FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Avenue Olivier Perroy, 13790 Rousset, France
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(Address of principal executive offices) (Zip code)
011-33-4-42-29-10-00
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at September 30, 1997
Common Stock, $.01 par value 13,763,654
PIXTECH, INC.
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of September 30, 1997
and December 31, 1996........................................ 3
Statements of Operations for the Three Months and Nine Months
Ended September 30, 1997 and 1996, and the period from
June 18, 1992 through September 30, 1997..................... 4
Statements of Cash Flows for the Nine Months ended September
30, 1997 and 1996, and the period from June 18, 1992 through
September 30, 1997........................................... 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 - 13
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings............................................ 14
ITEM 2 Changes in Securities........................................ 14
ITEM 3 Default upon Senior Securities............................... 14
ITEM 4 Submission of Matters to a Vote of Security Holders.......... 14
ITEM 5 Other Information............................................ 14
ITEM 6 Exhibits and Reports on Form 8-K............................. 14
Signature..................................................................... 15
Exhibit Index................................................................. 16
PixTech, Inc.
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
September 30, December 31,
1997 1996
-------------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents.......................................... $ 6,089 $ 4,266
Short term investments 840 --
Accounts receivable:
Trade............................................................ 634 1,655
Other............................................................ 20 198
Inventory.......................................................... 612 770
Other.............................................................. 2,236 2,975
---------- ----------
Total current assets 10,431 9,864
Investments - long term.............................................. 9,240 --
Property, plant and equipment, net................................... 9,650 13,409
Goodwill, net........................................................ 254 298
Deferred tax assets.................................................. 4,524 5,167
Other assets - long term............................................. 244 342
Deferred offering costs.............................................. -- 485
---------- ----------
Total assets.................................................... $ 34,343 $ 29,565
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt.................................. $ 883 $ 990
Current portion of capital lease obligations....................... 609 921
Current portion of long term liabilities........................... -- 1,890
Accounts payable................................................... 3,362 5,132
Accrued expenses................................................... 1,096 1,773
Other.............................................................. 136 17
---------- ----------
Total current liabilities....................................... 6,086 10,723
Deferred revenue..................................................... 2,570 3,226
Long term debt, less current portion................................. 1,766 2,146
Capital lease obligation, less current portion....................... 581 833
Other long term liabilities, less current portion.................... 493 538
---------- ----------
Total liabilities............................................... 11,496 17,466
========== ==========
Stockholders' equity
Common stock...................................................... 137 81
Other stockholders' equity........................................ 55,168 33,647
Deficit accumulated during development stage...................... (32,458) (21,629)
Total stockholders' equity...................................... 22,847 12,099
---------- ----------
Total liabilities and stockholders' equity...................... $ 34,343 $ 29,565
========== ==========
PixTech, Inc.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Period from
June 18, 1992
(date of
Three Months Ended Nine Months Ended inception)
September 30, September 30, through
--------------------------------------------- September 30,
1997 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
Revenues:
Cooperation & license revenues....... $ -- $ 707 $ 1,718 $ 5,233 $ 24,996
Product sales........................ 152 67 580 428 2,216
Other revenues....................... 284 11 1,004 992 3,800
------------ ------------ ------------ ------------ ------------
436 785 3,302 6,653 31,012
------------ ------------ ------------ ------------ ------------
Cost of revenues
License fees and royalties.......... -- -- (61) -- (1,420)
------------ ------------ ------------ ------------ ------------
Gross margin.......................... 436 785 3,241 6,653 29,592
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development:
Acquisition of intellectual
property rights................. -- -- -- -- (4,765)
Other............................. (3,227) (4,269) (11,305) (11,491) (49,047)
------------ ------------ ------------ ------------ ------------
(3,227) (4,269) (11,305) (11,491) (53,812)
Sales and marketing................. (369) (309) (1,151) (755) (4,829)
General and administrative.......... (611) (630) (1,899) (2,105) (9,781)
------------ ------------ ------------ ------------ ------------
Total operating expenses......... (4,207) (5,208) (14,355) (14,351) (68,422)
------------ ------------ ------------ ------------ ------------
Loss from operations.................. (3,771) (4,423) (11,114) (7,698) (38,830)
Other income/(expense)
Interest income/(expense)........... 82 3 424 91 763
Foreign exchange gains/(losses)..... 32 (137) (149) 205 461
------------ ------------ ------------ ------------ ------------
114 (134) 285 296 1,224
Loss before income tax benefit........ (3,657) (4,557) (10,829) (7,402) (37,606)
Income tax benefit.................... -- -- -- -- 5,148
------------ ------------ ------------ ------------ ------------
Net loss.............................. $ (3,657) $ (4,557) $ (10,829) $ (7,402) (32,458)
============ ============ ============ ============ ============
Net loss per share: $(.27) $(.56) $(.84) $(.91)
============ ============ ============ ============
Shares used in computing net loss per
share............................... 13,763 8,141 12,924 8,133
============ ============ ============ ============
PixTech, Inc.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
Period from
June 18, 1992
(date of
inception)
Nine Months Ended through
September 30, September 30,
------------------------------------------- -------------------
1997 1996 1997
-------------------- ------------------ ------------------
Net loss................................................... $ (10,829) $ (7,402) $ (32,458)
Total adjustments to net loss.............................. 4,009 5,037 12,347
----------------- --------------- ---------------
Net cash used in operating activities...................... (6,820) (2,365) (20,111)
----------------- --------------- ---------------
Investing activities
Additions to property plant and equipment.................. (511) (4,560) (16,806)
Additions to intangible assets............................. -- (130) (130)
Reclassification of cash equivalents as investments........ (10,080) -- (10,080)
----------------- --------------- ---------------
Net cash used in investing activities...................... (10,591) (4,690) (27,016)
Financing activities
Stock issued............................................... 21,641 5 55,564
Proceeds from long-term borrowings......................... -- -- 6,287
Proceeds from sale leaseback transactions.................. -- -- 2,731
Payments for equipment purchases financed by accounts
payable................................................... -- -- (3,706)
Repayment of long term borrowing and capital lease
obligations............................................... (1,049) (1,773) (5,069)
----------------- --------------- ---------------
Net cash (used in) / provided by financing activities...... 20,592 (1,768) 55,807
----------------- --------------- ---------------
Effect of exchange rates on cash........................... (1,358) (349) (2,591)
----------------- --------------- ---------------
Net (decrease) / increase in cash and cash equivalents..... 1,823 (9,172) 6,089
Cash and cash equivalents beginning of period.............. 4,266 17,563 --
----------------- --------------- ---------------
Cash and cash equivalents end of period.................... $ 6,089 $ 8,391 $ 6,089
================= =============== ===============
PixTech, Inc.
(a development stage company)
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
Convertible Preferred Stock
Series A Series B
Shares Shares
issued Amount issued Amount
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance costs ..... 534,587 $ 706 123,005 $ 159
Issuance of Common stock in June ...................................
Translation adjustment .............................................
Net loss from June 18, 1992 (date of inception) through
December 31, 1992 ..................................................
Balance at December 31, 1992 534,587 706 123,005 159
Issuance of convertible preferred stock, net of issuance costs ..... 1,022,416 1,662 240,442 430
Issuance of Common stock in January ................................
Translation adjustment .............................................
Net loss--Year ended December 31, 1993 .............................
Balance at December 31, 1993 1,557,003 2,368 363,447 589
Issuance of Common stock under stock option plan in April ..........
Purchase of 28,761 shares of Common stock--Treasury
stock in April ....................................................
Issuance of convertible preferred stock, net of issuance costs......
Translation adjustment .............................................
Net loss--Year ended December 31, 1994 .............................
Balance at December 31, 1994 1,557,003 2,368 363,447 589
Reissuance of 28,761 shares of Common stock held in
treasury in January ...............................................
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)
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 and private
placements, net of issuance costs -- $ 796 (unaudited) ............
Issuance of Common stock under stock option plan
(unaudited) .......................................................
Translation adjustment (unaudited) .................................
Net loss--Nine months ended September 30, 1997
(unaudited) .......................................................
Balance at September 30, 1997 -- -- -- --
Convertible Preferred Stock
Series C Series D
Shares Shares
issued Amount issued Amount
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance costs ..
Issuance of Common stock in June ................................
Translation adjustment ..........................................
Net loss from June 18, 1992 (date of inception) through
December 31, 1992................................................
Balance at December 31, 1992 .....................................
Issuance of convertible preferred stock, net of issuance costs... 1,999,011 $ 5,686 430,208 $ 1,224
Issuance of Common stock in January..............................
Translation adjustment...........................................
Net loss--Year ended December 31, 1993...........................
Balance at December 31, 1993 ..................................... 1,999,011 5,686 430,208 1,224
Issuance of Common stock under stock option plan in April........
Purchase of 28,761 shares of Common stock--Treasury
stock in April..................................................
Issuance of convertible preferred stock, net of issuance costs... 1,045,835 2,929
Translation adjustment...........................................
Net loss--Year ended December 31, 1994...........................
Balance at December 31, 1994 ..................................... 3,044,846 8,615 430,208 1,224
Reissuance of 28,761 shares of Common stock held in
treasury in January.............................................
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 ................................... (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 and private
placements, net of issuance costs -- $ 796 (unaudited)..........
Issuance of Common stock under stock option plan
(unaudited).....................................................
Translation adjustment (unaudited)...............................
Net loss--Nine months ended September 30, 1997
(unaudited).....................................................
Balance at September 30, 1997 -- -- -- --
See accompanying notes
PixTech, Inc.
(a development stage company)
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
Common Stock
Additional Cumulative
Shares Paid-in translation
issued Amount Capital adjustment
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance costs........
Issuance of Common stock in June...................................... 115,045 $ 1 $ 75
Translation adjustment................................................ $ 1
Net loss from June 18, 1992 (date of inception) through
December 31, 1992....................................................
Balance at December 31, 1992 115,045 1 75 1
Issuance of convertible preferred stock, net of issuance costs........
Issuance of Common stock in January................................... 17,256 21
Translation adjustment................................................ (50)
Net loss--Year ended December 31, 1993................................
Balance at December 31, 1993 132,301 1 96 (49)
Issuance of Common stock under stock option plan in April............. 77,356 1 28
Purchase of 28,761 shares of Common stock--Treasury
stock in April....................................................... $(11) (11)
Issuance of convertible preferred stock, net of issuance costs........
Translation adjustment................................................ 230
Net loss--Year ended December 31, 1994................................
Balance at December 31, 1994 209,657 2 123 181
Reissuance of 28,761 shares of Common stock held in
treasury in January ................................................. 3
Issuance of Common stock under stock option plan...................... 6,902 0 3
Common stock issued in initial public offering, net of
issuance costs -- $1,080............................................. 2,500,000 25 20,973
Conversion of preferred stock......................................... 5,395,504 54 12,742
Translation adjustment ...............................................
Net loss--Year ended December 31, 1995 ...............................
Balance at December 31, 1995 8,112,063 81 33,844 515
Issuance of Common stock under stock option plan...................... 29,083 0 11
Issuance of warrants in connection with acquisition of the
assets of Panocorp................................................... 230
Translation adjustment................................................ (953)
Net loss--Year ended December 31, 1996 ..............................
Balance at December 31, 1996 8,141,146 81 34,085 (438)
Common stock issued in public offering and private
placements, net of issuance costs -- $ 796 (unaudited) .............. 5,570,819 56 22,958
Issuance of Common stock under stock option plan
(unaudited)........................................................... 51,689 0 25
Translation adjustment (unaudited)..................................... (1,462)
Net loss--Nine months ended September 30, 1997
(unaudited)...........................................................
Balance at September 30, 1997 13,763,654 $137 $57,068 $(1,900)
Deficit
accumulated
during
development Treasury
stage stock Total
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance costs........ $ 865
Issuance of Common stock in June...................................... 76
Translation adjustment................................................ 1
Net loss from June 18, 1992 (date of inception) through
December 31, 1992... ................................................ $ (506) (506)
Balance at December 31, 1992 (506) 436
Issuance of convertible preferred stock, net of issuance costs........ 9,002
Issuance of Common stock in January................................... 21
Translation adjustment................................................ (50)
Net loss--Year ended December 31, 1993................................ (120) (120)
Balance at December 31, 1993 (626) 9,289
Issuance of Common stock under stock option plan in April............. 29
Purchase of 28,761 shares of Common stock--Treasury
stock in April....................................................... (11) (11)
Issuance of convertible preferred stock, net of issuance costs........ 2,929
Translation adjustment................................................ 230
Net loss--Year ended December 31, 1994................................ (2,979) (2,979)
Balance at December 31, 1994 (3,605) (11) 9,487
Reissuance of 28,761 shares of Common stock held in
treasury in January ................................................. 11 14
Issuance of Common stock under stock option plan...................... 3
Common stock issued in initial public offering, net of
issuance costs -- $1,080............................................. 20,998
Conversion of preferred stock.........................................
Translation adjustment ............................................... 334
Net loss--Year ended December 31, 1995 ............................... (6,305) (6,305)
Balance at December 31, 1995 (9,910) 24,530
Issuance of Common stock under stock option plan...................... 11
Issuance of warrants in connection with acquisition of the
assets of Panocorp................................................... 230
Translation adjustment................................................ (953)
Net loss--Year ended December 31, 1996 ............................... (11,719) (11,719)
Balance at December 31, 1996 (21,629) 12,099
Common stock issued in public offering and private
placements, net of issuance costs -- $ 796 (unaudited) .............. 23,014
Issuance of Common stock under stock option plan
(unaudited)........................................................... 25
Translation adjustment (unaudited)..................................... (1,462)
Net loss--Nine months ended September 30, 1997
(unaudited)........................................................... (10,829) (10,829)
Balance at September 30, 1997 $(32,458) $22,847
See accompanying notes
PixTech. Inc.
(a development stage company)
Notes to Condensed Consolidated Financial Statements
(all amounts in thousands except share amounts)
(unaudited)
Note A -- Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results of the three-month or nine-month periods ending
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto for the year
ended December 31, 1996 (the "1996 Financial Statements"), included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Note B -- Inventories
Inventory consists of raw material and spare parts.
Note C -- Public offering
On February 7, 1997, the Company sold 3,333,000 shares of Common Stock in a
public offering in Europe at a price of $4.50 per share, resulting in net
proceeds of $13,949 before expenses payable by the Company, which amounted to
$796. The Company granted the Underwriters a 30-day option to purchase up to
663,000 shares, and the Underwriters exercised such option and purchased such
shares on February 12, 1997. Including the sale of such shares, the total price
to the public, underwriting discount, and proceeds to the Company before
expenses were $17,982, $1,259, and $16,723, respectively.
Note D -- Private placements
In February 1997, the Company sold 463,708 shares of the Company's Common
Stock to Motorola, Inc., in a private placement at a price of $4.50 per share,
resulting in net proceeds of $2,086. As consideration for this stock purchase,
an amount of $686 was received in cash and the remaining $1,400 was in the form
of forgiveness of $1,400 of obligations from PixTech S.A. to Motorola, Inc.
("Motorola"). In connection with such private placement, Motorola received
warrants to purchase an additional 463,708 shares of the Common Stock of the
Company at a price of $5.50 per share, which warrants expire on December 31,
1998. As of September 30, 1997, these warrants have not been exercised.
In February 1997, the Company sold 1,111,111 shares of the Company's Common
Stock to United Microelectronics Corporation, the parent company of Unipac
Optoelectronics Corporation ("Unipac"), in a private placement at a price of
$4.50 per share resulting in net cash proceeds of $5,000.
Note E -- Net loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings par Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive
effects of stock options and warrants will be excluded.
PixTech. Inc.
(a development stage company)
There is no impact of Statement 128 on the calculation of earnings per share
for the three-month periods ended September 30, 1996 and 1997. As net losses
have been reported in these quarters, the dilutive effects of stock options and
warrants have been excluded from the calculation of net loss per share under the
current method of calculating net loss per share.
Note F -- Insurance refund
In September 1997, the Company collected an amount of $620 in payment under
its business insurance policy to cover losses incurred after certain physical
damages suffered in the Company's pilot manufacturing facility in April 1997. An
amount of $328 representing reimbursement of direct costs was recorded as
reduction in research and development expenses. The remaining amount of $292
covering consequential losses was reflected as other revenues in the three-month
period ended September 30, 1997.
Note G -- Bank guaranty
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
Foundry Agreement between Unipac and the Company. The Company granted the
issuing banks a security interest on its cash and cash equivalents for the same
amount. The pledged cash and cash equivalents have been recorded as short-term
and long-term investments in the balance sheet. Under certain conditions of the
Foundry Agreement, Unipac can sell to PixTech certain equipment and payment will
be secured through exercise by Unipac of the bank guaranty. Both the amount of
the guaranty to Unipac and the amount of the security interest to the banks will
be reduced by 1/24th of the initial amount at the end of each quarter, starting
June 1998.
Note H -- Subsequent events
On November 7, 1997, Sumitomo Corporation ("Sumitomo") granted PixTech a $10.0
million loan repayable over a period of three years, pursuant to a credit
agreement and following a distribution and financing agreement each dated as of
July 21, 1997 between the Company and Sumitomo (the "Sumitomo Agreement"). Of
this $10.0 million amount, $5.0 million represent a straight loan repayable in
four equal installments every 6 months starting 18 months after funding, bearing
interest at prime rate plus 0.75% per annum. The remaining amount of $5.0
million represent a convertible loan repayable in November 2000, bearing
interest at prime rate plus 0.75% per annum, and partially or totally
convertible, at Sumitomo's option, into shares of Common Stock of the Company at
a conversion price equal to 80% of the market price. This option can be
exercised after April 7, 1999.
As part of the Sumitomo Agreement, the loan is partially secured as follows:
. the Company gave a deed of mortgage on PixTech S.A. land and constructions
located in Rousset. At September 30, 1997, the net book value of this building
and land was $1.1 million.
. the French atomic energy agency ("CEA") undertakes certain contingent payment
obligations towards Sumitomo in case of default by PixTech.
Note I -- Commitments
On October 22 1997, an amendment to the LETI License Agreement was signed
between the CEA and the Company for a period of three years, in return for CEA
guarantying certain contingent payment obligations towards Sumitomo. As
discussed in Note H, the royalty rates and minimum payments from the Company to
CEA are increased. The Company will give a security interest to CEA on all its
patents during the term of the amendment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
Cooperation and License Revenues. The Company did not recognize any cooperation
and license revenue under the Field Emission Display ("FED") Alliance agreements
in the three-month period ended September 30, 1997, as compared to $707,000 in
the three-month period ended September 30, 1996.
The Company recognized cooperation and license revenues under the FED Alliance
agreements of $1.7 million in the nine-month period ended September 30, 1997, as
compared to $5.2 million in the nine-month period ended September 30, 1996.
These revenues represented the achievement by the Company of contractual
milestones with FED Alliance members. The Company has now recorded most of the
expected revenues associated with the achievement of contractual milestones with
existing FED Alliance members and future FED Alliance milestone revenues are
mostly subject to expansion of the FED Alliance.
Product sales. The Company recognized product sales of $580,000 in the nine-
month period ended September 30, 1997, as compared to $428,000 in the nine-month
period ended September 30, 1996. These product sales represented the shipment of
FED displays and FED cathodes in limited quantities to members of the FED
Alliance and the shipment of FED displays for evaluation by original equipment
manufacturer ("OEM") customers.
Other revenues. The Company recognized other revenues of $284,000 in the three-
month period ended September 30, 1997, as compared to $11,000 in the three-month
period ended September 30, 1996. The revenues recorded in the three-month period
ended September 30, 1997 included primarily an insurance refund covering
consequential losses incurred after certain physical damages suffered in the
Company's pilot manufacturing facility in April 1997. Other revenues amounted to
$1.0 million in the nine-month period ended September 30, 1997, as compared to
$992,000 during the same period in 1996. In the nine-month periods ended
September 30, 1997 and 1996, other revenues were derived principally from
government funded development contracts: respectively $663,000 and $800,000 were
related to a development contract from the French Ministry of Industry to
support manufacturing of FEDs.
Research and Development Expenses. The Company expensed $3.2 million for
research and development costs during the three-month period ended September 30,
1997, as compared to $4.3 million in the three-month period ended September 30,
1996. These expenses included 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
and the cost of staffing and operating the Company's pilot manufacturing
facility.
This decrease reflected the reversal of a provision in the amount of $329,000,
following cancellation of potential liabilities to a third party, and the
increase of the parity of the U.S. dollar versus the French Franc in the three-
month period ended September 30, 1997 versus the three-month period ended
September 30, 1996, as most of the Company's research and development costs is
incurred in French Francs. After excluding the effects of currency fluctuation
and reversal of provision, research and development expenses remained stable in
the three-month period ended September 30, 1997 as compared to the three-month
period ended September 30, 1996.
Research and development expenses amounted to $11.3 million for the nine-month
period ended September 30, 1997 as compared to $11.5 million during the nine-
month period ended September 30, 1996.
Sales and Marketing Expenses. The Company expensed $369,000 for sales and
marketing during the three-month period ended September 30, 1997, as compared to
$309,000 during the three-month period ended September 30, 1996. This increase
reflected the expansion of the Company's sales and marketing organization both
in the United States and in Europe, and the increasing support of marketing
efforts through trade show attendance and advertising. The Company believes
sales and marketing expenses may increase in the future, as potential customers
and anticipated shipments of FED displays develop. Sales and marketing expenses
amounted to $1.1 million for the nine-month period ended September 30, 1997 as
compared to $755,000 during the nine-month period ended September 30, 1996.
General and Administrative Expenses. General and administrative expenses
amounted to $611,000 in the three-month period ended September 30, 1997, a
decrease of 3% over general and administrative expenses incurred in the three-
month period ended September 30, 1996, which amounted to $630,000, reflecting
the effects of currency fluctuation. General and administrative expenses
amounted to $1.9 million for the nine-month period ended September 30, 1997 as
compared to $2.1 million during the nine-month period ended September 30, 1996.
Strategic issues and risks
The Company is focused on the continued development of the FED technology, the
strengthening and expansion of the FED Alliance, the improvement of
manufacturing yields, the successful implementation of contract manufacturing of
FEDs with its Asian partner, 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 a major manufacturer in the AMLCD
industry. On May 22, 1997, the Company signed a display foundry agreement (the
"Foundry Agreement") with Unipac Optoelectronics Corp. ("Unipac"), an AMLCD
manufacturer based in Taiwan. Under the agreement, Unipac will install volume
production equipment to produce FEDs at its manufacturing line, and will begin
production for exclusive delivery of FED displays to PixTech. Expectations about
the timing of this manufacturing plan with Unipac are forward-looking statements
that involve risks and uncertainties, including the ease or difficulty of the
transfer of the FED technology to Unipac. If such contract manufacturing
agreement is 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 will be required in order to
install, at the contract manufacturers' facility, equipment that is not common
to the AMLCD manufacturing process. A minimum of $15 million of capital
expenditures will be required. Pursuant to the Foundry Agreement, Unipac will
purchase and fund equipment within a $15 million limit. 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.
Revenues from FED Alliance members. To date, the Company has recorded most of
the expected revenues associated with the achievement of contractual milestones
under existing FED Alliance agreements, and most future FED Alliance milestone
revenues are subject to expansion of the Alliance or to renewal of cooperation
periods with existing members at their respective expiration dates. Expansion of
the FED Alliance and renewal of cooperation periods by existing FED Alliance
members are subject, in part, to matters beyond the Company's control. Failure
to expand the FED Alliance or to obtain renewals of the cooperation periods
could adversely affect the Company.
Products and Manufacturing Processes under Development, Need to increase 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 its Asian partner (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.
Display Performance Enhancement. Key elements of display performance are
brightness, and the display's stability over time (display 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 believes it will need
to make further advances in phosphors and related manufacturing technologies.
Competition and Competing Technologies. The market for flat panel display
products is intensely competitive and is expected to remain so. 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 and the members of the FED Alliance are
uncertain. The Company anticipates marketing its displays to OEMs, and its
success will depend on whether OEMs select the Company's products for
incorporation into their products and upon their successful introduction of such
products, as well as the successful commercialization of products developed by
members of the FED Alliance.
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.
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.
Financial Condition
Cash used in operations was $6.8 million for the nine-month period ended
September 30, 1997, as compared to cash used in operations of $2.4 million for
the nine-month period ended September 30, 1996.
The Company has used $20.1 million in cash to fund its operating activities from
inception through September 30, 1997 and has incurred $27.0 million in capital
expenditures and investments.
Cash flows generated from financing activities were $20.6 million in the nine-
month period ended September 30, 1997, as compared to $1.8 million used in
financing activities in the nine-month period ended September 30, 1996. These
financings consisted primarily of sales of shares of Common Stock in a public
offering in Europe and in private placements, resulting in net proceeds to the
Company of $15.9 million (net of issuance costs) and $5.7 million, respectively,
while long term liabilities decreased by $1.0 million. Cash flow generated from
financing activities exclude non-cash transactions related to the sale of
463,708 shares of the Company's Common Stock to Motorola, Inc (See "Notes to
Condensed Consolidated Financial Statements - Note D -- Private placements"). As
consideration for this stock purchase, an amount of $686,000 has been received
in cash and the remaining $1.4 million was in the form of forgiveness of $1.4
million of obligations due from PixTech S.A. to Motorola.
Since its inception, the Company has funded its operations and capital
expenditures primarily from the proceeds of equity financing aggregating $55.5
million and from proceeds aggregating $9.0 million from borrowings and sale-
leaseback transactions.
Capital expenditures were $511,000 during the nine-month period ended September
30, 1997 as compared to $4.7 million during the same period of 1996. In 1997,
capital expenditures were primarily related to the purchase of miscellaneous
tooling for the Company's pilot production line.
Investments amounted to $10.1 million at September 30, 1997 and are related to
the security interest granted by the Company to Unipac (see "Note G - Bank
Guaranty").
The nine-month period ended September 30, 1997 generated positive cash flows of
$1.8 million as compared to negative cash flows of $9.2 million for the nine-
month period ended September 30, 1996.
On November 7, 1997, the Company was granted by the Japanese firm Sumitomo a
$10.0 million loan (see "Note H - Subsequent Events").
Cash available at September 30, 1997 amounted to $6.1 million as compared to
$4.3 million at December 31, 1996. The Company expects that cash available at
September 30, 1997 together with the proceeds of the loan granted by Sumitomo
will be sufficient to meet its cash requirements for at least 12 months.
The Company's expectations regarding the sufficiency of its sources of cash over
a future period is a forward-looking statement. The rate of expenditures by the
Company will be affected by numerous factors including the rate of development
of the Company's products and manufacturing capabilities, as well as market
demand for such products. In the future, 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 investments. There can be no assurance that funds for
these purposes, whether from equity or debt financing, or other sources, will be
available when needed or on terms acceptable to the Company.
PIXTECH, INC.
September 30, 1997
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:
None
ITEM 5 Other Information:
None.
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits :
4.1 Convertible Note issued by PixTech, Inc. to
Sumitomo Corporation, dated October 27, 1997.
10.1 ++ Distribution and Financing Agreement between
Sumitomo Corporation, PixTech Inc. and PixTech
S.A. dated as of July 21, 1997.
10.2 ++ Credit Agreement between Sumitomo Corporation
and PixTech, Inc. dated as of July 21, 1997.
10.3 ++ Cross-Licensing Period Extension between
Raytheon Company and Pixel International,
S.A. (now PixTech S.A.) dated as of
September 4, 1997.
10.4 ++ Amendment No. 4 to the License Agreement on
theMicrotips Display between PixTech the
Commissariate A L'Energie Atomique.
27 Financial Data Schedule.
++ Confidential treatment has been requested for
certain portions of these Exhibits pursuant to
rule 24b-2 of the Securities Exchange Act of
1934, as amended.
PIXTECH, INC.
September 30, 1997
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIXTECH, INC.
Date: November 14, 1997 BY:/s/ Yves Morel
Yves Morel
Chief Financial Officer
PIXTECH, INC.
September 30, 1997
EXHIBIT INDEX
Exhibit No.
- -----------
4.1 Convertible Note issued by PixTech, Inc. to Sumitomo Corporation,
dated October 27, 1997.
10.1++ Distribution and Financing Agreement between Sumitomo Corporation,
PixTech Inc. and PixTech S.A. dated as of July 21, 1997.
10.2++ Credit Agreement between Sumitomo Corporation and PixTech, Inc.
dated as of July 21, 1997.
10.3++ Cross-Licensing Period Extension between Raytheon Company and
Pixel International, S.A. (now PixTech S.A.) dated as of September
4, 1997.
10.4++ Amendment No. 4 to the License Agreement on theMicrotips Display
between PixTech the Commissariate A L'Energie Atomique.
27 Financial Data Schedule.
++ Confidential treatment has been requested for certain portions of
these Exhibits pursuant to rule 24b-2 of the Securities Exchange
Act of 1934, as amended.