<PAGE> 1
UNITED STATES
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, 1999
[ ] 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)
9 Commercial Blvd., Suite 200, Novato, CA 94949
(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: 13,288,258 shares of common
stock as of November 1, 1999.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
SPATIALIGHT, INC. AND SUBSIDIARY
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1999
Table of Contents
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets dated
September 30, 1999 and December 31, 1998.....................3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1999 and 1998..................................4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998........5
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 2. Changes in Securities........................................15
Item 6. Exhibits and Reports on Form 8-K.............................15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
SPATIALIGHT, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 394,706 470,086
Accounts receivable 0 30,492
Inventories 25,924 18,296
Other 37,546 0
------------ ------------
Total current assets 458,176 518,874
Property and equipment, net 311,386 221,498
Other 40,752 187,204
------------ ------------
Total assets $ 810,314 927,576
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 646,048 466,031
Accrued expenses and other current liabilities 183,840 96,693
Convertible secured notes payable 3,294,571 3,337,508
------------ ------------
Total current liabilities 4,124,459 3,900,232
Capital lease obligations, net of current portion 10,749 25,420
------------ ------------
Total liabilities 4,135,208 3,925,652
Commitments and contingencies
Stockholders' deficit Common stock, $.01 par value:
40,000,000 shares authorized; issued and
outstanding 13,256,458 at September 30, 1999
and 11,413,501 at December 31, 1998 132,564 114,135
Additional paid-in capital 14,265,799 10,854,938
Accumulated deficit (17,723,257) (13,967,149)
------------ ------------
Total stockholders'deficit (3,324,894) (2,998,076)
Total liabilities and stockholders' deficit $ 810,314 927,576
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
SPATIALIGHT, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 20,500 $ 0 $ 62,000 $ 0
Cost of sales 5,473 0 10,945 0
------------ ------------ ------------ ------------
Gross profit 15,027 0 51,055 0
Selling, general and administrative expenses 897,209 214,915 2,319,940 1,089,328
Research and development expenses 559,407 261,094 1,332,792 1,105,184
------------ ------------ ------------ ------------
Total operating expenses 1,456,616 476,009 3,652,732 2,194,512
Operating loss (1,441,589) (476,009) (3,601,677) (2,194,512)
Other income (expenses)
Interest income 492 352 8,482 6,674
Interest and other expenses (51,454) (42,227) (161,313) (98,640)
------------ ------------ ------------ ------------
Total other income (expenses) (50,962) (41,875) (152,831) (91,966)
------------ ------------ ------------ ------------
Loss from operations before income taxes (1,492,551) (517,884) (3,754,508) (2,286,478)
Income taxes 0 0 1,600 1,600
------------ ------------ ------------ ------------
Net loss $ (1,492,551) (517,884) (3,756,108) (2,288,078)
============ ============ ============ ============
Basic and diluted loss per share applicable to
common shareholders $ (0.12) (0.05) (0.31) (0.21)
============ ============ ============ ============
Weighted average shares used in computing
net loss per share 12,838,577 11,282,501 12,061,432 10,686,900
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
SPATIALIGHT, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,756,108) (2,288,078)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 252,054 59,972
Non cash stock issuance costs 0 183,815
Non cash compensation for salaries and consulting 862,956 0
Changes in operating assets and liabilities:
Accounts receivable 30,492 3,383
Inventories (7,628) 0
Prepaid expenses and other current assets (37,546) 11,872
Accounts payable 180,017 (73,019)
Accrued expenses and other current liabilities 185,790 (4,000)
----------- -----------
Net cash used in operating activities (2,289,973) (2,106,055)
Cash flows from investing activities:
Purchase of property and equipment (183,398) (39,436)
----------- -----------
Net cash used in investing activities (183,398) (39,436)
Cash flows from financing activities:
Payments on capital lease obligations (22,801) (19,361)
Payments on convertible secured notes payable 0 (250,000)
Proceeds from issuance of convertible secured notes payable 590,880 2,154,307
Proceeds from sale of warrants 1,513,047 0
Proceeds from exercise of warrants and options 316,865 0
----------- -----------
Net cash provided by financing activities 2,397,991 1,884,946
Net decrease in cash equivalents (75,380) (260,545)
Cash at beginning of period 470,086 415,624
----------- -----------
Cash at end of period 394,706 155,079
=========== ===========
Supplemental disclosure of cash flow information:
Income taxes paid during the period $ 1,600 1,600
----------- -----------
Interest paid during the period $ 10,638 16,849
----------- -----------
Non cash financing activities:
Conversion of convertible secured notes payable
and accrued interest thereon to common stock $ 736,422 0
----------- -----------
Common stock issued to extinguish accounts payable 0 31,262
----------- -----------
Common stock issued to extinguish notes payable 0 112,666
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
SPATIALIGHT, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
1. Business Description
SpatiaLight, Inc. and its subsidiary ("SpatiaLight" or the "Company") are in the
business of designing and commercializing miniature, high-resolution active
matrix liquid crystal displays mounted directly on silicon chips. These displays
are also known as and commonly referred to as Liquid Crystal Displays ("LCD"),
Active Matrix Liquid Crystal Displays ("AMLCD"), Liquid Crystal on Silicon
("LCOS"), and Spatial Light Modulators ("SLM"). These displays are designed in a
manner that can potentially provide high-resolution images suitable for
computer, video and other applications while utilizing the existing
manufacturing processes of typical silicon and liquid crystal displays to obtain
economies of scale and thereby reduce costs. To date, the Company has only sold
sample quantities of its displays to customers who are evaluating the displays
for use in their products.
The Company has identified a number of potential applications and markets for
products, which can utilize its display technology. Some of these applications
include: large-screen rear-projection television systems, in both standard
television format ("NTSC") and future High Definition Television ("HDTV")
formats; large-screen rear-projection computer monitors in a variety of
resolutions; video projectors for presentations; head-mounted displays which are
used for virtual reality systems, defense, aerospace and gaming applications;
and other potential applications such as point of purchase displays, optical
computing, data storage and holographic imaging systems.
The address and telephone number of the Company's principal executive offices
are 9 Commercial Boulevard, Suite 200, Novato, California 94949, (415) 883-1693.
The Company was organized under the laws of the State of New York in 1989 under
the name of "Sayett Acquisition Company, Inc."; it subsequently changed is name
to Sayett Group and in June 1996 changed its name to SpatiaLight, Inc. The
Company has a wholly owned subsidiary named SpatiaLight of California, Inc.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of item 310(b) of
Regulation S-B. Accordingly they do not include all of the 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, the interim condensed
consolidated financial statements included herewith contain all adjustments
(consisting of normal recurring accruals and adjustments) necessary for their
fair presentation. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-KSB, which contains the audited financial statements and notes thereto,
together with the Management's Discussion and Analysis, for the years ended
December 31, 1998 and 1997.
6
<PAGE> 7
3. Going Concern Uncertainty
The Company's operations are constrained by an insufficient amount of 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
convertible securities, which are secured by substantially all the assets of the
Company. The Company continues its efforts to locate sources of additional
financing. There can be no assurance that additional financing will be available
to the Company. For this reason, there is uncertainty whether the Company can
continue as a going concern.
The accompanying 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 $3,756,108 in the nine months
ended September 30, 1999. Additionally, as of September 30, 1999, the Company's
accumulated deficit totaled $17,723,257. 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 are dependent upon future
events. These events include 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. These matters, among others, may indicate that the
Company will 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.
In an effort to improve operating performance, the Company has been and will be
implementing certain programs and strategies in 1999. These strategies include:
- Raising additional capital.
- Outsourcing of all manufacturing activities, which will be monitored by
the Company's staff.
- Developing strategic alliances with potential customers and/or licensing
of the Company's technology.
- Development contracts with customers to customize the Company's displays
for use in their products.
4. Loss Per Common Share
Basic loss per common share excludes dilution and is computed by dividing loss
attributable to common stockholders by the weighted-average number of common
shares for the period. Diluted loss per common share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Excluded from the computation of
diluted loss per share for the three months and nine months ended September 30,
1999 and 1998, are options and warrants to acquire 6,597,315 and 2,339,000
shares of common stock, respectively, and 5,251,000 and 3,580,762 common share
equivalents relating to convertible secured notes, from the assumed exercise of
such instruments because their effects would be antidilutive. The weighted
average exercise price as of September 30, 1999 for the options, warrants and
common share equivalents is $.72, $1.61, and $.61, respectively.
5. Convertible Secured Notes Payable
7
<PAGE> 8
Convertible secured notes payable at September 30, 1999, consist of short term
convertible securities totaling $3,294,571 including accrued interest. The
securities accrue interest at 6% and are due on December 31, 1999. The
securities are convertible into the Company's common stock at $.50 to $.70 per
share and are secured by substantially all the assets of the Company. During the
quarter ended September 30, 1999 $120,443 of accrued interest on convertible
notes payable were converted into 240,886 shares of common stock.
6. Issuance of Securities
During the third quarter of 1999 the Company issued 183,700 shares of common
stock upon the exercise of its stock options. Total cash received was $111,500.
During the third quarter of 1999, the Company issued 240,886 shares of common
stock upon the conversion of accrued interest on convertible secured notes
payable totaling $120,443.
During the third quarter of 1999, the Company granted Class A, Class B and Class
C warrants to a consultant, with exercise prices of $1.50, $2.00 and $2.50,
respectively. The Class A warrant is immediately exercisable and allows the
holder to purchase 100,000 shares of the Company's common stock at an exercise
price of $1.50 per share; it expires on November 15, 2000. Upon exercise of the
Class A warrant, a Class B warrant would be issued by the Company to purchase
100,000 shares of the Company's common stock at an exercise price of $2.00 per
share. The Class B warrant would be exercisable from the date the Class A
warrant is exercised until November 15, 2001. Upon exercise of the Class B
warrant a Class C warrant will be issued by the Company to purchase 100,000
shares of the Company's common stock at an exercise price of $2.50 per share.
The Class C warrant would be exercisable from the date the Class B warrant is
exercised until November 15, 2002. The warrants, which are fully vested, are in
exchange for services rendered during the quarter in advising the Company as to
feasible capital structures and assisting in identifying appropriate capital
sources. The Company determined the fair value of the Class A, Class B and Class
C warrants on the grant date and recorded the value of approximately $349,380 as
consulting expense in the quarter ended September 30, 1999. In issuing these
securities the Company relied upon exemptions from the registration requirements
of the Securities Act of 1933, as amended, provided by Section 4(2) thereof and
Regulation D promulgated thereunder.
During the three months ended September 30, 1999 the Company sold warrants to
purchase 844,015 shares of the Company's common stock and received cash of
$896,796. The purchase price of the warrants ranged from $.85 to $1.07 with
exercise prices ranging from $1.87 to $2.81. Cash to be received upon exercise
is approximately $2,300,000.
7. Segment Reporting
In 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which was
adopted by the Company in 1998. SFAS No. 131 requires companies to report
financial and descriptive information about their reportable operating segments,
including segment profit or loss, certain specific revenue and expense items and
segment assets, as well as information about the revenues derived from the
Company's products and services, the countries in which the Company earns
revenue and holds assets, and major customers.
SpatiaLight, Inc.'s chief operating decision-maker is the Chief Executive
Officer (CEO). The CEO reviews financial information for purposes of making
operating decisions and assessing financial performance. The financial
information reviewed by the CEO is identical to the information presented in
8
<PAGE> 9
the accompanying statements of operations and the Company has no foreign
operations. As a result the Company operates in a single reportable segment for
purposes of applying SFAS No. 131.
8. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" which the Company adopted in 1998. SFAS No. 130
established standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. There are no
differences between the Company's net loss and comprehensive loss for any of the
periods presented.
9. Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" SFAS No. 133
established accounting and reporting standards for derivative instruments
(including derivative instruments embedded in other contracts) and for hedging
activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. To date, the
Company has not entered into any derivative financial instruments or hedging
activities, and does not expect that the adoption of SFAS No.133 will have a
material impact on its results of operations, financial position, or cash flows.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 21E of the Securities and Exchange Act of 1934, as amended, and are
subject to the Safe Harbor provisions created by that statute. In this report,
the words "anticipates," "believes," "expects," "future," "interests," and
similar expressions identify forward-looking statements. Such statements are
subject to certain risks and uncertainties, including, but not limited to, those
discussed herein, and in particular, those contained in this Item 2 as well as
those discussed in the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission on March 31, 1999. 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
results 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.
The following is a discussion and analysis of the consolidated financial
condition of the Company as of September 30, 1999, and the results of operations
for the Company for the three months and nine months ended September 30, 1999
and 1998. The following should be read in conjunction with the unaudited
consolidated financial statements and related notes appearing elsewhere herein.
GENERAL
The Company's operations are constrained by an insufficient amount of working
capital. The Company continues to experience negative cash flows and net
operating expenses. The Company's operations in recent months have been funded
by the issuance of a series of convertible securities, which are secured by
substantially all the assets of the Company, and the sale of warrants to
purchase the Company's common stock. The Company continues its efforts to locate
sources of additional financing. There can be no assurance that additional
financing will be available to the Company. For this reason, there is
uncertainty whether the Company can continue as a going concern. See Note 3 of
Notes to Condensed Consolidated Financial Statements.
OVERVIEW
SpatiaLight is developing and commercializing a miniature, high-resolution
active matrix liquid crystal display. The Company's display is designed to be
the essential component in high-resolution, projected display systems which may
be produced at lower costs than current or anticipated projection systems. The
Company has produced development kits, 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 imaging and other display applications. The Company has
made only limited sales to date, and there can be no assurance that the Company
will ever be able to commercialize its technology.
LIQUIDITY AND CAPITAL RESOURCES
Most of the Company's revenues to date have been derived from limited sales of
its displays. Although the Company is producing displays in anticipation of mass
production, the Company has not yet completed its goal of mass production.
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
products later than anticipated, which may have an adverse effect on both the
Company's financial and competitive position. Moreover, the Company may never be
successful in developing or manufacturing a commercially viable display. In
addition, the display may never be technically or
10
<PAGE> 11
commercially successful and the Company may never be able to manufacture
adequate quantities of its displays at commercially acceptable cost levels or on
a timely basis.
The Company is experiencing negative cash flow from operations, resulting in the
need to fund ongoing operations from financing activities. The Company is
continuing to raise capital through issuance of convertible securities, and the
sale of warrants to purchase the Company's common stock. The future existence
and profitability of the Company is dependent upon its ability to obtain
additional funds to finance operations and expand operations in an effort to
achieve profitability from operations. The Company's business may not ultimately
generate sufficient revenue to fund the Company's operations on a continuing
basis. The matters discussed below, among others, may indicate that the Company
will be unable to continue as a going concern for a reasonable period of time.
As of September 30, 1999, the Company has $394,706 in cash and cash equivalents.
The Company's net working capital at September 30, 1999 was negative $3,666,283.
Net cash used in operating activities totaled $2,289,973 and $2,106,055 for the
nine months ended September 30, 1999 and 1998, respectively. Cash was used
primarily to fund the operating loss.
Net cash provided by financing activities in the nine months ended September 30,
1999 was $2,397,991, as compared to $1,884,946 for the nine months ended
September 30, 1998. Cash was provided primarily from proceeds from the issuance
of convertible secured notes payable, the sale of warrants to purchase the
Company's common stock and the exercise of options to acquire the Company's
common stock.
As of September 30, 1999, the Company had an accumulated deficit of $17,723,257.
The Company has realized significant losses in the past and expects that these
losses will continue at least through 1999. It is likely that the Company will
have quarterly and annual losses in 1999 and beyond. The Company has generated
limited revenues and no profits from operations. The development,
commercialization and marketing of the Company's products will require
substantial expenditures for the foreseeable future. Consequently, the Company
may continue to operate at a loss for the foreseeable future and there can be no
assurance that the Company's business will operate on a profitable basis.
RESULTS OF OPERATIONS
Total revenues were $62,000 for the nine months ended September 30, 1999, and
$20,500 for the three months ended September 30, 1999. This is due to sales of
developer kits in the first three quarters of 1999. There were no sales in the
first three quarters of 1998.
Cost of sales represents product costs associated with the production of display
developer kits. Cost of sales was $10,945 for the nine months ended September
30, 1999 and $5,473 for the three months ended September 30, 1999. There were no
product sales in the first three quarters of 1998. Gross margins associated with
sales of developer kits in the nine months ended September 30, 1999 are not
indicative of the gross margins that the Company expects to realize on sales of
units produced in quantity. Developer kits have a higher unit price than
mass-produced units due to the time and effort spent with the customer.
Selling, general and administrative costs were $2,319,940 and $1,089,328 for the
nine months ended September 30, 1999 and 1998, respectively. Selling, general
and administrative costs were $897,209 and $214,915 for the three months ended
September 30, 1999 and 1998, respectively. These increases were due primarily to
the cost associated with warrants issued in exchange for services in advising
the Company as to feasible capital structures and assisting in identifying
appropriate capital sources. See
11
<PAGE> 12
Note 6 in Item 1 - Condensed Consolidated Financial Statements for details of
these instruments. In addition, approximately $148,000 was incurred in the third
quarter for moving expenses for key employees.
Research and development costs were $1,332,792 and $1,105,184 for the nine
months ended September 30, 1999 and 1998, respectively. Research and development
costs were $559,407 and $261,094 for the three months ended September 30, 1999
and 1998, respectively. These increases were due primarily to an increase in
consulting and other costs associated with the design of a new product.
Interest expense for the nine months ended September 30, 1999 and 1998 was
$161,313 and $98,640, respectively. Interest expense for the three months ended
September 30, 1999 and 1998 was $51,454 and $42,227, respectively. The increase
was due to issuing additional convertible secured notes during the three months
and nine months ended September 30, 1999 for which interest was accrued at 6%.
BUSINESS RISKS AND UNCERTAINTIES
Use of Display Products. Although the Company has produced displays based upon
its technology, the Company has not yet had its display incorporated into any
commercial end-use application. Delays in development may result in the
Company's introduction of its displays later than anticipated, which may have a
material adverse effect on both the Company's financial and competitive
position. Moreover, the Company may never be successful in developing or
manufacturing a commercially viable display or any of its expected applications.
In addition, displays or products that the Company may develop may not be
technically or commercially successful and the Company may not be able to
manufacture or obtain a supplier for adequate quantities of its displays, or any
of its display products at commercially acceptable cost levels or on a timely
basis.
Delays in development may result in the Company's introduction of products later
than anticipated, which may have an adverse effect on both the Company's
financial and competitive position. Moreover, the Company may never be
successful in developing or manufacturing a commercially viable display. In
addition, the display may never be technically or commercially successful and
the Company may not be able to manufacture adequate quantities of its displays
at commercially acceptable cost levels or on a timely basis.
Highly Competitive Market. The display industry has and continues to undergo
rapid and significant technological change. The Company expects display
technology to continue to develop rapidly, and the Company's success will depend
significantly on its ability to attain and maintain a competitive position.
Rapid technological development may result in actual and proposed displays,
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
display, the Company's ability to compete will depend in part upon the
consistency of the display, the 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 distribution and
customer support. The Company's competitors may succeed in developing
technologies and products that are equally or more efficient than any which are
being developed by the Company or that will render the Company's technology,
displays and other products obsolete and non-competitive.
The Company's displays may not contain the most successful of the rapid and
significant technological advances which have characterized the micro-display
market. In addition, the Company may not have sufficient funds to invest in new
technologies or products or processes. Although the Company believes
12
<PAGE> 13
that its displays have specifications and capabilities which equal or exceed
that of commercially available LCD and Cathode Ray Tube ("CRT" or "Television")
based display products, the manufacturers of these products may develop further
improvements of their existing technology that would eliminate or diminish the
Company's anticipated advantage.
In addition, numerous competitors have substantially greater financial,
technical, marketing, distribution and other resources than the Company. The
Company may also face an aggressive, well financed competitive response that may
include misappropriation of the Company's intellectual property or predatory
pricing.
Dependence on Third Parties. The Company does not currently plan, nor does the
Company currently have the financial resources to develop or market any end
products utilizing the Company's displays. 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 using
the Company's display, and the Company does not have commitments from any third
party for such development, or marketing. There can be no assurance that any
third party will develop or market a product incorporating the Company's
display.
The Company may not be successful in forming and maintaining such alliances and
the Company's partners may not devote adequate resources to successfully market
and distribute these anticipated products. The Company may not be able to enter
into satisfactory agreements with marketing partners, and the Company or its
marketing partners may not be successful in gaining market acceptance for its
anticipated products.
Any termination of a contract could have a material adverse effect on the
Company's ability to meet its anticipated commitments to customers while the
Company identifies and qualifies replacement manufacturers. The Company could
become dependent on any manufacturer and any termination or cancellation of the
Company's agreement with such a manufacturer could adversely affect the
Company's ability to manufacture its products. In anticipation of such an event,
the Company plans to establish an alternative manufacturing relationship.
Intellectual Property and Proprietary Rights. 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
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.
Dependence on Key Personnel. The Company is dependent upon its key management
and scientific personnel including its Chief Executive Officer and Treasurer,
Michael H. Burney, President, Fred R. Hammett, and Vice President of
Engineering/Manufacturing, Miles L. Scott. The Company's success
13
<PAGE> 14
depends on its ability to attract and retain highly qualified scientific,
marketing, manufacturing, financial 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.
Year 2000 Risks. 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 prior
to 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 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.
Market for Common Stock. Because the Company's securities are traded on the
NASD's "Electronic Bulletin Board", the liquidity of the Company's securities
could be impaired, not only in the quantities of securities which could be
bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and news media coverage of the Company, and
lower prices for the Company's securities than might otherwise be obtained.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
14
<PAGE> 15
ITEM 2. Changes in Securities
During the third quarter of 1999, the Company issued to a consultant an
immediately exercisable Class A warrant to purchase 100,000 shares of the
Company's common stock at an exercise price of $1.50 per share; it expires on
November 15, 2000. Upon exercise of the Class A warrant, a Class B warrant would
be issued by the Company to purchase 100,000 shares of the Company's common
stock at an exercise price of $2.00 per share. The Class B warrant would be
exercisable from the date the Class A warrant is exercised until November 15,
2001. Upon exercise of the Class B warrant a Class C warrant will be issued by
the Company to purchase 100,000 shares of the Company's common stock at an
exercise price of $2.50 per share. The Class C warrant would be exercisable from
the date the Class B warrant is exercised until November 15, 2002. A Class B
warrant will be issued by the Company to purchase 100,000 shares of the
Company's common stock at an exercise price of $2.00 per share which is
exercisable from the date the Class A warrant is exercised and expires on
November 15, 2001. A Class C warrant will be issued by the Company to purchase
100,000 shares of the Company's common stock at an exercise price of $2.50 per
share which is exercisable from the date of the Class B warrant is exercised and
expires on November 15, 2002. The warrants are in exchange for services rendered
in advising the Company as to feasible capital structures and assisting in
identifying appropriate capital sources. 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 and Regulation D,
promulgated thereunder.
During the three months ended September 30, 1999 the Company sold warrants to
purchase 844,015 shares of the Company's common stock and received cash of
$896,796. The purchase price of the warrants ranged from $.85 to $1.07 with
exercise prices ranging from $1.87 to $2.81. Cash to be received upon exercise
is approximately $2,300,000.
ITEM 6. Exhibits
Exhibits:
27 Financial Data Schedule
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, 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)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 394,706
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 25,924
<CURRENT-ASSETS> 458,176
<PP&E> 641,246
<DEPRECIATION> 329,860
<TOTAL-ASSETS> 810,314
<CURRENT-LIABILITIES> 4,124,459
<BONDS> 0
0
0
<COMMON> 132,564
<OTHER-SE> 14,265,799
<TOTAL-LIABILITY-AND-EQUITY> 810,314
<SALES> 20,500
<TOTAL-REVENUES> 20,500
<CGS> 5,473
<TOTAL-COSTS> 5,473
<OTHER-EXPENSES> 1,456,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,454
<INCOME-PRETAX> 1,492,551
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,492,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,492,551
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
