-----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, WmW4yzD6Wcz67yISt5xVcDADUuH1EXucPu2GQRKnJhIOWwJiuH95kcQeON5UTSGC wkGdqFKmF3atIaVkOQdxXw== 0001015402-99-001279.txt : 19991115 0001015402-99-001279.hdr.sgml : 19991115 ACCESSION NUMBER: 0001015402-99-001279 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19991112 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: 424B3 SEC ACT: SEC FILE NUMBER: 333-87001 FILM NUMBER: 99746926 BUSINESS ADDRESS: STREET 1: AVENUE OLIVIER PERROY 13790 CITY: ROUSSET FRANCE STATE: I0 424B3 1 Filed pursuant to Rule 424(b)(3) Registration Statement File No. 333-87001 PROSPECTUS SUPPLEMENT DATED NOVEMBER 10, 1999 TO PROSPECTUS DATED SEPTEMBER 28, 1999 PIXTECH, INC. This Prospectus Supplement includes the attached Quarterly Report on Form 10-Q of PixTech, Inc. for the quarter ended September 30, 1999 previously filed by PixTech with the Securities and Exchange Commission. MANAGEMENT Ronald J. Ritchie was elected a director of PixTech on October 27, 1999. Until its recent acquisition, Mr. Ritchie was Chairman of the Board of VXI electronics, Inc., a private power conversion company based in Oregon. From 1996 to 1998, Mr. Ritchie was President and Chief Executive Officer of Akashic Memories Corporation, a private manufacturer of thin film, hard disk media used in disk drives. From 1994 to 1996, Mr. Ritchie was a consultant for start-up or high-tech companies. Prior to that, Mr. Ritchie held various senior executive positions with various multinational firms, including Compaq, from 1965 to 1992, where he begun his career and rose to the position of Vice President, Worldwide Marketing. Mr. Ritchie holds degrees from the Southern Methodist University and Stanford University. Mr. Ritchie is 58 years old. Mr. Ritchie serves as a director of SBE, Inc., a company that provides communications connectivity and application solutions for servers and other communications systems. SHARE OWNERSHIP The following table supersedes the table in the prospectus dated September 28, 1999, and set forth certain information regarding the ownership of the Company's Common Stock as of October 31, 1999 by (i) persons known by the Company to be beneficial owners of more than 5% of its Common Stock and Series E Preferred Stock, (ii) the executive officers of the Company, (iii) the directors of the Company, and (iv) all current executive officers and directors of the Company as a group:
SHARES OF COMMON STOCK BENEFICIALLY OWNED (1) --------------------------------- BENEFICIAL OWNER SHARES PERCENT OF CLASS - ------------------------------------- ---------- ---------------- United Microelectronics Corporation 2F, NO. 76 SEC 2, Tunhwa S. RD., Taipei, Taiwan, R.O.C.. . . . . . . . 13,538,257 (2) 37.6% Unipac Optoelectronics Corporation No 5 Hsin Road VI Science Based Industrial Park Hsin Chu City Taiwan R.O.C. . . . . . 12,427,146 (3) 34.5% Micron Technology, Inc. 8000 South Federal Way Boise, Idaho 83716-9632 . . . . . . . 7,443,562 (4) 20.5% Sumitomo Corporation 1-2-2 Hitosubashi, Chiyoda-Ku Tokyo, 100 Japan. . . . . . . . . . . 3,605,607 (5) 9.1% Jean-Luc Grand-Cl ment. . . . . . . . 725,464 (6) 2.0% Dieter Mezger . . . . . . . . . . . . 525,000 (7) 1.4% Francis G. Courreges. . . . . . . . . 93,307 (8) * Michel Garcia . . . . . . . . . . . . 135,116 (9) * Tom M. Holzel . . . . . . . . . . . . 0 * John A. Hawkins . . . . . . . . . . . 16,000 (10) * William C. Schmidt. . . . . . . . . . 4,000 (11) * Ronald J. Ritchie . . . . . . . . . . 2,000 (12) * All directors and executive officers as a group (11 persons) . . . . . . . 1,624,094 (13) 4.3% * Less than one percent. (1) Except as otherwise indicated in these footnotes, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned by them. Share ownership information includes shares of Common Stock issuable pursuant to outstanding options which may be exercised within 60 days after October 31, 1999. (2) Includes the 12,427,146 shares held by Unipac. United Microelectronics Corporation ("UMC") is the owner of 40.7% of the outstanding shares of Unipac and three members of the UMC board of directors serve as members of the Unipac board of directors. (3) Consists of 12,427,146 shares of Common Stock issued to Unipac Optoelectronics Corporation in a private placement closed on October 15, 1999. (4) Consists of 7,133,562 shares of Common Stock and a warrant to purchase 310,000 shares of Common Stock exercisable until May 19, 2001. The Common Stock and the warrant were issued to Micron Technology, Inc. in a private placement May 19, 1999 in consideration for substantially all of the assets of Micron's Field Emission Display Division and $4.4 million in cash. (5) Consists of 3,605,607 shares of Common Stock subject to the conversion of a $5 million convertible note issued in 1997, of which approximately $4.8 million is outstanding as of October 31, 1999. This note is convertible into shares of our common stock at a conversion price equal to 80% of the market price on the conversion date, the market price being determined as the average closing market price over the twenty consecutive trading days immediately prior to the notice of conversion. (6) Includes 53,605 shares held by Mr. Grand-Clement's wife and 600,753 shares of Common Stock subject to options exercisable as of October 31, 1999 or within 60 days thereafter, of which 6,792 shares are subject to options held by Mr. Grand-Clement's wife. (7) Consists of 525,000 shares of Common Stock subject to options exercisable as of October 31, 1999 or within 60 days thereafter. (8) Includes 89,307 shares of Common Stock subject to options exercisable as of October 31, 1999 or within 60 days thereafter. (9) Includes 127,355 shares of Common Stock subject to options exercisable as of October 31, 1999 or within 60 days thereafter. (10) includes 6,000 shares of Common Stock subject to an option exercisable as of October 31, 1999 or within 60 days thereafter. (11) Consists of 4,000 shares of Common Stock subject to an option exercisable as of October 31, 1999 or within 60 days thereafter. Mr. Schmidt, a director of the Company, is a Vice President of Eventech Limited and of Advent International Corporation. Mr. Schmidt disclaims beneficial ownership of all 675,945 shares held by the funds affiliated with Advent International Corporation, except for 80 Shares which he beneficially owns as a partner in Advent International Investors Limited Partnership and 192 Shares which he beneficially owns as a partner in Advent International Investors II L.P. (12) Consists of 2,000 shares of Common Stock subject to an option exercisable as of October 31, 1999 or within 60 days thereafter. (13) Excludes shares, as to which beneficial ownership is disclaimed, described in footnote (10). Includes 1,460,915 shares of Common Stock subject to options exercisable as of October 31, 1999 or within 60 days thereafter.
FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ 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 executiv 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 November 5, 1999 ----- ------------------------------- Common Stock, $.01 par value 36,044,284
PIXTECH, INC. ------------- TABLE OF CONTENTS ----------------- PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Comprehensive Operations for the Three Months and Nine Months Ended September 30, 1999 and 1998, and the period from June 18, 1992 through September 30, 1999 4 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1999 and 1998, and the period from June 18, 1992 through September 30, 1999 5 Condensed Consolidated Statement of Stockholders' Equity 6 - 7 Notes to Financial Statements 8 - 12 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 16 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 17 PART II OTHER INFORMATION ITEM 1 Legal Proceedings 18 ITEM 2 Changes in Securities 18 ITEM 3 Default upon Senior Securities 18 ITEM 4 Submission of matters to a Vote of Security Holders 18 ITEM 5 Other Information 18 ITEM 6 Exhibits and Reports on Form 8-K 19 Signature 20 Exhibit Index 21
PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, DECEMBER 31, 1999 1998 --------------- -------------- (UNAUDITED) ASSETS Current assets : Cash and cash equivalents available. . . . . . . . . . . . . . . . . . . . . . $ 2,395 $ 10,166 Restricted cash - short term . . . . . . . . . . . . . . . . . . . . . . . . . 2,560 1,685 Accounts receivable: Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 456 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836 161 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,460 980 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919 1,354 --------------- -------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,317 14,802 Restricted cash - long term. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,105 8,427 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 27,033 18,826 Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 150 Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,329 4,643 Other assets - long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 546 --------------- -------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,185 $ 47,394 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities : Current portion of long term debt. . . . . . . . . . . . . . . . . . . . . . . $ 4,564 $ 3,410 Current portion of capital lease obligations . . . . . . . . . . . . . . . . . 2,528 2,189 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,707 7,514 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,346 1,544 --------------- -------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 19,145 14,657 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 2,162 Long term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . 9,648 8,391 Capital lease obligation, less current portion . . . . . . . . . . . . . . . . . 8,056 8,399 Other long term liabilities, less current portion. . . . . . . . . . . . . . . . 47 528 --------------- -------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,240 34,137 =============== ============== STOCKHOLDERS' EQUITY Convertible preferred stock Series E, $0.01 par value, authorized shares-500,000 ; issued and outstanding shares- 297,269 ; 367,269 respectively. 3 4 Common stock, $0.01 par value, authorized shares-60,000,000 ; issued and outstanding shares-23,567,138 ; 15,000,329 respectively . . . . 236 150 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 83,524 68,999 Cumulative other comprehensive income . . . . . . . . . . . . . . . . . . . (2,656) (1,740) Deficit accumulated during development stage . . . . . . . . . . . . . . . . (75,162) (54,156) --------------- -------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 5,945 13,257 --------------- -------------- Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 43,185 $ 47,394 =============== ==============
See accompanying notes. 3
PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Period from Three Months Nine Months June 18, 1992 Ended September 30, Ended September 30, (date of ------------------ -------------------- inception) through September 30, 1999 1998 1999 1998 1999 -------- -------- --------- --------- ---------- Revenues Cooperation and license revenues . . . . . . . . $ -- $ 238 $ -- $ 1,239 $ 26,449 Product sales. . . . . . . . . . . . . . . . . . 71 135 410 222 3,236 Other revenues . . . . . . . . . . . . . . . . . 877 225 3,191 1,768 9,097 -------- -------- --------- ---------- Total revenues . . . . . . . . . . . . . . . 948 598 3,601 3,229 38,782 -------- -------- --------- --------- ---------- Cost of revenues License fees and royalties . . . . . . . . . . . (82) (80) (254) (281) (1,770) -------- -------- --------- --------- ---------- Gross margin . . . . . . . . . . . . . . . . . . . 866 518 3,347 2,948 37,012 -------- -------- --------- --------- ---------- Operating expenses Research and development: Acquisition of intellectual property rights. . . -- -- -- (125) (4,890) Other. . . . . . . . . . . . . . . . . . . . . . (7,210) (5,107) (19,413) (13,460) (91,941) -------- -------- --------- --------- ---------- (7,210) (5,107) (19,413) (13,585) (96,831) Marketing and sales. . . . . . . . . . . . . . . (338) (371) (1,018) (1,064) (7,625) Administrative and general expenses. . . . . . . (787) (639) (2,289) (1,862) (15,105) -------- -------- --------- --------- ---------- (8,335) (6,117) (22,720) (16,511) (119,561) -------- -------- --------- --------- ---------- Loss from operations . . . . . . . . . . . . . . . (7,469) (5,599) (19,373) (13,563) (82,549) Other income / (expense) Interest income / expense. . . . . . . . . . . . (244) (208) (608) (462) (507) Foreign exchange gains / (losses). . . . . . . . 112 844 (1,025) 1,553 1 -------- -------- --------- --------- ---------- (132) 636 (1,633) 1,091 (506) Loss before income tax benefit . . . . . . . . . . (7,601) (4,963) (21,006) (12,472) (83,055) Income tax benefit . . . . . . . . . . . . . . . . -- 1,047 -- 1,047 7,893 -------- -------- --------- --------- ---------- Net loss . . . . . . . . . . . . . . . . . . . . . $(7,601) $(3,916) $(21,006) $(11,425) $ (75,162) ======== ======== ========= ========= ========== Dividends accrued to holders of Preferred Stock (78) -- (377) -- (389) -------- -------- --------- --------- ---------- Net loss to holders of Common Stock. . . . . . . . $(7,679) $(3,916) $(21,383) $(11,425) $ (75,551) ======== ======== ========= ========= ========== Net loss per share of Common Stock . . . . . . . $ (0.32) $ (0.26) $ (1.10) $ (0.79) ======== ======== ========= ========= Shares of Common Stock used in computing net loss per share . . . . . . . . . 23,408 14,778 19,037 14,462 Net loss . . . . . . . . . . . . . . . . . . . . $(7,601) $(3,916) $(21,006) $(11,425) $ (75,162) Change in other comprehensive income . . . . . . (129) 677 (916) 464 (2,656) -------- -------- --------- --------- ---------- Comprehensive net loss . . . . . . . . . . . . . $(7,730) $(3,239) $(21,922) $(10,961) $ (77,818) ======== ======== ========= ========= ==========
See accompanying notes. 4
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, 1999 1998 1999 --------- --------- --------- Net loss $(21,006) $(11,425) $(75,162) Total adjustments to net loss . . . . . . . . . . . . . . . . . 9,300 5,719 31,446 --------- --------- --------- Net cash used in operating activities . . . . . . . . . . . . . (11,706) (5,706) (43,716) --------- --------- --------- INVESTING ACTIVITIES Additions to property plant and equipment . . . . . . . . . . . (625) (764) (19,945) Reclassification of cash available as restricted cash . . . . . 1,299 -- (8,813) Additions to intangible assets. . . . . . . . . . . . . . . . . -- -- (130) --------- --------- --------- Net cash provided by / (used in) investing activities . . . . . 674 (764) (28,888) FINANCING ACTIVITIES Stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . 4,179 3 ,981 71,683 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 (1,481) (3,836) (9,298) --------- --------- --------- Net cash provided by financing activities . . . . . . . . . . . 2,698 145 77,697 --------- --------- --------- Effect of exchange rates on cash. . . . . . . . . . . . . . . . 563 243 (2,698) --------- --------- --------- Net (decrease) / increase in cash and cash equivalents. . . . . (7,771) (6,082) 2,395 Cash and cash equivalents beginning of period . . . . . . . . . 10,166 12,428 -- --------- --------- --------- Cash and cash equivalents end of period . . . . . . . . . . . . $ 2,395 $ 6,346 $ 2,395 ========= ========= =========
See accompanying notes. 5
PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) CONVERTIBLE PREFERRED STOCK -------------------------------------------------------------- SERIES A SERIES B SERIES C -------- -------- -------- SHARES SHARES SHARES ----------- --------- ----------- 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 Issuance of Common stock in 1992 and 1993 Issuance of Common stock under stock option plan in 1994 and 1995 Purchase of 28,761 shares of Common stock- Treasury stock in 1994 Reissuance of 28,761 shares of Common stock held in treasury in 1995 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080 Conversion of preferred stock in 1995. . . . . . . . . . . . (1,557,003) (2,368) (363,447) (589) (3,044,846) (8,615) Translation adjustment Net loss from June 18, 1992 (date of inception) through 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 -- $44 Issuance of Series E convertible preferred stock, net of issuance costs -- $822 Issuance of Common stock under stock option plan Translation adjustment Net loss-Year ended December 31, 1998 ----------- ------- --------- ------- ----------- ------- BALANCE AT DECEMBER 31, 1998 Common stock issued in private placements (unaudited) Issuance costs and dividends accrued in relation to Series E Convertible Preferred stock issued in December 1998 (unaudited) Conversion of Series E preferred stock (unaudited) Issuance of common stock in connection with the acquisition of certain assets of Micron Display, net of issuance costs -- $513 (unaudited) Issuance of warrants (unaudited) Issuance of common stock following conversion of Sumitomo convertible loan (unaudited) Issuance of common stock under stock option plan (unaudited) Translation adjustment (unaudited) Net loss- Nine months ended September 30, 1999 (unaudited) ----------- ------- --------- ------- ----------- ------- BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED) . . . . . . . . . . -- -- -- -- -- -- =========== ======= ========= ======= =========== ======= CONVERTIBLE PREFERRED STOCK -------------------------------------- SERIES D SERIES E -------- -------- SHARES SHARES --------- -------- ISSUED AMOUNT ISSUED AMOUNT --------- ------- -------- -------- BALANCE AT JUNE 18, 1992 Issuance of convertible preferred stock, net of issuance costs in 1992, 1993 and 1994. . . . . . . . . . . . . . . . 430,208 1,224 Issuance of Common stock in 1992 and 1993 Issuance of Common stock under stock option plan in 1994 and 1995 Purchase of 28,761 shares of Common stock- Treasury stock in 1994 Reissuance of 28,761 shares of Common stock held in treasury in 1995 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080 Conversion of preferred stock in 1995. . . . . . . . . . . . (430,208) (1,224) Translation adjustment Net loss from June 18, 1992 (date of inception) through 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 -- $44 Issuance of Series E convertible preferred stock, net of issuance costs -- $822 . . . . . . . . . . . . . . . 367,269 $ 4 Issuance of Common stock under stock option plan Translation adjustment Net loss-Year ended December 31, 1998 --------- ------- -------- -------- BALANCE AT DECEMBER 31, 1998. . . . . . . . . . . . . . . . . 367,269 4 Common stock issued in private placements (unaudited) Issuance costs and dividends accrued in relation to Series E Convertible Preferred stock issued in December 1998 (unaudited) Conversion of Series E preferred stock (unaudited) . . . . . (70,000) (1) Issuance of common stock in connection with the acquisition of certain assets of Micron Display, net of issuance costs -- $513 (unaudited) Issuance of warrants (unaudited) Issuance of common stock following conversion of Sumitomo convertible loan (unaudited) Issuance of common stock under stock option plan (unaudited) Translation adjustment (unaudited) Net loss- Nine months ended September 30, 1999 (unaudited) --------- ------- -------- -------- BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED) . . . . . . . . . . -- -- 297,269 $ 3 ========= ======= ======== ========
See accompanying notes. 6
PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) COMMON STOCK ------------------- DIVIDENDS ----------- ACCRUED TO ----------- ADDITIONAL HOLDERS OF OTHER ------------ ----------- --------------- SHARES PAID-IN PREFERRED COMPREHENSIVE ---------- ------------ ----------- --------------- ISSUED AMOUNT CAPITAL STOCK INCOME ---------- ------- ------------ ----------- --------------- BALANCE AT JUNE 18, 1992 Issuance of convertible preferred stock, net of issuance costs in 1992, 1993 and 1994. . . . . . . . . Issuance of Common stock in 1992 and 1993 . . . . . . . 132,301 $ 1 $ 96 Issuance of Common stock under stock option plan in 1994 and 1995 . . . . . . . . . . . . . . . . 84,258 1 31 Purchase of 28,761 shares of Common stock- Treasury stock in 1994. . . . . . . . . . . . Reissuance of 28,761 shares of Common stock held in treasury in 1995. . . . . . . . . . . . . . . 3 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080. . . . . . . 2,500,000 25 20,973 Conversion of preferred stock in 1995 . . . . . . . . . 5,395,504 54 12,742 Translation adjustment. . . . . . . . . . . . . . . . . $ 515 Net loss from June 18, 1992 (date of inception) through December 31, 1995 . . . . . . . . . . . . . . 3 ---------- ------- ------------ ----------- --------------- BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . . . . 8,112,063 81 33,844 515 Issuance of Common stock under stock option plan. . . . 29,083 0 11 Issuance of warrants in connection with acquisition of the assets of Panocorp. . . . . . . . . . . . . . 230 Translation adjustment. . . . . . . . . . . . . . . . . (953) Net loss-Year ended December 31, 1996. . . . . . . . . ---------- ------- ------------ ----------- --------------- BALANCE AT DECEMBER 31, 1996 . . . . . . . . . . . . . . 8,141,146 81 34,085 (438) Common stock issued in public offering, net of issuance costs -- $796. . . . . . . . . . . . . . . 5,570,819 56 22,958 Issuance of Common stock under stock option plan. . . . 50,767 1 25 Translation adjustment. . . . . . . . . . . . . . . . . (1,694) Net loss-Year ended December 31, 1997 . . . . . . . . . ---------- ------- ------------ ----------- --------------- BALANCE AT DECEMBER 31, 1997 . . . . . . . . . . . . . . 13,762,732 $ 138 $ 57,067 $ (2,132) Common stock issued in private placements, net of issuance costs -- $44. . . . . . . . . . . . . . 1,236,222 12 4,493 Issuance of Series E convertible preferred stock, net of issuance costs -- $822. . . . . . . . . . . . . 7,449 (12) Issuance of Common stock under stock option plan. . . . 1,375 1 Translation adjustment. . . . . . . . . . . . . . . . . 392 Net loss-Year ended December 31, 1998 . . . . . . . . . ---------- ------- ------------ ----------- --------------- BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . . . 15,000,329 150 69,011 (12) (1,740) Common stock issued in private placements (unaudited) . 150,000 1 351 Issuance costs and dividends accrued in relation to Series E Convertible Preferred stock issued in December 1998 (unaudited) . . . . . . . . . . . . . . (36) (377) Conversion of Series E preferred stock (unaudited). . . 1,114,220 11 (10) Issuance of common stock in connection with the acquisition of certain assets of Micron Display, net of issuance costs -- $513 (unaudited) . . . . . . . . 7,133,562 71 14,131 Issuance of warrants (unaudited). . . . . . . . . . . 297 Issuance of common stock following conversion of Sumitomo convertible loan (unaudited). . . . . . . 100,000 1 144 Issuance of common stock under stock option plan (unaudited). . . . . . . . . . . . . . . . . . . 69,027 1 26 Translation adjustment (unaudited). . . . . . . . . . . (916) Net loss- Nine months ended September 30, 1999 (unaudited). . . . . . . . . . . . ---------- ------- ------------ ----------- --------------- BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED). . . . . . . . 23,567,138 $ 236 $ 83,913 (389) $ (2,656) ========== ======= ============ =========== =============== DEFICIT ------------- ACCUMULATED ------------- DURING ------------- DEVELOPMENT TREASURY ------------- ---------- STAGE STOCK TOTAL ------------- ---------- --------- BALANCE AT JUNE 18, 1992 Issuance of convertible preferred stock, net of issuance costs in 1992, 1993 and 1994. . . . . . . . . $ 12,796 Issuance of Common stock in 1992 and 1993 . . . . . . . 97 Issuance of Common stock under stock option plan in 1994 and 1995 . . . . . . . . . . . . . . . . 32 Purchase of 28,761 shares of Common stock- Treasury stock in 1994. . . . . . . . . . . . $ (11) (11) Reissuance of 28,761 shares of Common stock held in treasury in 1995. . . . . . . . . . . . . . . 11 14 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080. . . . . . . 20,998 Conversion of preferred stock in 1995 Translation adjustment. . . . . . . . . . . . . . . . . 515 Net loss from June 18, 1992 (date of inception) through December 31, 1995 . . . . . . . . . . . . . . $ (9,910) (9,910) BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . . . . (9,910) 24,530 Issuance of Common stock under stock option plan. . . . 11 Issuance of warrants in connection with acquisition of the assets of Panocorp. . . . . . . . . . . . . . 230 Translation adjustment. . . . . . . . . . . . . . . . . (953) Net loss-Year ended December 31, 1996. . . . . . . . . (11,719) (11,719) BALANCE AT DECEMBER 31, 1996 . . . . . . . . . . . . . . (21,629) 12,099 Common stock issued in public offering, net of issuance costs -- $796. . . . . . . . . . . . . . . 23,014 Issuance of Common stock under stock option plan. . . . 25 Translation adjustment. . . . . . . . . . . . . . . . . (1,694) Net loss-Year ended December 31, 1997 . . . . . . . . . (14,664) (14,664) BALANCE AT DECEMBER 31, 1997 . . . . . . . . . . . . . . $ (36,293) $ 18,780 Common stock issued in private placements, net of issuance costs -- $44. . . . . . . . . . . . . . 4,506 Issuance of Series E convertible preferred stock, net of issuance costs -- $822. . . . . . . . . . . . . 7,440 Issuance of Common stock under stock option plan. . . . 1 Translation adjustment. . . . . . . . . . . . . . . . . 392 Net loss-Year ended December 31, 1998 . . . . . . . . . (17,863) (17,863) BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . . . (54,156) 13,257 Common stock issued in private placements (unaudited) . 352 Issuance costs and dividends accrued in relation to Series E Convertible Preferred stock issued in December 1998 (unaudited) . . . . . . . . . . . . . . (413) Conversion of Series E preferred stock (unaudited). . . -- Issuance of common stock in connection with the acquisition of certain assets of Micron Display, net of issuance costs -- $513 (unaudited) . . . . . . . . 14,202 Issuance of warrants (unaudited). . . . . . . . . . . 297 Issuance of common stock following conversion of Sumitomo convertible loan (unaudited). . . . . . . 145 Issuance of common stock under stock option plan (unaudited). . . . . . . . . . . . . . . . . . . 27 Translation adjustment (unaudited). . . . . . . . . . . (916) Net loss- Nine months ended September 30, 1999 (unaudited). . . . . . . . . . . . (21,006) (21,006) ------------- --------- BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED). . . . . . . . $ (75,162) -- $ 5,945 ============= ========== =========
See accompanying notes. 7 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) NOTE A - BASIS OF PRESENTATION The financial information as of September 30, 1999, and for the three and nine months ended September 30, 1999 is unaudited but includes all adjustments, which are of a normal recurring nature and, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. 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. Operating results of the three-month and nine-month periods ending September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 1998 (the "1998 Financial Statements"), included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. NOTE B - INVENTORIES Inventory consists of raw material and spare parts. NOTE C - RESTRICTED CASH In August 1997, the Company provided Unipac Optoelectronics Corp. ("Unipac"), its Asian manufacturing partner, a written bank guaranty in an amount of $10,000 pursuant to the display foundry agreement (the "Foundry Agreement") signed in May 1997 between the Company and Unipac in order to implement volume production of Field Emission Displays ("FEDs") at Unipac's 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 certain equipment to the Company. 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 are expected to decrease to match the net amount of equipment leased by Unipac to the Company. These amounts have started to decrease according to the conditions of the bank guaranty. NOTE D - PROPERTY, PLANT AND EQUIPMENT Pursuant to the Foundry Agreement, volume FED production equipment was installed at Unipac's facility. That equipment was purchased and funded by Unipac, and a portion of it is leased to PixTech, which amounted to $11,962 as at September 30, 1999. According to Financial Accounting Standard 13, "Accounting for Leases", PixTech's share of equipment was recorded as assets under the caption "Property, Plant and Equipment", in the net amount of $9,619 as at September 30, 1999. Depreciation of $489 was recorded during the three-month period ended September 30, 1999. As of September 30, 1999, the related capital lease obligation amounted to $10,031, of which $2,149 were recorded as current portion. In connection with the Micron Transaction (See "Note E - Micron Transaction"), production equipment located in Boise, Idaho, was acquired by the Company in May 1999. This acquisition was recorded in the amount of $13,316. The estimated fair value of net assets acquired in the Micron Transaction was approximately $9,157 in excess of the cost of net assets acquired. The estimated fair value of property, plant and equipment of $22,473 was proportionally reduced to the extent that the fair value of net assets acquired exceeded cost, resulting in property plant and equipment of $13,316 (See "Note E - Micron Transaction"). 8 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) NOTE E - MICRON TRANSACTION On March 19, 1999, the Company entered into a definitive agreement to purchase certain assets of Micron Technology, Inc. relating to field emission displays including equipment and other tangible assets, certain contract rights and cash (the "Micron Transaction"). The Micron Transaction was closed on May 19, 1999 and was accounted for as an acquisition of assets. The accompanying financial statements reflect the acquisition of assets for a cost of $17,932 and the assumption of certain liabilities in the amount of $2,958, in consideration of the issuance of 7,133,562 shares of the Company's Common Stock and a warrant to purchase 310,000 shares of the Company's Common Stock. (See "Note F - Stockholders' equity"). The estimated fair value of net assets acquired in the Micron Transaction was approximately $9,157 in excess of the cost of net assets acquired. Consequently, the estimated fair value of property, plant and equipment of $22,473 was proportionally reduced to the extent that the fair value of net assets acquired exceeded cost resulting in property plant and equipment of $13,316 In addition, the Company received cash in the amount of $4,350. Therefore, of the assets acquired for $17,932, $13,316 was reflected under the caption "Property, Plant and Equipment", and $4,350 under the caption "Cash available". The following unaudited pro forma financial disclosure presents the combined results of operations for the year ended December 31, 1998 and for the nine months ended September 30, 1999 as if the transaction had been completed at the beginning of the periods indicated, after giving effect to certain adjustments, including additional personnel costs and depreciation expenses. This pro forma financial information does not necessarily reflect the results of operations that would have occurred had the transaction been completed at the beginning of the periods indicated, and may not be indicative of the future results.
Year ended Nine months ended December 31, 1998 September 30, 1999 ------------------- -------------------- Net loss. . . . . . . . . . . . . . $ (26,986) $ (24,684) - ----------------------------------- ------------------- -------------------- Net loss to holders of common stock (26,998) (25,061) - ----------------------------------- ------------------- -------------------- Net loss per share of common stock. $ (1.25) $ (1.09) - ----------------------------------- ------------------- --------------------
NOTE F - STOCKHOLDERS' EQUITY Common Stock : In consideration of the Micron Transaction, the Company issued 7,133,562 shares of the Company's Common Stock, representing a total amount of $14,717, and a warrant to purchase 310,000 shares of the Company's Common Stock at an exercise price of approximately $2.25 per share. The fair value of the 310,000 warrants was computed using the Black-Scholes model and was estimated at $257. In August 1999, the Company issued 100,000 shares of the Company's Common Stock to Sumitomo following the conversion of $145 of a $5,000 convertible note issued in 1997 to Sumitomo. This note is convertible into shares of the Company's common stock at a price equal to 80% of the market price of the common stock at the time of conversion, the market price being determined as the average closing market price over the twenty consecutive trading days immediately prior to the notice of conversion. 9 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) On August 9, 1999, the Company entered into a private equity line agreement with Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the equity line, PixTech has the irrevocable right, subject to certain conditions, to draw up to $15 million cash in exchange for PixTech's common stock, in increments over a two-year period. Such conditions include limitations depending on the volume and the market price of PixTech's common stock. The Company may begin to make draws under the facility upon the registration of the shares for resale with the Securities and Exchange Commission, which was declared effective as at September 27, 1999. To date, the Company has not issued shares in connection with the Kingsbridge Agreement. Shares will be issued at a 10% discount to the market price at the time of any draw, if the stock price is at or above $3.00, or at a 12% discount if the stock price is below $3.00. The Company also issued to Kingsbridge a warrant for 100,000 shares of common stock exercisable until February 6, 2003 at an exercise price of $2.30 per share. The Company has an obligation to issue a warrant to purchase 35,000 shares of our common stock to Needham & Company, Inc., in connection with an agreement for financial advisory services dated May 11, 1999, which is exercisable at a price of $2.26 per share and expires on May 10, 2004. The fair value of the 35,000 warrants was estimated at $40 using the Black-Scholes model Convertible Preferred Stock : In July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of Common Stock at an average conversion price of $1.47, resulting in the issuance of 1,114,220 shares of the Company's Common Stock. As at September 30, 1999 , there were 297,269 shares of Series E Preferred Stock outstanding. These shares of Series E Preferred Stock were convertible into shares of Common Stock. As at September 30, 1999, the Series E Stock, including accrued dividends, would have been convertible into 4,445,863 shares of Common Stock using a conversion price of $1.59, equal to the average closing price of the Company's Common Stock over the 10 trading days ending September 29, 1999. Consequently, there were 28,013,001 shares of Common Stock or equivalent to shares of Common Stock outstanding as at September 30, 1999. The holders of Series E Preferred Stock issued in December 1998 are entitled to receive cumulative dividends. Dividends are calculated on a 6% interest basis per annum on the purchase price paid for the Series E Preferred shares for the numbers of days that the stock price is above $2.253, on an 8% interest basis for the numbers of days that the stock price is between $1.127 and $2.253, and on a 10% interest basis for the numbers of days that the stock price is below $1.127. During the nine-month period ended September 30, 1999, dividends of $377 were accrued and recorded against Stockholders' Equity. As of September 30, 1999, the cumulative dividend recorded against Stockholders' Equity amounted to $389. On October 15, 1999, PixTech sold 12,427,146 shares of its common stock, $.01 par value, to Unipac Optoelectronics Corporation at a price of $1.60938 per share (see Note J - Subsequent event). Pursuant to PixTech's certificate of designation (the "Certificate") filed with the Secretary of State of the State of Delaware on December 22, 1998 with respect to the Series E Convertible Preferred Stock, the Common Stock Issue Price (as such term is defined in the Certificate) shall, for purposes of determining the number of shares into which the Series E Preferred Stock is convertible only, be $1.60938 instead of $2.25313. Consequently, the series E stock is generally convertible into our common stock at a rate equal to the lesser of (a) $1.60938, and (b) the average closing price of our common stock over the ten trading day ending period ending on the day immediately preceding the day upon conversion. 10 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (all amounts in thousands except share amounts) NOTE G - LITIGATION The Company has received correspondence from Futaba Corporation and its legal counsel since January 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 and is in discussions with Futaba concerning their allegations. 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 any of these claims, PixTech may be required, among other adverse consequences, to modify the construction and manufacture of its displays and may, as a result, be materially adversely affected. 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 H - COMMITMENTS AND CONTINGENCIES Operating leases The Company is obligated under operating lease agreements for equipment and manufacturing and office facilities. Minimum annual rental commitments under non cancelable leases at September 30, 1999, are as follows :
YEAR ENDING DECEMBER 31, 1999 . . . . . . . . . . $ 91 2000 .. . . . . . . . . 367 2001 .. . . . . . . . . 335 2002 .. . . . . . . . . 126 2003 .. . . . . . . . . 1 ---- Total minimum payments . $920 ====
Capital leases The Company is obligated under certain sale-leaseback transactions for equipment used in its pilot production plant. Pursuant to the Display Foundry Agreement signed in 1997 with Unipac, PixTech's share of volume FEDs production installed at Unipac's facility is leased to PixTech. According to Financial Accounting Standard 13, "Accounting for Leases", a capital lease obligation was recorded which amounted to $10,031 as at September 30, 1999 (See Note D-Property, Plant and Equipment). Future minimum payments under these obligations are as follows:
AT SEPTEMBER 30, 1999, DUE FOR THE YEARS ENDING DECEMBER 31, 1999 .. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 833 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,020 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,737 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,426 2003 .. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,285 2004 .. . . . . . . . . . . . . . . . . . . . . . . . . . . 910 -------- Total minimum payments .. . . . . . . . . . . . . . . . . . 12,211 Less amount representing interest . . . . . . . . . . . . . (1,627) -------- Present value of minimum capitalized lease payments . . . . $10,584 ========
11 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (all amounts in thousands except share amounts) Long term debt Long-term debt consists of certain loans payable under which future minimum payments are as follows:
AT SEPTEMBER 30, 1999, DUE FOR THE YEARS ENDING DECEMBER 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,257 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,094 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . 782 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . 802 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . 861 ------- Total minimum payments. . . . . . . . . . . . . . . . . . . $14,212 =======
12 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTE I - FINANCIAL POSITION During the nine months ended September 30, 1999, the Company has continued to experience losses and has used cash in operating activities, which has adversely affected the Company's liquidity. At September 30, 1999, the Company had a net working deficit of $10,828 and a deficit accumulated during the development stage of $75,162. In October 1999, the Company significantly improved its liquidity and financial position with the completion of a $20 million equity private placement with Unipac (see Note I-Subsequent event). The Company expects that cash available at September 30, 1999 together with the anticipated proceeds from the Kingsbridge Agreement, from various grants and loans and from R&D tax credits, will be sufficient to meet its cash requirements until at least December 31, 2000. The Company intends to continue improving its liquidity and financial position through capital increases expected to take place in 2000. There can be however no assurance that additional funds will be available through capital increases when needed or on terms acceptable to the Company. NOTE J - SUBSEQUENT EVENT On October 6, 1999, the Company entered into a Common Stock Purchase Agreement with Unipac, for a private placement of $20,000 of the Company's common stock. The private placement closed on October 15, 1999 with the issuance of 12,427,146 shares of Common Stock at approximately $1.61 per share. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Product Sales. The Company recognized product sales of $410,000 in the nine-month period ended September 30, 1999, as compared to $222,000 in the nine-month period ended September 30, 1998. In the nine-month periods ended September 30, 1998 and 1999, product revenues primarily consisted of shipments of displays sold at volume prices to Zoll Medical, thus reflecting a significant increase in the number of displays shipped to that customer. Since the last quarter of 1998, the Company has begun shipping its FED displays manufactured by its contract manufacturer, Unipac, to its customers in limited quantities. During the three-month period ended September 30, 1999, unit shipments from Taiwan represented 7% of total shipments, as compared to 21% during the three-month period ended June 30, 1999. After the earthquake in Taiwan which occurred in September 1999, the Company rapidly resumed its production process of field emission displays. Only minimal damage to the facility and equipment was reported and there were a limited amount of initial production losses. The Company expects an increase of product shipments from Taiwan in the last quarter of 1999. Other Revenues. Other revenues consist of funding under various public development contracts and other miscellaneous revenues. The Company recognized other revenues of $877,000 in the three-month period ended September 30, 1999, as compared to $225,000 in the three-month period ended September 30, 1998. Of these revenues, in the three-month period ended September 30, 1999, $716,000 was related to a development contract awarded to the Company by DARPA (Defense Advanced Research Projects Agency) in August 1999 and $125,000 to the disposal of fixed assets. Under the terms of the DARPA contract, the Company will receive a total amount of approximately $4.7 million to develop a color FED. The Company recognized other revenues of $3.2 million in the nine-month period ended September 30, 1999, as compared to $1.8 million in the nine-month period ended September 30, 1998. Of these revenues, in the nine-month period ended September 30, 1999, $1.3 million were related to an incentive from French local authorities awarded in 1994 to the Company to establish its pilot plant in Montpellier, France, and $961,000 were related to a development contract from European Union signed in 1997, for which recognition as revenue of the related contribution, collected mainly in 1997 and in 1998, had been deferred until all conditions stipulated in the agreement were met. In the nine-month period ended September 30, 1998, other revenues included $1.2 million related to a development contract granted in December 1994 from the French Ministry of Industry to support manufacturing of FEDs. Other Research and Development Expenses. The Company expensed $7.2 million for research and development costs during the three-month period ended September 30, 1999, an increase of 41% over the $5.1 million incurred in the three-month period ended September 30, 1998. These expenses include salaries and associated expenses for in-house research and development activities conducted both in its pilot plant and its research and development facility in Boise, Idaho, the cost of staffing and operating the Company's pilot manufacturing facility and the cost of supporting the transfer and adaptation of the Company's FED technology to Unipac, as well as obligations to CEA under the LETI Research Agreement, and miscellaneous contract consulting fees. This increase primarily reflected the costs associated with the research and development activities conducted in Boise following the Micron Transaction signed at the end of May 1999 and the cost of supporting the transfer of FED manufacturing processes to Unipac. As part of the acquisition of Micron's Display assets in May 1999, the Company hired 44 employees to work on the production equipment acquired in the Boise facility, thus reinforcing its FED technology development efforts. In addition, the development team located in Santa Clara was moved to Boise with an aim to focus its efforts on the expansion of the large display effort. Research and development expenses amounted to $19.4 million for the nine-month period ended September 30, 1999, as compared to $13.6 million for the nine month period ended September 30, 1998. Sales and Marketing Expenses. The Company expensed $338,000 for sales and marketing during the three-month period ended September 30, 1999, as compared to $371,000 during the three-month period ended September 30, 1998, reflecting a one-time decrease in communication and advertising expenses. The Company believes sales and marketing expenses may increase in the future, reflecting the expansion of the Company's sales and marketing organization both in the United States and in Europe, in order to achieve a successful commercialization phase for the Company's products. Sales and marketing expenses remained stable at $1.0 million during the nine-month period ended September 30, 1999, as compared to the same period ended September 30, 1998. General and Administrative Expenses. General and administrative expenses amounted to $787,000 in the three-month period ended September 30, 1999, an increase of 23% over general and administrative expenses incurred in the three-month period ended September 30, 1998, which amounted to $639,000, reflecting an increase in consulting expenses. General and administrative expenses amounted to $2.3 million for the nine-month period ended September 30, 1999, as compared to $1.9 million for the nine month period ended September 30, 1998. 13 Interest Income (Expense), Net. Interest income is comprised of interest on available and restricted cash. Interest expense is comprised of interest payable on long-term obligations. Net interest expense was $244,000 in the three-month period ended September 30, 1999, as compared to $208,000 in the three-month period ended September 30, 1998, reflecting the decrease in cash balances and the increase in long-term liabilities. Net interest expense amounted to $608,000 in the nine-month period ended September 30, 1999, as compared to $462,000 in the nine-month period ended September 30, 1998. Currency Fluctuations. Although a significant portion of the Company's revenues are denominated in U.S. dollars, a substantial portion of the Company's operating expenses are denominated in Euros. Gains and losses on the conversion to U.S. dollars of assets and liabilities denominated in Euros may contribute to fluctuations in the Company's results of operations, which are reported in U.S. dollars. Most of the Company's capital lease obligation is expressed in Taiwanese dollars. In the past, fluctuations of the parity of the Taiwanese dollar versus the Euro caused significant foreign exchange gains or losses and may continue to do so in the future. The Company recorded net foreign exchange loss of $1.0 million in the nine-month period ended September 30, 1999, while the Company recorded net foreign exchange gain of $1.6 million in the nine-month period ended September 30, 1998. The Company cannot predict the effect of exchange rate fluctuations on future operating results. To date, the Company has not undertaken hedging transactions to cover its currency exposure, but it may do so in the future. LIQUIDITY AND CAPITAL RESOURCES. Cash used in operations was $11.7 million for the nine-month period ended September 30, 1999, as compared to cash used in operations of $5.7 million for the nine-month period ended September 30, 1998. This increase corresponded to the following factors : (i) absence of significant cash receipts from revenues in the nine-month period ended September 30, 1999, and (ii) increase in operating expenses associated with Taiwan start-up costs and with the funding of the operations in Boise. The Company has used $43.7 million in cash to fund its operating activities from inception through September 30, 1999 and has incurred $28.8 million in capital expenditures and investments. Capital expenditures were $625,000 during the nine-month period ended September 30, 1999 as compared to $764,000 during the same period of 1998. These capital expenditures exclude the assets acquired pursuant to the Micron Transaction as those assets were acquired in consideration for Common Stock issuance. They also exclude assets acquired under capital lease obligations. During the nine-month period ended September 30, 1999, capital expenditures remained focused on limited capacity expansion in the pilot manufacturing facility. Implementing volume production at Unipac's manufacturing plant required significant capital expenditures. Pursuant to the Foundry Agreement, Unipac funded a $14.7 million capital expenditure for equipment. A portion of that equipment is leased to PixTech and amounted to $12.0 million as of September 30, 1999. The Company expects that additional capital expenditures will be required in 1999 and in 2000 to increase capacity at Unipac and to complete implementation of manufacturing processes, both for monochrome and for color products. As at September 30, 1999, restricted cash amounted to $8.7 million and was related to the security interest granted in 1997 by the Company to Unipac, pursuant to the Foundry Agreement, in relation to the purchase and funding by Unipac of volume FEDs production equipment. During the nine-month period ended September 30, 1999, the written bank guaranty provided by the Company to Unipac decreased to match the net amount of equipment leased by Unipac to the Company. The decrease of this bank guaranty corresponded to a simultaneous similar decrease of the amount of the security interest to the banks, thus resulting in an $1.3 million increase of the cash available to fund the Company's activities. Both the amount of this written bank guaranty and the corresponding security interest to the banks are expected to continue decreasing in the future. 14 Cash flows generated from financing activities were $2.7 million in the nine-month period ended September 30, 1999, as compared to $145,000 in the nine-month period ended September 30, 1998. This net cash flow consisted of sales of shares of Common Stock, resulting in net proceeds to the Company of $4.2 million, while long term liabilities decreased by $1.5 million. In consideration of the 7,133,562 shares of Common Stock and 310,000 warrants issued pursuant to the Micron Transaction, the Company was granted certain assets, assumed certain liabilities, and received $4.3 million in cash. Cash flows generated from financing activities in the nine-month period ended September 30, 1999 excluded non-cash transactions related to the acquisition of these assets and the assumption of these liabilities, and resulted in net proceeds to the Company of $3.8 million (net of issuance costs). Cash flows generated from financing activities included the sales of shares of Common Stock in a private placement in January 1999, resulting in net proceeds to the Company of $352,000, but excluded non-cash transactions related to the conversion of 70,000 series E preferred stock in July 1999 and to the conversion into shares of common stock of $145,000 of the convertible loan issued to Sumitomo in 1997. Long term liabilities increased by $2.0 million in the nine-month period ended September 30, 1999, representing two zero-interest loans granted to the Company by French local authorities, while the repayments amounted to $3.5 million, resulting in a net decrease of $1.5 million. Of the repayments which occurred in the nine-month period ended September 30, 1999, $1.3 million was related to the first repayment of the $5.0 million straight loan granted to the Company in 1997 by Sumitomo Corporation. Since its inception, the Company has funded its operations and capital expenditures primarily from the proceeds of equity financing aggregating $71.7 million and from proceeds aggregating $19.0 million from borrowings and sale-leaseback transactions. In 1997 and January 1999, the Company entered into two R&D agreements with French authorities. Under these agreements, the Company expects to benefit from zero-interest loans totaling approximately $3.0 million, of which $2.0 million were received in the nine-month period ended September 30, 1999, and $1.0 million are expected to be received in 2000. In November 1998, the Company entered into an R&D agreement with French authorities. Under this agreement, the Company expects to benefit from a grant totaling approximately $900,000, of which $260,000 was collected in the three-month period ended September 30, 1999, and $580,000 and $60,000 are expected to be collected in 2000 and 2001 respectively. The $260,000 amount collected in the three-month period ended September 30, 1999 was not recognized as income as all conditions stipulated in the agreement were not met. In February 1997, the Company entered into an R&D agreement with the European Union and other European industrial companies. The contribution of the European Union to the costs incurred by the Company amounts to $961,000 over the period, of which $736,000 were collected in 1997 and 1998 and $225,000 were collected in 1999. The total contribution was recognized as income in the nine-month period ended September 30, 1999, as all conditions stipulated in the agreement were met. On August 5, 1999, the Company was awarded a development contract by DARPA (Defense Advanced Research Projects Agency). Under the terms of the contract, the Company will receive approximately $4.7 million to develop a color FED. In the three-month period ended September 30, 1999, $716,000 was recognized as income under this contract and is expected to be collected in the last quarter of 1999. The Company recognized French income tax benefits of $7.9 million since inception. These income tax benefits represent tax credits for research and development activities conducted in France, which are paid in cash to the Company if it is not able to credit them against future income tax liabilities within three fiscal years. In 1998, the Company collected $2.8 million, representing R&D tax credits recorded in 1993 and 1994. In April 1999, the Company collected $3.0 million from R&D tax credit recorded in 1995. On August 9, 1999, the Company entered into a private equity line agreement with Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the equity line, PixTech has the irrevocable right, subject to certain conditions, to draw up to $15 million cash in exchange for PixTech's common stock, in increments over a two-year period. Such conditions include limitations depending on the volume and the market price of PixTech's common stock. The Company may begin to make draws under the facility upon the registration of the shares for resale with the Securities and Exchange Commission, which was declared effective as at September 27, 1999. To date, the Company has not issued shares in connection with the Kingsbridge Agreement. Shares will be issued at a 10% discount to the market price at the time of any draw, if the market is at or above $3.00, or at a 12% discount if the stock price is below $3.00. On October 6, 1999, the Company entered into a Common Stock Purchase Agreement with Unipac, for a private placement of $20 million of PixTech's common stock. The private placement closed on October 15, 1999, and the Company collected $20 million, in exchange for the issuance of 12,427,146 shares of common stock. 15 Cash available at September 30, 1999 amounted to $2.4 million as compared to $10.2 million at December 31, 1998. In October 1999, the Company significantly improved its liquidity and financial position with the completion of the $20 million equity private placement with Unipac. The Company expects that cash available at September 30, 1999 together with the anticipated proceeds from the Kingsbridge Agreement, from the various grants and loans described above and from R&D tax credits, will be sufficient to meet its cash requirements, including repayment of the current portion of its long term obligations in the amount of $7.0 million at September 30, 1999, until at least December 31, 2000. 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. YEAR 2000 DISCLOSURE There is a significant uncertainty regarding the effect of the Year 2000 issue because computer systems that do not properly recognize date sensitive information when the year changes to 2000 could generate erroneous data or altogether fail. The Company has conducted a comprehensive review of its computer systems and manufacturing equipment 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. Based upon that review, we expect to have our systems Year 2000 compliant by the end of November, 1999. Although management does not expect that costs associated with modifying existing computer systems and manufacturing equipment will have a significant impact on its financial position or result of operations, there can be no assurance that such modifications will be successfully implemented or that these costs will not be significant. To date, we estimate that we have expended $60,000 on our Year 2000 program and anticipated expending an additional $30,000 during the remainder of 1999. 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. The Company is in the process of identifying third party vendors that are non-Year 2000 compliant and of assessing the following consequences. In particular, the Company requested Unipac, its Taiwanese manufacturing partner, to assess whether its computer systems and manufacturing equipment could be affected by the Year 2000 issue and, if so, to present a contingency plan. Unipac disclosed to PixTech its Year 2000 compliance plan as well as its contingency plan. To implement its large volume manufacturing strategy, the Company is dependent on Unipac's ability to be successful in addressing the Year 2000 issue. The Company's continued use of a vendor which is not Year 2000 compliant or the failure of the Company's own computer systems or manufacturing equipment to be fully Year 2000 compliant could materially adversely affect the Company's business, financial position and results of operations. 16 STRATEGIC ISSUES AND RISKS The Company is currently focused on the following activities which it believes are necessary to the success of its business: (i) successfully implementing the manufacture of FEDs by its Taiwanese contract manufacturer, Unipac; (ii) improving its manufacturing processes and yields, both in its pilot plant and at Unipac; (iii) expanding its customer base and product offering, and (iv) continuing the development of its FED technology, including the development of large FED displays. In evaluating its outlook, certain risks and issues filed as exhibit 99.1 to this 10-Q should be considered. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk exposure inherent to our international operations creates potential for losses arising from adverse changes in foreign currency exchange rates. We are exposed to the foreign currency exchange rate risk in two main areas : (i) a substantial portion of our operating expenses are and are expected to be denominated in Euros, (ii) most of our capital lease obligation is expressed in Taiwanese dollars. Fluctuations of the parity of the Taiwanese dollar versus the Euro or the US dollar may cause significant foreign exchange gains or losses. In addition, gains and losses arising from the conversion to U.S. dollars of assets and liabilities denominated in Euros or in Taiwanese dollars may contribute to fluctuations in our results of operations, which are reported in U.S. dollars. To date, we have not undertaken hedging transactions to cover the currency exposure. We are also exposed to interest rate risks in connection with certain long term debt. We do not, however, enter into market sensitive instruments for trading purposes. As of September 30, 1999, we had an $8.6 million loan payable, bearing interest at the prime rate plus 0.75%, of which $3.8 million is payable in three equal installments every six months, the next payment being due November 7, 1999. The remaining $4.8 million is due November 2000 and is convertible, partially or wholly, at the holder's option, into shares of our common stock at a conversion price equal to 80% of the market price on the date of conversion, the market price being determined as the average closing market price over the twenty consecutive trading days immediately prior to the notice of conversion. 17
PIXTECH, INC. September 30, 1999 PART II Other Information ITEM 1 Legal Proceedings: Not applicable. ITEM 2 Changes in Securities: (a) Not applicable (b) Not applicable (c) In July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of Common Stock, resulting in the issuance of 1,114,220 shares of the Company's Common Stock. As at October 31, 1999, there were 297,269 shares of Series E Preferred Stock outstanding. In August 1999, the Company issued 100,000 shares of the Company's Common Stock to Sumitomo following the conversion of $145 of a $5,000 convertible note issued in 1997 to Sumitomo. In August 1999, the Company entered into a private equity line agreement with Kingsbridge Capital Ltd. Under the terms of the equity line, PixTech has the irrevocable right, subject to certain conditions, to draw up to $15 million cash in exchange for PixTech's common stock, in increments over a two-year period. The Company may begin to make draws under the facility upon the registration of the shares for resale with the Securities and Exchange Commission, which was declared effective as at September 27, 1999. To date, the Company has not issued shares in connection with the Kingsbridge Agreement. In August 1999, the Company issued to Kingsbridge a warrant for 100,000 shares of common stock exercisable until February 6, 2003 at an exercise price of $2.30 per share. In October 1999, the Company sold 12,427,146 shares of Common Stock to Unipac Optoelectronics Corporation, a Taiwanese Corporation, pursuant to Regulation S of the Securities Act of 1933. ITEM 3 Defaults upon Senior Securities: Not applicable. ITEM 4 Submission of matters to a Vote of Security Holders : None ITEM 5 Other Information: None.
18
PIXTECH, INC. September 30, 1999 ITEM 6 Exhibits and reports on Form 8-K: (a) Exhibits : 10.50 Common Stock Purchase Agreement by and between PixTech, Inc. and Unipac Optoelectronics Corporation dated as of October 6, 1999. Filed as exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on October 28, 1999 and incorporated herein by reference. 10.51 Private Equity Line Agreement by and between Kingsbridge Capital Limited and PixTech, Inc. dated as of August 9, 1999. Filed as exhibit 10.48 to the Company's Registration Statement on Form S-1 filed with the Commission on September 13, 1999 and incorporated herein by reference. 10.52 Registration Rights Agreement dated as of August 9, 1999 by and between PixTech, Inc. and Kingsbridge Capital Limited. Filed as exhibit 10.49 to the Company's Registration Statement on Form S-1 filed with the Commission on September 13, 1999 and incorporated herein by reference. 99.1 Important Factors Regarding Future Results 27. Financial Data Schedule (b) Reports on Form 8-K : A report on Form 8-K/A was filed on August 9, 1999, amending the report on Form 8-K filed on May 27, 1999, to include unaudited pro forma consolidated financial statements under Item 7 (b). The report on Form 8-K filed on May 27, 1999 reported under Item 2 the closing by the Company of an Acquisition Agreement with Micron Technology, Inc. A report on Form 8-K was filed on October 28, 1999, reporting under Item 5 the closing by the Company of a private placement of securities with Unipac Optoelectronics Corporation.
19 PIXTECH, INC. September 30, 1999 SIGNATURES 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 10, 1999 BY: /s/ Yves Morel --------------------------------------- Yves Morel Vice President, Chief Financial Officer Date: November 10, 1999 BY: /s/ Cathie Tomao --------------------------------------- Cathie Tomao Chief Accounting Officer 20
PIXTECH, INC. September 30, 1999 EXHIBIT INDEX Exhibit No. - ----------- 10.50 Common Stock Purchase Agreement by and between PixTech, Inc. and Unipac Optoelectronics Corporation dated as of October 6, 1999. Filed as exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on October 28, 1999 and incorporated herein by reference. 10.51 Private Equity Line Agreement by and between Kingsbridge Capital Limited and PixTech, Inc. dated as of August 9, 1999. Filed as exhibit 10.48 to the Company's Registration Statement on Form S-1 filed with the Commission on September 13, 1999 and incorporated herein by reference. 10.52 Registration Rights Agreement dated as of August 9, 1999 by and between PixTech, Inc. and Kingsbridge Capital Limited. Filed as exhibit 10.49 to the Company's Registration Statement on Form S-1 filed with the Commission on September 13, 1999 and incorporated herein by reference. 27 Financial Data Schedule 99.1 Important Factors Regarding Future Results
21 EX-99.1 2 EXHIBIT 99.1 IMPORTANT FACTORS REGARDING FUTURE RESULTS You should carefully consider the following risk factors, in addition to other publicly available information in deciding whether to invest in PixTech stock. WE HAVE A HISTORY OF LOSSES AND ACCUMULATED DEFICIT WHICH MAY CONTINUE IN THE FUTURE. We have a history of losses as follows:
Loss to Common Operating Net Losses Stockholders --------------------- --------------- Nine Months ended September 30, 1999 $ 21.0 million $ 21.3 million Year Ended December 31, 1998 $ 19.7 million $ 17.9 million Year Ended December 31, 1997 $ 15.8 million $ 14.7 million
The losses were due in part to limited revenues and to various expenditures, including expenditures associated with: - - research and development activities; - - pilot production activities; and - - preparation and start-up of volume manufacturing in Taiwan, at Unipac. 1 We expect to incur operating losses in the future due primarily to: - - continuing research and development activities to develop field emission displays larger than 15 inch in diagonal and color displays; - - manufacturing start-up costs in Taiwan, and - - expansion of our sales and marketing activities. As a result of these losses, as of September 30, 1999, we had an accumulated deficit of approximately $75.2 million. Our ability to achieve and maintain profitability is highly dependent upon the successful commercialization of our monochrome and color displays. We cannot assure you that we will ever be able to successfully commercialize our products or that we will ever achieve profitability. WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE. We have incurred negative cash flows from operations since inception, and have expended, and will need to expend, substantial funds to complete our planned technology and product development efforts, including: - - continuous improvement of our manufacturing processes in order to achieve yields that will lead to an acceptable cost of products; - - continuous product development activities in order to develop color displays that meet market requirements and to develop a range of products offered for sales; - - continuous research and development activities in order to develop displays larger than 15 inch in diagonal; and - - expansion of our marketing, sales and distribution activities. 2 In addition to the above requirements, we expect that we will require additional capital either in the form of debt or equity, regardless of whether and when we reach profitability, for the following activities: - - working capital; - - acquisition of manufacturing equipment to expand manufacturing capacity; and - - further product development. Our future capital requirements and the adequacy of our available funds depend on numerous factors, including: - - the rate of increase in manufacturing yields by Unipac, in Taiwan; - - the magnitude, scope and results of our product development efforts; - - the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; - - competing technological and market developments; and - - expansion of strategic alliances for the development, manufacturing, sale, marketing and distribution of our products. We currently expect to run out of money in December 2000. We have entered into an equity line agreement with Kingsbridge which provides that we may issue and sell, from time to time, up to an aggregate of $15,000,000 of our common stock, subject to the satisfaction of certain conditions. We cannot assure you that we will meet all of the conditions required to obtain financing under the equity line agreement. Even if we were able to meet the required conditions, we may have to raise additional money from other sources in order to continue to fund our operations. WE MAY HAVE PROBLEMS RAISING MONEY WE NEED IN THE FUTURE. In the future, we expect that we will need to obtain additional money from sources outside our company, as we have done in the past. If we cannot obtain money when we need it, we may need to reduce our production of products and development of new products. There is no guarantee that any of the outside sources will provide us with money when we need it. In addition, even if we are able to find outside sources which will provide us with money when we need it, in order to raise this money we may be required to issue securities with better rights than the rights of our common stock or we may be required to take other actions which lessen the value of our current common stock, including borrowing money on terms that are not favorable to us. Our ability to raise capital from Kingsbridge through the equity line agreement is subject to the satisfaction of certain conditions at the time of each sale of common stock to Kingsbridge (none of which is within the control of Kingsbridge). These conditions include, but are not limited to, the following: 3 - - the registration statement we have filed to register the common stock purchased by Kingsbridge under the equity line agreement for resale must be effective; - - our representations and warranties to Kingsbridge set forth in the equity line agreement must be accurate as of the date of each put of our common stock; - - no statue, rule, regulation, executive order, decree, ruling or injunction shall be in effect which prohibit or directly and adversely affects any of the transactions contemplated by the equity line agreement; - - at the time we put our common stock to Kingsbridge, there cannot have been any material adverse change in our business, operations, properties, prospects or financial condition since the date of filing of our most recent report with the SEC pursuant to the Securities Exchange Act of 1934; - - the number of shares already held by Kingsbridge, together with those shares we are proposing to put, cannot exceed 9.9% of the total amount of our common stock that would be outstanding upon completion of the put; - - our common stock must meet certain price and trading volume guidelines including those on Annex A of the equity line agreement; and - - at least 15 trading days must have elapsed since the date of the last put notice. We may not satisfy all of these conditions, and therefore may not be able to sell shares to Kingsbridge pursuant to the equity line agreement. DUE TO THE CONVERSION OF SERIES E PREFERRED STOCK, HOLDERS OF COMMON STOCK MAY FACE SIGNIFICANT DILUTION. In December 1998, we issued 367,269 shares of series E stock, at a price of $22.5313 per share, to certain institutional investors. The series E stock is generally convertible into our common stock at a rate equal to the lesser of (a) $1.60938, and (b) the average closing price of our common stock over the ten trading day ending period ending on the day immediately preceding the day upon conversion. When our common stock price falls below $1.60938, the conversion of the series E stock may result in the issuance of a significant number of additional shares of common stock, and may cause significant dilution to current holders of our common stock. Even before the shares of series E stock are converted, the holders of the series E stock vote on the basis of the number of shares of common stock that the series E stock can be converted into. Therefore, a large drop in our stock price may result in a large amount of voting control being held by a small number of stockholders. 4 HOLDERS OF OUR SERIES E PREFERRED STOCK COULD ENGAGE IN SHORT SELLING TO REDUCE THEIR CONVERSION PRICE. A decrease in the price of our common stock below the $1.60938 maximum conversion price could result in the series E preferred stock being convertible into more shares of common stock. Increased sales volume of our common stock could put downward pressure on the market price of the shares. This fact could encourage holders of series E preferred stock to sell short our common stock prior to conversion of the series E preferred stock, thereby potentially causing the market price to decline. The selling stockholders could then convert their series E preferred stock and use the share of common stock received upon conversion to cover their short position. The selling stockholders could thereby profit by the decline in the market price of the common stock caused by their short selling. QUALIFICATIONS IN THE REPORT OF OUR INDEPENDENT PUBLIC ACCOUNTANTS MAY AFFECT OUR ABILITY TO CONTINUE AS A GOING CONCERN. In their audit report on the consolidated financial statements for the year ended December 31, 1998 contained in our Annual Report and elsewhere in this prospectus, our independent public accountants, Ernst & Young, included an explanatory paragraph indicating their view that we would require additional funding to continue operations which raised substantial doubt about our ability to continue as a going concern. We cannot assure you that Ernst & Young's opinion on future financial statements will not include a similar explanatory paragraph if we are unable to raise sufficient funds or generate sufficient cash flow from operations to cover the cost of our operations. The continued inclusion of this paragraph could raise concerns about our ability to fulfill our contractual obligations, may adversely affect our relationships with third parties, and we may not be able to complete future financings. 5 IF WE FAIL TO CONTINUE TO MEET NASDAQ'S LISTING MAINTENANCE REQUIREMENT, NASDAQ MAY DELIST OUR COMMON STOCK. There is a possibility that our common stock could be delisted from the Nasdaq National Market. While our common stock is currently quoted on the Nasdaq National Market, in order to remain quoted on the Nasdaq National Market, we must meet certain requirements with respect to: - - market capitalization (the market value of all outstanding shares of our common stock); - - public float (the number of outstanding shares of common stock held by those not affiliated with us); - - market value of public float; - - market price of the common stock; - - number of market makers; - - number of shareholders; and - - net tangible assets (total assets minus total liabilities and intangible assets). If the price of our common stock were to fall significantly below our current trading range, Nasdaq may approach us regarding our continued listing on the Nasdaq National Market. This situation could result from the rights contained in the series E stock, which is convertible into common stock at a conversion price based on a future price of our common stock. If Nasdaq were to begin delisting proceedings against us, it could reduce the level of liquidity currently available to our stockholders. With regard to future priced securities such as our series E stock, Nasdaq is concerned with the following, among other things: - - disproportionate voting rights; - - minimum bid price of a company's common stock; and - - public interest concerns. 6 The holders of our series E stock may vote their series E stock as if they were holders of common stock and are entitled to the number of votes equal to the number of shares of common stock that the series E stock is convertible into at the time of voting. If our common stock price were to fall significantly, this right may be deemed to violate a Nasdaq maintenance requirement due to the disproportionate voting right, when compared to our common stock, that each share of series E stock would have. Moreover, in order to continue to be listed on Nasdaq, the minimum bid price of our common stock must stay above $1.00. In addition to the fluctuations of the market in general and our common stock in particular, a decrease in our common stock price that causes the number of shares of common stock issuable upon conversion of the series E stock to increase may exert downward pressure on the price of our common stock. This may drive the minimum bid price of our common stock below $1.00, thus violating a Nasdaq maintenance requirement. On October 29, 1999 the minimum bid price on our common stock was $1.969. Nasdaq has also stated that in egregious situations, future priced securities, such as our series E stock, may raise public interest concerns that may result in the delisting of our common stock, if Nasdaq deems the delisting necessary to prevent fraudulent and manipulative acts and practices. If our common stock is delisted from the Nasdaq National Market, we could apply to have the common stock quoted on the Nasdaq SmallCap Market. The Nasdaq SmallCap Market has a similar set of criteria for initial and continued quotation. We may not, however, meet the requirements for initial or continued quotation on the Nasdaq SmallCap Market. If we were not able to meet the requirements of the Nasdaq SmallCap Market, trading of our common stock could be conducted on an electronic bulletin board established for securities that do not meet the Nasdaq SmallCap Market listing requirements, in what is commonly referred to as the "pink sheets." 7 In addition, if our common stock were delisted from the Nasdaq National Market, we may not have the right to obtain funds under the equity line agreement and it could be more difficult for us to obtain future financing. In addition, if our common stock is delisted, investors' interest in our common stock would be reduced, which would materially and adversely affect trading in, and the price of, our common stock. BECAUSE WE USE A SINGLE CONTRACT MANUFACTURER TO MANUFACTURE OUR FIELD EMISSION DISPLAYS WE MAY BE UNABLE TO OBTAIN AN ADEQUATE SUPPLY OF PRODUCTS AND WE MAY HAVE LESS CONTROL OF PRICE. Unipac, a liquid crystal display manufacturer and an affiliate of UMC, Taiwan's second largest Semiconductor manufacturer, is our only contract manufacturer. In the future, we expect that the products that will be manufactured at Unipac and sold to our customers will represent the majority of our revenues. If we are not able to implement our manufacturing plans with Unipac as soon as we expect, we will not be able to ship medium to large volumes of field emission display products. Moreover, we will have less control over the price of the finished products, the timeliness of their delivery and their reliability and quality. Finally, we will not be able to obtain an acceptable cost for our field emission displays through high volume manufacturing, as compared to manufacturing field emission displays at our pilot production facility. This situation would materially adversely affect our revenues and costs of producing products. 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 field emission display technology to Unipac. Our failure to adequately manage this contract manufacturing relationship or any delays in the shipment of our products would adversely affect us. 8 OUR MANUFACTURING PROCESSES ARE STILL UNDER DEVELOPMENT AND WE STILL NEED TO OBTAIN COMMERCIALLY ACCEPTABLE YIELDS AND ACCEPTABLE COSTS OF PRODUCTS OR OUR COSTS TO PRODUCE OUR DISPLAYS WILL BE TOO HIGH FOR US TO BE PROFITABLE. In order for us to succeed, we must continue to develop and produce a range of products incorporating our field emission display technology. At this time, we have successfully developed only one monochrome field emission display product that has been incorporated into a commercial end-user application and that is being targeted at various markets. We will need to complete the development of additional field emission display products to enlarge our market opportunity, and there is no guaranty that we will succeed in these development efforts. If we do not develop these new products, we will need to rely on sales of a single product to be successful. We have used our manufacturing facility in Montpellier, France to develop manufacturing processes but it has produced only a limited number of products suitable for sale. Additionally, to date, we have not completed testing of our manufacturing processes at Unipac. In order for us to be successful, we must improve our manufacturing yields in order to demonstrate the low cost potential of our field emission display technology. Even if we succeed in completing the development and testing of our manufacturing processes, we can not be sure that the favorable characteristics demonstrated by our current displays manufactured at our pilot manufacturing facility will be reproduced on a cost-effective basis in commercial production. We have, at this time, encountered a number of delays in the development of our products and processes, and it is possible that further delays will occur. Any significant delays could cause us to miss certain market opportunities and could reduce our product sales. 9 WE NEED TO FURTHER ENHANCE OUR DISPLAY PERFORMANCE OF OUR COLOR DISPLAYS OR OUR DISPLAYS MAY NEVER BE ACCEPTED BY A LARGE NUMBER OF POTENTIAL CUSTOMERS. We may never improve the performance characteristics of our color displays to a level that is commercially acceptable or fail to do so on a timely basis, either of which could result in potential customers not buying our products. Key elements of display performance are brightness, power efficiency and stability over time (life time and reliability). We are seeking to balance brightness with power efficiency to produce bright and low power-consumption displays. Display reliability depends on a large number of factors, including the manufacturing process used in assembling the displays as well as the characteristics of the materials, including phosphors, used in the display. In order to produce color displays that will provide the product life and other characteristics necessary for most applications, we need to make further advances in our manufacturing processes and in the selection of the materials we use. WE MAY NEVER BE ABLE TO FUND THE RESEARCH AND DEVELOPMENT ACTIVITIES NEEDED TO DEVELOP LARGE DISPLAYS. We need to conduct a significant research and development effort in order to bring our current 15-inch field emission display prototype to a stage where it can be manufactured in volume at an acceptable cost. We may never be able to fund that effort. Even if we were able to develop a product that could be manufactured, we would have to locate or build a manufacturing facility to produce our displays. Currently, Unipac has a facility and equipment to build small displays only. We may not be able to fund the amount needed in order to acquire or build a manufacturing facility for our large displays. If we are unable to develop or manufacture large displays, we will miss large market opportunities for flat panel displays. 10 WE MAY REDUCE RESEARCH OR DEVELOPMENT PROGRAMS TO CONSERVE CAPITAL, INCREASING OUR DEPENDENCE ON REMAINING PROGRAMS. We are constantly reviewing and prioritizing programs, and we may reduce some programs to conserve capital. Any cut would increase our dependence on our remaining programs, and would increase the risk from those programs to our business as a whole, which could materially and adversely affect our chances of obtaining profitability. While we plan to allocate our resources to those programs with the greatest potential to contribute to a sound financial and operating position, we may fail to do so. WE FACE INTENSE COMPETITION AND NEED TO COMPETE WITH CURRENT AND FUTURE COMPETING TECHNOLOGIES THAT MAY OUTPERFORM OUR DISPLAYS THUS MAKING OUR DISPLAY UNDESIRABLE. Our competitors may succeed in developing products that outperform our displays or that are more cost effective. If our competitors develop products that offer significant advantages over our products and we are unable to improve our technology, or develop or acquire alternative technology that is more competitive, we may not be able to sell our displays. The market for flat panel display products is currently dominated by products utilizing liquid crystal display technology. Certain liquid crystal display manufacturers, such as Canon, Sharp, NEC, Hitachi, Samsung and Toshiba have substantially greater name recognition and financial, technological, marketing and other resources than us. Presently liquid crystal displays are in short demand and independent forecasts predict that this may continue over a certain period of time. However, liquid crystal display manufacturers have made, and continue to make, substantial investments in increasing capacity as well as product performance. We believe that, over time, this, combined with new competitors entering the flat panel displays market, may cause over-supply conditions and may have the effect of reducing average selling prices of flat panel displays. In order to effectively compete, we could be required to increase the performance of our products or reduce prices. In the event of price reductions, we will not be able to maintain gross margins unless we reduce our cost of sales. 11 There are a number of domestic and international companies developing and marketing display devices using alternative technologies to liquid crystal display technology, such as vacuum fluorescent displays, electro-luminescent panels and plasma panels. Additionally, some of the basic field emission display technology is in the public domain and, as a result, we have a number of potential direct competitors developing field emission displays or developing fundamental field emission displays technology, including Canon, Futaba, Motorola, Sony, Fujitsu, Samsung and Toshiba, as well as smaller companies, including Candescent, and Silicon Diamond Technology. Although we own the rights to significant technological advances in field emission display technology, potential competitors may have developed or may soon develop comparable or superior field emission display technology. Many of the developers of alternative flat panel display and competing field emission display technologies have substantially greater name recognition and financial, research and development, manufacturing and marketing resources than us, and have made and continue to make substantial investments in improving their technologies and manufacturing processes. BECAUSE POTENTIAL CUSTOMERS MAY NOT ACCEPT OUR PRODUCTS WE MAY NEVER SELL THE NUMBER OF DISPLAYS REQUIRED TO MAKE OUR BUSINESS PROFITABLE. We are uncertain about the potential size and timing of our target market opportunities. We anticipate marketing our displays to original equipment manufacturer customers, which are customers that will incorporate our product into their final product. It is possible that demand for any particular product by these customers will not last or that new markets will fail to develop as we expect, or at all. Our ability to have consumer products sold that incorporate our displays will depend, in part, on the following factors: - - whether original equipment manufacturers select our products for incorporation into their products; - - the successful introduction of such products by the original equipment manufacturers; and - - the successful commercialization of products developed by parties incorporating our products. It takes a long time for any product to achieve market success, and any success is never certain. The introduction of new products is often delayed by the need to have the products selected by an original equipment manufacturer and designed into the original equipment manufacturer's products. For certain products, the delay attributable to a manufacturer's design cycle may be a year or longer. Factors affecting the length of these delays include: - - the size of the manufacturer; - - the type of application; and - - whether the displays are being designed into new products or fitted into existing applications. If volume production of such products is delayed for any reason, our competitors may introduce new technologies or refine existing technologies which could diminish the commercial acceptance of our products. 12 WE HAVE LIMITED SALES, MARKETING AND DISTRIBUTION CAPABILITIES. We have limited internal sales, marketing and distribution experience and capabilities. Until recently, we were a development stage company with no products or product sales. Consequently, we had not established significant sales, marketing, or distribution operations within our company. Recently, however, we have begun sales of our displays to customers. We will not be able to develop significant revenues from the sales of our products unless we can attract and retain highly qualified employees to market and oversee the distribution of our products. If we are unable to establish and maintain significant sales, marketing and distribution efforts, either internally or through arrangements with third parties, we may be adversely affected. FUTURE COOPERATION AND LICENSE REVENUES MAY DECREASE. From 1993 to 1995, we entered into various cooperation and license agreements under which we were paid money for achieving certain milestones. At this time, we have received all expected revenues associated with these milestone payments. If we fail to enter into new royalty-bearing licenses or cooperation agreements, we could be adversely affected as we have relied on these revenues in the past and revenues from product sales may not increase as we expect. For instance, we must execute further cooperation and/or license agreements with third parties that are not existing licensees before we will receive any future cooperation or license revenues. Should we successfully enter such agreements, a portion of the revenues from these contracts may need to be shared with our existing licensees. Cooperation and license revenues accounted for approximately 34% of our revenues in 1998. 13 In addition, we will only recognize royalty revenues under cooperation and license agreements with existing or future licenses if any of our licensees incorporate licensed technology into products that are successfully commercialized. We can not guarantee that any of our licensees will successfully develop or commercialize any field emission display products. We believe that one of our existing licensees, Raytheon Company, may have suspended our internal program to develop field emission displays. WE MAY HAVE DIFFICULTY PROTECTING PATENTS AND OTHER PROPRIETARY RIGHTS TO OUR TECHNOLOGY AND MAY THEREFORE BE UNABLE TO PREVENT COMPETITORS FROM USING OUR TECHNOLOGY. We have been granted, have filed applications for, and have been licensed under a number of patents in the United States and other countries. We rely on these patents and licenses for an advantage in our industry and any infringement of these patents and licenses will lessen our advantage. However, rights granted under patents may not provide us with any competitive advantage over competitors with similar technology, and any issued patents may not contain claims sufficiently broad to protect against these competitors. We have not conducted an independent review of patents issued to other companies. We cannot be certain that we were the first creator of inventions covered by pending patent applications or the first to file patent applications on such inventions because patent applications in the United States are maintained in secrecy until patents issue and the publication of discoveries in scientific or patent literature tends to lag behind actual discoveries by several months. Competitors in both the United States and other countries may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to make and sell our products. We also rely on unpatented, proprietary technology which is significant to the development and manufacture of our displays. Others may independently develop the same or similar technology or obtain access to our unpatented technology. If we are unable to maintain the proprietary nature of our technologies, our competitors may develop products using our technology. Moreover, claims that our products infringe on the proprietary rights of others are more likely to be asserted after we begin commercial sales of products using our technology. It is possible that competitors will infringe our patents. Even the successful defense and prosecution of patent suits is costly and time consuming. The adverse outcome of a patent suit could subject us to significant liabilities to other parties, require disputed rights to be licensed from third parties or require us to stop selling our products. 14 We have received correspondence from Futaba Corporation and its legal counsel beginning in February 1998 alleging the following: - - we are infringing one or more patents owned by Futaba relating to the construction and manufacture of our displays that are not expressly included under the license agreement between us and Futaba; - - our use of terms such as "alliance" and "partners" in describing the nature of our contractual relationships with Motorola, Raytheon and Futaba in reports filed with the SEC is misleading; and - - certain provisions in our agreement with Unipac constitute an impermissible sublicense of Futaba technology. We do not believe such claims have any merit and have denied each of the allegations in correspondences with Futaba and our counsel. Futaba has also claimed that we improperly supplied certain Futaba proprietary information to Unipac, and that Unipac has, in turn, disclosed such information to a third party vendor. If Futaba prevails on any of these claims, we may be required to modify the construction and manufacture of our displays and may, as a result, be materially adversely affected. BECAUSE A LARGE PERCENTAGE OF OUR NET ASSETS AND OUR COSTS IS EXPRESSED IN EUROS, CURRENCY FLUCTUATIONS MAY CAUSE GAINS OR LOSSES. A large percentage of our net assets and of our costs is expressed in Euros, but our financial statements are stated in U.S. dollars. In 1998, 50% of our assets and 60% of our costs were expressed in Euros. In the nine month period ended September 30, 1999, 20% of our assets and 48% of our costs were expressed in Euros. Fluctuations of the value of the U.S. dollar versus the Euro may cause significant gains or losses. Most of our capital lease obligation is expressed in Taiwanese dollars and thus fluctuations of the value of the Taiwanese dollar versus the Euro may also cause significant foreign exchange gains or losses. 15 CERTAIN ANTI-TAKEOVER PROVISIONS THAT WE HAVE INSTITUTED MAY LIMIT OUR STOCK PRICE. Certain provisions of our restated certificate of incorporation and by-laws may discourage a third party from offering to purchase the company and may also adversely affect the market price of our common stock. These provisions, therefore, inhibit actions that would result in a change in control of the company, including an action that may give the holders of the common stock the opportunity to realize a premium over the then-prevailing market price of their stock. In addition, under our restated certificate of incorporation we can issue preferred stock with such designations, rights and preferences as our board of directors determines from time to time. This type of preferred stock could be used as a method of discouraging, delaying or preventing a change in control of the company. In addition, the series E stock issued by the company in December 1998 and any additional shares of preferred stock that we may issue in the future may adversely affect the voting and dividend rights, rights upon liquidation and other rights of the holders of common stock. We do not currently intend to issue any additional shares of preferred stock, but we retain the right to do so in the future. Furthermore, we are subject to Section 203 of the Delaware General Corporation Law, which may discourage takeover attempts. OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO ATTRACT OR RETAIN KEY PERSONNEL. We are highly dependent on the principal members of our management and staff, the loss of whose services might significantly delay or prevent the achievement of research, development or strategic objectives. Our success depends on our ability to retain key employees and to attract additional qualified employees. Competition for such personnel is intense, and we may not be able to retain existing personnel and to attract, assimilate or retain additional highly qualified employees in the future. SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. A large number of shares of common stock already outstanding, or issuable upon exercise of options and warrants, are eligible for resale, which may adversely affect the market price of the common stock. As of November 5, 1999, we had 36,044,284 shares of common stock outstanding. An additional 4,705,605 shares of common stock are issuable upon the exercise of outstanding options and warrants. Substantially all of the shares subject to outstanding options and warrants will, when issued upon exercise, be available for immediate resale in the public market pursuant to currently effective registration statements under the Securities Act, or pursuant to Rule 701 promulgated thereunder. 16 THE EQUITY LINE AGREEMENT AND CONVERTIBLE NOTE MAY HAVE A DILUTIVE IMPACT ON OUR SHAREHOLDERS. The sale of shares pursuant to the equity line agreement or conversion of the note held by Sumitomo will have a dilutive impact on our stockholders. As a result, our net income or loss per share could be materially decreased in future periods, and the market price of our common stock could be materially and adversely affected. In addition, the common stock to be issued under the equity line agreement and upon conversion of the Sumitomo note will be issued at a discount to the then-prevailing market price of the common stock. These discounted sales could have an immediate adverse effect on the market price of the common stock. We also issued to Kingsbridge a warrant for 100,000 shares of common stock exercisable until February 6, 2003 at an exercise price of $2.30 per share. The issuance or resale of such shares and the shares issuable upon exercise of these warrants may have a further dilutive effect on our common stock and could adversely affect our price. WE MAY NOT SUCCESSFULLY INTEGRATE MICRON'S DISPLAY DIVISION OPERATIONS, AND THE INTEGRATION OF THE BUSINESSES MAY BE COSTLY. In May 1999, we purchased certain assets of Micron Technology, Inc. relating to field emission displays including equipment and other tangible assets, contract rights related to the tangible assets and $4.35 million in cash. The continued integration of our operations may temporarily distract management's attention from the day-to-day business. While the current process of integrating Micron's operations has showed good progress, if we fail to integrate Micron's operations quickly and efficiently, our business and results of operations may be impaired. Some of the things we must accomplish in order to integrate Micron's operations include: - - educate previous and new employees about our technologies and platforms; - - coordinate or combine research and development efforts; - - manage prior and new relationships with suppliers and customers; and - - align the strategic plans of two previously independent management teams. These integration efforts may be costly. If we have underestimated these initial costs of integration, our initial results will be worse than anticipated. 17 -----END PRIVACY-ENHANCED MESSAGE-----