U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities and Exchange
Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to _______________
Commission File Number 000-19828
Spatialight, Inc. (formerly Sayett Group Inc.)
----------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 16-1363082
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8-C Commercial Blvd., Novato, CA 94949-6125
-------------------------------------------
(Address of principal executive offices)
(415) 883-2693
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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| |
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 7,983,191 shares of common
stock as of August 8, 1996.
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1996
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets dated 3
June 30, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Operations 4
for the Three and Six Months Ended
June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows 5
for the Six Months Ended June 30, 1996
and 1995 (unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6 (A) Exhibits and Reports on Form 8-K 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SPATIALIGHT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 364,837 $ 678,300
Accounts Receivable 47,255
Note receivable 46,971 81,451
Inventory 18,000
Prepaid expenses and other assets 35,072 5,804
----------- -----------
Total current assets 512,135 765,555
----------- -----------
Property and equipment, net 48,094 51,795
Long-term note receivable 196,434 218,549
Other assets 11,888
----------- -----------
Total Assets $ 768,551 $ 1,035,899
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities $ 139,579 $ 52,108
Deferred revenue 32,000
----------- -----------
Total current liabilities 171,579 52,108
----------- -----------
Stockholders' equity:
Common stock, $.01 par value
20,000,000 shares authorized; 6,398,191
shares issued and outstanding at June 30, 1996
and December 31, 1995 63,982 63,982
Additional paid-in capital 7,205,152 7,205,152
Accumulated deficit (6,672,162) (6,285,343)
----------- -----------
Total stockholders' equity 596,972 983,791
----------- -----------
Total liabilities and stockholders' equity $ 768,551 $ 1,035,899
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 76,100 $ 76,100 $ 58,000
Cost of sales 18,000 18,000
----------- ----------- -----------
Gross Profit 58,000 58,100 58,000
----------- ----------- -----------
Selling, general and administrative expenses 187,991 $ 121,287 325,780 378,604
Research and development 77,946 171,132 130,425 262,321
----------- ----------- ----------- -----------
Operating loss (207,837) (292,419) (398,105) (582,925)
Other income (expense):
Interest income 3,457 25,099 18,566 40,230
Amortization of excess of purchase price over
fair market value of net assets acquired (74,654) (132,192)
Loss of investee companies (130,000) (323,728)
Other income (expense), net (4,663) (22,372) (3,394) (25,313)
----------- ----------- ----------- -----------
Total Other income (expense) (1,206) (201,927) 15,172 (441,003)
----------- ----------- ----------- -----------
Loss from continuing operations before
income taxes (209,043) (494,346) (382,933) (1,023,928)
Income tax expense 1,040 14,922 3,886 15,735
----------- ----------- ----------- -----------
Loss from continuing operations (210,083) (529,268) (386,819) (1,039,663)
Discontinued operations
Loss from operations of discontinued
subsidiaries, net of income taxes (270,977) (226,905)
----------- ----------- ----------- -----------
NET LOSS $ (210,083) $ (780,245) $ (386,819) $(1,266,568)
=========== =========== =========== ===========
Net income (loss) per common share:
From continuing operations $ (.03) $ (.08) $ (.06) $ (.17)
From operations of discontinued subsidiaries (.04) (.03)
----------- ----------- ----------- -----------
Net Loss $ (.03) $ (.12) $ (.06) $ (.20)
=========== =========== =========== ===========
Weighted average shares used in computing
net loss per common share 6,398,191 6,398,191 6,398,191 6,323,543
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (386,819) $(1,266,568)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization 8,770 259,315
Amortization of excess purchase price over value of
net assets acquired 132,192
Equity losses in investee companies 323,728
Changes in assets and liabilities:
Marketable investment securities 571,714
Trade and other receivables, net (47,255) 148,308
Inventories (18,000) (222,173)
Prepaid expenses and other expenses (41,156) 71,492
Accrued expense and other liabilities 87,471 393,377
Other 33,526 (27,002)
----------- -----------
Net cash provided (used) by operating activities (363,463) 384,383
----------- -----------
Cash flows from investing activities:
Capital expenditures (276,045)
Payable to investee (375,000)
Collection on notes receivable 50,000
Cash balance of investee upon purchase 49,264
----------- -----------
Net cash provided (used) by investing activities 50,000 (601,781)
----------- -----------
Cash flows from financing activities
0 0
Net decrease in cash and cash equivalents (313,463) (217,398)
Cash at beginning of period 678,300 1,138,031
----------- -----------
Cash at end of period $ 364,837 $ 920,633
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Six Months Ended
June 30,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ -
=========== ===========
Income taxes $ 3,886 $ 16,535
=========== ===========
Non-cash investing and financing activities:
On January 1, 1995, the Company converted its debentures in WAH-III Technology
Corporation ("WAH-III") valued at $466,105 for common stock in WAH-III. On
February 7, 1995, the Company issued 354,543 shares of common stock with an
approximate value of $797,722 in conjunction with its investment in WAH-III.
6
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and
therefore do not include all information and footnotes necessary for a
fair presentation of financial condition, results of operations and
cash flows in conformity with generally accepted accounting principles.
In the opinion of management of Spatialight, Inc. ("Spatialight" or
"the Company"), formerly known as Sayett Group Inc., the interim
consolidated financial statements included herewith contain all
adjustments (consisting of normal recurring accruals and adjustments)
necessary for a fair presentation of the Company's financial condition
as of June 30, 1996 and the results of its operations for the three and
six months ended June 30, 1996 and 1995 respectively. The unaudited
interim consolidated financial statements should be read in conjunction
with the Company's 1995 Annual Report on Form 10-KSB, which contains
the audited financial statements and notes thereto, together with
Management's Discussion and Analysis as of and for the years ended
December 31, 1995 and 1994.
The consolidated statement of operations for the three and six months
ended June 30, 1995 presented herein has been restated to reflect the
operations of Sayett Technology, Inc. (sold on December 29, 1995) and
Surmotech, Inc. (sold on July 1, 1995) as "Discontinued Operations." In
addition, certain reclassifications have been made to prior period
amounts to conform to the current period presentation.
(2) Results of Operations and Management Plans for Additional Financing
The Company incurred significant operating losses in each of the last
five fiscal years, incurred a net loss in fiscal 1995 of $4,655,383,
and incurred a net loss of $386,819 in the first six months of 1996.
Additionally, at June 30, 1996, the Company's accumulated deficit
totaled $6,672,162, its stockholders' equity balance declined to
$596,972 at June 30, 1996 from $983,791 as of December 31, 1995, and
its total cash and cash equivalents totaled $364,837 at June 30, 1996,
a decline of $313,463 from December 31, 1995.
The Company has been and will be implementing certain programs and
strategies in 1996. These strategies include:
o Raising of additional capital (see below)
o Continue engineering of current reflective AMLCD to achieve XVGA
resolution (1280 X 1024)
o Developing strategic arrangements with potential high volume
customers and high volume wafer fabrication suppliers
o Continue outsourcing of all manufacturing activities and recruitment
of a high volume manufacturing specialist that will monitor
subcontractor manufacturing and quality control
7
<PAGE>
The Company's primary business activity is being conducted by
Spatialight of California Inc. ("SOC"), formerly known as WAH-III, its
majority-owned subsidiary. The successful completion of the Company's
development program and, ultimately, the attainment of profitable
operations is dependent on future events, including obtaining adequate
financing to fulfill its development activities, successful launching
of the commercial production and distribution of its products and
achieving a level of sales adequate to support the Company's cost
structure. There can be no assurance that the Company will ever be able
to achieve revenues in excess of expenses. The Company expects to incur
substantial losses and substantial negative cash flows from operating
activities in the foreseeable future.
July 1996 Equity Financing
On July 11, 1996, the Company sold 1,585,000 shares of its common
stock, par value $.01, at $1.125 per share or $1,783,125 in gross
proceeds. In conjunction with the sale of common stock, the Company
also issued warrants to purchase an additional 1,585,000 shares of the
Company's common stock, exercisable at any time prior to July 15, 2001,
at an exercise price of $1.00 before July 15, 1997, $1.25 through July
1999 and $1.50 thereafter.
The Company believes that its existing cash and cash equivalents,
combined with the proceeds from the sale of the Company's common stock
as discussed above, will be sufficient to sustain the Company's current
level of operations and meet its financial obligations through the end
of 1996 and into 1997.
(3) Loss in Investee Companies
On March 26, 1994, the Company acquired 40% of the common stock of
InterVision Systems, Inc. ("ISI"), a newly formed Delaware Corporation
that produces head-mounted displays utilizing a wearable computer, for
$1,350,000. The Company accounted for this investment using the equity
method of accounting which required that the original investment be
recorded at cost and adjusted by the Company's share of undistributed
earnings or losses of ISI. ISI generated a loss of approximately
$925,286 for the period ended December 31, 1994. The Company lost an
additional $323,728 for the six months ended June 30, 1995, indicating
that the Company's investment was and continued to be significantly
impaired. The Company measured the impairment of its investment by
recording 100% of the loss generated by ISI in the consolidated
financial statements since the Company essentially provided 100% of
ISI's capitalization and, therefore, had all the capital-at-risk. The
Company recorded losses until its investment in ISI was written down to
zero as of September 30, 1995.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Any forward looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including those discussed in this
document.
Overview
In May 1996, the Board of Directors approved a change in the company's name
from Sayett Group, Inc. to Spatialight, Inc. ("Spatialight" or "the Company"),
and changed the name of its majority-owned subsidiary, WAH-III to Spatialight of
California Inc. ("SOC"). The Company's stock trades under the NASDAQ SmallCap
Market symbol "SLHT."
Spatialight is involved in an effort to commercialize a small, high
resolution active matrix liquid crystal display (LCD) which would be
manufactured domestically and provide high quality images at a significant
reduction in cost. The Company has been producing a limited number of prototype
display systems. These displays have been made available to potential customers
who are involved in the development of applications of this technology including
head-mount displays, optical computing, computer monitors and other projection
applications.
On July 11, 1996, the Company sold 1,585,000 shares of its common stock,
par value $.01, at $1.125 per share or $1,783,125 in gross proceeds. In
conjunction with the sale of common stock, the Company also issued warrants to
purchase an additional 1,585,000 shares of the Company's common stock,
exercisable at any time prior to July 15, 2001, at an exercise price of $1.00
before July 15, 1997, $1.25 through July 1999 and $1.50 thereafter.
Results of Operations
Spatialight reported sales of $76,100 for the three months and six months
ended June 30, 1996 as compared to sales of $0 and $58,000 for the three months
and six months ended June 30, 1995. Revenues resulted from the sales of the
"Spatial Light Modulators" (SLM) by SOC to large corporate research departments.
The Company is continuing to work on improving its technological capabilities
and its production capacity and believes that a significant increase in sales of
its Spatial Light Modulator product will be required in order for the entity to
continue to meet its financial obligations and operating plans. The lack of
significant sales improvement could have a material adverse affect upon the
financial condition of the Company.
Selling, general and administrative expenses increased $66,704 or 55% for
the three months ended June 30, 1996 as compared to the three months ended June
30, 1995. The increase was due to an increase in selling and marketing efforts
attributable to the sales which occurred in the second quarter 1996. Selling,
general and administrative expenses declined by $52,824 or 14% when comparing
the six months ended June 30, 1996 with the six months ended June 30, 1995. This
reduction for the six month period reflected payroll and administrative expense
reductions implemented by the Company during the fourth quarter of 1995 which
resulted in lower general and administrative expenses for the first quarter of
9
<PAGE>
1996. However, as sales start to improve, selling expenses will rise as a result
of implementing marketing strategies.
Research and development expenses declined by $93,186 or 54% for the three
months ended June 30, 1996 as compared to the three months ended June 30, 1995
and declined $131,896 or 50% when comparing the six months ended June 30, 1996
with the six months ended June 30, 1995. While the Company believes that it can
complete the development and commercialization of the SLM, additional,
significant expenditures for research and development and capital equipment will
be required. The inability of the Company to achieve full commercialization of
the SLM products and the lack of sufficient financial resources to adequately
fund development efforts could have a material adverse impact upon the financial
condition of the Company.
Other (non-operating) income and expenses combined to an aggregate
non-operating expense of $1,206 for the three months ended June 30, 1996 as
compared with an aggregate net non-operating expense of $201,927 for the same
period in the prior year. Other (non-operating) income and expenses combined to
an aggregate non-operating income of $15,172 for the six months ended June 30,
1996 as compared with an aggregate net non-operating expense of $441,003 for the
same period in the prior year. These significant changes are primarily due to
two factors.
The first factor which negatively impacted non-operating performance for
1995 related to the purchase by Spatialight of an 80.3% interest in Spatialight
of California Inc. which was completed during the first quarter of 1995. The
purchase required amortization of the excess purchase price over the fair market
value of SOC assets acquired (goodwill) which resulted in a charge of $74,654
for the second quarter of 1995 and $132,192 for the six months ended June 30,
1995. This charge did not exist for the 1996 period as the goodwill was written
off during the fourth quarter of 1995 due to impairment. (See Note 4 to the
Consolidated Financial Statements in the Company's 1995 Annual Report on Form
10-KSB for further discussion).
The second factor related to non-operating performance related to an
investment made by the Company in InterVision Systems, Inc. ("ISI") at the end
of the first quarter of 1994. This investment which totaled $1,350,000
represented, essentially, 100% of ISI's capitalization. Because of the continued
losses from ISI, the Company concluded that its investment in ISI had been
impaired. As a measurement of the impairment, the Company recorded a 100% of the
loss generated by ISI for the three months ended June 30, 1995 which totaled
$130,000 and for the six months ended June 30, 1995 which totaled $323,728. The
Company recorded losses until its investment in ISI was written down to zero as
of September 30, 1995.
Interest income for the three months ended June 30, 1996 was $3,457 as
compared to $25,099 for the three months ended June 30, 1995, and for the six
months ended June 30, 1996 was $18,566 as compared to $40,230 for the six months
ended June 30, 1995. The decrease for both periods was due to the significant
decline in the Company's cash balances.
Income Taxes
Income tax expense represents minimum tax liabilities resulting from the
Company's operations in California and New York State. No federal income tax
benefit has been recorded because of the uncertainty of realizing the net
operating loss carryforwards. While the Company has in excess of
10
<PAGE>
$4,000,000 of net operating loss carryforwards to be applied against future tax
liabilities, the potential tax benefit associated with these items has been
offset by a 100% valuation allowance due to the Company's limited operating
history and recurring operating losses.
Loss from Continuing Operations
As a result of the above factors, the Company recorded a loss from
continuing operations of $210,083 for the three months ended June 30, 1996 and
$386,819 for the six months ended June 30, 1996. During the same periods in
1995, the Company recorded a loss from continuing operations of $529,268 and
$1,039,663, respectively.
Discontinued Operations
On July 1, 1995, the Company sold Surmotech, Inc., a manufacturer of
populated circuit boards. The Company also completed the sale of its Sayett
Technology, Inc. subsidiary on December 29, 1995. As a result of these two
sales, the net operating results for the two entities have been combined and
reported as "Loss from operations of discontinued subsidiaries, net of income
taxes." The aggregate losses totaled $270,977 and $226,905 for the three and six
months ended June 30, 1995 respectively. The consistent, recurring losses
sustained by both companies prompted the Company to sell these entities in order
to focus on its LCD manufacturing venture, Spatialight of California Inc.
Net Loss
As a result of the above factors the Company recorded a net loss of
$210,083 or $.03 loss per share for the three months ended June 30, 1996 and a
net loss of $386,819 or $.06 loss per share for the six months ending June 30,
1996. During the same periods in 1995, the Company recorded a net loss of
$780,245 representing $.12 loss per share and $1,266,568 or $0.20 loss per
share, respectively. While the Company is taking steps to improve its
performance, there can be no assurance that the attempts by management at
development of the product will be successful. Any delay in effecting
operational performance improvement by the Company or in the further development
of the SLM by SOC may have a material adverse impact upon the financial
condition of the Company.
Financial Condition, Liquidity and Capital Resources
Net cash used by operating activities totaled $363,463 for the six months
ended June 30, 1996 as a result of spending on selling, general and
administrative expenses and research and development expenses.
As of June 30, 1996, the Company had $364,837 in cash and cash equivalents.
Net working capital was $340,556. With the infusion of approximately $1,800,000
gross proceeds from the sale of common stock in July 1996 as described above,
management believes that it currently has sufficient cash in order to operate
the Company through 1996 and into 1997 at a level necessary to meet its
financial obligations and operating plans.
11
<PAGE>
During the six months ended June 30, 1996, the Company had no capital
expenditures. Additional, substantial investments in capital equipment will be
required for the Company to bring its SOC subsidiary closer to commercial
production of a small liquid crystal display, also known as a spatial light
modulator.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Surmotech, Inc. has been sued in North Carolina relating to a lease for
real property which was executed, but the space was never completed or occupied.
The Company is vigorously defending this claim. The Company is not a party to
any other currently pending legal proceedings, or contemplated governmental
authority proceeding of which the Company is aware.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Stockholders of the Company held on May 17,
1996, the stockholders of the Company approved the following:
o The appointment of the Board of Directors consisting of six Directors. Each
Director shall hold office until the next annual meeting of shareholders and
until the successor of the Director is duly elected and qualifies.
o Appointment of Deloitte & Touche LLP as the Company's independent public
accountants for the year ending December 31, 1996.
o Amendment of the Certificate of Incorporation of the Company to change the
Company's name to Spatialight, Inc.
The table below sets forth the number of votes case for or withheld for each
nominee to the Company's Board of Directors, as well as votes cast for other
proposals discussed above at the May 17, 1996 Shareholders Meeting:
Election of Directors
Nominee For Withheld
------- --- --------
Michael H. Burney 5,973,642 65,250
William E. Hollis 5,973,642 65,250
Edward J. Kelly 5,973,642 65,250
Alan S. Lockwood 5,973,642 65,250
Lawrence J. Matteson 5,973,642 65,250
Thomas D. Stahl 5,973,642 65,250
13
<PAGE>
As to the proposal to appoint Deloitte & Touche LLP as the Company's independent
public accountants for the year ending December 31, 1996:
6,012,217 shares have voted FOR
15,150 shares have voted AGAINST and
11,525 shares have ABSTAINED.
As to the proposal to amend the Certificate of Incorporation of the Company to
change the Company's name to Spatialight, Inc.:
5,887,217 shares have voted FOR
49,600 shares have voted AGAINST and
20,225 shares have ABSTAINED.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-k:
None
14
<PAGE>
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.
Dated: August 14, 1996
Spatialight, Inc.
By: /s/ William E. Hollis
-------------------------
William E. Hollis
President and Chief Executive Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 364,837
<SECURITIES> 0
<RECEIVABLES> 94,226
<ALLOWANCES> 0
<INVENTORY> 18,000
<CURRENT-ASSETS> 512,135
<PP&E> 120,837
<DEPRECIATION> 72,743
<TOTAL-ASSETS> 768,551
<CURRENT-LIABILITIES> 171,579
<BONDS> 0
0
0
<COMMON> 63,982
<OTHER-SE> 532,990
<TOTAL-LIABILITY-AND-EQUITY> 768,551
<SALES> 76,100
<TOTAL-REVENUES> 76,100
<CGS> 18,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 456,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (382,933)
<INCOME-TAX> 3,886
<INCOME-CONTINUING> (386,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386,819)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
