<PAGE>
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, 1997
[ ] 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.
-----------------
(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) 883-1693
--------------
(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: 8,547,191 shares of
common stock as of August 8, 1997.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1997
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets dated
June 30, 1997 and December 31, 1996............................3
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1997 and 1996.........................................4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996.......................................................5
Notes to Condensed Consolidated Financial Statements...........6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...............8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................14
Item 4. Submission of Matters to a Vote of Security Holders...........15
Item 6.(A) Exhibits and Reports on Form 8-K..............................16
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SPATIALIGHT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1997 1996
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $288,313 $1,324,398
Accounts receivable 3,302 40,021
Inventories 45,200 75,401
Prepaid expenses and other 111,750 11,911
----------- -----------
Total current assets 448,565 1,451,731
Property and equipment, net 207,528 68,817
Other assets 15,268 12,877
----------- -----------
Total assets $671,361 $1,533,425
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities $93,536 $108,581
Accounts payable 362,515 94,554
----------- -----------
Total current liabilities 456,051 $203,135
Long term capital lease obligations 53,154 ----
----------- -----------
Total liabilities 509,205 203,135
Stockholders' equity:
Common stock, $.01 par value
20,000,000 shares authorized:
8,547,191 and 8,533,191 79,972 79,832
shares issued and outstanding at
June 30, 1997
and December 31, 1996
Additional paid-in capital 9,026,248 8,714,539
Accumulated deficit (8,944,064) (7,464,081)
----------- -----------
Total stockholders' equity 162,156 1,330,290
----------- -----------
Total liabilities and
stockholders' equity $671,361 $1,533,425
----------- -----------
----------- -----------
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 Six months ended
June 30, June 30,
1997 1996 1997 1996
-------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ --- $76,100 $ --- $76,100
Cost of sales --- 18,000 --- 18,000
--------- --------- ---------- ---------
Gross profit ---- 58,100 ----- 58,100
Selling, general and administrative expenses 646,329 187,991 951,497 325,780
Research and development expenses 348,976 77,946 546,350 130,425
--------- --------- ---------- ---------
Total operating expenses 995,305 265,937 1,497,847 456,205
Operating loss (995,305) (207,837) (1,497,847) (398,105)
Other income (expense):
Interest income 1,839 3,457 12,384 18,566
Other income (expense), net (40) (4,663) 8,802 (3,394)
--------- --------- ---------- ---------
Total other income (expense) 1,799 (1,206) 21,186 15,172
--------- --------- ---------- ---------
Loss before income taxes (993,506) (209,043) (1,476,661) (382,933)
Income tax expense 1,412 1,040 3,322 3,886
--------- --------- ---------- ---------
Net loss (994,918) (210,083) (1,479,983) (386,819)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net loss per common share: (.12) (.03) (.17) (.06)
Weighted average shares used in computing
net loss per common share 8,537,546 6,398,191 8,535,369 6,398,191
--------- --------- ---------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
1997 1996
---------------------------
Cash flows from operating activities:
Net loss $(1,479,983) $(386,819)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 22,028 8,770
Non cash litigation settlement 300,000 ------
Non cash compensation 21,251
Changes in assets and liabilities:
Trade and other receivables, net 36,719 (47,255)
Inventories 30,201 (18,000)
Prepaid expenses (99,839) (41,156)
Accounts payable 267,961 ----
Accrued expenses and other liabilities (15,045) 87,471
Other assets (2,391) 33,526
---------- --------
Net cash used by operating activities (919,098) (363,463)
---------- --------
Cash flows from investing activities:
Capital expenditures (107,585) ------
Collection on notes receivable 0 50,000
---------- --------
Net cash provided (used) by investing
activities (107,585) 50,000
Cash flows from financing activities:
Issuance costs related to common stock issued (9,402) 0
---------- --------
Net cash used by financing activities (9,402) 0
Net decrease in cash and cash equivalents (1,036,085) (313,463)
---------- --------
Cash at beginning of period 1,324,398 678,300
---------- --------
Cash at end of period $288,313 $364,837
---------- --------
---------- --------
See accompanying notes to condensed consolidated financial statements
5
<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 but 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"), the
interim condensed 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, 1997 and the results of its operations for the
three months and six months ended June 30, 1997 and 1996 respectively. The
unaudited interim condensed consolidated financial statements should be
read in conjunction with the Company's Annual Report on Form 10-KSB/A,
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, 1996 and 1995.
(2) Going Concern Uncertainty
The Company incurred significant operating losses in each of the last five
fiscal years, incurred a net loss in fiscal 1996 of $1,178,738 and incurred
a net loss of $1,479,983 in the first six months of 1997. At June 30,
1997, the Company's accumulated deficit totaled $8,944,064.
In an effort to improve operating performance, the Company has been and
will be implementing certain programs and strategies in 1997. These
strategies include:
- Raising of additional capital
- Construction of engineering models to demonstrate proof of technology
for OEM's
- Outsourcing of all manufacturing activities, which will be monitored
by Company's manufacturing/quality control engineering staff
- Developing strategic arrangements with potential customers to share
development costs and/or licensing of the Company's technology
The successful completion of the Company's development program and,
ultimately, the attainment of profitable operations is dependant 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
6
<PAGE>
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
insufficient to sustain the Company's current level of operations and meet
its financial obligations through the end of 1997. The Company has engaged
the services of an investment banking firm to raise additional capital.
The accompanying unaudited condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. The matters discussed above, among others, indicate that the
Company may be unable to continue as a going concern for a reasonable
period of time.
The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
(3) Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of fiscal
1997 and will restate at that time earnings per share (EPS) data for prior
periods to conform with SFAS 128. Earlier adoption is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income (loss) by the weighted average of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year, basic EPS
and diluted EPS would not have been significantly different than primary
and fully diluted EPS currently reported for the periods.
(4) Litigation settlement
On January 13, 1997, Jalcanto, Ltd. and Sabotini, Ltd. (The "Investors")
notified the Company that they were electing to rescind the Share Purchase
Agreements dated July 10, 1996, as amended, under which on July 11, 1996
the Investors purchased a total of 2,135,000 shares of common stock in the
Company, and were demanding a refund by January 17, 1997 of the purchase
price of such shares, or $1,783,125, plus interest. The alleged ground for
rescission was the fact that the Company's registration statement on Form
S-3 pertaining to the resale of such shares was not declared effective by
the SEC on or before December 31, 1996. Subsequently, by letter dated
February 3, 1997, the Investors notified the Company that Jalcanto, Ltd.
had retracted its demand for rescission, with reservation of all rights.
The letter reiterated the rescission demand on behalf of Sabotini, Ltd.,
and the request that the Company return approximately $892,000.
7
<PAGE>
On February 5, 1997, the Company was served notice that it has been sued by
each of the Investors in the Superior Court of the State of California for
the County of Marin.
On June 19, 1997, the Company and the Investors entered into a settlement
agreement under which the Company issued 400,000 additional warrants (which
expire in the year 2000) to purchase the Company's common stock at $1.00
per share, and reduced the exercise price of the existing 1,585,000
warrants (which expire in the year 2001) to $1.00 per share. The issuance
of the additional 400,000 warrants resulted in a $300,000 litigation
settlement expense, which is included in selling, general and
administrative expenses in the three months ended June 30, 1997.
(5) Short term note payable
As of June 30, 1997, the Company had a credit agreement with a bank under
which it can borrow up to an amount equal to the Certificate of Deposit, up
to a maximum of $750,000. The purpose of the line of credit is to facilitate
working capital. Under the terms of the credit agreement, interest is
accrued at the greater of Prime or the certificate of deposit interest rate
plus 2 percent. The line of credit expires on March 8, 1998. As of June 30,
1997 no amounts were outstanding and available borrowings were $250,000.
(6) New accounting standards
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (REPORTING COMPREHENSIVE INCOME),
which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources; and No. 131 (DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION), which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures
about its products, services, geographic areas, and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows, and any effect
will be limited to the form and content of its disclosures. Both
statements are effective for fiscal years beginning after December 15,
1997, with earlier application permitted.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that relate to future plans,
events or performance are forward-looking statements which involve
risks and uncertainties. Actual results, events or performance may
differ materially from those anticipated in these forward-looking
statements as a result of a variety of factors. Readers are cautioned
not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation
to publicly release the result of any revisions to these
forward-looking statements that may be needed to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
8
<PAGE>
OVERVIEW
Spatialight is in the business of designing, producing, and commercializing
a miniature, proprietary, high resolution active matrix liquid crystal
display ("AMLCD"). The AMLCD, when mounted on a semiconductor chip, is
known as a Spatial Light Modulator ("SLM"). The Company's SLM is designed
to be the essential component in both small and large sized, high
resolution, electronic display systems which may be produced at lower costs
than current or anticipated display systems. The Company has produced
prototype SLM's in small volume which have been made available to potential
customers who are involved in the development of applications of this
technology, including manufacturers of computer monitors, headset displays,
optical computing equipment, holographic data storage and other display
applications. The Company has made only limited sales of prototype units
to date, and there can be no assurance that the Company will ever be able
to commercialize its technology.
RESULTS OF OPERATIONS
Spatialight reported no sales for the six months ended June 30, 1997. The
Company is continuing to develop its technological capabilities and its
production capacity and believes that significant sales of its SLM will be
required in order for the company to continue to meet its financial
obligations and operating plans. Any lack of significant sales would have
a material adverse affect upon the financial condition of the Company, and
could cause the Company to cease operations.
Selling, general and administrative expenses increased $625,717 for the six
months ended June 30, 1997 as compared to the six months ended June 30,
1996, and $458,338 for the three months ended June 30, 1997 compared to the
three months ended June 30, 1996. The increase was due primarily to an
increase in staffing and infrastructure support costs, and a $300,000
litigation settlement expense discussed below.
Research and development expenses increased by $415,925 for the six months
ended June 30, 1997 as compared to the six months ended June 30, 1996 and
$271,030 for the three months ended June 30, 1997 compared to the three
months ended June 30, 1996. Research and development expenses represent
costs incurred, primarily personnel related, for the design and development
of new products and the redesign of existing prototype products. The
Company believes that the development of new products will be required to
allow it to compete effectively and to achieve future revenues. The
Company currently has 11 full time employees whose duties involve research
and development. The Company intends to continue its product enhancement
and development programs, focusing on increasing the display size and
finalizing field sequential color capabilities and liquid crystal filling
manufacturing processes. The Company believes that such enhancements and
new products will be required to exploit future markets for large screen
monitors, high definition television and head mount displays.
LITIGATION SETTLEMENT
On January 13, 1997 Jalcanto, Ltd. and Sabotini, Ltd. (The "Investors")
notified the Company that they were electing to rescind the Share Purchase
Agreements dated July 10, 1996, as amended, under which
9
<PAGE>
on July 11, 1996 the Investors purchased a total of 2,135,000 shares of
common stock in the Company, and were demanding a refund by January 17,
1997.of the purchase price of such shares, or $1,783,125, plus interest.
The alleged ground for rescission was the fact that the Company's
registration statement on Form S-3 pertaining to the resale of such shares
was not declared effective by the SEC on or before December 31, 1996.
Subsequently, by letter dated February 3, 1997, the Investors notified the
Company that Jalcanto, Ltd. had retracted its demand for rescission, with
reservation of all rights. The letter reiterated the rescission demand on
behalf of Sabotini, Ltd., and the request that the Company return
approximately $892,000.
On February 5, 1997, the Company was served notice that it has been sued by
each of the Investors in the Superior Court of the State of California for
the County of Marin.
On June 19, 1997, the Company and the Investors entered into a settlement
agreement under which the Company issued 400,000 additional warrants (which
expire in the year 2000) to purchase the Company's common stock at $1.00
per share and reduced the exercise price of the existing 1,585,000 warrants
(which expire in the year 2001) to $1.00 per share. The issuance of the
additional 400,000 warrants resulted in a $300,000 litigation settlement
expense, which is included in selling, general and administrative expenses
in the three months ended June 30, 1997.
NET LOSS
As a result of the above factors the Company recorded a net loss of
$1,479,983 or $.17 per share for the six months ended June 30, 1997 and a
net loss of $994,918 representing $.12 per share for the three months ended
June 30, 1997. While the Company is taking steps to improve its
performance, there can be no assurance that the attempts by management at
product development will be successful. Any delay in effecting operational
performance improvement by the Company or in the further development of the
SLM by the Company may have a material adverse impact on the financial
condition of the Company.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities totaled $919,098 for the six months
ended June 30, 1997 primarily as a result of net losses incurred of
$1,479,983, which consisted of selling, general, and administrative
expenses, and research and development expenses incurred during the period.
As of June 30, 1997 the Company had $288,313 in cash and cash equivalents.
Net working capital was ($7,486).
The Company has secured a line of credit for up to a maximum of $750,000,
based on the amount in the Certificate of Deposit. As of June 30, 1997,
$250,000 was available under the line of credit. The line of credit
accrues interest at the greater of Prime or the Certificate of Deposit
interest rate plus 2% and expires in March 1998.
The Company is experiencing negative cash flows from operations and
believes that its existing cash and cash equivalents will be insufficient
to sustain the Company's current level of operation and meet its financial
obligations through the end of 1997. As a result, the Company will need to
fund ongoing operations from financing activities. The future existence
and profitability of the Company is dependent
10
<PAGE>
upon its ability to obtain additional funds to finance operations and expand
operations in an effort to achieve profitability from operations. No
assurance can be given that the Company's business will ultimately generate
sufficient revenue to fund the Company's operations on a continuing basis.
The matters discussed above, among others, indicate that the Company may be
unable to continue as a going concern for a reasonable period of time.
BUSINESS RISKS
Most of the Company's revenue to date has been derived from research and
development contracts and limited sales of its SLM devices. Although the
Company has demonstrated SLM devices based on its core technology, the
Company has not yet produced any prototype SLM products with quality and
resolution sufficient to satisfy commercial end-use applications. The
Company recently entered into a contract to produce an engineering
prototype of a consumer product for mass production. However, further
development and testing will be necessary before this product or the
Company's other proposed products will be available for commercial end-use
applications. Delays in development may result in the Company's
introduction of its products later than anticipated, which may have an
adverse effect on both the Company's financial and competitive position.
Moreover, there can be no assurance that the Company will ever be
successful in developing or manufacturing a commercially viable SLM device
or any of its proposed display products. In addition, there is no
assurance that an SLM device or any of the Company's display products will
be technically or commercially successful or that the Company will be able
to manufacture adequate quantities of its SLM devices or any of its display
products at commercially acceptable cost levels or on a timely basis.
LACK OF SALES, MARKETING AND DISTRIBUTION EXPERIENCE. The Company
currently employs no full time sales or marketing specialists. The Company
intends to form alliances with corporate partners for the marketing and
distribution of certain of its anticipated display products. There can be
no assurance that the Company will be successful in forming and maintaining
such alliances or that the Company's partners will devote adequate
resources to successfully market and distribute these anticipated products.
There can be no assurance that the Company will be able to attract and
retain qualified marketing and sales personnel, that the Company will be
able to enter into satisfactory agreements with marketing partners or that
the Company or its marketing partners will be successful in gaining market
acceptance for its anticipated products.
NO ASSURANCES OF SUCCESSFUL MANUFACTURING. The Company has no experience
manufacturing SLM devices or display products. The Company's facility is
designed principally for research and development and small scale assembly
and inventory storage, and the Company currently engages outside
manufacturers to produce its SLM devices. The Company is negotiating with
several manufacturers for establishment of full scale integrated
manufacturing capacity for its SLM devices and has reached an agreement
with one manufacturer for fabrication of silicon wafers. However, no
decision has been made by any such manufacturer to establish such a
capability and there can be no assurance that any of them will do so. In
the event any such manufacturer establishes a full scale integrated
manufacturing capability, the Company could become dependent on such
manufacturer for the manufacture of SLM devices. The termination or
cancellation of the Company's agreement with the
11
<PAGE>
manufacturer could adversely affect the Company's ability to manufacture
its products. In such event, the Company could be required to establish an
alternative manufacturing relationship or establish its own manufacturing
capability. There can be no assurance that the Company would be able to
establish such a relationship on acceptable terms or develop its own
manufacturing capability; in any event the time required to establish such a
substitute relationship or capability could substantially delay the
commercialization of the Company's SLM devices and display products, which,
in turn, could have a substantial adverse impact on the Company's results of
operations and financial condition.
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY. The Company's ability to
compete effectively with other companies will depend, in part, on the
ability of the Company to maintain the proprietary nature of its
technologies. Although the Company has been awarded or has filed
applications for several patents in the United States, there can be no
assurance as to the degree of protection offered by these patents, or as to
the likelihood that pending patents will be issued. Furthermore, the
Company has not yet applied for or obtained any foreign patents. There can
be no assurance that competitors, in both the United States and foreign
countries, many of which have substantially greater resources and have made
substantial investments in competing technologies, will not seek to apply
for and obtain patents that will prevent, limit or interfere with the
Company's ability to make and sell its products or intentionally infringe
the Company's patents. The defense and prosecution of patent suits is both
costly and time consuming, even if the outcome is favorable to the Company.
This is particularly true in foreign countries. In addition, there is an
inherent unpredictability regarding obtaining and enforcing patents in
foreign countries. An adverse outcome in the defense of a patent suit
could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from third parties, or require the
Company to cease selling its products. The Company also relies on
unpatented proprietary technology and there can be no assurance that others
may not independently develop the same or similar technology or otherwise
obtain access to the Company's proprietary technology. To protect its
rights in these areas, the Company requires all employees and most
consultants, advisors and collaborators to enter into confidentiality
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know how or other
proprietary information. To date, the Company has no experience in
enforcing its confidentiality agreements.
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The electronic imaging display
industry has undergone rapid and significant technological change. The
Company expects the technology to continue to develop rapidly, and the
Company's success will depend significantly on its ability to maintain a
competitive position. Rapid technological development may result in actual
and proposed products or processes becoming obsolete before the Company
recoups a significant portion of related research and development,
acquisition and commercialization costs. If the Company is successful in
the development of a commercially viable SLM device and its proposed display
and other products, the Company's ability to compete will depend in part
upon the consistency of product quality and delivery, as well as pricing,
technical capability and servicing, in addition to factors within and
outside its control, including the success and timing of product
introductions by the Company and its competitors, product performance and
price, product distribution and customer support. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are equally or more effective than any which
are being developed by the Company or that will render the Company's
12
<PAGE>
technology, SLM devices or display and other products obsolete and
non-competitive. In addition, numerous competitors have substantially
greater financial, technical and other resources than the Company. The
Company may face an aggressive, well financed competitive response that may
include misappropriation of the Company's intellectual property or predatory
pricing.
The electronic imaging display industry has been characterized by rapid and
significant technological advances. There can be no assurance that the
Company's SLM devices and display products will be reflective of such
advances or that the Company will have sufficient funds to invest in new
technologies or products or processes. A number of companies in the United
States assemble workstation monitors using LCDs and cathode ray tubes
("CRTs") purchased from Japan. A number of Japanese companies build
monitors around their LCDs and CRTs. Korean companies are also entering
the LCD and CRT monitor market. Development of improved high definition
LCDs and CRTs continues to receive significant attention by these and other
companies. Although the Company believes that its SLM products have the
capability to improve LCD performance beyond that of commercially available
LCD and CRT based display products, there is no assurance that
manufacturers of LCDs or CRTs will not develop further improvements of LCD
or CRT technology that would eliminate or diminish the Company's
anticipated advantage.
PRODUCT LIABILITY. As a manufacturer and marketer of electronic equipment
and components, the Company may be subject to potential product liability
claims. There can be no assurance that the Company will carry sufficient
insurance to cover all possible liabilities. In the event of a successful
suit against the Company, such an insufficiency of insurance coverage could
have a material adverse impact on the financial condition of the Company.
In addition, the cost of defending or settling a product liability action
and the negative publicity arising therefrom could have a material adverse
impact on the Company. The Company is not aware of any current pending or
threatened product liability claim against it.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon its key
scientific and management personnel, including its Chief Executive Officer,
William Hollis, its President, L. John Loomis, and its Vice President, Dean
Irwin. The Company does not maintain key man life insurance on Messrs.
Hollis, Loomis or Irwin. In 1996, the Company entered into a three year
employment agreement with Mr. Hollis and a two year employment agreement
with Mr. Irwin. In 1997 the Company entered into a two year employment
agreement with Mr. Loomis. The loss of the services of one or more key
individuals may have a material adverse impact on the Company. The
Company's success will also depend on its ability to attract and retain
other highly qualified scientific, marketing, manufacturing and other key
management personnel. The Company faces competition for such personnel and
there can be no assurance that the Company will be able to attract or
retain such personnel.
DEPENDENCE ON THIRD PARTIES TO DEVELOP PRODUCTS INCORPORATING SLM. The
Company intends to develop its SLM devices to be a component for
incorporation into finished products to be developed, manufactured and
marketed by third parties. The Company does not plan, nor does it have the
financial resources, to develop or market any such end products itself.
Therefore, the Company will be completely dependent upon independent third
parties for the development, manufacturing and marketing of such products.
No such products exist today, and the Company does not have commitments
from any third party for such development, manufacturing or marketing.
There can be no
13
<PAGE>
assurance that any third party will develop or market a product
incorporating the Company's SLM's. If not, there will be no market for the
Company's SLM's.
DEPENDENCE ON FEW CUSTOMERS. There were no sales in the six months ended
June 30, 1997 and in 1996 all sales were to five customers. In 1996,
only one customer purchased more than one SLM unit from the Company. All of
the units sold have been prototypes. The Company continues to be dependent
on a few customers for its sales. There can be no assurance that any of
the Company's past customers will purchase additional units in the future.
Loss of any one customer could have a material adverse impact on the
Company.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and Sabotini,
Ltd. (the "Investors") notified the Company that these Investors were
electing to rescind the Share Purchase Agreements dated July 10, 1996, as
amended (the "Purchase Agreements"), under which on July 11, 1996 the
Investors purchased a total of 2,135,000 shares of common stock in the
Company, and were demanding a refund by January 17, 1997 of the purchase
price of such shares, or $1,783,125, plus interest. The alleged ground for
rescission is the fact that the Company's registration statement on Form S-3
pertaining to the resale of such shares was not declared effective by the
SEC on or before December 31, 1996. Subsequently, by letter dated February
3, 1997, counsel for the Investors notified the Company that Jalcanto, Ltd.
had retracted its demand for rescission, with reservation of all rights.
The letter reiterated the rescission demand on behalf of Sabotini, Ltd.,
and the request that the Company return $891,562.50.
On February 5, 1997, the Company was served notice that it has been sued by
each of the Investors in the Superior Court of the State of California for
the County of Marin. Each Investor filed a complaint for breach of
contract, specific performance and indemnification relating to the alleged
failure to timely complete this registration statement. In addition, each
complaint requests that the court issue a preliminary and permanent
injunction against future issuances of shares of the Company's common stock
or securities convertible into common stock without the Investor's consent.
The complaint filed by Sabotini Ltd. also requests rescission and the
return of the full purchase price of its shares. On March 3, 1997, a
hearing was held with respect to the Selling Shareholders' request that a
writ of attachment on all of the Company's assets be issued to ensure
enforceability of an eventual judgment. The court denied the application
for the writ without prejudice.
On June 19, 1997, the Company and the Investors entered into a settlement
agreement under which, in exchange for an additional 400,000 warrants to
purchase the Company's common stock at $1.00 per share, the Investors
agreed to waive and release the Company from certain covenants of share
purchase agreements between the respective parties. In addition, the
Company reduced the exercise price of the existing 1,585,000 warrants to
$1.00 per share. The Investors agreed to release the Company from any and
all claims, known or unknown, arising from any of the matters alleged in
the underlying lawsuits, and the cases were dismissed.
14
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of the Stockholders of the Company held on June 20,
1997, the stockholders of the Company approved the following:
- The election of the Board of Directors consisting of four 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.
- The amendment of the Company's 1993 Employee Stock Option Plan to
increase the number of shares eligible for distribution thereunder
from 415,000 to 1,415,000.
- The appointment of Deloitte and Touche LLP as the Company's
independent auditors for the year ending December 31, 1997.
The table below sets forth the number of votes cast 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 June 20, 1997 Shareholders Meeting:
ELECTION OF DIRECTORS
Nominee For Against Withheld
------- --- ------- --------
Michael H. Burney 5,673,908 24,300 151,210
William E. Hollis 5,673,908 24,300 151,210
L. John Loomis 5,648,808 49,400 151,210
Lawrence J. Matteson 5,668,908 29,300 151,210
As to the proposal to amend the Company's 1993 Employee Stock Option Plan
to increase the number of shares eligible for distribution thereunder from
415,000 to 1,415,000:
5,089,817 shares have voted FOR
403,400 shares have voted AGAINST and
11,016 shares have ABSTAINED
15
<PAGE>
As to the proposal to ratify the appointment of Deloitte and Touche LLP as
the Company's independent auditors for the year ending December 31, 1997:
5,800,502 shares have voted FOR
12,450 shares have voted AGAINST and
36,166 shares have ABSTAINED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27- Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the six months ended
June 30, 1997.
16
<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.
Date:
---------------------------------------------
Spatialight, Inc.
By:
-----------------------------------------------
William E. Hollis
Chairman of the Board, Chief Executive Officer
and Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 288,313
<SECURITIES> 0
<RECEIVABLES> 3,302
<ALLOWANCES> 0
<INVENTORY> 45,200
<CURRENT-ASSETS> 448,565
<PP&E> 325,388
<DEPRECIATION> 117,860
<TOTAL-ASSETS> 671,361
<CURRENT-LIABILITIES> 456,051
<BONDS> 0
0
0
<COMMON> 79,972
<OTHER-SE> 9,026,248
<TOTAL-LIABILITY-AND-EQUITY> 671,361
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,497,847
<OTHER-EXPENSES> (21,186)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,476,661)
<INCOME-TAX> 3,322
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,479,983)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
