<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 EXCHANGE ACT OF 1934
For the quarterly period ended June 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 June 30, 1998
----- ----------------------------
Common Stock, $.01 par value 14,776,732
<PAGE>
PIXTECH, INC.
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TABLE OF CONTENTS
-----------------
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of June 30, 1998
and December 31, 1997................................ 3
Statements of Operations for the Three Months and Six
Months Ended June 30, 1998 and 1997, and the period
from June 18, 1992 through June 30, 1998............. 4
Statements of Cash Flows for the Six Months
ended June 30, 1998 and 1997, and the period
from June 18, 1992 through June 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 - 15
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.................................... 16
ITEM 2 Changes in Securities................................ 16
ITEM 3 Default upon Senior Securities....................... 16
ITEM 4 Submission of matters to a Vote of Security Holders.. 16
ITEM 5 Other Information.................................... 16
ITEM 6 Exhibits and Reports on Form 8-K..................... 16
Signature............................................................. 17
Exhibit Index......................................................... 18
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash available........................................................ $ 9,882 $12,428
Restricted cash - short term.......................................... 2,098 1,259
Accounts receivable:
Trade............................................................... 1,591 953
Other............................................................... 119 82
Inventory............................................................. 789 702
Other................................................................. 927 2,166
---------- ----------
Total current assets................................................ 15,406 17,590
Restricted cash - long term............................................. 7,971 8,816
Property, plant and equipment, net...................................... 18,678 9,353
Goodwill, net........................................................... 190 226
Deferred tax assets..................................................... 3,323 5,058
Other assets - long term................................................ 520 605
---------- ----------
Total assets........................................................ $46,088 $41,648
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt..................................... $ 2,405 $ 1,364
Current portion of capital lease obligations.......................... 2,114 599
Accounts payable...................................................... 6,423 5,053
Accrued expenses...................................................... 1,578 1,284
---------- ----------
Total current liabilities........................................... 12,520 8,300
Deferred revenue........................................................ 1,042 2,546
Long term debt, less current portion.................................... 9,686 11,024
Capital lease obligation, less current portion.......................... 7,152 441
Other long term liabilities, less current portion....................... 600 557
---------- ----------
Total liabilities................................................... 31,000 22,868
========== ==========
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, authorized shares--30,000,000;
issued and outstanding shares--14,776,732 ; 13,762,732 respectively.. 148 138
Additional paid-in capital............................................ 61,087 57,067
Cumulative translation adjustment..................................... (2,345) (2,132)
---------- ----------
Deficit accumulated during development stage.......................... (43,802) (36,293)
---------- ----------
Total stockholders' equity......................................... 15,088 18,780
---------- ----------
Total liabilities and stockholders' equity......................... $46,088 $41,648
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
June 18, 1992
(date of
inception)
Three Months Ended Six Months Ended through
June 30, June 30, June 30,
1998 1997 1998 1997 1998
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Cooperation & license revenues............................... $ 1,001 $ 1,011 $ 1,001 $ 1,718 $ 26,211
Product sales................................................ 66 255 87 428 2,468
Other revenues............................................... 311 47 1,543 720 5,481
-------- -------- -------- -------- ------------
Total revenues............................................ 1,378 1,313 2,631 2,866 34,160
-------- -------- -------- -------- ------------
Cost of revenues
License fees and royalties................................... (122) (61) (201) (61) (1,741)
-------- -------- -------- -------- ------------
Gross margin................................................... 1,256 1,252 2,430 2,805 32,419
-------- -------- -------- -------- ------------
Operating expenses
Research and development:
Acquisition of intellectual property rights.................. -- -- (125) -- (4,890)
Other........................................................ (4,553) (3,904) (8,353) (8,078) (61,592)
-------- -------- -------- -------- ------------
(4,553) (3,904) (8,478) (8,078) (66,482)
Marketing & sales............................................ (354) (402) (693) (782) (5,867)
Administrative & general expenses............................ (586) (682) (1,223) (1,288) (11,524)
-------- -------- -------- -------- ------------
(5,493) (4,988) (10,394) (10,148) (83,873)
-------- -------- -------- -------- ------------
Loss from operations........................................... (4,237) (3,736) (7,964) (7,343) (51,454)
Other income / (expense)
Interest income / (expense).................................. (174) 211 (254) 342 555
Foreign exchange gains / (losses)............................ 424 67 709 (171) 1,363
-------- -------- -------- -------- ------------
250 278 455 171 1,918
Loss before income tax benefit................................. (3,987) (3,458) (7,509) (7,172) (49,536)
Income tax benefit............................................. -- -- -- -- 5,734
-------- -------- -------- -------- ------------
Net loss....................................................... $(3,987) $(3,458) $ (7,509) $ (7,172) $(43,802)
======== ======== ======== ======== ============
Net loss per share........................................... $ (0.27) $ (0.25) $ (0.53) $ (0.57)
======== ======== ======== ========
Shares used in computing net loss per share.................. 14,777 13,750 14,301 12,468
</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)
SIX MONTHS ENDED THROUGH
JUNE 30, JUNE 30,
------------------------ ----------------
1998 1997 1998
----------- ---------- ----------------
<S> <C> <C> <C>
Net loss................................................... $ (7,509) $(7,172) $(43,802)
Total adjustments to net loss.............................. 4,421 1,686 18,047
---------- --------- ----------
Net cash (used in) / provided by operating activities...... (3,088) (5,486) (25,755)
---------- --------- ----------
INVESTING ACTIVITIES
Additions to property plant and equipment.................. (602) (257) (18,062)
Reclassification of cash available as restricted cash...... -- -- (10,080)
Additions to intangible assets............................. -- -- (130)
---------- --------- ----------
Net cash used in investing activities...................... (602) (257) (28,272)
FINANCING ACTIVITIES
Stock issued............................................... 3 ,980 21,635 59,578
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............................................... (2,607) (718) (7,990)
---------- --------- ----------
Net cash provided by financing activities.................. 1,373 20,917 66,900
---------- --------- ----------
Effect of exchange rates on cash........................... (229) (1,087) (2,991)
---------- --------- ----------
Net increase in cash and cash equivalents.................. (2,546) 14,087 9,882
Cash and cash equivalents beginning of period.............. 12,428 4,266 --
---------- --------- ----------
Cash and cash equivalents end of period.................... $ 9,882 $18,353 $ 9,882
========== ========= ==========
</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
------ AMOUNT ------ AMOUNT ------ AMOUNT ------ AMOUNT
ISSUED ------- ISSUED ------- ISSUED ------- ISSUED -------
------ ------ ------ ------
<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 -- $ 20 (unaudited)...
Issuance of Common stock under stock option
plan (unaudited).............................
Translation adjustment (unaudited)...........
Net loss--Six Months ended June 30, 1998
(unaudited)................................
---------- ------ -------- ------ ---------- ------ -------- ------
BALANCE AT JUNE 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>
COMMON STOCK
------------------
DEFICIT
-------
ACCUMULATED
-----------
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 costs in 1992, 1993 and
1994....................................... $12,796
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 -- $ 20 (unaudited).... 1,014,000 10 4,020 4,030
Issuance of Common stock under stock option
plan (unaudited)..............................
Translation adjustment........................ (213) (213)
Net loss--Six Months ended June 30, 1998
(unaudited)................................. (7,509) (7,509)
---------- ---- ------- ------- -------- -------- --------
BALANCE AT JUNE 30, 1998 14,776,732 $148 $61,087 $(2,345) $(43,802) $15,088
</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 six-month periods ending
June 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 1/24/th/ of the initial amount at the end of each
quarter, starting after June 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 at June 30, 1998, the
portion of the equipment leased to PixTech amounts to $10,596.
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 amount of $10,596. No depreciation has
been recorded as the equipment is still in process of being qualified for volume
production. As at June 30, 1998, the related capital lease obligation amounts
to $8,527, of which $1,660 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 $20.
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--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 six-month periods ended
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
COMPREHENSIVE LOSS : SIX MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
Net loss $(7,509) $(7,172)
Change in cumulative translation adjustment (213) (1,185)
------- -------
Comprehensive net loss $(7,722) $(8,357)
</TABLE>
<PAGE>
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
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 $1.0 million in each of the three-month periods ended June
30, 1998 and 1997. These revenues represented the achievement by the Company of
contractual milestones with certain licensees.
The Company recorded cooperation and license revenues under these agreements of
$1.0 million in the six-month period ended June 30, 1998, as compared to $1.7
million in the six-month period ended June 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 $87,000 in the six-month
period ended June 30, 1998, as compared to $428,000 in the six-month period
ended June 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 six-month periods ended June 30, 1997 and June 30, 1998, the average
selling price was reduced as most displays sold during the first six 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 expected
volume source of manufacturing by Unipac, which is not expected to begin until
the end of 1998.
Other revenues. Other revenues is comprised of funding under French or European
Union development contracts and other miscellaneous revenues. The Company
recognized other revenues of $311,000 in the three-month period ended June 30,
1998, as compared to $47,000 in the three-month period ended June 30, 1997. In
the three-month period ended June 30, 1998, these revenues consisted mainly of
recognition of miscellaneous grants. Other revenues amounted to $1.5 million in
the six-month period ended June 30, 1998, as compared to $720,000 in the six-
month period ended June 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 six-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 six-month period ended June 30, 1998.
Research and Development Expenses--Acquisition of Intellectual Property Rights.
The Company expensed $125,000 in the six-month period ended June 30, 1998 for
the acquisition of intellectual property rights from
<PAGE>
Coloray Display Corporation (see "Notes to Condensed Consolidated Financial
Statements -- Note E -- Private Placements").
Other Research and Development Expenses. The Company expensed $4.6 million for
research and development costs during the three-month period ended June 30,
1998, an increase of 18% over the $3.9 million of research and development
expenses incurred in the three-month period ended June 30, 1997. These expenses
include obligations to the French atomic energy agency ("CEA") under the "LETI"
Research Agreement (Laboratoire d'Electronique, de Technologie et
d'Instrumentation), 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 $8.4 million
for the six-month period ended June 30, 1998, as compared to $8.1 million during
the six-month ended June 30, 1997.
Sales and Marketing Expenses. The Company expensed $354,000 for sales and
marketing during the three-month period ended June 30, 1998, as compared to
$402,000 during the three-month period ended June 30, 1997, reflecting a one-
time decrease in staff expenses. The Company believes sales and marketing
expenses may increase in the future, as potential customers and anticipated
shipments of FED displays develop. In July 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 $693,000 for the six-month period ended June 30, 1998, as
compared to $782,000 during the six-month period ended June 30, 1997.
General and Administrative Expenses. General and administrative expenses
amounted to $586,000 in the three-month period ended June 30, 1998, an decrease
of 14% over general and administrative expenses incurred in the three-month
period ended June 30, 1997, which amounted to $682,000, reflecting an decrease
in consulting fees.
<PAGE>
STRATEGIC ISSUES AND RISKS
The Company is focused on the continued development of the FED technology,
the improvement of manufacturing yields, the successful implementation of
contract manufacturing of FEDs with its Asian contract manufacturer, Unipac, and
the reliability testing of new products which the Company expects will lead to
the shipment of commercial products in the near future. In evaluating this
outlook, the following risks and issues, among others, which are common with
development stage companies, should be considered.
Risks Associated with Contract Manufacturing of FEDs. The Company believes
that its ability to commercialize medium to large volumes of FEDs is highly
dependent on its ability to have FEDs manufactured by Unipac. In May 1997, the
Company signed a Foundry Agreement with Unipac, an AMLCD manufacturer based in
Taiwan. Under the agreement, Unipac has installed volume production equipment
to produce FEDs at its manufacturing plant, and is beginning production for
exclusive delivery of FED displays to PixTech. Expectations about the final
timing of this manufacturing plan with Unipac are forward-looking statements
that still involve risks and uncertainties, including the ease or difficulty of
the transfer of the FED technology to Unipac. If such manufacturing plans are
not implemented on a timely basis, the Company will not be able to ship medium
to large volumes of FED products, or to obtain a commercially acceptable cost
for its FED displays. If the Company is unable to have its FED manufactured in
a cost effective manner, the Company would be materially adversely affected.
Significant capital expenditure is required in order to install, at the contract
manufacturers' facility, equipment that is not common to the AMLCD manufacturing
process. A total amount of $16.5 million of capital expenditures is expected to
be required which, pursuant to the Foundry Agreement, will be purchased and
funded by Unipac, and a portion of that equipment will be leased to PixTech.
The amount actually expended on capital expenditures could vary significantly
depending upon numerous factors, including the inherent unpredictability of the
total amount of a large scale capital expenditure program. Should the Company be
successful in implementing this contract manufacturing relationship, the
Company's reliance on a single contract manufacturer will involve several risks,
including a potential inability to obtain an adequate supply of required
products, and reduced control over the price, timeliness of delivery,
reliability and quality of finished products. Any inability to manage this
contract manufacturing relationship or any circumstance that would cause the
Company to delay the shipment of its products would have an adverse effect on
the Company.
Products and Manufacturing Processes under Development, Need to Obtain
Commercial Yields, Costs of Products. The Company's products and its
manufacturing processes are in the development stage. The Company has to date
encountered a number of delays in the development of its products and
manufacturing processes. No assurance can be given that further delays will not
occur. The Company does not plan to increase production from its pilot facility
beyond low volume levels. The Company believes that contract manufacturing with
Unipac (see "Risks Associated with Contract Manufacturing of FEDs") will make it
possible to manufacture volume quantities of FEDs at commercially acceptable
costs. However, moving from pilot production to volume production involves a
number of steps and challenges. In particular, in order to demonstrate the low
cost potential of its FED technology, the Company will need to improve its
manufacturing yields. There can be no assurance that the Company will be able to
implement processes for the manufacture of volume quantities of FED products at
commercially viable cost levels or on a timely basis. If such processes are not
successfully implemented, the Company would be adversely affected.
<PAGE>
Display Performance Enhancement. Key elements of display performance are
brightness, and stability over time (life time and reliability), as well as
power efficiency. PixTech is seeking to balance luminous efficiency with power
efficiency to produce bright and low power-consumption displays. Display
reliability is heavily dependent upon the manufacturing process used in
assembling the displays as well as upon the characteristics of the phosphors
used on the anode. In order to produce color displays that will provide the
product life necessary for most applications, the Company needs to make further
advances in manufacturing processes. There can be no assurance that the Company
will be able to improve the reliability and life time of its color FEDs to
achieve commercially acceptable performance, or on a timely basis. If such
displays performance enhancements are not successfully completed, the Company
could be adversely affected.
Cooperation and license revenues. To date, the Company has recorded most of
the expected revenues associated with the achievement of contractual milestones
under certain license agreements. Future cooperation and license revenues are
mostly subject to execution, by the Company, of cooperation and/or license
agreements with third parties that are not existing licensees. Theses
agreements may be subject to certain restrictions, such as geographic location
and number of such third-parties. Should the Company succeed in concluding such
agreements, a portion of the revenues from such contracts could be shared with
the existing licensees. Failure to conclude new royalty-bearing licenses or
cooperation agreements could adversely affect the Company.
In addition, the Company will only recognize royalty revenues under
cooperation and license agreements with existing or future licenses to the
extent that any such licensees incorporate licensed technology into products
that are successfully commercialized. There can be no assurance that any such
licensees will successfully develop or commercialize any such products. The
Company believes that one of its existing licensees, Raytheon Company, may have
suspended its internal program to develop FEDs.
Competition and Competing Technologies. The market for flat panel display
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, as some of the basic FED technology is in the public
domain, the Company has a number of potential direct competitors developing FED
displays. 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, the Company could 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.
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.
In addition, because of the developmental stage of the Company, 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. While there is currently no pending intellectual property
litigation against the Company, the Company receives from time to time notices
of potential infringement of third party rights and there can be no assurance
that third parties will no assert claims against the Company with respect to
existing or future products or that licenses will be available on reasonable
terms, or at all, with respect to any third-party technology. In the event of
litigation to determine the validity of any third-party claims, such litigation
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not such litigation is
determined in favor of the Company. In the event of an adverse result in any
such litigation, the Company could be required to pay substantial amounts in
damages and to cease selling the infringing product unless and until the Company
is able to develop non-infringing technology or to obtain licenses to the
technology which was the subject of the litigation. There can also be no
assurance that competitors will not infringe the Company's patents. 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 alleging the following: (i) PixTech is infringing one or more patents
owned by Futaba that are not 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 Unipac disclosed certain Futaba
proprietary information to a third party vendor. PixTech is consulting with
Unipac on this matter.
<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 "Year
2000" issue, and has developed an implementation plan to resolve the issue.
Management does not expect these costs to have a significant impact on its
financial position or results of operations.
FINANCIAL CONDITION
Cash used in operations was $3.1 million for the six-month period ended June 30,
1998, as compared to cash used in operations of $5.5 million for the six-month
period ended June 30, 1997.
The Company has used $25.8 million in cash to fund its operating activities from
inception through June 30, 1998 and has incurred $28.2 million in capital
expenditures and investments.
Cash flows generated from financing activities were $1.4 million in the six-
month period ended June 30, 1998, as compared to $20.9 million in the six-month
period ended June 30,1997.
These 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 $2.6 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 $602,000 during the six-month period ended June 30,
1998 as compared to $257,000 during the same period of 1997. During the six-
month period ended June 30, 1998, capital expenditures remained focused on
limited capacity expansion in the pilot manufacturing facility. Implementing
volume production at Unipac's manufacturing plant requires significant capital
expenditures. An amount of $16.5 million of capital expenditures is expected to
be required which, pursuant to the Foundry Agreement, is purchased and funded by
Unipac. The written bank guaranty provided by the Company to Unipac is expected
to be increased from $10.0 million to $13.5 million.
The Company has existing contracts with two different French ministries
providing for the payment of grants to the Company totaling approximately $4.1
million, of which the Company has collected an aggregate amount of $3.4 million
through June 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 in 1997 from this contribution, which were not
recognized as income in 1997 as all conditions stipulated in the agreement were
not met.
Cash available at June 30, 1998 amounted to $9.9 million as compared to $12.4
million at December 31, 1997. The Company expects that cash available at June
30, 1998 together with anticipated proceeds from the various grants
<PAGE>
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 in the amount of $4.5 million at June 30, 1998, for at
least six 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.
June 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.
June 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: August 10, 1998 BY: /s/ Jean-Luc Grand-Clement
---------------------------
Jean-Luc Grand-Clement
Chief Executive Officer
<PAGE>
PIXTECH, INC.
June 30, 1998
EXHIBIT INDEX
Exhibit No.
- -----------
27 Financial Data Schedule
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<PERIOD-START> APR-01-1998
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