FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
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 July 31, 1999
----- ----------------------------
Common Stock, $.01 par value 23,467,138
PIXTECH, INC.
-------------
TABLE OF CONTENTS
-----------------
PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of June 30, 1999
and December 31, 1998......................................... 3
Statements of Comprehensive Operations for the Three Months
and Six Months Ended June 30, 1999 and 1998,
and the period from June 18, 1992 through June 30, 1999.......
4
Statements of Cash Flows for the Six Months
ended June 30, 1999 and 1998, and the period
from June 18, 1992 through June 30, 1999...................... 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
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings............................................. 16
ITEM 2 Changes in Securities......................................... 16
ITEM 3 Default upon Senior Securities................................ 16
ITEM 4 Submission of matters to a Vote of Security Holders........... 16
ITEM 5 Other Information............................................. 16
ITEM 6 Exhibits and Reports on Form 8-K.............................. 16
Signature......................................................................... 17
Exhibit Index..................................................................... 18
-2-
PixTech, Inc.
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
June 30, December 31,
1999 1998
--------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash available.......................................................... $ 7,017 $ 10,166
Restricted cash - short term............................................ 2,097 1,685
Accounts receivable..................................................... 322 617
Inventory............................................................... 1,348 980
Other................................................................... 1,377 1,354
-------- --------
Total current assets.............................................. 12,161 14,802
Restricted cash - long term............................................... 6,695 8,427
Property, plant and equipment, net........................................ 28,604 18,826
Goodwill, net............................................................. 114 150
Deferred tax assets....................................................... 1,287 4,643
Other assets - long term.................................................. 204 546
-------- --------
Total assets...................................................... $ 49,065 $ 47,394
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt....................................... $ 4,807 $ 3,410
Current portion of capital lease obligations............................ 2,362 2,189
Accounts payable........................................................ 7,037 7,514
Accrued expenses........................................................ 2,505 1,544
-------- --------
Total current liabilities......................................... 16,711 14,657
Deferred revenue.......................................................... 79 2,162
Long term debt, less current portion...................................... 10,075 8,391
Capital lease obligation, less current portion............................ 8,565 8,399
Other long term liabilities, less current portion......................... 46 528
-------- --------
Total liabilities................................................. 35,476 34,137
======== ========
Stockholders' equity
Convertible preferred stock Series E, $0.01 par value, authorized
shares--500,000; issued and outstanding shares--367,269................... 4 4
Common stock, $0.01 par value, authorized shares--60,000,000;
issued and outstanding shares--22,352,918; 15,000,329 respectively........ 223 150
Additional paid-in capital........................................... 83,450 68,999
Cumulative translation adjustment.................................... (2,527) (1,740)
Deficit accumulated during development stage......................... (67,561) (54,156)
-------- --------
Total stockholders' equity........................................ 13,589 13,257
-------- --------
Total liabilities and stockholders' equity........................ $ 49,065 $ 47,394
======== ========
See accompanying notes.
-3-
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Period from
June 18, 1992
Three Months Six Months (date of
Ended June 30, Ended June 30, inception)
------------------ ------------------- through June 30,
1999 1998 1999 1998 1999
------- ------- -------- -------- ----------------
Revenues
Cooperation and license revenues............ $ -- $ 1,001 $ -- $ 1,001 $ 26,449
Product sales............................... 178 66 339 87 3,165
Other revenues.............................. 314 311 2,314 1,543 8,220
-------- ------- -------- -------- ---------
Total revenues...................... 492 1,378 2,653 2,631 37,834
-------- ------- -------- -------- ---------
Cost of revenues
License fees and royalties.................. (85) (122) (172) (201) (1,688)
-------- ------- -------- -------- ---------
Gross margin.................................... 407 1,256 2,481 2,430 36,146
-------- ------- -------- -------- ---------
Operating expenses
Research and development:
Acquisition of intellectual property rights. -- -- -- (125) (4,890)
Other....................................... (6,616) (4,553) (12,203) (8,353) (84,731)
-------- ------- -------- -------- ---------
(6,616) (4,553) (12,203) (8,478) (89,621)
Marketing and sales......................... (329) (354) (680) (693) (7,287)
Administrative and general expenses......... (772) (586) (1,502) (1,223) (14,318)
-------- ------- -------- -------- ---------
(7,717) (5,493) (14,385) (10,394) (111,226)
-------- ------- -------- -------- ---------
Loss from operations............................ (7,310) (4,237) (11,904) (7,964) (75,080)
Other income / (expense)
Interest income / (expense)................. (98) (174) (364) (254) (263)
Foreign exchange gains / (losses)........... (621) 424 (1,137) 709 (111)
-------- ------- -------- -------- ---------
(719) 250 (1,501) 455 (374)
Loss before income tax benefit.................. (8,029) (3,987) (13,405) (7,509) (75,454)
Income tax benefit.............................. -- -- -- -- 7,893
-------- ------- -------- -------- ---------
Net loss........................................ $(8,029) $(3,987) $(13,405) $ (7,509) $ (67,561)
========= ======= ======== ======== =========
Dividends accrued to holders of Preferred
Stock...................................... (165) -- (299) -- (311)
-------- ------- -------- -------- ---------
Net loss to holders of Common Stock............. $(8,194) $(3,987) $(13,704) $ (7,509) $ (67,872)
======== ======= ======== ======== =========
Net loss per share of Common Stock.......... $(0.43) $(0.27) $(0.80) $(0.53)
======== ======= ======== ========
Shares of Common Stock used in computing.... 18,462 14,777 16,816 14,301
net loss per share
Net loss....................................... $(8,029) $(3,987) $(13,405) $(7,509) $ (67,561)
Change in cumulative translation adjustment.... (116) 316 (787) (213) (2,527)
-------- ------- -------- -------- ---------
Comprehensive net loss......................... $(8,145) $(3,671) $(14,192) $(7,722) $ (70,088)
======== ======= ======== ======== =========
See accompanying notes.
-4-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
Period from
June 18, 1992
(date of
inception)
Six Months Ended through
June 30, June 30,
------------------------ -------------
1999 1998 1999
-------- ------- -------------
Net loss............................................................ $(13,405) $(7,509) $(67,561)
Total adjustments to net loss....................................... 5,131 4,421 27,277
-------- ------- -------------
Net cash (used in) / provided by operating activities............... (8,274) (3,088) (40,284)
-------- ------- -------------
Investing activities
Additions to property plant and equipment........................... (396) (602) (19,716)
Reclassification of cash available as restricted cash............... 1,299 -- (8,813)
Additions to intangible assets...................................... -- -- (130)
-------- ------- -------------
Net cash used in investing activities............................... 903 (602) (28,659)
Financing activities
Stock issued........................................................ 4,198 3 ,980 71,702
Proceeds from long-term borrowings.................................. -- -- 16,287
Proceeds from sale leaseback transactions........................... -- -- 2,731
Payments for equipment purchases financed by accounts............... -- -- (3,706)
payable
Repayments of long term borrowing and capital lease obligations..... (360) (2,607) (8,177)
-------- ------- -------------
Net cash (used in) / provided by financing activities............... 3,838 1,373 78,837
-------- ------- -------------
Effect of exchange rates on cash.................................... 384 (229) (2,877)
-------- ------- -------------
Net (decrease) / increase in cash and cash equivalents.............. (3,149) (2,546) 7,017
Cash and cash equivalents beginning of period....................... 10,166 12,428 --
-------- ------- -------------
Cash and cash equivalents end of period............................. $ 7,017 $ 9,882 $ 7,017
======== ======= =============
See accompanying notes.
-5-
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
Convertible Preferred Stock
-----------------------------------------------------
Series A Series B
-------------------- -------------------------------
Shares Shares Shares
----------- --------- -----------
issued Amount issued Amount issued
----------- ------- --------- ------ -----------
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance 1,557,003 2,368 363,447 589 3,044,846
costs in 1992, 1993 and 1994...........................................
Issuance of Common stock in 1992 and 1993................................
Issuance of Common stock under stock option plan in 1994 and 1995
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994.........................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995
Common stock issued in initial public offering in 1995, net of issuance
costs -- $1,080........................................................
Conversion of preferred stock in 1995................................... (1,557,003) (2,368) (363,447) (589) (3,044,846)
Translation adjustment..................................................
Net loss from June 18, 1992 (date of inception) through
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 -- $44
Issuance of Series E convertible preferred stock,
net of issuance costs -- $822.........................................
Issuance of Common stock under stock option plan........................
Translation adjustment..................................................
Net loss--Year ended December 31, 1998
---------- ------ -------- ------ ----------
Balance at December 31, 1998
Common stock issued in private placements (unaudited)...................
Issuance costs and dividends accrued in relation to Series E
Convertible Preferred stock issued in December 1998 (unaudited)........
Issuance of common stock in connection with the acquisition of
certain assets of Micron Display, net of issuance costs -- $493
(unaudited).........................................................
Issuance of warrants in connection with the acquisition of certain
assets of Micron Display (unaudited)................................
Issuance of common stock under stock option plan (unaudited)........
Translation adjustment (unaudited)......................................
Net loss-- Six months ended June 30, 1999 (unaudited)...................
---------- ------ -------- ------ ----------
Balance at June 30, 1999.................................................... -- -- -- -- --
========== ====== ======== ====== ==========
Convertible Preferred Stock
-----------------------------------------------
Series C Series D Series E
--------- --------------------------- --------
Shares Shares
--------- ------
Amount issued Amount issued Amount
------ --------- ------ ------ ------
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance 8,615 430,208 1,224
costs in 1992, 1993 and 1994...........................................
Issuance of Common stock in 1992 and 1993................................
Issuance of Common stock under stock option plan in 1994 and 1995
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994..........................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995.....
Common stock issued in initial public offering in 1995, net of issuance
costs -- $1,080.........................................................
Conversion of preferred stock in 1995.................................... (8,615) (430,208) (1,224)
Translation adjustment...................................................
Net loss from June 18, 1992 (date of inception) through 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 -- $44
Issuance of Series E convertible preferred stock, net of issuance
costs -- $822........................................................... 367,269 $4
Issuance of Common stock under stock option plan.........................
Translation adjustment...................................................
Net loss--Year ended December 31, 1998...................................
-------- -------- ------ ------- ------
Balance at December 31, 1998............................................. 367,269 4
Common stock issued in private placements (unaudited)
Issuance costs and dividends accrued in relation to Series E
Convertible Preferred stock issued in December 1998 (unaudited).........
Issuance of common stock in connection with the acquisition of
certain assets of Micron Display, net of issuance costs -- $493
(unaudited)..........................................................
Issuance of warrants in connection with the acquisition of certain
assets of Micron Display (unaudited).................................
Issuance of common stock under stock option plan (unaudited).........
Translation adjustment (unaudited).......................................
Net loss-- Six months ended June 30, 1999 (unaudited)....................
-------- -------- ------ ------- ------
Balance at June 30, 1999................................................. -- -- -- 367,269 $4
======== ======== ====== ======= ======
See acccompanying notes.
-6-
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
Common Stock
-------------------------------
Dividends
---------
accrued to
----------
Additional holders of
---------- ----------
Preferred
---------
Shares Amount Paid-in Stock
---------- ------ ----------- -------------
issued Capital
---------- -----------
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 and 1995............. 84,258 1 31
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994...............................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995.......... 3
Common stock issued in initial public offering in 1995, net of
issuance costs -- $1,080..................................................... 2,500,000 25 20,973
Conversion of preferred stock in 1995......................................... 5,395,504 54 12,742
Translation adjustment
Net loss from June 18, 1992 (date of inception) through December
31, 1995..................................................................... 3
---------- ---- ------- -------------
Balance at December 31, 1995.................................................. 8,112,063 81 33,844
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........................................................
Net loss--Year ended December 31, 1996.......................................
---------- ---- ------- -------------
Balance at December 31, 1996.................................................. 8,141,146 81 34,085
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........................................................
Net loss--Year ended December 31, 1997........................................
---------- ---- ------- -------------
Balance at December 31, 1997.................................................. 13,762,732 $138 $57,067
Common stock issued in private placements, net of issuance costs
-- $ 44...................................................................... 1,236,222 12 4,493
Issuance of Series E convertible preferred stock,
net of issuance costs -- $ 822 Issuance of Series E...................... 7,449 (12)
convertible preferred stock in December, net of issuance costs
-- $ 822...................................................................
Issuance of Common stock under stock option plan..............................
1,375 1
Translation adjustment........................................................
Net loss--Year ended December 31, 1998........................................
---------- ---- ------- -------------
Balance at December 31, 1998.................................................. 15,000,329 150 69,011 (12)
Common stock issued in private placements (unaudited)......................... 150,000 1 351
Issuance costs and dividends accrued in relation to Series E.................. (36) (299)
Convertible Preferred stock issued in December 1998 (unaudited)
Issuance of common stock in connection with the acquisition of............. 7,133,562 71 14,152
certain assets of Micron Display, net of issuance costs -- $493
(unaudited)...............................................................
Issuance of warrants in connection with the acquisition of................. 257
certain assets of Micron Display (unaudited)..............................
Issuance of common stock under stock option plan (unaudited).............. 69,027 1 26
Translation adjustment (unaudited)............................................
Net loss--Six months ended June 30, 1999 (unaudited)..........................
---------- ---- ------- -------------
Balance at June 30, 1999 22,352,918 $223 $83,761 (311)
========== ==== ======= =============
Deficit
------------
Cumulative accumulated
------------ ------------ Treasury
translation during --------- Total
------------ ------------ stock ---------
adjustment development ---------
------------ ------------
stage
------------
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 and 1995........ 32
Purchase of 28,761 shares of Common stock-- Treasury $(11) (11)
stock in 1994..........................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995..... 11 14
Common stock issued in initial public offering in 1995, net of
issuance costs -- $1,080................................................ 20,998
Conversion of preferred stock in 1995....................................
Translation adjustment................................................... $ 515 515
Net loss from June 18, 1992 (date of inception) through December
31, 1995................................................................ $ (9,910) (9,910)
------- -------- -------- --------
Balance at December 31, 1995............................................. 515 (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) (953)
Net loss--Year ended December 31, 1996.................................. (11,719) (11,719)
------- -------- -------- --------
Balance at December 31, 1996............................................. (438) (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) (1,694)
Net loss--Year ended December 31, 1997................................... (14,664) (14,664)
------- -------- -------- --------
Balance at December 31, 1997............................................. $(2,132) $(36,293) $ 18,780
Common stock issued in private placements, net of issuance costs
-- $ 44................................................................. 4,506
Issuance of Series E convertible preferred stock,
net of issuance costs -- $ 822 Issuance of Series E................. 7,440
convertible preferred stock in December, net of issuance costs
-- $ 822
Issuance of Common stock under stock option plan
1
Translation adjustment................................................... 392 392
Net loss--Year ended December 31, 1998...................................
(17,863) (17,863)
------- -------- -------- --------
Balance at December 31, 1998............................................. (1,740) (54,156) 13,257
Common stock issued in private placements (unaudited).................... 352
Issuance costs and dividends accrued in relation to Series E............. (335)
Convertible Preferred stock issued in December 1998 (unaudited).........
Issuance of common stock in connection with the acquisition of........ 14,223
certain assets of Micron Display, net of issuance costs -- $493
(unaudited)..........................................................
Issuance of warrants in connection with the acquisition of............ 257
certain assets of Micron Display (unaudited)
Issuance of common stock under stock option plan (unaudited)......... 27
Translation adjustment (unaudited)....................................... (787) (787)
Net loss--Six months ended June 30, 1999 (unaudited)..................... (13,405) (13,405)
------- -------- -------- --------
Balance at June 30, 1999................................................. $(2,527) $(67,561) -- $ 13,589
======= ======== ======== ========
See accompanying notes.
-7-
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 and six-month periods ending
June 30,1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1998 (the "1998 Financial Statements"), included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Note B - Inventories
Inventory consists of raw material and spare parts.
Note C - Restricted Cash
In August 1997, the Company provided Unipac Optoelectronics Corp. ("Unipac"),
its Asian manufacturing partner, with a written bank guaranty in an amount of
$10,000 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 Unipac's 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 certain
equipment to the Company. 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 is
expected to decrease to match the net amount of equipment leased by Unipac to
the Company. These amounts started to decrease during the three month period
ended June 30, 1999.
Note D - Property, Plant and Equipment
Pursuant to the Foundry Agreement, volume FED production equipment was installed
at Unipac's facility. That equipment was purchased and funded by Unipac, and a
portion of it is leased to PixTech, which amounted to $11,554 as at June 30,
1999. According to Financial Accounting Standard 13, "Accounting for leases",
PixTech's share of equipment was recorded as assets under the caption "Property,
Plant and Equipment", in the net amount of $9,767. Depreciation of $475 was
recorded during the three-month period ended June 30, 1999. As of June 30,
1999, the related capital lease obligation amounted to $10,286, of which $1,950
were recorded as current portion.
In connection with the Micron Transaction (See "Note E -- Micron Transaction"),
production equipment located in Boise, Idaho, was acquired by the Company in May
1999. This acquisition was recorded in the amount of $13,316. The estimated
fair value of net assets acquired in the Micron Transaction was approximately
$9,157 in excess of the cost of net assets acquired. The estimated fair value
of property, plant and equipment of $22,473 was proportionally reduced to the
extent that the fair value of net assets acquired exceeded cost, resulting in
property plant and equipment of $13,316 (See "Note E -- Micron Transaction").
-8-
Notes to Condensed Consolidated Financial Statements
(all amounts in thousands except share amounts)
(unaudited)
Note E - Micron Transaction
On March 19, 1999, the Company entered into a definitive agreement to purchase
certain assets of Micron Technology, Inc. relating to field emission displays
including equipment and other tangible assets, certain contract rights and cash
(the "Micron Transaction"). The Micron Transaction was closed on May 19, 1999
between the Company and Micron and was accounted for as an acquisition of
assets. The accompanying financial statements reflect the acquisition of assets
for a cost of $17,932 and the assumption of certain liabilities in the amount of
$2,958, in consideration of the issuance of 7,133,562 shares of the Company's
Common Stock and a warrant to purchase 310,000 shares of the Company's Common
Stock. (See "Note F -- Stockholders' Equity"). The estimated fair value of net
assets acquired in the Micron Transaction was approximately $9,157 in excess of
the cost of net assets acquired. Consequently, the estimated fair value of
property, plant and equipment of $22,473 was proportionally reduced to the
extent that the fair value of net assets acquired exceeded cost resulting in
property plant and equipment of $13,316 In addition, the Company received cash
in the amount of $4,350. Therefore, of the assets acquired for $17,932, $13,316
was reflected under the caption "Property, Plant and Equipment", and $4,350
under the caption "Cash available".
Note F - Stockholders' equity
Common Stock : In consideration of the Micron Transaction, the Company issued
7,133,562 shares of the Company's Common Stock, representing a total amount of
$14,717, and a warrant to purchase 310,000 shares of the Company's Common Stock
at an exercise price of approximately $2.25 per share. The fair value of the
310,000 warrants was computed using the Black-Scholes model and was estimated at
$257.
Convertible preferred stock : The holders of Series E Preferred Stock issued in
December 1998 are entitled to receive cumulative dividends. During the six-
month period ended June 30, 1999, dividends of $299 were accrued and recorded
against Stockholders' Equity. As at June 30, 1999, the cumulative dividend
recorded against Stockholders' Equity amounted to $311.
As at June 30, 1999 , there were 367,269 shares of Series E Preferred Stock
outstanding. These shares of Series E Preferred Stock were convertible into
shares of Common Stock. As at June 30, 1999, the Series E Stock, including
accrued dividends, would have been convertible into 5,820,779 shares of Common
Stock using a conversion price of $1.48, equal to the average closing price of
the Company's Common Stock over the 10 trading days ending June 29, 1999.
Consequently, there were 28,173,697 shares of Common Stock or equivalent to
shares of Common Stock outstanding as at June 30, 1999.
In July 1999, 70,000 shares of Series E Preferred Stock were converted into
shares of Common Stock at an average conversion price of $1.47, resulting in the
issuance of1,114,220 shares of the Company's Common Stock. As at July 31, 1999,
there were 297,269 shares of Series E Preferred Stock outstanding. These Series
E Preferred Shares would have been convertible into 3,866,213 shares of the
Company's Common Stock using a conversion price of $1.81, equal to the average
closing price of the Company's Common Stock over the 10 trading days ending July
30, 1999. Consequently, there were 27,333,351 shares of Common Stock or
equivalent to shares of Common Stock outstanding as at July 31, 1999.
-9-
Note G - Litigation
The Company has received correspondence from Futaba Corporation and its legal
counsel since January 1998 alleging the following : (i) PixTech is infringing
one or more patents owned by Futaba relating to the construction and manufacture
of its displays that are not expressly included under the license agreement
between Futaba and Pixtech, (ii) PixTech's use of terms such as "alliance" and
"partners" in describing the nature of its contractual relationships with
Motorola, Raytheon and Futaba in reports filed with the SEC is misleading and
(iii) certain provisions in the Foundry Agreement with Unipac constitute an
impermissible sublicense of Futaba technology. PixTech does not believe such
claims have any merit and has denied each of the allegations in correspondences
with Futaba and its counsel and is in discussions with Futaba concerning their
allegations. Futaba has also claimed that the Company improperly supplied
certain Futaba proprietary information to Unipac, and that Unipac has in turn
disclosed such information to a third party vendor. If Futaba were to prevail
on all of these claims, PixTech may be required, among other adverse
consequences, to modify the construction and manufacture of its displays and
may, as a result, be materially adversely affected.
To the Company's knowledge, there are no other exceptional facts or litigation
that could have or that have in the recent past had any significant impact on
its business, results, financial situation, or assets and liabilities.
Note H - Financial position
During the six months ended June 30, 1999, the Company has continued to
experience losses and has used cash in operating activities, which has adversely
affected the Company's liquidity. At June 30,1999, the Company had net working
deficit of $4,550 and a deficit accumulated during the development stage of
$67,561. The Company intends to improve its liquidity and financial position
through capital increases expected to take place in 1999. There can be no
assurance that additional funds will be available through capital increases when
needed or on terms acceptable to the Company.
Note I - Subsequent event
In July 1999, 70,000 shares of Series E Preferred Stock were converted into
shares of Common Stock at an average conversion price of $1.47, resulting in the
issuance of1,114,220 shares of the Company's Common Stock (See "Note F --
Stockholders' Equity").
On August 9, 1999, the Company entered into a private equity line agreement with
Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the
equity line, PixTech has the irrevocable right, subject to certain conditions,
to draw up to $15 million cash in exchange for PixTech's common stock, in
increments over a two-year period. Such conditions include limitations depending
on the volume and the market price of PixTech's common stock. The Company may
begin to make draws under the facility upon registration of the shares for
resale with the Securities and Exchange Commission. Shares will be issued at a
10% discount to the market price at the time of any draw, if the market is at or
above $3.00, or at a 12% discount if the stock price is below $3.00.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
Product sales. The Company recognized product sales of $339,000 in the six-month
period ended June 30, 1999, as compared to $87,000 in the six-month period ended
June 30, 1998. In the six-month periods ended June 30, 1998 and 1999, product
revenues primarily comprised shipments of displays sold at volume prices to Zoll
Medical, thus reflecting a significant increase in the number of displays
shipped. Since 1998, the Company has begun shipping its FED displays
manufactured by its contract manufacturer, Unipac, to its customers in limited
quantities. During the three-month period ended June 30, 1999, unit shipments
from Taiwan represented 21% of total shipments. The Company expects an increase
of product shipments from Taiwan in the second half of 1999.
Other revenues. Other revenues consist of funding under various public
development contracts and other miscellaneous revenues. The Company recognized
other revenues of $2.3 million in the six-month period ended June 30, 1999, as
compared to $1.5 million in the six-month period ended June 30, 1998. Of these
revenues, in the six-month period ended June 30, 1999, $1.3 million were related
to an incentive from French local authorities awarded in 1994 to the Company to
establish its pilot plant in Montpellier, France, and $961,000 were related to a
development contract from European Union signed in 1997, for which recognition
as revenue of the related contribution, collected mainly in 1997 and in 1998,
had been deferred until all conditions stipulated in the agreement were met. In
the six-month period ended June 30, 1998, other revenues included $1.2 million
related to a development contract granted in December 1994 from the French
Ministry of Industry to support manufacturing of FEDs.
Other Research and Development Expenses. The Company expensed $6.6 million for
research and development costs during the three-month period ended June 30,
1999, an increase of 45% over the $4.6 million incurred in the three-month
period ended June 30, 1998. These expenses include salaries and associated
expenses for in-house research and development activities conducted both in its
pilot plant and its research and development facility in Boise, Idaho, the cost
of staffing and operating the Company's pilot manufacturing facility and the
cost of supporting the transfer and adaptation of the Company's FED technology
to Unipac, as well as obligations to CEA under the LETI Research Agreement, and
miscellaneous contract consulting fees. This increase primarily reflected the
costs associated with the research and development activities conducted in Boise
following the Micron Transaction and the cost of supporting the transfer of FED
manufacturing processes to Unipac. As part of the acquisition of Micron
Display`s assets in May 1999, the Company hired 44 employees to work on the
production equipment acquired in the Boise facility, thus reinforcing its FED
technology development efforts. In addition, the development team located in
Santa Clara was moved to Boise with an aim to focus its efforts on the expansion
of the large display effort. Research and development expenses amounted to $12.2
million for the six-month period ended June 30, 1999, as compared to $8.5
million for the six month period ended June 30, 1998.
Sales and Marketing Expenses. The Company expensed $329,000 for sales and
marketing during the three-month period ended June 30, 1999, as compared to
$354,000 during the three-month period ended June 30, 1998, reflecting a one-
time decrease in staff expenses. The Company believes sales and marketing
expenses may increase in the future, reflecting the expansion of the Company's
sales and marketing organization both in the United States and in Europe, in
order to achieve a successful commercialization phase for the Company's
products. Sales and marketing expenses amounted to $680,000 for the six-month
period ended June 30, 1999, as compared to $693,000 for the six month period
ended June 30, 1998.
General and Administrative Expenses. General and administrative expenses
amounted to $772,000 in the three-month period ended June 30, 1999, an increase
of 32% over general and administrative expenses incurred in the three-month
period ended June 30, 1998, which amounted to $586,000, reflecting an increase
in consulting expenses. General and administrative expenses amounted to $1.5
million for the six-month period ended June 30, 1999, as compared to $1.2
million for the six month period ended June 30, 1998.
Interest Income (Expense), Net. Interest income is comprised of interest on
available and restricted cash. Interest expense is comprised of interest payable
on long-term obligations. Net interest expense was $98,000 in the three-month
period ended June 30, 1999, as compared to $174,000 in the three-month period
ended June 30, 1998, reflecting the increase in cash balances and the decrease
in long-term liabilities. Net interest expense amounted to $364,000 in the six-
month period ended June 30, 1999, as compared to $254,000 in the six-month
period ended June 30, 1998.
-11-
Currency Fluctuations. Although a significant portion of the Company's revenues
are denominated in U.S. dollars, a substantial portion of the Company's
operating expenses are denominated in Euros. Gains and losses on the conversion
to U.S. dollars of assets and liabilities denominated in Euros may contribute to
fluctuations in the Company's results of operations, which are reported in U.S.
dollars. Most of the Company's capital lease obligation is expressed in
Taiwanese dollars. In the past, fluctuations of the parity of the Taiwanese
dollar versus the Euro caused significant foreign exchange gains or losses and
may continue to do so in the future. The Company recorded net foreign exchange
loss of $1.1 million in the six-month period ended June 30,1999, while the
Company recorded net foreign exchange gain of $709,000 in the six-month period
ended June 30,1998. The Company cannot predict the effect of exchange rate
fluctuations on future operating results. To date, the Company has not
undertaken hedging transactions to cover its currency exposure, but it may do so
in the future.
Liquidity and Capital Resources.
Cash used in operations was $8.3 million for the six-month period ended June
30,1999, as compared to cash used in operations of $3.1 million for the six-
month period ended June 30, 1998. This increase corresponds to the following
factors : (i) absence of significant cash receipts from revenues in the six-
month period ended June 30,1999, and (ii) increase in operating expenses
associated with Taiwan start-up costs and with the funding of the operations in
Boise.
The Company has used $40.3 million in cash to fund its operating activities from
inception through June 30,1999 and has incurred $28.7 million in capital
expenditures and investments.
Capital expenditures were $396,000 during the six-month period ended June
30,1999 as compared to $602,000 during the same period of 1998. These capital
expenditures exclude the assets acquired pursuant to the Micron Transaction as
those assets were acquired in consideration for Common Stock issuance. They also
exclude assets acquired under capital lease obligations. During the six-month
period ended June 30,1999, capital expenditures remained focused on limited
capacity expansion in the pilot manufacturing facility. Implementing volume
production at Unipac's manufacturing plant required significant capital
expenditures. Pursuant to the Foundry Agreement, Unipac funded a $14.9 million
capital expenditure for equipment. A portion of that equipment is leased to
PixTech and amounted to $11.6 million as of June 30, 1999. The Company expects
that additional capital expenditures will be required in 1999 to increase
capacity at Unipac and to complete implementation of manufacturing processes,
both for monochrome and for color products.
As at June 30, 1999, restricted cash amounted to $8.8 million and was related to
the security interest granted in 1997 by the Company to Unipac, pursuant to the
Foundry Agreement, in relation to the purchase and funding by Unipac of volume
FEDs production equipment. During the six-month period ended June 30, 1999, the
written bank guaranty provided by the Company to Unipac decreased to match the
net amount of equipment leased by Unipac to the Company. The decrease of this
bank guaranty corresponded to a simultaneous similar decrease of the amount of
the security interest to the banks, thus resulting in an $1.3 million increase
of the cash available to fund the Company's activities. Both the amount of this
written bank guaranty and the correspondent security interest to the banks are
expected to continue decreasing in the future.
Cash flows generated from financing activities were $3.8 million in the six-
month period ended June 30,1999, as compared to $1.4 million in the six-month
period ended June 30,1998. This net cash flow consisted of sales of shares of
Common Stock, resulting in net proceeds to the Company of $4.2 million, while
long term liabilities decreased by $360,000. In consideration of the 7,133,562
shares of Common Stock and 310,000 warrants issued pursuant to the Micron
Transaction, the Company was granted certain assets, assumed certain
liabilities, and received $4.3 million in cash. Cash flows generated from
financing activities in the six-month period ended June 30,1999 excluded non-
cash transactions related to the acquisition of these assets and the assumption
of these liabilities, and resulted in net proceeds to the Company of $3.8
million (net of issuance costs). In addition, cash flows generated from
financing activities included the sales of shares of Common Stock in a private
placement in January 1999, resulting in net proceeds to the Company of $352,000.
Long term liabilities increased by $2.0 million in the six-month period ended
June 30,1999, representing two zero-interest loans granted to the Company by
French local authorities, while the repayments amounted to $2.4 million,
resulting in a net decrease of $360,000. Of the repayments occurring in the six-
month period ended June 30,1999, $1.3 million was related to the first repayment
of the $5.0 million note granted to the Company in 1997 by Sumitomo Corporation.
Since its inception, the Company has funded its operations and capital
expenditures primarily from the proceeds of equity financing aggregating $71.7
million and from proceeds aggregating $19.0 million from borrowings and sale-
leaseback transactions.
-12-
In 1997 and January 1999, the Company entered into two R&D agreements with
French authorities. Under these agreements, the Company expects to benefit from
zero-interest loans totaling approximately $3.0 million, of which $2.0 million
were received during the three-month period ended June 30, 1999, and $800,000
are expected to be received in the second half of 1999.
In November 1998, the Company entered into an R&D agreement with French
authorities. Under this agreement, the Company expects to benefit from a grant
totaling approximately $880,000, of which $230,000 is expected to be collected
in the second half of 1999.
In February 1997, the Company entered into an R&D agreement with the European
Union and other European industrial companies. The contribution of the European
Union to the costs incurred by the Company amounts to $961,000 over the period,
of which $736,000 were collected in 1997 and 1998 and recognized as income in
the three-month period ended June 30, 1999, as all conditions stipulated in the
agreement were met. During the three month period ended June 30, 1999, the
Company recognized as income an amount of $225,000 representing the remaining
revenue from this contract, of which $140,000 was collected and $85,000 is
expected up to the end of 1999.
The Company recognized French income tax benefits of $7.9 million since
inception. These income tax benefits represent tax credits for research and
development activities conducted in France, which are paid in cash to the
Company if it is not able to credit them against future income tax liabilities
within three fiscal years. In 1998, the Company collected $2.8 million,
representing R&D tax credits recorded in 1993 and 1994. In April 1999, the
Company collected $3.0 million from R&D tax credit recorded in 1995.
On August 9, 1999, the Company entered into a private equity line agreement with
Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the
equity line, PixTech has the irrevocable right, subject to certain conditions,
to draw up to $15 million cash in exchange for PixTech's common stock, in
increments over a two-year period. Such conditions include limitations depending
on the volume and the market price of PixTech's common stock. The Company may
begin to make draws under the facility upon registration of the shares for
resale with the Securities and Exchange Commission. Shares will be issued at a
10% discount to the market price at the time of any draw, if the market is at or
above $3.00, or at a 12% discount if the stock price is below $3.00.
On August 5, 1999, the Company was awarded a development contract by DARPA
(Defense Advanced Research Projects Agency). Under the terms of the contract,
the Company will receive approximately $4.7 million to develop a color FED.
Cash available at June 30, 1999 amounted to $7.0 million as compared to $10.2
million at December 31, 1998. The Company expects that cash available at June
30,1999 together with the anticipated proceeds from the various grants and loans
described above and from R&D tax credits, will be sufficient to meet its cash
requirements, including repayment of the current portion of its long term
obligations in the amount of $7.2 million at June 30, 1999, until at least
September 30, 1999. The Company intends to improve its liquidity and financial
position through capital increases expected to take place in the second half of
1999.
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.
-13-
Year 2000 Disclosure
There is a significant uncertainty regarding the effect of the Year 2000 issue
because computer systems that do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or
altogether fail. The Company has conducted a comprehensive review of its
computer systems and manufacturing equipment to identify applications that could
be affected by the inability of certain computer systems to format and
manipulate data containing dates including the year 2000 and subsequent years.
Although management does not expect that costs associated with modifying
existing computer systems and manufacturing equipment will have a significant
impact on its financial position or result of operations, there can be no
assurance that such modifications will be successfully implemented or that these
costs will not be significant. In addition, the Company depends on a limited
group of suppliers. There can be no assurance that those suppliers will not be
significantly impacted by the "Year 2000" issue. If those suppliers are
significantly impacted by the "Year 2000" issue, such suppliers may not be able
to continue their supply of parts to the Company without interruption. The
Company is in the process of identifying third party vendors that are non-Year
2000 compliant and of assessing the following consequences. In particular, the
Company requested Unipac, its Taiwanese manufacturing partner, to assess whether
its computer systems and manufacturing equipment could be affected by the "Year
2000" issue and, if so, to present a contingency plan. To implement its large
volume manufacturing strategy, the Company is dependent on Unipac's ability to
be successful in addressing the "Year 2000" issue. The Company's continued use
of a vendor which is not Year 2000 compliant or the failure of the Company's own
computer systems or manufacturing equipment to be fully Year 2000 compliant
could materially adversely affect the Company's business, financial position and
results of operations.
Strategic issues and risks
The Company is currently focused on the following activities which it believes
are necessary to the success of its business: (i) successfully implementing the
manufacture of FEDs by its Taiwanese contract manufacturer, Unipac; (ii)
improving its manufacturing processes and yields, both in its pilot plant and at
Unipac; (iii) expanding its customer base and product offering, and (iv)
continuing the development of its FED technology, including the development of
large FED displays. In evaluating its outlook, the following risks and issues
should be considered, among others which are common with development stage
companies.
The Company May Not Have Operating Income or Net Income in the Future and It May
Have Problems Raising the Money It Needs in the Future At June 30, 1999, the
Company had net working deficit of $4,550 and a deficit accumulated during the
development stage of $67,561. These conditions raise substantial doubt about its
ability to continue as a going concern. In the future, the Company expects that
it will need to obtain money from sources outside the Company, as it has done in
the past. There is no guarantee that any of the outside sources will provide the
Company with the money when needed. In addition, even if the Company is able to
find outside sources which will provide it with the money when needed, in order
to raise this money the Company may be required to issue securities with better
rights than the rights of its common stock or it may be required to take other
actions which lessen the value of its current common stock, including borrowing
money on terms that are not favorable to it.
There are Risks Associated with Using a Single Contract Manufacturer to
Manufacture its FEDs. The Company believes that its ability to commercialize
medium to large volumes of FEDs depends on its ability to have Unipac
manufacture FEDs. If the Company is not able to implement its manufacturing
plans with Unipac as expected, the Company will not be able to ship medium to
large volumes of FED products. Furthermore, the Company will not be able to
obtain an acceptable cost for its FED displays through high volume
manufacturing, as compared to manufacturing FEDs at its pilot production
facility. This situation would materially adversely affect its operations. In
May 1997, the Company signed a Foundry Agreement with Unipac, a liquid crystal
display manufacturer based in Taiwan. Under the agreement, Unipac has installed
volume production equipment to produce FEDs at its manufacturing plant, and has
begun production for exclusive delivery of FED displays to the Company.
Expectations about the final timing of this manufacturing plan with Unipac are
forward-looking statements that still involve risks and uncertainties, including
the ease or difficulty of the transfer of the FED technology to Unipac. The
Company's reliance on a single contract manufacturer will involve several risks.
For example, the Company could be unable to obtain an adequate supply of
required products if Unipac did not supply enough products. Moreover, the
Company will have less control over the price of the finished products, the
timeliness of their delivery and their reliability and quality. The Company's
failure to adequately manage this contract manufacturing relationship or any
delays in the shipment of its products would adversely effect the Company.
-14-
The Company's Products and Manufacturing Processes are Still under Development
and The Company Still Needs to Obtain Commercially Acceptable Yields and
Acceptable Costs of Products. In order for the Company to succeed, it must
continue to develop and produce a range of products incorporating its FED
technology. At this time, the Company has successfully developed only one
product that has been incorporated into a commercial end-user application. The
Company will need to complete the development of additional FED products before
they can be sold to the public, and there is no guaranty that the Company will
succeed in these development efforts. If the Company does not develop these new
products, it will not be successful. To date, the Company has used its pilot
manufacturing facility in Montpellier, France to produce only a limited number
of products suitable for sale. In addition, the Company has not completed
testing of its manufacturing processes at Unipac. In order for the Company to be
successful, it must make certain improvements to its manufacturing processes. In
particular, it must improve its manufacturing yields in order to demonstrate the
low cost potential of its FED technology. Even if the Company succeeds in
completing the development and testing of its manufacturing processes, it can
not be sure that the favorable characteristics demonstrated by its current
displays manufactured at its pilot manufacturing facility will be reproduced on
a cost- effective basis in commercial production. The Company has, at this time,
encountered a number of delays in the development of its products and processes,
and it is possible that further delays will occur. Any significant delays could
cause the Company to miss certain market opportunities and could have a material
adverse effect on its business.
The Company Needs to Further Enhance its Display Performance. The Company may
never improve the performance characteristics of its color FEDs to a level that
is commercially acceptable or may fail to do so on a timely basis, either of
which could adversely affect its business. Key elements of display performance
are brightness, power efficiency and stability over time (life time and
reliability). The Company is seeking to balance brightness with power efficiency
to produce bright and low power-consumption displays. Display reliability
depends heavily on the manufacturing process used in assembling the displays as
well as the characteristics of the phosphors used in the display. In order to
produce color displays that will provide the product life and other
characteristics necessary for most applications, the Company needs to make
further advances in its manufacturing processes.
The Company faces Intense Competition and Needs to Compete with Current and
Future Competing Technologies. The Company's competitors may succeed in
developing products that outperform its displays or that are more cost
effective. If its competitors develop products that offer significant advantages
over its products and if the Company is unable to improve its technology, or
develop or acquire alternative technology that is more competitive, it would be
adversely affected. The market for "flat panel display," or "FPD", products is
currently dominated by products utilizing "liquid crystal display," or "LCD",
technology. Certain LCD manufacturers have substantially greater name
recognition and financial, technological, marketing and other resources than the
Company. Furthermore, LCD manufacturers have made, and continue to make,
substantial investments in improving LCD technology and manufacturing processes
and in the construction of manufacturing facilities for displays. The Company
believes that, over time, this will have the effect of reducing average selling
prices of FPDs. In addition, recently there have been substantial increases in
the worldwide manufacturing capacity of FPDs, and new competitors have entered
the FPD market. Such changes may cause over-supply conditions leading to
dramatic reductions in the price of FPDs. In order to effectively compete, the
Company could be required to increase the performance of its products or reduce
prices. In the event of price reductions, the Company will not be able to
maintain gross margins unless it reduces its cost of sales.
Potential Customers may not Accept the Company's Products. The Company is
uncertain about the potential size and timing of its target market
opportunities. It anticipates marketing its displays to "original equipment
manufacturer" or "OEM" customers Its success will depend, in part, on the
following factors: (i) whether OEMs select its products for incorporation into
their products; (ii) the successful introduction of such products by the OEMs;
and (iii) the successful commercialization of products developed by parties
incorporating its products. It is possible that demand for any particular
product will not last or that new markets will fail to develop as the Company
expects, or at all. Such deviations would materially and adversely effect the
Company.
The Company May Have Difficulty Protecting Patents and other Proprietary Rights
to its Technology. 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. However, rights granted under patents may not provide the Company
with any competitive advantage over competitors with similar technology, and any
issued patents may not contain claims sufficiently broad to protect against
these competitors.
The Company cannot be certain that it was the first creator of inventions
covered by pending patent applications or the first to file patent applications
on such inventions because patent applications in the United States are
maintained in secrecy until patents issue and the publication of discoveries in
scientific or patent literature tends to lag behind actual discoveries by
several months.
-15-
Moreover, claims that its products infringe on the proprietary rights of others
are more likely to be asserted after the Company begins commercial sales of
products using its technology. Although the Company believes that its products
do not infringe the patents or other proprietary rights of third parties, it is
possible that third parties will assert infringement claims against us and that
such claims will be successful. It is also possible that competitors will
infringe its patents. Even the successful defense and prosecution of patent
suits is costly and time consuming. The adverse outcome of a patent suit could
subject us to significant liabilities to other parties, require disputed rights
to be licensed from third parties or require us to stop selling its products.
The Company has received correspondence from Futaba Corporation and its legal
counsel beginning in February 1998 alleging the following: (i) the Company is
infringing one or more patents owned by Futaba relating to the construction and
manufacture of its displays that are not expressly included under the license
agreement between the Company and Futaba; (ii) its use of terms such as
"alliance" and "partners" in describing the nature of its contractual
relationships with Motorola, Raytheon and Futaba in reports filed with the SEC
is misleading; and (iii) certain provisions in the Foundry Agreement with Unipac
constitute an impermissible sublicense of Futaba technology. The Company does
not believe such claims have any merit and has denied each of the allegations in
correspondences with Futaba and its counsel. Futaba has also claimed that the
Company improperly supplied certain Futaba proprietary information to Unipac,
and that Unipac has, in turn, disclosed such information to a third party
vendor. If Futaba prevails on any of these claims, the Company may be required,
among other adverse consequences, to modify the construction and manufacture of
its displays and may, as a result, be materially adversely affected.
Currency Fluctuations May Cause Gains or Losses. A large percentage of the
Company's net assets and costs are expressed in Euros. Fluctuations of the value
of the U.S. dollar versus the Euro may cause significant foreign exchange gains
or losses. Most of the Company's capital lease obligation is expressed in
Taiwanese dollars. Fluctuations of the value of the Taiwanese dollar versus the
Euro or the US dollar may cause significant foreign exchange gains or losses.
Holders of Common Stock May face Significant Dilution from the Conversion of
Series E Preferred Shares. In December 1998, the Company issued 367,269 shares
of Series E Preferred Stock (the "Series E Stock"), at a price of $22.5313 per
share, to certain institutional investors. The Series E Stock is convertible
into Common Stock at a rate equal to the lesser of (a) $2.25313, and (b) the
average closing price Common Stock over the ten trading day ending period ending
on the day immediately preceding the day upon conversion. In July 1999, 70,000
shares of Series E Preferred Stock were converted into shares of Common Stock,
resulting in the issuance of1,114,220 shares of the Company's Common Stock. As
at July 31, 1999, there were 297,269 shares of Series E Preferred Stock
outstanding., likely to be converted into 3,866,213 shares of the Company's
Common Stock. Should the Company's stock price fall below its current level,
conversion of Series E stock may result into the issuance of a significant
additional number of shares of Common Stock, and may cause significant dilution
to current holders of Common Stock.
Certain Anti-Takeover Provisions May Limit the Company's Stock Price Certain
provisions of the Company's certificate of incorporation and by-laws may
discourage a third party from offering to purchase the Company. These
provisions, therefore, inhibit actions that would result in a change in control
of the company, including an action that may give the holders of the common
stock the opportunity to realize a premium over the then-prevailing market price
of their stock. These provisions may also adversely affect the market price of
the Common Stock. For example, under its certificate of incorporation, the
Company can issue "blank check" Preferred Stock with such designations, rights
and preferences as determined by its Board of Directors from time to time. This
type of Preferred Stock could be used as a method of discouraging, delaying or
preventing a change in control of the Company. In addition, the Preferred Stock
issued by the company in December 1998 and any additional shares of Preferred
Stock that the Company may issue in the future may adversely affect the voting
and dividend rights, rights upon liquidation and other rights of the holders of
common stock. The Company does not currently intend to issue any additional
shares of preferred stock, but it retains the right to do so in the future.
-16-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk exposure inherent to the Company's international operations
creates potential for losses arising from adverse changes in foreign currency
exchange rates. The Company is exposed to such foreign currency exchange rate
risk in two main areas: (i) a substantial portion of the Company's operating
expenses are and are expected to be denominated in Euros, (ii) most of the
Company's capital lease obligation is expressed in Taiwanese dollars.
Fluctuations of the parity of the Taiwanese dollar versus the Euro or the US
dollar may cause significant foreign exchange gains or losses. In addition,
gains and losses arising from the conversion to U.S. dollars of assets and
liabilities denominated in Euros or in Taiwanese dollars may contribute to
fluctuations in the Company's results of operations, which are reported in U.S.
dollars. To date, the Company has not undertaken hedging transactions to cover
its currency exposure.
-17-
PIXTECH, INC.
June 30, 1999
PART II Other Information
ITEM 1 Legal Proceedings:
Not applicable.
ITEM 2 Changes in Securities:
(a) Not applicable
(b) Not applicable
(c) In January 1999, the Company sold 150,000 shares of
the Company's Common Stock in a private placement at a
price of $2.35 per share, resulting in net proceeds of
$352,000.
In May 1999, the Company issued 7,133,562 shares of
Common Stock and a warrant to purchase 310,000 shares of
the Company's Common Stock to Micron Technology, Inc. In
a private placement, in consideration of the acquisition
of assets from Micron Technology, Inc. for $17.9
million, including cash for $4.4 million and the
assumption of certain liabilities in the amount of $2.9
million. The warrant may be exercised until May 19,
2001, and has an exercise price of $2.25313 per share .
In July 1999, 70,000 shares of Series E Preferred
Stock were converted into shares of Common Stock,
resulting in the issuance of1,114,220 shares of the
Company's Common Stock. As at July 31, 1999, there were
297,269 shares of Series E Preferred Stock outstanding.
ITEM 3 Defaults upon Senior Securities:
Not applicable.
ITEM 4 Submission of matters to a Vote of Security Holders:
At the Annual Meeting of Stockholders held on May 12,
1999, the Company's Stockholders voted :
TOTAL VOTE TOTAL VOTE TOTAL VOTE))
((FOR)) ((AGAINST)) ABSTAINING))
1. to elect Mr. Dieter Mezger to 11,818,077 17,290 --
the Board of Directors for a
three-year term :
The terms in office of
Messrs. Jean-Luc Grand-Clement,
William C. Schmidt and
John A. Hawkins continued after
the meeting.
2. to amend the Restated 10,962,896 833,501 38,970
Certificate of Incorporation of the
Company to increase the authorized
shares of capital stock of the
Company from 31,000,000 shares to
61,000,000 shares.:
3. To amend the Company's 1993 10,941,621 853,201 40,545
Stock Option Plan to increase the
number of shares available under
such Plan from 2,656,372 shares to
5,156,372 shares.
4. To consider and vote on a 10,981,676 814,651 39,040
proposal to issue shares of the
Company's Common Stock in
connection with the purchase of
certain assets of Micron
Technology, Inc relating to field
emission displays including certain
equipment and other tangible
assets, certain contract rights and
cash.
ITEM 5 Other Information:
None.
-18-
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits:
2.3 Amendment No. 2 to Acquisition Agreement, dated as
of May 17, 1999, between the Registrant and Micron
Technology, Inc.
10.44 Lease Agreement, dated as of May 19, 1999, between
the Registrant and Micron Technology, Inc
10.45/++ Employment Agreement of James J. Cathey dated
May 20, 1999
27. Financial Data Schedule
(b) Reports on Form 8-K :
A report on Form 8-K has been filed during the second
quarter of 1999, on May 27, 1999, reporting under Item 2
the closing by the Registrant of an Acquisition
Agreement with Micron Technology, Inc. This report was
amended on August 9, 1999 to include unaudited pro forma
consolidated financial statements under Item 7(b).
++ 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 .
-19-
PIXTECH, INC.
June 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIXTECH, INC.
Date: August 11, 1999 BY: /s/ Yves Morel
---------------
Yves Morel
Vice President, Chief Financial Officer
Date: August 11, 1999 BY: /s/ Cathie Tomao
-----------------
Cathie Tomao
Chief Accounting Officer
-20-
PIXTECH, INC.
June 30, 1999
EXHIBIT INDEX
Exhibit No.
- -----------
2.3 Amendment No. 2 to Acquisition Agreement, dated as of May 17,
1999, between the Registrant and Micron Technology, Inc.
10.44 Lease Agreement, dated as of May 19, 1999, between the
Registrant and Micron Technology, Inc
10.45/++ Employment Agreement of James J. Cathey dated May 20, 1 999
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.
-21-