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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 


 
FORM 10-Q 
 

 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2011
 
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 100
The Woodlands, Texas 77381
(Address of Principal Executive Offices)
 
(281) 825-4500
(Issuer’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x
 
As of October 31, 2011, the issuer had 7,142,307 shares of issued and outstanding common stock, par value $0.001 per share.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer o
     
Non-accelerated filer o
 
Smaller reporting company x
(Do not check if a smaller reporting company)
   
 
 
TABLE OF CONTENTS
 
Part I.
Financial Information
3
     
Item 1.
3
     
 
   September 30, 2011 (unaudited) and December 31, 2010
3
     
 
  Three and nine months ended September 30, 2011 (unaudited) and September 30, 2010 (unaudited)
4
     
 
   From December 31, 2009 to September 30, 2011 (unaudited)
5
     
 
   Nine months ended September 30, 2011 (unaudited) and September 30, 2010 (unaudited)
6
     
 
7
     
Item 2.
14
     
Item 3.
19
     
Item 4.
19
     
Part II.
Other Information
20
     
Item 6.
20
 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS.
 
Uni-Pixel, Inc.
Condensed Consolidated Balance Sheets
 
   
September 30,
2011
   
December 31,
2010
 
   
(unaudited)
       
ASSETS
           
Current assets
           
Cash and cash equivalents
 
$
8,494,706
   
$
13,049,446
 
Accounts receivable, net
   
48
     
77,889
 
                 
Total current assets
   
8,494,754
     
13,127,335
 
                 
Property and equipment, net of accumulated depreciation of $1,849,314 and $1,543,839,
   at September 30, 2011 and December 31, 2010, respectively
   
1,203,446
     
70,734
 
Restricted cash
   
17,439
     
17,439
 
                 
Total assets
 
$
9,715,639
   
$
13,215,508
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Current liabilities
               
Accounts payable
 
$
143,600
   
$
341,541
 
Deferred revenue
   
     
85,906
 
                 
Total current liabilities
   
143,600
     
427,447
 
                 
Total liabilities
   
143,600
     
427,447
 
                 
Commitments and contingencies (Note 3)
   
     
 
                 
Shareholders’ equity
               
Common stock, $0.001 par value; 100,000,000 shares authorized, 7,142,307 shares issued
       and outstanding at September 30, 2011 and 7,131,890 shares issued and outstanding at December 31, 2010
   
7,142
     
7,132
 
Additional paid-in capital
   
69,985,477
     
66,507,247
 
Accumulated deficit
   
(60,420,580
)
   
(53,726,318
)
                 
Total shareholders’ equity
   
9,572,039
     
12,788,061
 
                 
Total liabilities and shareholders’ equity
 
$
9,715,639
   
$
13,215,508
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Uni-Pixel, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Revenue
 
$
731
   
$
37,273
   
$
190,297
   
$
140,037
 
                                 
Cost of revenues
   
440
     
1,075
     
44,447 
     
1,075 
 
                                 
Gross margin
   
291
     
36,198
     
145,850
     
138,962
 
                                 
Selling, general and administrative expenses
   
845,675
     
580,373
     
3,293,677
     
2,285,178
 
Research and development
   
1,030,349
     
719,587
     
3,556,515
     
2,211,015
 
                                 
Operating loss
   
(1,875,733
)
   
(1,263,762
)
   
(6,704,342
)
   
(4,357,231
)
                                 
Other income (expense)
                               
   Gain on sale of intellectual property
   
     
     
     
2,088,835
 
   Debt issuance expense
   
     
(139,903
)
   
     
(461,949
)
   Interest income (expense), net
   
2,637
     
(74,992
)
   
10,080
     
(219,283
)
                                 
Net loss
 
$
(1,873,096
)
 
$
(1,478,657
)
 
$
(6,694,262
)
 
$
(2,949,628
)
                                 
Per share information
                               
   Net loss - basic
 
$
(0.26
)
 
$
(0.43
)
 
$
(0.94
)
 
$
(0.85
)
   Net loss - diluted
   
(0.26
)
   
(0.43
)
   
(0.94
)
   
(0.85
)
                                 
Weighted average number of basic common shares outstanding
   
7,142,307
     
3,474,285
     
7,137,118
     
3,474,285
 
Weighted average number of diluted common shares outstanding
   
7,142,307
     
3,474,285
     
7,137,118
     
3,474,285
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Uni-Pixel, Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
 
   
Common Stock
               
Total
 
   
Number
         
Additional
         
Shareholders’
 
   
of
Shares
   
Amount
   
Paid-In
Capital
   
Accumulated
Deficit
   
Equity
(Deficit)
 
Balance, December 31, 2009
   
3,474,285
   
$
3,474
   
$
47,776,853
   
$
(49,908,524
)
 
$
(2,128,197
)
Issuance of common stock, net of issuance costs
   
3,450,000
     
3,450
     
15,271,695
     
     
15,275,145
 
Conversion of debt and accrued interest into common stock
   
207,605
     
208
     
1,037,792
     
     
1,038,000
 
Stock compensation expense
   
     
     
2,348,344
     
     
2,348,344
 
Issuance of warrants to convertible note investors
   
     
     
12,010
     
     
12,010
 
Issuance of warrants to placement agent
   
     
     
60,553
     
     
60,553
 
Net loss
   
     
     
     
(3,817,794
)
   
(3,817,794
)
Balance, December 31, 2010
   
7,131,890
   
$
7,132
   
$
66,507,247
   
$
(53,726,318
)
 
$
12,788,061
 
Stock compensation expense
   
     
     
3,405,101
     
     
3,405,101
 
    Exercise of stock options
   
10,417
     
10
     
73,129
     
     
73,139
 
Net loss
   
     
     
     
(6,694,262
)
   
(6,694,262
)
Balance, September 30, 2011 (unaudited)
   
7,142,307
   
$
7,142
   
$
69,985,477
   
$
(60,420,580
)
 
$
9,572,039
 
 
See accompanying notes to these condensed consolidated financial statements
 
 
Uni-Pixel, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
   
Nine Months Ended
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities
           
Net loss
 
$
(6,694,262
)
 
$
(2,949,628
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
305,474
     
182,739
 
Stock compensation expense
   
3,405,101
     
2,118,257
 
Amortization of deferred loan costs
   
     
461,949
 
Bad debt expense
   
33,774
     
 
Amortization of discounts on notes payable
   
     
46,236
 
Gain on sale of intellectual property
   
     
(2,088,835
)
Change in operating assets and liabilities:
               
(Increase) decrease in accounts receivable
   
44,067
     
(53,247
)
Decrease in accounts payable
   
(197,941
)
   
(143,865
)
Increase in accrued interest payable
   
     
174,883
 
Decrease in deferred revenue
   
(85,906
)
   
 
Net cash used in operating activities
   
(3,189,693
)
   
(2,251,511
)
                 
Cash flows from investing activities
               
Purchase of property and equipment
   
(1,438,186
)
   
 
Proceeds from the sale of intellectual property
   
     
2,250,000
 
Net cash provided by (used in) investing activities
   
(1,438,186
)
   
2,250,000
 
                 
Cash flows from financing activities
               
Proceeds from convertible notes payable
   
     
775,000
 
Payment of deferred loan costs
   
     
(108,726
)
Proceeds from exercise of stock options, net
   
73,139
     
 
Net cash provided by financing activities
   
73,139
     
666,274
 
                 
Net increase (decrease) in cash and cash equivalents
   
(4,554,740
)
   
664,763
 
Cash and cash equivalents, beginning of period
   
13,049,446
     
307,850
 
Cash and cash equivalents, end of period
 
$
8,494,706
   
$
972,613
 
                 
Supplemental disclosures of cash flow information:
               
Issuance of warrants to convertible note investors
 
$
   
$
12,010
 
Issuance of warrants to Placement Agent
 
$
   
$
60,553
 
 
See accompanying notes to these condensed consolidated financial statements.
 
 
Uni-Pixel, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
 
Note 1 — Basis of Presentation, Business and Organization
 
Uni-Pixel, Inc., a Delaware corporation, is the parent company of Uni-Pixel Displays, Inc., its wholly-owned operating subsidiary.  As used herein, “Uni-Pixel,” “we,” “us,” and “our” refer to Uni-Pixel, Inc. and Uni-Pixel Displays, Inc.  Our common stock, par value $0.001 per share, is quoted on the NASDAQ under the ticker symbol “UNXL.”
 
Uni-Pixel is a production stage company delivering its Clearly Superior™ Performance Engineered Films to the Lighting & Display and Flexible Electronics market segments. We have approximately 2 patents issued and 31 patents filed and have extensive expertise, technology know-how and trade secrets—protecting its performance engineered film development and manufacturing platforms.
 
Uni-Pixel’s newly developed UniBoss™ roll-to-roll or continuous flow printed electronics manufacturing process offers high fidelity replication of surface micro structures, advanced micro-optic structures, and conductive elements on thin film.  Uni-Pixel can provide these film-based solutions with high fidelity at a lower cost than traditional means available today.
 
 Uni-Pixel’s strategy is to develop proprietary Performance Engineered Films for applications in large established markets that are susceptible to technology disruption and can potentially deliver Uni-Pixel high profit growth. We plan to sell our printed films for applications, such as, protective cover film, antennas, touch panel sensors, custom circuitry, etc.  A key focus for Uni-Pixel is developing electronic conductive films for use in electronic sensors for consumer and industrial applications.  We are currently shipping protective cover films for personal devices. We sell our protective cover film under the Clearly Superior™ or Diamond Guard™ brand.  Our strategy is to sell our printed film-based products under the UniPixel label, private labels, and through Original Equipment Manufacturers (“OEM”) brands.
 
Uni-Pixel is exploring the business potential within key application markets and pursuing those markets that offer profitable opportunities either through licensing or partnerships and or direct sales.  Uni-Pixel anticipates that its initial film capabilities and partner funded product development capabilities will allow Uni-Pixel to fund and support further technology development and market expansion. We have and will continue to utilize contract manufacturing for prototype fabrication to augment our internal capabilities in the short term. Through Uni-Pixel’s internal research and development efforts, we have established an extensive portfolio of patents and patent applications, as well as other intellectual property rights that support these joint venture, licensing and manufacturing strategies.
 
As of September 30, 2011, Uni-Pixel had accumulated a total deficit of $60.4 million from operations in pursuit of these objectives.
 
Since our inception, we have been primarily engaged in developing our initial product technologies, recruiting personnel, commencing our U.S. operations and obtaining sufficient capital to meet our working capital needs. In the course of our development activities, we have sustained losses and expect such losses to continue through at least December 31, 2012. We will finance our operations primarily through our existing cash and possible future financing transactions.
 
In December 2010, we completed a public offering of 3,450,000 shares of our common stock at a price of $5.00 per share, for gross proceeds of $17.25 million.  The net proceeds from the public offering were $15.28 million after deducting underwriting discounts and commissions and offering expenses.
 
As of September 30, 2011, we had cash and cash equivalents of $8.5 million.  We believe that our existing capital resources are adequate to finance our operations until at least December 31, 2012 based on our current long-term business plan.  However, our long-term viability is dependent upon our ability to successfully operate our business, develop our manufacturing process, sign partnership agreements, develop our products and raise additional debt and equity to meet our business objectives.
 
The Company is subject to a number of risks, including the financial performance of its current products; the potential need for additional financings; its ability to successfully commercialize its product candidates; the uncertainty of the Company’s research and development efforts resulting in future successful commercial products; significant competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; dependence on corporate partners and collaborators;  as well as other changes in the electronic market industry.
 
 
Basis of Presentation
 
The condensed consolidated financial statements presented in this quarterly report include Uni-Pixel, Inc. and our wholly-owned subsidiary, Uni-Pixel Displays, Inc. All significant intercompany transactions and balances have been eliminated.
 
Note 2 — Summary of Significant Accounting Policies
 
Interim financial information
 
The condensed consolidated financial statements included herein, which have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods on a basis consistent with the annual audited statements. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full year. Certain information, accounting policies and footnote disclosures normally included in consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Form 10-K, for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 10, 2011.

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and to the practices within the technology industry.  There have been no significant changes in the Company’s significant accounting policies during the nine months ended September 30, 2011 compared to what was previously disclosed in the Company’s Annual Report on 10-K for the year ended December 31, 2010. The consolidated financial information as of December 31, 2010 included herein has been derived from the Company’s audited consolidated financial statements as of, and for the fiscal year ended, December 31, 2010.
 
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing this Quarterly Report on Form 10-Q that would require recognition or disclosure in the Condensed Consolidated Financial Statements.

Significant Accounting Policies
 
There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2011, as compared to the significant accounting policies disclosed in Note 2 of the Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2010.
 
Use of estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples include provisions for bad debts, useful lives of property and equipment and intangible assets, impairment of property and equipment and intangible assets, deferred taxes, the provision for and disclosure of litigation and loss contingencies, revenue recognition and stock-based compensation. Actual results may differ materially from those estimates.
 
Statement of cash flows
 
For purposes of the statements of cash flows, we consider all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents.
 

Concentration of credit risk
 
We maintain our cash primarily with major U.S. domestic banks.   The amounts held in interest bearing accounts periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000 at September 30, 2011 and December 31, 2010.  The amounts held in these banks did exceed the insured limit of $250,000 as of September 30, 2011 and December 31, 2010.   We have not incurred losses related to these deposits.
 
Loss per share data
 
            Basic loss per share is calculated based on the weighted average common shares outstanding during the period.  Diluted earnings per share also gives effect to the dilutive effect of stock options, warrants (calculated based on the treasury stock method) and convertible notes and convertible preferred stock. The Company does not present diluted earnings per share for years in which it incurred net losses as the effect is antidilutive.
 
            At September 30, 2011, options and warrants to purchase 3,489,738 shares of common stock at exercise prices ranging from $5.00 to $30.00 per share were outstanding, but were not included in the computation of diluted earnings per share as their effect would be antidilutive.
 
Recently issued accounting pronouncements
 
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to substantially converge the guidance in U.S. GAAP and IFRS on fair value measurements and disclosures. ASU No. 2011-04 clarifies the application of existing fair value measurement and disclosure requirements. ASU No. 2011- 04 is effective for public entities for interim and annual period beginning after December 15, 2011, with early adoption permitted.  Implementation had no effect on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-17 which establishes authoritative guidance permitting use of the milestone method of revenue recognition for research or development arrangements that contain payment provisions or consideration contingent on the achievement of specified events. This guidance is effective for milestones achieved in fiscal years beginning on or after June 15, 2010 and allows for either prospective or retrospective application, with early adoption permitted. Implementation had no effect on the Company’s consolidated financial statements.
 
In January 2010, the FASB issued ASU 2010-06 to improve disclosures about fair value measurements. ASU 2010-6 clarifies certain existing disclosures and requires new disclosure regarding significant transfers in and out of Level 1 and Level 2 of fair value measurements and the reasons for the transfer. The amendments in ASU 2010-06 will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal periods.  Implementation had no effect on the Company’s consolidated financial statements.
 
In October 2009, the FASB issued ASU 2009-14 to amend ASC 605, “Revenue Recognition.” The amendments in this update change the accounting model for revenue arrangements that include both tangible products and software elements. The amendments in ASU 2009-14 will be effective for us beginning January 1, 2011, with early adoption permitted.  Implementation had no effect on the Company’s consolidated financial statements.
 
In October 2009, the FASB issued ASU 2009-13 amending ASC 605 related to revenue arrangements with multiple deliverables. Among other things, ASU 2009-13 provides guidance for entities in determining the selling price of a deliverable and clarifies that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. Implementation had no effect on the Company’s consolidated financial statements.
 
Accounting Guidance Not Yet Effective
 
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.
 

Note 3 —   Commitments and Contingencies
 
 Leases
 
The Company has entered into a lease for office, warehouse and laboratory facilities in The Woodlands, Texas under a third party non-cancelable operating lease through April 30, 2016. Future minimum lease commitments as of September 30, 2011 are as follows:

Year Ending December 31
     
Three months ending 2011
 
$
53,951
 
2012
 
200,817
 
2013
 
203,542
 
2014
 
206,267
 
2015
 
208,992
 
2016
 
76,294
 
Thereafter
 
--
 
Total
 
$
949,863
 
 
This lease provides the Company with a right to extend the lease term for two additional five year terms or one term of ten years, at the Company’s option.  

Litigation

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

Note 4 — Redeemable Preferred Stock, Equity, Stock Plan and Warrants
 
Common Stock

During the nine months ended September 30, 2011 we issued 10,417 shares of common stock for cash in connection with the exercise of stock options.

Stock Incentive Plans

The Company has adopted four stock incentive plans: the 2005 Stock Incentive Plan, the 2007 Stock Incentive Plan, the 2010 Stock Incentive Plan and the 2011 Stock Incentive Plan (collectively, the “Stock Incentive Plans”).  The Stock Incentive Plans allows for an aggregate of up to 2,300,001 shares of our common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights.

Our Stock Incentive Plans are administered by our Board of Directors, which has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted.  As of September 30, 2011, there were 237,035 shares available for issuance under the Stock Incentive Plans.
 

The following disclosures provide information regarding the Company’s stock-based compensation awards, all of which are classified as equity awards:

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

Total compensation expense recognized for options was approximately $3.4 million and $2.1 million for the nine months ended September 30, 2011 and September 30, 2010, respectively.  The Company has recorded approximately $1.7 million of stock compensation expense in selling, general and administrative expenses and approximately $1.7 million in research and development expense for the nine months ended September 30, 2011 and approximately $1.2 million of stock compensation expense in selling, general and administrative expenses and approximately $0.9 million in research and development expense for the nine months ended September 30, 2010.

A summary of the changes in the total stock options outstanding during the nine months ended September 30, 2011 follows:
 
           
Weighted
 
         
Average
 
   
Options
   
Exercise Price
 
Outstanding at December 31, 2010
   
832,377
   
$
9.01
 
Granted
   
1,443,334
     
6.95
 
Forfeited or expired
   
(126,077
   
10.00
 
Exercised
   
(10,417
   
7.02
 
Outstanding at September 30, 2011
   
2,139,217
   
$
7.57
 
Vested and exercisable at September 30, 2011
   
896,163
   
$
8.32
 

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

   
Three Months
ended
September 30,
 2011
   
Three Months
ended
September 30,
 2010
   
Nine Months
ended
September 30,
 2011
   
Nine Months
ended
September 30,
 2010
 
Expected life (years)
 
5 years
   
5 years
   
5 years
   
5 years
 
Interest rate
 
0.88 to 1.51 %
   
1.76 to 1.80 %
   
0.88 to 2.04 %
   
1.76 to 2.41 %
 
Dividend yield
   
     
     
     
 
Volatility
   
98.78
%
   
143.79
%
   
98.78
%
   
143.79
%
Forfeiture rate
   
     
     
     
 
 
At September 30, 2011, there was $5.2 million of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized over a weighted-average period of 1.25 years.  There were 404,252 options that became vested during the nine months ended September 30, 2011.
 

Common Stock Warrants

As of September 30, 2011, the Company has 1,350,521 common stock warrants outstanding with a weighted average exercise price of $6.37 per share.  Information regarding outstanding warrants as of September 30, 2011 is as follows:
 
Grant date
 
Warrants
Outstanding
   
Exercisable
   
Weighted
Exercise
Price
   
Remaining
Life
(Years)
 
December 9, 2004
    51,304       51,304     $ 20.70       3.17  
January 10, 2005
    11,253       11,253     $ 20.70       3.17  
January 26, 2005
    7,353       7,353     $ 20.70       3.17  
June 10, 2009
    32,007       32,007     $ 7.50       7.68  
June 30, 2009
    2,667       2,667     $ 7.50       7.68  
August 31, 2009
    30,674       30,674     $ 7.50       7.92  
September 30, 2009
    37,340       37,340     $ 7.50       7.92  
October 2, 2009
    8,004       8,004     $ 7.50       7.92  
October 2, 2009
    770,239       770,239     $ 5.00       8.08  
December 31, 2009
    8,336       8,336     $ 7.50       8.25  
January 29, 2010
    3,336       3,336     $ 7.50       8.25  
February 2, 2010
    2,501       2,501     $ 7.50       8.25  
March 15, 2010
    19,173       19,173     $ 7.50       8.25  
March 29, 2010
    834       834     $ 7.50       8.25  
April 5, 2010
    20,500       20,500     $ 7.50       8.25  
December 15, 2010
    300,000       300,000     $ 6.00       4.17  
December 20, 2010
    45,000       45,000     $ 6.00       4.17  
                                 
Total                      
    1,350,521       1,350,521                  

Note 5 — Property, Plant and Equipment

A summary of the components of property and equipment at September 30, 2011 and December 31, 2010 are as follows:
 
 
Estimated
Useful
Lives
 
September 30,
 2011
   
December 31,
2010
 
Research and development equipment
3 to 5 years
 
$
2,555,700
   
$
1,211,603
 
Leasehold improvements
5 years
   
304,176
     
210,086
 
Computer equipment
5 years
   
97,740
     
97,740
 
Office equipment 
3 to 5 years
   
95,144
     
95,144
 
       
3,052,760
     
1,614,573
 
Accumulated depreciation
     
(1,849,314
)
   
(1,543,839
)
Property and equipment, net
   
$
1,203,446
   
$
70,734
 
 
 
Depreciation and amortization expense of property and equipment for the nine months ended September 30, 2011 and September 30, 2010 was approximately $305,474 and $182,739, respectively.
 
Note 6 — Fair Value Measurements
 
The Company measures its financial assets and liabilities at fair value at each reporting period and non-financial assets and liabilities that are measured and reported at fair value at least annually.
 
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are reflected in the accompanying consolidated financial statements at cost, which approximates fair value because of the short term maturity of these instruments.
 
Note 7 — Revenue and Credit Concentrations
 
During the nine months ended as of September 30, 2011 and 2010, sales by customers with more than 10% of revenue were as follows:
 
   
Nine months ended
September 30, 2011
   
Nine months ended
September 30, 2010
 
   
Amount
   
%
   
Amount
   
%
 
Company A
 
$
50,000
     
26
%
 
$
-
     
-
%
Company B
   
136,812
     
72
%
   
-
     
-
%
Company C
   
-
     
-
%
   
59,786
     
43
%
Company D
   
-
     
-
%
   
34,750
     
25
%
Company E
   
-
     
-
%
   
35,050
     
25
%
Total
 
$
186,812
     
98
%
 
$
129,586
     
93
%
 
As of September 30, 2011 and December 31, 2010 customers with more than 10% of accounts receivables balances were as follows:
 
   
As of September 30, 2011
   
As of December 31, 2010
 
   
Amount
   
%
   
Amount
   
%
 
Company D
   
-
     
-
%
   
26,313
     
34
%
Company E
   
-
     
-
%
   
34,000
     
43
%
Company F
   
-
     
-
%
   
17,445
     
22
%
Total
 
$
-
     
-
%
 
$
77,758
     
99
%
 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward Looking Statements
 
Some of the information in this report contains forward-looking information that involves risks and uncertainties.  Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management’s plans and objectives, future contracts, and forecasts of trends and other matters.  You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as "anticipate," "believe," "plan," "expect," "future," "intend," "may," "will," "should," "estimate," "predict," "potential," "continue," and other words and expressions of similar meaning.  No assurance can be given that the results in any forward-looking statement will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act. You should also consider carefully the statements under "Description of Business - Risk Factors" in our 2010 Form 10-K, which address factors that could cause our actual results to differ from those set forth in the forward-looking statements.
 
Critical Accounting Policies and Estimates
 
In preparing our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the U.S. and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/(loss) and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors.
 
We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, income taxes, and  long-lived assets, have the greatest impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.
 
There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2011, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on March 10, 2011.
 
Recent Accounting Pronouncements
 
See Note 2 of our accompanying Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.
 
Revenue Recognition:  We recognize revenue over the period the service is performed. In general, this requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured.
 
Advance payments are deferred until shipment.
 
Revenue from licenses and other up-front fees are recognized on a ratable basis over the term of the respective agreement.
 

Cost of Revenues and Selling, General and Administrative Expenses and Research and Development Expenses:  The primary purpose of our facility in The Woodlands, Texas is to conduct research on the development, testing and delivery of our prototype devices, and the commercialization of our products.
 
If, in the future, the purposes for which we operate our facility in The Woodlands, Texas, or any new facilities we open, changes, the allocation of the costs incurred in operating that facility between cost of sales and research and development expenses could change to reflect such operational changes.
 
Research and Development Expenses:  Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors for research, development and manufacturing of materials and devices, and a portion of facilities cost. Prototype development costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual costs may differ in some cases from estimated costs and are adjusted for in the period in which they become known. 

Stock-Based Compensation:  We recognize the cost of stock options and restricted stock which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—known as the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. We apply to all options granted or modified after its effective date and also to recognize the cost associated with the portion of any option awards made before its effective date for which the associated service has not been rendered as of its effective date.

RESULTS OF OPERATIONS
 
Comparison of the nine months ending September 30, 2011 and 2010
 
REVENUES.  During the first quarter of 2010 we began to manufacture, market and sell our thin film product.
 
Revenues were $190,297 for the nine months ended September 30, 2011 and $140,037 for the nine months ended September 30, 2010, an increase of $50,260, or 36%. The revenue for these periods was primarily related to engineering services and the sale and marketing of our thin film product.  The primary reason for the increase in revenue is due to an increase in engineering services revenue.
 
COST OF REVENUES.  Costs of revenues include all direct expenses associated with the delivery of services including internal labor costs. Costs of revenues were $44,447 for the nine months ended September 30, 2011 and $1,075 for the nine months ended September 30, 2010.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 44% or approximately $1,008,000, to $3,293,677 for the nine months ended September 30, 2011 from $2,285,178 for the nine months ended September 30, 2010.   The primary reason for the increase in selling, general and administrative expenses was the issuance of stock options to employees and the related increase in stock compensation expense during the nine months ended September 30, 2011. The major components of the increase are as follows:
 
a)  Salaries and benefits increased by approximately $552,000 to $2,185,000 for the nine months ended September 30, 2011 compared to $1,633,000 for the nine months ended September 30, 2010 due to an increase in salaries to $401,000 for the nine months ended September, 2011 compared to $326,000 for the nine months ended September 30, 2010; and stock compensation expense increased to $1,709,000 for the nine months ended September 30, 2011 compared to $1,224,000 for the nine months ended September 30, 2010;

b) Legal expense increased by approximately $2,000 to $157,000 for the nine months ended September 30, 2011 compared to $155,000 for the nine months ended September 30, 2010;
 
 
c) Accounting expense increased by approximately $2,000 to $55,000 for the nine months ended September 30, 2011 compared to $53,000 for the nine months ended September 30, 2010;
 
d) Office expense increased by approximately $1,000 to $15,000 for the nine months ended September 30, 2011 compared to $14,000 for the nine months ended September 30, 2010;
 
e) Travel expense increased by approximately $67,000 to $74,000 for the nine months ended September 30, 2011 compared to $7,000 for the nine months ended September 30, 2010;
 
f) Depreciation and amortization expense increased by approximately $122,000 to $305,000 for the nine months ended September 30, 2011 compared to $183,000 for the nine months ended September 30, 2010.
 
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $1,346,000 during the nine months ended September 30, 2011 to $3,556,515 from $2,211,015 for the nine months ended September 30, 2010. The primary reason for the increase in research and development expense is due to the issuance of stock options to employees and the related increase in stock compensation expense during the nine months ended September 30, 2011. As a result of the common stock offering completed in December 2010 that raised $15.3 million, we now have sufficient working capital to continue our research on our newly-developed UniBoss™ manufacturing process for flexible thin-film conductors. The major components of the increase are as follows:
 
a) Salaries and benefits attributable to research and development increased by approximately $1,085,000 to $2,799,000 for the nine months ended September 30, 2011 compared to $1,714,000 for the nine months ended September 30, 2010 due to an increase in salaries to $934,000 for the nine months ended September 30, 2011 compared to $693,000 for the nine months ended September 30, 2010; and stock compensation expense increased to $1,696,000 for the nine months ended September 30, 2011 compared to $894,000 for the nine months ended September 30, 2010;
 
b) Consulting expense attributable to research and development decreased by approximately $25,000 to $87,000 for the nine months ended September 30, 2011 compared to $112,000 for the nine months ended September 30, 2010;
 
c) Lab expense increased by approximately $290,000 to $466,000 for the nine months ended September 30, 2011 compared to $176,000 for the nine months ended September 30, 2010 primarily due to increased services related to prototype development; and
 
d) Travel expense attributable to research and development decreased by $24,000 to $49,000 for the nine months ended September 30, 2011 compared to $73,000 for the nine months ended September 30, 2010.
 
OTHER INCOME (EXPENSE).
 
a) In May 2010, the Company sold various intellectual properties recorded at $161,165, net, to Rambus, Inc. for $2,250,000.  Rambus intends to license the technology to global lighting and display manufacturers and have Uni-Pixel support their efforts with engineering services and optical Performance Engineered Film sales.  Uni-Pixel has no future obligation to provide engineering services to Rambus related to the patents sold.  Any engineering services and film sales to Rambus would be entered into under new agreements between Rambus and Uni-Pixel.
 
b) Debt issuance expense was an expense of $461,949 for the nine months ended September 30, 2010 due to the debt raised in the 2nd, 3rd and 4th quarter of 2009 and 1st quarter of 2010. This debt was paid off in full in December 2010.
 
c) Interest income (expense), net increased to income of $10,080 for the nine months ended September 30, 2011 as compared to an expense of ($219,283) for the nine months ended September 30, 2010.  The expense for the nine months ended September 30, 2010 was primarily due to less cash on hand and interest expense associated with the debt raised in the 2nd, 3rd and 4th quarter of 2009 and 1st quarter of 2010.
 
NET LOSS.   Net loss increased to $6,694,262 for the nine months ended September 30, 2011, as compared to $2,949,628 for the nine months ended September 30, 2010.  The approximate $3.7 million increase in net loss is primarily due to the nonrecurring $2.1 million gain from the sale of intellectual property to Rambus and the approximate $1.3 million increase in stock compensation expense.
 
 
Comparison of the three months ending September 30, 2011 and 2010
 
REVENUES.  During the first quarter of 2010 we began to manufacture, market and sell our thin film product.

Revenues were $731 for the three months ended September 30, 2011 and $37,273 for the three months ended September 30, 2010, a decrease of $36,542, or 98%. The revenue for these periods was primarily related to engineering services and the sale and marketing of our thin film product.  The primary reason for the decrease in revenue is due to a decrease in engineering services revenue.  During the quarter ended September 30, 2011, we did not earn any revenue for non-recurring engineering.  We expect that, as we develop and improve upon UniBoss, we will earn additional non-recurring engineering revenue and expect to sell the finished products to OEM’s.  We do not believe that our research & development fixed assets are impaired or that the useful lives of these assets should be adjusted.
 
COST OF REVENUES.  Costs of revenues include all direct expenses associated with the delivery of services including internal labor costs. Costs of revenues were $440 for the three months ended September 30, 2011 and $1,075 for the three months ended September 30, 2010.   
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by 46% or approximately $265,000, to $845,675 for the three months ended September 30, 2011 from $580,373 for the three months ended September 30, 2010.  The primary reason for the increase in selling, general and administrative expenses was the issuance of stock options to employees and the related increase in stock compensation expense during the three-months ended September 30, 2011. The major components of the increase are as follows:
 
a)  Salaries and benefits increased by approximately $94,000 to $438,000 for the three months ended September 30, 2011 compared to $344,000 for the three months ended September 30, 2010 due to a decrease in salaries to $130,000 for the three months ended September 30, 2011 compared to $152,000 for the three months ended September 30, 2010; and stock compensation expense increased to $287,000 for the three months ended September 30, 2011 compared to $167,000 for the three months ended September 30, 2010;
 
b) Legal expense increased by approximately $16,000 to $77,000 for the three months ended September 30, 2011 compared to $61,000 for the three months ended September 30, 2010;
 
c) Accounting expense increased by approximately $9,000 to $17,000 for the three months ended September 30, 2011 compared to $8,000 for the three months ended September 30, 2010; 

d) Office expense increased by approximately $1,000 to $5,000 for the three months ended September 30, 2011 compared to $4,000 for the three months ended September 30, 2010; 

e) Travel expense increased by approximately $22,000 to $24,000 for the three months ended September 30, 2011 compared to $2,000 for the three months ended September 30, 2010; 
 
f) Depreciation and amortization expense increased by approximately $87,000 to $134,000 for the three months ended September 30, 2011 compared to $47,000 for the three months ended September 30, 2010.
 
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $311,000, or 43%, during the three months ended September 30, 2011 to $1,030,349 from $719,587 for the three months ended September 30, 2010.  The primary reason for the increase in research and development expense is due to the issuance of stock options to employees and the related increase in stock compensation expense during the three-months ended September 30, 2011. As a result of the common stock offering completed in December 2010 that raised $15.3 million, we now have sufficient working capital to continue our research on our newly-developed UniBoss™ manufacturing process for flexible thin-film conductors. The major components of the increase are as follows:
 
a) Salaries and benefits attributable to research and development increased by approximately $234,000 to $711,000 for the three months ended September 30, 2011 compared to $477,000 for the three months ended September 30, 2010 due to a increase in salaries to $359,000 for the three months ended September 30, 2011 compared to $285,000 for the three months ended September 30, 2010; and stock compensation expense increased to $293,000 for the three months ended September 30, 2011 compared to $150,000 for the three months ended September 30, 2010;
 

b) Consulting expense attributable to research and development decreased by approximately $59,000 to $13,000 for the three months ended September 30, 2011 compared to $72,000 for the three months ended September 30, 2010;
 
c) Lab expense increased by approximately $131,000 to $244,000 for the three months ended September 30, 2011 compared to $113,000 for the three months ended September 30, 2010 primarily due to increased services related to prototype development; and
 
d) Travel expense decreased by approximately $1,000 to $16,000 for the three months ended September 30, 2011 compared to $17,000 for the three months ended September 30, 2010.

OTHER INCOME (EXPENSE).  

a) Debt issuance expense was an expense of $139,903 for the three months ended September 30, 2010 due to the debt raised in the 2nd, 3rd and 4th quarter of 2009 and 1st quarter of 2010. This debt was paid off in full in December 2010.

b) Interest income (expense), net increased to income of $2,637 for the three months ended September 30, 2011 as compared to an expense of ($74,992) for the three months ended September 30, 2010.  The expense for the three months ended September 30, 2010 was primarily due to less cash on hand and interest expense associated with the debt raised in the 2nd, 3rd and 4th quarter of 2009 and 1st quarter of 2010.
 
NET INCOME (LOSS).   Net loss was $1,873,096 for the three months ended September 30, 2011, as compared to a net  loss of $1,478,657 for the three months ended September 30, 2010.  
 
Off-Balance Sheet Transactions
 
We do not engage in material off-balance sheet transactions.
 
LIQUIDITY AND CAPITAL RESOURCES
 
We have historically financed our operations primarily through the issuance of common stock and debt and by relying on other commercial financing. During the remainder of 2011, and for the foreseeable future, we will be highly dependent on our net product revenue to supplement our current liquidity and fund our operations. We may in the future elect to supplement this with further debt or equity offerings or commercial borrowing.

Operating Activities
 
Cash used in operating activities during the nine months ended September 30, 2011 increased to $3,189,693 as compared to $2,251,511 used for the nine months ended September 30, 2010. This is primarily attributable to an increase in research and development expense for the nine months ended September 30, 2011.

Investing Activities
 
Cash used for investing activities during the nine months ended September 30, 2011 was $1,438,186. This is primarily attributable to an increase in the purchase of equipment related to our research and development activities and for anticipated production.  Cash flows provided by investing activities during the nine months ended September 30, 2010 was $2,250,000.  In May 2010, the Company sold various intellectual properties to Rambus, Inc. for $2,250,000.
 
 
Financing Activities
 
We have financed our operating and investing activities primarily from the proceeds of private placements and a public offering of common stock, convertible investor notes, and a preferred stock offering.
 
During the nine months ended September 30, 2011, the total net cash provided by financing activities was $73,139, from the net proceed from exercise of stock options.  During the nine months ended September 30, 2010, the total net cash provided by financing activities was $666,274, from the net proceeds received from convertible notes payable.

Working Capital
 
Our primary sources of liquidity have been short-term loans from private placements of convertible notes, private placements of equity securities, the sale of certain intellectual property and the issuance of 3,450,000 shares of common stock for net proceeds of $15.28 million in December 2010.
 
As of September 30, 2011, we had a cash balance of approximately $8.5 million.  We project that current cash reserves, will sustain our operations through at least December 31, 2012, and we are not aware of any trends or potential events that are likely to adversely impact our short term liquidity through this term.  We expect to fund our operations with our net product revenues from our commercial products, cash, cash equivalents and supplemented by proceeds from equity or debt financings, and loans or collaborative agreements with corporate partners, each to the extent necessary.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.
 
ITEM 4.  CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
As of September 30, 2011, management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  Based on their evaluation, management concluded that, as of September 30, 2011, our disclosure controls and procedures are effective to ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that it is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting
 
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States.  Based on the most recent evaluation, our Chief Executive Officer and Chief Financial Officer have determined that no significant changes in our internal control over financial reporting occurred during our most recent fiscal quarter that have materially affected, or are reasonably like to materially affect, our internal control over financial reporting.
 

PART II - OTHER INFORMATION
 
ITEM 6.  EXHIBITS.
 
Exhibit
 No.
 
 Description of Document
31.1
 
31.2
 
32.1
 
32.2
 
101.INS
 
XBRL Instance Document (2)
101.SCH
 
XBRL Taxonomy Extension Schema (2)
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase (2)
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase (2)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase (2)
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase (2)
     
(1) Filed herewith
(2) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
UNI-PIXEL, INC.
     
     
November 10, 2011
 
By:
/s/ Reed Killion
Date
 
Reed Killion, Chief Executive Officer and President