FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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
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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 executiv offices) (Zip code)
011-33-4-42-29-10-00
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
-
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at November 5, 1999
----- -------------------------------
Common Stock, $.01 par value 36,044,284
PIXTECH, INC.
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TABLE OF CONTENTS
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PAGE NO.
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Comprehensive Operations
for the Three Months and Nine Months Ended September 30, 1999
and 1998, and the period from June 18, 1992 through
September 30, 1999 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1999 and 1998, and the period
from June 18, 1992 through September 30, 1999 5
Condensed Consolidated Statement of Stockholders' Equity 6 - 7
Notes to Financial Statements 8 - 12
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 16
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 18
ITEM 2 Changes in Securities 18
ITEM 3 Default upon Senior Securities 18
ITEM 4 Submission of matters to a Vote of Security Holders 18
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 19
Signature 20
Exhibit Index 21
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- --------------
(UNAUDITED)
ASSETS
Current assets :
Cash and cash equivalents available. . . . . . . . . . . . . . . . . . . . . . $ 2,395 $ 10,166
Restricted cash - short term . . . . . . . . . . . . . . . . . . . . . . . . . 2,560 1,685
Accounts receivable:
Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 456
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836 161
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,460 980
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919 1,354
--------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,317 14,802
Restricted cash - long term. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,105 8,427
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 27,033 18,826
Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 150
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,329 4,643
Other assets - long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 546
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,185 $ 47,394
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities :
Current portion of long term debt. . . . . . . . . . . . . . . . . . . . . . . $ 4,564 $ 3,410
Current portion of capital lease obligations . . . . . . . . . . . . . . . . . 2,528 2,189
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,707 7,514
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,346 1,544
--------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 19,145 14,657
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 2,162
Long term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . 9,648 8,391
Capital lease obligation, less current portion . . . . . . . . . . . . . . . . . 8,056 8,399
Other long term liabilities, less current portion. . . . . . . . . . . . . . . . 47 528
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,240 34,137
=============== ==============
STOCKHOLDERS' EQUITY
Convertible preferred stock Series E, $0.01 par value, authorized
shares-500,000 ; issued and outstanding shares- 297,269 ; 367,269 respectively. 3 4
Common stock, $0.01 par value, authorized shares-60,000,000 ;
issued and outstanding shares-23,567,138 ; 15,000,329 respectively . . . . 236 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 83,524 68,999
Cumulative other comprehensive income . . . . . . . . . . . . . . . . . . . (2,656) (1,740)
Deficit accumulated during development stage . . . . . . . . . . . . . . . . (75,162) (54,156)
--------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 5,945 13,257
--------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 43,185 $ 47,394
=============== ==============
See accompanying notes.
3
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Period from
Three Months Nine Months June 18, 1992
Ended September 30, Ended September 30, (date of
------------------ -------------------- inception)
through
September
30,
1999 1998 1999 1998 1999
-------- -------- --------- --------- ----------
Revenues
Cooperation and license revenues . . . . . . . . $ -- $ 238 $ -- $ 1,239 $ 26,449
Product sales. . . . . . . . . . . . . . . . . . 71 135 410 222 3,236
Other revenues . . . . . . . . . . . . . . . . . 877 225 3,191 1,768 9,097
-------- -------- --------- ----------
Total revenues . . . . . . . . . . . . . . . 948 598 3,601 3,229 38,782
-------- -------- --------- --------- ----------
Cost of revenues
License fees and royalties . . . . . . . . . . . (82) (80) (254) (281) (1,770)
-------- -------- --------- --------- ----------
Gross margin . . . . . . . . . . . . . . . . . . . 866 518 3,347 2,948 37,012
-------- -------- --------- --------- ----------
Operating expenses
Research and development:
Acquisition of intellectual property rights. . . -- -- -- (125) (4,890)
Other. . . . . . . . . . . . . . . . . . . . . . (7,210) (5,107) (19,413) (13,460) (91,941)
-------- -------- --------- --------- ----------
(7,210) (5,107) (19,413) (13,585) (96,831)
Marketing and sales. . . . . . . . . . . . . . . (338) (371) (1,018) (1,064) (7,625)
Administrative and general expenses. . . . . . . (787) (639) (2,289) (1,862) (15,105)
-------- -------- --------- --------- ----------
(8,335) (6,117) (22,720) (16,511) (119,561)
-------- -------- --------- --------- ----------
Loss from operations . . . . . . . . . . . . . . . (7,469) (5,599) (19,373) (13,563) (82,549)
Other income / (expense)
Interest income / expense. . . . . . . . . . . . (244) (208) (608) (462) (507)
Foreign exchange gains / (losses). . . . . . . . 112 844 (1,025) 1,553 1
-------- -------- --------- --------- ----------
(132) 636 (1,633) 1,091 (506)
Loss before income tax benefit . . . . . . . . . . (7,601) (4,963) (21,006) (12,472) (83,055)
Income tax benefit . . . . . . . . . . . . . . . . -- 1,047 -- 1,047 7,893
-------- -------- --------- --------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . $(7,601) $(3,916) $(21,006) $(11,425) $ (75,162)
======== ======== ========= ========= ==========
Dividends accrued to holders of Preferred Stock (78) -- (377) -- (389)
-------- -------- --------- --------- ----------
Net loss to holders of Common Stock. . . . . . . . $(7,679) $(3,916) $(21,383) $(11,425) $ (75,551)
======== ======== ========= ========= ==========
Net loss per share of Common Stock . . . . . . . $ (0.32) $ (0.26) $ (1.10) $ (0.79)
======== ======== ========= =========
Shares of Common Stock used in
computing net loss per share . . . . . . . . . 23,408 14,778 19,037 14,462
Net loss . . . . . . . . . . . . . . . . . . . . $(7,601) $(3,916) $(21,006) $(11,425) $ (75,162)
Change in other comprehensive income . . . . . . (129) 677 (916) 464 (2,656)
-------- -------- --------- --------- ----------
Comprehensive net loss . . . . . . . . . . . . . $(7,730) $(3,239) $(21,922) $(10,961) $ (77,818)
======== ======== ========= ========= ==========
See accompanying notes.
4
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PERIOD FROM
JUNE 18, 1992
(DATE OF
INCEPTION)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999
--------- --------- ---------
Net loss $(21,006) $(11,425) $(75,162)
Total adjustments to net loss . . . . . . . . . . . . . . . . . 9,300 5,719 31,446
--------- --------- ---------
Net cash used in operating activities . . . . . . . . . . . . . (11,706) (5,706) (43,716)
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property plant and equipment . . . . . . . . . . . (625) (764) (19,945)
Reclassification of cash available as restricted cash . . . . . 1,299 -- (8,813)
Additions to intangible assets. . . . . . . . . . . . . . . . . -- -- (130)
--------- --------- ---------
Net cash provided by / (used in) investing activities . . . . . 674 (764) (28,888)
FINANCING ACTIVITIES
Stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . 4,179 3 ,981 71,683
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 (1,481) (3,836) (9,298)
--------- --------- ---------
Net cash provided by financing activities . . . . . . . . . . . 2,698 145 77,697
--------- --------- ---------
Effect of exchange rates on cash. . . . . . . . . . . . . . . . 563 243 (2,698)
--------- --------- ---------
Net (decrease) / increase in cash and cash equivalents. . . . . (7,771) (6,082) 2,395
Cash and cash equivalents beginning of period . . . . . . . . . 10,166 12,428 --
--------- --------- ---------
Cash and cash equivalents end of period . . . . . . . . . . . . $ 2,395 $ 6,346 $ 2,395
========= ========= =========
See accompanying notes.
5
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CONVERTIBLE PREFERRED STOCK
--------------------------------------------------------------
SERIES A SERIES B SERIES C
-------- -------- --------
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. . . . . . . . . . . . . . . . 1,557,003 2,368 363,447 589 3,044,846 8,615
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) (8,615)
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)
Conversion of Series E preferred stock (unaudited)
Issuance of common stock in connection with the
acquisition of certain assets of Micron
Display, net of issuance costs -- $513 (unaudited)
Issuance of warrants (unaudited)
Issuance of common stock following conversion of
Sumitomo convertible loan (unaudited)
Issuance of common stock under stock option
plan (unaudited)
Translation adjustment (unaudited)
Net loss- Nine months ended September 30, 1999 (unaudited)
----------- ------- --------- ------- ----------- -------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED) . . . . . . . . . . -- -- -- -- -- --
=========== ======= ========= ======= =========== =======
CONVERTIBLE PREFERRED STOCK
--------------------------------------
SERIES D SERIES E
-------- --------
SHARES SHARES
--------- --------
ISSUED AMOUNT ISSUED AMOUNT
--------- ------- -------- --------
BALANCE AT JUNE 18, 1992
Issuance of convertible preferred stock, net of issuance
costs in 1992, 1993 and 1994. . . . . . . . . . . . . . . . 430,208 1,224
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. . . . . . . . . . . . (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)
Conversion of Series E preferred stock (unaudited) . . . . . (70,000) (1)
Issuance of common stock in connection with the
acquisition of certain assets of Micron
Display, net of issuance costs -- $513 (unaudited)
Issuance of warrants (unaudited)
Issuance of common stock following conversion of
Sumitomo convertible loan (unaudited)
Issuance of common stock under stock option
plan (unaudited)
Translation adjustment (unaudited)
Net loss- Nine months ended September 30, 1999 (unaudited)
--------- ------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED) . . . . . . . . . . -- -- 297,269 $ 3
========= ======= ======== ========
See accompanying notes.
6
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
-------------------
DIVIDENDS
-----------
ACCRUED TO
-----------
ADDITIONAL HOLDERS OF OTHER
------------ ----------- ---------------
SHARES PAID-IN PREFERRED COMPREHENSIVE
---------- ------------ ----------- ---------------
ISSUED AMOUNT CAPITAL STOCK INCOME
---------- ------- ------------ ----------- ---------------
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. . . . . . . . . . . . . . . . . $ 515
Net loss from June 18, 1992 (date of inception)
through December 31, 1995 . . . . . . . . . . . . . . 3
---------- ------- ------------ ----------- ---------------
BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . . . . 8,112,063 81 33,844 515
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 -- $44. . . . . . . . . . . . . . 1,236,222 12 4,493
Issuance of Series E convertible preferred stock,
net of issuance costs -- $822. . . . . . . . . . . . . 7,449 (12)
Issuance of Common stock under stock option plan. . . . 1,375 1
Translation adjustment. . . . . . . . . . . . . . . . . 392
Net loss-Year ended December 31, 1998 . . . . . . . . .
---------- ------- ------------ ----------- ---------------
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . . . 15,000,329 150 69,011 (12) (1,740)
Common stock issued in private placements (unaudited) . 150,000 1 351
Issuance costs and dividends accrued in relation to
Series E Convertible Preferred stock issued in
December 1998 (unaudited) . . . . . . . . . . . . . . (36) (377)
Conversion of Series E preferred stock (unaudited). . . 1,114,220 11 (10)
Issuance of common stock in connection with the
acquisition of certain assets of Micron Display, net
of issuance costs -- $513 (unaudited) . . . . . . . . 7,133,562 71 14,131
Issuance of warrants (unaudited). . . . . . . . . . . 297
Issuance of common stock following conversion
of Sumitomo convertible loan (unaudited). . . . . . . 100,000 1 144
Issuance of common stock under stock option
plan (unaudited). . . . . . . . . . . . . . . . . . . 69,027 1 26
Translation adjustment (unaudited). . . . . . . . . . . (916)
Net loss- Nine months ended
September 30, 1999 (unaudited). . . . . . . . . . . .
---------- ------- ------------ ----------- ---------------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED). . . . . . . . 23,567,138 $ 236 $ 83,913 (389) $ (2,656)
========== ======= ============ =========== ===============
DEFICIT
-------------
ACCUMULATED
-------------
DURING
-------------
DEVELOPMENT TREASURY
------------- ----------
STAGE STOCK TOTAL
------------- ---------- ---------
BALANCE AT JUNE 18, 1992
Issuance of convertible preferred stock, net of
issuance costs in 1992, 1993 and 1994. . . . . . . . . $ 12,796
Issuance of Common stock in 1992 and 1993 . . . . . . . 97
Issuance of Common stock under stock option
plan in 1994 and 1995 . . . . . . . . . . . . . . . . 32
Purchase of 28,761 shares of Common
stock- Treasury stock in 1994. . . . . . . . . . . . $ (11) (11)
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
Net loss from June 18, 1992 (date of inception)
through December 31, 1995 . . . . . . . . . . . . . . $ (9,910) (9,910)
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 -- $44. . . . . . . . . . . . . . 4,506
Issuance of Series E convertible preferred stock,
net of issuance costs -- $822. . . . . . . . . . . . . 7,440
Issuance of Common stock under stock option plan. . . . 1
Translation adjustment. . . . . . . . . . . . . . . . . 392
Net loss-Year ended December 31, 1998 . . . . . . . . . (17,863) (17,863)
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . . . (54,156) 13,257
Common stock issued in private placements (unaudited) . 352
Issuance costs and dividends accrued in relation to
Series E Convertible Preferred stock issued in
December 1998 (unaudited) . . . . . . . . . . . . . . (413)
Conversion of Series E preferred stock (unaudited). . . --
Issuance of common stock in connection with the
acquisition of certain assets of Micron Display, net
of issuance costs -- $513 (unaudited) . . . . . . . . 14,202
Issuance of warrants (unaudited). . . . . . . . . . . 297
Issuance of common stock following conversion
of Sumitomo convertible loan (unaudited). . . . . . . 145
Issuance of common stock under stock option
plan (unaudited). . . . . . . . . . . . . . . . . . . 27
Translation adjustment (unaudited). . . . . . . . . . . (916)
Net loss- Nine months ended
September 30, 1999 (unaudited). . . . . . . . . . . . (21,006) (21,006)
------------- ---------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED). . . . . . . . $ (75,162) -- $ 5,945
============= ========== =========
See accompanying notes.
7
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE A - BASIS OF PRESENTATION
The financial information as of September 30, 1999, and for the three and nine
months ended September 30, 1999 is unaudited but includes all adjustments, which
are of a normal recurring nature and, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations for
the periods presented. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Operating results of
the three-month and nine-month periods ending September 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, 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 are expected to decrease to
match the net amount of equipment leased by Unipac to the Company. These
amounts have started to decrease according to the conditions of the bank
guaranty.
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 $11,962 as at September
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 $9,619 as at September 30,
1999. Depreciation of $489 was recorded during the three-month period ended
September 30, 1999. As of September 30, 1999, the related capital lease
obligation amounted to $10,031, of which $2,149 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
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
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
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".
The following unaudited pro forma financial disclosure presents the combined
results of operations for the year ended December 31, 1998 and for the nine
months ended September 30, 1999 as if the transaction had been completed at the
beginning of the periods indicated, after giving effect to certain adjustments,
including additional personnel costs and depreciation expenses. This pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the transaction been completed at the beginning of
the periods indicated, and may not be indicative of the future results.
Year ended Nine months ended
December 31, 1998 September 30, 1999
------------------- --------------------
Net loss. . . . . . . . . . . . . . $ (26,986) $ (24,684)
- ----------------------------------- ------------------- --------------------
Net loss to holders of common stock (26,998) (25,061)
- ----------------------------------- ------------------- --------------------
Net loss per share of common stock. $ (1.25) $ (1.09)
- ----------------------------------- ------------------- --------------------
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.
In August 1999, the Company issued 100,000 shares of the Company's Common Stock
to Sumitomo following the conversion of $145 of a $5,000 convertible note issued
in 1997 to Sumitomo. This note is convertible into shares of the Company's
common stock at a price equal to 80% of the market price of the common stock at
the time of conversion, the market price being determined as the average closing
market price over the twenty consecutive trading days immediately prior to the
notice of conversion.
9
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
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 the registration of the
shares for resale with the Securities and Exchange Commission, which was
declared effective as at September 27, 1999. To date, the Company has not
issued shares in connection with the Kingsbridge Agreement. Shares will be
issued at a 10% discount to the market price at the time of any draw, if the
stock price is at or above $3.00, or at a 12% discount if the stock price is
below $3.00. The Company also issued to Kingsbridge a warrant for 100,000
shares of common stock exercisable until February 6, 2003 at an exercise price
of $2.30 per share.
The Company has an obligation to issue a warrant to purchase 35,000 shares of
our common stock to Needham & Company, Inc., in connection with an agreement for
financial advisory services dated May 11, 1999, which is exercisable at a price
of $2.26 per share and expires on May 10, 2004. The fair value of the 35,000
warrants was estimated at $40 using the Black-Scholes model
Convertible Preferred Stock : 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 of 1,114,220 shares of the Company's Common
Stock. As at September 30, 1999 , there were 297,269 shares of Series E
Preferred Stock outstanding. These shares of Series E Preferred Stock were
convertible into shares of Common Stock. As at September 30, 1999, the Series E
Stock, including accrued dividends, would have been convertible into 4,445,863
shares of Common Stock using a conversion price of $1.59, equal to the average
closing price of the Company's Common Stock over the 10 trading days ending
September 29, 1999. Consequently, there were 28,013,001 shares of Common Stock
or equivalent to shares of Common Stock outstanding as at September 30, 1999.
The holders of Series E Preferred Stock issued in December 1998 are entitled to
receive cumulative dividends. Dividends are calculated on a 6% interest basis
per annum on the purchase price paid for the Series E Preferred shares for the
numbers of days that the stock price is above $2.253, on an 8% interest basis
for the numbers of days that the stock price is between $1.127 and $2.253, and
on a 10% interest basis for the numbers of days that the stock price is below
$1.127. During the nine-month period ended September 30, 1999, dividends of
$377 were accrued and recorded against Stockholders' Equity. As of September
30, 1999, the cumulative dividend recorded against Stockholders' Equity amounted
to $389.
On October 15, 1999, PixTech sold 12,427,146 shares of its common stock, $.01
par value, to Unipac Optoelectronics Corporation at a price of $1.60938 per
share (see Note J - Subsequent event). Pursuant to PixTech's certificate of
designation (the "Certificate") filed with the Secretary of State of the State
of Delaware on December 22, 1998 with respect to the Series E Convertible
Preferred Stock, the Common Stock Issue Price (as such term is defined in the
Certificate) shall, for purposes of determining the number of shares into which
the Series E Preferred Stock is convertible only, be $1.60938 instead of
$2.25313. Consequently, the series E stock is generally convertible into our
common stock at a rate equal to the lesser of (a) $1.60938, and (b) the average
closing price of our common stock over the ten trading day ending period ending
on the day immediately preceding the day upon conversion.
10
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(all amounts in thousands except share amounts)
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 any 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 - COMMITMENTS AND CONTINGENCIES
Operating leases
The Company is obligated under operating lease agreements for equipment and
manufacturing and office facilities. Minimum annual rental commitments under
non cancelable leases at September 30, 1999, are as follows :
YEAR ENDING DECEMBER 31,
1999 . . . . . . . . . . $ 91
2000 .. . . . . . . . . 367
2001 .. . . . . . . . . 335
2002 .. . . . . . . . . 126
2003 .. . . . . . . . . 1
----
Total minimum payments . $920
====
Capital leases
The Company is obligated under certain sale-leaseback transactions for
equipment used in its pilot production plant. Pursuant to the Display Foundry
Agreement signed in 1997 with Unipac, PixTech's share of volume FEDs production
installed at Unipac's facility is leased to PixTech. According to Financial
Accounting Standard 13, "Accounting for Leases", a capital lease obligation was
recorded which amounted to $10,031 as at September 30, 1999 (See Note
D-Property, Plant and Equipment). Future minimum payments under these
obligations are as follows:
AT SEPTEMBER 30, 1999, DUE FOR THE YEARS ENDING DECEMBER 31,
1999 .. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 833
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,020
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,737
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,426
2003 .. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,285
2004 .. . . . . . . . . . . . . . . . . . . . . . . . . . . 910
--------
Total minimum payments .. . . . . . . . . . . . . . . . . . 12,211
Less amount representing interest . . . . . . . . . . . . . (1,627)
--------
Present value of minimum capitalized lease payments . . . . $10,584
========
11
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(all amounts in thousands except share amounts)
Long term debt
Long-term debt consists of certain loans payable under which future minimum
payments are as follows:
AT SEPTEMBER 30, 1999, DUE FOR THE YEARS ENDING DECEMBER 31,
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,257
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,094
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . 782
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . 802
2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . 861
-------
Total minimum payments. . . . . . . . . . . . . . . . . . . $14,212
=======
12
PIXTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTE I - FINANCIAL POSITION
During the nine months ended September 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 September 30, 1999, the Company had a net
working deficit of $10,828 and a deficit accumulated during the development
stage of $75,162. In October 1999, the Company significantly improved its
liquidity and financial position with the completion of a $20 million equity
private placement with Unipac (see Note I-Subsequent event). The Company
expects that cash available at September 30, 1999 together with the anticipated
proceeds from the Kingsbridge Agreement, from various grants and loans and from
R&D tax credits, will be sufficient to meet its cash requirements until at least
December 31, 2000. The Company intends to continue improving its liquidity and
financial position through capital increases expected to take place in 2000.
There can be however no assurance that additional funds will be available
through capital increases when needed or on terms acceptable to the Company.
NOTE J - SUBSEQUENT EVENT
On October 6, 1999, the Company entered into a Common Stock Purchase Agreement
with Unipac, for a private placement of $20,000 of the Company's common stock.
The private placement closed on October 15, 1999 with the issuance of 12,427,146
shares of Common Stock at approximately $1.61 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Product Sales. The Company recognized product sales of $410,000 in the
nine-month period ended September 30, 1999, as compared to $222,000 in the
nine-month period ended September 30, 1998. In the nine-month periods ended
September 30, 1998 and 1999, product revenues primarily consisted of shipments
of displays sold at volume prices to Zoll Medical, thus reflecting a significant
increase in the number of displays shipped to that customer. Since the last
quarter of 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 September 30, 1999, unit shipments from
Taiwan represented 7% of total shipments, as compared to 21% during the
three-month period ended June 30, 1999. After the earthquake in Taiwan which
occurred in September 1999, the Company rapidly resumed its production process
of field emission displays. Only minimal damage to the facility and equipment
was reported and there were a limited amount of initial production losses. The
Company expects an increase of product shipments from Taiwan in the last quarter
of 1999.
Other Revenues. Other revenues consist of funding under various public
development contracts and other miscellaneous revenues. The Company recognized
other revenues of $877,000 in the three-month period ended September 30, 1999,
as compared to $225,000 in the three-month period ended September 30, 1998. Of
these revenues, in the three-month period ended September 30, 1999, $716,000 was
related to a development contract awarded to the Company by DARPA (Defense
Advanced Research Projects Agency) in August 1999 and $125,000 to the disposal
of fixed assets. Under the terms of the DARPA contract, the Company will
receive a total amount of approximately $4.7 million to develop a color FED.
The Company recognized other revenues of $3.2 million in the nine-month period
ended September 30, 1999, as compared to $1.8 million in the nine-month period
ended September 30, 1998. Of these revenues, in the nine-month period ended
September 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 nine-month period ended
September 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 $7.2 million for
research and development costs during the three-month period ended September 30,
1999, an increase of 41% over the $5.1 million incurred in the three-month
period ended September 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 signed at the end of May 1999 and the cost of
supporting the transfer of FED manufacturing processes to Unipac. As part of
the acquisition of Micron's Display 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 $19.4 million for the nine-month period ended
September 30, 1999, as compared to $13.6 million for the nine month period ended
September 30, 1998.
Sales and Marketing Expenses. The Company expensed $338,000 for sales and
marketing during the three-month period ended September 30, 1999, as compared to
$371,000 during the three-month period ended September 30, 1998, reflecting a
one-time decrease in communication and advertising 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 remained stable at
$1.0 million during the nine-month period ended September 30, 1999, as compared
to the same period ended September 30, 1998.
General and Administrative Expenses. General and administrative expenses
amounted to $787,000 in the three-month period ended September 30, 1999, an
increase of 23% over general and administrative expenses incurred in the
three-month period ended September 30, 1998, which amounted to $639,000,
reflecting an increase in consulting expenses. General and administrative
expenses amounted to $2.3 million for the nine-month period ended September 30,
1999, as compared to $1.9 million for the nine month period ended September 30,
1998.
13
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 $244,000 in the
three-month period ended September 30, 1999, as compared to $208,000 in the
three-month period ended September 30, 1998, reflecting the decrease in cash
balances and the increase in long-term liabilities. Net interest expense
amounted to $608,000 in the nine-month period ended September 30, 1999, as
compared to $462,000 in the nine-month period ended September 30, 1998.
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 $1.0 million in the nine-month period ended September 30, 1999, while
the Company recorded net foreign exchange gain of $1.6 million in the nine-month
period ended September 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 $11.7 million for the nine-month period ended
September 30, 1999, as compared to cash used in operations of $5.7 million for
the nine-month period ended September 30, 1998. This increase corresponded to
the following factors : (i) absence of significant cash receipts from revenues
in the nine-month period ended September 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 $43.7 million in cash to fund its operating activities from
inception through September 30, 1999 and has incurred $28.8 million in capital
expenditures and investments.
Capital expenditures were $625,000 during the nine-month period ended September
30, 1999 as compared to $764,000 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
nine-month period ended September 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 $14.7 million capital expenditure for equipment. A portion of that
equipment is leased to PixTech and amounted to $12.0 million as of September 30,
1999. The Company expects that additional capital expenditures will be required
in 1999 and in 2000 to increase capacity at Unipac and to complete
implementation of manufacturing processes, both for monochrome and for color
products.
As at September 30, 1999, restricted cash amounted to $8.7 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 nine-month period ended
September 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 corresponding security
interest to the banks are expected to continue decreasing in the future.
14
Cash flows generated from financing activities were $2.7 million in the
nine-month period ended September 30, 1999, as compared to $145,000 in the
nine-month period ended September 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 $1.5 million. 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 nine-month period ended
September 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). 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, but excluded non-cash transactions related to the conversion of
70,000 series E preferred stock in July 1999 and to the conversion into shares
of common stock of $145,000 of the convertible loan issued to Sumitomo in 1997.
Long term liabilities increased by $2.0 million in the nine-month period ended
September 30, 1999, representing two zero-interest loans granted to the Company
by French local authorities, while the repayments amounted to $3.5 million,
resulting in a net decrease of $1.5 million. Of the repayments which occurred
in the nine-month period ended September 30, 1999, $1.3 million was related to
the first repayment of the $5.0 million straight loan 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.
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 in the nine-month period ended September 30, 1999, and $1.0
million are expected to be received in 2000.
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 $900,000, of which $260,000 was collected in the
three-month period ended September 30, 1999, and $580,000 and $60,000 are
expected to be collected in 2000 and 2001 respectively. The $260,000 amount
collected in the three-month period ended September 30, 1999 was not recognized
as income as all conditions stipulated in the agreement were not met.
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 $225,000 were
collected in 1999. The total contribution was recognized as income in the
nine-month period ended September 30, 1999, as all conditions stipulated in the
agreement were met.
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. In
the three-month period ended September 30, 1999, $716,000 was recognized as
income under this contract and is expected to be collected in the last quarter
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 the registration of the shares for
resale with the Securities and Exchange Commission, which was declared effective
as at September 27, 1999. To date, the Company has not issued shares in
connection with the Kingsbridge Agreement. 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 October 6, 1999, the Company entered into a Common Stock Purchase Agreement
with Unipac, for a private placement of $20 million of PixTech's common stock.
The private placement closed on October 15, 1999, and the Company collected $20
million, in exchange for the issuance of 12,427,146 shares of common stock.
15
Cash available at September 30, 1999 amounted to $2.4 million as compared to
$10.2 million at December 31, 1998. In October 1999, the Company significantly
improved its liquidity and financial position with the completion of the $20
million equity private placement with Unipac. The Company expects that cash
available at September 30, 1999 together with the anticipated proceeds from the
Kingsbridge Agreement, 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 $7.0 million at September 30, 1999, until at least December 31, 2000.
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.
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.
Based upon that review, we expect to have our systems Year 2000 compliant by the
end of November, 1999. 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. To date,
we estimate that we have expended $60,000 on our Year 2000 program and
anticipated expending an additional $30,000 during the remainder of 1999. 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. Unipac disclosed to PixTech its Year 2000
compliance plan as well as its 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.
16
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, certain risks and issues filed
as exhibit 99.1 to this 10-Q should be considered.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk exposure inherent to our international operations creates
potential for losses arising from adverse changes in foreign currency exchange
rates. We are exposed to the foreign currency exchange rate risk in two main
areas : (i) a substantial portion of our operating expenses are and are expected
to be denominated in Euros, (ii) most of our 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 our results of operations, which are
reported in U.S. dollars. To date, we have not undertaken hedging transactions
to cover the currency exposure. We are also exposed to interest rate risks in
connection with certain long term debt. We do not, however, enter into market
sensitive instruments for trading purposes. As of September 30, 1999, we had an
$8.6 million loan payable, bearing interest at the prime rate plus 0.75%, of
which $3.8 million is payable in three equal installments every six months, the
next payment being due November 7, 1999. The remaining $4.8 million is due
November 2000 and is convertible, partially or wholly, at the holder's option,
into shares of our common stock at a conversion price equal to 80% of the market
price on the date of conversion, the market price being determined as the
average closing market price over the twenty consecutive trading days
immediately prior to the notice of conversion.
17
PIXTECH, INC.
September 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 July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of
Common Stock, resulting in the issuance of 1,114,220 shares of the Company's Common
Stock. As at October 31, 1999, there were 297,269 shares of Series E Preferred Stock
outstanding.
In August 1999, the Company issued 100,000 shares of the Company's Common Stock
to Sumitomo following the conversion of $145 of a $5,000 convertible note issued in
1997 to Sumitomo.
In August 1999, the Company entered into a private equity line agreement with
Kingsbridge Capital Ltd. 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. The Company may begin
to make draws under the facility upon the registration of the shares for resale with the
Securities and Exchange Commission, which was declared effective as at September 27,
1999. To date, the Company has not issued shares in connection with the Kingsbridge
Agreement.
In August 1999, the Company issued to Kingsbridge a warrant for 100,000 shares of
common stock exercisable until February 6, 2003 at an exercise price of $2.30 per share.
In October 1999, the Company sold 12,427,146 shares of Common Stock to Unipac
Optoelectronics Corporation, a Taiwanese Corporation, pursuant to Regulation S of the
Securities Act of 1933.
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.
18
PIXTECH, INC.
September 30, 1999
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits :
10.50 Common Stock Purchase Agreement by and between PixTech, Inc. and Unipac
Optoelectronics Corporation dated as of October 6, 1999. Filed as exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the Commission on October 28, 1999
and incorporated herein by reference.
10.51 Private Equity Line Agreement by and between Kingsbridge Capital Limited and
PixTech, Inc. dated as of August 9, 1999. Filed as exhibit 10.48 to the Company's
Registration Statement on Form S-1 filed with the Commission on September 13, 1999
and incorporated herein by reference.
10.52 Registration Rights Agreement dated as of August 9, 1999 by and between
PixTech, Inc. and Kingsbridge Capital Limited. Filed as exhibit 10.49 to the Company's
Registration Statement on Form S-1 filed with the Commission on September 13, 1999
and incorporated herein by reference.
99.1 Important Factors Regarding Future Results
27. Financial Data Schedule
(b) Reports on Form 8-K :
A report on Form 8-K/A was filed on August 9, 1999, amending the report on Form 8-K
filed on May 27, 1999, to include unaudited pro forma consolidated financial statements
under Item 7 (b). The report on Form 8-K filed on May 27, 1999 reported under Item 2
the closing by the Company of an Acquisition Agreement with Micron Technology, Inc.
A report on Form 8-K was filed on October 28, 1999, reporting under Item 5 the closing
by the Company of a private placement of securities with Unipac Optoelectronics
Corporation.
19
PIXTECH, INC.
September 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: November 10, 1999 BY: /s/ Yves Morel
---------------------------------------
Yves Morel
Vice President, Chief Financial Officer
Date: November 10, 1999 BY: /s/ Cathie Tomao
---------------------------------------
Cathie Tomao
Chief Accounting Officer
20
PIXTECH, INC.
September 30, 1999
EXHIBIT INDEX
Exhibit No.
- -----------
10.50 Common Stock Purchase Agreement by and between PixTech, Inc. and Unipac
Optoelectronics Corporation dated as of October 6, 1999. Filed as exhibit 2.1
to the Company's Current Report on Form 8-K filed with the Commission on
October 28, 1999 and incorporated herein by reference.
10.51 Private Equity Line Agreement by and between Kingsbridge Capital Limited
and PixTech, Inc. dated as of August 9, 1999. Filed as exhibit 10.48 to the
Company's Registration Statement on Form S-1 filed with the Commission on
September 13, 1999 and incorporated herein by reference.
10.52 Registration Rights Agreement dated as of August 9, 1999 by and between
PixTech, Inc. and Kingsbridge Capital Limited. Filed as exhibit 10.49 to the
Company's Registration Statement on Form S-1 filed with the Commission on
September 13, 1999 and incorporated herein by reference.
27 Financial Data Schedule
99.1 Important Factors Regarding Future Results
21