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 ending September 30, 2001
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 incorporation or (IRS Employer Identification No.)
organization)
Avenue Olivier Perroy, 13790 Rousset, France
2700 Augustine Drive, Suite 255, Santa Clara, CA 95054
- --------------------------------------------------------------------------------
(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 November 13, 2001
----- --------------------------------
Common Stock, $.01 par value 56,129,792
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
PIXTECH, INC.
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TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000.................................................... 3
Condensed Consolidated Statements of Comprehensive Operations for
the Three-Month Period and Nine-Month Period Ending September 30,
2001 and 2000, and the period from June 18, 1992 (date of inception) 4
through September 30, 2001...........................................
Condensed Consolidated Statements of Cash Flows for the Nine-Month
Period ending September 30, 2001 and 2000, and the period from June
18, 1992 (date of inception) through September 30, 2001.............. 5
Condensed Consolidated Statements of Stockholders' Equity (Net
Capital Deficiency).................................................. 6
Notes to Condensed Consolidated Financial Statements................. 7 - 11
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 12 - 17
ITEM 3 Quantitative and Qualitative Disclosures Regarding Market Risk....... 18
PART II OTHER INFORMATION
ITEM 2 Changes in Securities................................................ 19
ITEM 6 Exhibits and Reports on Form 8-K..................................... 20
Signature............................................................................. 21
Exhibit index.......................................................................... 22
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 2/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents available.................................... $ 5,117 $16,847
Restricted cash - short term........................................... 625 833
Accounts receivable
Trade................................................................ 107 148
Other................................................................ 717 596
Inventories
Raw Materials........................................................ 600 575
Finished Goods....................................................... 166 41
Other current assets................................................... 903 737
------- -------
Total current assets................................................ 8,235 19,777
Restricted cash - long term............................................. -- 417
Property, plant and equipment, net...................................... 11,939 19,014
Goodwill, net........................................................... -- 6
Other assets - long term................................................ 502 502
------- -------
Total assets........................................................ $20,676 $39,716
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities
Current portion of long term debt..................................... $ 595 $ 1,146
Current portion of capital lease obligations.......................... 429 157
Accounts payable...................................................... 9,273 7,885
Accrued expenses...................................................... 1,791 1,612
--------- ---------
Total current liabilities........................................... 12,088 10,800
Deferred research and development funding............................... 1,808 580
Long term debt, less current portion.................................... 3,161 2,962
Capital lease obligation, less current portion.......................... 4,528 5,133
Other long term liabilities, less current portion....................... 37 37
Total liabilities................................................... 21,622 19,512
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Convertible preferred stock Series E, $0.01 per value, authorized
shares--1,000,000 ; issued and outstanding shares-- none and 22,095
respectively......................................................... -- 1
Common Stock, $0.01 per value, authorized shares--100,000,000 ;
issued and outstanding shares--56,129,792 and 55,682,464
respectively.......................................................... 561 557
Additional paid-in capital............................................. 132,054 131,983
Cumulative other comprehensive income.................................. (4,088) (4,076)
Deficit accumulated during development stage........................... (129,473) (108,261)
--------- ---------
Total stockholders' equity (net capital deficiency).................. (946) 20,204
--------- ---------
Total liabilities and stockholders' equity (net capital
deficiency)......................................................... $ 20,676 $ 39,716
========= =========
See accompanying notes.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 3/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts)
(UNAUDITED)
Period from
Three Nine June 18, 1992
Months Months (date of
Ending Ending inception)
September 30, September 30, through
--------------------- --------------------- Sept. 30,
2001 2000 2001 2000 2001
---------- --------- --------- -------- -----------
Revenues
Cooperation and license revenues....................... $ -- $ -- $ -- $ -- $ 26,449
Product sales.......................................... 40 -- 136 217 3,777
------- -------- ------- -------- --------
Total revenues...................................... 40 -- 136 217 30,226
------- -------- ------- -------- --------
Operating expenses
License fees and royalties......................... -- (73) (3) (255) (2,190)
Restructuring costs and other non recurring charges (3,377) -- (3,377) -- (3,377)
Research and development:
Acquisition of intellectual property rights.... -- -- -- (57) (5,022)
Other.......................................... (4,296) (6,160) (16,143) (17,961) (128,543)
------- -------- ------- -------- --------
(4,296) (6,160) (16,143) (18,018) (133,565)
Marketing and sales.................................... (235) (269) (711) (840) (9,702)
Administrative and general expenses.................... (690) (645) (2,178) (2,142) (20,746)
------- -------- ------- -------- --------
(8,598) (7,147) (22,412) (21,255) (169,580)
------- -------- ------- -------- --------
Loss from operations..................................... (8,558) (7,147) (22,276) (21,038) (139,354)
Other income / (expense)
Interest income........................................ 58 389 377 1,001 5,322
Interest expense....................................... (77) (101) (242) (544) (5,258)
Foreign exchange (losses) / gains...................... 64 (5) 196 327 1,003
Other revenues......................................... (14) 57 43 74 231
------- -------- ------- -------- --------
31 340 374 858 1,298
Loss before income tax benefit........................... (8,527) (6,807) (21,902) (20,180) (138,056)
Income tax benefit....................................... -- -- 690 -- 8,583
------- -------- ------- -------- --------
Net loss................................................. $(8,527) $(6,807) $(21,212) $(20,180) $(129,473)
======= ======= ======= ======== =========
Dividends accrued to holders of Preferred Stock........ -- (9) (5) (106) (646)
------- -------- ------- -------- --------
Net loss to holders of Common Stock...................... $(8,527) $(6,816) $(21,217) $(20,286) $(130,119)
======= ======= ======= ======== =========
Net loss per share of Common Stock..................... $(0.15) $(0.12) $(0.38) $(0.41)
======= ======= ======= ========
Shares of Common Stock used in computing net loss per 56,114 54,922 55,914 49,089
share.................................................
Net loss............................................... $(8,527) $(6,807) $(21,212) $(20,180) $(129,473)
Change in other comprehensive income................... (175) (308) (12) (1,123) (4,088)
------- -------- ------- -------- --------
Comprehensive net loss................................. $(8,702) $(7,115) $(21,224) $(21,303) $(133,561)
======= ======= ======= ======== =========
See accompanying notes.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 4/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(UNAUDITED)
PERIOD FROM
JUNE 18, 1992
(DATE OF
NINE MONTHS ENDING INCEPTION)
SEPTEMBER 30, THROUGH
------------------------ SEPTEMBER 30,
2001 2000 2001
------------ --------- --------------
Net loss.................................................... $(21,212) $(20,180) $(129,473)
Total adjustments to net loss............................... 11,280 10,287 54,269
-------- ------- --------
Net cash used in operating activities....................... (9,932) (9,893) (75,204)
-------- ------- --------
INVESTING ACTIVITIES
Additions to property, plant, and equipment................. (923) (1,862) (23,326)
Reclassification of restricted cash as cash available....... 624 6,041 (775)
Additions to intangible assets.............................. -- -- (130)
-------- ------- --------
Net cash provided by / (used in) investing activities....... (299) 4,179 (24,231)
FINANCING ACTIVITIES
Stock issued................................................ -- 19,238 112,333
Proceeds from long-term borrowings.......................... 28 248 19,056
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................................................ (344) (4,803) (20,073)
-------- ------- --------
Net cash provided by used in financing activities........... (316) 14,683 110,341
-------- ------- --------
Effect of exchange rates on cash............................ (1,183) (2,301) (5,789)
-------- ------- --------
Net increase / (decrease) in cash and cash equivalents...... (11,730) 6,668 5,117
Cash and cash equivalents beginning of period............... 16,847 14,663 --
-------- ------- --------
Cash and cash equivalents end of period..................... $ 5,117 $ 21,331 $ 5,117
======== ======== ========
See accompanying notes.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 5/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Stockholders' Equity (Net Capital Deficiency) (in thousands, except share amounts)
Convertible Dividends Deficit
Preferred Stock Common Stock accrued to Other accumulated
--------------- ------------------- Additional holders of Compre- during
Shares Shares Paid-in Preferred hensive development
issued Amount issued Amount Capital Stock Income stage Total
-------- ------- ----------- --------- ---------- ---------- -------- ----------- --------
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
- -- $ 44 1,236,222 12 4,493 4,506
Issuance of Series E convertible
preferred stock, net of issuance
costs -- $ 822 367,269 $ 4 7,449 (12) 7,440
Issuance of Series E
convertible preferred stock in
December, net of issuance costs --
$ 822
Issuance of common stock under
stock option plan 1,375 1 1
Translation adjustment 392 392
Net loss--Year ended December 31, (17,863) (17,863)
1998
--------------------------------------- ------------------------------------------------------
Balance at December 31, 1998 367,269 $ 4 15,000,329 $151 $69,012 $(12) $(1,740) $ (54,156) $ 13,257
Common stock issued in private 150,000 2 350 352
placements
Issuance costs and dividends
accrued in relation to Series E
convertible preferred stock issued (36) (512) (548)
in December 1998
Conversion of Series E preferred (70,000) $(1) 1,114,220 11 (10)
stock
Issuance of common stock in
connection with the acquisition of
certain assets of Micron Display, 7,133,562 71 14,134 14,205
net of issuance costs -- $511
Issuance of warrants 297 297
Issuance of common stock
following conversion of Sumitomo 750,000 8 1,081 1,088
convertible loan
Issuance of common stock under
stock option plan 137,217 1 72 73
Issuance of common stock in
connection with Equity Line
Kingsbridge, net of issuance 624,809 6 818 824
costs -- $176
Issuance of common stock in
connection with private placement, 12,427,146 124 19,839 19,963
net of issuance Costs -- $36
Issuance of common stock in
connection with Coloray 14,000 1 50 51
Translation adjustment (1,249) (1,249)
Net loss--Year ended December 31,
1999 (28,428) (28,428)
--------------------------------------- ------------------------------------------------------
Balance at December 31, 1999 297,269 $ 3 37,351,283 $ 376 $105,606 $ (525) $ (2,989) $ (82,584) $ 19,885
Dividends accrued in relation to
Series E convertible Preferred 450 450
Stock issued in December 98
Conversion of Series E (275,174) (3) 4,195,254 42 (38) 1
Preferred Stock
Issuance of common stock
following conversion of Sumitomo 2,126,246 21 3,890 3,912
convertible loan
Issuance of common stock
following conversion of Sumitomo 385,549 4 2,496 2,500
straight loan
Issuance of common stock in
connection with Kingsbridge Equity 2,003,295 20 4,785 4,805
Line, net of issuance costs of $195
Issuance of common stock in
connection with Coloray 16,000 -- 57 57
Issuance of common stock in
connection with private placement, 9,320,359 93 14,893 14,987
net of issuance costs -- $13
Issuance of common stock under
stock option plan 284,478 3 368 370
Translation adjustment (1,087) (1,087)
Net loss--Year ended December 31,
2000 (25,678) (25,678)
--------------------------------------- ------------------------------------------------------
Balance at December 31, 2000 22,095 $ 1 55,682,464 $557 $132,058 $(75) $(4,076) $(108,261) $ 20,204
Dividends accrued in relation to
Series E convertible Preferred (5) (5)
Stock issued in December 98
(unaudited)
Conversion of Series E Preferred
Stock (unaudited) (22,095) (1) 445,328 4 (5) 80 77
Issuance of common stock under
stock option plan 2,000 0 1 2
(unaudited)
Translation adjustment (unaudited) (12) (12)
Net loss--Nine months ended
September 30, 2001 (unaudited) (21,212) (21,212)
--------------------------------------- ------------------------------------------------------
Balance at September 30, 2001 -- $-- 56,129,792 $ 561 $132,054 $ -- $(4,088) $(129,473) $ (946)
-- ---- ---------- ----- -------- ---- ------- --------- --------
(Unaudited)
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 6/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE A - BASIS OF PRESENTATION
The financial information as of September 30, 2001, and for the three-month
and nine-month periods ended September 30, 2001 and 2000, is unaudited but
includes all adjustments that are of a normal recurring nature and, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the presented periods. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results of the three-month period ended September 30, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ending December 31, 2000
included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 2001.
Certain reclassifications have been made to the December 31, 2000 Condensed
Consolidated Balance Sheet to conform to the September 30, 2001 presentation.
Beginning in the quarter ended September 30th, 2001, we classified the
proceeds received from the DARPA contract and other research and development
arrangements as a reduction of research and development expenses. Prior period
amounts have been reclassified to conform to the current presentation. This
change has no effect on our loss from operations and net loss for the periods
presented.
NOTE B - RESTRICTED CASH
In August 1997, we provided AU Optronics ("Unipac"), our Asian manufacturing
partner, with a written bank guaranty in the amount of $10,000 pursuant to the
display foundry agreement (the "Foundry Agreement") signed in May 1997 in order
to implement volume production of field emission displays at Unipac's
manufacturing facility. We granted the issuing banks a security interest in 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 on the balance
sheet.
In March 2000, pursuant to an agreement dated December 17, 1999 with Unipac,
the guaranty was reduced by $5,000 in consideration of a payment in cash of the
same amount to Unipac. Pursuant to the terms of this agreement, this $5,000
payment will be considered as a prepayment against our future payments to Unipac
concerning the equipment leased by Unipac to us. Consequently, the amount of the
security interest to the banks was reduced to $625 at September 30, 2001 (see
note D - capital leases).
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Pursuant to the Foundry Agreement, volume FED production equipment was
installed at
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 7/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
Unipac's facility. That equipment was purchased and funded by Unipac, and a
portion of it is leased to us. This portion amounted to $10,381 at September 30,
2001. According to Financial Accounting Standard 13, "Accounting for Leases",
this equipment was recorded as an asset under the caption "Property, Plant and
Equipment, net" and amounted to $4,934 at September 30, 2001. Depreciation of
$1,266 was recorded during the nine-month period ended September 30, 2001. As of
September 30, 2001, the related capital lease obligation amounted to $4,922, of
which $393 is classified as short term.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 8/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
Note D - Capital Leases
We are party to certain sale-leaseback transactions for equipment used in our
pilot production plant in Montpellier, France, and, pursuant to the Foundry
Agreement, a portion of volume field emission displays production equipment
installed at Unipac's facility is leased to us. Pursuant to Financial Accounting
Standard 13, "Accounting for Leases", a capital lease obligation was recorded in
1998. In March 2000, the related capital lease obligation was reduced by $5,000
following the prepayment of the same amount made in cash to Unipac and amounted
to $4,922 at September 30, 2001 (see note B--restricted cash and note C--
property, plant and equipment).
Future minimum payments under capital lease obligations at September 30, 2001
are as follow:
YEARS ENDING DECEMBER 31,
2001................................................................ $ 36
2002................................................................ 958
2003................................................................ 1,962
2004................................................................ 2,234
------
Total minimum payments.............................................. 5,191
Less amount representing interest................................... (234)
------
Present value of minimum capitalized lease payments................. $4,957
======
NOTE E - LONG TERM DEBT
During the nine-month period ended September 30, 2001, long term debt was
reduced by $352. The reduction was mainly due to the payment to Heller Financial
of our last maturity and to the strengthening of the US dollar against the Euro.
Because all our remaining debts are expressed in Euros, the strengthening of the
dollar decreases our obligations.
Long-term debt consists of certain loans payable under which future minimum
payments, at September 30, 2001, are as follow:
Years ending December 31,
2001................................................................ $ 0
2002................................................................ 595
2003................................................................ 89
2004................................................................ 596
2005................................................................ 1,870
2006................................................................ 606
------
Total minimum payments $3,756
======
NOTE F - STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
In the nine-month period ended September 30, 2001, we issued an aggregate
of 445,328 shares of Common Stock upon the conversion of an aggregate of 22,095
shares of Series E Preferred Stock at an average conversion price of $1.60938.
These shares of Series E Preferred Stock were convertible into shares of Common
Stock using a conversion price equal to the lesser of approximately $1.60938 per
share of Common Stock or the average closing price of our
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 9/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
Common Stock over the ten trading days immediately preceding the notice of
conversion. At September 30, 2001, there were no shares of Series E Preferred
Stock outstanding.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 10/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTE G - RESEARCH AND DEVELOPMENT
Research and development costs are presented net of funding received under the
DARPA contract and other research and development arrangements of $1,172 and 854
for the three months ended September 30, 2001 and 2000, respectively; and net of
3,605 and 4,767 for the nine months ended September 30, 2001 and 2000,
respectively.
NOTE H - RESTRUCTURING COSTS AND OTHER NON-RECURRING CHARGES
During the third quarter of 2001, we announced the plan to consolidate
operations and close our Boise, Idaho facility. Included in the "restructuring
costs and other non-recurring charges" in the accompanying condensed
consolidated statement of comprehensive operations for the nine months ended
September 30, 2001 are the following:
Contract termination penalties...................................... $ 217
Employee severance cost............................................. 177
Write-off of inventory.............................................. 157
Write-off of assets that will no longer be used..................... 2,700
Other restructuring and non-recurring charges....................... 126
------
Total minimum payments $3,377
======
Contract termination penalties represent losses related to incremental costs and
contractual obligations for facility exit costs incurred as a direct result of
the closing of the plant. The $177,000 of employee severance cost consists of
cash compensation to 62 people. Also included is the write-off of inventory and
long-lived assets that will not be transferred to other facilities.
NOTE I - FINANCIAL POSITION
During the three-month period ended September 30, 2001, we have continued to
experience losses and have used cash in operating activities of $9,932. As of
September 30, 2001, we had a net working deficit of $9,141 and a deficit
accumulated during the development stage of $129,473 resulting in a net capital
deficiency of $946 as of September 30, 2001.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 11/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements reflecting management's
current expectation regarding our future financial performance, the impact of
the closing of our Boise, Idaho facility on our cash burn rate and our
production process and the projected costs of the Boise facility closing. Such
expectations are based on certain assumptions and involve risks and
uncertainties. These uncertainties include, but are not limited to, the risk
associated with transitioning to high volume manufacturing of field emission
display at Unipac, product demand and market acceptance risks, the commitment of
Unipac and/or of our licensees, our ability to grant other licenses under field
emission display technology, the validity and enforceability of our patent
rights, possible infringement by us of patent rights of others, the impact of
competitive products and prices, product development risks, commercialization
difficulties and technological delays or difficulties. See also "Outlook: Issues
and Risks" described more fully in our Annual Report on Form 10-K for year ended
December 31, 2000 (pages 18 to 23) filed with the Securities and Exchange
Commission on March 30, 2001.
RECENT EVENTS
On July 30, 2001, we announced a restructuring plan to optimize our
manufacturing and research and development processes and to decrease operating
expenses. As planned by the end of September 2001, we consolidated our
operations, closed the Boise, Idaho facility and reduced our workforce to
approximately 130 people. The restructuring costs were approximately $3.4
million, including $2.7 million of non-cash asset write-offs. We estimate that
the cash burn rate will be reduced by approximately 23%, and that the quarterly
savings will be $1.5 million.
On July 12, 2001, we received a letter from the Nasdaq Stock Market, Inc.,
notifying us of our failure to maintain a minimum bid price of $1.00 per share
during the preceding 30 consecutive business days as required by Nasdaq's
Marketplace Rule 4450(a)(5). The letter stated that we must demonstrate
compliance with Nasdaq's minimum bid rule by October 10, 2001, and that if we
were not in compliance by that date, Nasdaq would notify us that our common
stock would be delisted from the Nasdaq National Market. On September 27, 2001,
in response to the extraordinary market conditions following the tragedy of
September 11th, the Nasdaq Stock Market implemented an across-the-board
moratorium on the minimum bid and public float requirements for continued
listing on Nasdaq. The proposal to suspend these requirements until January 2,
2002, was approved on September 26, 2001 by the Nasdaq Board of Directors.
In connection with the License Agreement between PixTech and CEA dated
September 17, 1992, PixTech has withheld certain royalty payments that may have
been due to CEA under the License Agreement because we believe that the CEA made
certain misrepresentations to PixTech. On September 27, 2001, we received a
writ of summons indicating that CEA had initiated an action in the courts of
France seeking FRF 8,580,049 (approximately $1.2 million). The first hearing in
this matter is scheduled for December 17, 2001. In addition, CEA gave notice to
us that CEA intends to terminate the License Agreement effective October 23,
2001. For the reason stated above, PixTech considers that the amounts sought by
CEA are not due. We have retained French counsel to represent us in this
matter. We and our French
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 12/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
counsel also believe that the termination provision invoked by CEA has been
invoked in bad faith and, as a result, should not apply under French law. On
October 19, 2001, we and our French counsel obtained a court order in France
preventing CEA from invoking the termination clause through December 31, 2001.
On August 20, 2001, Dieter Mezger, our President, Chief Executive Officer
and Director, died suddenly. Ronald J. Ritchie, Director, has been elected to
serve as Interim Chief Executive Officer until a permanent replacement is named.
RESULTS OF OPERATIONS
Product Sales
-------------
We recognized product sales of $136,000 in the nine-month period ended
September 30, 2001 as compared to $217,000 in the nine-month period ended
September 30, 2000. In the three-month period ending September 30, 2001 product
revenues were $40,000 while no product revenue was reported in the same period
last year. In the three-month period ended September 30, 2001, 50% of our
product sales are related to 5.2-inch gray scales video interface displays we
sold to ECM who integrates PixTech's field emission displays in its mobile
veterinary ultrasound scanner and 20% are related to sales of 5.2 inch
monochrome digital interface displays to Weldon Technology, a U.S.-based
customer. In the same period last year, product revenues primarily consisted of
shipments of displays sold to Zoll Medical Corporation.
Restructuring costs and other non recurring expenses
----------------------------------------------------
In relation with our restructuring, in the third quarter of 2001 we accrued
for costs totaling $3,377,000, which includes all cash and non-cash charges
which management considers necessary to implement our restructuring plan. Of the
total restructuring charge, $2,700,000 is related to fixed asset write downs;
$217,000 is related to contract penalties; $177,000 is related to employee
severance packages; $157,000 is related to inventory write downs, and $126,000
represents facility exit costs incurred as a direct result of the closing the
facility.
Other Research and Development Expenses
---------------------------------------
We spent $16.1 million for research and development during the nine-month
period ended September 30, 2001 as compared to $18.0 million in the same period
of 2000; we spent $4,296,000 in the quarter ended September 30, 2001 compared to
$6,160,000 in the same period last year. These decreases of 10% and 30% are in
relation with lower depreciation costs, as major equipment in our pilot plant in
Montpellier acquired in 1994 and 1995 is now fully amortized, as well as changes
in the funding received related to research and development contracts. We have
also experienced decreased facility rental costs and property taxes.
We recognized reductions in research and development expenses of $3,405,000
for the nine-month period ended September 30, 2001, as compared to $4,767,000 in
the same period of 2000. Reductions of research and development expenses were
$1,172,000 in the third quarter of 2001, and $854,000 in the same period last
year. Of these amounts, in the nine-month period ended September 30, 2001,
$1,149,000 was related to a development contract awarded to us by DARPA (Defense
Advanced Research Projects Agency) in August 1999 and for which we had received
additional funding commitments in April 2000 and January 2001. In April 2000, we
began development efforts on a 12.1-inch color field emission display for DARPA
of which we
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 13/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
have received $6,539,000 as of September 30, 2001. We announced the successful
delivery of the 12.1-inch full color field emission displays to U.S. Army on
August 14, 2000. Then, in January 2001, we were awarded additional funding for
the continued development of the 12.1-inch color, high voltage field emission
display technology. The DARPA contract has been satisfied and no further funding
is expected.
Sales and Marketing Expenses
----------------------------
Sales and marketing expenses decreased by 16% from $840,000 in the nine-
month period ended September 30, 2000 to $711,000 in the nine-month period ended
September 30, 2001, and decreased from $269,000 in the three-month period ending
September 30, 2000 to $235,000 in the three-month period ended September 30,
2001. Last year, we reported our investor relation expenses as sales and
marketing expenses while this year investor relations expenses are included in
the general and administration expenses. We believe sales and marketing
expenses may increase in the future, reflecting the expansion of our sales and
marketing organization, both in the United States and in Europe.
General and Administrative Expenses
-----------------------------------
General and administrative expenses totaled $2,178,000 in the nine-month
period ended September 30, 2001 and $2,142,000 in the nine-month period ended
September 30, 2000. We spent $690,000 in general and administrative expenses
during the three-month period ended September 30, 2001, compared to $645,000
during the same period in 2000. This reflects an increase in consulting and
legal fees from the previous year.
Interest Income (Expense), Net
------------------------------
Interest income is comprised of interest on available and restricted cash.
Interest expense is comprised of interest payable on long-term obligations.
Interest income was $377,000 during the nine-month period ended September 30,
2001, compared to $1,001,000 in the same period last year. During the quarters
ended September 30, 2001 and 2000, interest income was $58,000 and $389,000
respectively. This decrease is due to lower cash balances invested in money
market instruments.
Currency Fluctuations
---------------------
Although a significant portion of our revenues is denominated in U.S.
dollars, a substantial portion of our operating expenses is denominated in
Euros. Gains and losses on the conversion to U.S. dollars of assets and
liabilities denominated in Euros may contribute to fluctuations in our results
of operations, which are reported in U.S. dollars. Most of our capital lease
obligations are expressed in Taiwanese dollars. In the past, fluctuations of the
parity of the Taiwanese dollar versus the Euro caused significant foreign
exchange gains or losses and may continue to do so in the future. We recorded a
net foreign exchange gain of $196,000 in the first nine months of 2001 compared
to $327,000 during the same period last year, and a net foreign exchange gain of
$64,000 in the three-month period ended September 30, 2001 compared to a net
exchange loss of $5,000 in the quarter ended September 30, 2000. We cannot
predict the effect of exchange rate fluctuations on future operating results. To
date, we have not undertaken hedging transactions to cover our currency
exposure, but we may do so in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $9.9 million during the nine-month period ended
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 14/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
September 30, 2001, compared to $9.9 million during the nine-month period ended
September 30, 2000, and $3.2 million in the three-month period ended September
30, 2001, compared to $1.7 million in the three month period ended September 30,
2000.
We have used $75.2 million in cash to fund our operations since inception
through September 30, 2001 and have incurred $24.2 million in capital
expenditures.
Capital expenditures were $923,000 during the nine-month period ended
September 30, 2001, compared to $1,862,000 during the same period in 2000, and
$288,000 in the three-month period ended September 30, 2001, compared to
$535,000 during the three-month period ended September 30, 2000. These capital
expenditures exclude assets acquired under capital lease obligations.
Implementing volume production at Unipac's manufacturing plant required
significant capital expenditure. Pursuant to the Foundry Agreement, Unipac
funded $14.7 million in capital expenditures for equipment. A portion of that
equipment is leased to us and the gross amount of this equipment is $10.4
million as of September 30, 2001. We expect that additional capital expenditures
will be required by the end of 2001 and in 2002, in order to increase capacity
at Unipac and complete implementation of manufacturing processes for both
monochrome and color products.
During the nine-month period ended September 30, 2001, restricted cash was
reclassified as cash available in the amount of $624,000. Restricted cash was
related to the security interest corresponding to the guaranty granted to Unipac
in connection with the purchase and funding by AU Optronics of volume field
emission displays production equipment. In March 2000, pursuant to an agreement
dated December 17, 1999 signed with Unipac, the guaranty was reduced by $5.0
million in consideration of a payment in cash of the same amount to Unipac.
Pursuant to the terms of this agreement, this $5.0 million payment will be
considered as a prepayment against our future payments to Unipac related to the
equipment leased by Unipac to us. Consequently, the amount of the security
interest to the banks was reduced by the same amount and amounted to $625,000 at
September 30, 2001.
Cash used in financing activities was $316,000 in the nine-month period ended
September 30, 2001, compared to $14.6 million generated in the nine-month period
ended September 30, 2000. In the nine-month period ended September 30, 2001, we
used cash for repayment of long-term borrowing. In the same period last year,
cash generated from financing activities included sales of shares of Common
Stock, resulting in net proceeds of $19.2 million while repayment of long term
liabilities amounted to $4.8 million, including the $5.0 million prepayment made
to Unipac and various reimbursements.
Since our inception, we have funded our operations and capital expenditure
primarily from the proceeds of equity financing aggregating $112.3 million and
from borrowings and sale-leaseback transactions aggregating $21.7 million.
In 1997 and January 1999, we entered into two research and development
agreements with French authorities. Under these agreements, we expect to benefit
from zero-interest loans totaling approximately $3.0 million, of which we
received $482,000 in April 2000 and $2.0 million in 1999. We collected $28,000
in July 2001 and we expect to receive $165,000 in the fourth quarter of 2001.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 15/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
In November 1998, we entered into a research and development agreement with
French authorities. Under this agreement, we expect to receive a total grant of
approximately $679,000, of which we received $196,000 in 1999, $367,000 in 2000
and $143,000 in June 2001. Those amounts are reported under Deferred research
and development funding.
On August 5, 1999, DARPA awarded a development contract to us amounting to
$4.7 million, of which we received $1.5 million in 1999 and $3.2 million in
2000. On April 3, 2000, in addition to and as a continuation of the existing
development contract, we were awarded an additional $6.3 million funding for the
development and demonstration of a full color, full video rate, 12.1-inch field
emission display for which to date, we received $6.1 million. On January 22,
2001 we were awarded an additional $3.1 million funding, further supplementing
the August 1999 and April 2000 contracts for the continued development of the
12.1-inch color, high voltage field emission display technology. The DARPA
contract has been satisfied and no further funding is expected.
We have recognized French income tax benefits of $8.6 million since inception.
These income tax benefits represent tax credits for research and development
activities conducted in France, which are paid in cash to us if it is not
possible to credit them against future income tax liabilities within three
fiscal years. In April 1999, we collected $3.0 million from research and
development tax credit recorded in 1995. We collected $1.1 million in June 2000,
in connection with the research and development tax credit recorded in 1996, and
$690,000 in June 2001 for 1997 tax credit.
On August 9, 1999, we secured a $15.0 million equity-based line of credit with
Kingsbridge Capital Ltd. Under the terms of the equity line, we can draw up to
$15.0 million cash in exchange for our common stock, in increments over a two-
year period. The decision to draw down any of the funds and the timing and
account of any such draw are at our sole discretion, subject to certain
conditions. Such conditions include limitations depending on the volume and the
market price of our common stock. In particular, Kingsbridge is not obligated to
accept a put while the market price of our common stock is below $1. On June 27,
2001, we executed a six-month extension of the Kingsbridge equity line. Through
September 30, 2001, we have drawn a total amount of $6.0 million under the
equity line. The continuing unavailability of funds from the Kingsbridge equity
line due to the low market price of our common stock has materially decreased
our access to additional cash. Our restructuring plan, discussed above, is
intended in part to reduce our cash burn rate and preserve the cash resources
remaining at our disposal.
On January 25, 2000, we signed an agreement with Audi and other partners to
jointly design, develop, test and deliver a 7-inch color field emission display
for automotive applications. This agreement is part of the European Commission
IST program. Under the terms of this agreement, the total funding is
approximately $1.7 million, of which $521,000 was received in January 2001 and
$548,000 is expected to be received in the fourth quarter of 2001.
Cash available as of September 30, 2001 was $5.1 million, compared to
$16.8 million as of December 31, 2000. In the three-month period ending
September 30, 2001, we used a total of $2.4 million for our activities.
We will require substantial funds to conduct research, development and
testing, to develop and expand commercial-scale manufacturing systems and to
market any resulting
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 16/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
products. Changes in technology or a growth of sales beyond currently
anticipated levels will also require further investment. Our capital
requirements will depend on many factors, including the rate at which we can
develop our 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 our
products. We cannot assure you that funds for these purposes, whether from
equity or debt financing, or other sources, will be available when needed or on
terms acceptable to us.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 17/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk exposure inherent to our international operations creates
potential for losses arising from adverse changes in foreign currency exchange
rates. We are exposed to such foreign currency exchange rate risk in two main
areas: (i) a substantial portion of our operating expenses are, and are expected
to be, denominated in Euros, and (ii) most of our capital lease obligations are
expressed in Taiwanese dollars. Fluctuations of the parity of the Taiwanese
dollar versus the Euro or the U.S. dollar may cause significant foreign exchange
gains or losses. In addition, gains and losses arising from the conversion to
U.S. dollars of assets and liabilities denominated in Euros or in Taiwanese
dollars may contribute to fluctuations in our results of operations, which are
reported in U.S. dollars. To date, we have not undertaken hedging transactions
to cover its currency exposure. We are also exposed to interest rate risks in
connection with certain long-term debt. We do not, however, enter into market
sensitive instruments for trading purposes.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 18/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
PIXTECH, INC.
September 30, 2001
PART II Other Information
ITEM 1 Legal Proceedings:
-------------------------------------------------------------------------
In connection with the License Agreement between PixTech and CEA dated
September 17, 1992, PixTech has withheld certain royalty payments that
may have been due to CEA under the License Agreement because we believe
that the CEA made certain misrepresentations to PixTech. On September
27, 2001, PixTech received a writ of summons indicating that CEA had
initiated an action in the Tribunal de commerce d'Aix-en-Provence
(commercial court of Aix-en-Provence, France) seeking FRF 8,580,049
(approximately $1.2 million). The first hearing in this matter is
scheduled for December 17, 2001. In addition, CEA gave notice to
PixTech that CEA intends to terminate the License Agreement effective
October 23, 2001. For the reason stated above, PixTech considers that
the amounts sought by CEA are not due. We have retained French counsel
to represent us in this matter. PixTech and its French counsel also
believe that the termination provision invoked by CEA has been invoked
in bad faith and, as a result, should not apply under French law. On
October 19, 2001, PixTech and its French counsel obtained a court order
in France preventing CEA from invoking the termination clause through
December 31, 2001.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 19/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
PIXTECH, INC.
September 30, 2001
ITEM 6 Exhibits and reports on Form 8-K
-------------------------------------------------------------------------
(a) Exhibits
3.1 - Certificate of Incorporation of Registrant. Filed as Exhibit 3.2
to the PixTech, Inc. Registration Statement on Form S-1 (Commission File
No. 33-93024) and incorporated herein by reference.
3.2 - Restated By-Laws of Registrant. Filed as Exhibit 3.4 to the
PixTech, Inc. Registration Statement on Form S-1 (Commission File No.
33-93024) and incorporated herein by reference.
3.3 - Certificate of Designations of PixTech, Inc. Filed as Exhibit 2.1
to the PixTech, Inc. Current Report on Form 8-K filed January 7, 1999
and incorporated herein by reference.
3.4 - Certificate of Amendment of Restated Certificate of Incorporation
of Registrant. Filed as an Exhibit with the same number to the PixTech,
Inc. Form 10-Q/A for the fiscal quarter ended June 30, 1999 filed with
the Commission on August 24, 1999 and incorporated herein by reference.
3.5 - Certificate of Amendment of Restated Certificate of Incorporation
of Registrant, dated January 18, 2000. Filed as an exhibit with the
same number to the PixTech, Inc. Annual Report on Form 10-K for the year
ended December 31, 1999 filed with the commission on March 28, 2000 and
incorporated herein by reference.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter of 2001.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 20/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
PIXTECH, INC.
September 30, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIXTECH, INC.
Date: November 14, 2001 BY: /s/ Marie Boem
Marie Boem,
Principal Financial Officer
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 21/22
PixTech, Inc.
(A DEVELOPMENT STAGE COMPANY)
PIXTECH, INC.
September 30, 2001
EXHIBIT INDEX
EXHIBIT NO.
- ------------
3.1 Certificate of Incorporation of Registrant. Filed as Exhibit 3.2 to the PixTech,
Inc. Registration Statement on Form S-1 (Commission File No. 33-93024) and
incorporated herein by reference.
3.2 Restated By-Laws of Registrant. Filed as Exhibit 3.4 to the PixTech, Inc.
Registration Statement on Form S-1 (Commission File No. 33-93024) and
incorporated herein by reference.
3.3 Certificate of Designations of PixTech, Inc. Filed as Exhibit 2.1 to the
PixTech, Inc. Current Report on Form 8-K filed January 7, 1999 and incorporated
herein by reference.
3.4 Certificate of Amendment of Restated Certificate of Incorporation of Registrant.
Filed as an Exhibit with the same number to the PixTech, Inc. Form 10-Q/A for the
fiscal quarter ended June 30, 1999 filed with the Commission on August 24, 1999
and incorporated herein by reference.
3.5 Certificate of Amendment of Restated Certificate of Incorporation of Registrant,
dated January 18, 2000. Filed as an exhibit with the same number to the PixTech,
Inc. Annual Report on Form 10-K for the year ended December 31, 1999 filed with
the commission on March 28, 2000 and incorporated herein by reference.
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PixTech, Inc. - Form 10Q - September 30, 2001 - Page 22/22