<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 September 30, 1998
[ ] 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 (IRS 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 [ ] No [X]
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: 11,282,501 shares of common
stock as of October 23, 1998.
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 September 30, 1998
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets dated
September 30, 1998 and December 31, 1997 . . . . . . . .3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1998 & 1997. . .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 2. Changes in Securities. . . . . . . . . . . . . . . . . 13
Item 6. (a) Exhibits and Reports on Form 8-K . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
SPATIALIGHT, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $155,079 $415,624
Accounts receivable 0 3,383
Inventories 15,000 15,000
Prepaid expenses and other 20,250 27,253
------------ -----------
Total current assets 190,329 461,260
Property and equipment, net 197,448 217,984
Other assets 22,832 27,701
------------ -----------
Total assets $410,609 $706,945
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $598,791 $796,660
Short term notes payable 2,286,786 932,479
Accrued expenses and other current liabilities 29,735 127,835
------------ -----------
Total current liabilities 2,915,312 1,856,974
Non-current liabilities
Long term capital lease obligations 32,905 53,480
------------ -----------
Total liabilities 2,948,217 1,910,454
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value:
20,000,000 shares authorized; issued and
outstanding 11,282,501 at September 30, 1998
and 9,201,111 at December 31, 1997 112,824 92,011
Additional paid-in capital 10,385,001 9,451,835
Accumulated deficit (13,035,433) (10,747,355)
------------ -----------
Total stockholders' equity (2,537,608) (1,203,509)
Total liabilities and stockholders' equity $410,609 $706,945
------------ -----------
------------ -----------
</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,
1998 1997 1998 1997
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues
Contract revenues $0 $325,000 $0 $325,000
Sales 0 0 0 0
------------- ------------ ------------ -----------
Total revenues 0 325,000 0 325,000
Cost of sales 0 0 0 0
------------- ------------ ------------ -----------
Gross profit 0 325,000 0 325,000
Selling, general and administrative expenses 214,915 257,619 1,089,328 1,209,116
Research and development expenses 261,094 364,525 1,105,184 910,875
------------- ------------ ------------ -----------
Total operating expenses 476,009 622,144 2,194,512 2,119,991
Operating loss (476,009) (297,144) (2,194,512) (1,794,991)
Other income (expenses)
Interest income 352 121 6,674 12,505
Other income (expense) (42,227) (5,883) (98,640) 2,920
------------- ------------ ------------ -----------
Total other income (expenses) (41,875) (5,762) (91,966) 15,425
------------- ------------ ------------ -----------
Loss from operations before income taxes (517,884) (302,906) (2,286,478) (1,779,566)
Income taxes 0 (463) 1,600 2,860
------------- ------------ ------------ -----------
Net loss (517,884) (302,443) (2,288,078) (1,782,426)
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
Net loss per share (0.05) (0.04) (0.21) (0.21)
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
Shares used in computing net loss per share 11,282,501 8,547,191 10,686,900 8,539,310
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,288,078) ($1,782,426)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 59,972 46,697
Non cash stock issuance costs 183,815 0
Non cash litigation settlement 0 300,000
Non cash compensation 0 21,251
Changes in assets and liabilities:
Accounts receivable 3,383 (61,979)
Inventories 0 60,401
Prepaid expenses and other current assets 7,003 (105,753)
Other assets 4,869 (10,063)
Accounts payable (73,019) 397,198
Current portion capital lease obligation (110) 0
Accrued expenses and other current liabilities (4,000) (8,218)
--------------- ---------------
Net cash used by operating activities (2,106,165) (1,142,892)
Cash flows from investing activities:
Capital expenditures (39,436) (128,323)
--------------- ---------------
Net cash used by investing activities (39,436) (128,323)
Cash flows from financing activities:
Long term capital lease obligation (19,251) 0
Draw on bank line of credit 0 250,000
Paydown of notes payable (250,000) 0
Proceeds from short-term notes payable 2,154,307 50,000
Common stock issuance costs 0 (9,402)
--------------- ---------------
Net cash provided by financing activities 1,885,056 290,598
Net decrease cash equivalents (260,545) (980,617)
Cash at beginning of period 415,624 1,324,398
--------------- ---------------
Cash at end of period $155,079 $343,781
--------------- ---------------
--------------- ---------------
</TABLE>
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 September 30, 1998 and the results of its operations for
the three months and nine months ended September 30, 1998 and 1997. 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 unaudited financial statements and notes thereto,
together with Management's Discussion and Analysis, for the years ended
December 31, 1997 and 1996.
(2) Going Concern Uncertainty
The Company's operations are severely constrained by its lack of financing
and inadequate working capital. The Company continues to experience
negative cash flows and net operating losses. The Company's operations in
recent months have been funded by a series of loans, the majority of which
are secured by substantially all the assets of the Company. Some of these
loans have been provided by a company affiliated with a Director of the
Company. These loan amounts have been adequate for the Company to meet
payroll and certain other imperative obligations, but various accounts
payable and other obligations are past due. The Company continues its
efforts to locate sources of financing. There can be no assurance that
additional loans, or any other financing, will be available to the Company.
FOR THIS REASON, THERE IS SIGNIFICANT UNCERTAINTY WHETHER THE COMPANY CAN
CONTINUE AS A GOING CONCERN.
The accompanying unaudited condensed consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
This contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred
significant operating losses in each of the last five fiscal years and
incurred a net loss of $2,288,078 in the nine months of 1998.
Additionally, as of September 30, 1998 the Company's accumulated deficit
totaled $13,035,433. The Company has generated limited revenues to date
and the development, commercialization and marketing of the Company's
products will require substantial expenditures in the foreseeable future.
The successful completion of the Company's development program and
ultimately, the attainment of profitable operations, is dependent upon
future events. These events include obtaining adequate financing to
fulfill its development activities, successful commercialization and
distribution of its displays, and achieving a level of sales adequate to
support the Company's cost structure. The matters discussed above, among
others, indicate that it is likely that the Company will be unable to
continue as a going concern after a reasonable period of time.
6
<PAGE>
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.
Effective July 1, 1998, the Company's Chairman and Chief Executive Officer
announced his retirement from the Company and resignation from its Board of
Directors. In addition, effective June 24, 1998, L. John Loomis, the
Company's President and Chief Operating Officer, is no longer employed by
the Company and, effective July 31, 1998, resigned from the Board of
Directors. In response to this change in management, the Company has
formed an Executive Committee, consisting of three Board members, to assist
in the day to day operation of the Company. (See Dependence on Key
Personnel)
In an effort to improve operating performance, the Company has been and
will be implementing certain programs and strategies in 1998 and 1999.
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 the Company's staff
- Developing strategic arrangements with potential customers to share
development costs and/or licensing of the Company's technology.
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely basis,
to obtain additional financing, and ultimately to attain successful
operations. Management is continuing its efforts to obtain additional
funds so that the Company can meet its obligations and sustain its
operations.
(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 was required to adopt SFAS 128 in the fourth quarter of fiscal
1997 and has not restated earnings per share (EPS) data for prior periods
to conform with SFAS 128. The Company will restate earnings per share for
1997 in 1998 audited financials.
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.
Because the Company has experienced continuous net losses, basic EPS and
diluted EPS are not significantly different than primary and fully diluted
EPS currently reported for the periods.
7
<PAGE>
(4) Short term notes payable
Short term notes payable at September 30, 1998 consist of the following:
Short term notes of $164,389 including accrued interest. The borrowings were
made to provide working capital, and accrue interest at a 10% per annum. Notes
totaling $110,112 were due on September 1, 1998. The Company is in default on
the notes due in September 1998 and is negotiating to extend the dates. A note
in the amount of $54,278 has been extended indefinitely in exchange for warrants
to buy shares of the Company's common stock.
Convertible secured notes of $2,122,397 including accrued interest. The notes
accrue interest at 6% per annum and are convertible at $.50 and $.75 per share.
The notes mature December 31, 1998 or December 31, 1999, if the Company
exercises its option to extend the maturity date. The notes are secured by
substantially all the assets of the Company.
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 that involve risks and
uncertainties. Action results, events or performance may differ materially
from those anticipated in these forward-looking statements as 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.
GENERAL
The Company's operations are severely constrained by its lack of financing
and inadequate working capital. The Company continues to experience
negative cash flows and net operating losses. The Company's operations in
recent months have been funded by a series of loans, the majority of which
are secured by substantially all the assets of the Company. Some of these
loans have been provided by a company affiliated with a Director of the
Company. These loan amounts have been adequate for the Company to meet
payroll and certain other imperative obligations, but various accounts
payable and other obligations are past due. The Company is in default
under certain of the loans made to finance its operations, and is
negotiating to extend the due dates. The Company continues its efforts to
locate sources of financing. There can be no assurance that additional
loans or any other financing will be available to the Company. FOR THIS
REASON, THERE IS SIGNIFICANT UNCERTAINTY WHETHER THE COMPANY CAN CONTINUE
AS A GOING CONCERN. See Note 2 of Notes to Condensed Consolidated
Financial Statements.
OVERVIEW
SpatiaLight is developing and commercializing a miniature, proprietary,
high-resolution active matrix liquid crystal display ("AMLCD") which is
also known as a Spatial Light Modulator ("SLM"). The Company's SLM is
designed to be the essential component in high-resolution, projected
display systems which may be produced at lower costs than current or
anticipated
8
<PAGE>
projection systems. The Company has produced prototype SLM's in small
volume, which have been made available to potential customers. Potential
applications of this technology include projection computer monitors
and televisions; head mounted displays, optical computing, 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 revenue for the nine months ended September 30,
1998. The Company is continuing to develop its technological capabilities
and believes that significant sales of its Spatial Light Modulator product
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 decreased by $119,788 or 10%
for the nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997. The decrease was due to a reduction in spending
as a result of limited cash flow.
Research and development expenses increased by $194,309 or 21% for the nine
months ended September 30, 1998 as compared to the nine months ended
September 30, 1997, and by $103,431 for the three months ended September
30, 1998 compared to the three months ended September 30, 1997. Research
and development expenses represent costs incurred, primarily personnel
related, for the design and development of new 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 include research and
development. The Company intends to continue its development programs,
focusing on increasing the display size, capabilities and final
manufacturing processes. The Company believes that such developments will
be required to exploit future markets for large screen projection monitors,
high definition televisions and head-mounted displays.
NET LOSS
As a result of the above factors the Company recorded a net loss of
$2,288,078 or $.21 per share for the nine months ended September 30, 1998
and a net loss of $517,884 or $.05 per share for three months ended
September 30, 1998. 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 $2,106,165 for the nine
months ended September 30, 1998 as a result of selling, general, and
administrative expenses and research and development expenses incurred
during the period.
9
<PAGE>
As of September 30, 1998 the Company had $155,079 in cash and cash
equivalents. Net working capital was ($2,724,983).
The Company is experiencing negative cash flow from operations resulting in
the need to fund ongoing operations from financing activities. The future
existence and profitability of the Company is dependent upon its ability to
obtain additional funds to finance 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 it core technology, the
Company has not yet produced any prototype SLM products with quality and
resolution sufficient to satisfy commercial end-use applications. Further
development and testing will be necessary before the Company's proposed
displays would be available for commercial end-use applications. Delays in
development may result in the Company's introduction of its displays 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
commercially viable SLM devices or any of its displays 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 displays. 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. The Company's facility is designed principally
for research and development, small-scale assembly and inventory storage,
and the Company currently anticipates engaging outside manufacturers to
produce its products utilizing its SLM devices in volume. The Company is
negotiating with manufacturers to establish full scale integrated
manufacturing capacity for its SLM devices and there can be no assurance
that any of them will do so. In the event any such manufacturer
establishes a volume 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 manufacturer could adversely affect the Company's ability to sell
its displays. 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
10
<PAGE>
displays, which, in turn, could have 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 patents in the United
States, there can be no assurance as 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 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
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 technology 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 signification portion of related research development,
acquisition and commercialization costs. If the Company is successful in
the development of a commercially viable SLM device, the Company's ability
to compete will depend in part upon the consistency of display 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 partners,
product performance and price, product distribution and customer support.
There can be no assurance that the Company will succeed in developing
technologies and products that are equally or more effective than any which
are being developed by the Company's competitors. There can be no
assurance that competitive processes will not render the Company's
technology, 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 campaign that may include misappropriation of the
Company's intellectual property or predatory pricing.
DEPENDENCE ON KEY PERSONNEL. Effective July 1, 1998, the Company's
Chairman and Chief Executive Officer William Hollis announced his
retirement from the Company and resignation from its Board of
Directors. In addition, effective June 24, 1998, L. John Loomis,
11
<PAGE>
the Company's President and Chief Operating Officer, is no longer employed
by the Company and, effective July 31, 1998, Mr. Loomis resigned from
the Board of Directors.
The Company has formed an Executive Committee, consisting of three Board
members, Robert A. Olins, Lawrence J. Matteson, and Michael H. Burney to
assist in the day to day operation of the Company. The Executive Committee
immediately appointed Michael H. Burney as the Interim Chief Executive
Officer, Treasurer and Secretary. The Executive Committee also appointed
Fred R. Hammett as the Company's Interim President.
The Company is utilizing the services of outside consultants in key
technologic areas. The Company's continued success will depend on its
ability to attract and retain 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, which will 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 any commitments
from any third party for such development, manufacturing or marketing.
There can be no assurance that any third party will develop or market a
product incorporating the Company's SLM's.
YEAR 2000 COMPLIANCE. As is true for most companies, the Year 2000 computer
issue creates a risk for SpatiaLight. If systems do not correctly recognize
date information when the year changes to 2000, there could be an adverse
impact on the Company's operations. The risk for SpatiaLight exists in two
areas: systems used by the Company to run its business and systems used by
the Company's suppliers. The Company is currently evaluating its exposure
in both of these areas. The Company is not aware of any potential problems
that could exist with its potential products.
SpatiaLight in the process of conducting a comprehensive inventory and
evaluation of its systems, equipment and facilities. SpatiaLight has a
project scheduled to replace or upgrade systems and equipment that are
known to be Year 2000 non-compliant. The Company has not identified
alternative remediation plans in the unlikely case that upgrade or
replacement is not feasible. The Company will consider the need for such
remediation plans as it continues to assess the Year 2000 risk. For the
Year 2000 non-compliance issues identified to date, the cost of upgrade or
remediation is not expected to be material to the Company's operating
results. The Company expects to conclude its estimates of cost by the end
of the calendar year. If implementation of replacement systems is delayed,
or if significant new non-compliance issues are identified, the Company's
results of operations or financial condition could be materially adversely
affected.
SpatiaLight is also in the process of contacting its critical suppliers to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant. Where practicable, SpatiaLight will
attempt to mitigate its risks with respect to the failure of suppliers
to be Year 2000 ready. In the event that suppliers are not Year 2000
compliant, the Company will seek alternative sources of supplies.
However, such failures remain a possibility
12
<PAGE>
and could have an adverse impact on the Company's results of
operations or financial condition.
The Company believes its potential products are Year 2000 compliant as
none contain firmware or software with date information.
PART II. OTHER INFORMATION
ITEM 2. During the third quarter of 1998 the Company issued warrants to
purchase 8000 shares of the Company's common stock at an exercise
price of $.832. These warrants expire November 26, 2000 and were issued
in consideration of the delay of enforcement of default conditions for
certain loans to the Company. In issuing these securities the Company
relied upon the exemption from the registration requirements of
the Securities Act of 1933, as amended, provided by Section 4(2) thereof.
During the third quarter of 1998, the Company issued warrants (Series A),
to purchase 120,000 shares of the Company's common stock at an exercise
price of $1.50 per share. These warrants expire August 31, 2000 and were
issued in consideration for placement of convertible secured notes. Upon
the exercise of the Series A warrants, an additional 120,000 warrants
(Series B), exercisable at $2.00 per share, will be issued and will expire
August 31, 2001. Upon the exercise of the Series B warrants, an additional
120,000 warrants (Series C) will be issued at an exercise price of $2.50
per share expiring August 31, 2002. In issuing these securities the Company
relied upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, provided by Section 4(2) thereof.
During the third quarter of 1998, the Company issued convertible notes in
the aggregate principal amount of $75,000 to a company affiliated with a
Director of the Company. These notes are convertible into Common Shares at
a conversion price of $0.50 per Common Share. In issuing these securities
the Company relied upon the exemption from the registration requirements of
the Securities Act of 1933, as amended, provided by Section 4(2) thereof.
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 nine months ended September
30, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date:____________________________
SpatiaLight, Inc.
By:______________________________
Michael H. Burney
Chief Executive Officer
(Principal Executive, Financial
And Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 155,079
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,000
<CURRENT-ASSETS> 190,329
<PP&E> 410,962
<DEPRECIATION> 213,514
<TOTAL-ASSETS> 410,609
<CURRENT-LIABILITIES> 2,915,312
<BONDS> 0
0
0
<COMMON> 112,824
<OTHER-SE> 10,385,001
<TOTAL-LIABILITY-AND-EQUITY> 410,609
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,194,512
<OTHER-EXPENSES> 91,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,286,478
<INCOME-TAX> 1,600
<INCOME-CONTINUING> 2,288,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,288,078
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
