 and 2008 and the  cumulative period from February 17, 1998 (date of inception) to  December 31, 2009 | 47     |
|                                                                                                                                                                                             |   |
| Consolidated Statements of Shareholders’ Equity  (Deficit) for the period February 17, 1998 (date of inception) to  December 31, 2009                                             | 48     |
|                                                                                                                                                                                             |   |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2009 and 2008 and the cumulative period from  February 17, 1998 (date of inception) to December 31, 2009  | 49     |
|                                                                                                                                                                                             |   |
| Notes to Consolidated Financial Statements                                                                                                                                                       | 50     |

 

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***Report of Independent RegisteredPublic Accounting Firm***

 

TheBoard of Directors and Shareholders of

Uni-Pixel, Inc.

 

Wehave audited the accompanying consolidated balance sheets of Uni-Pixel, Inc.(the Company) (a development stage company) as of December 31, 2009 and2008, and the related consolidated statements of operations, shareholders’equity (deficit), and cash flows for the years ended December 31, 2009 and2008, and the period from inception (February 17, 1998) through December 31,2009. The Company’s management is responsible for these consolidated financialstatements.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit ofits internal control over financial reporting. Our audit included considerationof internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements, assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall consolidated financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofUni-Pixel, Inc. as of December 31, 2009 and 2008, and the results ofits operations and its cash flows for the years ended December 31, 2009and 2008, and the period from inception (February 17, 1998) through December 31,2009, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern.  As discussed in Note 2 tothe consolidated financial statements, the Company has sustained losses andnegative cash flows from operations for the period from inception (February 17,1998) through December 31, 2009, whereby its accumulated deficit duringthe development stage is approximately $49.9 million.  The Company’sability to meet its obligations in the ordinary course of business is dependentupon its ability to establish profitable operations, raise additional financingthrough public or private equity financings, enter into collaborative or otherarrangements with corporate sources, or secure other sources of financing tofund operations.  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 12,  2010        |       |
| Houston, Texas              |       |

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated BalanceSheets

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                  |       |                        |       |                        |       |
| Current assets                                                                                                                                                                                                                                                                                                                                                                              |       |                        |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                   |       | $                           | 307,850    |                        | $          | 2,035,547 |   |
| Restricted cash                                                                                                                                                                                                                                                                                                                                                                             |       | 34,877                      |       | —                      |       |
| Deferred loan costs                                                                                                                                                                                                                                                                                                                                                                         |       | 385,549                     |       | —                      |       |
| Prepaid expenses                                                                                                                                                                                                                                                                                                                                                                            |       | 3,400                       |       | 3,400                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Total current assets                                                                                                                                                                                                                                                                                                                                                                        |       | 731,676                     |       | 2,038,947                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Property and equipment,  net of accumulated depreciation of $1,328,662 and $1,013,967, at  December 31, 2009 and 2008, respectively                                                                                                                                                                                                                                                    |       | 277,361                     |       | 592,056                     |       |
| Restricted cash                                                                                                                                                                                                                                                                                                                                                                             |       | —                      |       | 34,877                      |       |
| Intangible assets                                                                                                                                                                                                                                                                                                                                                                           |       | 168,250                     |       | 185,252                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Total assets                                                                                                                                                                                                                                                                                                                                                                                |       | $                           | 1,177,287  |                        | $          | 2,851,132 |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                                                                                                                                                                                     |       |                        |       |                        |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Current liabilities                                                                                                                                                                                                                                                                                                                                                                         |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                                                                                                                                                                                                                                            |       | $                           | 927,641    |                        | $          | 731,022 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                                                            |       | —                      |       | 383,039                     |       |
| Deferred revenue                                                                                                                                                                                                                                                                                                                                                                            |       | 33,333                      |       | 33,333                      |       |
| Current portion of  convertible note payable, net of unamortized discounts of $41,807 and $0 at  December 31, 2009 and December 31, 2008, respectively                                                                                                                                                                                                                            |       | 2,283,193                   |       | —                      |       |
| Interest payable                                                                                                                                                                                                                                                                                                                                                                            |       | 61,317                      |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                   |       | 3,305,484                   |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Total liabilities                                                                                                                                                                                                                                                                                                                                                                           |       | 3,305,484                   |       | 1,147,394                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Commitments and  contingencies (Note 7)                                                                                                                                                                                                                                                                                                                                                     |       | —                      |       | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Redeemable convertible Series B Preferred  stock, $0.001 par value; $3.75 liquidation preference; 3,200,000 shares  authorized, 0 shares issued and outstanding at December 31, 2009 and  3,200,000 shares issued and outstanding at December 31, 2008, less  unamortized discount of $0 and $4,644,502 at December 31, 2009 and  December 31, 2008, respectively. |       | —                      |       | 9,159,771                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Redeemable convertible Series C Preferred  stock, $0.001 par value; $11.20 liquidation preference; 892,858 shares  authorized, 0 shares issued and outstanding at December 31, 2009 and  892,858 shares issued and outstanding at December 31, 2008, less  unamortized discount of $0 and $5,714,466 at December 31, 2009 and  December 31, 2008, respectively.    |       | —                      |       | 5,210,901                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| 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, 2009 and  2008                                                                                                                                                                                                                |       | —                      |       | —                      |       |
| Common stock, $0.001 par  value; 100,000,000 shares authorized, 52,100,535 shares and 22,897,418 shares  issued and outstanding at December 31, 2009 and 2008, respectively                                                                                                                                                                                                            |       | 52,101                      |       | 22,897                      |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                  |       | 47,728,226                  |       | 30,785,560                  |       |
| Accumulated deficit during  development stage                                                                                                                                                                                                                                                                                                                                               |       | (49,908,524                 | )          | (43,475,391                 | )          |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Total shareholders’ equity  (deficit)                                                                                                                                                                                                                                                                                                                                                  |       | (2,128,197                  | )          | (12,666,934                 | )          |
|                                                                                                                                                                                                                                                                                                                                                                                        |       |                        |       |                        |       |
| Total liabilities and  shareholders’ equity (deficit)                                                                                                                                                                                                                                                                                                                                  |       | $                           | 1,177,287  |                        | $          | 2,851,132 |   |

 

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

 

46

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Table of Contents

 

Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statementsof Operations

 
| ** **                                                              | ** ** | **Year Ended  December 31,** | ** **  | **Cumulative  Period from  February 17, 1998  (date of inception)  to December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|-------------|-------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **2009**                               | ** **  | **2008**                                                                                                                | ** ** | **2009** | ** ** |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Development contract revenue                                            |       | $                                      | —      |                                                                                                                    | $          | — |   | $ | 1,158,201 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Cost of development contract revenue                                    |       | —                                 |        | —                                                                                                                  |       | 456,648 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Gross margin                                                            |       | —                                 |        | —                                                                                                                  |       | 701,553 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Selling, general and administrative expenses                            |       | 2,365,613                              |        | 3,293,362                                                                                                               |       | 22,007,582 |   |
| Research and development                                                |       | 2,765,658                              |        | 7,475,529                                                                                                               |       | 24,533,536 |   |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Operating loss                                                          |       | (5,131,271                             | )           | (10,768,891                                                                                                             | )          | (45,839,565 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Other income (expense)                                                  |       |                                   |        |                                                                                                                    |       |   |   |
| Net decrease in fair value of derivative liability                      |       | —                                 |        | —                                                                                                                  |       | 845,079 |   |
| Other income                                                            |       | —                                 |        | —                                                                                                                  |       | 886,886 |   |
| Debt issuance expense                                                   |       | (164,960                               | )           | —                                                                                                                  |       | (809,306 | ) |
| Interest income (expense), net                                          |       | (76,607                                | )           | 184,475                                                                                                                 |       | (2,164,597 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Net loss                                                                |       | $                                      | (5,372,838  | )                                                                                                                       | $          | (10,584,416 | ) | $ | (47,081,503 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Preferred stock dividends and amortization of  discount                 |       | (4,629,431                             | )           | (4,770,098                                                                                                              | )          | (13,899,111 | ) |
| Net loss attributable to common shareholders                            |       | $                                      | (10,002,269 | )                                                                                                                       | $          | (15,354,514 | ) | $ | (60,980,614 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Per share information                                                   |       |                                   |        |                                                                                                                    |       |   |   |
| Net loss — basic and diluted                                       |       | $                                      | (0.18       | )                                                                                                                       | $          | (0.46 | ) | $ | (4.18 | ) |
| Preferred stock dividends and amortization of  discount                 |       | (0.15                                  | )           | (0.21                                                                                                                   | )          | (1.23 | ) |
| Net loss attributable to common shareholders — basic  and diluted  |       | $                                      | (0.33       | )                                                                                                                       | $          | (0.67 | ) | $ | (5.41 | ) |
|                                                                    |       |                                   |        |                                                                                                                    |       |   |   |
| Weighted average number of basic and diluted common  shares outstanding |       | 30,098,187                             |        | 22,897,418                                                                                                              |       | 11,270,399 |   |

 

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

 

47

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Table of Contents

 

Uni-Pixel, Inc.

(A Development StageCompany)

ConsolidatedStatements 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 | ) |
| Conversion  of Series B & C Preferred Stock                                                                             |       | —                             |       | —     |       | 29,203,117                 |       | 29,204         |       | 17,910,605           |       | —                        |       | —                 |       | 17,939,809 |   |
| Additional  warrants and dividends issued to Series B & C Preferred Stock  holders to induce conversion to common stock |       | —                             |       | —     |       | —                     |       | —         |       | 1,060,295            |       | —                        |       | (1,060,295             | )          | — |   |
| Stock  compensation expense                                                                                                           |       | —                             |       | —     |       | —                     |       | —         |       | 1,234,419            |       | —                        |       | —                 |       | 1,234,419 |   |
| Issuance  of warrants to convertible note investors                                                                                   |       | —                             |       | —     |       | —                     |       | —         |       | 61,389               |       | —                        |       | —                 |       | 61,389 |   |
| Issuance  of warrants to placement agent                                                                                              |       | —                             |       | —     |       | —                     |       | —         |       | 245,094              |       | —                        |       | —                 |       | 245,094 |   |
| Amortization  of discount of Series B Preferred Stock                                                                            |       | —                             |       | —     |       | —                     |       | —         |       | (1,114,681           | )          | —                        |       | —                 |       | (1,114,681 | ) |
| Amortization  of discount of Series C Preferred Stock                                                                            |       | —                             |       | —     |       | —                     |       | —         |       | (1,142,893           | )          | —                        |       | —                 |       | (1,142,893 | ) |
| Series B  Preferred Stock dividends                                                                                              |       | —                             |       | —     |       | —                     |       | —         |       | (715,397             | )          | —                        |       | —                 |       | (715,397 | ) |
| Series C  Preferred Stock dividends                                                                                              |       | —                             |       | —     |       | —                     |       | —         |       | (596,165             | )          | —                        |       | —                 |       | (596,165 | ) |
| Net  loss                                                                                                                             |       | —                             |       | —     |       | —                     |       | —         |       | —               |       | —                        |       | (5,372,838             | )          | (5,372,838 | ) |
| Balance,  December 31, 2009                                                                                                      |       | —                             |       | $          | —     |                       | 52,100,535 |           | $          | 52,101               |       | $                             | 47,728,226 |                   | $          | — |   | $ | (49,908,524 | ) | $ | (2,128,197 | ) |

 

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

 

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Uni-Pixel, Inc.

(A Development Stage Company)

Consolidated Statementsof Cash Flows

 
| ** **                                                                                                               | ** ** | **Year Ended  December 31,** | ** ** | **Cumulative  Period  from  February 17,  1998 (date of  inception) to  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2009**                          | ** ** | **2008**                                                                                         | ** ** | **2009** | ** ** |
| Cash flows from operating  activities                                                                                    |       |                              |       |                                                                                             |       |   |   |
| Net loss                                                                                                                 |       | $                                 | (5,372,838 | )                                                                                                | $          | (10,584,416 | ) | $ | (47,081,503 | ) |
| 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                                                                                           |       | 331,700                           |       | 299,966                                                                                          |       | 1,433,123 |   |
| Stock issued for services                                                                                                |       | —                            |       | —                                                                                           |       | 512,462 |   |
| Stock compensation expense                                                                                               |       | 1,234,419                         |       | 1,037,441                                                                                        |       | 5,215,941 |   |
| Non-cash compensation  expense                                                                                           |       | —                            |       | —                                                                                           |       | 1,100,000 |   |
| Amortization of debt  issuance costs                                                                                     |       | 164,960                           |       | —                                                                                           |       | 809,306 |   |
| Amortization of discounts  on notes payable                                                                              |       | 19,582                            |       | —                                                                                           |       | 1,500,030 |   |
| Net decrease in fair value  of derivatives                                                                               |       | —                            |       | —                                                                                           |       | (845,077 | ) |
| Issuance of warrants to  consultants                                                                                     |       | —                            |       | 5,919                                                                                            |       | 303,810 |   |
| Change in operating assets  and liabilities:                                                                             |       |                              |       |                                                                                             |       |   |   |
| (Increase) decrease in  cash restricted for note payable and lease obligations                                           |       | —                            |       | —                                                                                           |       | (34,877 | ) |
| (Increase) decrease in  prepaid expenses and other current assets                                                        |       | —                            |       | 20,272                                                                                           |       | (147,745 | ) |
| Increase in accounts  payable                                                                                            |       | 196,619                           |       | 204,063                                                                                          |       | 927,636 |   |
| Increase in accrued  interest payable                                                                                    |       | 61,317                            |       | —                                                                                           |       | 242,260 |   |
| Increase (decrease) in  accrued expenses and other liabilities                                                           |       | (383,039                          | )          | (22,957                                                                                          | )          | 795,465 |   |
| Increase in deferred  revenue                                                                                            |       | —                            |       | —                                                                                           |       | 33,333 |   |
| Net cash used in operating  activities                                                                                   |       | (3,747,280                        | )          | (9,039,712                                                                                       | )          | (36,122,722 | ) |
|                                                                                                                     |       |                              |       |                                                                                             |       |   |   |
| Cash flows from investing  activities                                                                                    |       |                              |       |                                                                                             |       |   |   |
| Purchase of property and  equipment                                                                                      |       | —                            |       | (425,578                                                                                         | )          | (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                                                                                         | )          | (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                                                                                 |       | 2,325,000                         |       | —                                                                                           |       | 5,715,000 |   |
| Payments on convertible  notes payable                                                                                   |       | —                            |       | —                                                                                           |       | (1,470,672 | ) |
| Net repayments from notes  payable                                                                                       |       | —                            |       | —                                                                                           |       | (62,833 | ) |
| Issuance of warrants to  placement agent                                                                                 |       | —                            |       | —                                                                                           |       | 37,596 |   |
| Payment of deferred loan  costs                                                                                          |       | (305,417                          | )          | —                                                                                           |       | (305,417 | ) |
| Proceeds from the issuance  of preferred stock, net                                                                      |       | —                            |       | —                                                                                           |       | 32,367,969 |   |
| Proceeds from the issuance  of common stock, net                                                                         |       | —                            |       | —                                                                                           |       | 2,089,050 |   |
| Net cash provided by  financing activities                                                                               |       | 2,019,583                         |       | —                                                                                           |       | 38,321,468 |   |
|                                                                                                                     |       |                              |       |                                                                                             |       |   |   |
| Net increase (decrease) in  cash and cash equivalents                                                                    |       | (1,727,697                        | )          | (9,661,878                                                                                       | )          | 307,850 |   |
| Cash and cash equivalents,  beginning of period                                                                          |       | 2,035,547                         |       | 11,697,425                                                                                       |       | — |   |
| Cash and cash equivalents,  end of period                                                                                |       | $                                 | 307,850    |                                                                                             | $          | 2,035,547 |   | $ | 307,850 |   |
|                                                                                                                     |       |                              |       |                                                                                             |       |   |   |
| Supplemental disclosures  of cash flow information:                                                                      |       |                              |       |                                                                                             |       |   |   |
| Cash paid for interest                                                                                                   |       | $                                 | —     |                                                                                             | $          | — |   | $ | 960,727 |   |
| Cash paid for income taxes                                                                                               |       | $                                 | —     |                                                                                             | $          | — |   | — |   |
| Interest capitalized into  notes payable                                                                                 |       | $                                 | —     |                                                                                             | $          | — |   | 8,250 |   |
| Debt issuance cost for  warrant issued                                                                                   |       | $                                 | —     |                                                                                             | $          | — |   | $ | 500,000 |   |
| Preferred stock dividend  and amortization of discount                                                                   |       | $                                 | 3,569,136  |                                                                                             | $          | 4,770,098 |   | $ | 12,838,816 |   |
| Conversion of  Series B preferred stock for common stock                                                            |       | $                                 | 12,584,776 |                                                                                             | $          | — |   | $ | 12,584,776 |   |
| Conversion of  Series C preferred stock for common stock                                                            |       | $                                 | 5,355,033  |                                                                                             | $          | — |   | $ | 5,355,033 |   |
| Additional warrants and  dividends issued to Series B preferred stock holders to induce  conversion to common stock |       | $                                 | 749,565    |                                                                                             | $          | — |   | $ | 749,565 |   |
| Additional warrants and  dividends issued to Series C preferred stock holders to induce  conversion to common stock |       | $                                 | 310,730    |                                                                                             | $          | — |   | $ | 310,730 |   |
| Conversion of notes  payable for preferred stock                                                                         |       | $                                 | —     |                                                                                             | $          | — |   | $ | 898,250 |   |
| Conversion of notes  payable for common stock                                                                            |       | $                                 | —     |                                                                                             | $          | — |   | $ | 980,103 |   |
| Stock issued for services                                                                                                |       | $                                 | —     |                                                                                             | $          | — |   | $ | 1,612,462 |   |
| Stock issued for interest                                                                                                |       | $                                 | —     |                                                                                             | $          | — |   | $ | 81,272 |   |
| Reclassification of  derivatives to equity                                                                               |       | $                                 | —     |                                                                                             | $          | — |   | $ | 560,368 |   |
| Intrinsic value of  beneficial conversion options on Preferred Stock                                                     |       | $                                 | —     |                                                                                             | $          | — |   | $ | 7,525,246 |   |
| Issuance of warrants to  Preferred Stock investors                                                                       |       | $                                 | —     |                                                                                             | $          | — |   | $ | 7,525,246 |   |
| Issuance of warrants to  convertible note investors                                                                      |       | $                                 | 61,389     |                                                                                             | $          | — |   | $ | 61,389 |   |
| Issuance of warrants to  Placement Agent                                                                                 |       | $                                 | 245,094    |                                                                                             | $          | — |   | $ | 245,094 |   |

 

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

 

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**UNI-PIXEL, INC.**

**(A Development Stage Company)**

**Notes to the Audited ConsolidatedFinancial Statements**

 

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

 

Uni-Pixel, Inc., a Delaware corporation, is theparent company of Uni-Pixel Displays, Inc., its wholly-owned 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 pershare, is quoted on the NASDAQ Over the Counter — Bulletin Board (“OTCBB”)under the ticker symbol “UNXL.”

 

Uni-Pixel is adevelopment stage company that has developed, patented and demonstrated a newcolor display technology in the form of proof of concept prototypes which wecall Time Multiplexed Optical Shutter (“TMOS”).  We intend to be a leaderin the research, development and commercialization of new flat panel displaysusing TMOS in a variety of applications, such as mobile phones, digitalcameras, notebook computers, televisions and other consumer electronic devices.Our work developing TMOS has led to advances in the thin film arena that haveother marketable applications.  We intendto explore the business potential within these applications and pursue thosethin film markets that offer profitable opportunities either through licensingor direct production and sales.  As of December 31,2009, we had accumulated a total deficit of $49.9 million from operations inpursuit of these objectives.

 

We anticipate that ourTMOS displays will be thin, lightweight, and power-efficient devices, which arehighly suitable for use in full-color display applications.  We believeTMOS displays will be able to capture a share of the growing $90+ billionflat panel display market due to the significant advantages it should provideover competing displays with respect to manufacturing and materials cost,brightness, power efficiency, viewing angle, and video response time and imagequality.  We believe that our technology leadership and intellectualproperty position will enable us to generate revenues initially from TMOSdisplays for existing vertical market segments such as the military, avionics,and automotive segments, and then subsequently from consumer electronicsmarkets (i.e., TVs, monitors, personal computers, cameras, games, etc.).

 

Our strategy is to futherdevelop our proprietary TMOS technology to the point of being able totransition the technology to manufacturing partners.  We have and willcontinue to utilize contract manufacturing for prototype fabrication to augmentour internal capabilities in the short term.  We also plan to be asupplier of our key thin film component and to enter into joint ventures incertain vertical market segments to exploit the existing manufacturing anddistribution channels of our targeted partners.  We plan to license our technologyto display manufacturers and supporting partner companies for use inapplications such as mobile phones, digital cameras, laptop computers, andother consumer electronic devices. Through our internal research anddevelopment efforts we have established a portfolio of TMOS-related patents andpatent applications and other intellectual property rights that support thesejoint venture and licensing strategies.  We currently have 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.

 

During the course of 2008and 2009 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.

 

Since our inception, wehave been primarily engaged in developing our initial product technologies,recruiting personnel, commencing our U.S. operations and obtaining sufficientcapital to meet our working capital needs. In the course of our developmentactivities, we have sustained losses and expect such losses to continue throughat least December 2010. We will finance our operations primarily throughour existing cash and possible future financing transactions.

 

Our ability to operateprofitably under our current business plan is largely contingent upon oursuccess in developing our products beyond proof of concept to final prototypes,supporting transferable manufacturing processes to partners to produce ourproducts and successfully developing markets and manufacturing relationshipsfor our products.  We may be required toobtain additional capital in the future to expand our operations. No assurancecan be given that we will be able to develop our products, successfully developthe markets or profitable manufacturing methods for our products, or raise anysuch additional capital as we might need, either through equity or debtfinancing, on satisfactory terms or at all. Additionally, no assurance can begiven that any such financing, if obtained, will be adequate to meet ourultimate capital needs or to 

 

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support our growth. Ifadequate capital cannot be obtained on satisfactory terms, our operations couldbe negatively impacted.

 

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

 

*Corporate History*

 

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

 

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

 

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

 

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

 

*Basis of Presentation*

 

The consolidated financialstatements presented in this annual report include Uni-Pixel, Inc. and ourwholly-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 consolidated financialstatements reflect the consolidated financial position, results of operationsand cash flows of Uni-Pixel Displays, Inc.  The assets, liabilities,operations and cash flows of Real-Estateforlease.com, Inc. are included inthe consolidated financial statements from December 10, 2004 onward.  The accompanying consolidated financialstatements have been prepared assuming that the Company will continue as agoing concern, as further discussed in Note 2. This basis of accountingcontemplates the recovery of the Company’s assets and the satisfaction ofliabilities in the normal course of business and this does not include anyadjustments to reflect the possible future effects on the recoverability andclassification of assets or the amounts and classification of liabilities thatmight be necessary should the Company be unable to continue as a going concern.

 

*Development Stage Company*

 

We have not generated anysignificant operating revenue since inception. The accompanying financial statements have, therefore, been preparedusing the accounting formats prescribed for a development stage enterprise (“DSE”).  

 

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Although, we haverecognized some nominal amounts of revenue, the Company still believes it isdevoting, substantially, all its efforts on developing the business and,therefore, still qualifies as a DSE.

 

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

 

Ouraccompanying consolidated financial statements have been prepared assuming thatwe will continue as a going concern, which contemplates realization of assetsand the satisfaction of liabilities in the normal course of business.  However, Uni-Pixel has sustained losses andnegative cash flows from operations since its inception.  As shown in the accompanying consolidatedfinancial statements, Uni-Pixel incurred recurring net losses chargeable tocommon shareholders of $5.4 million and $10.6 million in fiscal 2009 and 2008,respectively, and has an accumulated deficit of $49.9 million as of December 31,2009.  We project that current cashreserves will sustain our operations at least through March 2010. Ourworking capital may not be sufficient to meet all of the needs of our businessobjectives through the end of 2010.  Wewould be able to sustain operations for a reasonable period of time (12months), but it would require significant reductions in our operatingexpenditures and product development activities, if we did not receiveadditional funding.  Management hasinstituted a cost reduction program that included a reduction in labor andoperating costs.  This program includedthe termination of 10 employees which we expect will reduce operating cost byapproximately $60,000 per month.

 

Our growth and continuedoperations could be impaired by limitations on our access to the capitalmarkets.  In the event that we do not raise additional funding, wemay be forced to further scale back our operations which would have a materialadverse impact upon our ability to pursue our business plan.  We haveno commitments from officers, directors or affiliates to provide funding.  Therecan be no assurance that capital from outside sources will be available, or ifsuch financing is available, it may involve issuing securities senior to ourcommon stock or equity financings which are dilutive to holders of our commonstock.  In addition, in the event we do not raise additional capitalfrom conventional sources, it is likely that our growth will be restricted andwe may need to scale back or curtail implementing our business plan.

 

Our ability to reachprofitably under our current business plan is largely contingent upon oursuccess in developing beyond proof of concept to final prototypes andsupporting transferable manufacturing processes to partners to produce for saleour products and upon our successful development of markets for our productsand successful manufacturing relationships.  We will need to obtainadditional capital in the future to expand our operations. No assurance can begiven that we will be able to develop our products, successfully develop themarkets for our products or profitable manufacturing methods, or raise any suchadditional capital as we might need, either through equity or debt financing,on satisfactory terms or at all. Additionally, no assurance can be given thatany such financing, if obtained, will be adequate to meet our ultimate capitalneeds or to support our growth. If adequate capital cannot be obtained onsatisfactory terms, our operations could be negatively impacted.

 

The conditions describedabove create substantial doubt as to Uni-Pixel’s ability to continue as a goingconcern.  The 2009 consolidated financial statements do not includeany adjustments to reflect the possible future effects on the recoverabilityand classification of assets or the amounts and classifications of liabilities thatmay result from the outcome of this uncertainty.

 

**Note 3 -****                 ****Summary of SignificantAccounting Policies**

 

*Use of estimates*

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities, disclosures of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Examples include provisions for baddebts, useful lives of property and equipment and intangible assets, impairmentof property and equipment and intangible assets, deferred taxes, and theprovision for and disclosure of litigation and loss contingencies, derivativeliabilities and stock based compensation. Actual results may differ materiallyfrom those estimates.

 

*Statements of cash flows*

 

For purposes of the statements of cash flows, weconsider all highly liquid investments (i.e., investments which, whenpurchased, have original maturities of three months or less) to be cashequivalents.

 

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*Concentration of credit risk*

 

We maintain our cash primarily with major U.S.domestic banks and other financial institutions. The amounts held in interestbearing accounts periodically exceed the insured limit at December 31,2009 and 2008. The amounts held in these banks did not exceed the insuredlimits at December 31, 2009 and 2008. The terms of other deposits are ondemand and are subject to guarantees in full by the FDIC under the TransactionAccount Guarantee Program.  We have notincurred losses related to these deposits.

 

In addition, on December 31, 2009 and 2008, weheld an investment account of $211,441 and $1,662,973, respectively, with afinancial institution other than a bank. These funds are invested in money market funds.  We have not incurred losses related to thesedeposits.

 

*Restrictedcash*

 

As of December 31,2009 and December 31, 2008, we had restricted cash of $34,877.  This amount secured certain obligations underour lease agreement for our principal facility located in The Woodlands, Texasas of both December 31, 2009 and December 31, 2008.  The restricted cash has been segregated intocurrent and long-term classifications based on its anticipated liquidation.

 

*Property and equipment*

 

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

 

*Intangible assets*

 

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

 

*Derivative instruments*

 

We account for allderivative instruments under FASB ASC Topic 815 *Derivatives and Hedging *(“Topic 815”),previously Statement of Financial Accounting Standards (“SFAS”) No. 133, *Accounting for Derivative Instruments and HedgingActivities*, and related Emerging Issues Task Force (“EITF”)interpretations and Securities and Exchange Commission (SEC) rules, whichrequire that certain embedded and freestanding derivative instruments beclassified as a liability and measured at fair value with changes in fair valuerecognized currently in earnings. The Company has recorded changes in fairvalue as an other expense in the consolidated statements of operations.

 

*Revenue recognition*

 

We recognize revenue overthe period the service is performed in accordance with FASB ASC Topic 605 *Revenue Recognition*(“Topic 605”),previously *SEC Staff Accounting Bulletin (“SAB”) No. 104,“Revenue Recognition in Financial Statements”.*In general, fourbasic criteria must be met before revenue can be recognized: (1) persuasiveevidence that an arrangement exists, (2) delivery has occurred or servicesrendered, (3) the fee is fixed and determinable, and (4) collectabilityis reasonably assured.

 

Advance payments aredeferred until shipment. The amount of the revenue deferred represents the fairvalue of the remaining undelivered products measured Topic 605, previously*EITF 00-21, “Accounting for Revenue Arrangementswith Mutliple Deliverablables,”* which addresses the issue ofaccounting for arrangements that involve the delivery of multiple products orservices..

 

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

 

Revenue from developmentcontracts are recognized when the contract is completed and collectability isreasonably assured.  Deferred revenue onthese contracts of $33,333 as of December 31, 2009 and December 31,2008 consists of a development contract to produce and deliver a prototypedevice.

 

*Research and development expenses*

 

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

 

*Stock-based compensation*

 

We recognize the cost ofstock options and restricted stock in accordance with FASB ASC Topic 718Compensation — Stock Compensation (“Topic 718”), previously *SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), “Share BasedPayment”,*Topic 718  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. Topic 718  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.

 

We may, from time totime, issue common stock, stock options or common stock warrants to acquireservices or goods from non-employees. Common stock, stock options and commonstock warrants issued to persons other than employees or directors are recordedon the basis of their fair value, as required by Topic 718 which is measured asof the date required by FASB ASC Topic 505 *Equity* (“Topic505”), previously EITF Issue 96-18, *“Accountingfor Equity Instruments That Are Issued to Other Than Employees for Acquiring,or in Conjunction with Selling, Goods or Services.”*  Inaccordance with Topic 505, 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.

 

The following disclosuresprovide information regarding the Company’s stock-based compensation awards,all of which are classified as equity awards in accordance with Topic 718:

 

*Stockoptions.*

 

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

 

Total compensationexpense recognized for options was approximately $1.2 million and $1.0million for the twelve months ended December 31, 2009 and December 31,2008, respectively.

 

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* *

*Income taxes*

 

An asset and liability approach is used for financialaccounting and reporting for income taxes. Deferred income taxes arise fromtemporary differences between income tax and financial reporting andprincipally relate to recognition of revenue and expenses in different periodsfor financial and tax accounting purposes and are measured using currentlyenacted tax rates and laws. In addition, a deferred tax asset can be generatedby net operating loss carryforwards.   Ifit is more likely than not that some portion or all of a deferred tax assetwill not be realized, a valuation allowance is recognized.

 

The Company has lossescarried forward for income tax purposes to December 31, 2009. There are nocurrent or deferred tax expenses for the twelve month periods ended December 31,2009 and 2008 due to the Company’s loss position. The Company has fullyreserved for any benefits of these losses. The deferred tax consequences oftemporary differences in reporting items for financial statement and income taxpurposes are recognized, as appropriate. Realization of the future tax benefitsrelated to the deferred tax assets is dependent on many factors, including theCompany’s ability to generate taxable income within the net operating losscarryforward period. Management has considered these factors in reaching itsconclusion as to the valuation allowance for financial reporting purposes.Accordingly, no benefit has been recognized on the net loss as the realizationof the net operating loss carryforward cannot be assured.

 

Effective January 1,2007, the Company adopted the provision of FASB ASC Topic 740 *Income Taxes Recognition*(“Topic 740”),previously FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109*(“FIN 48”).  Topic 740contains a two-step approach to recognizing and measuring uncertain taxpositions accounted for in accordance with Topic 740, previously 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.

 

As a result of theimplementation of Topic 740, the Company has not changed any of its tax accrualestimates.  The Company files U.S.federal and U.S. state tax returns.  ForU.S. Federal and state tax returns the Company is generally no longer subjectto tax examinations for years prior to 1996.

 

*Loss per share data*

 

Basic loss per share is calculated based on theweighted average common shares outstanding during the period, after givingeffect to the manner in which the merger was accounted for as described inNote 1. Diluted earnings per share also give effect to the dilutive effectof stock options, warrants (calculated based on the treasury stock method) andconvertible notes and convertible preferred stock. The Company does not presentdiluted earnings per share for years in which it incurred net losses as theeffect is antidilutive.

 

At December 31,2008, options and warrants to purchase 19,448,482 shares of common stock atexercise prices ranging from $1.10 to $2.00 per share were outstanding, butwere not included in the computation of diluted earnings per share as theireffect would be antidilutive.  Further,at December 31, 2008, 18,405,699 shares of common stock, convertible from Series BConvertible Preferred Stock and associated dividends, were not included in thecomputation of diluted earnings per share as there effect would beantidilutive.  Further, at December 31,2008, 7,861,456 shares of common stock, convertible from Series CConvertible Preferred Stock and associated dividends, were not included in thecomputation of diluted earnings per share as there effect would beantidilutive.

 

At December 31,2009, options and warrants to purchase 23,057,587 shares of common stock atexercise prices ranging from $0.50 to $2.00 per share were outstanding, butwere not included in the computation of diluted earnings per share as theireffect would be antidilutive.  Further,as of December 31, 2009, $2,325,000 and $61,316.66 of convertible notespayable and accrued interest, respectively, were outstanding that may convert,at the holders election, at $0.50 per share. This could result into 4,772,633 shares of common stock if converted,but were not included in the computation of diluted earnings per share as theireffect would be antidilutive.

 

*Fair Value of Financial Instruments*

 

Our financial instruments consist of accountsreceivable, accounts payable, notes payable, and derivative liabilities. Thefair values of these assets and liabilities, in the opinion of Company’smanagement, reflect their respective carrying amounts.

 

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*Recentlyissued accounting pronouncements*

 

In April 2009, theFASB issued the following three FSPs intended to provide additional applicationguidance and enhance disclosures regarding fair value measurements andimpairments of securities:

 

FSP FAS 157-4, *Determining Fair Value When the Volume and Level ofActivity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly* (ASC 820-10-65-4, *Transition Related to FASB Staff Position FAS 157-4*),provides additional guidance for estimating fair value in accordance with SFAS No. 157when the volume and level of activity for the asset or liability have decreasedsignificantly. This FSP also provides guidance on identifyingcircumstances that indicate a transaction is not orderly. The provisionsof this FSP are effective for the Company’s interim period ending on June 30,2009. The adoption of this FSP at June 30, 2009 did not have amaterial impact on the Company’s statement of operations and balance sheet.

 

FSP FAS 107-1 and APB28-1, *Interim Disclosures about Fair Valueof Financial Instruments*(ASC 825-10-65-1, *Transition Related to FSP FAS 107-1 and APB 28-1*),requires disclosures about fair value of financial instruments in interimreporting periods of publicly traded companies that were previously onlyrequired to be disclosed in annual financial statements. The provisions ofthis FSP are effective for the Company’s interim period ending on June 30,2009 and only amends the disclosure requirements about fair value of financialinstruments in interim periods. The Company adopted this FSP during the secondquarter of 2009. See Note 9 for additional information.

 

FSP FAS 115-2 and FAS124-2, *Recognition and Presentation ofOther-Than-Temporary Impairments*(ASC 320-10-65-1, *Transition Related to FSP FAS 115-2 and FAS 124-2*),amends current other-than-temporary impairment guidance in GAAP for debtsecurities to make the guidance more operational and to improve thepresentation and disclosure of other-than-temporary impairments on debt andequity securities in the financial statements. This FSP does not amendexisting recognition and measurement guidance related to other-than-temporaryimpairments of equity securities. The provisions of this FSP are effectivefor the Company’s interim period ending on June 30, 2009.

 

The Company adopted theseFSPs effective April 1, 2009. The adoption of these FSPs did not have amaterial impact on the Company’s statement of operations and balance sheet.

 

In December 2007,the FASB issued SFAS No. 141(revised 2007), *Business Combinations*, (ASC 805, *Business Combinations*) “ASC 805”, which replaces SFAS No. 141.ASC 805 establishes principles and requirements for recognition and measurementof assets, liabilities and any noncontrolling interest acquired due to abusiness combination. ASC 805 expands the definitions of a business and abusiness combination, resulting in an increased number of transactions or otherevents that will qualify as business combinations. Under ASC 805 the entitythat acquires the business (the “acquirer”) will record 100 percent of allassets and liabilities of the acquired business, including goodwill, generallyat their fair values. As such, an acquirer will not be permitted to recognizethe allowance for loan losses of the acquiree. ASC 805 requires the acquirer torecognize goodwill as of the acquisition date, measured as a residual. In mostbusiness combinations, goodwill will be recognized to the extent that theconsideration transferred plus the fair value of any noncontrolling interestsin the acquiree at the acquisition date exceeds the fair values of theidentifiable net assets acquired. Under ASC 805, acquisition-relatedtransaction and restructuring costs will be expensed as incurred rather thantreated as part of the cost of the acquisition and included in the amountrecorded for assets acquired. ASC 805 is effective for fiscal years beginningafter December 15, 2008. The adoption of ASC 805 on January 1, 2009,had no effect on the Company’s consolidated financial statements.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities, and an amendment of FASBStatement No. 133* (ASC 815-10-65-1, *Transition and Effective Date Related to FASB Statement No. 161*)“ASC 815”. ASC 815 applies to all derivative instruments and related hedgeditems accounted for under SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*. ASC 815 requiresentities to provide greater transparency about (a) how and why an entityuses derivative instruments, (b) how derivative instruments are relatedhedged 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, results of operations and cashflows. To meet those objectives, ASC 815 requires (1) qualitativedisclosures about objectives for using derivatives by primary underlying riskexposure (e.g., interest rate, credit or foreign exchange rate) and by purposeor strategy (fair value hedge, cash flow hedge, net investment hedge, andnon-hedges), (2) information about the volume of derivative activity in aflexible format that the preparer believes is the most relevant andpracticable, (3) tabular disclosures about balance sheet location andgross fair value amounts of derivative instruments, income statement and othercomprehensive income location of gain and loss amounts on derivativeinstruments by type of contract, and (4) disclosures about credit-riskrelated contingent features in derivative agreements. ASC 815 is

 

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effective for financialstatements issued for fiscal years and interim periods beginning after November 15,2008. The adoption of ASC 815 on January 1, 2009, had no effect on theCompany’s consolidated financial statements.

 

In May 2009, theFASB issued SFAS No. 165, *SubsequentEvents* (ASC 855, *SubsequentEvents*) “ASC 855”*.*ACS855 establishes general standards of accounting for and disclosure of eventsthat occur after the balance sheet date but before financial statements areissued or are available to be issued. Specifically, ASC 855 provides (a) theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements; (b) thecircumstances under which an entity should recognize events or transactionsoccurring after the balance sheet date in its financial statements; and (c) thedisclosures that an entity should make about events or transactions thatoccurred after the balance sheet date. ASC 855 is effective for interim orannual financial periods ending after June 15, 2009, and shall be appliedprospectively. The Company adopted ASC 855 in the second quarter of 2009. Theadoption did not materially impact the Company. We considered allsubsequent events through March 12, 2010, the date the financialstatements were available to be issued.

 

In June 2009, theFASB issued SFAS No. 166, *Accountingfor Transfers of Financial Assets* (ASC 860, *Transfers and Servicing*) “ASC 860”, whichis a revision to SFAS No. 140. ASC 860 requires more information abouttransfers of financial assets, including securitization transactions and acompany’s continuing exposure to the risks related to the transfer of financialassets. It eliminates the concept of a “qualifying special-purpose entity” andchanges the requirements for derecognizing financial assets. ASC 860 iseffective for first annual reporting period beginning after November 15,2009. The adoption of ASC 860 on November 15, 2009, had no effect on theCompany’s consolidated financial statements.

 

In June 2009, FASBissued SFAS No.168, *FASB AccountingStandards Codification TM and the Hierarchy of Generally Accepted AccountingPrinciples—a replacement of FASB Statement No. 162 (*ASC 105,*Generally Accepted Accounting Principles*)“ASC 105”, which states that the FASB Accounting Standards CodificationTM(Codification) will become the source of authoritative U.S. generally acceptedaccounting principles (GAAP) recognized by the FASB to be applied bynongovernmental entities. On the effective date of this Statement, theCodification will supersede all then-existing non-SEC accounting and reportingstandards. All other non-grandfathered non-SEC accounting literature notincluded in the Codification will become non-authoritative. ASC 105 iseffective for financial statements issued for interim and annual periods endingafter September 15, 2009. The codification is effective for these thirdquarter financial statements and the principal impact is limited to disclosuresas all future references to authoritative literature will be reference inaccordance with the codification.

 

In August 2009, theFASB issued Accounting Standards Update (“ASU”) No. 2009-05, *Fair Value Measurements and Disclosures (Topic 820) —Measuring Liabilities at Fair Value*. This ASU providesamendments for fair value measurements of liabilities. It providesclarification that in circumstances in which a quoted price in an active marketfor the identical liability is not available, a reporting entity is required tomeasure fair value using one or more techniques. ASU 2009-05 alsoclarifies that when estimating a fair value of a liability, a reporting entityis not required to include a separate input or adjustment to other inputsrelating to the existence of a restriction that prevents the transfer of theliability. ASU 2009-05 is effective for the first reporting period(including interim periods) beginning after issuance or fourth quarter2009. The Company is assessing the impact of ASU 2009-05 on our financialcondition, results of operations, and disclosures.

 

In September 2009,the FASB issued additional guidance on measuring the fair value of liabilitieseffective for the first reporting period (including interim periods) beginningafter issuance. Implementation will not have a material impact on ourconsolidated financial position and results of operations.

 

In September 2009,the FASB issued additional guidance on measuring fair value of certainalternative investments effective for the first reporting period (includinginterim periods) ending after December 15, 2009. Implementation will nothave a material impact on our consolidated financial position and results ofoperations.

 

The implementation of thefair value guidance for nonfinancial assets and nonfinancial liabilities,effective January 1, 2009, did not have a material impact on ourconsolidated financial position and results of operations.

 

In October 2009, theFASB issued amendments to the accounting and disclosure for revenuerecognition. These amendments, effective for fiscal years beginning on or afterJune 15, 2010 (early adoption is permitted), modify the criteria for recognizingrevenue in multiple element arrangements and the scope of what constitutes anon-software deliverable. The Company is currently assessing the impact (ifany) on its consolidated financial position and results of operations.

 

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

 

**Note4 — Property and Equipment**

 

A summary of thecomponents of property and equipment at December 31:

 
| ** **                         | ** ** | **Estimated  Useful  Lives** | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|------------------------------------|------------|------------------------------|------------|------------|------------|------------|------------|
| Research and development equipment |       | 3  to 5 years                |       | $          | 1,203,053  |       | $          | 1,203,053 |   |
| Leasehold improvements             |       | 5  years                     |       | 210,086    |       | 210,086    |       |
| Computer equipment                 |       | 5  years                     |       | 97,740     |       | 97,740     |       |
| Office equipment                   |       | 3  to 5 years                |       | 95,144     |       | 95,144     |       |
|                               |       |                         |       | 1,606,023  |       | 1,606,023  |       |
| Accumulated depreciation           |       |                         |       | (1,328,662 | )          | (1,013,967 | )          |
| Property and equipment, net        |       |                         |       | $          | 277,361    |       | $          | 592,056 |   |

 

Depreciation andamortization expense of property and equipment for the years ended December 31,2009 and 2008 and the period from inception (February 17, 1998) through December 31,2009 was $0.3 million, $0.3 million, and $1.4 million, respectively.

 

**Note5 — Patents**

 

Patents consists of thefollowing at December 31, 2009 and 2008:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Patents                        |       | $        | 196,588    |     | $          | 196,588 |   |
| Less  accumulated amortization |       | (28,338  | )          | (11,335  | )          |
| Patents,  net                  |       | $        | 168,250    |     | $          | 185,253 |   |

 

Thepatents have an estimated useful life through 2022.  The patent amortization expense for the yearsended December 31, 2009 and 2008 was $17,003 and $11,335, respectively.Future amortization expense is expected to be as follows for December 31:

 
| 2010       |   | $      | 17,003  |   |
|------------|--------|--------|---------|--------|
| 2011       |   | 17,003 |    |
| 2012       |   | 17,003 |    |
| 2013       |   | 17,003 |    |
| 2014       |   | 17,003 |    |
| Thereafter |   | 83,235 |    |
|       |   | $      | 168,250 |   |

 

**Note6 — Income Taxes**

 

The Companyaccounts for income taxes in accordance with Topic 740. This Topic 740prescribes the use of the liability method whereby deferred tax asset andliability 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 $41.9 million and$37.4 million at December 31, 2009 and 2008, respectively. TheCompany has a potential deferred tax asset of approximately $14.2 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 $1.8 million and $3.6 million for the years ended December 31,2009 and 2008, respectively.

 

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The followingtable sets forth a reconciliation of the statutory federal income tax for theyear ended December 31:

 
| ** **                                                | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                      |       |       |       |       |       |
| Income tax expense (benefit) computed at statutory  rates |       | $          | 1,827,000  |       | $          | 3,599,000 |   |
| Increase in valuation allowance                           |       | (1,827,000 | )          | (3,599,000 | )          |
| Other                                                     |       | —     |       | —     |       |
| Tax provision for income taxes                            |       | $          | —     |       | $          | — |   |

 

The Company’sdeferred tax assets consist of the following (in thousands) as of December 31:

 
| ** **                       | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|
|                             |       |        |       |        |       |
| Deferred tax assets:             |       |        |       |        |       |
| Net operating loss carryforwards |       | $           | 14,233,000 |        | $          | 12,406,000 |   |
| Valuation allowance              |       | (14,233,000 | )          | (12,406,000 | )          |
| Net deferred tax assets          |       | $           | —     |        | $          | — |   |

 

The net operatingloss carryforward 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.

 

**Note7 — Commitments and Contingencies**

 

*Leases*

 

TheCompany has entered into a lease for office, warehouse and laboratory facilityin The Woodlands, Texas, under a third party, non-cancelable operating leasethrough 2010. Future minimum lease commitments are as follows as of December 31,2009:

 
| **Year  Ending December 31** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2010                              |       | $          | 192,000    |   |
| 2011                              |       | —     |       |
| 2012                              |       | —     |       |
| 2013                              |       | —     |       |
| 2014                              |       | —     |       |
| Thereafter                        |       | —     |       |
| Total                             |       | $          | 192,000    |   |

 

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

 

Rent expense for 2009 and2008 was $199,208 and $209,000, respectively.

 

*Litigation*

 

The Company fromtime to time may be involved in litigation relating to claims arising out ofits ordinary course of business. Management believes that there are no claimsor actions pending or threatened against the Company, the ultimate dispositionof which would have a material impact on the Company’s financial position,results of operations or cash flows.

 

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*Employmentagreements*

 

As of December 31, 2009, the Company does nothave any employment agreements outstanding. The Company had entered into employment agreements with Reed Killion andJames Tassone which expired on December 31, 2008.

 

As of December 31,2009, there was no bonus accrual for Mr. Killion and Mr. Tassone.

 

**Note8 -  Redeemable Preferred Stock, Equity,Stock Plan and Warrants**

 

*Equityinstruments issued to non-employees*

 

From time to time, inorder to preserve cash and to fund our operating activities, common stock orother equity instruments may be issued for cash or in exchange for goods orservices. Equity instruments issued for goods or services are recorded at thefair value of the goods or services received or the fair value of the equityinstruments issued, whichever is more reliably measurable.

 

*CommonStock*

 

Duringthe year ended December 31, 2009 (1) we issued no shares of commonstock for cash in connection with the exercise of stock options; (2) issuedno shares of common stock in exchange for cashless exercise of warrants; (3) issued20,485,298 shares of common stock in connection with the conversion of Series BPreferred Stock and accrued dividends; and (4) issued 8,717,819 shares ofcommon stock in connection with the conversion of Series C Preferred Stockand accrued dividends.

 

Duringthe year ended December 31, 2008, (1) we issued no shares of commonstock for cash in connection with the exercise of stock options; (2) issuedno shares of common stock in exchange for cashless exercise of warrants; (3) issuedno shares of common stock in connection with the conversion of Series BPreferred Stock and accrued dividends; and (4) issued no shares of commonstock in connection with the conversion of Series C Preferred Stock andaccrued dividends.

 

*Series BConvertible Preferred Stock*

 

On February 13,2007, the Company entered into a Securities Purchase Agreement (the “PurchaseAgreement”) with The Raptor Global Portfolio Ltd., The Tudor BVI GlobalPortfolio Ltd., Tudor Proprietary Trading, L.L.C. and The Altar Rock Fund L.P.(collectively, the “Purchasers”) pursuant to which the Company sold on thatdate in a private placement to the Purchasers (a) 3,200,000 shares of theCompany’s Series B Convertible Preferred Stock, par value $0.001 per share(the “Series BPreferred Stock”), and (b) warrants (the “Series B Warrants”)to purchase, in aggregate, up to 6,839,279 shares of the Company’s commonstock, par value $0.001 for an aggregate purchase price of $12,000,000.  As the Series B Preferred Stock isredeemable for cash at the option of the holder after five years, the Series BPreferred Stock is classified as temporary equity on the balance sheet.  In accordance with FASB ASC Topic 470 *Debt*(“Topic 470”), the Company determined that the Series BPreferred Stock had an intrinsic value of the conversion of option of$3,715,602, which was credited to additional paid-in capital in the firstquarter of 2007, and is being amortized over five years.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the Series BWarrants of $3,715,602, which was credited to additional paid-in capital in thefirst quarter of 2007, and is being amortized over five years.

 

Dividendsshall accrue, whether or not declared and paid, on the Series B PreferredStock at the rate per annum of 8%, and shall be cumulative as to any dividendsnot declared and paid in any year, compounding annually at the same rate.  These dividends are charged to additionalpaid-in capital.  Each share of Series BPreferred Stock may, at the option of the holder, be converted at any time intoa number of fully paid and non-assessable shares of common stock of the Companyequal to the quotient obtained by dividing the original issue price of $3.75for the Series B Preferred Shares, plus all accrued and unpaid Series BPreferred Stock dividends and any other declared and unpaid dividends, by theinitial Series B Preferred Stock conversion price of $0.75, which issubject to adjustment from time to time in accordance with the Certificate ofDesignations.

 

Effective October 2,2009, the Company entered into agreements with the holders of the Series BPreferred Stock, subject to certain closing conditions, to have all shares of Series BPreferred Stock and all accrued and unpaid dividends converted into CommonStock at the then applicable conversion prices at such time as the Company hasraised a total dollar amount of at least $2,000,000 no later than November 30,2009. As of October 2, 2009, the Company met that condition, raising atotal of $2,075,000.  On October 2,2009, all conditions were fulfilled and all Series B Preferred Stock wereconverted into a total of 20,485,298 shares of Common Stock.  As additional consideration for the conversioninto common 

 

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stock, the holders of theSeries B Preferred Stock received 1,042,518 10-year warrants to purchaseCommon Stock at an exercise price of $0.50 per share.  We evaluated thewarrants using the criteria of FASB ASC Topic 815-40 “Contracts in Entity’s OwnStock” (“Topic 815-40”) and have determined the warrants should be classifiedas equity.

 

In connection with theconversion of Series B Preferred Stock, the fair value of considerationtransferred to the holders of the Series B Preferred Stock, namely there-issued warrants with reduced strike price and additional 6 months ofdividends (10/2/09 to 4/1/10), was compared to the carrying amount of theSereies B Preferred Stock in the balance sheet.  The excess was valued at$749,565 and was subtracted from net loss available to common shareholders.

 

*Series CConvertible Preferred Stock*

 

On September 28, 2007,the Company entered into a Securities Purchase Agreement (the “ ML PurchaseAgreement”) with Merrill Lynch Pierce, Fenner & Smith Incorporated (“MerrillLynch”) pursuant to which the Company sold on that date in a private placementto Merrill Lynch (a) 892,858 shares of the Company’s Series CConvertible 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 Topic 470, 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.

 

Dividendsshall accrue, whether or not declared and paid, on the Series C PreferredStock at the rate per annum of 8%, and shall be cumulative as to any dividendsnot declared and paid in any year, compounding annually at the same rate. Thesedividends are charged to additional paid-in capital.  Each share of Series C Preferred Stockmay, at the option of the holder, be converted at any time into a number 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.

 

Effective October 2,2009, the Company entered into agreements with the holders of the Series CPreferred Stock, subject to certain closing conditions, to have all shares of Series CPreferred Stock and all accrued and unpaid dividends converted into CommonStock at the then applicable conversion prices at such time as the Company hasraised a total dollar amount of at least $2,000,000 no later than November 30,2009. As of October 2, 2009, the Company met that condition, raising atotal of $2,075,000.  On October 2,2009, all conditions were fulfilled and all Series C Preferred Stock wereconverted into a total of 8,717,819 shares of Common Stock.  As additional consideration for theconversion into common stock, the holders of the Series C Preferred Stockreceived 457,482 10-year warrants to purchase Common Stock at an exercise priceof $0.50 per share.  We evaluated the warrants using the criteria of Topic815-40 and have determined the warrants should be classified as equity.

 

In connection with theconversion of Series C Preferred Stock, the fair value of considerationtransferred to the holders of the Series C Preferred Stock, namely there-issued warrants with reduced strike price and additional 6 months ofdividends (10/2/09 to 4/1/10), was compared to the carrying amount of theSereies B Preferred Stock in the balance sheet.  The excess was valued at$310,730 and was subtracted from net loss available to common shareholders.

 

*2005Stock Incentive Plan*

 

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

 

In thethird quarter of 2008, 50,000 options to purchase our common stock with anexercise price of $2.00 per share were retired.

 

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In fiscal year2009, we did not grant any options under the 2005 Stock Incentive Plan.

 

*2007Stock Incentive Plan*

 

Effective August 21,2007, we adopted the Uni-Pixel, Inc. 2007 Stock Incentive Plan. The StockIncentive Plan is discretionary and allows for an aggregate of up to 4,000,000shares of our common stock to be awarded through incentive and non-qualifiedstock options and stock appreciation rights. The Stock Incentive Plan isadministered by our Board of Directors, which has exclusive discretion toselect participants who will receive the awards and to determine the type, sizeand terms of each award granted.

 

In the firstquarter of 2008, we granted a total of 600,000 options to purchase our commonstock with an exercise price of $1.45 per share to three employees.  These options vest monthly over 36months.  In the second quarter of 2008,we granted a total of 465,625 options to purchase our common stock with anexercise price of $1.45 per share to nine employees.  Of these 465,625 options, 425,625 vestmonthly 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 $1.45per share were retired.

 

In the fiscal year2009, we granted a total of 575,000 options to purchase our common stock withan exercise price of $1.45 per share to twenty-three employees.  These options vested on the date ofgrant.    In the fiscal year 2009, 325,895options to purchase our common stock with an exercise price of $1.45 per sharewere retired.

 

*OtherStock Options*

 

On October 1, 2006,we granted a total of 1,000,000 options to purchase our common stock with anexercise price of $1.25 per share to Mr. Carl Yankowski.  All of these options vest upon the occurrenceof 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 of Uni-Pixel orthe reorganization, consolidation, merger, dissolution or liquidation ofUni-Pixel; provided that the event results in the payment or distribution ofconsideration valued in good faith by the Uni-Pixel Board of Directors at $15per share (on a fully diluted basis) or more; (ii) by no later than January 1,2010, upon the closing of a tender offer or exchange offer to purchase 50% ormore of the issued and outstanding shares of Uni-Pixel common stock at a priceper share valued in good faith by the Uni-Pixel Board of Directors at $15 pershare (on a fully diluted basis) or more; or (iii) by no later than January 1,2010, upon the common stock of Uni-Pixel, Inc. trading at $15 per share ormore for 60 (or more) consecutive days and having a daily trading volume of200,000 shares or more for 60 (or more) consecutive days. If (i), (ii) or(iii), as detailed above, do not occur on or before January 1, 2010, theseoptions will be cancelled in full.  If Mr. Yankowskidoes not become Chief Executive Officer of Uni-Pixel, Inc. by January 31,2007, these options will be cancelled in full. These options were cancelled on February 1, 2007 as Mr. Yankowskidid not become Chief Executive Officer of Uni-Pixel, Inc. by January 31,2007.

 

In the first quarter of2007, we granted a total of 300,000 options to purchase our common stock withan exercise price of $1.19 per share to three board members.  These options vest monthly over 36 months.

 

On February 13,2007, in connection with the Series B Convertible Preferred Stock PurchaseAgreement, the 1,000,000 options with an exercise price of $1.25 per sharegranted to Mr. Carl Yankowski on May 23, 2006 have all vested due tothe Company’s completion of an equity financing of $10 million or more.  The Company utilized the Black-Scholesmethodology in determining the fair market value of the optionsof $726,241 and this amount was expensed in the first quarter of 2007.

 

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*SummaryStock Option and Warrant Information*

 

Informationregarding the options and warrants granted in 2009 and 2008 is as follows:

 
| ** **                       | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2009**                                  | ** ** | **2008**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| Outstanding, beginning of year   |       | 5,602,014                                 |       | 4,712,500                                  |       | 13,846,468 |   | 13,846,468 |   |
| Granted                          |       | 575,000                                   |       | 1,145,625                                  |       | 13,413,568 |   | — |   |
| Exercised                        |       | —                                    |       | —                                     |       | — |   | — |   |
| Expired or cancelled             |       | 325,895                                   |       | 256,111                                    |       | 10,053,568 |   | — |   |
|                             |       |                                      |       |                                       |       |   |   |   |   |
| Outstanding, end of year         |       | 5,851,119                                 |       | 5,602,014                                  |       | 17,206,468 |   | 13,846,468 |   |
|                             |       |                                      |       |                                       |       |   |   |   |   |
| Exercisable, end of year         |       | 5,124,435                                 |       | 3,808,030                                  |       | 17,206,468 |   | 13,846,468 |   |
|                             |       |                                      |       |                                       |       |   |   |   |   |
| Available for grant, end of year |       | 1,448,881                                 |       | 1,697,986                                  |       |   |   |   |   |

 

Theweighted average option and warrant exercise price information for 2009 and2008 is as follows:

 
| ** **                           | ** ** | **Options  Year Ended December 31,** | ** ** | **Warrants  Year Ended December 31,** | ** ** |
|--------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                  | ** ** | **2008**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| Outstanding, beginning of year       |       | $                                         | 1.56       |                                       | $          | 1.65 |   | $ | 1.62 |   | $ | 1.28 |   |
| Granted during the year              |       | $                                         | 1.45       |                                       | $          | 1.45 |   | $ | 0.50 |   | $ | — |   |
| Exercised during the year            |       | $                                         | —     |                                       | $          | — |   | $ | — |   | $ | — |   |
| Expired or cancelled during the year |       | $                                         | 1.45       |                                       | $          | 1.56 |   | $ | 1.29 |   | $ | — |   |
| Outstanding at end of year           |       | $                                         | 1.55       |                                       | $          | 1.56 |   | $ | 0.66 |   | $ | 1.28 |   |
| Exercisable at end of year           |       | $                                         | 1.57       |                                       | $          | 1.62 |   | $ | 0.66 |   | $ | 1.28 |   |

 

The fair values of theCompany’s options were estimated on the date of grant using the Black-Scholesvaluation model with the following weighted-average assumptions:

 
| ** **                                      | ** ** | **Year********ended  December 31,******** 2009** | ** ** | **Year  ended  December 31,******** 2008** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| Expected  life (years)                          |       | 5 years                                               |       | 5 years                                         |       |
| Interest  rate                                  |       | 1.85                                                       | %          | 0.42 to 3.27                                         | %          |
| Dividend  yield                                 |       | —                                                     |       | —                                               |       |
| Volatility                                      |       | 135.15                                                     | %          | 108.47                                               | %          |
| Forfeiture  rate                                |       | —                                                     |       | —                                               |       |
| Weighted  average fair value of options granted |       | $                                                          | 1.45       |                                                 | $          | 1.45 |   |
|                                                 |            |                                                            |            |                                                      |            |  |  |

 

At December 31,2009, there was $0.6 million of total unrecognized compensation cost related tonon-vested stock option awards which is expected to be recognized over aweighted-average period of 0.58 years. There were 1,316,405 options that became vested during the twelve monthsended December 31, 2009.

 

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Significantoption and warrant groups outstanding at December 31, 2009, and relatedweighted average exercise price and life information 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       |                         | 4.92       |   |
| January 10, 2005   |       | —                   |       | 168,750                   |       | 168,750         |       | $                             | 1.38       |                         | 4.92       |   |
| January 26, 2005   |       | —                   |       | 110,250                   |       | 110,250         |       | $                             | 1.38       |                         | 4.92       |   |
| March 5, 2005      |       | 600,000                  |       | —                    |       | 600,000         |       | $                             | 2.00       |                         | 2.67       |   |
| March 5, 2005      |       | 450,000                  |       | —                    |       | 450,000         |       | $                             | 2.00       |                         | 5.17       |   |
| April 19, 2005     |       | 400,000                  |       | —                    |       | 400,000         |       | $                             | 2.00       |                         | 5.33       |   |
| April 19, 2005     |       | 150,000                  |       | —                    |       | 150,000         |       | $                             | 2.00       |                         | 1.58       |   |
| May 23, 2006       |       | 1,000,000                |       | —                    |       | 1,000,000       |       | $                             | 1.25       |                         | 6.58       |   |
| May 24, 2006       |       | —                   |       | 1,500,000                 |       | 1,500,000       |       | $                             | 1.25       |                         | 1.58       |   |
| September 12, 2006 |       | —                   |       | 194,400                   |       | 194,400         |       | $                             | 1.25       |                         | 1.67       |   |
| February 13, 2008  |       | —                   |       | 1,050,000                 |       | 1,050,000       |       | $                             | 1.10       |                         | 0.13       |   |
| March 16, 2007     |       | 300,000                  |       | —                    |       | 279,167         |       | $                             | 1.19       |                         | 7.21       |   |
| September 13, 2007 |       | 1,487,187                |       | —                    |       | 1,163,715       |       | $                             | 1.45       |                         | 7.71       |   |
| January 7, 2008    |       | 500,000                  |       | —                    |       | 333,333         |       | $                             | 1.45       |                         | 8.02       |   |
| January 16, 2008   |       | 60,000                   |       | —                    |       | 39,167          |       | $                             | 1.45       |                         | 8.04       |   |
| April 18, 2008     |       | 248,932                  |       | —                    |       | 150,442         |       | $                             | 1.45       |                         | 8.30       |   |
| May 20, 2008       |       | 100,000                  |       | —                    |       | 54,167          |       | $                             | 1.45       |                         | 8.38       |   |
| June 2, 2008       |       | 40,000                   |       | —                    |       | 13,333          |       | $                             | 1.45       |                         | 8.42       |   |
| October 20, 2008   |       | 40,000                   |       | —                    |       | 16,111          |       | $                             | 1.45       |                         | 8.80       |   |
| January 30, 2009   |       | 475,000                  |       | —                    |       | 475,000         |       | $                             | 1.45       |                         | 9.08       |   |
| June 10, 2009      |       | —                   |       | 480,000                   |       | 480,000         |       | $                             | 0.50       |                         | 9.42       |   |
| June 30, 2009      |       | —                   |       | 40,000                    |       | 40,000          |       | $                             | 0.50       |                         | 9.42       |   |
| August 31, 2009    |       | —                   |       | 460,000                   |       | 460,000         |       | $                             | 0.50       |                         | 9.67       |   |
| September 30, 2009 |       | —                   |       | 560,000                   |       | 560,000         |       | $                             | 0.50       |                         | 9.83       |   |
| October 2, 2009    |       | —                   |       | 120,000                   |       | 120,000         |       | $                             | 0.50       |                         | 9.83       |   |
| October 2, 2009    |       | —                   |       | 11,553,568                |       | 11,553,568      |       | $                             | 0.50       |                         | 9.83       |   |
| December 31, 2009  |       | —                   |       | 200,000                   |       | 200,000         |       | $                             | 0.50       |                         | 10.00      |   |
|                    |       |                     |       |                      |       |            |       |                          |       |                         |       |
| Total                   |       | 5,851,119                |       | 17,206,468                |       | 22,330,903      |       |                          |       |                         |       |

 

**Note 9 — Notes Payable**

 

Commencing in June 2009,the Company entered into subscription agreements (the “Subscription Agreements”)with accredited individual investors (each, an “Investor” and collectively, the“Investors”), pursuant to which the Company commenced a private placement (the “PrivatePlacement”) of its 8% convertible promissory notes maturing on July 9,2010. The Private Placement offering was closed effective July 9, 2009.

 

On June 10, 2009 andJune 30, 2009, the Company entered into a Subscription Agreement withvarious accredited individual investors (the “1st Closing Investors”) in a first closing of thePrivate Placement and issued convertible promissory notes in the originalaggregate principal amount of $650,000 (the “1st Closing Notes”).  The convertible promissory notes mature on July 9,2010. Investors purchased for $650,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $650,000 together with warrants (the “Warrants”)to purchase an aggregate of 325,000 shares of Common Stock for $0.50 per share.The convertible notes are convertible by the holders at any time at aconversion price of $0.50 per share into the Company’s common stock.  The convertible notes are due and payable atmaturity together with interest at the rate of 8% per annum. The Companyexpects to use the proceeds of the financing to finance on-going operations.

 

The Debentures did notcontain a beneficial conversion feature at the time of issuance.

 

Total funds received of$650,000 were allocated $20,001 to the Warrants and $629,999 to the Debenture.The relative fair value of the Warrants is $20,001 which was determined usingthe Black-Scholes option-pricing model. The discount on the Debenture attributable to the Warrants of $20,001 isbeing amortized to interest expense over the term of the Debenture using theeffective interest method.

 

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At December 31, 2009,the unamortized discount on the Debenture is approximately $9,608. Thefollowing table reflects the convertible debt at December 31, 2009:

 
| Convertible  Debt                        |   | $      | 650,000 |   |
|------------------------------------------|--------|--------|---------|--------|
| Less:  Current portion of debt discount  |   | (9,608 | )       |
|                                     |   |   |    |
| Value  of debt at December 31, 2009 |   | $      | 640,392 |   |

 

The following tablesummarizes the charges to interest, amortization and other expense, net for thetwelve months ended December 31, 2009:

 
| Interest  expense on debt   |   | $ | 28,678 |   |
|-----------------------------|--------|---|--------|--------|
| Accretion  of debt discount |   | $ | 10,393 |   |

 

In consideration forservices rendered as the placement agent in the Private Placement, the Companyissued to Fordham Financial Management, Inc. (“Fordham”) ten-year warrantsto purchase 195,000 shares of the Company’s Common Stock at an exercise priceof $0.50 per share (the “Fordham Warrants”), for the 1st Closing of thePrivate Placement. Fordham also received, in consideration for servicesrendered as placement agent cash commissions aggregating $65,000, whichrepresents 10% of the aggregate gross proceeds of the 1st Closing. TheCompany utilized the Black-Scholes methodology in determining the fair marketvalue of the Fordham Warrants, which is $74,674, and this amount is expensedover the expected life of the convertible notes as additional interest expense.  The Company also paid $25,000 in otherissuance costs. The placement agent cash commission, other issuance costs andFordham warrants are recorded as deferred loan costs in the accompanyingbalance sheet.

 

Commencing in August 2009,the Company entered into subscription agreements (the “Subscription Agreements”)with accredited individual investors (each, an “Investor” and collectively, the“Investors”), pursuant to which the Company commenced a private placement (the “PrivatePlacement”) of its 8% convertible promissory notes maturing on October 22,2010. The Private Placement offering was closed effective October 22,2009.

 

On August 31, 2009, September 30,2009 and October 2, 2009, the Company entered into a SubscriptionAgreement with various accredited individual investors (the “2nd ClosingInvestors”) in a first closing of the Private Placement and issued convertiblepromissory notes in the original aggregate principal amount of $1,425,000 (the “2nd Closing Notes”).  The convertible promissory notes mature on October 22,2010. Investors purchased for $1,425,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $1,425,000 together with warrants (the “Warrants”)to purchase an aggregate of 712,500 shares of Common Stock for $0.50 per share.The convertible notes are convertible by the holders at any time at aconversion price of $0.50 per share into the Company’s common stock.  The convertible notes are due and payable atmaturity together with interest at the rate of 8% per annum. The Companyexpects to use the proceeds of the financing to finance on-going operations.

 

The Debentures did notcontain a beneficial conversion feature at the time of issuance.

 

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

 

At December 31,2009, the unamortized discount on the Debenture is approximately $32,752. Thefollowing table reflects the convertible debt at December 31, 2009:

 
| Convertible  Debt                        |   | $       | 1,425,000 |   |
|------------------------------------------|--------|---------|-----------|--------|
| Less:  Current portion of debt discount  |   | (27,056 | )         |
|                                     |   |    |      |
| Value  of debt at December 31, 2009 |   | $       | 1,397,944 |   |

 

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The following tablesummarizes the charges to interest, amortization and other expense, net for thetwelve months ended December 31, 2009:

 
| Interest  expense on debt   |   | $ | 32,583 |   |
|-----------------------------|--------|---|--------|--------|
| Accretion  of debt discount |   | $ | 9,188  |   |

 

In consideration forservices rendered as the placement agent in the Private Placement, the Companyissued to Fordham Financial Management, Inc.(“Fordham”) ten-year warrantsto purchase 427,500 shares of the Company’s Common Stock at an exercise priceof $0.50 per share (the “Fordham Warrants”), for the 2nd Closing of thePrivate Placement. Fordham also received, in consideration for servicesrendered as placement agent cash commissions aggregating $156,750, whichrepresents 11% of the aggregate gross proceeds of the 2nd Closing. TheCompany utilized the Black-Scholes methodology in determining the fair marketvalue of the Fordham Warrants, which is $147,306, and this amount is expensedover the expected life of the convertible notes.  The Company also paid $10,180 in otherissuance costs. The placement agent cash commission, other issuance costs andFordham warrants are recorded as deferred loan costs in the accompanyingbalance sheet.

 

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

 

On December 31,2009, the Company entered into a Subscription Agreement with various accreditedindividual investors (the “3rd Closing Investors”) in a first closing of thePrivate Placement and issued convertible promissory notes in the originalaggregate principal amount of $250,000 (the “3rd Closing Notes”).  The convertible promissory notes mature on December 31,2010. Investors purchased for $250,000 8% Convertible Debentures (the “Debenture”)in the aggregate principal amount of $250,000 together with warrants (the “Warrants”)to purchase an aggregate of 125,000 shares of Common Stock for $0.50 per share.The convertible notes are convertible by the holders at any time at a conversionprice of $0.50 per share into the Company’s common stock.  The convertible notes are due and payable atmaturity together with interest at the rate of 8% per annum. The Companyexpects to use the proceeds of the financing to finance on-going operations.

 

The Debentures did notcontain a beneficial conversion feature at the time of issuance.

 

Total funds received of$250,000 were allocated $5,144 to the Warrants and $244,856 to the Debenture.The relative fair value of the Warrants is $5,144 which was determined usingthe Black-Scholes option-pricing model. The discount on the Debenture attributable to the Warrants of $5,144 isbeing amortized to interest expense over the term of the Debenture using theeffective interest method.

 

At December 31,2009, the unamortized discount on the Debenture is approximately $5,144. Thefollowing table reflects the convertible debt at December 31, 2009:

 
| Convertible Debt                         |   | $      |  250,000 |   |
|------------------------------------------|--------|--------|---------------|--------|
| Less:  Current portion of debt discount  |   | (5,144 | )             |
|                                     |   |   |          |
| Value  of debt at December 31, 2009 |   | $      | 244,856       |   |

 

The following tablesummarizes the charges to interest, amortization and other expense, net for thetwelve months ended December 31, 2009:

 
| Interest  expense on debt   |   | $ | 56     |   |
|-----------------------------|--------|---|--------|--------|
| Accretion  of debt discount |   | $ | — |   |

 

In considerationfor services rendered as the placement agent in the Private Placement, theCompany issued to Fordham Financial Management, Inc.(“Fordham”) ten-yearwarrants to purchase 75,000 shares of the Company’s Common Stock at an exerciseprice of $0.50 per share (the “Fordham Warrants”), for the 3rd Closing of thePrivate Placement. Fordham also received, in consideration for servicesrendered as placement agent cash commissions aggregating $32,500, whichrepresents 13% of the aggregate gross proceeds of the 3rd Closing. TheCompany utilized the Black-Scholes 

 

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methodology indetermining the fair market value of the Fordham Warrants, which is $23,144,and this amount is expensed over the expected life of the convertiblenotes.  The Company also paid $15,985 inother issuance costs. The placement agent cash commission, other issuance costsand Fordham warrants are recorded as deferred loan costs in the accompanyingbalance sheet.

 

**Note 10 —Fair Value Measurements**

 

As of January 1, 2008, the Company implemented fair valuemeasurements for its financial assets and liabilities that are remeasured andreported at fair value at each reporting period and non-financial assets andliabilities that are remeasured and reported at fair value at least annually.The implementation of the fair value guidance for nonfinancial assets andnonfinancial liabilities, effective January 1, 2009, did not have a materialimpact on our consolidated financial position and results of operations.

 

In general, fairvalues determined by Level 1 inputs utilize quoted prices (unadjusted) inactive markets for identical assets or liabilities. Fair values determined byLevel 2 inputs utilize observable inputs other than Level 1 prices, such asquoted prices for similar assets or liabilities, quoted prices in markets thatare not active or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the related assets orliabilities. Fair values determined by Level 3 inputs are unobservable datapoints for the asset or liability, and include situations where there islittle, if any, market activity for the asset or liability. The Company’sfinancial assets consist solely of cash and cash equivalents.

 

**Note 11 — Employee Benefit Plan**

 

*401(k) Plan*

 

Effective February 2007,the Company created an employee benefit plan available to all full-timeemployees under Section 401(k) of the Internal Revenue Code (“401(k) plan”).Employees may make contributions up to a specified percentage of theircompensation, as defined. The Company is not obligated to make contributionsunder the 401(k) plan and did not make any matching employer contributionto the 401(k) Plan in 2009 or 2008.

 

**Note 12 — Subsequent Events**

 

On January 15, 2010, the Company decreased the exercise price on 4,963,750options to $0.50 a share to incentivize current employees.  The Company utilized the Black-Scholesmethodology in determining the fair market value ofthe modification to these options of $330,735 and this amount was expensedin the first quarter of 2010.

 

Effective January 15,2010, we adopted the Uni-Pixel, Inc. 2010 Stock Incentive Plan. The StockIncentive Plan is discretionary and allows for an aggregate of up to 9,000,000shares 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.

 

On January 28, 2010, the Company granted a total of 7,200,000 options topurchase our common stock with an exercise price of $0.50 per share totwenty-four employees and directors.  These options vest 25%immediately as of January 28, 2010; 25% onthe one year anniversary of the date of grant; 25% on the two year anniversaryof the date of grant; and 25% on the three year anniversary of the date ofgrant.  The options expire on January 28,2020.  The Company utilized theBlack-Scholes methodology in determining the fair market value ofthe options granted of $2,756,641. For the 25% that vested immediately, $689,160 will be recognized in thefirst quarter of 2010.  The remaining$2,067,481 will be recognized of the three year vesting periods.

 

Effective March 14,2010, James Tassone has resigned as Chief Financial Officer.

 

The Company has evaluatedsubsequent events through March 12, 2010, the date the financialstatements were issued.

 

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