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 September 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 October 30, 1996.
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1996
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets dated 3
September 30, 1996 and December 31, 1995 (unaudited)
Condensed Consolidated Statements of Operations 4
for the Three and Nine Months Ended
September 30, 1996 and 1995 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
for the Nine Months Ended September 30, 1996
and 1995 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6 (A) Exhibits and Reports on Form 8-K 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SPATIALIGHT, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 486,693 $ 678,300
Short-term investments available-for-sale 1,186,837
Note receivable 81,451
Inventory 98,058
Prepaid expenses and other assets 12,647 5,804
----------- -----------
Total current assets 1,784,235 765,555
----------- -----------
Property and equipment, net 54,598 51,795
Long-term note receivable, net 121,703 218,549
Other assets 11,883
----------- -----------
Total Assets $ 1,972,419 $ 1,035,899
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable and accrued expenses $ 192,483 $ 52,108
----------- -----------
Stockholders' equity:
Common stock, $.01 par value
20,000,000 shares authorized; 7,983,191 and 6,398,191
shares issued and outstanding at September 30, 1996
and December 31, 1995 79,832 63,982
Additional paid-in capital 8,766,801 7,205,152
Accumulated deficit (7,066,697) (6,285,343)
----------- -----------
Total stockholders' equity 1,779,936 983,791
----------- -----------
Total liabilities and stockholders' equity $ 1,972,419 $ 1,035,899
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 32,000 $ 55,687 $ 108,100 $ 113,687
Cost of sales 38,285 17,778 56,285 17,778
----------- ----------- ----------- -----------
Gross profit (loss) (6,285) 37,909 51,815 95,909
Selling, general and administrative expenses 213,300 81,318 539,080 406,662
Research and development 65,410 151,374 195,835 466,955
Write-down of Note Receivable 121,702 -- 121,702 --
----------- ----------- ----------- -----------
Operating loss (406,697) (194,783) (804,802) (777,708)
Other income (expense):
Interest income 21,091 19,527 39,657 59,757
Amortization of excess of purchase price over
fair market value of net assets acquired (74,654) (206,846)
Loss of investee companies (100,986) (424,714)
Other expense, net (7,976) 7,994 (11,370) (17,319)
----------- ----------- ----------- -----------
Total other income (expense) 13,115 (148,119) 28,287 (589,122)
----------- ----------- ----------- -----------
Loss from continuing operations before
income taxes (393,582) (342,902) (776,515) (1,366,830)
Income tax expense (benefit) 953 (14,337) 4,839 1,398
----------- ----------- ----------- -----------
Loss from continuing operations (394,535) (328,565) (781,354) (1,368,228)
Discontinued operations
Loss from operations of discontinued
subsidiaries, net of income taxes (521,669) (748,574)
Loss on disposal of discontinued
subsidiaries, net of income taxes -- (19,119) -- (19,119)
----------- ----------- ----------- -----------
NET LOSS $ (394,535) $ (869,353) $ (781,354) $(2,135,921)
=========== =========== =========== ===========
Net loss per common share:
From continuing operations $ (.05) $ (.05) $ (.11) $ (.22)
From operations of discontinued subsidiaries (.09) (.12)
From disposal of discontinued subsidiaries -- -- -- --
----------- ----------- ----------- -----------
Net Loss $.(05) $ (.14) $ (.11) $ (.34)
=========== =========== =========== ===========
Weighted average shares used in computing
net loss per common share 7,810,908 6,353,191 6,854,097 6,303,359
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (781,354) $(2,135,921)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization 13,579 310,503
Write-down of note receivable 121,702
Amortization of excess of purchase price over
fair market value of net assets acquired 206,846
Equity losses in investee companies 424,714
Changes in assets and liabilities :
Marketable investment securities 571,714
Trade and other receivables 232,689
Inventories (98,058) 282,818
Prepaid expenses and other assets (18,726) 93,475
Accrued expense and other liabilities 140,375 144,725
Other (7,343) --
----------- -----------
Net cash provided (used) by operating activities (629,825) 131,563
----------- -----------
Cash flows from investing activities:
Purchase of short-term investments available-for-sale (1,172,899)
Capital expenditures (16,382) (292,612)
Collection on notes receivable 50,000
Sale of capital assets 162,717
Cash paid for net assets acquired (375,000)
Cash balance of investee upon purchase -- 49,264
----------- -----------
Net cash used by investing activities (1,139,281) (455,631)
----------- -----------
Cash flows from financing activities:
Proceeds from the sale of common stock issued-net 1,577,499 --
----------- -----------
Net decrease in cash and cash equivalents (191,607) (324,068)
Cash and cash equivalents at beginning of period 678,300 1,138,031
----------- -----------
Cash and cash equivalents at end of period $ 486,693 $ 813,963
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
Nine Months Ended
September 30,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
========= =======
Income taxes $ 4,839 $17,120
========= =======
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 $797,773 in conjunction with its investment in WAH-III.
6
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited condensed 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 condensed consolidated financial statements included
herewith contain all adjustments (consisting of normal recurring
accruals and adjustments, except as discussed below) necessary for a
fair presentation of the Company's financial condition as of September
30, 1996 and the results of its operations for the three and nine
months ended September 30, 1996 and 1995 respectively. The unaudited
interim condensed 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 condensed consolidated statement of operations for the three and
nine months ended September 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) Short-term Investments Available-for-Sale
The Company's short-term investments at September 30, 1996 are
classified as available for sale and reported at fair value. Net
unrealized gains and losses will be excluded from earnings and reported
as a separate component of stockholders' equity. The investments are
currently being held until such time that the funds are needed for
operations.
(3) 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 $781,354 in the first nine months of 1996.
At September 30, 1996, the Company's accumulated deficit totaled
$7,066,697.
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. Net proceeds received by the
7
<PAGE>
Company related to this placement were $1,577,499.
On November 11, 1996, in connection with the approval by the investors
to permit a future additional offering of common stock (relating to the
Company's planned stock exchange for the remaining 20% common shares of
Spatialight of California (formerly WAH-III) owned by the original
owners), the Company entered into an Amendment Agreement which
re-priced the July 11, 1996 offering (at $1.125 per share) to $.8352
per share and issued an additional 550,000 shares to the original
investors.
The Company has been and will be implementing certain programs and
strategies in 1996 and 1997. These strategies include:
o Continue engineering of current reflective AMLCD to improve
resolution (800 X 600 and 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 additional engineering talent to support development efforts
o Raise additional capital if necessary
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.
The Company believes that its existing cash and cash equivalents 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.
8
<PAGE>
(4) 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 $424,714 for the nine months ended September 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. As of September 30, 1995, the entire investment in ISI
by the Company had been written off.
(5) Write-down of Note Receivable
In September 1996, based on management's current assessment of
collectibility, the Company wrote down its note receivable by $121,702.
Management believes the remaining balance of $121,703 at September 30,
1996 will be collected in full.
9
<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 and shareholders approved a change in
the company's name from Sayett Group, Inc. to Spatialight, Inc. and changed the
name of its majority-owned subsidiary, WAH-III, to Spatialight of California,
Inc. ("SOC"). The Company's stock trades under the NASDQ 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.
Results of Operations
Spatialight reported sales of $32,000 and $108,100 for the three months and
nine months ended September 30, 1996, respectively as compared to sales of
$55,687 and $113,687 for the three months and nine months ended September 30,
1995. Revenues resulted from the sales of the "Spatial Light Modulators" by SOC
to large corporate research departments and to a development project with a
major consumer products company using their technology. 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 $131,982 or 162% for
the three months ended September 30, 1996 as compared to the three months ended
September 30, 1995. Selling, general and administrative expenses increased by
$132,418 or 33% when comparing the nine months ended September 30, 1996 with the
nine months ended September 30, 1995. The increase was due to an increase in
efforts to identify potential product applications, sub-contract suppliers, and
initial increases in infrastructure support costs.
Research and development expenses declined by $85,964 or 57% for the three
months ended September 30, 1996 as compared to the three months ended September
30, 1995 and declined $271,120 or 58% when comparing the nine months ended
September 30, 1996 with the nine months ended September 30, 1995. While the
Company believes that it can complete the development and
10
<PAGE>
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.
In the third quarter of 1996, management determined that a note receivable
related to the sale of a subsidiary in 1995 was not fully collectible. The
Company has recorded an allowance of $121,072 to reduce the carrying amount of
the note to management's best estimate of the amount that will be collected.
Other Income (Expense), net
Other income (expense) net totaled $13,115 for the three months ended
September 30, 1996 as compared with other expense, net of $148,119 for the same
period in the prior year. Other income was $28,287 for the nine months ended
September 30, 1996 other expense, net of $589,122 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 third quarter of 1995 and $206,846 for the nine months ended September
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 which affected non-operating performance in 1995 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 100% of the
loss generated by ISI, up to the total of the Company's investment in ISI, which
totaled $100,896 and $424,714 for the three months and nine months ended
September 30, 1995.
Interest income for the three months ended September 30, 1996 was $21,092
as compared to $19,527 for the three months ended September 30, 1995, and for
the nine months ended September 30, 1996 was $39,657 as compared to $59,757 for
the nine months ended September 30, 1995 as a result of fluctuations 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.
11
<PAGE>
Loss from Continuing Operations
As a result of the above factors, the Company recorded a loss from
continuing operations of $394,535 for the three months ended September 30, 1996
and $781,354 for the nine months ended September 30, 1996. During the same
periods in 1995, the Company recorded a loss from continuing operations of
$528,565 and $1,368,228 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 $521,669 and $748,574 for the three and
nine months ended September 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
$394,535 or $.05 loss per share for the three months ended September 30, 1996
and a net loss of $781,354 or $.11 loss per share for the nine months ending
September 30, 1996. During the same periods in 1995, the Company recorded a net
loss of $869,353 representing $.14 loss per share and $2,135,921 or $.34 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 $629,825 for the nine months
ended September 30, 1996 as a result of spending on selling, general and
administrative expenses and research and development expenses.
As of September 30, 1996, the Company had $486,693 in cash and cash
equivalents. Net working capital was $1,591,752. With the infusion of $1,577,499
net 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.
During the nine months ended September 30, 1996, the Company had no
significant capital expenditures. Additional, substantial investments in capital
equipment will be required for the Company
12
<PAGE>
to bring its SOC subsidiary closer to commercial production of a small liquid
crystal display, also known as a spatial light modulator.
13
<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 was named as an
additional defendant in that case in September, 1996. 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 Shareholders
There were no matters submitted to shareholders for a vote during
the third quarter of 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-k:
On July 10, 1996, the Company filed Form 8-K describing the
execution of a definitive agreement relating to the proposed
sale of 2,000,000 shares of its common stock to three
investors and the grant of warrants to purchase an
additional 2,000,000 shares. Form 8-KA relating thereto was
filed July 26, 1996 and Form 8-K/A (Amendment No. 2)
relating thereto was filed on September 17, 1996.
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: November 14, 1996
Spatialight, Inc.
By: /s/ William E. Hollis
--------------------------------------
William E. Hollis
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 486,693
<SECURITIES> 1,186,837
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 98,058
<CURRENT-ASSETS> 1,784,235
<PP&E> 132,090
<DEPRECIATION> 77,492
<TOTAL-ASSETS> 1,972,419
<CURRENT-LIABILITIES> 192,483
<BONDS> 0
0
0
<COMMON> 79,832
<OTHER-SE> 1,700,104
<TOTAL-LIABILITY-AND-EQUITY> 1,779,936
<SALES> 108,100
<TOTAL-REVENUES> 108,100
<CGS> 56,285
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 734,915
<LOSS-PROVISION> 121,702
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (776,515)
<INCOME-TAX> 4,839
<INCOME-CONTINUING> (781,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (781,354)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
