<PAGE>   1
\                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.

OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934


            For the transition period from ___________ to ___________

                         Commission File Number: 0-26976


                                      PIXAR
             (Exact name of registrant as specified in its charter)

                California                                    68-0086179

      (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                      Identification No.)

             1001 West Cutting Boulevard, Richmond, California 94804
               (Address of principal executive offices) (zip code)

       Registrant's telephone number, including area code: (510) 236-4000

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 the registrant's Common Stock as of August 
7, 1997 was 41,753,138


<PAGE>   2
PART I -- FINANCIAL INFORMATION

        ITEM 1.FINANCIAL STATEMENTS

                                      PIXAR
                                 BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                   June 30,        December 31,
                                                                     1997              1996
                                                                 ------------      ------------
<S>                                                              <C>               <C>         
                                                                 (Unaudited)
                                     ASSETS
Current assets:
     Cash and short-term investments                             $    178,779      $    160,969
     Trade and other accounts receivable, net                           3,016             4,328
     Capitalized film production costs, current portion                   121             1,372
     Prepaid expenses and other current assets                            619               982
     Net assets from discontinued operations (see Note 5)                 297             1,469
                                                                 ------------      ------------

          Total current assets                                        182,832           169,120

Property and equipment, net                                            17,911             4,655
Capitalized film production costs, net of current portion              19,512             1,578
Other assets                                                              129             1,588
                                                                 ------------      ------------

          Total assets                                           $    220,384      $    176,941
                                                                 ============      ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                            $      1,717      $      1,060
     Income taxes payable                                               4,826              --
     Film costs payable                                                 7,500              --
     Accrued liabilities                                                5,147             4,740
     Unearned revenue                                                     535               337
                                                                 ------------      ------------

          Total current liabilities                                    19,725             6,137
                                                                 ------------      ------------

Commitments and contingencies

Shareholders' equity:
Preferred stock; no par value; 5,000,000 shares
  authorized and no shares issued and outstanding                        --                --
Common stock; no par value; 100,000,000 shares authorized
  and 41,464,542 shares issued and outstanding                        202,699           187,308
Other adjustments                                                        (710)           (1,097)
Accumulated deficit                                                    (1,330)          (15,407)
                                                                 ------------      ------------
          Total shareholders' equity                                  200,659           170,804
                                                                 ------------      ------------

                 Total liabilities and shareholders' equity      $    220,384      $    176,941
                                                                 ============      ============
</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                      -2-
<PAGE>   3
                                      PIXAR
                            STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                     Three Months Ended        Six Months Ended
                                                          June 30,                 June 30,
                                                     1997         1996         1997          1996
                                                   --------     --------     --------      --------
<S>                                                <C>          <C>          <C>           <C>     
Revenues:
     Software                                      $  1,060     $    722     $  2,478      $  1,633
     Animation services                                 269          799          269         1,584
     Film                                            11,596        5,000       17,897         5,076
     Patent licensing                                 1,451          396        1,599         6,891
                                                   --------     --------     --------      --------
             Total revenues                          14,376        6,917       22,243        15,184
                                                   --------     --------     --------      --------

Cost of revenues:
     Software                                            14            7           22            61
     Animation services                                 174          785          174         1,501
     Film                                               769          414        1,327           423
                                                   --------     --------     --------      --------
             Total cost of revenues                     957        1,206        1,523         1,985
                                                   --------     --------     --------      --------

     Gross margin                                    13,419        5,711       20,720        13,199
                                                   --------     --------     --------      --------

Operating expenses:
     Research and development                         1,427        1,209        2,508         2,310
     Sales and marketing                                353          600          605         1,019
     General and administrative                       1,026        1,068        2,253         2,056
                                                   --------     --------     --------      --------
             Total operating expenses                 2,806        2,877        5,366         5,385
                                                   --------     --------     --------      --------

     Income  from continuing operations              10,613        2,834       15,354         7,814

Other income, net                                     1,912        1,922        4,046         3,790
                                                   --------     --------     --------      --------

Income from continuing operations before
  income taxes                                       12,525        4,756       19,400        11,604
Income tax expense                                    3,596          239        5,246           580
                                                   --------     --------     --------      --------
     Net income from continuing operations            8,929        4,517       14,154        11,024
                                                   --------     --------     --------      --------

Discontinued operations:
     Income (loss) from discontinued
       operations (see Note 5)                           --          273          (77)           45
                                                   --------     --------     --------      --------
           Net income                              $  8,929     $  4,790     $ 14,077      $ 11,069
                                                   ========     ========     ========      ========
Shares used in computing net income per share        48,020       47,002       47,553        47,028
                                                   ========     ========     ========      ========

Net income per share from continuing
  operations (see Note 2)                          $   0.19     $   0.09     $   0.30      $   0.24
                                                   --------     --------     --------      --------
Net income (loss) per share from  discontinued           
  operations (see Note 2)                          $     --     $   0.01     $     --      $     --
                                                   --------     --------     --------      --------

Net income per share (see Note 2)                  $   0.19     $   0.10     $   0.30      $   0.24
                                                   ========     ========     ========      ========
</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                      -3-
<PAGE>   4
                                      PIXAR
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                                                    June 30,
                                                                               1997          1996
                                                                             --------      --------
<S>                                                                          <C>           <C>     
Cash flows from operating activities:
   Net income                                                                $ 14,077      $ 11,069
   Adjustments to reconcile net income to net cash
        provided by continuing operating activities:
      Discontinued operations                                                      77           (45)
      Amortization of deferred compensation                                       365           704
      Non-cash revenue attributable to film overbudget                             --        (2,324)
      Depreciation and amortization                                               887           251
      Loss on disposition of property and equipment                               423            --
      Amortization of capitalized film production costs                         1,327           423
      Credits from patent license, net of expense items                        (1,491)         (891)
      Changes in operating assets and liabilities:
          Trade and other accounts receivable                                   1,312        (3,385)
          Prepaid expenses and other current assets                               450          (145)
          Accounts payable                                                        657          (318)
          Income taxes payable                                                  4,826           295
          Accrued liabilities                                                     407            41
          Unearned revenue                                                        259           366
                                                                             --------      --------
            Net cash provided by continuing operations                         23,576         6,041
            Net cash provided by discontinued operations                        1,095            45
                                                                             --------      --------
            Net cash provided by operating activities                          24,671         6,086
                                                                             --------      --------

Cash flows from investing activities:
   Purchase of property and equipment                                         (11,690)         (276)
   Maturities of investments in short-term securities                          56,422        42,032
   Purchases of short-term securities, net of unrealized losses               (56,276)      (76,999)
   Capitalized film production costs                                          (10,497)         (475)
   Change in other assets                                                         (74)         (374)
                                                                             --------      --------
      Net cash used in investing activities                                   (22,115)      (36,092)
                                                                             --------      --------

Cash flows from financing activities:
   Net proceeds from issuance of common stock and warrants, net                14,885            --
   Repayment of note payable to shareholder                                        --        (2,373)
   Proceeds from exercised  stock options                                         506            36
                                                                             --------      --------
      Net cash provided by (used in) financing activities                      15,391        (2,337)
                                                                             --------      --------
Net increase (decrease) in cash and cash equivalents                           17,947       (32,343)
Cash and cash equivalents at beginning of period                               44,648        97,286
                                                                             --------      ========
Cash and cash equivalents at end of period                                   $ 62,595      $ 64,943
                                                                             ========      ========

Supplemental disclosure of cash flow information:
     Cash paid during the period for income taxes                            $    280      $    305
                                                                             ========      ========
 Supplemental disclosure of non-cash investing and financing activities:
     Credits from patent license                                             $  1,599      $    891
                                                                             ========      ========
     Film overbudget reductions                                              $     --      $  3,324
                                                                             ========      ========
     Non-cash film production costs capitalized                              $  7,514      $     27
                                                                             ========      ========
     Unrealized gain (loss) on investments                                   $     (9)     $   (150)
                                                                             ========      ========
</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                      -4-
<PAGE>   5
                                      PIXAR

                          NOTES TO FINANCIAL STATEMENTS


(1)  BASIS OF PRESENTATION

     The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited financial statements reflect
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of Pixar's financial condition, results of
operations, and cash flows for the periods presented. These financial statements
should be read in conjunction with the audited financial statements as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, including notes thereto, incorporated by reference into
Pixar's Annual Report on Form 10-K for the year ended December 31, 1996.

     The results of operations for the three- and six-month periods ended June
 30, 1997, are not necessarily indicative of the results expected for the
 current year or any other period.

     Certain amounts reported in previous periods have been reclassified to
 conform to the 1997 financial statement presentation.

(2)  NET INCOME PER SHARE

     Net income per share is computed using net income from continuing
operations, and net income (loss) from discontinued operations, and is based on
the weighted average number of shares of common stock outstanding and common
equivalent shares from stock options (under the treasury stock method, if
dilutive).

     The Financial Accounting Standards Board (FASB) recently issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No.
128 requires the presentation of basic earnings per share (EPS) and, for
companies with potentially dilutive securities, such as options and warrants,
diluted EPS. SFAS No. 128 is effective for annual and interim periods ending
after December 15, 1997. The Company expects basic EPS for profitable periods
will be higher than primary EPS as presented in the accompanying financial
statements and diluted EPS for profitable periods will not differ materially
from primary EPS as presented in the accompanying financial statements.
Computations for loss periods should not change significantly.

(3)  PATENT LICENSING ARRANGEMENTS

     In March 1996, Pixar delivered all rights to utilize certain technology
underlying a patent license to Silicon Graphics, Inc. (SGI), and received a
non-refundable fixed-fee payment of $6.0 million in cash and $5.0 million in the
form of credits for products to be purchased from SGI by Pixar over four years.
Following the release of the rights to utilize the patents to SGI, Pixar
maintained no significant vendor obligations to the licensee; therefore, as of
June 30, 1996, the Company recognized as revenue the fixed and determinable
amounts of the $6.0 million cash payment received, plus $891,000 which
represented that portion of the credits Pixar had used through June 30, 1996.
For the six months ended June 30, 1997, revenue of $1.6 million was recognized
representing credits used by Pixar during that period. Since March 1996, Pixar
has used a total of $4.7 million worth of credits, with $270,000 of credits
remaining which are expected to be used during 1997.


                                      -5-
<PAGE>   6
(4)  FEATURE FILM PRODUCTION AND CO-PRODUCTION AGREEMENT

          FEATURE FILM AGREEMENT

     In 1991, Pixar entered into a feature film agreement with Walt Disney
Pictures, a wholly owned subsidiary of The Walt Disney Company (together with
its subsidiaries and affiliates collectively referred to herein as "Disney") to
develop and produce up to three computer animated feature films (the Feature
Film Agreement). The first feature film, Toy Story, was released in November
1995. Under the Feature Film Agreement Pixar is entitled to receive compensation
based on the revenue from the distribution of animated feature films and related
products, and recognized revenues on Toy Story of $5.1 million and $17.9 million
for the six months ended June 30, 1996 and 1997, respectively, for a total of
$36.7 million since the film's release.

     Pixar incurred film production costs that were reimbursed by Disney,
inclusive of salaries and overhead. All payments to Pixar from Disney for costs
of feature film production were recorded as cost reimbursements; accordingly, no
revenues were recorded for such reimbursements; rather, Pixar netted the
reimbursements against the related costs.

          CO-PRODUCTION AGREEMENT

     On February 24, 1997, Pixar and Disney entered into a co-production
agreement (Co-Production Agreement) which will now govern the second and third
feature films planned under the Featue Film Agreement, three additional films,
sequels, and other derivative works. The second and third feature films, and a
made-for-home video sequel to Toy Story, were in production as of June 30, 1997.
Under the Co-Production Agreement, Pixar, on an exclusive basis, will produce
five computer animated feature-length theatrical motion pictures (the Pictures)
for distribution by Disney over approximately the next ten years. Pixar and
Disney will co-own and co-brand the Pictures and co-finance the production
costs. Pixar and Disney will share equally in the profits of each Picture and
any related merchandise and other ancillary products, after recovery of all
marketing and distribution costs (which will be financed by Disney), a
distribution fee paid to Disney and any other fees or costs, including
participations provided to talent and the like. The Co-Production Agreement
generally provides that Pixar will produce each Picture and Disney will control
all decisions relating to marketing, promotion, publicity, advertising and
distribution of each Picture. The first Picture under the Co-Production
Agreement is A Bug's Life. The Co-Production Agreement also contemplates that
with respect to interactive media products and other derivative works related to
the Pictures, Pixar will have the opportunity to co-finance and produce such
products or to earn passive royalties on such products.

(5)  DISCONTINUED OPERATIONS

     Pixar determined in March 1997 to discontinue its business of producing
CD-ROM and other interactive products and redirect the approximately 60
employees in this division to film and related projects within Pixar. In the
three months ended March 31, 1997, the net loss from the CD-ROM division was
$77,000. In the three months ended June 30, 1997, no gain or loss has been
recorded for the disposal of the CD-ROM division as the Company anticipates
future royalty income will exceed future expenses. In the six months ended June
30, 1996 the division produced net income of $45,000. Net assets of the
discontinued operations of $297,000 and $1.5 million at June 30, 1997 and
December 31, 1996, respectively, primarily consist of reimbursements and
royalties receivable from Disney.

(6)  EQUITY TRANSACTIONS

     In connection with the Co-Production Agreement, Pixar sold to Disney
1,000,000 shares of the Company's Common Stock which Disney has agreed to hold
for at least three years. Pixar also granted two warrants to Disney: one warrant
to purchase 750,000 shares of Common Stock at an exercise price of $20 per
share, and another warrant to purchase 750,000 shares of Common Stock at $25 per
share. Pixar granted certain registration rights for the shares issuable upon
exercise of the warrants. Gross proceeds on the transaction were $15.0 million.


                                      -6-
<PAGE>   7
(7)  RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This Statement establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of determining
its preferred format. This Statement is effective for fiscal years beginning
after December 15, 1997.

     Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Statement establishes
standards for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. This Statement is effective for
financial statements for periods beginning after December 15, 1997, and is not
expected to have a significant impact on the Company's reporting of segment
information.


                                      -7-
<PAGE>   8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on current expectations,
estimates and projections about Pixar's industry, management's beliefs, and
assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth in the Form 10-K (as defined below)
under "Certain Factors Affecting Business, Operating Results and Financial
Condition" on pages 15 through 26, as well as those noted in the documents
incorporated therein by reference. Particular attention should be paid to the
cautionary language in the Form 10-K entitled "Certain Factors Affecting
Business, Operating Results and Financial Condition--Anticipated Decline in
Operating Results in 1997 and Net Losses in 1998," "--Dependence on Toy Story, A
Bug's Life and Toy Story Video Sequel," "--Liquidity Risks," "--Scheduled
Concurrent Release of Films; Management of Growth" and "--Risks Associated With
Co-Production Agreement." Unless required by law, Pixar undertakes no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

     The Company's operating performance each quarter is subject to various
risks and uncertainties as discussed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (the "Form 10-K"). The following discussion
should be read in conjunction with the sections entitled "Certain Factors
Affecting Business, Operating Results and Financial Condition" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Form 10-K. In particular, the factors set forth below in "Factors Affecting
Operating Results and Financial Condition" could affect the Company's operating
results and financial condition.

NEW AGREEMENT WITH DISNEY

     On February 24, 1997, Pixar and Walt Disney Pictures, a wholly owned
subsidiary of The Walt Disney Company (together with its subsidiaries and
affiliates collectively referred to herein as "Disney") entered into a
co-production agreement (the "Co-Production Agreement") pursuant to which Pixar,
on an exclusive basis, will produce five computer animated feature-length
theatrical motion pictures (the "Pictures"), for distribution by Disney over
approximately the next ten years. Pixar and Disney will co-finance the
production costs of the Pictures, co-own the Pictures (with Disney having
exclusive distribution and exploitation rights), co-brand the Pictures and share
equally in the profits of each Picture and any related merchandise and other
ancillary products, after recovery of all marketing and distribution costs
(which will be financed by Disney), a distribution fee paid to Disney and any
other fees or costs, including participations provided to talent and the like.
The Co-Production Agreement generally provides that Pixar will produce each
Picture and that Disney will control all decisions relating to marketing,
promotion, publicity, advertising and distribution of each Picture. Disney and
Pixar have agreed that the first Picture under the Co-Production Agreement is
the Picture with the working title "A Bug's Life". The Co-Production Agreement
also contemplates that with respect to interactive media products and other
derivative works related to the Pictures, Pixar will have the opportunity to
co-finance and produce such products or to earn passive royalties on such
products. Disney and Pixar have also agreed to produce a made-for-home-video
sequel to Toy Story (the "Toy Story Video Sequel"), and Pixar is working on the
production under the terms of the Co-Production Agreement. Pixar will not share
in any theme park revenues generated as a result of the Pictures. Pixar does not
expect to receive revenues under the Co-Production Agreement from either A Bug's
Life nor the Toy Story Video Sequel until 1999 at the earliest.

     In May 1991, Pixar entered into a feature film agreement (the "Feature Film
Agreement") with Disney, pursuant to which Toy Story and the Toy Story home
video were developed, produced and distributed. The Feature Film Agreement was
largely superseded by the Co-Production Agreement above. However, the Feature
Film Agreement remains in effect with respect to Pixar's financial participation
in Toy Story and related products.


                                      -8-
<PAGE>   9
RESULTS OF OPERATIONS

     REVENUES

     Total revenues increased 108% to $14.4 million in the three months ended
June 30, 1997 from $6.9 million in the same period of the prior year, and
increased by 46% to $22.2 million in the six months ended June 30, 1997 from
$15.2 million in the same period of the prior year. The increase for the three
months ended June 30, 1997 was primarily due to higher film revenue of $11.6
million compared to $5.0 million in the same period of the prior year. The
increase in total revenues of $7.1 million for the six months ended June 30,
1997 over the same period in the prior year was primarily attributable to an
increase in film revenue of $12.8 million, offset by a decrease in patent
licensing revenue of $5.3 million and a decrease in animation services revenue
of $1.3 million.

     Software revenues consist mainly of software license revenue, principally
from RenderMan. Software revenues increased 47% to $1.1 million in the three
months ended June 30, 1997 from $722,000 in the prior year period and increased
52% to $2.5 million in the six months ended June 30, 1997 from $1.6 million in
the same period of the prior year. The increase in software revenues resulted
from a general increase in the number of RenderMan software licenses. Due to
Pixar's focus on content creation for animated feature films and related
products, Pixar expects that revenue derived from software licenses may decline.
All historical and future royalty income associated with Pixar's discontinued
CD-ROM division is now and will continue to be excluded from software revenue
and presented in results of discontinued operations. See "Results From
Discontinued Operations."

     Animation services revenues of $799,000 and $1.6 million in the three and
six months ended June 30, 1996, respectively, was primarily attributable to
revenue generated from the production of animated television commercials. In
July 1996, Pixar announced plans to substantially discontinue its production of
television commercials for third parties and to redirect the talent in its
television commercial group to animated feature films and related products.
Accordingly, there has been no television commercials revenue generated in 1997,
and animation services revenues of $269,000 in the three and six months ended
June 30, 1997 represents revenue for projects related to A Bug's Life. Pixar
expects that revenue in this area will vary significantly from quarter to
quarter. There are likely to be individual quarters, such as occurred in the
first quarter of 1997, or possibly even prolonged periods of time, in which
Pixar generates no animation services revenue.

     Film revenues increased 132% to $11.6 million in the three months ended
June 30, 1997 from $5.0 million in the prior year period and 253% to $17.9
million in the six months ended June 30, 1997 from $5.1 million in the prior
year period. Film revenues in 1997 were higher than in prior year periods for
two reasons. First, during the three and six months ended June 30, 1997, Pixar
received the majority of its share of Toy Story home video revenue. Pixar does
not expect to recognize significant revenue from the Toy Story home video in the
third and fourth quarters of 1997 or in any quarter in 1998. Second, film
revenues represent Pixar's share of Toy Story home video revenues as determined
under the original Feature Film Agreement in which Pixar's percentage of Toy
Story revenues is calculated on a sliding scale. Lower percentages were earned
by Pixar at the outset while Disney recovered related production, marketing and
distribution costs for the film, and higher percentages are earned once Disney
has recovered these costs. Disney's costs were recovered in the quarter ended
June 30, 1997 which increased Pixar's revenue in the quarter. Pixar expects a
substantial decline in Toy Story-related revenue in the second half of 1997 as
most revenues have been received. Since the Toy Story home video is the last
major release window for Toy Story, and since Pixar's next feature film is not
targeted for release until the end of 1998 at the earliest, Pixar's revenue and
earnings will decrease in subsequent periods as compared to 1996 and the first
half of 1997.


                                      -9-
<PAGE>   10
     Patent licensing revenues of $1.5 million in the three months ended June
30, 1997 and $1.6 million in the six months ended June 30, 1997 include almost
all of the remaining revenue from Pixar's 1996 patent license with Silicon
Graphics, Inc. ("SGI"), whereby Pixar granted to SGI and its subsidiaries a
non-exclusive license to use certain of Pixar's patents covering techniques for
creating computer-generated photorealistic images. Under the agreement, SGI
agreed to pay Pixar total compensation of $11.0 million, of which $6.0 million
was paid in cash in March 1996 and $5.0 million was to be paid in the form of
purchase credits for SGI hardware and software through the year 2000.
Recognition of the $5.0 million in credits depends upon purchases of the
hardware and software to be obtained from SGI in lieu of payment. In the six
months ended June 30, 1996, Pixar recognized the $6.0 million cash payment from
SGI, and $891,000 representing that portion of the $5.0 million in hardware and
software credits Pixar had used through June 30, 1996. In the six months ended
June 30, 1997, revenue of $1.6 million was recognized representing credits used
during that period. Of the original $5.0 million in credits, Pixar has credits
of $270,000 remaining to be recognized as revenue in future periods as credits
are used.

     In the three and six months ended June 30, 1997, Disney accounted for 83%
and 82%, respectively, of Pixar's total revenue. The revenues from Disney
consisted primarily of film, animation services and software revenues. Pixar
expects to continue to be dependent upon Disney for at least a majority of its
revenue. In the three months ended June 30, 1996, and in the six months ended
June 30, 1996, Disney accounted for 77% and 38%, respectively, of Pixar's total
revenues. All patent revenues in periods presented were generated from a
one-time patent license sale to SGI. In the three and six month periods ended
June 30, 1997, SGI accounted for 10% and 7% of total revenues, respectively, and
in the three and six month periods ended June 30, 1996, SGI accounted for 6% and
45% of total revenues, respectively. Pixar expects that revenue from SGI will
not be generated on an ongoing basis.

     COST OF REVENUES

     Cost of software revenues consists of the direct costs and manufacturing
overhead required to reproduce and package software products. Cost of software
revenues as a percentage of the related revenues was 1% in both the three and
six months ended June 30, 1997. As compared to the prior year periods, in which
cost of software revenues were 1% and 4%, respectively, the change was
insignificant. Cost of software revenues includes no amortization of capitalized
software development expenses.

     Cost of animation services revenues consists of production costs, which
include salaries and benefits and, to a lesser extent, facility expenses and
department overhead costs. Costs of animation services revenues as a percentage
of related revenues decreased to 65% in the three months ended June 30, 1997
from 98% in the same period of the prior year and decreased to 65% for the six
months ended June 30, 1997 from 95% in the same period of the prior year. These
decreases reflect Pixar's decision in July 1996 to substantially discontinue the
animated television commercials division, which had higher associated costs, in
favor of working on animated productions related to feature films, which have
relatively lower associated costs. Pixar's focus is now on other short term
animation services projects related to its feature films. Pixar expects that
costs in this area will vary significantly from quarter to quarter.

     Cost of film revenues represent amortization of film costs capitalized by
Pixar. See "Capitalized Film Production Costs." Cost of film revenues as a
percentage of the related revenues remained relatively flat at 7% in the three
and six months ended June 30, 1997, as compared to 8% in the prior year periods.

     There were no costs of revenue associated with patent licensing revenues,
which resulted in an unusually high overall gross margin in the three and six
months ended June 30, 1997 and in the prior year period.

     OPERATING EXPENSES

     While Pixar has continued to increase its spending levels, total operating
expenses for the three and six months ended June 30, 1997 were slightly lower
than in the prior year periods. This is a result of the Co-Production Agreement
signed in February, 1997 pursuant to which Disney pays half of total film
production costs and certain allocations of Pixar's operating expenses that
benefit the productions, such as certain research and development and certain
general and administrative expenses. The result is that certain of Pixar's
operating expenses are now partially funded by Disney.


                                      -10-
<PAGE>   11
     Pixar intends to continue to increase its spending levels in a number of
areas. First, as a result of intense competition for animators, Pixar continues
to have to pay higher salaries to attract new creative personnel and technical
directors. Pixar expects compensation for such new and existing personnel to
continue to increase substantially. In the three and six months ended June 30,
1997, Pixar expanded its administrative staff and facilities and expanded other
operations. Pixar expects continued growth in operating expenses in these areas.
To the extent that such expenses are not capitalized by Pixar, nor allocated to
and paid for by Disney under the Co-Production Agreement, and precede or are not
subsequently followed by an increase in revenues, Pixar's business, operating
results and financial condition will be materially adversely affected.

     Research and development expenses consist primarily of salaries and support
for personnel conducting research and development for the RenderMan product and
for Pixar's proprietary Marionette and Ringmaster software. Research and
development expenses increased 18% to $1.4 million in the three months ended
June 30, 1997 from $1.2 million in the prior year period, and increased 9% to
$2.5 million in the six months ended June 30, 1997 from $2.3 million in the
prior year period. In each period, this reflects increased personnel costs
offset by recovery of certain research and development costs that were
reimbursed by Disney under the Co-Production Agreement. To date, all software
development costs have been expensed as incurred.

     Sales and marketing expenses consist primarily of salaries and related
overhead, as well as advertising, technical support, public relations and trade
show costs required to support the software segment. Sales and marketing
expenses decreased 41% to $353,000 in the three months ended June 30, 1997 from
$600,000 in the prior year period and decreased 41% to $605,000 in the six
months ended June 30, 1997 from $1.0 million in the prior year period due to
discontinued marketing efforts for television commercials. Pixar expects that
marketing expenses may increase in absolute dollars in future periods,
particularly in the areas of corporate marketing and public relations.

     General and administrative expenses consist primarily of salaries of
management and administrative personnel, insurance costs and professional fees.
General and administrative expenses decreased 4% to $1.0 million in the three
months ended June 30, 1997 from $1.1 million in prior year period, and increased
10% to $2.3 million in the six months ended June 30, 1997 from $2.1 million in
the prior year period. For the three months ended June 30, 1997, general and
administrative expenses were relatively flat as compared to the prior year
period. The increase in the six months ended June 30, 1997 was primarily due to
increased staffing, increased professional fees associated with the protection
of intellectual property and increased costs associated with being a public
company. Growth in these costs was somewhat offset by the recovery of certain
general and administrative costs reimbursed by Disney under the Co-Production
Agreement. Pixar continues to expect general and administrative expenses to
increase in absolute dollars in future periods as Pixar incurs additional costs
to expand its administrative staff and facilities.


     OTHER INCOME, NET

     In both 1996 and 1997, other income consisted primarily of interest income
on investments. Other income, net was $1.9 million and $4.0 million in the three
and six months ended June 30, 1997, respectively. These amounts reflect the
impact of a loss on the disposal of certain computer equipment of approximately
$350,000. Other income net in the three and six months ended June 30, 1996 was
$1.9 million and $3.8 million, respectively.

     INCOME TAXES

     Income tax expense for the three and six months ended June 30, 1997
reflects Pixar's federal and state income tax liability after utilization of
available federal net operating loss carryforwards and federal and state tax
credits. Income taxes increased in the three and six months ended June 30, 1997
due to expected full utilization of the net operating loss carryforwards in
1997.


                                      -11-
<PAGE>   12
     RESULTS OF DISCONTINUED OPERATIONS

     After the Co-Production Agreement was executed in February 1997, Pixar
evaluated the merits of staying in the business of producing CD-ROM products and
compared those opportunities with opportunities in film and other potential
projects under the Co-Production Agreement. Management determined that, despite
the fact that Pixar's first CD-ROM titles were successful on relative terms, the
resources devoted to its interactive products division would be better allocated
to other projects arising from the Co-Production Agreement which Pixar believes
will have greater potential than the CD-ROM titles, such as theatrical films,
home video sequels and short animation projects. Moreover, the CD-ROM and
interactive product market is not growing as fast as expected, the production
costs of such products are increasing and one project under negotiation with a
third party was canceled. For these reasons, Pixar determined in March 1997 to
discontinue its business of producing CD-ROM and other interactive products and
redirect the approximately 60 employees in the division to film and related
projects within Pixar. Because the CD-ROM business previously represented an
ongoing potential source of revenue, this decision is expected to have a
material adverse impact on Pixar's future revenues and results of operations in
the future.

     In the first quarter ended March 31, 1997, Pixar recorded a loss from
discontinued operation of its CD-ROM division of $77,000, net of tax. In the
three months ended June 30, 1997, no gain or loss was recorded for the
anticipated discontinuation of the CD-ROM division as Pixar anticipates future
royalty income will exceed costs incurred during the three months ended June 30,
1997 and related costs incurred in all future periods. In the three and six
month periods ended June 30, 1996, income from discontinued operations was
$45,000 and $273,000, respectively, net of taxes.


FACTORS AFFECTING OPERATING RESULTS AND FINANCIAL CONDITION

     The following is a discussion of certain factors which currently impact or
may impact Pixar's business, operating results and/or financial condition.
Anyone making an investment decision with respect to Pixar's capital stock or
other securities is cautioned to carefully consider these factors.

     ANTICIPATED DECLINE IN OPERATING RESULTS IN 1997 AND NET LOSSES IN 1998

     A number of factors are expected to lead to a substantial decline in
Pixar's operating results in the remainder of 1997 and net losses in 1998, as
discussed more fully below.

     END OF TOY STORY REVENUES

     As of June 30, 1997, Pixar has recognized the vast majority of the revenue
it expects to receive from the domestic and international theatrical releases of
Toy Story and substantially all of the home video revenue from Toy Story. Pixar
does not expect to recognize significant revenue from the Toy Story home video
in the third or fourth quarters of 1997 or in any quarter in 1998.

     REDUCED CD-ROM ROYALTIES

        Although its first two CD-ROM products were successful on relative
terms, Pixar determined in March 1997 to discontinue its business of producing
CD-ROM and other interactive products in favor of other opportunities arising,
in part, as a result of entering into the Co-Production Agreement. This
decision is expected to continue to have a material adverse impact on Pixar's
operating results in the remainder of 1997 and in 1998. Pixar has not and will
not recognize any CD-ROM income from this discontinued operation in 1997 or
1998, other than royalty income attributable to the two Toy Story CD-ROM
products, and Pixar continues to expect to receive less CD-ROM royalty income
than was previously anticipated. Pixar has reassigned most of the approximately
60 employees previously employed in the CD-ROM division to feature film
productions and other departments within Pixar.


                                      -12-
<PAGE>   13
     TIMING OF A BUG'S LIFE AND TOY STORY VIDEO SEQUEL RELEASES

        A Bug's Life is not expected to be released until the end of 1998 at
the earliest, and revenue from A Bug's Life is not expected to be recognized
until all marketing and distribution costs and fees have been recovered
by Disney. Recovery of all costs depends on many factors and may not occur
until six to twelve months after its release at the earliest, ensuring that
Pixar will not recognize any revenue from A Bug's Life until the second half of
1999 at the earliest. The Toy Story Video Sequel is currently targeted for
completion in the second half of 1998, but its release date could be at the end
of 1998 or later depending on a number of factors. First, Pixar may be unable,
for technical or other reasons, to complete the production of the Toy Story
Video Sequel in the second half of 1998. Second, even if completed, Disney and
Pixar may choose to delay release of the Toy Story Video Sequel until the 1998
holiday season or thereafter. Depending on the timing of receipt of revenues by
Disney, Pixar may not recognize revenue from the Toy Story Video Sequel until
three to six months after its release at the earliest, meaning that if the Toy
Story Video Sequel were released in late 1998 or thereafter, Pixar would not
recognize any revenue from the Toy Story Video Sequel until 1999 at the
earliest. Third, it is possible that the Toy Story Video Sequel could be
released to the theaters instead of as a made-for-home video. In such event,
Pixar would not expect to recognize any revenue until six to twelve months
after the theatrical release, with the result that Pixar would not recognize
any revenue from such film until the second half of 1999 at the earliest.

     POSSIBLE DECLINE IN LICENSING OF RENDERMAN DUE TO SHIFT IN FOCUS

     As a result of Pixar's reduced emphasis on the commercialization of
software in favor of products sold for their content, Pixar continues to expect
to dedicate less time and resources to distributing and marketing RenderMan than
it has in the past and further expects that licensing of RenderMan may decline.

     INCREASE IN OPERATING EXPENSES AND TAX RATE

     In 1996, Pixar significantly increased its operating expenses, and Pixar
plans to continue to increase its operating expenses to fund greater levels of
research and development and to expand operations. Specifically, Pixar expects
its spending levels to increase significantly due to continued investment in
proprietary software systems, increased compensation costs as a result of
intense competition for animators, creative personnel, technical directors and
other personnel, and increased costs associated with the expansion of its
facilities. To the extent that such expenses are not capitalized by Pixar nor
allocated to and paid for by Disney, Pixar's operating expenses would
significantly increase in the remainder of 1997 and in 1998. Finally, Pixar's
tax rate has increased in the six months ended June 30, 1997 and may continue to
increase in the remainder of 1997 and future years as the result of utilization
of net operating losses in 1997.

     IMPACT ON OPERATING RESULTS

     As a result of the above factors, Pixar expects revenue to decline
substantially in the third and fourth quarters of 1997 and to not recognize
substantial revenue in 1998. At the same time, Pixar's operating expenses may
increase in the third and fourth quarters of 1997 and in 1998, even after giving
effect to the allocation of certain operating expenses to Disney under the
Co-Production Agreement. Therefore, Pixar expects revenue and operating results
in the third and fourth quarters of 1997 to decline substantially from the first
and second quarters of 1997 and from the third and fourth quarters of 1996. It
is possible that Pixar could even incur operating and net losses in each of the
last two quarters of 1997. Pixar also expects to incur operating and net losses
throughout 1998.


                                      -13-
<PAGE>   14
     POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

     In addition to the factors set forth above, Pixar continues to expect to
generally experience significant fluctuations in its future annual and quarterly
operating results caused by a variety of factors. Pixar expects that its annual
and quarterly operating results, particularly its revenue, will fluctuate due to
factors such as the timing of the domestic and international releases of the
animated feature films, the success of the animated feature films (which can
fluctuate significantly from film to film), the timing of the release of related
products into their respective markets, the demand for the related products
(which is often a function of the success of the related animated feature film),
film production costs, Disney's costs to distribute and promote the feature
films and related products, Disney's success at marketing the films and related
products, the timing of receipt of proceeds from the animated feature films and
related products by Disney, the timing of revenue recognition under the
Co-Production Agreement, the Feature Film Agreement or the CD-ROM Agreement, as
the case may be, the introduction of new feature films or products by Pixar's
competitors, and general economic conditions. In particular, since Pixar's
revenue under the Co-Production Agreement is directly related to the success of
a feature film, Pixar's operating results are likely to fluctuate depending on
the level of success of its animated feature films and related products. The
revenues derived from the production and distribution of an animated feature
film depend primarily on the film's acceptance by the public, which cannot be
predicted and does not necessarily bear a direct correlation to the production
or distribution costs incurred. The commercial success of a motion picture also
depends upon promotion and marketing, production costs and other factors.
Further, the theatrical success of a feature film can be a significant factor in
determining the amount of revenues generated from the sale of the related
products.

     Moreover, Pixar's operating expenses will continue to be extremely
difficult to forecast. The direct costs of film production are budgeted in
agreement with Disney and shared equally. Pixar's share of these direct costs of
film production are capitalized by Pixar in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 53, "Financial Reporting by
Producers and Distributors of Motion Picture Films." A substantial portion of
all of Pixar's other costs are incurred for the benefit of feature films
("Pixar's Overhead"), including research and development expenses and general
and administrative expenses. Portions of Pixar's Overhead are included in the
budgets for the Pictures and will be shared equally with Disney under the
Co-Production Agreement. The portion of Pixar's Overhead that is not reimbursed
by Disney is either capitalized as film production costs, if required under SFAS
No. 53, or charged to operating expense in the period incurred. Because a
substantial portion of Pixar's Overhead is allocated to the Pictures and
reimbursed by Disney and other amounts are capitalized by Pixar in accordance
with SFAS No. 53, Pixar's future reported operating expenses will not reflect
the true level of spending on the production of animated feature films, related
products and overhead.

     Pixar may not be able to recognize the tax benefits of net operating losses
to be generated in the future. Pixar had a valuation allowance as of December
31, 1996 which fully offset its gross deferred tax assets due to Pixar's
historical losses and the fact that there is no guarantee Pixar will generate
sufficient taxable income in the future to be able to realize all of its
deferred tax assets.

     As a result of all of the foregoing, Pixar believes that period-to-period
comparisons of its results of operations are not necessarily meaningful, and its
annual and quarterly results of operations should not be relied upon as any
indication of future performance. Due to all of the foregoing factors, it is
likely that in some future period Pixar's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of Pixar's Common Stock would likely be materially adversely affected.


                                      -14-
<PAGE>   15
     DEPENDENCE ON TOY STORY, A BUG'S LIFE AND TOY STORY VIDEO SEQUEL

     DEPENDENCE ON TOY STORY

        For at least 1997, Pixar's revenue and operating results have been and
will continue to be almost entirely dependent upon the success of the Toy Story
home video and merchandising of Toy Story products. Pixar recognized
substantially all of the Toy Story home video revenue in the first two quarters
of 1997 and expects little revenue from Toy Story or related products
thereafter. In its discontinued CD-ROM operations, Pixar also expects limited
royalty income from its Toy Story CD-ROM products in the last two quarters of
1997 and little or no income from such products in 1998. Because A Bug's Life
and the Toy Story Video Sequel are not expected to be released until the end of
1998 at the earliest, all other revenues in the last half of 1997 and for all
of 1998 will be primarily dependent upon Pixar's other businesses, from which
Pixar expects limited revenue.

     DEPENDENCE ON A BUG'S LIFE AND TOY STORY VIDEO SEQUEL

     Beyond 1998, Pixar expects to be significantly dependent upon the success
of A Bug's Life and the Toy Story Video Sequel (the "Current Projects") and
related products. Although production on each of the Current Projects is
underway, there can be no assurance that either of the Current Projects will be
successfully produced and released when scheduled or thereafter. In addition,
given the escalation in compensation rates of people required to work on the
Current Projects, the number of people required to work on the Current Projects,
and the equipment needs, the budget for the Current Projects and subsequent
films and related products will be substantially greater than the budget for Toy
Story and will be financed equally by Pixar and Disney under the Co-Production
Agreement. There can be no assurance that Pixar will not experience difficulties
that could delay or prevent the successful development or production of either
of the Current Projects or subsequent animated feature films or related
products. If Pixar is unable to produce and develop on a timely basis the
Current Projects and subsequent animated feature films and related products that
meet with broad market acceptance, Pixar's business, operating results and
financial condition will be materially adversely affected.

     RISKS ASSOCIATED WITH A BUG'S LIFE.

     Under the Co-Production Agreement, Pixar shares the production costs of A
Bug's Life. These costs will initially be capitalized as film production costs
under SFAS No. 53 and then be amortized over A Bug's Life's expected revenue
stream when revenue is recognized. If A Bug's Life is not an extraordinary box
office success similar to Toy Story, the amount of revenue recognized will not
be significant, and the capitalized production costs will have to be amortized
in large amounts over a limited number of quarters, resulting in significant
costs of film revenue in those quarters and, potentially, significant quarterly
operating and net losses. Animated feature films that become extraordinary box
office successes are rare. Pixar believes, based on available information, that
there is a reasonable basis to conclude that of the more than 40 animated
feature films introduced since 1990, only two movies generated domestic box
office revenues greater than Toy Story, and both of those films were produced
and distributed solely by Disney. During at least the last five years, Pixar
believes that there has been no fully animated feature film (other than Toy
Story) produced or developed by a studio other than Disney that has achieved
more than $25 million in domestic box office revenues. While A Bug's Life will
be co-financed, promoted and marketed by Disney, it will have a different look,
theme and musical style than Disney's other recent animated films (except for
Toy Story), and there can be no assurance that it will have the same audience
appeal as Disney's other animated films. For example, The Nightmare Before
Christmas, released in 1993, was an animated feature film with a different
appearance than traditional, hand drawn cel animated feature films such as
Beauty and the Beast, The Lion King, Aladdin, Pocahontas, The Hunchback of Notre
Dame and Hercules and did not experience the same box office returns as those
films. As a result, A Bug's Life and related products may not generate
significant revenue and operating results for Pixar, even if A Bug's Life is
critically acclaimed and achieves substantial, but not extraordinary, box office
success.


                                      -15-
<PAGE>   16
     RISKS ASSOCIATED WITH TOY STORY VIDEO SEQUEL.

     There are several additional risks unique to the Toy Story Video Sequel.
First, Pixar has no experience developing sequels, either theatrical or
made-for-home video. Moreover, the made-for-home video market has only recently
begun to develop. As is typical in the case of an undeveloped market, demand and
market acceptance are uncertain. Competition in this market is expected to
increase dramatically. Disney alone has announced its intention to distribute
several made-for-home video sequels in the next year, as have other studios.
Pixar is at a disadvantage in the made-for-home video sequel market as compared
to other animation studios in that Pixar cannot produce low cost animation,
which typically characterizes sequels to animated feature films. Finally, the
Toy Story Video Sequel will need to be an extraordinary success on relative
terms in order to generate profits for Pixar. If the Toy Story Video Sequel is
not an extraordinary success on relative terms, Pixar will incur substantial
costs of film revenue in those quarters in which revenue is recognized, which
will have a material adverse effect on its results of operations. There can be
no assurance that the Toy Story Video Sequel will be an extraordinary success on
relative terms, particularly given the recent emergence and uncertainty of the
made-for-home video market.

     LIQUIDITY RISKS

     Pursuant to the Co-Production Agreement, Pixar will co-finance the next
five animated feature films which it produces, including A Bug's Life and the
second theatrical film being developed under the Co-Production Agreement (the
"Second Theatrical Film"), and will also co-finance the Toy Story Video Sequel.
In the future, Pixar may co-finance other derivative works such as theatrical
sequels, interactive products and television productions. As Pixar does not
expect to generate substantial, if any, cash from operations in the second half
of 1997 and in 1998, the production costs of A Bug's Life, the Second Theatrical
Film and the Toy Story Video Sequel are expected to have a material adverse
impact on Pixar's cash and short-term investment balances. As of June 30, 1997,
Pixar had approximately $178.8 million in cash and short-term investments. Pixar
believes that these funds will be sufficient to meet its anticipated cash needs
for working capital and capital expenditures, including the production costs of
A Bug's Life, the Second Theatrical Film and the Toy Story Video Sequel, until
Pixar begins receiving cash from the release of these films (which is generally
not expected to occur until 1999 at the earliest). However, even if these films
generate cash, unless each is a success such that Pixar recovers on a timely
basis its share of the production costs, as well as other operating expenses and
capital expenditures, Pixar will be required to seek financing for its ongoing
commitments under the Co-Production Agreement and any other requirements of its
operations. Pixar may also seek additional financing in connection with the
expansion of its facilities (See Liquidity and Capital Resources). The sale of
additional equity or convertible debt securities would result in additional
dilution to Pixar's shareholders. Moreover, there can be no assurance that Pixar
will be successful in obtaining future financing, or even if such financing is
available, that it will be obtained on terms favorable to Pixar or on terms
providing Pixar with sufficient funds to meet its obligations and objectives.
The failure to obtain such financing would have a material adverse effect on
Pixar's business, operating results and financial condition.

     CAPITALIZED FILM PRODUCTION COSTS

     Although Disney funded the entire production of Toy Story, Pixar
contractually guaranteed certain of the film budget overages and was liable to
Disney for those amounts under the Feature Film Agreement. Because these are
"production costs" under Statement of Financial Accounting Standards (SFAS) No.
53, "Financial Reporting by Producers and Distributors of Motion Picture Films,"
the costs were capitalized and amortized against film revenue. In the three and
six months ended June 30, 1997, $769,000 and $1.3 million of these costs,
respectively, were amortized against film revenues. As of June 30, 1997, Pixar
had approximately $19.6 million of capitalized film production costs, consisting
primarily of costs related to A Bug's Life and the Toy Story Video Sequel, both
of which are being co-financed by Pixar under the Co-Production Agreement.

     RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This Statement establishes standards for reporting and displaying
comprehensive income and its components in the financial statements.  It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of
determining its preferred format. This Statement is effective for fiscal years
beginning after December 15, 1997.

     Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Statement establishes
standards for the manner in which public business enterprises report
information about operating segments in annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports issued to shareholders. This Statement is
effective for financial statements for periods beginning after December
15, 1997, and is not expected to have a significant impact on the Company's
reporting of segment information.


                                      -16-
<PAGE>   17
LIQUIDITY AND CAPITAL RESOURCES

     Cash and short-term investments increased $17.8 million to $178.8 million
at June 30, 1997 from $161.0 million at December 31, 1996. Working capital
increased slightly to $163.1 million at June 30, 1997 from $163.0 million at
December 31, 1996.

     Net cash provided by operations in the six months ended June 30, 1997 was
primarily attributable to cash received from film revenues and other operations.
Net cash used in investing activities was due primarily to the purchase of real
property and computer equipment of $11.7 million and funding of film production
costs of $10.5 million. Net cash provided by financing activities was due
primarily to $14.9 million of net proceeds from issuance of common stock and
warrants to Disney.

     In May 1997, Pixar exercised its option (which option Pixar purchased in
1996) and paid $5.8 million to purchase land in Emeryville, California to build
a new headquarters and studio facility. To construct the facility, Pixar
currently expects to incur capital expenditures of more than $10 million in 1997
and more than $12 million in 1998. Pixar may choose to use its existing cash
resources for such expenditures or to finance such capital expenditures through
the issuance of additional equity or debt securities, by obtaining a credit
facility or by some other financing mechanism.

     Further utilization of cash in the last half of 1997 will occur when Pixar
reimburses Disney for Pixar's share of the production costs incurred to date for
A Bug's Life. This obligation to Disney is currently included in film cost
payable of $7.5 million.

     As of June 30, 1997, Pixar's principal source of liquidity was
approximately $178.8 million in cash and short-term investments. Pixar believes
that these funds will be sufficient to meet the Company's operating requirements
through the next twelve months. Thereafter, if cash generated by operations is
insufficient to satisfy Pixar's liquidity requirements, Pixar may sell
additional equity or debt securities or obtain credit facilities. The sale of
additional equity or convertible debt securities will result in additional
dilution to Pixar's shareholders. There can be no assurance that financing will
be available to Pixar in an amount and on terms acceptable to Pixar.

     


                                      -17-
<PAGE>   18
                          PART II -- OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS  TO A VOTE OF SECURITY HOLDERS

     The following matters were submitted to the shareholders at Pixar's Annual
Meeting of Shareholders held June 25, 1997. Each of these matters was approved
by a majority of the shares present at the meeting.

     1. The uncontested election of four directors to serve a one-year term
until their successors are duly elected and qualified. The following is a
summary of the nominees and voting results:

<TABLE>
<CAPTION>
                                              Votes For         Votes Withheld
                                              ----------        --------------

<S>                                           <C>                   <C>   
           Steven P. Jobs                     37,687,142            93,539
           Larry W. Sonsini                   37,690,060            90,621
           Skip M. Brittenham                 37,691,292            89,389
           Joseph A. Graziano                 37,691,448            89,233
</TABLE>


     2. The adoption of an amendment to the 1995 Stock Plan to: (i) increase the
number of shares reserved for issuance by an additional 1,000,000 shares of
Common Stock, for an aggregate of 14,000,000 shares reserved for issuance
thereunder and (ii) increase the size of the annual adjustment (beginning
January 1, 1998) from two percent of the number of shares of Common Stock
outstanding on the first day of each calendar year to three percent of such
number. Results of the voting included 36,448,989 shares for, 862,317 shares
against, 95,162 shares abstained and 374,213 shares broker non-votes.


     3. The ratification of the appointment of KPMG Peat Marwick LLP as the
independent auditors for the Company for the fiscal year ending December 31,
1997. Results of the voting included 37,698,226 shares for, 44,218 shares
against and 38,237 shares abstained.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) EXHIBITS

            3.4    Amended and Restated Bylaws, as amended.
            10.1   1995 Stock Plan, as amended.
            10.19  Agreement of Purchase and Sale between the Registrant and
                   Del Monte Corporation dated as of September 6, 1996, as 
                   amended.
            11.1   Statement of Computation of Net Income Per Share.
            27.1   Financial Data Schedule.

        (b) REPORTS ON FORM 8-K
            No reports on Form 8-K were filed by Pixar during the quarter
            ended June 30, 1997.

ITEMS 1, 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.


                                      -18-
<PAGE>   19
                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      PIXAR

Date: AUGUST 14 , 1997                By: /s/ Lawrence B. Levy
      ---------------------------         --------------------------------------
                                      Lawrence B. Levy,
                                      Executive Vice President and Chief 
                                      Financial Officer
                                      (Principal Financial and Accounting 
                                       Officer and Duly Authorized Officer)


                                      -19-
<PAGE>   20
                               INDEX TO EXHIBITS

EXHIBIT
NUMBER                          EXHIBITS
-------                         --------

 3.4            Amended and Restated Bylaws, as amended
10.1            1995 Stock Plan, as amended
10.19           Agreement of Purchase and Sale between the Registrant and Del
                Monte Corporation dated as of September 6, 1996, as amended.
11.1            Statement of Computation of Net Income Per Share
27.1            Financial Data Schedule





                                      -20-