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 March 31, 1998
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-26380
PIXTECH, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3214691
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Avenue Olivier Perroy, 13790 Rousset, France
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
011-33-4-42-29-10-00
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of shares outstanding of each of the issuer's classes of
common stock as of
Class Outstanding at May 7, 1998
----- --------------------------
Common Stock, $.01 par value 14,776,732
PIXTECH, INC.
-------------
TABLE OF CONTENTS
-----------------
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of March 31, 1998
and December 31, 1997................................. 3
Statements of Operations for the Three Months
Ended March 31, 1998 and 1997,
and the period from June 18, 1992 through
March 31, 1998........................................ 4
Statements of Cash Flows for the Three Months
ended March 31, 1998 and 1997, and the period
from June 18, 1992 through March 31, 1998............. 5
Statement of Stockholders' Equity..................... 6 - 7
Notes to Financial Statements......................... 8 - 9
ITEM 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................................... 10 - 14
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings..................................... 15
ITEM 2 Changes in Securities................................. 15
ITEM 3 Default upon Senior Securities........................ 15
ITEM 4 SUBMISSION of MATTERS to a VOTE of
SECURITY HOLDERS...................................... 15
ITEM 5 Other Information..................................... 15
ITEM 6 Exhibits and Reports on Form 8-K...................... 16
Signature................................................................................. 17
Exhibit Index............................................................................. 18
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
--------- -----------
ASSETS
Current assets:
Cash available........................................................ $13,094 $12,428
Restricted cash - short term.......................................... 1,676 1,259
Accounts receivable:
Trade............................................................... 520 953
Other............................................................... 80 82
Inventory............................................................. 716 702
Other................................................................. 1,152 2,166
-------- --------
Total current assets................................................ 17,238 17,590
Restricted cash - long term............................................. 8,380 8,816
Property, plant and equipment, net...................................... 20,824 9,353
Goodwill, net........................................................... 208 226
Deferred tax assets..................................................... 4,896 5,058
Other assets - long term................................................ 265 605
-------- --------
Total assets........................................................ $ 51,811 $ 41,648
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt..................................... $ 1,305 $ 1,364
Current portion of capital lease obligations.......................... 2,404 599
Accounts payable...................................................... 4,327 5,053
Accrued expenses...................................................... 1,415 1,284
-------- --------
Total current liabilities........................................... 9,451 8,300
Deferred revenue........................................................ 1,294 2,546
Long term debt, less current portion.................................... 10,974 11,024
Capital lease obligation, less current portion.......................... 10,811 441
Other long term liabilities, less current portion....................... 522 557
-------- --------
Total liabilities................................................... 33,052 22,868
======== ========
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, authorized shares--30,000,000;
issued and outstanding shares--14,776,732; 13,762,732 respectively... 148 138
Additional paid-in capital............................................ 61,087 57,067
Cumulative translation adjustment..................................... (2,661) (2,132)
Deficit accumulated during development stage.......................... (39,815) (36,293)
-------- --------
Total stockholders' equity......................................... 18,759 18,780
-------- --------
Total liabilities and stockholders' equity......................... $ 51,811 $ 41,648
======== ========
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED PERIOD FROM
MARCH 31, JUNE 18, 1992
------------------------ (DATE OF INCEPTION)
THROUGH
MARCH 31,
1998 1997 1998
------------- ------------- -------------
Revenues
Cooperation & license revenues............................... $ -- $ 707 $ 25,210
Product sales................................................ 21 173 2,402
Other revenues............................................... 1,232 673 5,171
------- ------- --------
Total revenues............................................ 1,253 1,553 32,782
------- ------- --------
Cost of revenues
License fees and royalties................................... (79) -- (1,619)
------- ------- --------
Gross margin................................................... 1,174 1,553 31,163
------- ------- --------
Operating expenses
Research and development:
Acquisition of intellectual property rights.................. (125) -- (4,890)
Other........................................................ (3,800) (4,174) (57,039)
------- ------- --------
(3,925) (4,174) (61,929)
Marketing & sales............................................ (339) (380) (5,513)
Administrative & general expenses............................ (637) (606) (10,938)
------- ------- --------
(4,901) (5,160) (78,380)
------- ------- --------
Loss from operations........................................... (3,727) (3,607) (47,217)
Other income / (expense)
Interest income / (expense).................................. (80) 131 730
Foreign exchange gains / (losses)............................ 285 (238) 939
------- ------- --------
205 107 1,669
Loss before income tax benefit................................. (3,522) (3,714) (45,548)
Income tax benefit............................................. -- -- 5,734
------- ------- --------
Net loss....................................................... $(3,522) $(3,714) $(39,814)
======= ======= ========
Net loss per share........................................... $(0.25) $(0.33)
====== ======
Shares used in computing net loss per share.................. 13,821 11,144
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PERIOD FROM
JUNE 18, 1992
THREE MONTHS ENDED (DATE OF
MARCH 31, INCEPTION)
THROUGH
March 31,
---------------------------- -------------
1998 1997 1998
----------- ----------- -----------
Net loss................................................... $(3 ,522) $(3,714) $(39,815)
Total adjustments to net loss.............................. 1,133 2,689 14,759
-------- ------- --------
Net cash (used in) / provided by operating activities...... (2,389) (1,025) (25,056)
-------- ------- --------
INVESTING ACTIVITIES
Additions to property plant and equipment.................. (221) (113) (17,681)
Reclassification of cash available as restricted cash...... -- -- (10,080)
Additions to intangible assets............................. -- -- (130)
-------- ------- --------
Net cash used in investing activities...................... (221) (113) (27,891)
FINANCING ACTIVITIES
Stock issued............................................... 3 ,980 21,617 59,578
Proceeds from long-term borrowings......................... -- -- 16,287
Proceeds from sale leaseback transactions.................. -- -- 2,731
Payments for equipment purchases financed by accounts
payable................................................... -- -- (3,706)
Repayments of long term borrowing and capital lease
obligations............................................... (196) (628) (5,579)
-------- ------- --------
Net cash provided by financing activities.................. 3,784 20,989 69,311
Effect of exchange rates on cash........................... (508) (186) (3,270)
Net increase in cash and cash equivalents.................. 666 19,665 13,094
Cash and cash equivalents beginning of period.............. 12,428 4,266 --
-------- ------- --------
Cash and cash equivalents end of period.................... $ 13,094 $23,931 $ 13,094
======== ======= ========
See accompanying notes.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
CONVERTIBLE PREFERRED STOCK
----------------------------
SERIES A
--------------------
SHARES
-----------
ISSUED AMOUNT
----------- -------
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance
costs in 1992, 1993 and 1994................................ 1,557,003 2,368
Issuance of Common stock in 1992 and 1993.....................
Issuance of Common stock under stock option plan in 1994
Purchase of 28,761 shares of Common stock-- Treasury stock
in 1994......................................................
Translation adjustment........................................
Net loss from June 18, 1992 (date of inception) through
December 31, 1994............................................
---------- ------
Balance at December 31, 1994 1,557,003 2,368
Reissuance of 28,761 shares of Common stock held in
treasury....................................................
Issuance of Common stock under stock option plan..............
Common stock issued in initial public offering, net of
issuance costs -- $ 1,080....................................
Conversion of preferred stock................................. (1,557,003) (2,368)
Translation adjustment........................................
Net loss--Year ended December 31, 1995........................
---------- ------
Balance at December 31, 1995
Issuance of Common stock under stock option plan..............
Issuance of warrants in connection with acquisition of the
assets of Panocorp...........................................
Translation adjustment........................................
Net loss--Year ended December 31, 1996.......................
---------- ------
Balance at December 31, 1996
Common stock issued in public offering, net of issuance
costs -- $ 796...............................................
Issuance of Common stock under stock option plan..............
Translation adjustment........................................
Net loss--Year ended December 31, 1997........................
---------- ------
Balance at December 31, 1997
Common stock issued in private placements, net of issuance
costs -- $ 20 (unaudited)....................................
Issuance of Common stock under stock option plan (unaudited)
Translation adjustment (unaudited)............................
Net loss--Three Months ended March 31, 1998
(unaudited).................................................
---------- ------
Balance at March 31, 1998 -- --
========== ======
CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------------
SERIES B SERIES C SERIES D
------------------ -------------------- ------------------
SHARES SHARES SHARES
--------- ----------- ---------
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT
--------- ------ ----------- ------ --------- ------
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance
costs in 1992, 1993 and 1994................................ 363,447 589 3,044,846 8,615 430,208 1,224
Issuance of Common stock in 1992 and 1993.....................
Issuance of Common stock under stock option plan in 1994
Purchase of 28,761 shares of Common stock-- Treasury stock
in 1994......................................................
Translation adjustment........................................
Net loss from June 18, 1992 (date of inception) through
December 31, 1994............................................
-------- ------ ---------- ------ -------- ------
Balance at December 31, 1994 363,447 589 3,044,846 8,615 430,208 1,224
Reissuance of 28,761 shares of Common stock held in
treasury....................................................
Issuance of Common stock under stock option plan..............
Common stock issued in initial public offering, net of
issuance costs -- $ 1,080....................................
Conversion of preferred stock................................. (363,447) (589) (3,044,846) (8,615) (430,208) (1,224)
Translation adjustment........................................
Net loss--Year ended December 31, 1995........................
-------- ------ ---------- ------ -------- ------
Balance at December 31, 1995
Issuance of Common stock under stock option plan..............
Issuance of warrants in connection with acquisition of the
assets of Panocorp...........................................
Translation adjustment........................................
Net loss--Year ended December 31, 1996.......................
-------- ------ ---------- ------ -------- ------
Balance at December 31, 1996
Common stock issued in public offering, net of issuance
costs -- $ 796...............................................
Issuance of Common stock under stock option plan..............
Translation adjustment........................................
Net loss--Year ended December 31, 1997........................
-------- ------ ---------- ------ -------- ------
Balance at December 31, 1997
Common stock issued in private placements, net of issuance
costs -- $ 20 (unaudited)....................................
Issuance of Common stock under stock option plan (unaudited)
Translation adjustment (unaudited)............................
Net loss--Three Months ended March 31, 1998
(unaudited).................................................
-------- ------ ---------- ------ -------- ------
Balance at March 31, 1998 -- -- -- -- -- --
======== ====== ========== ====== ======== ======
See accompanying notes.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(unaudited)
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 in 1992, 1993 and 1994................................
Issuance of Common stock in 1992 and 1993..................... 132,301 $ 1 $ 96
Issuance of Common stock under stock option plan in 1994...... 77,356 1 28
Purchase of 28,761 shares of Common stock--Treasury stock
in 1994......................................................
Translation adjustment........................................ $ 181
Net loss from June 18, 1992 (date of inception) through
December 31, 1994............................................
---------- ---- ------- -------
Balance at December 31, 1994 209,657 2 123 181
Reissuance of 28,761 shares of Common stock held in
treasury.................................................... 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........................................ 334
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, net of issuance
costs -- $ 796............................................... 5,570,819 56 22,958
Issuance of Common stock under stock option plan.............. 50,767 1 25
Translation adjustment........................................ (1,694)
Net loss--Year ended December 31, 1997........................
---------- ---- ------- -------
Balance at December 31, 1997 13,762,732 $138 $57.067 $(2,132)
Common stock issued in private placements, net of issuance
costs -- $ 20 (unaudited).................................... 1,014,000 10 4,020
Issuance of Common stock under stock option plan (unaudited)
Translation adjustment........................................ (529)
Net loss--Three Months ended March 31, 1998
(unaudited).................................................
---------- ---- ------- -------
Balance at March 31, 1998 14,776,732 $148 $61,087 $(2,661)
DEFICIT
-----------
CCUMULATED
-----------
DURING
-----------
EVELOPMENT TREASURY
----------- ---------
STAGE STOCK TOTAL
----------- --------- ---------
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance $ 12,796
costs in 1992, 1993 and 1994................................
Issuance of Common stock in 1992 and 1993..................... 97
Issuance of Common stock under stock option plan in 1994...... 29
Purchase of 28,761 shares of Common stock--Treasury stock
in 1994...................................................... $(11) (11)
Translation adjustment........................................ 181
Net loss from June 18, 1992 (date of inception) through
December 31, 1994............................................ $ (3,605) (3,605)
-------- -------- --------
Balance at December 31, 1994 (3,605) (11) 9,487
Reissuance of 28,761 shares of Common stock held in
treasury.................................................... 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, net of issuance
costs -- $ 796............................................... 23,014
Issuance of Common stock under stock option plan.............. 25
Translation adjustment........................................ (1,694)
Net loss--Year ended December 31, 1997........................ (14,664) (14,664)
-------- -------- --------
Balance at December 31, 1997 $(36,293) $ 18,780
Common stock issued in private placements, net of issuance
costs -- $ 20 (unaudited).................................... 4,030
Issuance of Common stock under stock option plan (unaudited)
Translation adjustment........................................ (529)
Net loss--Three Months ended March 31, 1998
(unaudited)................................................. (3,522) (3,522)
-------- -------- --------
Balance at March 31, 1998 $(39,815) $ 18,759
See accompanying notes.
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 periods ending March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1997 (the "1997 Financial Statements"), included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE B -- INVENTORIES
Inventory consists of raw material and spare parts.
NOTE C RESTRICTED CASH
In August 1997, the Company provided Unipac, its Asian manufacturing partner,
with a written bank guaranty in an amount of $10.0 million pursuant to the
Display Foundry Agreement (the "Foundry Agreement") signed in May 1997 between
the Company and Unipac in order to implement volume production of Field Emission
Displays ("FEDs") at its manufacturing line. The Company granted the issuing
banks a security interest in its cash and cash equivalents for the same amount.
The pledged cash and cash equivalents have been recorded as short-term and long-
term restricted cash in the balance sheet. Under certain conditions of the
Foundry Agreement, Unipac can sell to the Company certain equipment. The payment
for such equipment will be secured by Unipac through the exercise of the bank
guaranty. Both the amount of the guaranty to Unipac and the amount of the
security interest to the banks will be reduced by 1/24th of the initial amount
at the end of each quarter, starting June 1998.
NOTE D PROPERTY, PLANT AND EQUIPMENT
In 1997, the Company signed a Display Foundry Agreement with Unipac, a Taiwanese
AMLCD manufacturer, in order to implement high-volume manufacturing of FEDs at
Unipac's plant. Pursuant to this agreement, Unipac began to install volume FEDs
production equipment. As of March 31, 1998, most of the required equipment have
been installed at the contract manufacturers' facility, for a total amount of
$12,340. These capital expenditures have been purchased and funded by Unipac.
PixTech will pay Unipac a Foundry Service Fee based on the depreciation of such
equipment. As of March 31, 1998, such payments have not commenced.
According to Financial Accounting Standard 13, "Accounting for leases", these
capital expenditures have been recorded as assets under the caption "Property,
Plant and Equipment", in the amount of $12,340. As of March 31, 1998, a capital
lease obligation has been recorded in the same amount, of which $1,885 has been
recorded as current portion.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
NOTE E PRIVATE PLACEMENTS
In March 1998, the Company sold 1,000,000 shares of the Company's Common Stock
to The Kaufmann Fund Inc., in a private placement at a price of $4.00 per share,
resulting in net cash proceeds of $4,000 before expenses payable by the Company,
which amounted to $20.
In March 1998, the Company entered into a license agreement with Coloray
Display Corporation, a California corporation ("Coloray"), providing PixTech
with a worldwide, nonexclusive royalty-free license on certain technologies
related to field emission displays. In consideration of the license and rights
granted to PixTech, the Company paid an amount of $75 and issued 14,000 shares
of the Company's Common Stock, valued at a price of $3.57 per share,
representing a total amount of $50.
NOTE F FAS 130
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income",("SFAS 130"), effective for the Company for the
first quarter of 1998. SFAS 130 requires that items defined as other
comprehensive income, such as foreign currency translation adjustments, be
separately classified in the financial statements and that the accumulated
balance of other comprehensive income be reported separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The components of comprehensive income for the three months ended March
31, 1998 and 1997 are as follows:
COMPREHENSIVE LOSS: THREE MONTHS ENDED MARCH 31,
1998 1997
Net loss $(3,522) $(3,714)
Change in cumulative translation adjustment (529) (478)
------- -------
Comprehensive net loss $(4,051) $(4,192)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Cooperation and License Revenues. PixTech is a party to a cooperative effort,
between select display manufacturers (the "FED Alliance") to advance FED
technology. Each agreement signed between the Company and a FED Alliance member
provides the member with a license to all FED technology of Laboratoire
d'Electronique, de Technologie et d'Instrumentation ("LETI") and the Company and
a sublicense to all FED technology of the other FED Alliance members, a transfer
of know-how from the Company, as well as access to Pixtech's pilot line. The
Company did not recognize any cooperation and license revenue under the FED
Alliance agreements in the three-month period ended March 31, 1998, as compared
to $707,000 in the three-month period ended March 31, 1997. The decrease in
cooperation and license revenues reflects the achievement by the Company of most
of the contractual milestones with FED Alliance members. The Company does not
expect any significant additional milestone related revenues to be directly
derived from existing FED Alliance members. Future cooperation and license
revenues are mostly subject to execution, by the Company, of cooperation and/or
license agreements with third parties that are not FED Alliance members. The
terms of the existing FED Alliance agreements do not permit expansion of the
Alliance after June 29, 1998. After this date, the Company may grant royalty-
bearing licenses to the FED cross-licensed technology to third parties subject
to certain restrictions as to the geographic location and number of such third-
party licensees. A portion of the proceeds PixTech will receive pursuant to such
third-party licenses may be shared with the other FED Alliance members. To the
extent the members of the FED Alliance successfully incorporate the cross-
licensed technology in their own products, the Company will recognize royalty
revenues as such members sell the products.
Product sales. The Company recognized product sales of $21,000 in the three-
month period ended March 31, 1998, as compared to $173,000 in the three-month
period ended March 31, 1997. 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. While the number of displays shipped
significantly increased between the three-month periods ended March 31, 1997 and
March 31, 1998, the average selling price was reduced, reflecting a different
mix between high valued prototypes and cathodes revenues and displays revenues.
The Company expects to increase product shipments in 1998, both from products
manufactured at its pilot production plant in France and from its expected
volume source of manufacturing by Unipac, which is not expected to begin until
the second half of 1998.
Other revenues. Other revenues is comprised of funding under French or European
Union development contracts and other miscellaneous revenues. The Company
recognized other revenues of $1.2 million in the three-month period ended March
31, 1998, as compared to $673,000 in the three-month period ended March 31,
1997. Of these revenues, $1.2 million and $663,000 are related to a development
contract granted in December 1994 from the French Ministry of Industry to
support manufacturing of FEDs, in the three-month periods ended 1998 and 1997,
respectively. Total funding under this contract approximated $2.7 million. The
Company recognized portions of this revenue as contractual conditions were met.
The Company recognized $800,000 in 1996, $663,000 in 1997 and $1.2 million in
the three-month period ended March 31, 1998.
Research and Development Expenses--Acquisition of Intellectual Property Rights.
The Company expensed $125,000 in the three-month period ended March 31, 1998 for
the acquisition of intellectual property rights from Coloray Display Corporation
(see "Notes to Condensed Consolidated Financial Statements -- Note E -- Private
Placements").
Other Research and Development Expenses. The Company expensed $3.8 million for
research and development costs during the three-month period ended March 31,
1998, as compared to $4.2 million in the three-month period ended March 31,
1997. These expenses include obligations to the French atomic energy agency
(the "CEA") under the LETI Research Agreement, contract consulting fees,
salaries and associated operating expenses for in-house research and development
activities conducted both in its pilot plant in Montpellier and its research and
development facility in Santa Clara, the cost of staffing and operating the
Company's pilot manufacturing facility and the cost of supporting the transfer
of the FED technology to Unipac.
This decrease reflected the increase of the parity of the U.S. dollar versus the
French Franc in the three-month period ended March 31, 1998 versus the three-
month period ended March 31, 1997, as most of the Company's research and
development costs is incurred in French Francs. After excluding the effects of
currency fluctuation, research and development expenses remained stable in the
three-month period ended March 31, 1998 as compared to the three-month period
ended March 31, 1997.
Sales and Marketing Expenses. The Company expensed $339,000 for sales and
marketing during the three-month period ended March 31, 1998, as compared to
$380,000 during the three-month period ended March 31, 1997, reflecting both the
effects of currency fluctuation and a decrease in staff expenses. The Company
believes sales and marketing expenses may increase in the future, as potential
customers and anticipated shipments of FED displays develop. In July 1997, the
Company signed a distribution agreement of its FED products with Sumitomo
Corporation ("Sumitomo") for the Japanese and Asian market areas. In 1998, the
Company intends to progress on its efforts to conclude similar distribution
agreements for both the United States and Europe, in order to expand market
reach in a cost effective manner.
General and Administrative Expenses. General and administrative expenses
amounted to $637,000 in the three-month period ended March 31, 1998, an increase
of 5% over general and administrative expenses incurred in the three-month
period ended March 31, 1997, which amounted to $606,000, reflecting an increase
in staff expenses.
STRATEGIC ISSUES AND RISKS
The Company is focused on the continued development of the FED technology, the
improvement of manufacturing yields, the successful implementation of contract
manufacturing of FEDs with its Asian contract manufacturer, Unipac, and the
reliability testing of new products which the Company expects will lead to the
shipment of commercial products in the near future. In evaluating this outlook,
the following risks and issues, among others, which are common with development
stage companies, should be considered.
Risks Associated with Contract Manufacturing of FEDs. The Company believes that
its ability to commercialize medium to large volumes of FEDs is highly dependent
on its ability to have FEDs manufactured by Unipac. In May 1997, the Company
signed a Foundry Agreement with Unipac, an AMLCD manufacturer based in Taiwan.
Under the agreement, Unipac has installed volume production equipment to produce
FEDs at its manufacturing plant, and 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 manufacturing plans are not implemented on a
timely basis, the Company will not be able to ship medium to large volumes of
FED products, or to obtain a commercially acceptable cost for its FED displays.
If the Company is unable to have its FED manufactured in a cost effective
manner, the Company would be materially adversely affected. Significant capital
expenditure is required in order to install, at the contract manufacturers'
facility, equipment that is not common to the AMLCD manufacturing process. A
total amount of $16.5 million of capital expenditures is expected to be required
which, pursuant to the Foundry Agreement, is expected to be purchased and funded
by Unipac, and leased to PixTech. The amount actually expended on capital
expenditures could vary significantly depending upon numerous factors, including
the inherent unpredictability of the total amount of a large scale capital
expenditure program. Should the Company be successful in implementing this
contract manufacturing relationship, the Company's reliance on a single contract
manufacturer will involve several risks, including a potential inability to
obtain an adequate supply of required products, and reduced control over the
price, timeliness of delivery, reliability and quality of finished products. Any
inability to manage this contract manufacturing relationship or any circumstance
that would cause the Company to delay the shipment of its products would have an
adverse effect on the Company.
Products and Manufacturing Processes under Development, Need to Obtain
Commercial Yields, Costs of Products. The Company's products and its
manufacturing processes are in the development stage. The Company has to date
encountered a number of delays in the development of its products and
manufacturing processes. No assurance can be given that further delays will not
occur. The Company does not plan to increase production from its pilot facility
beyond low volume levels. The Company believes that contract manufacturing with
Unipac (see "Risks Associated with Contract Manufacturing of FEDs") will make it
possible to manufacture volume quantities of FEDs at commercially acceptable
costs. However, moving from pilot production to volume production involves a
number of steps and challenges. In particular, in order to demonstrate the low
cost potential of its FED technology, the Company will need to improve its
manufacturing yields. There can be no assurance that the Company will be able to
implement processes for the manufacture of volume quantities of FED products at
commercially viable cost levels or on a timely basis. If such processes are not
successfully implemented, the Company would be adversely affected.
Display Performance Enhancement. Key elements of display performance are
brightness, and stability over time (life time and reliability), as well as
power efficiency. PixTech is seeking to balance luminous efficiency with power
efficiency to produce bright and low power-consumption displays. Display
reliability is heavily dependent upon the manufacturing process used in
assembling the displays as well as upon the characteristics of the phosphors
used on the anode. In order to produce color displays that will provide the
product life necessary for most applications, the Company needs to make further
advances in manufacturing processes. There can be no assurance that the Company
will be able to improve the reliability and life time of its color FEDs to
achieve commercially acceptable performance, or achieve commercially acceptable
performance on a timely basis. If such displays performance enhancements are
not successfully completed, the Company could be adversely affected.
Cooperation and License Revenues. To date, the Company has recorded most of the
expected revenues associated with the achievement of contractual milestones
under existing FED Alliance agreements. Under the agreements with the existing
FED Alliance members, the Company cannot expand the Alliance after June 29,
1998. Future cooperation and license revenues are mostly subject to execution,
by the Company, of cooperation and/or license agreements with third parties that
are not existing FED Alliance members. These agreements may be subject to
certain restrictions, such as geographic location and number of such third
parties. Should the Company succeed in executing such agreements, a portion of
the revenues from such contracts could be shared with the other FED Alliance
members. Failure to conclude new royalty-bearing licenses or cooperation
agreements could adversely affect the Company.
Competition and Competing Technologies. The market for flat panel display
products is intensely competitive and is expected to remain so in the future.
The market is currently dominated by products utilizing liquid crystal display
("LCD") technology. LCD technology has continued to improve, and there can be no
assurance that advances in LCD technology will not overcome its current
limitations. In addition, as some of the basic FED technology is in the public
domain, the Company has a number of potential direct competitors developing FED
displays. In the event that efforts by the Company's competitors result in the
development of products that offer significant advantages over the Company's
products, the Company could be adversely affected.
No Assurance of Market Acceptance. The potential size and timing of market
opportunities targeted by the Company 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.
In addition, because of the developmental stage of the Company, claims that
the Company's products infringe on the proprietary rights of others are more
likely to be asserted after commencement of commercial sales incorporating the
Company's technology. While there is currently no pending intellectual property
litigation against the Company, the
Company receives from time to time notices of potential infringement of third
party rights and there can be no assurance that third parties will not assert
claims against the Company with respect to existing or future products or that
licenses will be available on reasonable terms, or at all, with respect to any
third party technology. In the event of litigation to determine the validity of
any third-party claims, such litigation could result in significant expense to
the Company and divert the efforts of the Company's technical and management
personnel, whether or not such litigation is determined in favor of the Company.
In the event of an adverse result in any such litigation, the Company could be
required to pay substantial amounts in damages and to cease selling the
infringing product unless and until the Company is able to develop non-
infringing technology or to obtain licenses to the technology which was the
subject of the litigation. There can also be no assurance that competitors will
not infringe the Company's patents. An adverse outcome in a suit in which the
Company asserts its patent rights could result in the loss of such rights, and
could subject the Company to substantial costs and diversion of Company
resources.
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.
Impact of Year 2000. The Company has conducted a comprehensive review of its
computer systems to identify applications that could be affected by the "Year
2000" issue, and has developed an implementation plan to resolve the issue.
Management does not expect these costs to have a significant impact on its
financial position or results of operations.
FINANCIAL CONDITION
Cash used in operations was $2.4 million for the three-month period ended March
31, 1998, as compared to cash used in operations of $1.0 million for the three-
month period ended March 31, 1997.
The Company has used $25.1 million in cash to fund its operating activities from
inception through March 31, 1998 and has incurred $27.9 million in capital
expenditures and investments.
Cash flows generated from financing activities were $3.8 million in the three-
month period ended March 31, 1998, as compared to $20.9 million in the three-
month period ended March 31,1997.
These financings consisted primarily of sales of shares of Common Stock in a
private placement, resulting in net proceeds to the Company of $4.0 million (net
of issuance costs), while long term liabilities decreased by $196,000. Cash flow
generated from financing activities exclude non-cash transactions related to the
issuance of 14,000 shares of the Company's Common Stock to Coloray (See "Notes
to Condensed Consolidated Financial Statements -- Note E --- Private
placements").
Since its inception, the Company has funded its operations and capital
expenditures primarily from the proceeds of equity financing aggregating $59.6
million and from proceeds aggregating $19.0 million from borrowings and sale-
leaseback transactions.
Capital expenditures were $221,000 during the three-month period ended March 31,
1998 as compared to $113,000 during the same period of 1997. During the three-
month period ended March 31, 1998, capital expenditures remained focused on
limited capacity expansion in the pilot manufacturing facility. Implementing
volume production at Unipac's manufacturing plant requires significant capital
expenditures. An amount of $16.5 million of capital expenditures is expected to
be required which, pursuant to the Foundry Agreement, is expected to be
purchased and funded by Unipac. The written bank guaranty provided by the
Company to Unipac is expected to be increased from $10.0 million to $13.5
million.
The Company has existing contracts with two different French ministries
providing for the payment of grants to the Company totaling approximately $3.4
million, of which the Company has collected an aggregate amount of $2.7 million
through March 31, 1998 and for which the Company has recognized revenues to date
in the aggregate amount of $2.7 million.
In 1997, the Company entered into a research and development agreement with the
European Union and other European industrial companies for an 18 month-period,
which began in February 1997. The contribution of the European Union to the
costs incurred by the Company amounts to $840,000 over the period. The Company
received $423,000 in 1997 from this contribution, which were not recognized as
income in 1997 as all conditions stipulated in the agreement were not met.
Cash available at March 31, 1998 amounted to $13.1 million as compared to $12.4
million at December 31, 1997. The Company expects that cash available at March
31, 1998 together with anticipated proceeds from the various grants described
above and the anticipated increase in product sales will be sufficient to meet
its cash requirements, including repayment of the current portion of its long
term obligations in the amount of $3.7 million at March 31, 1998, for at least
12 months.
The Company will require substantial funds to conduct research, development and
testing, to develop and expand commercial-scale manufacturing systems and to
market any resulting products. Changes in technology or a growth of sales beyond
currently anticipated levels will also require further investment. The Company's
capital requirements will depend on many factors, including the rate at which
the Company can develop its products, the market acceptance of such products,
the levels of promotion and advertising required to launch such products and
attain a competitive position in the marketplace and the response of competitors
to the Company's products. There can be no assurance that funds for these
purposes, whether from equity or debt financing, or other sources, will be
available when needed or on terms acceptable to the Company.
PIXTECH, INC.
March 31, 1998
PART II Other Information
ITEM 1 Legal Proceedings:
Not applicable.
ITEM 2 Changes in Securities:
(a) Not applicable
(b) Not applicable
(c) In March 1998, the Company sold 14,000 and 1,000,000
shares of its Common Stock to Standard Energy Company
("Standard Energy") and The Kaufmann Fund, Inc.
("Kaufmann"), respectively, in private placements exempt
from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended. The offering price to
Standard Energy and Kaufmann was $3.57 per share and
$4.00 per share, respectively, and these offerings
resulted in net proceeds to the Company of approximately
$4,000,000. As consideration for issuance of the Common
Stock to Kaufmann. Kaufmann paid $4,000,000 in cash. As
consideration for the issuance of Common Stock to
Standard Energy, Coloray Display Corporation granted
certain license and rights to the Company.
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:
10.1 License Agreement, dated March 16, 1998, between
the Registrant and Coloray Display Corporation.
10.2 Stock Issuance Agreement, dated March 16, 1998,
between the Registrant and Standard Energy Company
10.3 Stock Purchase Agreement, dated March 27, 1998,
between the Registrant and Kaufmann Fund Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K : None
PIXTECH, INC.
March 31, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIXTECH, INC.
Date: May 14, 1998 BY: /s/ Yves Morel
--------------------------
Yves Morel
Chief Financial Officer
PIXTECH, INC.
March 31, 1998
EXHIBIT INDEX
Exhibit No.
- -----------
10.1++ License Agreement, dated March 16, 1998, between the
Registrant and Coloray Display Corporation.
10.2++ Stock Issuance Agreement, dated March 16, 1998,
between the Rgistrant and Standard Energy Company
10.3 Stock Purchase Agreement, dated March 27, 1998,
between the Registrant and Kaufmann Fund Inc.
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.