-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E5Q8qayySneoc4LISoGZoa1RUSFbVNXq85TPiIHJ+Mm6CIJTO51ZMq6/SzMjo+2P zDOMabVPyHurjY21smaDeQ== 0000927016-98-004044.txt : 19981118 0000927016-98-004044.hdr.sgml : 19981118 ACCESSION NUMBER: 0000927016-98-004044 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIXTECH INC /DE/ CENTRAL INDEX KEY: 0000946144 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 043214691 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26380 FILM NUMBER: 98750474 BUSINESS ADDRESS: STREET 1: AVENUE VICTOIRE 13790 CITY: ROUSSET FRANCE STATE: I0 10-Q 1 FORM 10-Q FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 For the quarterly period ended September 30, 1998 ------------------ OR ( ) 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 0-26380 _________________________________ PIXTECH, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-3214691 - ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) Avenue Olivier Perroy, 13790 Rousset, France - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) 011-33-4-42-29-10-00 - ------------------------------------------------------------------------------- (Registrant'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. Yes X No -- -- The number of shares outstanding of each of the issuer's classes of common stock as of Class Outstanding at September 30, 1998 ----- --------------------------------- Common Stock, $.01 par value 14,778,107 PIXTECH, INC. ------------- TABLE OF CONTENTS -----------------
PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Balance Sheets as of September 30, 1998 and December 31, 1997......................................... 3 Statements of Operations for the Three Months and Nine Months Ended September 30, 1998 and 1997, and the period from June 18, 1992 through September 30, 1998............................................ 4 Statements of Cash Flows for the Nine Months ended September 30, 1998 and 1997, and the period from June 18, 1992 through September 30, 1998................. 5 Statement of Stockholders' Equity............................. 6 - 7 Notes to Financial Statements................................. 8 - 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 10 - 14 PART II OTHER INFORMATION ITEM 1 Legal Proceedings............................................. 15 ITEM 2 Changes in Securities......................................... 15 ITEM 3 Default upon Senior Securities................................ 15 ITEM 4 Submission of matters to a Vote of Security Holders........... 15 ITEM 5 Other Information............................................. 15 ITEM 6 Exhibits and Reports on Form 8-K.............................. 15 Signature............................................................................. 16 Exhibit Index......................................................................... 17
PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------- ASSETS (UNAUDITED) Current assets: Cash available........................................................ $ 6,346 $ 12,428 Restricted cash - short term.......................................... 1,685 1,259 Accounts receivable: Trade............................................................... 871 953 Other............................................................... 134 82 Inventory............................................................. 905 702 Other................................................................. 2,136 2,166 ------- -------- Total current assets................................................ 12,077 17,590 Restricted cash - long term............................................. 8,428 8,816 Property, plant and equipment, net...................................... 19,657 9,353 Goodwill, net........................................................... 168 226 Deferred tax assets..................................................... 4,683 5,058 Deferred offering costs................................................. 230 Other assets - long term................................................ 529 605 ------- -------- Total assets........................................................ $45,772 $ 41,648 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long term debt..................................... $ 2,266 $ 1,364 Current portion of capital lease obligations.......................... 2,073 599 Accounts payable...................................................... 6,623 5,053 Accrued expenses...................................................... 2,661 1,284 -------- -------- Total current liabilities........................................... 13,623 8,300 Deferred revenue........................................................ 2,282 2,546 Long term debt, less current portion.................................... 9,741 11,024 Capital lease obligation, less current portion.......................... 7,655 441 Other long term liabilities, less current portion....................... 627 557 ------- -------- Total liabilities................................................... 33,928 22,868 ======= ======== STOCKHOLDERS' EQUITY Common stock, $0.01 par value, authorized shares--30,000,000; issued and outstanding shares--14,778,107 ; 13,762,732 respectively.. 148 138 Additional paid-in capital............................................ 61,082 57,067 Cumulative translation adjustment..................................... (1,668) (2,132) Deficit accumulated during development stage.......................... (47,718) (36,293) -------- -------- Total stockholders' equity......................................... 11,844 18,780 -------- -------- Total liabilities and stockholders' equity ........................ $ 45,772 $ 41,648 ======== ========
See accompanying notes. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Period from June 18, 1992 (date of inception) Three Months Ended Nine Months Ended through September 30, September 30, Sept. 30, ----------------- ----------------- 1998 1997 1998 1997 1998 ------ ------ ------- ------ ------ Revenues Cooperation & license revenues............................... $ 238 $ -- $ 1,239 $ 1,718 $ 26,449 Product sales................................................ 135 152 222 580 2,603 Other revenues............................................... 225 284 1,768 1,004 5,706 ------- ------- ------- -------- -------- Total revenues............................................ 598 436 3,229 3,302 34,758 ------- ------- ------- -------- -------- Cost of revenues License fees and royalties................................... (80) -- (281) (61) (1,821) ------- ------- ------- -------- -------- Gross margin................................................... 518 436 2,948 3,241 32,937 ------- ------- ------- -------- -------- Operating expenses Research and development: Acquisition of intellectual property rights.................. -- -- (125) -- (4,890) Other........................................................ (5,107) (3,227) (13,460) (11,305) (66,699) ------- ------- ------- -------- -------- (5,107) (3,277) (13,585) (11,305) (71,589) Marketing & sales............................................ (371) (369) (1,064) (1,151) (6,238) Administrative & general expenses............................ (639) (611) (1,862) (1,899) (12,163) ------- ------- ------- -------- -------- (6,117) (4,207) (16,511) (14,355) (89,990) ------- ------- ------- -------- -------- Loss from operations........................................... (5,599) (3,771) (13,563) (11,114) (57,053) Other income / (expense) Interest income / (expense).................................. (208) 82 (462) 424 347 Foreign exchange gains / (losses)............................ 844 32 1,553 (140) 2,207 ------- ------- ------- -------- -------- 636 114 1,091 285 2,554 Loss before income tax benefit................................. (4,963) (3,657) (12,472) (10,829) (54,499) Income tax benefit............................................. 1,047 -- 1,047 -- 6,781 ------- ------- ------- -------- -------- Net loss....................................................... $(3,916) $(3,657) $(11,425) $(10,829) $(47,718) ======= ======= ======== ======== ======== Net loss per share........................................... $ (0.26) $ (0.27) $ (0.79) $ (0.84) ======= ======= ======== ======== Shares used in computing net loss per share.................. 14,778 13,763 14,462 12,924
See accompanying notes. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
PERIOD FROM JUNE 18, 1992 (DATE OF INCEPTION) NINE MONTHS ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, -------------------------- ------------- 1998 1997 1998 ----------- --------- ------------- Net loss................................................... $(11,425) $(10,829) $(47,718) Total adjustments to net loss.............................. 5,719 4,009 19,345 -------- --------- -------- Net cash (used in) / provided by operating activities...... (5,706) (6,820) (28,373) -------- --------- -------- INVESTING ACTIVITIES Additions to property plant and equipment.................. (764) (511) (18,224) Reclassification of cash available as restricted cash...... -- (10,080) (10,080) Additions to intangible assets............................. -- -- (130) -------- --------- -------- Net cash used in investing activities...................... (764) (10,591) (28,434) FINANCING ACTIVITIES Stock issued............................................... 3,981 21,641 59,579 Proceeds from long-term borrowings......................... -- -- 16,287 Proceeds from sale leaseback transactions.................. -- -- 2,731 Payments for equipment purchases financed by accounts payable................................................... -- -- (3,706) Repayments of long term borrowing and capital lease obligations............................................... (3,836) (1,049) (9,219) -------- --------- -------- Net cash provided by financing activities.................. 145 20,592 65,672 -------- --------- -------- Effect of exchange rates on cash........................... 243 (1,358) (2,519) -------- --------- -------- Net increase in cash and cash equivalents.................. (6,082) 1,823 6,346 Cash and cash equivalents beginning of period.............. 12,428 4,266 -- -------- --------- -------- Cash and cash equivalents end of period.................... $ 6,346 $ 6,089 $ 6,346 ======== ======== ========
See accompanying notes. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
CONVERTIBLE PREFERRED STOCK ---------------------------------------------------------------------------------- SERIES A SERIES B SERIES C SERIES D -------------------- ------------------ -------------------- ------------------ SHARES SHARES SHARES SHARES ----------- --------- ----------- --------- ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT ----------- ------- --------- ------- ----------- ------- --------- ------- BALANCE AT JUNE 18, 1992 Issuance of convertible preferred stock, net of issuance costs in 1992, 1993 and 1994.................. 1,557,003 2,368 363,447 589 3,044,846 8,615 430,208 1,224 Issuance of Common stock in 1992 and 1993............................ Issuance of Common stock under stock option plan in 1994 Purchase of 28,761 shares of Common stock--Treasury stock in 1994....... Translation adjustment................. Net loss from June 18, 1992 (date of inception) through December 31, 1994.................. ---------- ------ -------- ------ ---------- ------ -------- ------ BALANCE AT DECEMBER 31, 1994 1,557,003 2,368 363,447 589 3,044,846 8,615 430,208 1,224 Reissuance of 28,761 shares of Common stock held in treasury........ Issuance of Common stock under stock option plan................... Common stock issued in initial public offering, net of issuance costs -- $ 1,080..................... Conversion of preferred stock.......... (1,557,003) (2,368) (363,447) (589) (3,044,846) (8,615) (430,208) (1,224) Translation adjustment................. Net loss--Year ended December 31, 1995.................... ---------- ------ -------- ------ ---------- ------ -------- ------ BALANCE AT DECEMBER 31, 1995 Issuance of Common stock under stock option plan.................... Issuance of warrants in connection with acquisition of the assets of Panocorp................... Translation adjustment................. Net loss--Year ended December 31, 1996.................... ---------- ------ -------- ------ ---------- ------ -------- ------ BALANCE AT DECEMBER 31, 1996 Common stock issued in public offering, net of issuance costs -- $ 796........................ Issuance of Common stock under stock option plan..................... Translation adjustment................. Net loss--Year ended December 31, 1997. ---------- ------ -------- ------ ---------- ------ -------- ------ BALANCE AT DECEMBER 31, 1997 Common stock issued in private placements, net of issuance costs -- $ 26 (unaudited)................... Issuance of Common stock under stock option plan (unaudited) Translation adjustment (unaudited).... Net loss--Nine Months ended September 30, 1998 (unaudited)....... ---------- ------ -------- ------ ---------- ------ -------- ------ BALANCE AT SEPTEMBER 30, 1998 -- -- -- -- -- -- -- -- ========== ====== ======== ====== ========== ====== ======== ======
See accompanying notes. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
DEFICIT ------------ ACCUMULATED ------------ COMMON STOCK ADDITIONAL CUMULATIVE DURING ------------------ ---------- ------------ ------------ SHARES PAID-IN TRANSLATION DEVELOPMENT TREASURY ---------- ---------- ------------ ------------ --------- ISSUED AMOUNT CAPITAL ADJUSTMENT STAGE STOCK TOTAL ---------- ------ ---------- ------------ ------------ --------- --------- BALANCE AT JUNE 18, 1992 Issuance of convertible preferred stock, net of issuance $ 12,796 costs in 1992, 1993 and 1994................. Issuance of Common stock in 1992 and 1993................................ 132,301 $ 1 $ 96 97 Issuance of Common stock under stock option plan in 1994............. 77,356 1 28 29 Purchase of 28,761 shares of Common stock-- Treasury stock in 1994....................................... $(11) (11) Translation adjustment......................... $ 181 181 Net loss from June 18, 1992 (date of inception) through December 31, 1994............................. $ (3,605) (3,605) ---------- ---- ------- ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1994 209,657 2 123 181 (3,605) (11) 9,487 Reissuance of 28,761 shares of Common stock held in treasury....................... 3 11 14 Issuance of Common stock under stock option plan.................................. 6,902 0 3 3 Common stock issued in initial public offering, net of issuance costs -- $ 1,080.................... 2,500,000 25 20,973 20,998 Conversion of preferred stock.................. 5,395,504 54 12,742 Translation adjustment......................... 334 334 Net loss--Year ended December 31, 1995......... (6,305) (6,305) ---------- ---- ------- ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1995 8,112,063 81 33,844 515 (9,910) 24,530 Issuance of Common stock under stock option plan.................................. 29,083 0 11 11 Issuance of warrants in connection with acquisition of the assets of Panocorp................................... 230 230 Translation adjustment......................... (953) (953) Net loss--Year ended December 31, 1996........ (11,719) (11,719) ---------- ---- ------- ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1996 8,141,146 81 34,085 (438) (21,629) 12,099 Common stock issued in public offering, net of issuance costs -- $ 796................ 5,570,819 56 22,958 23,014 Issuance of Common stock under stock option plan.................................. 50,767 1 25 25 Translation adjustment......................... (1,694) (1,694) Net loss--Year ended December 31, 1997......... (14,664) (14,664) ---------- ---- ------- ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1997 13,762,732 $138 $57,067 $(2,132) $(36,293) $ 18,780 Common stock issued in private placements, net of issuance costs -- $ 26 (unaudited)..................... 1,014,000 10 4,014 4,024 Issuance of Common stock under stock option plan (unaudited)................. 1,375 1 1 Translation adjustment......................... 464 464 Net loss--Nine Months ended September 30, 1998 (unaudited)................ (11,425) (11,425) ---------- ---- ------- ------- -------- -------- -------- BALANCE AT SEPTEMBER 30, 1998 14,778,107 $148 $61,082 $(1,668) $(47,718) $ 11,844
See accompanying notes. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) (UNAUDITED) Note A--Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results of the three-month or nine-month periods ending September 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 1997 (the "1997 Financial Statements"), included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE B--INVENTORIES Inventory consists of raw material and spare parts. NOTE C--RESTRICTED CASH In August 1997, the Company provided Unipac, its Asian manufacturing partner, with a written bank guaranty in an amount of $10.0 million pursuant to the Display Foundry agreement signed in May 1997 between the Company and Unipac in order to implement volume production of Field Emission Displays ("FEDs") at its manufacturing line. The Company granted the issuing banks a security interest in its cash and cash equivalents for the same amount. The pledged cash and cash equivalents have been recorded as short-term and long-term restricted cash in the balance sheet. Under certain conditions of the Foundry Agreement, Unipac can sell to the Company certain equipment. The payment for such equipment will be secured by Unipac through the exercise of the bank guaranty. Both the amount of the guaranty to Unipac and the amount of the security interest to the banks will be reduced by 1/24th of the initial amount at the end of each quarter, starting after December 1998. NOTE D--PROPERTY, PLANT AND EQUIPMENT In 1997, the Company signed a Display Foundry Agreement with Unipac, a Taiwanese AMLCD manufacturer, in order to implement high-volume manufacturing of FEDs at Unipac's plant. Pursuant to this agreement, Unipac began to install volume FEDs production equipment. That equipment has been purchased and funded by Unipac, and a portion of it is leased to PixTech. Most of the required equipment has now been installed at Unipac's facility. As of September 30, 1998, the portion of the equipment leased to PixTech amounts to $12,172. According to Financial Accounting Standard 13, "Accounting for leases", PixTech's share of equipment has been recorded as assets under the caption "Property, Plant and Equipment", in the net amount of $11,689. A depreciation of $483 has been recorded in the quarter. As of September 30, 1998, the related capital lease obligation amounts to $9,102, of which $1,678 has been recorded as current portion. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) (UNAUDITED) NOTE E--PRIVATE PLACEMENTS In March 1998, the Company sold 1,000,000 shares of the Company's Common Stock to The Kaufmann Fund Inc., in a private placement at a price of $4.00 per share, resulting in net cash proceeds of $4,000 before expenses payable by the Company, which amounted to $26. In March 1998, the Company entered into a license agreement with Coloray Display Corporation, a California corporation ("Coloray"), providing PixTech with a worldwide, nonexclusive royalty-free license on certain technologies related to field emission displays. In consideration of the license and rights granted to PixTech, the Company paid an amount of $75 and issued 14,000 shares of the Company's Common Stock, valued at a price of $3.57 per share, representing a total amount of $50. NOTE F--DEFERRED OFFERING COSTS The Company incurred expenses in preparation for a private offering of new shares in Europe and the U.S. These expenses have been deferred and will be recorded as a reduction of paid-in capital upon completion of the offering. NOTE G--FAS 130 The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130"), effective for the Company for the first quarter of 1998. SFAS 130 requires that items defined as other comprehensive income, such as foreign currency translation adjustments, be separately classified in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The components of comprehensive income for the nine-month periods ended September 30, 1998 and 1997 are as follows:
COMPREHENSIVE LOSS: NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 Net loss $(11,425) $(10,829) Change in cumulative translation adjustment 464 (1,462) -------- -------- Comprehensive net loss $(10,961) $(12,291)
NOTE H--LITIGATION The Company has received correspondence from Futaba Corporation and its legal counsel since February 1998 alleging the following: (i) Pixtech is infringing one or more patents owned by Futaba relating to the construction and manufacture of its displays that are not expressly included under the license agreement between Futaba and Pixtech, (ii) PixTech's use of terms such as "alliance" and "partners" in describing the nature of its contractual relationships with Motorola, Raytheon and Futaba in reports filed with the SEC is misleading and (iii) certain provisions in the Foundry Agreement with Unipac constitute an impermissible sublicense of Futaba technology. PixTech does not believe such claims have any merit and has denied each of the allegations in correspondences with Futaba and its counsel. Futaba has also claimed that the Company improperly supplied certain Futaba proprietary information to Unipac, and that Unipac has in turn disclosed such information to a third party vendor. If Futaba were to prevail on all of these claims, PixTech may be required to modify the construction and manufacture of its displays and may, as a result, be materially adversely affected. PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) To the Company's knowledge, there are no other exceptional facts or litigation that could have or that have in the recent past had any significant impact on its business, results, financial situation, or assets and liabilities. NOTE I.--SUBSEQUENT EVENTS During 1998, the Company has incurred the same level of losses that has been experienced in the past, which has adversely affected the Company's liquidity. The Company intends to improve its liquidity and financial position through sales of equity expected to take place in 1998. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Cooperation and License Revenues. PixTech is a party to a cooperative effort, between select display manufacturers to advance Field Emission Display ("FED") technology. The Company recognized cooperation and license revenues under license agreements of $238,000 in the three-month period ended September 30, 1998. These revenues represented the achievement by the Company of contractual milestones with certain licensees. No such revenues were recorded in the same period in 1997. The Company recorded cooperation and license revenues under these agreements of $1.2 million in the nine-month period ended September 30, 1998, as compared to $1.7 million in the nine-month period ended September 30, 1997. The decrease in cooperation and license revenues reflected the achievement by the Company of most of the contractual milestones with these licensees. The Company does not expect any significant additional milestone related revenues to be directly derived from existing licensees. Future cooperation and license revenues are mostly subject to execution, by the Company, of cooperation and/or license agreements with third parties other than the existing licensees. The Company may now grant royalty-bearing licenses to the FED cross-licensed technology to third parties subject to certain restrictions as to the geographic location and number of such third-party licensees. A portion of the proceeds PixTech will receive pursuant to such third-party licenses may be shared with the existing licensees. To the extent these licensees successfully incorporate the cross- licensed technology in their own products, the Company will recognize royalty revenues as they sell the products. Product sales. The Company recognized product sales of $222,000 in the nine- month period ended September 30, 1998, as compared to $580,000 in the nine-month period ended September 30, 1997. These product sales represented the shipment of FED displays and FED cathodes in limited quantities to certain licensees and the shipment of FED displays for evaluation by original equipment manufacturer ("OEM") customers. While the number of displays shipped significantly increased between the nine-month periods ended September 30, 1997 and September 30, 1998, the average selling price was reduced as most displays sold during the first nine months of 1998 were sold at volume prices. The Company expects to increase product shipments in 1998, both from products manufactured at its pilot production plant in France and from its volume source of manufacturing by Unipac. The Company has recently shipped its first FED displays manufactured by Unipac to a U.S. customer. Other revenues. Other revenues consist of funding under French or European Union development contracts and other miscellaneous revenues. The Company recognized other revenues of $225,000 in the three-month period ended September 30, 1998, as compared to $284,000 in the three-month period ended September 30, 1997. Other revenues amounted to $1.8 million in the nine-month period ended September 30, 1998, as compared to $1.0 million in the nine-month period ended September 30, 1997. Of these revenues, $1.2 million and $663,000 were related to a development contract granted in December 1994 from the French Ministry of Industry to support manufacturing of FEDs, in the nine-month periods ended 1998 and 1997, respectively. Total funding under this contract approximated $2.7 million. The Company recognized portions of this revenue as contractual conditions were met. The Company recognized $800,000 in 1996, $663,000 in 1997 and $1.2 million in the nine-month period ended September 30, 1998. Research and Development Expenses--Acquisition of Intellectual Property Rights. The Company expensed $125,000 in the nine-month period ended September 30, 1998 for the acquisition of intellectual property rights from Coloray Display Corporation (see "Notes to Condensed Consolidated Financial Statements -- Note E -- Private Placements"). Other Research and Development Expenses. The Company expensed $5.1 million for research and development costs during the three-month period ended September 30, 1998, an increase of 59% over the $3.2 million of research and development expenses incurred in the three-month period ended September 30, 1997. These expenses include obligations to the French atomic energy agency ("CEA") under a research agreement with the Laboratoire d'Electronique, de Technologie et d'Instrumentation) ("LETI"), contract consulting fees, salaries and associated operating expenses for in-house research and development activities conducted both in its pilot plant in Montpellier and its research and development facility in Santa Clara, the cost of staffing and operating the Company's pilot manufacturing facility and the cost of supporting the transfer of the FED technology to Unipac. This increase reflected the continued development of the Company's FED technology and the cost of supporting the transfer of FED manufacturing processes to Unipac. Research and development expenses amounted to $13.6 million for the nine-month period ended September 30, 1998, as compared to $11.3 million during the nine-month ended September 30, 1997. Sales and Marketing Expenses. The Company expensed $371,000 for sales and marketing during the three-month period ended September 30, 1998, as compared to $369,000 during the three-month period ended September 30, 1997. The Company believes sales and marketing expenses may increase in the future, as potential customers and anticipated shipments of FED displays develop. In 1997, the Company signed a distribution agreement of its FED products with Sumitomo Corporation ("Sumitomo") for the Japanese and Asian market areas. Sales and marketing expenses amounted to $1.0 million for the nine-month period ended September 30, 1998, as compared to $1.1 million during the nine-month period ended September 30, 1997. General and Administrative Expenses. General and administrative expenses amounted to $639,000 in the three-month period ended September 30, 1998, an increase of 5% over general and administrative expenses incurred in the three- month period ended September 30, 1997, which amounted to $611,000, reflecting an increase in staff expenses. Income tax benefit. The Company recorded an income tax benefit in the amount of $1.0 million in the three-month period ended September 30, 1998, representing tax credit for research and development activities conducted in France. STRATEGIC ISSUES AND RISKS The Company is focused on the continued development of the FED technology, the improvement of manufacturing yields, the successful implementation of contract manufacturing of FEDs with its Asian contract manufacturer, Unipac, and the reliability testing of new products which the Company expects will lead to the shipment of commercial products in the near future. In evaluating this outlook, the following risks and issues, among others, which are common with development stage companies, should be considered. Risks Associated with Contract Manufacturing of FEDs. The Company believes that its ability to commercialize medium to large volumes of FEDs is highly dependent on its ability to have FEDs manufactured by Unipac. In May 1997, the Company signed a Foundry Agreement with Unipac, an AMLCD manufacturer based in Taiwan. Under the agreement, Unipac has installed volume production equipment to produce FEDs at its manufacturing plant, and is beginning production for exclusive delivery of FED displays to PixTech. Expectations about the final timing of this manufacturing plan with Unipac are forward-looking statements that still involve risks and uncertainties, including the ease or difficulty of the transfer of the FED technology to Unipac. If such manufacturing plans are not implemented on a timely basis, the Company will not be able to ship medium to large volumes of FED products, or to obtain a commercially acceptable cost for its FED displays. If the Company is unable to have its FED manufactured in a cost effective manner, the Company would be materially adversely affected. Significant capital expenditure is required in order to install, at the contract manufacturers' facility, equipment that is not common to the AMLCD manufacturing process. A total amount of $16.5 million of capital expenditures is expected to be required which, pursuant to the Foundry Agreement, will be purchased and funded by Unipac, and a portion of that equipment will be leased to PixTech. The amount actually expended on capital expenditures could vary significantly depending upon numerous factors, including the inherent unpredictability of the total amount of a large scale capital expenditure program. Should the Company be successful in implementing this contract manufacturing relationship, the Company's reliance on a single contract manufacturer will involve several risks, including a potential inability to obtain an adequate supply of required products, and reduced control over the price, timeliness of delivery, reliability and quality of finished products. Any inability to manage this contract manufacturing relationship or any circumstance that would cause the Company to delay the shipment of its products would have an adverse effect on the Company. Products and Manufacturing Processes under Development, Need to Obtain Commercial Yields, Costs of Products. The Company's future success depends on the successful development and production of FEDs by the Company and its licensees. To date, the Company has successfully developed only one product that has been incorporated into a commercial end-user application. To be successful, the Company will need to complete the development of additional FED products. The Company's future products will require additional significant development prior to commercialization, and no assurance can be given that the results of such development efforts will be successful. In addition, the Company has not completed testing of its manufacturing processes at Unipac, and the Company has only limited quantities of products, manufactured at its pilot manufacturing facility, that are available for sale incorporating the Company's technology. Certain improvements must be made to the Company's manufacturing processes in order for the Company to be successful. In particular, in order to demonstrate the low cost potential of its FED technology, the Company will need to improve its manufacturing yields. Even if the Company is successful in completing the development and testing of its manufacturing processes, no assurance can be given that the favorable characteristics demonstrated by its current displays manufactured at the Company's pilot manufacturing facility will be reproduces on a cost-effective basis in commercial production. The Company has to date encountered a number of delays in the development of its products and processes. No assurance can be given that further delays will not occur. Any significant delays could prevent the Company from capitalizing on market opportunities, and could prevent the Company from capitalizing on market opportunities, and could have a material adverse effect on the Company. Display Performance Enhancement. Key elements of display performance are brightness, and stability over time (life time and reliability), as well as power efficiency. PixTech is seeking to balance luminous efficiency with power efficiency to produce bright and low power-consumption displays. Display reliability is heavily dependent upon the manufacturing process used in assembling the displays as well as upon the characteristics of the phosphors used on the anode. In order to produce color displays that will provide the product life necessary for most applications, the Company needs to make further advances in manufacturing processes. There can be no assurance that the Company will be able to improve the reliability and life time of its color FEDs to achieve commercially acceptable performance, or on a timely basis. If such displays performance enhancements are not successfully completed, the Company could be adversely affected. Cooperation and license revenues. To date, the Company has recorded most of the expected revenues associated with the achievement of contractual milestones under certain license agreements. Future cooperation and license revenues are mostly subject to execution, by the Company, of cooperation and/or license agreements with third parties that are not existing licensees. Theses agreements may be subject to certain restrictions, such as geographic location and number of such third-parties. Should the Company succeed in concluding such agreements, a portion of the revenues from such contracts could be shared with the existing licensees. Failure to conclude new royalty-bearing licenses or cooperation agreements could adversely affect the Company. In addition, the Company will only recognize royalty revenues under cooperation and license agreements with existing or future licenses to the extent that any such licensees incorporate licensed technology into products that are successfully commercialized. There can be no assurance that any such licensees will successfully develop or commercialize any such products. The Company believes that one of its existing licensees, Raytheon Company, may have suspended its internal program to develop FEDs. Competition and Competing Technologies. The market for flat panel display ("FPD") products is intensely competitive and is expected to remain so in the future. The market is currently dominated by products utilizing liquid crystal display ("LCD") technology. LCD technology has continued to improve, and there can be no assurance that advances in LCD technology will not overcome its current limitations. In addition, the recent substantial increases in world-wide manufacturing capacity of FPDs and the entrance of new competitors in the FPD market may cause over-supply conditions leading to dramatic reductions in the price of FPDs. In order to effectively compete, the Company could be required to increase the performance of its products or to reduce prices. In the event of price reductions, the Company's ability to maintain gross margins would depend on its ability to reduce its cost of sales. There can be no assurance that the Company's competitors will not succeed in developing products that outperform the Company's displays or that are more cost effective. In the event that efforts by the Company's competitors result in the development of products that offer significant advantages over the Company's products, and the Company is unable to improve its technology or develop or acquire alternative technology that is more competitive, the Company would be adversely affected. No Assurance of Market Acceptance. The potential size and timing of market opportunities targeted by the Company are uncertain. The Company anticipates marketing its displays to OEMs, and its success will depend on whether OEMs select the Company's products for incorporation into their products and upon their successful introduction of such products, as well as the successful commercialization of products developed by parties which are under contractual relationship to make royalty, and milestone payments to the Company. There can be no assurance that demand for any particular product will be sustained or that new markets will develop as expected by the Company, or at all. The failure of existing and new markets to develop as expected by the Company or to be receptive to PixTech's products would have a material adverse effect on the Company. Patents and Protection of Proprietary Technology. The Company's ability to compete effectively with other companies will depend, in part, on the ability of the Company to maintain the proprietary nature of its technology. Although the Company has been granted, has filed applications for and has been licensed under a number of patents in the United States and other countries, there can be no assurance as to the degree of protection offered by these patents, as to the likelihood that pending patents will be issued or as to the validity or enforceability of any issued patents. Patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, the Company cannot be certain that it was the first creator of inventions covered by pending patent applications or the first to file patent applications on such inventions. Competitors in both the United States and other countries, many, of which have substantially greater resources and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with the Company's ability to make and sell its products. The Company has not conducted an independent review of patents issued to third parties. In addition, claims that the Company's products infringe on the proprietary rights of others are more likely to be asserted after commencement of commercial sales incorporating the Company's technology. Although the Company believes that its products do not infringe the patents or other proprietary rights of third parties, there can be no assurance that other third parties will not assert infringement claims against the Company or that such claims will not be successful. Then can also be no assurance that competitors will not infringe the Company's patents. Even successful defense and prosecution of patent suits are both costly and time consuming. An adverse outcome in the defense of a patent suit could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the Company to cease selling its products. Further, with respect to licensed patents, which, in the case of the Company, represent a significant portion of the Company's proprietary technology, the defense and prosecution of patent suits may not be in the Company's control. An adverse outcome in a suit in which the Company asserts its patent rights could result in the loss of such rights, and could subject the Company to substantial costs and diversion of Company resources. The Company has received correspondence from Futaba Corporation and its legal counsel since February 1998 alleging the following: (i) Pixtech is infringing one or more patents owned by Futaba relating to the construction and manufacture of its displays that are not expressly included under the license agreement between Futaba and Pixtech, (ii) PixTech's use of terms such as "alliance" and "partners" in describing the nature of its contractual relationships with Motorola, Raytheon and Futaba in reports filed with the SEC is misleading and (iii) certain provisions in the Foundry Agreement with Unipac constitute an impermissible sublicense of Futaba technology. PixTech does not believe such claims have any merit and has denied each of the allegations in correspondences with Futaba and its counsel. Futaba has also claimed that the Company improperly supplied certain Futaba proprietary information to Unipac, and that Unipac has in turn disclosed such information to a third party vendor. If Futaba were to prevail on all of these claims, PixTech may be required to modify the construction and manufacture of its displays and may, as a result, be materially adversely affected. Foreign exchange. A large percentage of the Company's net assets and of the Company's costs is expressed in French Francs. Fluctuations of the parity of the U.S. dollar versus the French Franc may cause significant foreign exchange gains or losses. Most of the Company's capital lease obligation is expressed in Taiwanese dollar. Fluctuations of the parity of the Taiwanese dollar versus the French Franc may cause significant foreign exchange gains or losses. Impact of Year 2000. The Company has conducted a comprehensive review of its computer systems to identify applications that could be affected by, the inability, of certain computer systems to format and manipulate data containing dates including the year 2000 and subsequent years (commonly referred to as the "year 2000" issue), and has developed an implementation plan to resolve the issue. Although management does not expect that costs associated with modifying existing computer systems will have a significant impact on its financial position or results of operations, there can be no assurance that such modifications will be successfully implemented or that these costs will not be significant. In addition, the Company, depends on a limited group of suppliers. There can be no assurance that those suppliers will not be significantly impacted by the "Year 2000" issue. If those suppliers are significantly impacted by the "Year 2000" issue, such suppliers may not be able to continue their supply of parts to the Company without interruption, and the Company may be adversely affected. LIQUIDITY AND CAPITAL RESOURCES. Cash used in operations was $5.7 million for the nine-month period ended September 30, 1998, as compared to cash used in operations of $6.8 million for the nine-month period ended September 30, 1997. The Company has used $28.3 million in cash to fund its operating activities from inception through September 30, 1998 and has incurred $28.4 million in capital expenditures and investments. Cash flows generated from financing activities were $145,000 in the nine-month period ended September 30, 1998, as compared to $20.6 million in the nine-month period ended September 30,1997. These 1998 financings consisted primarily of sales of shares of Common Stock in a private placement, resulting in net proceeds to the Company of $4.0 million (net of issuance costs), while long term liabilities decreased by $3.8 million. Cash flow generated from financing activities exclude non-cash transactions related to the issuance of 14,000 shares of the Company's Common Stock to Coloray (See "Notes to Condensed Consolidated Financial Statements -- Note E -- Private placements"). Since its inception, the Company has funded its operations and capital expenditures primarily from the proceeds of equity financing aggregating $59.6 million and from proceeds aggregating $19.0 million from borrowings and sale- leaseback transactions. Capital expenditures were $764,000 during the nine-month period ended September 30, 1998 as compared to $511,000 during the same period of 1997. During the nine-month period ended September 30, 1998, capital expenditures remained focused on limited capacity expansion in the pilot manufacturing facility. Implementing volume production at Unipac's manufacturing plant requires significant capital expenditures. An amount of $16.5 million of capital expenditures is expected to be required which, pursuant to the Foundry Agreement, is purchased and funded by Unipac. The Company has existing contracts with two different French ministries providing for the payment of grants to the Company totaling approximately $4.0 million, of which the Company has collected an aggregate amount of $3.4 million through September 30, 1998 and for which the Company has recognized revenues to date in the aggregate amount of $2.7 million. In 1997, the Company entered into a research and development agreement with the European Union and other European industrial companies for an 18 month-period, which began in February 1997. The expected contribution of the European Union to the costs incurred by the Company amounts to $840,000 over the period. The Company received $423,000 and $293,000 from this contribution in 1997 and in 1998, which were not recognized as income in 1997 and in 1998 as all conditions stipulated in the agreement were not met. Cash available at September 30, 1998 amounted to $6.3 million as compared to $12.4 million at December 31, 1997. The Company expects that cash available at September 30, 1998 together with anticipated proceeds from the various grants described above and the anticipated increase in product sales will be sufficient to meet its cash requirements, including repayment of the current portion of its long term obligations for at least three months. The Company will require substantial funds to conduct research, development and testing, to develop and expand commercial-scale manufacturing systems and to market any resulting products. Changes in technology or a growth of sales beyond currently anticipated levels will also require further investment. The Company's capital requirements will depend on many factors, including the rate at which the Company can develop its products, the market acceptance of such products, the levels of promotion and advertising required to launch such products and attain a competitive position in the marketplace and the response of competitors to the Company's products. There can be no assurance that funds for these purposes, whether from equity or debt financing, or other sources, will be available when needed or on terms acceptable to the Company. PIXTECH, INC. September 30, 1998 PART II Other Information ITEM 1 Legal Proceedings: Not applicable. ITEM 2 Changes in Securities: (a) Not applicable (b) Not applicable (c) Not applicable ITEM 3 Defaults upon Senior Securities: Not applicable. ITEM 4 Submission of matters to a Vote of Security Holders: Not applicable ITEM 5 Other Information: None. ITEM 6 Exhibits and reports on Form 8-K: (a) Exhibits: 27. Financial Data Schedule (b) Reports on Form 8-K: None PIXTECH, INC. September 30, 1998 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIXTECH, INC. Date: November 12, 1998 BY: /s/ Yves Morel Yves Morel Chief Financial Officer PIXTECH, INC. September 30, 1998 EXHIBIT INDEX Exhibit No. - ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 6,346 0 1,005 0 905 12,077 19,657 0 45,772 13,623 0 0 0 148 11,696 45,772 135 598 0 6,117 0 0 (208) (4,963) 0 0 0 0 0 (3,916) (0.26) 0
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