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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 2000
[ ] 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
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(State or other jurisdiction of (IRS Employer
Identification No.) Incorporation or organization)
9 Commercial Blvd., Suite 200, Novato, CA 94949
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(Address of principal executive offices)
(415) 883-1693
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(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: 18,823,338 shares of common
stock as of May 8, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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SPATIALIGHT, INC. AND SUBSIDIARY
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 2000
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets dated
March 31, 2000 and December 31, 1999.........................3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and 1999...........4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999...........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........................................16
Item 6. Exhibits and Reports on Form 8-K.............................16
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
SPATIALIGHT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2000 1999
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ASSETS
Current assets
Cash and cash equivalents $ 4,018,296 1,236,609
Accounts receivable 23,636 0
Inventories 5,036 5,036
Other current assets 70,653 93,417
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Total current assets 4,117,621 1,335,062
Property and equipment, net 489,303 321,853
Other assets 27,967 22,670
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Total assets $ 4,634,891 1,679,585
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 481,631 286,741
Accrued expenses and other liabilities 695,731 728,990
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Total current liabilities 1,177,362 1,015,731
Noncurrent liabilities
Convertible notes 1,256,157 1,216,337
Long term capital lease obligations 8,408 9,605
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Total liabilities 2,441,927 2,241,673
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value:
40,000,000 shares authorized;
18,777,244 and 16,635,818 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 187,772 166,359
Additional paid-in capital 25,578,245 20,649,563
Accumulated deficit (23,573,053) (21,378,010)
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Total stockholders' equity (deficit) 2,192,964 (562,088)
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Total liabilities and stockholders' equity (deficit) $ 4,634,891 1,679,585
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See accompanying notes to condensed consolidated financial statements.
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SPATIALIGHT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31,
2000 1999
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Revenues $ 38,400 31,500
Cost of revenues 7,125 4,104
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Gross profits 31,275 27,396
Selling, general and administrative expenses 479,205 399,247
Stock-based general and administrative expenses 15,000 134,962
Research and development expenses 808,824 360,070
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Total operating expenses 1,303,029 894,279
Operating loss (1,271,754) (866,883)
Other income (expense)
Interest income 24,547 3,291
Interest expense (22,820) (49,898)
Stock-based interest expense (317,913) (3,268)
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Total other expense (316,186) (49,875)
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Loss from operations before income taxes (1,587,940) (916,758)
Income tax expense 800 800
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Net loss $ (1,588,740) (917,558)
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Incentive warrants issued $ (606,300) --
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Net loss available to common shareholders $ (2,195,043)
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Net loss per share - basic and diluted $ (0.13) (0.08)
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Weighted average shares used in computing net loss per share - basic and diluted 17,432,911 11,488,099
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See accompanying notes to condensed consolidated financial statements.
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SPATIALIGHT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
2000 1999
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Cash flows from operating activities:
Net loss $(1,588,740) (917,558)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 45,532 24,196
Stock-based general and administrative expense 15,000 134,962
Stock-based interest expense 317,913 3,268
Changes in operating assets and liabilities:
Accounts receivable (23,636) 18,967
Inventories -- 4,105
Other current assets 22,764 (62,425)
Accounts payable 194,890 (1,953)
Accrued expenses and other current liabilities (304,726) 42,044
Other assets (5,297) 51,212
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Net cash used by operating activities (1,326,300) (703,182)
Cash flows from investing activities:
Purchase of property and equipment (212,982) (25,714)
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Net cash used in investing activities (212,982) (25,714)
Cash flows from financing activities:
Payments on capital lease obligations (7,823) (7,271)
Payments on notes (50,000)
Proceeds from issuance of convertible notes with warrants attached 590,878
Proceeds from exercise of warrants and options 4,328,792 --
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Net cash provided by financing activities 4,320,969 533,607
Net increase (decrease) in cash 2,781,687 (195,289)
Cash at beginning of period 1,236,609 470,086
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Cash at end of period $ 4,018,296 274,797
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Non-cash financing activities:
Warrants issued to incent the exercise of certain warrants (note 5) $ 606,303 --
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See accompanying notes to consolidated financial statements.
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SPATIALIGHT, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
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
small 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, 1999 and 1998.
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3. 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 ended March 31, 2000 and 1999,
respectively are options and warrants to acquire 7,630,312 and 3,953,000 shares
of common stock, respectively, and 2,786,714 and 5,859,333 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 March 31, 2000 for the options, warrants and common
share equivalents is $2.88, $2.42, and $.94, respectively.
4. Convertible Notes
Convertible notes at March 31, 2000 relate to notes from Argyle Capital
Management Corporation, a Company affiliated with Robert Olins, a Director of
the Company. The notes accrue interest at 6% and are due on June 30, 2001. The
notes are convertible into the Company's common stock at $.50 per share and are
secured by substantially all the assets of the Company. The Company has assumed
that the accrued interest, at a rate of 6% from September 1999 to March 31, 2000
will be converted into 84,348 shares of common stock. Using the March 31, 2000
closing price of $7.0625 to value such shares, the Company has accrued
stock-based interest expense of $595,707. Of this amount $277,794 had been
accrued at December 31, 1999.
5. Issuance of Securities
On February 10, 2000, the Company issued warrants to purchase 170,815 shares of
the Company's common stock at an exercise price of $8.00 (the incentive
warrants) in consideration of and to incent the exercise of warrants originally
issued in August and September 1999. The incentive warrants, which expire on
February 10, 2002, were valued at $606,303 using the Black Scholes option
pricing model and the following assumptions: stock price $6.38, historical
volatility 114%, risk free rate 6%, a dividend yield of 0, and a contractual
term of two years. The value of these incentive warrants is reflected in the
statement of operations as a component of the net loss available to common
shareholders.
As a result of the issuance of the incentive warrants issued to a group of
existing warrant holders, during the first quarter of 2000 the Company issued
1,899,015 shares of common stock upon the exercise of the previously issued
warrants. Net cash proceeds received was $4,178,792.
During the first quarter of 2000, the Company issued 240,000 shares of common
stock upon the exercise of employee stock options and received cash proceeds of
$150,000. In addition, 2,307 shares of stock valued at $15,000 was issued in
exchange for services.
6. Segment Information
The Company's chief operating decision-maker, Chief Executive Officer, reviews
the Company's financial information as a single "operating segment" to make
decisions about the Company's performance and resource allocation. Therefore,
the Company has determined that it operates in a single business segment. The
Company's revenue for 2000 and 1999 consisted of sales of prototypes and
developer kits, respectively.
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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
regarding product acceptance and manufacturing, 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 April 14, 2000. 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 March 31, 2000, and the results of operations for
the Company for the three months ended March 31, 2000 and 1999. The following
should be read in conjunction with the unaudited consolidated financial
statements and related notes appearing elsewhere herein.
OVERVIEW
We design microdisplays that provide high resolution images suitable for
applications such as rear projection computer monitors, high definition
television and video projectors, and potential applications such as use in
wireless communication devices, portable games and digital assistants. As
potential customers evaluated our displays during 1999, we began development of
the fifth generation display. This new display was intended to incorporate the
best specifications of our previous display, and new technical capabilities that
our potential customers wanted for incorporation in their products. It was
designed for mass production. Our fifth generation display began shipping in the
first quarter of 2000.
In January 2000 we began the conversion of our accounting system into a fully
integrated accounting and manufacturing software and hardware solution. We
initiated this change so that we could efficiently handle the expected
accounting and manufacturing issues related to the change from our previous
focus on research and development, to our new focus on manufacturing and sales.
This conversion will cost approximately $250,000. We expect this conversion to
be completed in the second quarter of this year.
LIQUIDITY AND CAPITAL RESOURCES
Most of our revenues to date have been derived from sales of our prototypes and
developer kits. Although we are producing displays in anticipation of mass
production, we have not yet completed our goal of mass production. Delays in
development may result in the introduction of products later than anticipated,
which may have an adverse effect on both our financial and competitive position.
Moreover, we may never be successful in developing or manufacturing a
commercially viable display, and in addition, we may never be able to
manufacture adequate quantities of our displays at commercially acceptable cost
levels or on a timely basis.
We are experiencing negative cash flow from operations, resulting in the need to
fund ongoing operations from financing activities. We have raised capital
through issuance of convertible notes and the sale of warrants to purchase the
Company's common stock. Our business may not ultimately generate sufficient
revenue to fund the Company's operations on a continuing basis.
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As of March 31, 2000, we had approximately $4,000,000 in cash and cash
equivalents. Our net working capital at March 31, 2000 was approximately
$2,900,000.
Net cash used in operating activities totaled approximately $1,326,000 and
$703,000 for the three months ended March 31, 2000 and 1999, respectively. Cash
was used primarily to fund the operating loss.
Net cash provided by financing activities in the three months ended March 31,
2000 was approximately $4,300,000, as compared to approximately $530,000 for the
three months ended March 31, 1999. Cash was provided primarily from proceeds
from the exercise of warrants to purchase our common stock and the exercise of
options to acquire our common stock.
As of March 31, 2000, we had an accumulated deficit of approximately
$23,573,053. We have realized significant losses in the past and we expect that
these losses will continue at least through 2000. We have generated limited
revenues and no profits from operations. The development, commercialization and
marketing of our products will require substantial expenditures for the next 12
to 24 months. Consequently, we may continue to operate at a loss during this
period and there can be no assurance that our business will operate on a
profitable basis.
RESULTS OF OPERATIONS
Revenues. Total revenues were $38,400 for the three months ended March 31, 2000,
and $31,500 for the three months ended March 31, 1999. These revenues were
related to the sales of our fourth generation developer kits in 1999, and our
fifth generation developer kits in 2000, and are not indicative of anticipated
revenues to be realized upon sales of displays produced in quantity.
Cost of Sales. Cost of sales represents product costs associated with the
production of display prototypes. Total cost of sales for prototypes was $7,125
for the three months ended March 31, 2000 and $4,104 for the three months ended
March 31, 1999. Gross margins associated with sales are not indicative of the
gross margins that we expect to realize on sales of units produced in quantity.
Prototypes and 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. Selling, general and administrative
costs were approximately $480,000 and $400,000 for the three months ended March
31, 2000 and 1999, respectively. The increase of $80,000 relates primarily to
costs incurred in implementing our new accounting system.
Stock-based general and administrative expenses. Stock-based general and
administrative expenses were approximately $15,000 and $135,000 in the three
months ended March 31, 2000 and 1999, respectively. The amounts incurred relate
to the valuation of common stock, stock options, and options issued in exchange
for services and warrants issued in exchange for services and other
consideration. The amount incurred in 2000 relates to stock issued in exchange
for services. The amount incurred in the first quarter of 1999 relates to
consulting services rendered in advising the Company as to feasible capital
structures and identifying capital resources.
Research and development costs. Research and development costs were
approximately $808,000 and $360,000 for the three months ended March 31, 2000
and 1999, respectively. The increase in these costs was due primarily to an
increase in salaries and consulting and other costs associated with the design
and implementation of a new product.
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