10-Q 1 doc1.txt FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ending March 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 0-26380 _______________________________________________ PIXTECH, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-3214691 -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) Avenue Olivier Perroy, 13790 Rousset, France 2700 Augustine Drive, Suite 255, Santa Clara, CA 95054 (Address of principal executive offices) (Zip code) -------------------------------------------------------------------------------- 011-33-4-42-29-10-00 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuer's classes of Common Stock as of Class Outstanding at May 14, 2001 ----- --------------------------- Common Stock, $.01 par value 56,045,198 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) PIXTECH, INC. ------------- TABLE OF CONTENTS ----------------- PAGE NO. -------- PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000. . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Comprehensive Operations for the Three Month Periods Ending March 31, 2001 and 2000, and the period from June 18, 1992 (date of inception) through March 31, 2001. . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the Three Month Periods ending March 31, 2001 and 2000, and the period from June 18, 1992 (date of inception) through March 31, 2001. . . . . . . . . . 5 Condensed Consolidated Statements of Stockholders' Equity . . . . . 6 Notes to Condensed Consolidated Financial Statements. . . . . . 7 - 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 10 - 13 ITEM 3 Quantitative and Qualitative Disclosures Regarding Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART II OTHER INFORMATION ITEM 2 Changes in Securities. . . . . . . . . . . . . . . . . . . . . . 14 ITEM 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 2/14

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See accompanying notes ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 6/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) NOTE A - BASIS OF PRESENTATION The financial information as of March 31, 2001, and for the three-month periods ended March 31, 2001 and 2000 is unaudited but includes all adjustments, that are of a normal recurring nature and, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the presented periods. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results of the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto for the year ending December 31, 2000 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2001. NOTE B - RESTRICTED CASH In August 1997, we provided Unipac Optoelectronics Corp. ("Unipac"), our Asian manufacturing partner, with a written bank guaranty in the amount of $10,000 pursuant to the display foundry agreement (the "Foundry Agreement") signed in May 1997 between Unipac and us in order to implement volume production of field emission displays at Unipac's manufacturing facility. We granted the issuing banks a security interest in cash and cash equivalents for the same amount. The pledged cash and cash equivalents have been recorded as short-term and long-term restricted cash on the balance sheet. In March 2000, pursuant to an agreement dated December 17, 1999 with Unipac, the guaranty was reduced by $5,000 in consideration of a payment in cash of the same amount to Unipac. Pursuant to the terms of this agreement, this $5,000 payment will be considered as a prepayment against our future payments to Unipac concerning the equipment leased by Unipac to us. Consequently, the amount of the security interest to the banks was reduced to $1,041 at March 31, 2001 (see note D - capital leases). NOTE C - 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 us. This portion amounted to $10,079 at March 31, 2001. According to Financial Accounting Standard 13, "Accounting for Leases", this equipment was recorded as an asset under the caption "Property, Plant and Equipment" and amounted to $5,640 at March 31, 2001. Depreciation of $420 was recorded during the three-month period ended March 31, 2001. As of March 31, 2001, the related capital lease obligation amounted to $5,169, all of which is classified as long term. NOTE D - CAPITAL LEASES We are party to certain sale-leaseback transactions for equipment used in our pilot production plant in Montpellier, France, and, pursuant to the Foundry Agreement, a portion of volume field emission displays production equipment installed at Unipac's facility is leased to us. According to Financial Accounting Standard 13, "Accounting for Leases", a capital lease obligation was recorded in 1998. In March 2000, the related capital lease obligation was reduced by $5,000 following the prepayment of the same amount made in cash to Unipac and amounted to $5,169 at March 31, 2001 (see note B-restricted cash and note C-property, plant and equipment). ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 7/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) Future minimum payments under capital lease obligations at March 31, 2001 are as follow: YEARS ENDING DECEMBER 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . $ 105 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 602 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 1,735 2004 .. . . . . . . . . . . . . . . . . . . . . . . . 3,004 ------- Total minimum payments .. . . . . . . . . . . . . . . 5,447 Less amount representing interest . . . . . . . . . . (177) ------- Present value of minimum capitalized lease payments . $5,270 ------- NOTE E - LONG TERM DEBT During the three-month period ended March 31, 2001, long term debt was reduced by $489. The reduction was mainly due to the payment to Heller Financial of our last maturity. Long-term debt consists of certain loans payable under which future minimum payments, at March 31, 2001, are as follow: YEARS ENDING DECEMBER 31, 2001 . . . . . . . . . . . . . . . . . . . . 808 2002 . . . . . . . . . . . . . . . . . . . . 1,068 2003 . . . . . . . . . . . . . . . . . . . . 175 2004 . . . . . . . . . . . . . . . . . . . . 256 2005 . . . . . . . . . . . . . . . . . . . . 1,312 ------ Total minimum payments . . . . . . . . . . $3,619 ====== NOTE F - STOCKHOLDERS' EQUITY Convertible Preferred Stock: In the three-month period ended March 31, 2001, we issued an aggregate of 362,734 shares of Common Stock upon the conversion of an aggregate of 18,766 shares of Series E Preferred Stock at an average conversion price of $1.60938. At March 31, 2001, there were 3,329 shares of Series E Preferred Stock outstanding. These shares of Series E Preferred Stock were convertible into shares of Common Stock using a conversion price equal to the lesser of approximately $1.60938 per share of Common Stock or the average closing price of our Common Stock over the ten trading days immediately preceding the notice of conversion. The holders of Series E Preferred Stock are entitled to cumulative dividends. At March 31, 2001 a dividend of $13 was accrued and recorded against stockholders'equity. In addition, we are required to reserve, out of the authorized but unissued shares, 150% of the number of shares of Common Stock that the Series E Stock are convertible into. As of March 31, 2001, the Series E Stock would have been convertible into 54,518 shares of Common Stock, thus requiring us to reserve 81,777 shares of the remaining authorized but unissued shares. NOTE G - FINANCIAL POSITION During the three-month period ended March 31, 2001, we have continued to experience losses and have used cash in operating activities of $5,067. As of March 31, 2001, we had a net working deficit of $6,356 and a deficit accumulated during development stage of $115,333. ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 8/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements reflecting management's current expectation regarding our future financial performance. Such expectations are based on certain assumptions and involve risks and uncertainties. These uncertainties include, but are not limited to, the risk associated with transitioning to high volume manufacturing of field emission display at Unipac, product demand and market acceptance risks, the commitment of Unipac and/or of our licensees, our ability to grant other licenses under field emission display technology, the validity and enforceability of our patent rights, possible infringement by us of patent rights of others, the impact of competitive products and prices, product development risks, commercialization difficulties and technological delays or difficulties. See also "Outlook: Issues and Risks" described more fully in our Annual Report on Form 10-K for year ended December 31, 2000 (pages 18 to 23) filed with the Securities and Exchange Commission on March 30, 2001. RESULTS OF OPERATIONS Product Sales -------------- We recognized product sales of $51,000 in the three-month period ended March 31, 2001 as compared to $86,000 in the three-month period ended March 31, 2000. In the three-month period ended March 31, 2001 and 2000, product revenues primarily consisted of shipments of displays sold at volume prices to Zoll Medical. Since the last quarter of 1998, we have been shipping field emission displays manufactured by our contract manufacturer, Unipac, to our customers in limited quantities. Other Revenues --------------- Other revenues consist of funding under various public development contracts and other miscellaneous revenues. We recognized other revenues of $1,098,000 for the three-month period ended March 31, 2001, as compared to $1,904,000 in the same period of 2000. Of these revenues, in the three-month period ending March 31, 2001, $1,083,000 was related to a development contract awarded to us by DARPA (Defense Advanced Research Projects Agency) in August 1999 and for which we had received additional funding in April 2000 and January 2001. Under the terms of this DARPA contract, we recognized and received a total amount of $4.7 million, which represented the entire amount of this initial DARPA funding. In April 2000, we began development efforts on a 12.1 inch color field emission display under the same DARPA contract of which we have received $4,965,000 as of March 31, 2001. We announced the successful delivery of the 12.1 inch full color field emission displays to U.S. Army on August 14, 2000. Then, in January 2001, we were awarded for an additional funding for the continued development of the 12.1 inch color, high voltage field emission display technology. As of March 31, 2001, the remaining DARPA funding that we are entitled to receive is approximately $4.5 million. Other Research and Development Expenses ------------------------------------------- We have spent $7.2 million for research and development during the three-month period ended March 31, 2001 as compared to $7.8 million in the same period of 2000. This decrease is mainly due to lower depreciation costs as major equipment in our pilot plant in Montpellier have been acquired in 1994 and 1995 and are now fully amortized, as well as a decrease in rental costs and property tax. Sales and Marketing Expenses ------------------------------- Sales and marketing expenses decreased 37% from $313,000 in the three-month period ended March 31, 2000 to $200,000 in the three-month period ended March 31, 2001. We reported last year our investors relation expenses in sales and marketing, while this year expenses are included in the general and administration expenses. However, we believe sales and marketing expenses may increase in the future, reflecting the expansion of our sales and marketing organization both in the United States and in Europe. ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 9/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) General and Administrative Expenses -------------------------------------- We spent $760,000 in general and administrative during the three-month period ended March 31, 2001, compared to $813,000 during the same period in 2000. This decrease reflects a decrease in consulting and legal fees from the previous year. Interest Income (Expense), Net --------------------------------- Interest income is comprised of interest on available and restricted cash. Interest expense is comprised of interest payable on long-term obligations. Net interest income was $103,000 in the three-month period ended March 31, 2001, compared to a net interest income of $29,000 in the same period of 2000 due to higher cash balances invested in money market instruments. Currency Fluctuations ---------------------- Although a significant portion of our revenues are denominated in U.S. dollars, a substantial portion of our 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 our results of operations, which are reported in U.S. dollars. Most of our capital lease obligations are expressed in Taiwanese dollars. In the past, fluctuations of the parity of the Taiwanese dollar versus the Euro caused significant foreign exchange gains or losses and may continue to do so in the future. We recorded a net foreign exchange loss of $190,000 in the first quarter of 2001 compared to a net foreign exchange gain of $359,000 during the same period last year. We cannot predict the effect of exchange rate fluctuations on future operating results. To date, we have not undertaken hedging transactions to cover our currency exposure, but we may do so in the future. LIQUIDITY AND CAPITAL RESOURCES Cash used in operations was $5.0 million during the three-month period ended March 31, 2001, compared to $3.9 million in the three-month period ended March 31, 2001. We have used $70.3 million in cash to fund our operations since inception through March 31, 2001 and have incurred $24.0 million in capital expenditures. Capital expenditures were $334,000 during the three-month period ended March 31, 2001, compared to $761,000 during the same period in 2000. These capital expenditures exclude assets acquired under capital lease obligations. During the three-month period ended March 31, 2001, capital expenditures were focused on our virtual private worldwide network, and research and development equipment to improve our new projects. Implementing volume production at Unipac's manufacturing plant required significant capital expenditure. Pursuant to the Foundry Agreement, Unipac funded $14.7 million in capital expenditures for equipment. A portion of that equipment is leased to us and the gross amount of this equipment is $10.1 million as of March 31, 2001. We expect that additional capital expenditures will be required by the end of 2001 and in 2002, and that we will increase capacity at Unipac and complete implementation of manufacturing processes for both monochrome and color products. During the three-month period ended March 31, 2001, restricted cash was reclassified as cash available in the amount of $208,000. Restricted cash was related to the security interest corresponding to the guaranty granted to Unipac in connection with the purchase and funding by Unipac of volume field emission displays production equipment. In March 2000, pursuant to an agreement dated December 17, 1999 signed with Unipac, the guaranty was reduced by $5.0 million in consideration of a payment in cash of the same amount to Unipac. Pursuant to the terms of this agreement, this $5.0 million payment will be considered as a prepayment against our future payments to Unipac related to the equipment leased by Unipac to us. Consequently, the amount of the security interest to the banks was reduced by the same amount and amounted to $1,041,000 at March 31, 2001. Cash used in financing activities was $312,000 in the three-month period ended March 31, 2001, compared to $2.5 million used in the three-month period ended March 31, 2000. In the three-month period ended March 31, 2001, we used cash for repayment of long term borrowing. In the same period last year, cash generated from financing activities included sales of shares of Common Stock, resulting in net proceeds of $3.3 million while repayment of long term liabilities amounted to $5.8 million, including the $5.0 million prepayment made to Unipac. ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 10/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) Since our inception, we have funded our operations and capital expenditure primarily from the proceeds of equity financing aggregating $112.3 million and from borrowings and sale-leaseback transactions aggregating $21.7 million. In 1997 and January 1999, we entered into two research and development agreements with French authorities. Under these agreements, we expect to benefit from zero-interest loans totaling approximately $3.0 million, of which we received $482,000 in April 2000 and $2.0 million in 1999. We expect to receive $200,000 in the second quarter of 2001. In November 1998, we entered into a research and development agreement with French authorities. Under this agreement, we expect to receive a total grant of approximately $679,000, of which we received $196,000 in 1999 and $367,000 in 2000. The $196,000 and $367,000 collected in 1999 and in 2000, respectively, were not recognized as income as all conditions stipulated in the agreement were not met. We expect to receive $215,000 in the second quarter of 2001. On August 5, 1999, DARPA awarded a development contract to us amounting to $4.7 million, of which we received $1.5 million in 1999 and $3.2 million in 2000. On April 3, 2000, in addition to and as a continuation of the existing development contract, we were awarded an additional $6.3 million funding for the development and demonstration of a full color, full video rate, 12.1 inch field emission display for which to date, we received $4.9 million. On January 22, 2001 we were awarded an additional $3.1 million funding, further supplementing the August 1999 and April 2000 contracts for the continued development of the 12.1 inch color, high voltage field emission display technology. We have 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 us if it is not possible to credit them against future income tax liabilities within three fiscal years. In April 1999, we collected $3.0 million from research and development tax credit recorded in 1995. We collected $1.1 million in June 2000, in connection with the research and development tax credit recorded in 1996. In August 9, 1999, we secured a $15.0 million equity-based line of credit with Kingsbridge Capital Ltd. Under the terms of the equity line, we can draw up to $15.0 million cash in exchange for our Common Stock, in increments over a two-year period. The decision to draw down any of the funds and the timing and account of any such draw are at our sole discretion, subject to certain conditions. Such conditions include limitations depending on the volume and the market price of our Common Stock. Through March 31, 2001, we have drawn a total amount of $6.0 million under the equity line. In January 25, 2000, we signed an agreement with Audi and other partners to jointly design, develop, test and deliver a 7-inch color field emission display for automotive applications. This agreement is part of the European Commission IST program. Under the terms of this agreement, the total funding is approximately $1.7 million, of which $521,000 was received in January 2001. Cash available as of March 31, 2001 was $10.4 million, compared to $16.8 million as of December 31, 2000. We expect that cash available on March 31, 2001, with the anticipated proceeds from the Kingsbridge equity-based line of credit, and cash from various grants and loans described above and from research and development tax credits, will be sufficient to meet our cash requirements for the near future. We 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. Our capital requirements will depend on many factors, including the rate at which we can develop our products, the market acceptance of such products, the levels of promotion and advertising required to launch such products and attain a competitive position in the marketplace and the response of competitors to our products. We cannot make 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 us. ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 11/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk exposure inherent to our international operations creates potential for losses arising from adverse changes in foreign currency exchange rates. We are exposed to such foreign currency exchange rate risk in two main areas: (i) a substantial portion of our operating expenses are, and are expected to be, denominated in Euros, and (ii) most of our capital lease obligations are expressed in Taiwanese dollars. Fluctuations of the parity of the Taiwanese dollar versus the Euro or the U.S. dollar may cause significant foreign exchange gains or losses. In addition, gains and losses arising from the conversion to U.S. dollars of assets and liabilities denominated in Euros or in Taiwanese dollars may contribute to fluctuations in our results of operations, which are reported in U.S. dollars. To date, we have not undertaken hedging transactions to cover its currency exposure. We are also exposed to interest rate risks in connection with certain long-term debt. We do not, however, enter into market sensitive instruments for trading purposes. ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 12/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) PIXTECH, INC. PART II Other Information ITEM 2 Changes in Securities: (a) Not applicable (b) Not applicable (c) In January 2001, 18,766 shares of Series E Convertible Preferred Stock were converted into shares of Common Stock, resulting in the issuance of 362,734 shares of our Common Stock. After this transaction, the remaining Series E Stock outstanding, including accrued dividends, is convertible into 54,518 shares of Common Stock using a conversion price of $1.60938. As of May 14, 2001, there were 3,329 shares of Series E Preferred Stock outstanding. ITEM 6 Exhibits and reports on Form 8-K ------------------------------------- (a) Exhibits 3.1 - Certificate of Incorporation of Registrant. Filed as Exhibit 3.2 to the PixTech, Inc. Registration Statement on Form S-1 (Commission File No. 33-93024) and incorporated herein by reference. 3.2 - Restated By-Laws of Registrant. Filed as Exhibit 3.4 to the PixTech, Inc. Registration Statement on Form S-1 (Commission File No. 33-93024) and incorporated herein by reference. 3.3 - Certificate of Designations of PixTech, Inc. Filed as Exhibit 2.1 to the PixTech, Inc. Current Report on Form 8-K filed January 7, 1999 and incorporated herein by reference. 3.4 - Certificate of Amendment of Restated Certificate of Incorporation of Registrant. Filed as an Exhibit with the same number to the PixTech, Inc. Form 10-Q/A for the fiscal quarter ended June 30, 1999 filed with the Commission on August 24, 1999 and incorporated herein by reference. 3.5 - Certificate of Amendment of Restated Certificate of Incorporation of Registrant, dated January 18, 2000. Filed as an exhibit with the same number to the PixTech, Inc. Annual Report on Form 10-K for the year ended December 31, 1999 filed with the commission on March 28, 2000 and incorporated herein by reference. (b) Reports on Form 8-K: ----------------------- No reports on Form 8-K were filed during the first quarter of 2001. ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 13/14 PIXTECH, INC. (A DEVELOPMENT STAGE COMPANY) PIXTECH, INC. 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: May 14, 2001 BY: /s/ Marie Boem ------------------ Marie Boem, Principal Financial Officer ____________________________________________________ Pixtech, Inc - Form 10Q - March 31, 2001 -Page 14/14

PIXTECH INC /DE/ 10-Q