<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGEACT OF 1934
For the quarterly period ended September 30, 1998
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-26380
_________________________________
PIXTECH, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3214691
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Avenue Olivier Perroy, 13790 Rousset, France
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
011-33-4-42-29-10-00
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at September 30, 1998
----- ---------------------------------
Common Stock, $.01 par value 14,778,107
<PAGE>
PIXTECH, INC.
-------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of September 30, 1998
and December 31, 1997......................................... 3
Statements of Operations for the Three Months and Nine Months
Ended September 30, 1998 and 1997,
and the period from June 18, 1992 through
September 30, 1998............................................ 4
Statements of Cash Flows for the Nine Months
ended September 30, 1998 and 1997, and the period
from June 18, 1992 through September 30, 1998................. 5
Statement of Stockholders' Equity............................. 6 - 7
Notes to Financial Statements................................. 8 - 9
ITEM 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations.................................................... 10 - 14
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings............................................. 15
ITEM 2 Changes in Securities......................................... 15
ITEM 3 Default upon Senior Securities................................ 15
ITEM 4 Submission of matters to a Vote of Security Holders........... 15
ITEM 5 Other Information............................................. 15
ITEM 6 Exhibits and Reports on Form 8-K.............................. 15
Signature............................................................................. 16
Exhibit Index......................................................................... 17
</TABLE>
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash available........................................................ $ 6,346 $ 12,428
Restricted cash - short term.......................................... 1,685 1,259
Accounts receivable:
Trade............................................................... 871 953
Other............................................................... 134 82
Inventory............................................................. 905 702
Other................................................................. 2,136 2,166
------- --------
Total current assets................................................ 12,077 17,590
Restricted cash - long term............................................. 8,428 8,816
Property, plant and equipment, net...................................... 19,657 9,353
Goodwill, net........................................................... 168 226
Deferred tax assets..................................................... 4,683 5,058
Deferred offering costs................................................. 230
Other assets - long term................................................ 529 605
------- --------
Total assets........................................................ $45,772 $ 41,648
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt..................................... $ 2,266 $ 1,364
Current portion of capital lease obligations.......................... 2,073 599
Accounts payable...................................................... 6,623 5,053
Accrued expenses...................................................... 2,661 1,284
-------- --------
Total current liabilities........................................... 13,623 8,300
Deferred revenue........................................................ 2,282 2,546
Long term debt, less current portion.................................... 9,741 11,024
Capital lease obligation, less current portion.......................... 7,655 441
Other long term liabilities, less current portion....................... 627 557
------- --------
Total liabilities................................................... 33,928 22,868
======= ========
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, authorized shares--30,000,000;
issued and outstanding shares--14,778,107 ; 13,762,732 respectively.. 148 138
Additional paid-in capital............................................ 61,082 57,067
Cumulative translation adjustment..................................... (1,668) (2,132)
Deficit accumulated during development stage.......................... (47,718) (36,293)
-------- --------
Total stockholders' equity......................................... 11,844 18,780
-------- --------
Total liabilities and stockholders' equity ........................ $ 45,772 $ 41,648
======== ========
</TABLE>
See accompanying notes.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Period
from June
18, 1992
(date of
inception)
Three Months Ended Nine Months Ended through
September 30, September 30, Sept. 30,
----------------- -----------------
1998 1997 1998 1997 1998
------ ------ ------- ------ ------
Revenues
<S> <C> <C> <C> <C> <C>
Cooperation & license revenues............................... $ 238 $ -- $ 1,239 $ 1,718 $ 26,449
Product sales................................................ 135 152 222 580 2,603
Other revenues............................................... 225 284 1,768 1,004 5,706
------- ------- ------- -------- --------
Total revenues............................................ 598 436 3,229 3,302 34,758
------- ------- ------- -------- --------
Cost of revenues
License fees and royalties................................... (80) -- (281) (61) (1,821)
------- ------- ------- -------- --------
Gross margin................................................... 518 436 2,948 3,241 32,937
------- ------- ------- -------- --------
Operating expenses
Research and development:
Acquisition of intellectual property rights.................. -- -- (125) -- (4,890)
Other........................................................ (5,107) (3,227) (13,460) (11,305) (66,699)
------- ------- ------- -------- --------
(5,107) (3,277) (13,585) (11,305) (71,589)
Marketing & sales............................................ (371) (369) (1,064) (1,151) (6,238)
Administrative & general expenses............................ (639) (611) (1,862) (1,899) (12,163)
------- ------- ------- -------- --------
(6,117) (4,207) (16,511) (14,355) (89,990)
------- ------- ------- -------- --------
Loss from operations........................................... (5,599) (3,771) (13,563) (11,114) (57,053)
Other income / (expense)
Interest income / (expense).................................. (208) 82 (462) 424 347
Foreign exchange gains / (losses)............................ 844 32 1,553 (140) 2,207
------- ------- ------- -------- --------
636 114 1,091 285 2,554
Loss before income tax benefit................................. (4,963) (3,657) (12,472) (10,829) (54,499)
Income tax benefit............................................. 1,047 -- 1,047 -- 6,781
------- ------- ------- -------- --------
Net loss....................................................... $(3,916) $(3,657) $(11,425) $(10,829) $(47,718)
======= ======= ======== ======== ========
Net loss per share........................................... $ (0.26) $ (0.27) $ (0.79) $ (0.84)
======= ======= ======== ========
Shares used in computing net loss per share.................. 14,778 13,763 14,462 12,924
</TABLE>
See accompanying notes.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 18, 1992
(DATE OF
INCEPTION)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------
1998 1997 1998
----------- --------- -------------
<S> <C> <C> <C>
Net loss................................................... $(11,425) $(10,829) $(47,718)
Total adjustments to net loss.............................. 5,719 4,009 19,345
-------- --------- --------
Net cash (used in) / provided by operating activities...... (5,706) (6,820) (28,373)
-------- --------- --------
INVESTING ACTIVITIES
Additions to property plant and equipment.................. (764) (511) (18,224)
Reclassification of cash available as restricted cash...... -- (10,080) (10,080)
Additions to intangible assets............................. -- -- (130)
-------- --------- --------
Net cash used in investing activities...................... (764) (10,591) (28,434)
FINANCING ACTIVITIES
Stock issued............................................... 3,981 21,641 59,579
Proceeds from long-term borrowings......................... -- -- 16,287
Proceeds from sale leaseback transactions.................. -- -- 2,731
Payments for equipment purchases financed by accounts
payable................................................... -- -- (3,706)
Repayments of long term borrowing and capital lease
obligations............................................... (3,836) (1,049) (9,219)
-------- --------- --------
Net cash provided by financing activities.................. 145 20,592 65,672
-------- --------- --------
Effect of exchange rates on cash........................... 243 (1,358) (2,519)
-------- --------- --------
Net increase in cash and cash equivalents.................. (6,082) 1,823 6,346
Cash and cash equivalents beginning of period.............. 12,428 4,266 --
-------- --------- --------
Cash and cash equivalents end of period.................... $ 6,346 $ 6,089 $ 6,346
======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
-------------------- ------------------ -------------------- ------------------
SHARES SHARES SHARES SHARES
----------- --------- ----------- ---------
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT
----------- ------- --------- ------- ----------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 18, 1992
Issuance of convertible preferred
stock, net of issuance costs in
1992, 1993 and 1994.................. 1,557,003 2,368 363,447 589 3,044,846 8,615 430,208 1,224
Issuance of Common stock in 1992
and 1993............................
Issuance of Common stock under
stock option plan in 1994 Purchase
of 28,761 shares of Common
stock--Treasury stock in 1994.......
Translation adjustment.................
Net loss from June 18, 1992
(date of inception) through
December 31, 1994..................
---------- ------ -------- ------ ---------- ------ -------- ------
BALANCE AT DECEMBER 31, 1994 1,557,003 2,368 363,447 589 3,044,846 8,615 430,208 1,224
Reissuance of 28,761 shares of
Common stock held in treasury........
Issuance of Common stock under
stock option plan...................
Common stock issued in initial public
offering, net of issuance
costs -- $ 1,080.....................
Conversion of preferred stock.......... (1,557,003) (2,368) (363,447) (589) (3,044,846) (8,615) (430,208) (1,224)
Translation adjustment.................
Net loss--Year ended
December 31, 1995....................
---------- ------ -------- ------ ---------- ------ -------- ------
BALANCE AT DECEMBER 31, 1995
Issuance of Common stock under
stock option plan....................
Issuance of warrants in connection
with acquisition of the
assets of Panocorp...................
Translation adjustment.................
Net loss--Year ended
December 31, 1996....................
---------- ------ -------- ------ ---------- ------ -------- ------
BALANCE AT DECEMBER 31, 1996
Common stock issued in public
offering, net of issuance
costs -- $ 796........................
Issuance of Common stock under
stock option plan.....................
Translation adjustment.................
Net loss--Year ended December 31, 1997.
---------- ------ -------- ------ ---------- ------ -------- ------
BALANCE AT DECEMBER 31, 1997
Common stock issued in private
placements, net of issuance costs
-- $ 26 (unaudited)...................
Issuance of Common stock under stock
option plan (unaudited)
Translation adjustment (unaudited)....
Net loss--Nine Months ended
September 30, 1998 (unaudited).......
---------- ------ -------- ------ ---------- ------ -------- ------
BALANCE AT SEPTEMBER 30, 1998 -- -- -- -- -- -- -- --
========== ====== ======== ====== ========== ====== ======== ======
</TABLE>
See accompanying notes.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
------------
ACCUMULATED
------------
COMMON STOCK ADDITIONAL CUMULATIVE DURING
------------------ ---------- ------------ ------------
SHARES PAID-IN TRANSLATION DEVELOPMENT TREASURY
---------- ---------- ------------ ------------ ---------
ISSUED AMOUNT CAPITAL ADJUSTMENT STAGE STOCK TOTAL
---------- ------ ---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 18, 1992
Issuance of convertible preferred
stock, net of issuance $ 12,796
costs in 1992, 1993 and 1994.................
Issuance of Common stock in
1992 and 1993................................ 132,301 $ 1 $ 96 97
Issuance of Common stock
under stock option plan in 1994............. 77,356 1 28 29
Purchase of 28,761 shares of Common
stock-- Treasury stock
in 1994....................................... $(11) (11)
Translation adjustment......................... $ 181 181
Net loss from June 18, 1992
(date of inception) through
December 31, 1994............................. $ (3,605) (3,605)
---------- ---- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1994 209,657 2 123 181 (3,605) (11) 9,487
Reissuance of 28,761 shares of Common
stock held in treasury....................... 3 11 14
Issuance of Common stock under stock
option plan.................................. 6,902 0 3 3
Common stock issued in initial public
offering, net of
issuance costs -- $ 1,080.................... 2,500,000 25 20,973 20,998
Conversion of preferred stock.................. 5,395,504 54 12,742
Translation adjustment......................... 334 334
Net loss--Year ended December 31, 1995......... (6,305) (6,305)
---------- ---- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 8,112,063 81 33,844 515 (9,910) 24,530
Issuance of Common stock under stock
option plan.................................. 29,083 0 11 11
Issuance of warrants in connection
with acquisition of the assets
of Panocorp................................... 230 230
Translation adjustment......................... (953) (953)
Net loss--Year ended December 31, 1996........ (11,719) (11,719)
---------- ---- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 8,141,146 81 34,085 (438) (21,629) 12,099
Common stock issued in public offering,
net of issuance costs -- $ 796................ 5,570,819 56 22,958 23,014
Issuance of Common stock under stock
option plan.................................. 50,767 1 25 25
Translation adjustment......................... (1,694) (1,694)
Net loss--Year ended December 31, 1997......... (14,664) (14,664)
---------- ---- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 13,762,732 $138 $57,067 $(2,132) $(36,293) $ 18,780
Common stock issued in private
placements, net of issuance
costs -- $ 26 (unaudited)..................... 1,014,000 10 4,014 4,024
Issuance of Common stock under
stock option plan (unaudited)................. 1,375 1 1
Translation adjustment......................... 464 464
Net loss--Nine Months ended
September 30, 1998 (unaudited)................ (11,425) (11,425)
---------- ---- ------- ------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1998 14,778,107 $148 $61,082 $(1,668) $(47,718) $ 11,844
</TABLE>
See accompanying notes.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Note A--Basis of presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results of the three-month or nine-month periods ending
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto for the year
ended December 31, 1997 (the "1997 Financial Statements"), included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE B--INVENTORIES
Inventory consists of raw material and spare parts.
NOTE C--RESTRICTED CASH
In August 1997, the Company provided Unipac, its Asian manufacturing partner,
with a written bank guaranty in an amount of $10.0 million pursuant to the
Display Foundry agreement signed in May 1997 between the Company and Unipac in
order to implement volume production of Field Emission Displays ("FEDs") at its
manufacturing line. The Company granted the issuing banks a security interest in
its cash and cash equivalents for the same amount. The pledged cash and cash
equivalents have been recorded as short-term and long-term restricted cash in
the balance sheet. Under certain conditions of the Foundry Agreement, Unipac can
sell to the Company certain equipment. The payment for such equipment will be
secured by Unipac through the exercise of the bank guaranty. Both the amount of
the guaranty to Unipac and the amount of the security interest to the banks will
be reduced by 1/24th of the initial amount at the end of each quarter, starting
after December 1998.
NOTE D--PROPERTY, PLANT AND EQUIPMENT
In 1997, the Company signed a Display Foundry Agreement with Unipac, a
Taiwanese AMLCD manufacturer, in order to implement high-volume manufacturing of
FEDs at Unipac's plant. Pursuant to this agreement, Unipac began to install
volume FEDs production equipment. That equipment has been purchased and funded
by Unipac, and a portion of it is leased to PixTech. Most of the required
equipment has now been installed at Unipac's facility. As of September 30, 1998,
the portion of the equipment leased to PixTech amounts to $12,172.
According to Financial Accounting Standard 13, "Accounting for leases",
PixTech's share of equipment has been recorded as assets under the caption
"Property, Plant and Equipment", in the net amount of $11,689. A depreciation of
$483 has been recorded in the quarter. As of September 30, 1998, the related
capital lease obligation amounts to $9,102, of which $1,678 has been recorded as
current portion.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
NOTE E--PRIVATE PLACEMENTS
In March 1998, the Company sold 1,000,000 shares of the Company's Common Stock
to The Kaufmann Fund Inc., in a private placement at a price of $4.00 per share,
resulting in net cash proceeds of $4,000 before expenses payable by the Company,
which amounted to $26.
In March 1998, the Company entered into a license agreement with Coloray
Display Corporation, a California corporation ("Coloray"), providing PixTech
with a worldwide, nonexclusive royalty-free license on certain technologies
related to field emission displays. In consideration of the license and rights
granted to PixTech, the Company paid an amount of $75 and issued 14,000 shares
of the Company's Common Stock, valued at a price of $3.57 per share,
representing a total amount of $50.
NOTE F--DEFERRED OFFERING COSTS
The Company incurred expenses in preparation for a private offering of new
shares in Europe and the U.S. These expenses have been deferred and will be
recorded as a reduction of paid-in capital upon completion of the offering.
NOTE G--FAS 130
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", ("SFAS 130"), effective for the Company for
the first quarter of 1998. SFAS 130 requires that items defined as other
comprehensive income, such as foreign currency translation adjustments, be
separately classified in the financial statements and that the accumulated
balance of other comprehensive income be reported separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The components of comprehensive income for the nine-month periods ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
COMPREHENSIVE LOSS: NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
<S> <C> <C>
Net loss $(11,425) $(10,829)
Change in cumulative translation adjustment 464 (1,462)
-------- --------
Comprehensive net loss $(10,961) $(12,291)
</TABLE>
NOTE H--LITIGATION
The Company has received correspondence from Futaba Corporation and its legal
counsel since February 1998 alleging the following: (i) Pixtech is infringing
one or more patents owned by Futaba relating to the construction and manufacture
of its displays that are not expressly included under the license agreement
between Futaba and Pixtech, (ii) PixTech's use of terms such as "alliance" and
"partners" in describing the nature of its contractual relationships with
Motorola, Raytheon and Futaba in reports filed with the SEC is misleading and
(iii) certain provisions in the Foundry Agreement with Unipac constitute an
impermissible sublicense of Futaba technology. PixTech does not believe such
claims have any merit and has denied each of the allegations in correspondences
with Futaba and its counsel. Futaba has also claimed that the Company
improperly supplied certain Futaba proprietary information to Unipac, and that
Unipac has in turn disclosed such information to a third party vendor. If
Futaba were to prevail on all of these claims, PixTech may be required to modify
the construction and manufacture of its displays and may, as a result, be
materially adversely affected.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
To the Company's knowledge, there are no other exceptional facts or litigation
that could have or that have in the recent past had any significant impact on
its business, results, financial situation, or assets and liabilities.
NOTE I.--SUBSEQUENT EVENTS
During 1998, the Company has incurred the same level of losses that has been
experienced in the past, which has adversely affected the Company's liquidity.
The Company intends to improve its liquidity and financial position through
sales of equity expected to take place in 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Cooperation and License Revenues. PixTech is a party to a cooperative effort,
between select display manufacturers to advance Field Emission Display ("FED")
technology. The Company recognized cooperation and license revenues under
license agreements of $238,000 in the three-month period ended September 30,
1998. These revenues represented the achievement by the Company of contractual
milestones with certain licensees. No such revenues were recorded in the same
period in 1997.
The Company recorded cooperation and license revenues under these agreements of
$1.2 million in the nine-month period ended September 30, 1998, as compared to
$1.7 million in the nine-month period ended September 30, 1997. The decrease in
cooperation and license revenues reflected the achievement by the Company of
most of the contractual milestones with these licensees. The Company does not
expect any significant additional milestone related revenues to be directly
derived from existing licensees. Future cooperation and license revenues are
mostly subject to execution, by the Company, of cooperation and/or license
agreements with third parties other than the existing licensees. The Company
may now grant royalty-bearing licenses to the FED cross-licensed technology to
third parties subject to certain restrictions as to the geographic location and
number of such third-party licensees. A portion of the proceeds PixTech will
receive pursuant to such third-party licenses may be shared with the existing
licensees. To the extent these licensees successfully incorporate the cross-
licensed technology in their own products, the Company will recognize royalty
revenues as they sell the products.
Product sales. The Company recognized product sales of $222,000 in the nine-
month period ended September 30, 1998, as compared to $580,000 in the nine-month
period ended September 30, 1997. These product sales represented the shipment
of FED displays and FED cathodes in limited quantities to certain licensees and
the shipment of FED displays for evaluation by original equipment manufacturer
("OEM") customers. While the number of displays shipped significantly increased
between the nine-month periods ended September 30, 1997 and September 30, 1998,
the average selling price was reduced as most displays sold during the first
nine months of 1998 were sold at volume prices.
The Company expects to increase product shipments in 1998, both from products
manufactured at its pilot production plant in France and from its volume source
of manufacturing by Unipac. The Company has recently shipped its first FED
displays manufactured by Unipac to a U.S. customer.
Other revenues. Other revenues consist of funding under French or European
Union development contracts and other miscellaneous revenues. The Company
recognized other revenues of $225,000 in the three-month period ended September
30, 1998, as compared to $284,000 in the three-month period ended September 30,
1997. Other revenues amounted to $1.8 million in the nine-month period ended
September 30, 1998, as compared to $1.0 million in the nine-month period ended
September 30, 1997. Of these revenues, $1.2 million and $663,000 were related
to a development contract granted in December 1994 from the French Ministry of
Industry to support manufacturing of FEDs, in the nine-month periods ended 1998
and 1997, respectively. Total funding under this contract approximated $2.7
million. The Company recognized portions of this revenue as contractual
conditions were met. The Company recognized $800,000 in 1996, $663,000 in 1997
and $1.2 million in the nine-month period ended September 30, 1998.
Research and Development Expenses--Acquisition of Intellectual Property Rights.
The Company expensed $125,000 in the nine-month period ended September 30, 1998
for the acquisition of intellectual property rights
<PAGE>
from Coloray Display Corporation (see "Notes to Condensed Consolidated Financial
Statements -- Note E -- Private Placements").
Other Research and Development Expenses. The Company expensed $5.1 million for
research and development costs during the three-month period ended September 30,
1998, an increase of 59% over the $3.2 million of research and development
expenses incurred in the three-month period ended September 30, 1997. These
expenses include obligations to the French atomic energy agency ("CEA") under a
research agreement with the Laboratoire d'Electronique, de Technologie et
d'Instrumentation) ("LETI"), contract consulting fees, salaries and associated
operating expenses for in-house research and development activities conducted
both in its pilot plant in Montpellier and its research and development facility
in Santa Clara, the cost of staffing and operating the Company's pilot
manufacturing facility and the cost of supporting the transfer of the FED
technology to Unipac. This increase reflected the continued development of the
Company's FED technology and the cost of supporting the transfer of FED
manufacturing processes to Unipac. Research and development expenses amounted
to $13.6 million for the nine-month period ended September 30, 1998, as compared
to $11.3 million during the nine-month ended September 30, 1997.
Sales and Marketing Expenses. The Company expensed $371,000 for sales and
marketing during the three-month period ended September 30, 1998, as compared to
$369,000 during the three-month period ended September 30, 1997. The Company
believes sales and marketing expenses may increase in the future, as potential
customers and anticipated shipments of FED displays develop. In 1997, the
Company signed a distribution agreement of its FED products with Sumitomo
Corporation ("Sumitomo") for the Japanese and Asian market areas. Sales and
marketing expenses amounted to $1.0 million for the nine-month period ended
September 30, 1998, as compared to $1.1 million during the nine-month period
ended September 30, 1997.
General and Administrative Expenses. General and administrative expenses
amounted to $639,000 in the three-month period ended September 30, 1998, an
increase of 5% over general and administrative expenses incurred in the three-
month period ended September 30, 1997, which amounted to $611,000, reflecting an
increase in staff expenses.
Income tax benefit. The Company recorded an income tax benefit in the amount of
$1.0 million in the three-month period ended September 30, 1998, representing
tax credit for research and development activities conducted in France.
STRATEGIC ISSUES AND RISKS
The Company is focused on the continued development of the FED technology, the
improvement of manufacturing yields, the successful implementation of contract
manufacturing of FEDs with its Asian contract manufacturer, Unipac, and the
reliability testing of new products which the Company expects will lead to the
shipment of commercial products in the near future. In evaluating this outlook,
the following risks and issues, among others, which are common with development
stage companies, should be considered.
Risks Associated with Contract Manufacturing of FEDs. The Company believes
that its ability to commercialize medium to large volumes of FEDs is highly
dependent on its ability to have FEDs manufactured by Unipac. In May 1997, the
Company signed a Foundry Agreement with Unipac, an AMLCD manufacturer based in
Taiwan. Under the agreement, Unipac has installed volume production equipment
to produce FEDs at its manufacturing plant, and is beginning production for
exclusive delivery of FED displays to PixTech. Expectations about the final
timing of this manufacturing plan with Unipac are forward-looking statements
that still involve risks and uncertainties, including the ease or difficulty of
the transfer of the FED technology to Unipac. If such manufacturing plans are
not implemented on a timely basis, the Company will not be able to ship medium
to large volumes of FED products, or to obtain a commercially acceptable cost
for its FED displays. If the Company is unable to have its FED manufactured in
a cost effective manner, the Company would be materially adversely affected.
Significant capital expenditure is required in order to install, at the contract
manufacturers' facility,
<PAGE>
equipment that is not common to the AMLCD manufacturing process. A total amount
of $16.5 million of capital expenditures is expected to be required which,
pursuant to the Foundry Agreement, will be purchased and funded by Unipac, and a
portion of that equipment will be leased to PixTech. The amount actually
expended on capital expenditures could vary significantly depending upon
numerous factors, including the inherent unpredictability of the total amount of
a large scale capital expenditure program. Should the Company be successful in
implementing this contract manufacturing relationship, the Company's reliance on
a single contract manufacturer will involve several risks, including a potential
inability to obtain an adequate supply of required products, and reduced control
over the price, timeliness of delivery, reliability and quality of finished
products. Any inability to manage this contract manufacturing relationship or
any circumstance that would cause the Company to delay the shipment of its
products would have an adverse effect on the Company.
Products and Manufacturing Processes under Development, Need to Obtain
Commercial Yields, Costs of Products. The Company's future success depends on
the successful development and production of FEDs by the Company and its
licensees. To date, the Company has successfully developed only one product that
has been incorporated into a commercial end-user application. To be successful,
the Company will need to complete the development of additional FED products.
The Company's future products will require additional significant development
prior to commercialization, and no assurance can be given that the results of
such development efforts will be successful. In addition, the Company has not
completed testing of its manufacturing processes at Unipac, and the Company has
only limited quantities of products, manufactured at its pilot manufacturing
facility, that are available for sale incorporating the Company's technology.
Certain improvements must be made to the Company's manufacturing processes in
order for the Company to be successful. In particular, in order to demonstrate
the low cost potential of its FED technology, the Company will need to improve
its manufacturing yields. Even if the Company is successful in completing the
development and testing of its manufacturing processes, no assurance can be
given that the favorable characteristics demonstrated by its current displays
manufactured at the Company's pilot manufacturing facility will be reproduces on
a cost-effective basis in commercial production. The Company has to date
encountered a number of delays in the development of its products and processes.
No assurance can be given that further delays will not occur. Any significant
delays could prevent the Company from capitalizing on market opportunities, and
could prevent the Company from capitalizing on market opportunities, and could
have a material adverse effect on the Company.
Display Performance Enhancement. Key elements of display performance are
brightness, and stability over time (life time and reliability), as well as
power efficiency. PixTech is seeking to balance luminous efficiency with power
efficiency to produce bright and low power-consumption displays. Display
reliability is heavily dependent upon the manufacturing process used in
assembling the displays as well as upon the characteristics of the phosphors
used on the anode. In order to produce color displays that will provide the
product life necessary for most applications, the Company needs to make further
advances in manufacturing processes. There can be no assurance that the Company
will be able to improve the reliability and life time of its color FEDs to
achieve commercially acceptable performance, or on a timely basis. If such
displays performance enhancements are not successfully completed, the Company
could be adversely affected.
Cooperation and license revenues. To date, the Company has recorded most of
the expected revenues associated with the achievement of contractual milestones
under certain license agreements. Future cooperation and license revenues are
mostly subject to execution, by the Company, of cooperation and/or license
agreements with third parties that are not existing licensees. Theses
agreements may be subject to certain restrictions, such as geographic location
and number of such third-parties. Should the Company succeed in concluding such
agreements, a portion of the revenues from such contracts could be shared with
the existing licensees. Failure to conclude new royalty-bearing licenses or
cooperation agreements could adversely affect the Company.
In addition, the Company will only recognize royalty revenues under
cooperation and license agreements with existing or future licenses to the
extent that any such licensees incorporate licensed technology into products
that are successfully commercialized. There can be no assurance that any such
licensees will successfully develop or commercialize any such products. The
Company believes that one of its existing licensees, Raytheon Company, may have
suspended its internal program to develop FEDs.
<PAGE>
Competition and Competing Technologies. The market for flat panel display
("FPD") products is intensely competitive and is expected to remain so in the
future. The market is currently dominated by products utilizing liquid crystal
display ("LCD") technology. LCD technology has continued to improve, and there
can be no assurance that advances in LCD technology will not overcome its
current limitations. In addition, the recent substantial increases in world-wide
manufacturing capacity of FPDs and the entrance of new competitors in the FPD
market may cause over-supply conditions leading to dramatic reductions in the
price of FPDs. In order to effectively compete, the Company could be required to
increase the performance of its products or to reduce prices. In the event of
price reductions, the Company's ability to maintain gross margins would depend
on its ability to reduce its cost of sales.
There can be no assurance that the Company's competitors will not succeed in
developing products that outperform the Company's displays or that are more cost
effective. In the event that efforts by the Company's competitors result in the
development of products that offer significant advantages over the Company's
products, and the Company is unable to improve its technology or develop or
acquire alternative technology that is more competitive, the Company would be
adversely affected.
No Assurance of Market Acceptance. The potential size and timing of market
opportunities targeted by the Company are uncertain. The Company anticipates
marketing its displays to OEMs, and its success will depend on whether OEMs
select the Company's products for incorporation into their products and upon
their successful introduction of such products, as well as the successful
commercialization of products developed by parties which are under contractual
relationship to make royalty, and milestone payments to the Company. There can
be no assurance that demand for any particular product will be sustained or that
new markets will develop as expected by the Company, or at all. The failure of
existing and new markets to develop as expected by the Company or to be
receptive to PixTech's products would have a material adverse effect on the
Company.
<PAGE>
Patents and Protection of Proprietary Technology. The Company's ability to
compete effectively with other companies will depend, in part, on the ability of
the Company to maintain the proprietary nature of its technology. Although the
Company has been granted, has filed applications for and has been licensed under
a number of patents in the United States and other countries, there can be no
assurance as to the degree of protection offered by these patents, as to the
likelihood that pending patents will be issued or as to the validity or
enforceability of any issued patents. Patent applications in the United States
are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, the Company cannot be certain that it was the
first creator of inventions covered by pending patent applications or the first
to file patent applications on such inventions.
Competitors in both the United States and other countries, many, of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or interfere with the
Company's ability to make and sell its products. The Company has not conducted
an independent review of patents issued to third parties. In addition, claims
that the Company's products infringe on the proprietary rights of others are
more likely to be asserted after commencement of commercial sales incorporating
the Company's technology. Although the Company believes that its products do not
infringe the patents or other proprietary rights of third parties, there can be
no assurance that other third parties will not assert infringement claims
against the Company or that such claims will not be successful. Then can also be
no assurance that competitors will not infringe the Company's patents. Even
successful defense and prosecution of patent suits are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease selling its
products. Further, with respect to licensed patents, which, in the case of the
Company, represent a significant portion of the Company's proprietary
technology, the defense and prosecution of patent suits may not be in the
Company's control. An adverse outcome in a suit in which the Company asserts its
patent rights could result in the loss of such rights, and could subject the
Company to substantial costs and diversion of Company resources.
The Company has received correspondence from Futaba Corporation and its legal
counsel since February 1998 alleging the following: (i) Pixtech is infringing
one or more patents owned by Futaba relating to the construction and manufacture
of its displays that are not expressly included under the license agreement
between Futaba and Pixtech, (ii) PixTech's use of terms such as "alliance" and
"partners" in describing the nature of its contractual relationships with
Motorola, Raytheon and Futaba in reports filed with the SEC is misleading and
(iii) certain provisions in the Foundry Agreement with Unipac constitute an
impermissible sublicense of Futaba technology. PixTech does not believe such
claims have any merit and has denied each of the allegations in correspondences
with Futaba and its counsel. Futaba has also claimed that the Company improperly
supplied certain Futaba proprietary information to Unipac, and that Unipac has
in turn disclosed such information to a third party vendor. If Futaba were to
prevail on all of these claims, PixTech may be required to modify the
construction and manufacture of its displays and may, as a result, be materially
adversely affected.
<PAGE>
Foreign exchange. A large percentage of the Company's net assets and of the
Company's costs is expressed in French Francs. Fluctuations of the parity of
the U.S. dollar versus the French Franc may cause significant foreign exchange
gains or losses. Most of the Company's capital lease obligation is expressed in
Taiwanese dollar. Fluctuations of the parity of the Taiwanese dollar versus the
French Franc may cause significant foreign exchange gains or losses.
Impact of Year 2000. The Company has conducted a comprehensive review of its
computer systems to identify applications that could be affected by, the
inability, of certain computer systems to format and manipulate data containing
dates including the year 2000 and subsequent years (commonly referred to as the
"year 2000" issue), and has developed an implementation plan to resolve the
issue. Although management does not expect that costs associated with modifying
existing computer systems will have a significant impact on its financial
position or results of operations, there can be no assurance that such
modifications will be successfully implemented or that these costs will not be
significant. In addition, the Company, depends on a limited group of suppliers.
There can be no assurance that those suppliers will not be significantly
impacted by the "Year 2000" issue. If those suppliers are significantly impacted
by the "Year 2000" issue, such suppliers may not be able to continue their
supply of parts to the Company without interruption, and the Company may be
adversely affected.
LIQUIDITY AND CAPITAL RESOURCES.
Cash used in operations was $5.7 million for the nine-month period ended
September 30, 1998, as compared to cash used in operations of $6.8 million for
the nine-month period ended September 30, 1997.
The Company has used $28.3 million in cash to fund its operating activities from
inception through September 30, 1998 and has incurred $28.4 million in capital
expenditures and investments.
Cash flows generated from financing activities were $145,000 in the nine-month
period ended September 30, 1998, as compared to $20.6 million in the nine-month
period ended September 30,1997.
These 1998 financings consisted primarily of sales of shares of Common Stock in
a private placement, resulting in net proceeds to the Company of $4.0 million
(net of issuance costs), while long term liabilities decreased by $3.8 million.
Cash flow generated from financing activities exclude non-cash transactions
related to the issuance of 14,000 shares of the Company's Common Stock to
Coloray (See "Notes to Condensed Consolidated Financial Statements -- Note E --
Private placements").
Since its inception, the Company has funded its operations and capital
expenditures primarily from the proceeds of equity financing aggregating $59.6
million and from proceeds aggregating $19.0 million from borrowings and sale-
leaseback transactions.
Capital expenditures were $764,000 during the nine-month period ended September
30, 1998 as compared to $511,000 during the same period of 1997. During the
nine-month period ended September 30, 1998, capital expenditures remained
focused on limited capacity expansion in the pilot manufacturing facility.
Implementing volume production at Unipac's manufacturing plant requires
significant capital expenditures. An amount of $16.5 million of capital
expenditures is expected to be required which, pursuant to the Foundry
Agreement, is purchased and funded by Unipac.
<PAGE>
The Company has existing contracts with two different French ministries
providing for the payment of grants to the Company totaling approximately $4.0
million, of which the Company has collected an aggregate amount of $3.4 million
through September 30, 1998 and for which the Company has recognized revenues to
date in the aggregate amount of $2.7 million.
In 1997, the Company entered into a research and development agreement with the
European Union and other European industrial companies for an 18 month-period,
which began in February 1997. The expected contribution of the European Union
to the costs incurred by the Company amounts to $840,000 over the period. The
Company received $423,000 and $293,000 from this contribution in 1997 and in
1998, which were not recognized as income in 1997 and in 1998 as all conditions
stipulated in the agreement were not met.
Cash available at September 30, 1998 amounted to $6.3 million as compared to
$12.4 million at December 31, 1997. The Company expects that cash available at
September 30, 1998 together with anticipated proceeds from the various grants
described above and the anticipated increase in product sales will be sufficient
to meet its cash requirements, including repayment of the current portion of its
long term obligations for at least three months.
The Company will require substantial funds to conduct research, development and
testing, to develop and expand commercial-scale manufacturing systems and to
market any resulting products. Changes in technology or a growth of sales beyond
currently anticipated levels will also require further investment. The Company's
capital requirements will depend on many factors, including the rate at which
the Company can develop its products, the market acceptance of such products,
the levels of promotion and advertising required to launch such products and
attain a competitive position in the marketplace and the response of competitors
to the Company's products. There can be no assurance that funds for these
purposes, whether from equity or debt financing, or other sources, will be
available when needed or on terms acceptable to the Company.
<PAGE>
PIXTECH, INC.
September 30, 1998
PART II Other Information
ITEM 1 Legal Proceedings:
Not applicable.
ITEM 2 Changes in Securities:
(a) Not applicable
(b) Not applicable
(c) Not applicable
ITEM 3 Defaults upon Senior Securities:
Not applicable.
ITEM 4 Submission of matters to a Vote of Security Holders:
Not applicable
ITEM 5 Other Information:
None.
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K: None
<PAGE>
PIXTECH, INC.
September 30, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIXTECH, INC.
Date: November 12, 1998 BY: /s/ Yves Morel
Yves Morel
Chief Financial Officer
<PAGE>
PIXTECH, INC.
September 30, 1998
EXHIBIT INDEX
Exhibit No.
- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,346
<SECURITIES> 0
<RECEIVABLES> 1,005
<ALLOWANCES> 0
<INVENTORY> 905
<CURRENT-ASSETS> 12,077
<PP&E> 19,657
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,772
<CURRENT-LIABILITIES> 13,623
<BONDS> 0
0
0
<COMMON> 148
<OTHER-SE> 11,696
<TOTAL-LIABILITY-AND-EQUITY> 45,772
<SALES> 135
<TOTAL-REVENUES> 598
<CGS> 0
<TOTAL-COSTS> 6,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (208)
<INCOME-PRETAX> (4,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,916)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> 0
</TABLE>
