Pre-Effective Amendment to Registration Statement for Securities Offered Pursuant to a Transaction — Form S-3 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: S-3/A Pre-Effective Amendment to Registration Statement HTML 370K for Securities Offered Pursuant to a Transaction
(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From
time to time as described in the prospectus after the effective date of this
Registration Statement.
If
the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box:
£
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: S
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: £
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering: £
If
this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. £
If
this
Form is a post-effective amendment to a registration statement filed pursuant
to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. £
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
Amount
to
be Registered
Proposed
maximum offering price per unit
Proposed
maximum offering price
Amount
of registration fee (1)
Primary
Offering:
Common
Shares, par value $.01 per share
Warrants
Units
Subscription
Rights
(2)
(3)
$75,000,000
(3)
$8,025
(5)
Secondary
Offering:
Common
Shares, par value $.01 per share
57,725
$2.28
(4)
$131,613
(4)
$215.24
(6)
Total
$75,131,613
$8,238.99
(6)
(1)
Calculated
pursuant to Rule 457(o) under the Securities
Act.
(2)
There
are being registered hereunder such indeterminate number of common
shares,
such indeterminate number of warrants to purchase common shares,
such
indeterminate number of units, and such indeterminate number of
subscription rights as shall have an aggregate initial offering price
not
to exceed $75,000,000. Any securities registered hereunder may be
sold
separately or as units with other securities registered hereunder.
The
proposed maximum initial offering price per unit will be determined,
from
time to time, by the registrant in connection with the issuance by
the
registrant of the securities registered hereunder. Pursuant to Rule
457(i), the securities registered also include such indeterminate
number
of common shares as may be issued upon exercise of warrants, upon
the
exercise of units or pursuant to the antidilution provisions of any
such
securities. In addition, pursuant to Rule 416 under the Securities
Act,
the shares being registered hereunder include such indeterminate
number of
shares of common shares as may be issuable with respect to the shares
being registered hereunder as a result of stock splits, stock dividends
or
similar transactions.
(3)
The
proposed maximum aggregate offering price per class of security will
be
determined from time to time by the registrant in connection with
the
issuance by the registrant of the securities registered hereunder
and is
not specified as to each class of security pursuant to General Instruction
II.D. of Form S-3 under the Securities
Act.
(4)
Estimated
solely for the purpose of computing the registration fee pursuant
to Rule
457(c) of the Securities Act of 1933, as amended, based on the average
of
the high and low sales prices reported on the Nasdaq Small Cap Market
on
August 30, 2006.
(5)
Pursuant
to Rule 457(p) under the Securities Act, the Registrant hereby offsets
the
total registration fee due under this Registration Statement by the
amount
of the filing fee associated with the unsold securities from the
Registrant’s registration statement on Form S-3, filed with the Commission
on January 31, 2005 (SEC File No. 333-122392), registering 2,000,000
common shares (the “Prior Registration Statement”), as post-effectively
amended pursuant to Rule 462(b) of the Securities Act to register
an
additional 400,000 common shares on Form S-3, filed on May 31, 2006
(the
“Rule 462 Registration Statement”) (SEC File No. 333-134626). Of that
amount, the registrant has sold 2,394,850 common shares from time
to time,
leaving a balance of 5,150 common shares that remain available for
sale
pursuant to the Prior Registration Statement and the Rule 462 Registration
Statement. The associated filing fee of $1.25 for such unsold securities,
calculated under Rule 457(o), is hereby used to offset the current
registration fee due. Accordingly, the Registrant is paying $8,238.99
in
filing fees for this Registration Statement. Pursuant to Rule 415(a)(6),
the offering of the unsold securities registered under the Prior
Registration Statement will be deemed terminated as of the date of
effectiveness of this Registration
Statement.
(6)
Previously
paid.
The
registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
2
SUBJECT
TO COMPLETION, DATED FEBRUARY 13,
2007
PROSPECTUS
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the Registration Statement filed with the U.S.
Securities and Exchange Commission is effective. This prospectus is not an
offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where such offer or sale is not permitted.
SPATIALIGHT,
INC.
$75,000,000
COMMON
SHARES
WARRANTS
UNITS
and/or
SUBSCRIPTION
RIGHTS
We
may
offer and sell common shares, warrants, units, and/or subscription rights at
an
aggregate total price not to exceed $75,000,000 from time to time in one or
more
classes or series and in amounts, at prices and on terms that we will determine
at the time of the offering. We may also offer common shares upon exercise
of
warrants, and subscription rights. We refer to our common shares, warrants,
units, collectively as the “securities.” In addition, the selling shareholders
may from time to time sell up to 57,725 of our common shares. We will not
receive any proceeds from the sale of common shares by the selling
shareholders.
This
prospectus provides you with a general description of the securities that may
be
offered. If required, each time securities are offered, we will provide the
material terms of such transactions in supplements to the prospectus. You should
read this prospectus and any prospectus supplement, as well as the documents
incorporated or deemed to be incorporated by reference in this prospectus,
carefully before you invest.
Our
common shares are traded on The Nasdaq SmallCap Market under the symbol “HDTV”.
On February 12, 2007, the last reported sales price of our common shares
as
reported on The Nasdaq SmallCap Market was $1.20 per share.
We
will
sell directly, through agents, dealers or underwriters as designated from
time
to time, or through a combination of these methods. We reserve the sole right
to
accept, and together with our agents, dealers and underwriters reserve the
right
to reject, in whole or in part, any proposed purchase of the securities to
be
made directly or through agents, dealers, or underwriters. For additional
information on the methods of sale, you should refer to the section entitled
“Plan of Distribution - SpatiaLight, Inc.” If any agents, dealers or
underwriters are involved in the sale of any of the securities, the relevant
prospectus supplement will set forth any applicable commissions or discounts.
Our net proceeds from the sale of securities also will be set forth in the
relevant prospectus supplement.
The
selling shareholders may offer our common shares that are being offered by
this
prospectus through public or private transactions, at prevailing market prices
or at privately negotiated prices. See “Plan of Distribution - Selling
Shareholders.”
An
investment in our common shares involves a high degree of risk. Please carefully
consider the information under the heading “Risk Factors” beginning on page
8.
3
Neither
the U.S. Securities and Exchange Commission nor any state securities commission
has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
This
prospectus may not be used to consummate sales of securities unless accompanied
by the applicable prospectus supplement.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
43
5
ABOUT
THIS PROSPECTUS
This
prospectus is part of a Registration Statement that we filed with the U.S.
Securities and Exchange Commission, using a “shelf” registration process. Under
the “shelf” process, we may, from time to time, offer and sell up to $75,000,000
in the aggregate of any combination of the securities described in this
prospectus in one or more offerings. This prospectus provides you with a general
description of the securities that we may offer and of the Company and it
business and of the “Risk Factors” involved in investing in such securities. The
general description contained herein is not necessarily meant to be complete.
If
required, each time that we or our selling shareholders sell securities, we
will
provide a prospectus supplement that will contain specific information about
the
terms of that offering. The prospectus supplement also may add, update or change
information contained in this prospectus. If there is any inconsistency between
the information in this prospectus and the applicable prospectus supplement,
you
must rely on the information in the prospectus supplement.
In
addition, the selling shareholders may sell up to 57,725 common shares in one
or
more offering. This prospectus also provides a description of the common shares
that the selling shareholders listed in this prospectus may offer and
sell.
You
should read both this prospectus and any prospectus supplement together with
additional information described under the heading “Where To Find More
Information.” We have not authorized anyone to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We may only use this prospectus to sell securities
if
it is accompanied by a prospectus supplement.
This
prospectus does not include all of the information contained in the registration
statement. You should refer to the registration statement and its exhibits
for
additional information. Copies of the registration statement together with
its
exhibits may be inspected or obtained as described in the section titled “Where
To Find More Information.” Statements contained in this prospectus concerning
the provisions of documents are not necessarily complete, and in each instance,
reference is made to the copy of such document filed as an exhibit to the
registration statement or otherwise filed with the SEC. Each such statement
is
qualified in its entirety by reference to the registration
statement.
You
should assume that the information appearing in this prospectus or any
prospectus supplement, as well as information we have previously filed with
the
SEC and incorporated by reference, is accurate as of the date set forth on
the
front of those documents only.
Certain
statements and information contained in this prospectus concerning our future,
proposed and anticipated activities, certain trends with respect to our revenue,
operating results, capital resources, and liquidity or with respect to the
markets in which we compete or the electronics industry in general; and other
statements contained in this prospectus regarding matters that are not
historical facts are forward-looking statements, as such term is defined under
applicable securities laws. Forward-looking statements, by their very nature,
include risks and uncertainties, many of which are beyond our control.
Accordingly, actual results may differ, perhaps materially, from those expressed
in or implied by such forward-looking statements. Factors that could cause
actual results to differ materially include those discussed below under “Risk
Factors” in this prospectus. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
SUMMARY
We
are in
the business of manufacturing high-resolution liquid crystal on silicon (LCoS)
microdisplays. We are currently focused on manufacturing one core product,
our
1080p T-3 LCoS Set, and selling that product to our customers and prospective
customers, who are located primarily in Asia. The T-3 LCoS model has a 1920
pixels by 1080 pixels configuration. Our current customers and current
prospective customers are original equipment manufacturers (OEMs) engaged in
the
businesses of manufacturing high definition televisions, light engines for
incorporation into high definition televisions and 3-dimensional near-to-eye
display devices. Our products are also suitable for incorporation into other
display applications including front projection systems, rear projection
computer monitors, wireless communication devices, portable games and digital
assistants, although we are not currently working with OEMs of any of these
products.
We
refer
to SpatiaLight, Inc. and its wholly-owned subsidiary SpatiaLight Korea, Inc.
in
this prospectus as “SpatiaLight,” the “Company” or “we,”“us,”“our” or
comparable terms.
Our
principal executive offices are located at Five Hamilton Landing, Suite 100,
Novato, California94949, and our telephone number is (415)
883-1693.
For
additional information concerning our business, see “About
SpatiaLight.”
RECENT
DEVELOPMENTS
A
brief
summary of certain of our preliminary unaudited financial results for
the three
months ended December 31, 2006 is set forth below. Because the financial
statements for our fourth quarter of 2006 have not yet been finalized,
information regarding this period is subject to change and actual results
for
the quarter may differ materially from our preliminary results. This
summary is not meant to be either a comprehensive statement or explanation
of
our financial results for this period.
Our
net
revenue for the three months ended December 31, 2006 decreased approximately
$9,000, or 23%, from revenue for the three months ended December 31,2005. Gross
margin in the three months ended December 31, 2006 was negative $1.0
million compared to negative $1.5 million in the three months
ended December 31, 2005, due to reduced overhead. Operating expenses
in the
three months ended December 31, 2006 decreased $1.0 million, or 32%,
from
operating expenses in the three months ended December 31, 2005. Operating
loss
decreased $1.4 million, or 32%, for the three months ended December 2006
compared to the three months ended December 31, 2005. The net loss decreased
by
$0.9 million, or 19%, for the three months ended December 31, 2006 compared
to
the three months ended December 31, 2005. Our cash and cash equivalents
as of
December 31, 2006 were approximately $0.2 million, an increase of $0.15
million
from December 31, 2005.
The
foregoing discussion of our expectations regarding our results for the
fourth
quarter of 2006 are not necessarily indicative of results to be expected
for the
year ending December 31, 2006 or for any other interim period or for
any future
year.
7
RISK
FACTORS
Our
securities are speculative in nature and involve a high degree of risk. Before
you invest in our securities, you should be aware that there are various risks
in such an investment, including those described below. You should consider
carefully these risk factors together with all of the other information included
in this prospectus, any prospectus supplement and the documents we have
incorporated by reference into this document, before purchasing our securities.
Our business, results of operations and financial condition, as well as the
value of your investment, could be seriously harmed by any of these risks.
We
are confronted by serious liquidity concerns.
As
of the
date hereof, we have very limited financial resources. Our operations to date
have consumed substantial amounts of cash and will continue to require
substantial amounts of cash in the future. In order to remain competitive,
we
must continue to make significant investments including further investments
in
research and development, equipment, and expansion of our facilities and
production activities. Our $10,000,000 of Senior Secured Convertible Notes,
issued in November 2004, are scheduled to mature on November 30, 2007. The
Senior Secured Convertible Notes are convertible, at the option of their
holders, into our common shares at the conversion price of $9.72 per share.
The
last sale price of our common shares on the Nasdaq Small Cap Market on February8, 2007, was $1.18 per share. Unless the Noteholders decide to convert their
notes prior to November 30, 2007, then we will be required to repay to the
Noteholders the entire $10,000,000 principal amount of the notes on that
maturity date.
Taking
into account our current financial condition, we will require significant
additional financing to satisfy our increasing working capital requirements
in
2006 and thereafter. The report of our independent registered public accounting
firm, Odenberg, Ullakko, Muranishi & Co. LLP, included in our Annual Report
on Form 10-K/A Amendment No. 2 filed with the SEC on February 13, 2007,
raised substantial doubt with respect to our ability to continue as a going
concern.
In
the
past, we have maintained our financial condition and liquidity primarily through
private sales of our common shares (both registered and unregistered),
convertible note financing, and the payment of exercise prices on our warrants
and options. We have no assurance that outstanding stock options and warrants
will be exercised in the future to any significant extent. Reliance on private
equity purchase agreements and public offerings and exercises of derivative
securities to finance our current and future operations entails the additional
risks of our inability to sell our common shares or other securities and an
insufficient number of derivative securities being exercised owing to the
prevailing market prices of our underlying common shares. Additionally, any
additional sales of our common stock may have a dilutive effect on the value
of
our outstanding shares. In the event that we are unable to obtain further
financing on satisfactory terms, or at all, or if we are unable to generate
sales sufficient to offset our costs, or if our costs of development and
operations are greater than we anticipate, we may be unable to increase the
size
of our business at the rate desired or may be required to delay, reduce, or
cease certain or all of our operations, any of which could materially harm
our
business and financial results.
Certain
of the holders of the Senior Secured Convertible Notes issued by us in November
2004 have made claims of default.
As
previously disclosed in our Current Report on Form 8-K, filed December 19,2005
and December 29, 2006, holders of $9,000,000 principal amount of our Senior
Secured Convertible Notes have alleged that we have defaulted in the payment
of
the installment of interest due November 30, 2005 on these Senior Secured
Convertible Notes. In addition, one of these holders, who holds $4,500,000
principal amount of the
8
Senior
Secured Convertible Notes, has alleged that we have defaulted in our failure
to
maintain the effectiveness of the registration statement on Form S-3 pertaining
to the Senior Secured Convertible Notes (Registration No. 333-122391) in such
manner as to permit such holder to sell its shares pursuant to that registration
statement. That holder of $4,500,000 principal amount of the Senior Secured
Convertible Notes, as previously disclosed in our Current Reports on Form 8-K,
filed February 14, 2006 and December 29, 2006, has also alleged that we have
defaulted under the terms of the Senior Secured Convertible Notes by entering
into certain types of debt financing transactions. As a consequence of these
alleged defaults, these holders have demanded the immediate redemption of the
principal amount of their Senior Secured Convertible Notes plus a redemption
premium and other amounts. We do not believe that we have defaulted in the
payment of interest on the Senior Secured Convertible Notes, and we believe
that
the registration statement has remained effective, that we have not entered
into
any debt financing transactions that would constitute a breach or failure in
any
material respect, and that we are otherwise in compliance with the relevant
provisions of the Senior Secured Convertible Notes. At this date, we cannot
predict what actions, if any, will be undertaken by any of the holders of the
Senior Secured Convertible Notes, but we will contest any adverse actions as
we
believe that these allegations lack merit and would not entitle the holders
of
the Senior Secured Convertible Notes either to call such notes or to other
remedies that they are seeking.
We
have experienced significant manufacturing difficulties during the past year
that have resulted in our manufacturing and shipping our LCoS Sets in only
limited commercial quantities. If we encounter further difficulties in
manufacturing our products in larger quantities then we may have difficulty
meeting customer demands and our operating results could be significantly harmed
by such difficulties.
We
have
experienced difficulties in manufacturing our LCoS Sets during the past year
principally due to various problems that we have experienced in certain specific
portions of our manufacturing process. See “About SpatiaLight - Manufacturing of
LCoS Sets” elsewhere in this prospectus for a more detailed discussion of
manufacturing difficulties that we have experienced. Although we believe that
we
have developed solutions to the past problems that will allow us to achieve
higher production and shipment volumes, because the manufacture of our LCoS
Sets
involves highly complex processes, technical problems may continue to arise
as
we manufacture our LCoS Sets and we cannot assure satisfactory manufacturing
yields on a continuing basis or that we will be able to adequately ramp up
volume production of our LCoS Sets.
Current
purchase orders, including our agreement with LG Electronics, and anticipated
future purchase orders, which we cannot assure, will require us to produce
greater quantities of our LCoS Sets than we have produced in the past. If future
manufacturing yields cannot be improved further or if we incur unanticipated
problems in production of our LCoS Sets, it will significantly harm our business
and operating results because we will have already incurred the costs for the
materials used in the LCoS Set manufacturing processes as well as the costs
of
operating our South Korean manufacturing facility. Unanticipated further
problems in manufacturing our LCoS Sets could also cause production delays
that
might lead our current and prospective customers to seek other sources, which
would negatively affect our operating results.
In
addition, the complexity of our manufacturing processes will increase as the
sophistication of our LCoS Sets increases, and such complexities may cause
similar difficulties that could harm our business and operating results.
Although we believe that we will be able to mass produce our LCoS Sets, other
companies, including some with substantially greater resources than us, have
found great difficulty manufacturing LCoS products. We do not have reliable
information about why other companies have failed to be able to manufacture
similar liquid crystal microdisplays and can therefore make no assurances that
we will not encounter similar problems.
9
We
currently obtain silicon backplanes, a vital component in our microdisplays,
from a company in Taiwan, which is subject to potential instability because
of
Taiwan’s troubled relations with China. Unless we obtain an alternative source,
any disruption or termination of our silicon backplane manufacturing source’s
operation in Taiwan could significantly harm our operations. Early in the second
quarter of 2006, the silicon wafers that we received from our supplier contained
flaws that have materially harmed our manufacturing yields. We refer you to
“About SpatiaLight - Manufacturing of LCoS Sets” contained elsewhere in this
prospectus for a more detailed discussion of our problems with the silicon
wafers.
The
design and manufacture of LCoS Sets are highly complex processes that are
sensitive to a wide variety of factors, including the level of contaminants
in
the manufacturing environment, variations in temperature and humidity,
impurities in the materials used, and the performance of personnel and
equipment. We have built and equipped a manufacturing plant in South Korea
where
we currently manufacture our LCoS Sets in limited quantities. We believe that
these arrangements provide us with strong quality controls and effectively
protect our proprietary technology in our products, but the risks discussed
above associated with the highly complex processes of manufacturing these liquid
crystal microdisplays remain applicable.
Although
we have commenced producing LCoS Sets in our manufacturing facility in South
Korea, which serves as our principal facility for manufacturing our LCoS
imagers, we may encounter difficulties in conducting our manufacturing
operations and difficulties in maintaining our quality controls over the
manufacturing and production processes in a foreign country, any of which would
be likely to cause significant harm to our business.
Our
manufacturing operations were recently relocated from California to South Korea
and the relocation of our manufacturing operations in South Korea may cause
us
to encounter one or more potential problems in our operations that could harm
our business. Because of cultural or language differences, problems may arise
in
the training of, or communications with, our employees or the general operation
of our manufacturing facility. These cultural or language differences may also
create misunderstandings or the creation of inefficiencies in our operations.
Furthermore, the geographic separation between our corporate offices in the
United States and our principal manufacturing operation in South Korea could
result in managerial or supervisory problems, which could lead to decreased
quality controls and consequently materially harm our business.
We
are largely dependent on one customer, LG Electronics, for our future revenues,
and failure to expand our customer base or receive additional orders from our
existing customer base will make us vulnerable to substantial loss of potential
revenues.
In
2005
and through year to date 2006, almost all of our revenue has been derived from
LG Electronics, Inc. Based upon our arrangements with LG Electronics, it is
likely that a substantial percentage of our anticipated future revenues will
be
derived from LG Electronics as well. If we cannot diversify our customer base
or
derive increased revenues through additional purchase orders and product
deliveries from customers other than LG Electronics, and remain primarily
reliant on only one customer for a substantial percentage of our revenues,
we
will be vulnerable to a substantial decline in anticipated revenues if we lose
LG Electronics as a customer for any reason or if LG Electronics were to
otherwise reduce, delay or cancel its orders. Any such events could have a
material adverse effect on our business, operations and financial condition
and
the value of our common shares could decline substantially.
Our
ability to retain and receive additional purchase orders from our current
customers and to attract and receive purchase orders from prospective customers
may depend upon the acceptance of LG Electronics’ products in the consumer
marketplace. If LG Electronics’ television products incorporating our LCoS
technology are not commercially successful, demand for our products from our
current and prospective customers may not materialize, which could negatively
impact our results of operations and our financial condition.
10
We
are the subject of an investigation by the staff of the SEC regarding the
circumstances surrounding our filing of certain consents of the independent
registered accounting firm BDO Seidman, LLP without requisite authorization
and
transactions in our securities by our former Chief Executive
Officer.
We
have
been advised by the staff of the SEC that it is conducting an investigation
into
the circumstances surrounding our filing of consents of the independent
registered accounting firm BDO Seidman, LLP, without requisite authorization,
which consents were filed as Exhibit 23.1 to amendments to our registration
statements on Form S-3 (Nos. 333-122391 and 333-122392) filed with the SEC
on
July 27, 2005. The consents would have allowed us to incorporate by
reference into each of the prospectuses constituting a part of the
above-referenced registration statements, the reports of BDO Seidman, LLP on
our
consolidated financial statements for the years ended December 31, 2002 and
2003. Our current independent registered accounting firm, Odenberg, Ullakko,
Muranishi & Co. LLP (OUM) has since provided us with a new report with
respect to each of the three years ended December 31, 2004 and we were not
requested to amend or restate the financial statements contained in our annual
reports on Form 10-K for any of the three fiscal years ended December 31, 2004
in connection with the issuance of OUM’s new report. We have also received
notice that the SEC is investigating transactions in our securities by Mr.
Robert Olins, our former Chief Executive Officer. We have been cooperating
and
intend to continue to cooperate with the SEC in connection with these matters.
In addition, the audit committee of our board of directors has concluded a
review and investigation of these matters. As of this date, we cannot determine
whether we or our management will be adversely affected by these investigations.
See “Audit Committee Investigations” and “SEC Investigations” under “About
SpatiaLight” for further information concerning the circumstances underlying the
SEC investigation and the audit committee investigation and report with respect
to these matters.
We
may be subject to lawsuits relating to our use of a registration statement
that
did not contain an authorized consent of BDO Seidman LLP, or as a result of
findings from the investigation into transactions in our securities by our
former Chief Executive Officer.
As
disclosed under “Audit Committee Investigations” and “SEC Investigations”
contained in “About SpatiaLight”, we filed, as part of amendment numbers 5 and 6
to a registration statement (File No. 333-122391) registering shares for resale
by certain selling shareholders (the “Financing Registration Statement”) and as
part of amendment numbers 3 and 4 to a “shelf” registration statement (File No.
333-122392), an unauthorized consent of BDO Seidman LLP to incorporate by
reference their report on our consolidated financial statements for the fiscal
years ended December 31, 2002 and 2003, respectively. Although we received
the
requisite authorized consents from BDO Seidman to the incorporation by reference
of their report on the consolidated financial statements into these registration
statements when initially filed and subsequent amendments thereto (and BDO
Seidman has not withdrawn these subsequent consents), we did not receive the
requisite authorization from BDO Seidman to file its consent as an exhibit
to
the penultimate and final amendments to the registration statement before it
was
declared effective. These amendments were filed with the SEC on July 27, 2005.
Subsequently, our current independent registered public accountants, OUM,
re-audited our consolidated financial statements for fiscal years 2003 and
2002.
OUM has given its consent to incorporate by reference into the registration
statement its report related to the 2002 and 2003 financial
statements.
11
Following
the filing in July 2005 of amendment number 6 to the Financing Registration
Statement and amendment number 4 to the “shelf” registration statement, which
contained the unauthorized consents referred to above, the staff of the SEC
declared both of the registration statements effective. In August 2005, we
filed
post-effective amendment number 1 to both of these registration statements
(those post-effective amendments were subsequently withdrawn and replaced by
additional post-effective amendments), which disclosed the filing of the
unauthorized consents.
Because
both registration statements were used to sell common shares after the staff
of
the SEC declared the registration statements effective, it is conceivable that
there may be litigation against us or our officers or directors under Section
11
of the Securities Act of 1933, as amended (the “Securities Act”). Although we do
not believe that the filing of an invalid consent constitutes a materially
misleading statement or an omission to disclose a material fact within the
meaning of Section 11 of the Securities Act, a contrary determination could
result in a liability for us.
At
present, we are unable to ascertain the exact amount of damages, if any, to
which we could potentially be subject under a Section 11 claim instituted by
any
persons who directly purchased shares pursuant to those registration statements.
Furthermore, at this date, we cannot ascertain the amount of damages, if any,
for which we could be liable for claims instituted by any subsequent purchasers
who could trace the shares purchased by them to those registration statements.
In August 2005, we sold 500,000 common shares to three institutional purchasers
for $5.40 per share pursuant to the “shelf” registration statement referenced
herein. Each of those investors has since represented to us in writing, in
connection with a separate transaction, that they have disposed of all of those
shares. One of those institutional investors has represented to us that it
sold
those shares at a sale price at or higher than its purchase price from us.
We
believe, based upon discussions with the other two investors, that they sold
their shares at a sale price of not lower than $4.25 per share. Therefore,
we
believe that the maximum amount of potential damages pursuant to Section 11
claims from direct purchasers, which we would fully contest, would be $391,000,
or the difference between the two investors’ purchase price and lowest believed
resale price, multiplied by the 340,000 shares that they purchased and then
resold.
In
addition to any damage claims, which may be material to our financial condition,
any lawsuit alleging securities law violations could require us to expend
significant financial and managerial resources.
Any
such
lawsuit could also result in further volatility in the market price of our
common shares.
Nothing
set forth in the foregoing statement constitutes an express or implied admission
by us of any liability under Section 11 of the Securities Act or otherwise.
As
disclosed under “Audit Committee Investigations” and “SEC Investigations”
contained in “About SpatiaLight”, our Audit Committee determined that Robert A.
Olins, our former Chief Executive Officer, Secretary, Treasurer and a Director
failed to report the sale of an aggregate of 70,556 of our common shares in
August 2005 and February 2006 at sales prices ranging from $5.30 to $3.00.
Pursuant to Section 16 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), Mr. Olins has filed delinquent reports and disgorged $22,273 in
“short-swing profits” that he realized from the sales. We have been advised by
the SEC that they are investigating the transactions in our securities by Mr.
Olins and an entity which he controls, and have received and responded to a
request from the SEC requesting documentation relating to all transactions
by
Mr. Olins and the entity which he controls. We have no knowledge of any other
transactions by Mr. Olins, or this entity, that would be a violation of the
Securities Act or the Exchange Act. If the SEC determines that these or other
transactions by Mr. Olins were a violation of the Securities Act, it is
conceivable that such transactions could be imputed to us and the SEC could
seek
to impose remedies against us, or private individuals could file litigation
against us for damages.
12
We
are
unable to estimate the probability of liability or the amount of any penalties
or damage claims that might arise, which may be material to our financial
condition. We believe that Mr. Olins will disgorge any “short swing profits” if
it is determined that he or the entity he controls engaged in transactions
that
violated Section 16 of the Exchange Act. Any action by the SEC or lawsuit
alleging securities law violations could require us to expend significant
financial and managerial resources and could also result in further volatility
in the market price of our common shares.
Nothing
set forth in the foregoing statement constitutes an express or implied admission
by us of any liability under the Securities Act, the Exchange Act or
otherwise.
The
obligations arising from our Senior Secured Convertible Notes restrict our
future financing alternatives and may result in financial difficulties for
us in
the future.
The
Senior Secured Convertible Notes issued in November 2004 bear a 10% rate
of
interest per annum and are not prepayable, in whole or in part, prior to
their
maturity on November 30, 2007. Therefore, we do not have the ability to
refinance the 2004 Senior Secured Convertible Notes with debt obligations
bearing more favorable terms to us or out of the proceeds of an equity financing
until their maturity date. We do have the right to force the conversion of
the
Senior Secured Convertible Notes into our common shares in the event that
our
common shares trade at or above $14.58 (150% of the $9.72 conversion price
of
the Senior Secured Convertible Notes) for twenty consecutive trading days.
The
last sale price of our common shares on February 12, 2007, was $1.20 per
share.
Furthermore,
the Senior Secured Convertible Notes are secured by virtually all of our assets,
other than those located in South Korea, and it may therefore be difficult
for
us to obtain future debt financing. However, the terms of the Senior Secured
Convertible Notes allow us to subordinate the liens on accounts receivable,
certain contract rights and inventory (the “Subject Property”) securing the
Senior Secured Convertible Notes, to liens on the Subject Property securing
certain other debt permitted, subject to certain conditions, by the Senior
Secured Convertible Notes.
In
addition, the issuance of any additional debt securities, except certain types
of bank debt permitted under the Senior Secured Convertible Notes, will require
the consent of the holders of a majority in interest of our Senior Secured
Convertible Notes, to the extent that such notes remain issued and outstanding
at the time of issuance of any additional debt securities. The prohibition
against incurring debt may negatively affect our ability to engage in capital
expenditures and to maintain and expand our manufacturing
operations.
If
we
default in meeting our obligations under the Senior Secured Convertible Notes,
the indebtedness which they evidence may become immediately due and payable,
and
the holders of the Senior Secured Convertible Notes may be entitled to foreclose
on any of our assets securing the notes. As noted earlier, certain of the
holders of our Senior Secured Convertible Notes have alleged that we have
defaulted in meeting our obligations under the Senior Secured Convertible Notes
and have demanded the immediate repayment of principal and liquidated damages.
In the event these holders pursue their claims, and a court determines that
we
have defaulted in our obligations, we will have to seek financing from third
parties to satisfy the holders’ claims. The Senior Secured Convertible Notes are
convertible into our common shares and the issuance of such shares (including
any shares issued in payment of interest on such notes) may have a dilutive
effect on the value of our outstanding common shares.
We
have a history of losses and expect to incur losses in the future and therefore
cannot assure you that we will achieve profitability.
13
We
have
incurred operating losses to date and have experienced cash shortages. For
the
nine months ended September 30, 2006 and the fiscal year ended December 31,2005, we incurred net losses of approximately $15 million and $14 million,
respectively. In addition, we had an accumulated deficit of approximately $96.8
million as of September 30, 2006. We expect additional losses as we continue
spending for commercial scale production and other business activities as well
as further research and development of our products. As a result, we will need
to generate substantial sales to support our costs of doing business before
we
can begin to recoup our operating losses and accumulated deficit and achieve
profitability.
We
may be subject to liability if we default on our obligations to raise additional
capital as required in the purchase documents related to our private placement
of common shares in August 2006.
Under
the
terms of the August 2006 Financing, we must raise an additional $10,000,000
by the end of the 30th day following the date the SEC declares
effective the registration statement (such 30th day being the “Additional
Financing Deadline”)
of which
this prospectus is a part (the “Registration Effective Date”)
for us to avoid our obligation under the purchase documents related to the
August 2006 Financing to commence a subscription rights offering to our
shareholders to purchase our common shares having an aggregate value of at
least
$20,000,000 on or before the Registration Effective Date. Because of our
existing covenants with the holders of our Senior Secured Convertible Notes,
which requires us to seek their consent before we agree to enter into additional
material indebtedness, we will most likely try to raise the $10,000,000 through
the sale of additional common shares. We can offer no assurance that we will
successfully raise $10,000,000 nor can we offer an assurance that we will issue
subscription rights to our shareholders in the future. At present, we are
considering all of our options and have not definitively determined how or
whether we will raise the additional $10,000,000, which would allow us to avoid
our obligation to make an offering of subscription rights to purchase our common
shares. In connection with the August 2006 Financing, we have also agreed,
for a
period of one year following the closing of the August 2006 Financing, to
refrain from, directly or indirectly, offering or selling any debt security
that
is, at any time during the life of the debt security and under any circumstance,
convertible into or exchangeable for our common shares, unless we receive prior
written consent from a majority of the purchasers of the August 2006
Financing.
On
October 25, 2006, the Securities Purchase Agreement in the August 2006 Financing
was amended to extend the deadline if the Company raises at least $1,000,000
on
or before the Registration Effective Date. The length of the extension depends
on the amount of financing raised by the Company: if at least $1,000,000 is
raised, then the deadline is extended for an additional 30 days; if at least
$5,000,000 is raised, then the deadline is extended for an additional 60 days;
and if at least $3,000,000, but less than $5,000,000, is raised, then the
deadline is extended for an additional number of days equal to 30 plus the
product (rounded to the nearest integer) of (x) the fraction whose numerator
is
equal to the amount of money raised minus $3,000,000 and whose denominator
is
equal to $2,000,000, and (y) 30. In addition the amendment provides that if
we
raise between $5,000,000 and $10,000,000 by the Additional Financing Deadline,
then we shall be required to raise only an amount equal to the difference
between $20,000,000 and such amount raised by the Additional Financing Deadline.
We are considering all of our options and have not definitively determined
how
or whether we will raise the additional $10,000,000 which would allow us to
avoid our obligation to make an offering of subscription rights to purchase
our
common shares.
In
the
event that we default upon the foregoing obligations, the purchasers of
securities in our August 2006 Financing are entitled to contractual damages
and
may also request that we specifically perform our obligations under the purchase
agreement giving rise to our obligations. At present, we are unable to quantify
the amount of contractual damages to which the purchasers would be entitled,
and
we are unable to estimate the likelihood that a court would grant any
purchaser’s application that we specifically perform our
obligations.
14
We
are subject to lengthy development periods and product acceptance cycles, which
may significantly harm our business.
Our
business model requires us to develop microdisplays that perform better than
existing technologies, manufacture our LCoS Sets in bulk, and sell the resulting
LCoS Sets to OEMs who will then incorporate them into their products. OEMs
make
the determination during their product development programs whether to
incorporate our LCoS Sets and/or display units in their products. This requires
us to invest significant amounts of time and capital in designing our LCoS
Sets
before we can be assured that we will generate any significant sales to our
customers or even recover our investment. If we fail to recover our investment
in the LCoS Sets, it could seriously harm our financial condition. In addition,
the acceptance of new technologies developed by our competitors could limit
the
time period that our products may be demanded by our customers.
We
incur substantial operational and research and development costs in connection
with products and technologies that may not be successful.
We
currently have nine full-time engineering personnel based in California working
on microdisplays. We currently have nine full-time engineering and 74 full-time
manufacturing personnel based in South Korea. This staffing creates significant
operational and research and development costs that may not be recouped. Even
if
our current LCoS Sets become accepted and/or successful, we must continue to
employ, and may increase in number, our engineering and manufacturing personnel
to develop future generations of our microdisplays because of the rapid
technological changes in our industry. As a result, we expect to continue
incurring significant operational and research and development
costs.
Geopolitical
conditions or potential military conflicts between allies, the United States
and
South Korea, and North Korea may negatively impact our business.
We
commenced producing products in our principal manufacturing operations in South
Korea during the second quarter of 2005, and our largest customer, LG
Electronics, resides in South Korea. South Korea and North Korea are technically
at war with each other, despite the mutually agreed upon existence of the
Demilitarized Zone and the relative absence of physical conflict for several
decades. Any escalation in the existing conflict between these countries or
any
commencement, or perceived commencement, of a military conflict between the
United States and North Korea, may limit our ability to effectively operate
our
manufacturing facility in South Korea and may also substantially limit our
ability to sell products into South Korea because of the negative economic,
physical or other destructive impact that such a conflict could have on our
most
important customer. Any such disruptions to our manufacturing operations and/or
ability to consummate sales to a substantial customer could adversely affect
the
development of our business and our financial condition. The recent escalation
in tension between the United States and North Korea, as a result of North
Korea’s attempts to test certain of their missiles as well as nuclear devices,
has not impacted our operations in South Korea, but we can provide no assurances
that continued tension will not negatively affect our operations.
If
the high definition television market does not continue to develop and if other
potential markets for our products do not materialize, then our business will
likely be significantly harmed.
High
definition television programming has only recently become available to
consumers, and widespread market acceptance, although anticipated, is uncertain
at this time. The market demand for high definition televisions is considered
contingent upon widespread acceptance of high definition television programming.
Our current sales and marketing efforts are focused on OEMs of high definition
televisions and OEMs of light engines designed for incorporation into high
definition televisions. Therefore, if the market for high definition televisions
does not continue to grow and develop, then we will have significant difficulty
selling our products, which will have a material adverse effect on our results
of operations.
15
Various
potential target markets for our products, including projectors, monitors,
and
portable microdisplays, are uncertain and may be slow to develop. In addition,
companies in those markets could utilize competing technologies. For us to
succeed in selling our products in these potential markets we must offer
end-product manufacturers higher quality and less expensive microdisplay
products than our competitors, and the manufacturers themselves will also have
to develop commercially successful products using our products. In the event
that we attempt to market and sell our products in these potential target
markets, and we are not able to succeed in selling our products into these
potential markets, then our results of operations and overall business may
be
negatively affected.
If
our products do not become widely accepted by our customers or the end-users,
our business could be significantly harmed.
Our
LCoS
Sets may not be accepted by a widespread market.
Even
if
we successfully obtain customer orders, our customers may determine not to
introduce or may terminate products utilizing the technology for a variety
of
reasons, including the following:
•
superior
technologies developed by our competitors;
•
price
considerations; and
•
lack
of
anticipated or actual market demand for the products.
We
cannot assure you that we will obtain additional purchase orders from our
current or prospective customers, or, if we do, that such orders will generate
significant revenues.
Even
though in the past we have received purchase orders for our LCoS Sets and/or
display units from LG Electronics and from certain Chinese and Taiwanese OEMs,
and may receive additional purchase orders from prospective customers, sales
to
manufacturers in the electronics industry are subject to severe competitive
pressures, rapid technological change and product obsolescence. In addition,
purchase orders received from our customers other than LG Electronics are for
limited quantities. Customers may, at any time, cancel purchase orders or
commitments or reduce or delay orders, thereby increasing our inventory and
overhead risks. Therefore, despite the purchase orders received from current
customers and other purchase orders that we may receive from prospective
customers, we cannot assure you that these orders will result in significant
revenues to us.
If
our customers’ products are not successful, our business would be materially
harmed.
We
do not
currently sell any products to end-users. Instead, we design and manufacture
various product solutions that our customers (i.e., OEMs) may incorporate into
their products. As a result, our success depends almost entirely upon the
widespread market acceptance of our customers’ products. Any significant absence
of, or slowdown in the demand for our customers’ products would materially harm
our business.
Our
dependence on the success of the products of our customers exposes us to a
variety of risks, including our need to do the following:
·
maintain
customer satisfaction with our design and manufacturing
services;
16
·
match
our design and manufacturing capacity with customer demand and maintain
satisfactory delivery schedules;
·
anticipate
customer order patterns, changes in order mix, and the level and
timing of
orders that we can meet; and
·
adjust
to the cyclical nature of the industries and markets we
serve.
Our
failure to address these risks may cause us to lose sales or our sales to
decline.
The
high definition television industry is highly competitive, which may result
in
lost sales or lower gross margins.
We
serve
the highly competitive high definition television industry that is characterized
by price erosion, rapid technological change and competition from major domestic
and international companies. This intense competition could result in downward
pricing pressures, lower sales, reduced margins and lower market
share.
Companies
competing in the LCoS microdisplay market include Sony Corporation and Victor
Company of Japan, Limited (“JVC”). A major competitor of ours in the reflective
microdisplay market is Texas Instruments, which, rather than using liquid
crystals in the display, is producing a micro-mechanical structure of moving
mirrors on a silicon backplane, a technology known as digital light processing,
or DLP. Texas Instruments has had significant success selling its DLP products
to its customers in the business front projector market and the rear projection
high definition television market. Some of our competitors, including Texas
Instruments, Sony, and JVC, have greater market recognition, larger customer
bases, and substantially greater financial, technical, marketing, distribution
and other resources than we possess. As a result, they may be able to introduce
new products and respond to customer requirements more quickly and effectively
than we can.
Rapid
and
significant technological advances have characterized the microdisplay market.
There can be no assurance that we will be able to effect any significant
technological advances or that we will have sufficient funds to invest in new
technologies or products or processes. Although we believe that our displays
have specifications and capabilities, which equal or exceed that of commercially
available liquid crystal displays (“LCD”), cathode ray tube (“CRT”) and DLP
based display products, the manufacturers of these products may develop further
improvements of their existing technology that would eliminate or diminish
our
anticipated advantage. The acceptance of our LCoS Sets and/or display units
will
be dependent upon the pricing, quality, reliability and useful life of these
products compared to competing technologies, as to which there can be no
assurance.
Our
competitive position also may suffer if one or more of our customers decide
to
design and manufacture their own microdisplay products, to contract with our
competitors, or to use alternative technologies. In addition, customers in
the
television manufacturing industry typically develop a second source. Second
source suppliers may win an increasing share of our customers’ product
demands.
Our
ability to compete successfully depends on a number of factors, both within
and
outside our control. These factors include the following:
·
our
success in designing and manufacturing new display
technologies;
·
our
ability to address the needs of customers;
·
the
quality, performance, reliability, features, ease of use, pricing,
and
diversity of our display products;
17
·
foreign
currency fluctuations, which may cause a foreign competitor’s products to
be priced significantly lower than our
displays;
·
the
quality of our customer services;
·
the
efficiency of our production sources;
and
·
the
rate at which customers incorporate our displays into their own
products.
Fluctuations
in the exchange rate of the United States dollar and foreign currencies could
have a material adverse effect on our financial performance and
profitability.
A
portion
of our costs is denominated in foreign currencies, including the Korean Won
and
the Euro. As a result, changes in the exchange rates of these currencies or
any
other applicable currencies to the U.S. dollar will affect our costs of good
sold and operating margins, and could result in exchange losses. We cannot
fully
predict the impact of future exchange rate fluctuations on our profitability.
From time to time, we may engage in exchange rate hedging activities in an
effort to mitigate the impact of exchange rate fluctuations, although we have
not engaged in any such hedging activities to date. We cannot offer assurance
that any hedging technique we may implement will be effective. If it is not
effective, we may experience reduced operating margins.
Our
operating results are subject to significant fluctuations.
Our
results of operations have varied significantly from quarter-to-quarter and
are
likely to vary significantly in the future, making it difficult to predict
our
future operating results. Accordingly, we believe that quarter-to-quarter
comparisons of our operating results are not meaningful and should not be relied
upon as an indicator of our future performance. Some of the factors that cause
our operating results to fluctuate include the following:
·
introductions
of displays and market acceptance of new generations of
displays;
·
timing
of expenditures in anticipation of future orders;
·
changes
in our cost structure;
·
availability
of labor and components;
·
pricing
and availability of competitive products and services;
·
the
timing of orders;
·
the
volume of orders relative to the capacity we can contract to produce;
·
evolution
in the life cycles of customers’ products; and
·
changes
or anticipated changes in economic
conditions.
If
we lose our key personnel or are unable to attract and retain additional
personnel, our ability to compete could be harmed.
Our
development and operations depend substantially on the efforts and abilities
of
our senior management and qualified technical personnel. Our products require
sophisticated production, research and development and technical support. The
competition for qualified management and technical personnel is intense. The
loss of services of one or more of our key employees or the inability to add
key
personnel could have a material adverse affect on us, particularly since
currently we do not have any insurance policies in place to cover that
contingency. Our success will depend upon our ability to attract and retain
highly qualified scientific, marketing, manufacturing, financial and other
key
management personnel. We face intense competition for the limited number of
people available with the necessary technical skills and understanding of our
products and technology. We cannot assure you that we will be able to attract
or
retain such personnel or not incur significant costs in order to do
so.
18
Our
future success depends on our ability to protect our proprietary technology
and
our registered intellectual property.
We
believe that our success depends in part on protecting our proprietary
technology. We rely on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality and assignment of inventions agreements
from our employees, consultants and advisors and other contractual provisions,
to establish and protect our intellectual property rights. If we are unable
to
protect our intellectual property from use by third parties, our ability to
compete in the industry will be harmed, however, policing unauthorized use
of
our products and technology is difficult. Despite our efforts to protect our
proprietary rights, we face the following risks:
·
pending
patent applications may not be issued;
·
patents
issued to us may be challenged, invalidated, or circumvented;
·
unauthorized
parties may obtain and use information that we regard as proprietary
despite our efforts to protect our proprietary rights;
·
others
may independently develop similar technology or design around any
patents
issued to us;
·
breach
of confidentiality agreements;
·
intellectual
property laws may not protect our intellectual property; and
·
effective
protection of intellectual property rights may be limited or unavailable
in some foreign countries, such as China, in which we may operate.
Specifically, although we consider the following unlikely because
of the
complex technological structure of our products, one or more of our
current or prospective Chinese, Korean or Taiwanese customers, or
their
respective employees or other persons including our competitors,
that have
or gain access to our products for testing purposes, may seek to
misappropriate or improperly convert to their own use our intellectual
property and a lack of adequate remedies and impartiality under the
Chinese, Korean, Taiwanese and other foreign legal systems may adversely
impact our ability to protect our intellectual
property.
There
can
be no assurance that we will have adequate remedies or the resources to pursue
those remedies in the event any of the foregoing materializes. Failure to
protect our intellectual property would limit our ability to produce and market
our products in the future, which would materially adversely affect our revenues
generated by the sale of such products. In addition, third parties could assert
that our products and technology infringe their patents or other intellectual
property rights. As a result, we may become subject to future patent
infringement claims or litigation, the defense of which is costly,
time-consuming and diverts the attention of management and other
personnel.
The
material weaknesses identified by our management and our independent registered
public accounting firm with respect to our internal controls over financial
reporting may have a materially negative impact on our
business.
In
accordance with the rules prescribed by the SEC and the Sarbanes-Oxley Act
of
2002, we must periodically assess the effectiveness of our internal controls
over financial reporting. During our preparation of our Annual Report on Form
10-K for the fiscal years ended December 31, 2005 and 2004, our management
and
our independent registered public accounting firm identified several material
weaknesses in our internal controls over financial reporting. As of this date,
the material weaknesses identified include the fact that our Company does not
have a full-time chief financial officer to work with the chief executive
officer and chief operating officer in overseeing and monitoring complex and
significant transactions in order to provide reasonable assurance that such
transactions are reflected
19
accurately
and fairly in the financial statements. Furthermore, our audit committee
does
not have a member who is deemed a “financial expert” as defined by the rules
promulgated by the SEC, although a member of our audit committee has the
level
of financial sophistication that the Nasdaq’s rules require. Additionally, we
did not have a disclosure committee until recently, we lack adequate controls
and procedures over inventory, we lack information technology controls
and
procedures that would likely prevent unauthorized access to accounting
and
financial systems, we do not have effective internal controls over financial
reporting at our wholly owned subsidiary in South Korea, we do not maintain
formal accounting policies and procedures to allow the accounting function
to
adequately analyze transactions and determine correct accounting under
United
States Generally Accepted Accounting Principles (GAAP), and we do not have
formal procedures to prevent the filing of registration statements with
the SEC
without the required accountant’s consent. We may need to incur significant
additional expenses to achieve compliance and we may incur other costs
in
connection with regulatory enforcement actions, any of which could negatively
impact our business.
Political,
economic and regulatory risks associated with international operations may
limit
our ability to do business abroad.
A
substantial number of our customers, manufacturers and suppliers are located
outside of the United States, principally in the Far East. Our international
operations are subject to political and economic conditions abroad, and
protectionist trade legislation in either the United States or foreign
countries, such as a change in the current tariff structures, export or import
compliance laws, or other trade policies, any of which could adversely affect
our ability to manufacture or sell displays in foreign markets and to purchase
materials or equipment from foreign suppliers. Certain of our current purchase
order agreements with customers are governed by foreign law and therefore are
subject to uncertainty with regard to their enforceability.
We
do not pay cash dividends.
We
have
never paid any cash dividends on our common shares and do not anticipate that
we
will pay cash dividends in the near future. Moreover, under the terms of our
November 2004 Financing, we are prohibited from paying cash dividends while
the
Senior Secured Convertible Notes issued in the November 2004 Financing remain
outstanding. Instead, we intend to apply any future earnings, as to which there
can be no assurances, to the satisfaction of our obligations, and development
and expansion of our business.
20
ABOUT
SPATIALIGHT
We
are in
the business of manufacturing high-resolution liquid crystal on silicon (LCoS)
microdisplays. Our current customers and prospective customers are original
equipment manufacturers (OEMs) engaged in the businesses of manufacturing high
definition televisions, light engines for incorporation into high definition
televisions and 3-dimensional near-to-eye display devices. Our products are
also
suitable for incorporation into other display applications including front
projection systems, head mounted devices, rear projection computer monitors,
wireless communication devices, portable games and digital assistants. Currently
we are only working with OEMs of high definition televisions, light engines
for
incorporation into high definition televisions and near-to-eye display
devices.
We
are
currently offering one core product, our T-3 LCoS Set, to our customers and
prospective customers who are located primarily in Asia. Our T-3 LCoS Set is
comprised of three of our proprietary SpatiaLight imagEngine(TM) LCoS
microdisplays, which we sometimes refer to as “imagers.” Another former product
that we no longer offer to our customers, except out of current inventory,
is
the T-1 based display unit, which is comprised of a T-1 LCoS Set fitted onto
a
light engine.
We
currently are focused on manufacturing the T-3 LCoS Set model, which has a
1920
pixels by 1080 pixels configuration. We are exclusively focusing on
manufacturing the T-3 model of our LCoS Sets because we believe that the market
demand for this higher resolution product will be significantly greater than
our
earlier T-1 LCoS Set model, which only had a 1280 by 960 pixels
configuration.
Our
microdisplays are high-resolution liquid crystal displays. They are constructed
with a silicon chip, a layer of liquid crystals and a glass cover plate in
contrast to the more common construction of liquid crystals sandwiched between
two glass plates. Our displays are also known as, and commonly referred to
as,
liquid crystal on silicon, LCoS, liquid crystal displays (LCD), active matrix
liquid crystal displays and spatial light modulators.
The
image
on the microdisplays that comprise our LCoS Sets can be projected onto a screen
or other surface for individual or group viewing or used in a portable
application that is viewed through a magnifying device similar to a viewfinder.
Key potential microdisplay applications include:
·
large-screen
rear and front projection high definition television systems;
·
near-to-eye
display devices for 3-dimensional viewing
purposes;
·
head-mounted
displays which are used for virtual reality systems, defense, aerospace
and gaming applications;
·
large-screen
rear-projection computer monitors in a variety of resolutions;
·
video
projectors for applications such as presentations;
and
·
other
potential applications such as point of purchase displays, optical
computing and data storage.
Our
technology uses liquid crystals and silicon chips. An advantage of these
materials is that processes for working with them are already known and they
may
be produced more quickly than competing technologies that offer comparable
quality. By using existing manufacturing processes at our manufacturing facility
in South Korea, which commenced producing products for commercial sale in
limited quantities in the second quarter of 2005, we believe we will be able
to
obtain economies of scale. Internal manufacturing is subject to certain risks
described under “Risk Factors.” Please see “Manufacturing of LCoS Sets” below
for a discussion of our manufacturing facility located in South
Korea.
21
We
have
patents and pending patent applications covering parts of our designs; however,
the key designs of the circuitry in the silicon, drive electronics and liquid
crystal assembly techniques are proprietary and are not covered by
patents.
The
following is a detailed summary of the current status of our
business:
Business
With LG Electronics, Inc.
In
July
2004, we entered into an agreement with LG Electronics (filed as Exhibit 10.3
to
our quarterly report on Form 10-Q as filed with SEC on August 9, 2006),
providing for us to sell our T-3 LCoS Sets to LG Electronics. There have been
a
number of subsequent modifications to our arrangements with LG Electronics,
most
significantly with respect to a number of product specifications, which were
requested by LG Electronics as well as in timing of deliveries and quantities.
The changes in the timing of deliveries and quantities to be delivered were,
in
part, a result of our attempts to respond to these product specification change
requests and agreements.
In
August
2005, we received a firm purchase order from LG Electronics for its purchase
from us of an aggregate minimum quantity of 9,300 LCoS Sets for the period
July
through December 2005, thereby reducing the initial purchase commitment set
forth in our July 2004 agreement. We subsequently agreed with LG Electronics,
through a series of communications, that the initial purchase order for 9,300
LCoS Sets could be filled over a period of time that would extend beyond April
2006. We currently expect that we will be able to fulfill the initial order
for
9,300 LCoS Sets during 2007, although there can be no assurance that deliveries
will be fulfilled if we encounter further manufacturing difficulties or if
LG
Electronics’s product specifications change further or if we’re unable to
raise additional funds to finance our working capital requirements.
We
have
been delivering a limited quantity of production LCoS Sets to LG Electronics
since July 2005, but our delivery ramp up has been slower and more inconsistent
than expected due to LG Electronics’ product specification changes, problems
that we have experienced with increasing our manufacturing volumes, and 100%
product testing. See “Manufacturing of LCoS Sets” in this section for a more
detailed discussion of our manufacturing difficulties and our attempts to
resolve these matters.
LG
Electronics commenced an initial consumer market rollout in Australia of a
limited quantity of 71-inch LCoS televisions incorporating our LCoS Sets during
the first quarter of 2006. The LG Electronics 71” LCoS television has received
very positive feedback in Australia. LG Electronics communicated to its U.S.
distributors in the first quarter of 2006 that it had postponed its plans to
introduce its 71” and 62” LCoS televisions into the U.S. marketplace. LG
Electronics has attributed this postponement to uncertainty regarding the
timetable for the availability of sufficiently large supplies of our LCoS Sets
to enable a significant product launch. We believe that delays in LG
Electronics’ initial product rollouts have been based upon revisions to our
delivery schedule caused by LG Electronics’ product specification changes and
our problems in ramping up production that have occurred over time. However,
our
recent production deliveries to LG Electronics have been of acceptable quantity
and quality. Based on these and other factors, we believe that LG Electronics
will be able to make a U.S. launch at some point in the near future. In our
manufacturing process we have recently made a transition from 100% testing
of
certain characteristics to sample testing. This removes a bottleneck that should
facilitate the production ramp up but there can be no assurance in this
regard.
22
In
2005
and through year to date 2006, a substantial percentage of our product
deliveries, which were in small quantities, were made to LG Electronics. Based
upon our arrangements with LG Electronics and our current expectations, it
is
likely that a substantial percentage of our anticipated future product
deliveries in 2006 will continue to be made to LG Electronics. The loss of
LG
Electronics as a customer or further significant delays in our delivery schedule
to LG Electronics could materially harm our future sales and results of
operations; and our substantial dependence on one customer is subject to risks
set forth under “Risk Factors.”
Business
in Taiwan
To
date,
we have delivered limited quantities of our T-3 LCoS Sets to our Taiwanese
customer, ThinTek Optronics Corporation. A substantial portion of these product
deliveries took place in 2005 and the first quarter of 2006. ThinTek has ordered
quantities sufficient for pilot programs and sample products, but not enough
to
enable them to launch mass production of LCoS high definition televisions.
On
July 19, 2006, one of the parent organizations of ThinTek, United Microdisplay
Optronics (UMO), announced that it was acquiring ThinTek. The acquisition was
effective October 1, 2006. We understand that as part of this acquisition,
ThinTek’s and UMO’s business models are under evaluation, and may tend to a more
vertically integrated approach. Although we have continuing business
relationships with customers and prospective customers in Taiwan, we cannot
provide assurance concerning the quantities of our products that we will sell
to
prospective Taiwanese customers in the future.
Business
in China
To
date,
we have delivered limited quantities of our microdisplay products to our Chinese
customers. A substantial portion of these product deliveries occurred in 2004,
with a smaller quantity delivered in 2005. The quantities of our products
delivered to our Chinese customers are sufficient only for engineering testing
and pilot program purposes. To date, our Chinese customers have not ordered
quantities of our products that would enable them to launch commercial sales
of
LCoS high definition televisions.
We
have
continuing business relationships with customers and prospective customers
in
China. Current Chinese prospective customers are at different stages in the
development and product introduction processes, and their efforts are
progressing at a slower rate than we originally anticipated. One of our original
Chinese customers, Skyworth Display Limited, is selling televisions utilizing
our display units incorporating our T-1 LCoS Sets into the Chinese educational
market. However, we do not intend to sell any additional display units
incorporating our T-1 LCoS Sets beyond those we currently have in inventory
to
Skyworth. Skyworth may, although we have no assurance that it will, elect to
transition to products incorporating our T-3 LCoS Sets. We cannot provide
assurance concerning the quantities of our products that we will sell to our
Chinese customers and prospective customers in the future.
We
are
currently providing sample product to Jiangxi Greatsource Display Tech Co.,
Ltd.
(KHD), a Chinese manufacturer of LCoS light engines and televisions that has
received significant financing from the Chinese government. We supported KHD
pilot evaluation runs with our personnel at their plant in China. Evaluations
have identified a variety of non-SpatiaLight related product issues, mostly
of
driver board electronics origin, that are being addressed by KHD. We believe
that KHD will be in a position to demonstrate product at the upcoming CES show
employing our imagers, but cannot guarantee that at this time. KHD has sent
a
delegation to review the capabilities of the SLK facility, which has
successfully occurred.
23
Market
Strategy for Taiwan and China
Although
our Chinese and Taiwanese customers’ progression from product prototyping to
mass production has been far slower than we had anticipated, we remain positive
about our business prospects in China and Taiwan and the potential for China
and
Taiwan to become large markets for us. We believe that Chinese and Taiwanese
television manufacturers tend to apply a market strategy of following the
successful business models of global television manufacturing leaders, rather
than acting as leaders themselves in terms of introducing new technologies
to
the marketplace. We therefore believe that if the LCoS technology gains greater
acceptance in the high definition television marketplace, and if industry
leaders, such as Sony, JVC and LG Electronics, present their LCoS based
televisions to the worldwide consumer markets in a prominent fashion, it will
then be more likely that the Chinese and Taiwanese television manufacturers
will
follow these business models and ramp up their own lines of LCoS high definition
televisions. We believe that our present course of continuing to transact
business with major Chinese and Taiwanese television manufacturers is
positioning us to be a leading LCoS supplier in China and Taiwan in the
future.
Other
Business Development
We
are
currently continuing to develop working relationships with prospective
customers, located primarily in Japan and other parts of the Pacific Rim region.
These prospective customers fall into two general categories: 1) television
manufacturers and 2) light engine suppliers. We have provided samples of our
LCoS Sets to certain of these prospective customers, but we do not have any
formal agreements with these parties. While we have made significant progress
with respect to product integration and negotiating purchase orders with certain
of these prospective customers, we cannot assure that we will receive any
purchase orders that will be binding on any of these companies for their
purchase of our products in the near future. Even assuming that we receive
purchase orders that are binding on the prospective customers, these orders
and
our sales to these customers and to our existing customers are subject to
certain contingencies described under “Risk Factors.”
3-D
Near-To-Eye Display Market
We
have
commenced working with a South Korean-based designer and manufacturer of 3-D
eyeglass-type display devices. These eyeglasses, which are being designed to
be
powered by our existing 1080p microdisplays, will provide users with a visual
experience comparable to that of a large screen high definition television.
Although we have agreed not to disclose the name of the developer at this time,
the parties have not entered into any written agreements. The product line
under
development is a 3-D eyeglass-type display device for use with wireless phones,
personal digital assistants (PDA) and personal media players, which will enable
the viewing of broadband content, cable and satellite television, music videos
as well as the playing of video games, all with the experience of high
definition large screen television. The device will be designed to minimize
the
weight and maximize the comfort of the eyeglasses by locating the LCoS
microdisplays and control functions in the wireless phone, PDA or personal
media
player, with the video signal transmitted to the eyeglass through optical fiber.
We are in the process of developing a new dual imager solution for this display
application. We believe that 3-D near-to-eye display products represent a
growing segment of the consumer electronics sector and we intend to actively
pursue business opportunities in this market, although there can be no assurance
that we will be able to derive meaningful sales from this market.
Manufacturing
of LCoS Sets
24
We
completed construction of our South Korean manufacturing facility in January
2005. This facility serves as our central commercial manufacturing base. The
facility began producing products for commercial sale in limited quantities
in
the second quarter of 2005. The facility is designed with the capacity, on
full
employment, to produce up to 28,000 LCoS Sets per month. The facility has been
specially designed for expansion to a capacity of 120,000 LCoS Sets per month
in
several expansion phases. We believe that the facility can be expanded in an
efficient manner in the event that such expansion becomes necessary based upon
increased or perceived increased demand for our products from our
customers.
We
completed the process of relocation of all of our manufacturing operations
to
South Korea in February of 2006. As part of the transition to full-scale
manufacturing, we experienced a variety of manufacturing problems, most of
which
were due to environmental factors such as dust particles, temperature and
humidity. We addressed these issues by relocating the final portions of our
manufacturing process from California to our production facility in South Korea,
where the combination of a new facility designed to our specifications and
qualified manufacturing personnel provides us with more exacting controls over
the external variables that can impact our manufacturing process. At our
manufacturing facility in South Korea, it appears that we are no longer
experiencing the production problems attributable to the environmental issues
specified above.
However,
early in the second quarter of 2006, we experienced certain other production
problems, some of which we believe were principally attributable to flaws in
the
silicon wafers used for our backplane that we obtained from our supplier. Our
supplier has transferred our wafer fabrication production line to a newer
facility and processes have been slightly modified. Initial indications are
that
improvement has occurred, but our supplier must produce a greater volume of
wafers to confirm the positive results.
In
addition, we had, until recently, been testing all of our microdisplays for
certain characteristics. We have now obtained solid statistics on a reasonable
volume of product and have moved, as of July 31, 2006, to a sampling test mode
for these characteristics. The testing of all of our microdisplays for certain
characteristics had been providing a bottleneck to our LCoS Set delivery to
LG
Electronics, which is now removed. Current and potential additional difficulties
in the manufacturing process of our LCoS Sets could have a material negative
impact upon our results of operations as set forth under “Risk
Factors.”
See
“Business with LG Electronics, Inc.” above for a discussion of the effect on our
business of manufacturing problems.
Recent
Equity Financing
November
2006 Financing
On
November 29, 2006, we issued and sold 2,400,000 of our common shares in a
private placement to three institutional investors. The transaction included
the
issuance of warrants to purchase 4,800,000 common shares with an exercise
price
of $1.75 per share exercisable within five years from the date of issuance.
The
transaction closed on November 29, 2006. The purchase price of the common
shares
was $1.25 per share. We received approximately $3.0 million in proceeds,
before
expenses, from the sale of these shares, which are and will be used for working
capital and other general corporate purposes, including the repayment of
certain
short-term debt obligations. We will be required under a registration rights
agreement to file a registration statement for the resale of the shares and
shares issuable upon exercise of warrants within 30 calendar days after the
closing date and have the registration statement declared effective no later
than 90 calendar days after closing.
The
registration rights agreement provides that if we do not meet the above
deadlines, we may be required to pay an amount equal to 2% of the aggregate
purchase price or $60,000 as partial liquidated damages when each of these
dates
occur and an additional $60,000 for every thirty days thereafter to a maximum
of
24% of the aggregate subscription amount or $720,000. Once
the
registration statement is declared effective, we are required to maintain
effectiveness of the registration statement, including shares issuable upon
exercise of the warrants, until the shares covered by the registration statement
have been sold or may be sold without volume restrictions pursuant to Rule
144(k).
25
September
2006 Financing
On
September 26, 2006, we privately sold 270,270 of our common shares to certain
institutional investors that have previously purchased our common shares
in
private transactions on several occasions and are currently shareholders
of our
company. These institutional investors are holders of a portion of our
outstanding Senior Secured Convertible Notes in the principal amount of
$1,000,000. The purchase price of the common shares was $1.85 per
share. In addition, we sold warrants to purchase 89,189 common shares at
an exercise price of $2.25 per share; the warrant may be exercised at any
time
through September 26, 2011, its expiration date. The common shares
and warrants were sold pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended. We received approximately
$500,000 in gross proceeds, before issuance costs, from the sale of these
shares, which were used for working capital and other general corporate
purposes. We will be required under a registration rights agreement to
file a separate registration statement for the resale of the shares and
shares issuable upon exercise of warrants, by no later than 30 calendar days
following the closing and have the registration statement declared effective
no
later than 90 calendar days after the closing date. The registration
rights agreement provides that if we do not meet the above deadlines, we
may be
required to pay an amount equal to 2% of the aggregate purchase price as
partial
liquidated damages when each of these dates occur and an additional 1% for
each
month thereafter, to a contractual maximum of 12% or $60,000. Once
the
registration statement is declared effective, we are required to maintain
effectiveness of the registration statement, including shares issuable upon
exercise of the warrants, until the shares covered by the registration statement
have been sold or may be sold without volume restrictions pursuant to Rule
144(k).
August
2006 Financing
On
August9, 2006, we entered into an agreement to sell 761,500 of our common shares
in a
private placement to an institutional investor. The purchase price of the
common shares was $2.25 per share. We received approximately $1.7 million
in gross proceeds, before issuance costs, from the sale of these shares, which
were used for working capital and other general corporate purposes. We are
required under a registration rights agreement to file a registration statement
for the resale of the shares within 30 calendar days from the closing date
and
we are required to have the registration statement declared effective no later
than 90 calendar days after the closing date. The registration rights
agreement provides that if we do not meet the above deadline, we may be required
to pay an amount equal to 1.5% of the aggregate purchase price or $25,700 as
partial liquidated damages when this date occurs and an additional $25,700
for
every 30 days thereafter up to six months. After six months, the
percentage increases to 2.5% or $42,800 for each additional 30 days, thereafter
with no contractual maximum. Once
the
registration statement is declared effective, we are required to maintain
effectiveness of the registration statement until the shares covered by the
registration statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k).
In
connection with the August 2006 Financing, we agreed to prepare and file with
the SEC a registration statement registering, among other things, subscription
rights to purchase common shares having an aggregate value of at least
$20,000,000.
Under
the
terms of the August 2006 Financing, we must raise an additional $10,000,000
by the end of the 30th
day
following the date the SEC declares effective the registration statement of
which this prospectus is a part (the “Registration Effective Date”) for us to
avoid our obligation under the purchase documents related to the August
2006 Financing to commence a subscription rights offering to our shareholders
to
purchase our common shares having an aggregate value of at least $20,000,000
on
or before the Registration Effective Date. Because of our existing covenants
with the holders of our Senior Secured Convertible Notes, which requires us
to
seek their consent before we agree to enter into additional material
indebtedness, we will most likely try to raise the $10,000,000 through the
sale
of additional common shares. We can offer no assurance that we will successfully
raise $10,000,000 nor can we offer an assurance that we will issue subscription
rights to our shareholders in the future. At present, we are considering all
of
our options and have not definitively determined how or whether we will raise
the additional $10,000,000 which would allow us to avoid our obligation to
make
an offering of subscription rights to purchase our common shares. In connection
with the August 2006 Financing, we have also agreed, for a period of one year
following the closing of the August 2006 Financing, to refrain from, directly
or
indirectly, offering or selling any debt security that is, at any time during
the life of the debt security and under any circumstance, convertible into
or
exchangeable for our common shares, unless we receive prior written consent
from
a majority of the purchasers of the August 2006 Financing.
In
the
event that we default upon the foregoing obligations, the purchasers of
securities in our August 2006 Financing are entitled to contractual damages
and
may also request that we specifically perform our obligations under the purchase
agreement giving rise to our obligations. At present, we are unable to quantify
the amount of contractual damages to which the purchasers would be entitled,
and
we are unable to estimate the likelihood that a court would grant any
purchaser’s application that we specifically perform our obligations.
The
Company and Wellington Management Company LLP have agreed that the registration
of shares sold under the August 9, 2006 Securities Purchase Agreement and
governed by the associated Registration Rights Agreement would be removed from
the Registration Statement and that a separate registration statement would
be
filed within a reasonable time period after the Registration Statement has
become effective. Wellington has waived any claim it may have under the
Registration Rights Agreement arising from the removal of its securities from
the Registration Statement.
26
On
October 25, 2006, the Company and Wellington Management Company, LLP, in it’s
capacity as investment adviser, have entered into an agreement, as disclosed
in
the Form 8-K filing of October 27, 2006, wherein investment raised by the
company in amounts less than the $10,000,000 may result in extensions of the
obligation to commence a Subscription Rights offering, as well as reduce the
obligation for the aggregate value of the Subscription Rights
offering.
June
2006 Financing
On
June5, 2006, we sold to certain institutional buyers, each of which is managed
by
Wellington Management Company, LLP, an aggregate of 601,000 of our common shares
at a price per share of $2.80, for an aggregate purchase price of approximately
$1,682,800. We made the sale pursuant to a post-effective amendment to a “shelf”
registration statement on Form S-3 (File No. 333-122392), which was declared
effective by the SEC before this transaction, and which was amended, pursuant
to
Rule 462(b) of the Securities Act, by a registration statement on Form S-3
(File
No. 333-134626) filed on May 31, 2006. These funds were used for working capital
and other general corporate purposes.
April
2006 Financing
On
April7, 2006, we sold 750,000 of our common shares at a purchase price of $3.26
per
share to three institutional purchasers. Those shares were registered in our
Post-Effective Amendment No. 6 to a Form S-3 “shelf” registration statement
(File Number 333-122392), as amended through February 14, 2006. The purchase
price for those common shares was $2,445,000 in the aggregate. The purchase
price was based upon the five-day volume weighted average price of our common
shares through April 6, 2006, discounted by five percent. We paid aggregate
fees
equal to $89,650 to persons who introduced us to the investors. These funds
were
used for working capital and other general corporate purposes.
March
2006 Financing
On
March17, 2006, we sold 500,000 of our common shares at a purchase price of $2.18
per
share to certain institutional investors. Those shares were included in our
Post-Effective Amendment No. 6 to a Form S-3 “shelf” registration statement
(File No. 333-122392), as amended through February 14, 2006. The purchase price
for those common shares was $1,090,000 in the aggregate. The purchase price
was
based upon the five-day volume weighted average price of our common shares
through March 16, 2006, discounted by five percent. We paid aggregate fees
equal
to $31,350 to persons who introduced us to two of the investors. These funds
were used for working capital and other general corporate purposes.
January
2006 Financing
In
mid-January 2006, we issued and sold 1,300,000 of our common shares in a private
placement to several investors. The purchase price of the common shares was
$2.62 per share. We received approximately $3.4 million in gross proceeds,
before issuance costs, from the sale of these shares, which were used for
working capital and other general corporate purposes, including the repayment
of
certain short-term debt obligations. As part of this financing, we gave certain
registration rights to the investors and agreed to pay liquidated damages in
the
event that we did not timely file the registration statement relating to the
resale of the common shares offered in this financing or if this registration
was not declared effective by a certain date. Because the registration statement
required by this financing was not timely filed, and was not declared effective
by the date provided for in a registration rights agreement, we owed the
investors in this financing liquidated damages, which we have settled by issuing
to these investors an additional aggregate amount of 122,725 restricted common
shares. Of these, 57,725 common shares are being registered on behalf of the
selling shareholders listed in this prospectus. We
are
required to maintain effectiveness of the registration statement until the
shares covered by the registration statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(k).
27
October
2005 Private Placement
In
October 2005, we closed a $2.0 million private placement of our common shares
and warrants to purchase our common shares with certain institutional and other
investors. This transaction included the sale of 571,431 common shares at a
purchase price of $3.50 per share and warrants to purchase 228,576 common shares
with an exercise price of $5.00 per share exercisable within five years from
the
date of issuance. We received $2.0 million in gross proceeds from this
transaction, which was used for working capital and other general corporate
purposes. We did not use a placement agent in this transaction. Three of the
institutional purchasers in this transaction were investors in our November
2004
private placement of our Senior Secured Convertible Notes.
As
part
of this private placement, we gave certain registration rights to the investors
and agreed to pay liquidated damages in the event that we did not timely
file
the registration statement relating to the resale of the common shares and
shares issuable upon exercise of the warrants offered in this financing or
if
this registration was not declared effective by a certain date. Because the
registration statement required by this private placement was not timely
filed,
and was not declared effective by the date provided for in a registration
rights
agreement, we owed liquidated damages to the investors in this private
placement. Investors representing 50% of the invested amount in this financing
received an additional aggregate total of 43,850 common shares to settle
these
liquidated damage claims, investors representing an additional 25% of the
invested amount have waived their rights to any liquidated damages. An investor
representing the final 25% of the invested amount may be owed liquidated
damages
of $65,750, although we have had discussions with that investor about waiving
their rights to liquidated damages or other settlement arrangements. However,
we
can give no assurance that any settlement will be reached. We
are
required to maintain effectiveness of the registration statement until the
shares covered by the registration statement, including shares issuable upon
exercise of the warrants, have been sold or may be sold without volume
restrictions pursuant to Rule 144(k).
August
2005 Equity Financing
In
August
2005, we sold 500,000 of our common shares at a purchase price of $5.40 per
share to certain institutional investors. Those shares were included in our
Form
S-3 “shelf” registration statement (File No. 333-122392), which was declared
effective by the SEC in July 2005. We received gross proceeds of approximately
$2.7 million from the transaction, which we used for working capital and other
general corporate purposes. The purchasers in the August 2005 Equity Financing
had a 30-day option, which expired without exercise on September 4, 2005, to
purchase an additional aggregate of 225,000 of our common shares included in
the
“shelf” registration statement at a purchase price of $5.50 per share.
Korean
Credit Facilities
Our
wholly-owned subsidiary SpatiaLight Korea, Inc. has revolving credit facilities
with five separate South Korean banks. Interest under each of the credit
facilities is payable monthly. We are required to repay funds on the credit
facilities by the maturity dates of each of the respective credit facilities
as
noted in the table below. The Korean Exchange Bank has agreed to a repayment
period to be completed by January 10, 2007.
28
Bank
Shinhan
Bank
Kyongnam
Bank
Korea
Exchange Bank
Pusan
Bank
Industrial
Bank of Korea (4)
Total
Interest
rate type
Variable
(1
)
Variable
(2
)
Fixed
Variable
(3
)
Fixed
Interest
rate at 9/30/06
6.72
%
9.20
%
10.51
%
10.53
%
0.00
%
Maturity
date
9/22/2007
4/28/2007
1/10/2007
1/10/2007
3/23/2007
Maximum
amount of line
200,000
200,000
300,000
100,000
-
800,000
Amount
outstanding at 9/30/06
199,124
199,752
298,228
98,763
-
795,868
Remaining
available
876
248
1,772
1,237
-
4,132
Approximate
US dollar equivalent
$
207,666
$
208,321
$
311,022
$
103,000
$
-
$
830,009
(1)
Yield ratio of annual bank debenture plus 1.857%
(2)
Yield ratio of annual industrial financial debenture plus
3.0%
(3)
Pusan Bank's internal market related base rate plus
5.56%
(4)
The IBK facility was terminated in April 2006. See details
below.
On
March24, 2006, the Industrial Bank of Korea (IBK) committed itself to extend a
secured line of credit (the “March Facility”) of up to 1.5 billion Korean Won
(or approximately $1.5 million in U.S. dollars) to SpatiaLight Korea. As of
March 31, 2006, SpatiaLight Korea had drawn down approximately $1.5 million
on
the March Facility for working capital purposes and to repay certain of its
outstanding indebtedness. On April 6, 2006, the March Facility was terminated
by
repaying all monies borrowed as well as certain prepayment and finance charges.
IBK has released its lien on SpatiaLight Korea’s assets securing the March
Facility and related personal guarantees made by certain officers. We terminated
this line of credit as certain of the terms of the line might have been
precluded by our other contractual obligations.
Senior
Secured Convertible Debt Financing
On
November 30, 2004, we completed a non-brokered private placement of $10 million
of our Senior Secured Convertible Notes (the “November Financing”). The Senior
Secured Convertible Notes accrue interest at 10% per annum, payable quarterly
in
cash or our common shares at our option, if certain conditions are met, such
as
the availability of an effective registration statement pursuant to which
resales may be made or the availability of Rule 144(k) for resale of the common
shares underlying our Senior Secured Convertible Notes. The value of the shares
for the purposes of calculating interest payments shall be equal to the 20-day
trailing average of the volume weighted average prices of our common shares
at
the end of each quarterly interest period. The Senior Secured Convertible Notes
are due November 30, 2007.
The
Senior Secured Convertible Notes are convertible, at the option of their
holders, into our common shares at the conversion price of $9.72 per share.
The
Senior Secured Convertible Notes are senior to notes that we issued to Argyle
Capital Management Corporation, which is wholly owned by Robert A. Olins, our
former Chief Executive Officer, Secretary, Treasurer and a Director. The holders
of our Senior Secured Convertible Notes (the “Noteholders”) have a senior
security interest in substantially all of our assets, except those located
in
South Korea. In addition, under the terms of the November 2004 Financing, we
were prohibited from using the proceeds from the financing to repay debt and
are
prohibited from paying dividends while the Senior Secured Convertible Notes
are
outstanding.
In notices
that we received on December 12, 2005 and December 21, 2006, one of the holders
of our Senior Secured Convertible Notes, Portside Growth & Opportunity Fund,
an affiliate of Ramius Capital Group, LLC, notified us of two alleged events
of
default under their note (as set forth below). In a notice that we
29
received
on December 13, 2005, another holder of our Senior Secured Convertible Notes,
Smithfield Fiduciary LLC, an affiliate of Highbridge Capital Management, LLC,
notified us only with respect to the second event of default alleged by
Portside. In a notice that we received on February 9, 2006, Portside notified
us
of a third alleged event of default under their note, as set forth below. Each
of these notices call for us to redeem the entire $4.5 million principal amount
of the Portside and Smithfield 2004 notes, or $9.0 million in the aggregate,
plus a redemption premium of $675,000 plus liquidated damages to each of these
holders of the 2004 notes pursuant to relevant provisions of their
notes.
The
following are the alleged defaults: (i) Registration Statement Failure pursuant
to Section 4(a)(i) of their Senior Secured Convertible Notes - Based upon our
filing of a Post-Effective Amendment to the registration statement on Form
S-3
relating to the underlying common shares of the Senior Secured Convertible
Notes
(Reg. No. 333-122391); (ii) Failure to Make Interest Payment pursuant to Section
4(a)(v) of their Senior Secured Convertible Notes - Based upon a claim that
we
did not make a November 2005 interest payment; and (iii) Entering into
unpermitted debt financing transactions prohibited pursuant to Section 4(a)
(xi)
of their Senior Secured Convertible Notes - Based upon a claim that certain
debt
financing transactions that we have entered into are not permitted under the
Senior Secured Convertible Notes. We believe, after review with outside legal
counsel, that these allegations lack merit and would not entitle the holders
of
the Senior Secured Convertible Notes to call their notes or to any of the other
remedies that they are seeking. With respect to the first alleged event of
default concerning the alleged registration maintenance failure, we contend
that
the filing of our post-effective amendments to the registration statements
registering the underlying common shares did not and does not constitute an
event of default under Section 4(a)(i) of Portside’s Senior Secured Convertible
Note. We contend that the second allegation of default is incorrect because
on
November 30, 2005 (the interest due date), we tendered payment by forwarding
checks payable to Portside, Smithfield and the other holders of our Senior
Secured Convertible Notes by overnight courier to an attorney representing
the
holders for the full amounts of the relevant quarterly interest payments. That
attorney did not distribute the checks to the four holders (although all were
located in the same city), but instead returned the checks to us in California.
We have since tendered payment of that full interest installment amount owing
to
all of the holders via federal funds wire into designated accounts for each
of
these parties. We contend that the third allegation of default lacks
merit because we believe that the debt financing transactions that we have
entered into are permitted under the Senior Secured Convertible Notes and,
even
if deemed not permitted, do not constitute a breach or failure in any
material respect under the Senior Secured Convertible Notes.
We
believe that Portside has undertaken to make allegations of events of default
that lack merit in an attempt to achieve its objective of amending the terms
of
its Senior Secured Convertible Note to its advantage, including a reduction
in
the conversion price of the notes or an acceleration in repayment of principal
on its Senior Secured Convertible Note, although that principal is not due
and
payable until the note's maturity date, which is November 30, 2007. We have
rejected its offers in this regard. We will continue to take appropriate actions
that we believe are in the best interests of our Company and our
shareholders.
If
the
holders of the Senior Secured Convertible Notes were entitled to call their
notes (a) the entire $10 million debt obligation can become due and payable
immediately, including the redemption premiums and liquidated damages, and
(b)
we would, in accordance with FAS 78, “Classification of Obligations That are
Callable by the Creditor”, classify them as a current liability. We believe,
however, that the alleged events of default of which Portside and Smithfield
have given notice lack merit and would not entitle the noteholders to the
remedies that they are seeking. Therefore, we believe it is not probable the
noteholders would prevail in calling the Senior Secured Convertible Notes.
As a
result, in accordance with, FAS 5, “Accounting
for Contingencies,”
we have
continued to classify the Senior Secured Convertible Notes as long-term
obligations in our balance sheet at September 30, 2006. The redemption premium
and liquidated damages of $1.5 million and approximately $0.6 million,
respectively, have not been accrued in our consolidated financial statements
as
of December 31, 2005 included in our Annual Report on Form 10-K/A for our fiscal
year then ended or in the condensed consolidated financial statements as of
September 30, 2006 included in the Form 10-Q/A. We refer you to Note 1 of our
Notes to Consolidated Financial Statements contained in that Form 10-K/A report
for additional information regarding the accounting treatment of the Senior
Secured Convertible Notes.
30
Audit
Committee Investigations
As
previously reported in our post-effective amendments to the Form S-3
Registration Statement registering the common shares underlying the Senior
Secured Convertible Notes (the “Financing Registration Statement”) (File No.
333-122391) and the Form S-3 Registration Statement registering common shares
on
a “shelf” (the “Shelf Registration Statement”) (File No. 333-122392), we filed
an unauthorized consent of BDO Seidman to Amendment Nos. 5 and 6 to the
Financing Registration Statement and to Amendment Nos. 3 and 4 to the Shelf
Registration Statement in order to incorporate by reference their report on
our
Consolidated Financial Statements for the fiscal years ended December 31, 2002
and 2003, respectively. Although we received the requisite authorized consents
from BDO Seidman to incorporate by reference their report on the consolidated
financial statements into the Financing Registration Statement and the Shelf
Registration Statement when initially filed and in subsequent amendments thereto
(and BDO Seidman has not withdrawn these subsequent consents), we did not
receive the requisite authorization from BDO Seidman to file its consent as
an
exhibit to the penultimate and final pre-effective amendments to either the
Financing Registration Statement or the Shelf Registration Statement (i.e.
Amendment Nos. 5 and 6 and Amendment Nos. 3 and 4 to the respective registration
statements). The penultimate and final pre-effective amendments to both the
Financing Registration Statement and the Shelf Registration Statement were
filed
with the SEC on July 27, 2005.
The
Audit
Committee of our Board of Directors conducted an investigation and review of
the
developments pertaining to the BDO Seidman consent issue with the assistance
of
independent counsel.
The
Audit
Committee delivered its report, dated October 31, 2005, to our former Chief
Executive Officer, Robert A. Olins. The Report concluded that the evidence
does
not support a finding that any of our employees included the unauthorized BDO
consents in the amendments to the Registration Statements referred to above
with
fraudulent intent or with specific knowledge that BDO Seidman had not authorized
the filing of these consents. It concluded that the evidence was consistent
with
our inclusion of the consents due to lack of communication, a series of
misunderstandings and/or a failure of inquiry. As to Mr. Olins, the Report
concluded that the Audit Committee found no evidence that Mr. Olins was informed
that BDO Seidman had not authorized the filing of these consents. However,
it
also found no evidence that Mr. Olins inquired or determined whether BDO Seidman
had in fact authorized inclusion of the consents in these filings. The Audit
Committee Report determined that Mr. Olins, as our Chief Executive Officer,
did
not exercise sufficient diligence in supervising the filing of the amendments
to
the Registration Statements, that this was a particularly serious failing in
light of the SEC having highlighted the need for consents from BDO Seidman,
and
that as CEO he bears responsibility for the filings. The Audit Committee also
stated its belief that, throughout the process of preparing and filing the
amendments to the Registration Statements, Mr. Olins acted with our best
interests and the best interests of our shareholders in mind, and that his
lack
of diligence was not motivated by self-interest and that nothing related to
this
incident personally benefited him financially.
The
Audit
Committee recommended three remedial actions. It concluded that the membership
of the Board of Directors should be supplemented with a financial expert within
the meaning of SEC rules. It also concluded that we must improve our corporate
governance and disclosure controls, including hiring a full-time Chief Financial
Officer and a Controller (who can be the same person). It further concluded
that
by reason of Mr. Olins' responsibility as CEO for supervision of corporate
filings, he should reimburse us
31
for
the
sum of $50,000, a portion of the costs incurred by us by reason of the
unauthorized BDO Seidman consents and the resulting inquiries. In compliance
with the Audit Committee Report, in December 2005, Mr. Olins made the $50,000
payment to reimburse the Company. To date, our Board of Directors has not been
supplemented with a financial expert and we have not hired a fulltime CFO or
Controller. As of April 28, 2006, we have hired a part-time Director of
Accounting and Finance. We have been advised by the Staff of the SEC that the
Staff is conducting an investigation into matters and events pertaining to
the
filing of the unauthorized BDO consent. We have been cooperating with the Staff
with respect to this matter.
As
previously reported in our Quarterly Report on Form 10-Q filed with the SEC
on
August 9, 2006, our Audit Committee, with the assistance of independent counsel,
conducted an investigation and review of transactions in the Company’s shares by
Robert A. Olins, our former Chief Executive Officer, Secretary, Treasurer and
a
Director, and determined that he failed to report the sale of an aggregate
of
70,556 of our common shares in August 2005 and February 2006 at sales prices
ranging from $5.30 to $3.00. The Audit Committee determined that there was
no
indication that Mr. Olins had access to material undisclosed information at
the
time of the transactions, that there was no intention to engage in the
distribution of our securities without registration, and that the number of
shares involved was insignificant. Pursuant to Section 16 of the Exchange Act,
in July 2006, Mr. Olins has filed the delinquent reports and disgorged $22,273
in “short-swing profits” that he realized from the sales.
SEC
Investigations
We
have
been advised by the Staff of the SEC that the Staff is conducting an
investigation into matters and events pertaining to the filing of the
unauthorized BDO consent and transactions in our securities by Mr. Olins and
an
entity he controls. We have received and responded to a request for all
information relating to transactions in our securities by Mr. Olins and the
entity he controls. We have been cooperating with the Staff with respect to
these matters but are not aware of any violations of the securities laws except
as set forth under “Audit Committee Investigations” above. At this date, we
cannot determine whether we or our management will be adversely affected by
these investigations.
State
of Incorporation and Principal Office
We
were
incorporated under the laws of the State of New York in 1989. Our executive
offices are located at Five Hamilton Landing, Suite 100, Novato, California94949.
USE
OF PROCEEDS
Unless
we
state otherwise in the applicable prospectus supplement, we expect to use the
proceeds from the sale of the securities that we may offer for general corporate
purposes, including working capital and potential acquisitions of products
and
technologies. Accordingly, we will retain broad discretion over the use of
these
proceeds. We may also invest the proceeds in certificates of deposit, United
States government securities, certain other interest-bearing securities or
other
short-term marketable securities. If we decide to use the net proceeds from
a
particular offering of securities for a specific purpose, we will describe
that
in the related prospectus supplement.
We
will
not receive any proceeds from the sale of our common shares that are made by
the
selling shareholders listed in this prospectus.
32
SELLING
SHAREHOLDERS
The
common shares being offered by the selling shareholders were issued as
liquidated damages to certain investors who participated in the January 2006
Financing. For additional information regarding the issuances, see “About
SpatiaLight January 2006 Financing.”
----------------------------------
Except
for (i) the selling shareholders’ ownership of the shares included in this
prospectus, and (ii) the other relationships described in the preceding
paragraphs in this “Selling Shareholders” section of the prospectus, the selling
shareholders have not had any material relationship with us within the past
three years.
Any
selling shareholder who is a “broker-dealer” is an “underwriter” within the
meaning of Section 2(11) of the Securities Act. The only selling
shareholder who is a registered broker dealers is Paulson Investment Company,
Inc. and as such is an underwriter, within the meaning of the Securities Act,
of
the common shares that it is offering under this prospectus. Any profits
on the sale of the common shares by any selling shareholder deemed to be an
underwriter and any discounts, commissions or concessions received by any such
broker-dealers or agents will be underwriting discounts and commissions under
the Securities Act. We do not have a material relationship with Paulson
Investment Company and it has no right to designate or nominate a member or
members of the board of directors. Paulson Investment Company received the
common shares being offered by this prospectus as payment for certain liquidated
damages arising from a registration rights agreement to which we were a party
in
the January 2006 Financing; therefore, the shares being offered by Paulson
in
this prospectus were acquired in the ordinary course of business and that they
did not have any agreement or understanding, directly or indirectly, with any
person to distribute any of such securities. In addition, we are not
aware of any underwriting plan or agreement, or passive market-making or
stabilization transactions involving the purchase or distribution of these
securities by Paulson Investment Company. Based on our inquires of selling
shareholders, none of the selling shareholders who are affiliates of
broker-dealers purchased the notes outside of the ordinary course of business
or, at the time of the purchase of the notes, had any agreement or
understanding, directly or indirectly, with any person to distribute the
securities.
We
are
registering the shares in order to permit the selling shareholders to offer
the
shares for resale from time to time. The selling shareholders who were investors
who participated in the January 2006 Financing received the shares being offered
by this prospectus on their behalf as liquidated damages; additional information
regarding the issuance of shares to the investors who were participants in
the
January 2006 Financing is set forth under the caption, “About SpatiaLight -
January 2006 Financing.”
The
table
below lists the selling shareholders and other information regarding the
beneficial ownership of the common shares by each of the selling shareholders.
The second column lists the number of common shares beneficially owned by each
selling shareholder. The third column lists the common shares being offered
by
this prospectus by the selling shareholders. The fourth column assumes the
sale
of all of the shares offered by the selling shareholders pursuant to this
prospectus.
The
selling shareholders may sell all, some or none of their shares in this
offering. See "Plan of Distribution - Selling Shareholders."
33
Name
of Selling Shareholder
Number
of Shares Owned Prior to Offering
Maximum
Number of Shares to be Sold Pursuant to this
Prospectus
(1)
Number
of Shares Owned After Offering
Percentage
of Common Shares Owned After Offering (5)
Paulson
Investment Company, Inc. (2)
94,525
27,725
66,800
**
Braeburn
Special Opportunities Fund, LLC (3)
397,929
23,972
373,957
**
Braeburn
Special Opportunities Fund II, LLC (4)
86,603
6,028
80,575
**
(1) The
number of shares to be sold by the Selling Shareholders is based on the number
of common shares issued to the Selling Shareholders as liquidated damages
pursuant to the January 2006 Registration Rights Agreement.
(2) Paulson
Investment Company, Inc. is an institutional investor. Chet Paulson may be
deemed to be a beneficial owner of these securities; however, Mr. Paulson
disclaims beneficial ownership thereof.
(3) Braeburn
Special Opportunities Fund, LLC is an institutional investor. Lee
Canaan is the portfolio manager of this hedge fund and has
investment decision and voting power for
this non-natural entity, however, Ms. Canaan does not claim
beneficial ownership of the shares.(4)
(4) Braeburn
Special Opportunities Fund II, LLC is an institutional investor. Lee
Canaan is the portfolio manager of this hedge fund and has
investment decision and voting power for
this non-natural entity, however, Ms. Canaan does not claim
beneficial ownership of the shares.
(5)
These
percentages assume that 44,482,616 common shares are issued and
outstanding.
**
Less
than
1%
DESCRIPTION
OF CAPITAL STOCK
Our
Restated Certificate of Incorporation, as amended, authorizes the issuance
of up
to 100,000,000 common shares, $.01 par value. Our Restated Certificate of
Incorporation, as amended, does not authorize us to issue preferred shares
or
any other series of common shares. As of February 12, 2007, 44,482,616
common shares were issued and outstanding.
The
holders of our common shares have equal ratable rights to dividends from funds
legally available therefore, when and if declared by our Board of Directors
and
are entitled to share ratably in all of our assets available for distribution
to
holders of common shares upon the liquidation, dissolution or winding up of
our
affairs. We have not paid, and have no current plans to pay, dividends on our
common shares. Under the terms of the November 2004 Financing, we are prohibited
from paying cash dividends while the Senior Secured Convertible Notes issued
in
the November 2004 Financing remain outstanding.
34
Holders
of our common shares are entitled to one vote per share on all matters which
shareholders are entitled to vote upon at all meetings of shareholders. All
outstanding common shares are, and those offered hereby will be when issued,
validly issued, fully paid and nonassessable. The holders of our common shares
do not have cumulative voting rights, which means that the holders of a
plurality of such outstanding common shares can elect all of our directors
then
standing for election.
For
the
complete terms of our common shares, please refer to our Restated Certificate
of
Incorporation, as amended, and our Bylaws that are incorporated by reference
into the registration statement that is included this prospectus. The New York
Business Corporation Law may also affect the terms of these
securities.
American
Stock Transfer and Trust Company, 59 Maiden Lane, New York, New York10038,
is
the transfer agent and registrar for our common shares.
DESCRIPTION
OF WARRANTS
We
may
issue warrants for the purchase of our common shares issuable by us. Warrants
may be issued independently or together with or common shares offered by any
prospectus supplement and may be attached to or separate from such common
shares. If we do not act as our own warrant agent, each series of warrants
will
be issued under a separate warrant agreement or agreements to be entered into
between us and a bank or trust company, as warrant agent, all as set forth
in
the prospectus supplement relating to the particular issue of warrants. The
warrant agent will act solely as our agent in connection with the warrants
and
will not assume any obligation or relationship of agency or trust for or with
any holders of warrants or beneficial owners of warrants. The following summary
of certain provisions of the warrants does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all provisions
of
the warrant agreements.
You
should refer to the prospectus supplement relating to a particular issue of
warrants for the terms of and information relating to the warrants, including,
where applicable:
(1)
the
number of common shares purchasable upon exercise of the warrants and the price
at which such number of common shares may be purchased upon the exercise of
the
warrants;
(2)
the
date on which the right to exercise the warrants commences and the date on
which
such right expires;
(3)
United States federal income tax consequences applicable to the
warrants;
(4)
the
amount of the warrants outstanding as of the most recent practicable date;
and
(5)
any
other terms of the warrants.
Warrants
will be offered and exercisable for United States dollars only. Warrants will
be
issued in registered form only. Each warrant will entitle its holder to purchase
such number of common shares at such exercise price as is in each case set
forth
in, or calculable from, the prospectus supplement relating to the warrants.
The
exercise price may be subject to adjustment upon the occurrence of events set
forth in the warrants and described in such prospectus supplement. After the
close of business on the expiration date of the applicable warrants (or such
later date to which we may extend such expiration date), unexercised warrants
will become void. The place or places where, and the manner in which, warrants
may be exercised will be specified in the warrant and in the prospectus
supplement relating to such warrants.
35
Prior
to
the exercise of any warrants, holders of the warrants will not have any of
the
rights of holders of common shares including the right to receive payments
of
any dividends on the common shares purchasable upon exercise of the warrants,
or
to exercise any applicable right to vote.
DESCRIPTION
OF UNITS
We
will
file as exhibits to the registration statement of which this prospectus is
a
part, or will incorporate by reference from a current report on Form 8-K that
we
file with the SEC, the form of unit agreement that describes the terms of the
series of units we may offer from time to time pursuant to this prospectus,
and
any supplemental agreements, before the issuance of the related series of units.
The following summaries of material terms and provisions of the units are
subject to, and qualified in their entirety by reference to, all the provisions
of the unit agreement and any supplemental agreements applicable to a particular
series of units. We urge you to read the applicable prospectus supplements
related to the particular series of units that we sell under this prospectus,
as
well as the complete unit agreement and any supplemental agreements that contain
the terms of the units.
General
We
may
issue units comprised of one or more common shares and warrants in any
combination. Each unit will be issued so that the holder of the unit is also
the
holder of each security included in the unit. Thus, the holder of a unit will
have the rights and obligations of a holder of each included security. The
unit
agreement under which a unit is issued may provide that the securities included
in the unit may not be held or transferred separately, at any time or at any
time before a specified date.
We
will
describe in the applicable prospectus supplement the terms of the series of
units, including:
•
the
designation and terms of the units and of the securities comprising
the
units, including whether and under what circumstances those securities
may
be held or transferred separately;
•
any
provisions of the governing unit agreement that differ from those
described below; and
•
any
provisions for the issuance, payment, settlement, transfer or exchange
of
the units or of the securities comprising the units.
The
provisions described in this section, as well as those described under
“Description of Capital Stock” and “Description of Warrants” will apply to each
unit and to any common shares or warrants included in each unit, respectively.
Issuance
in Series
We
may
issue units in such amounts and in numerous distinct series as we determine.
Enforceability
of Rights by Holders of Units
36
Each
unit
agent will act solely as our agent under the applicable unit agreement and
will
not assume any obligation or relationship of agency or trust with any holder
of
any unit. A single bank or trust company may act as unit agent for more than
one
series of units. A unit agent will have no duty or responsibility in case of
any
default by us under the applicable unit agreement or unit, including any duty
or
responsibility to initiate any proceedings at law or otherwise, or to make
any
demand upon us. Any holder of a unit may, without the consent of the related
unit agent or the holder of any other unit, enforce by appropriate legal action
its rights as a holder of any security included in the unit.
Title
SpatiaLight,
the unit agent and any of their agents may treat the registered holder of any
unit certificate as an absolute owner of the units evidenced by that certificate
for any purposes and as the person entitled to exercise the rights attaching
to
the units so requested, despite any notice to the contrary.
DESCRIPTION
OF SUBSCRIPTION RIGHTS
General
We
may
issue subscription rights to purchase common shares or warrants. Subscription
rights may be issued independently or together with any other offered security
and may or may not be transferable by the person purchasing or receiving the
subscription rights. In connection with any subscription rights offering, we
may
enter into a standby underwriting arrangement with one or more underwriters
pursuant to which such underwriter will purchase any offered securities
remaining unsubscribed for after such subscription rights offering. In
connection with a subscription rights offering to our stockholders, we will
distribute certificates evidencing the subscription rights and a prospectus
supplement to our stockholders on the record date that we set for receiving
the
subscription rights in such subscription rights offering.
The
applicable prospectus supplements will describe the specific terms of any
subscription:
•
the
title of such subscription rights;
•
the
securities for which the subscription rights are exercisable;
•
the
exercise price for the subscription rights;
•
the
number of the subscription rights issued to each stockholder;
•
the
extent to which the subscription rights are transferable;
•
if
applicable, a discussion of certain United States federal income tax
consideration;
•
the
date on which the right to exercise the subscription rights will commence,
and
the date on which such right will expire;
•
the
extent to which such subscription rights include an over−subscription privilege
with respect to unsubscribed securities;
•
if
applicable, certain term of any standby underwriting agreement that we may
enter
into in connection with the subscription rights offering; and
37
•
any
other terms of the subscription rights, including terms, procedures and
limitations relating to the exchange and exercise of such subscription
rights.
Exercise
of Subscription Rights
Each
subscription right will entitle the holder of subscription rights to purchase
for cash common shares, warrants or any combination thereof, at such exercise
price as will in each case be set forth in, or be determinable as set forth
in,
the prospectus supplement relating to the subscription rights offered thereby.
Subscription rights may be exercised at any time up to the close of business
on
the expiration date for such subscription rights set forth in the prospectus
supplement. After the close of business on the expiration date, all unexercised
subscription rights will become void. Subscription rights may be exercised
as
set forth in the prospectus supplement relating to the subscription rights
offered thereby. Upon receipt of payment and the subscription rights certificate
properly completed and duly executed at the corporate trust office of the
subscription rights agent or any other office indicated in the prospectus
supplement, we will forward, as soon as practicable, the common shares, or
warrants purchasable upon such exercise. If we offer subscription rights only
to
our shareholders, then in the event that not all of the subscription rights
issued in any offering are exercised, we may determine to offer any unsubscribed
offered securities directly to persons other than shareholders, to or through
agents, underwriters or dealers or through a combination of such methods,
including pursuant to standby underwriting arrangements, as set forth in the
applicable prospectus supplement.
PLAN
OF DISTRIBUTION
SPATIALIGHT,
INC.
We
may
sell the securities from time to time through underwriters or dealers, or
directly to purchasers, or through agents.
We
may
directly sell or solicit offers to purchase securities, or we may designate
agents to solicit such offers at a fixed price or prices, which may be changed,
or at varying prices determined at time of sale. We will, in the prospectus
supplement relating to such offering, name any agent that could be viewed as
an
underwriter under the Securities Act and describe any commissions we or our
trust subsidiaries must pay. Any such agent will be acting on a best efforts
basis for the period of its appointment or, if indicated in the applicable
prospectus supplement, on a firm commitment basis. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for us in the ordinary course of business.
Any
broker-dealer participating in the distribution of the common shares may be
deemed to be an “underwriter” within the meaning of the Securities Act, and any
commission paid, or any discounts or concessions allowed to, any such
broker-dealer may be deemed to be underwriting commissions or discounts under
the Securities Act. At the time a particular offering of the shares of common
stock is made, a prospectus supplement, if required, will be distributed which
will set forth the aggregate amount of common shares being offered and the
terms
of the offering, including the name or names of any broker-dealers or agents,
any discounts, commissions and other terms constituting compensation from the
selling shareholders and any discounts, commissions or concessions allowed
or
reallowed or paid to broker-dealers.
If
any
underwriters are utilized in the sale of the securities in respect of which
this
prospectus is delivered, we will enter into an underwriting agreement with
them
at the time of sale to them, and we will set forth in the prospectus supplement
relating to such offering their names and the terms of our agreement with them.
38
If
a
dealer is utilized in the sale of the securities in respect of which the
prospectus is delivered, we will sell such securities to the dealer, as
principal. The dealer may then resell such securities to the public at varying
prices to be determined by such dealer at the time of resale.
Remarketing
firms, agents, underwriters and dealers may be entitled under agreements which
they may enter into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which the agents or underwriters
may
be required to make. Remarketing firms, agents, underwriters and dealers may
be
customers of ours, engage in transactions with us, or perform services for
us in
the ordinary course of business.
In
order
to facilitate the offering of the securities, any underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
securities or any other securities, the prices of which may be used to determine
payments on such securities. Specifically, any underwriters may overallot in
connection with the offering, creating a short position for their own accounts.
In addition, to cover overallotments or to stabilize the price of the securities
or of any such other securities, the underwriters may bid for, and purchase,
the
securities or any such other securities in the open market. Finally, in any
offering of the securities through a syndicate of underwriters, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the securities in the offering if the syndicate repurchases
previously distributed securities in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the securities above independent
market levels. Any such underwriters are not required to engage in these
activities and may end any of these activities at any time.
Any
underwriter, agent or dealer utilized in the initial offering of securities
will
not confirm sales to accounts over which it exercises discretionary authority
without the prior specific written approval of its customer.
SELLING
SHAREHOLDERS
We
are
registering common shares issued as liquidated damages to certain investors
who
participated in the January 2006 Financing to permit the resale of these common
shares by the selling shareholders from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
shareholders of the shares. We will bear all fees and expenses incident to
our
obligation to register the shares.
The
selling shareholders may sell all or a portion of the common shares beneficially
owned by them and offered hereby from time to time through one or more
underwriters, broker-dealers or agents. If the common shares are sold through
underwriters or broker-dealers, the selling shareholders will be responsible
for
underwriting discounts or commissions or agent's commissions. The common shares
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of
sale, or at negotiated prices. These sales may be affected in transactions,
which may involve crosses or block transactions,
·
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
·
in
the over-the-counter market;
·
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
39
·
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
·
in
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
·
in
block trades in which the broker-dealer will attempt to sell the
shares as
agent but may position and resell a portion of the block as principal
to
facilitate the transaction;
·
in
purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
·
in
an exchange distribution in accordance with the rules of the applicable
exchange;
·
in
privately negotiated transactions;
·
in
short sales;
·
in
sales pursuant to Rule 144;
·
in
which broker-dealers may agree with the selling security holders
to sell a
specified number of such shares at a stipulated price per share;
·
in
a combination of any such methods of sale; and
·
in
any other method permitted pursuant to applicable law.
If
the
selling shareholders effect such transactions by selling common shares to or
through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the common shares for whom they may act as agent or to whom they
may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales
of
the common shares or otherwise, the selling shareholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of
the
common shares in the course of hedging in positions they assume. The selling
shareholders may also sell common shares short and deliver common shares covered
by this prospectus to close out short positions and to return borrowed shares
in
connection with such short sales. The selling shareholders may also loan or
pledge common shares to broker-dealers that in turn may sell such shares.
The
selling shareholders may pledge or grant a security interest in some or all
of
the warrants or common shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the common shares from time to time pursuant to this prospectus
or any amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933, as amended, amending, if necessary,
the
list of selling shareholders to include the pledgee, transferee or other
successors in interest as selling shareholders under this prospectus. The
selling shareholders also may transfer and donate the common shares in other
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus. To the extent required, by regulations under the Securities
Act
or otherwise, the prospectus would be supplemented or be the subject of one
or
more post-effective amendments, as the case may be, to reflect the foregoing
transactions.
40
The
selling shareholders that are broker-dealers or agents who participate in the
distribution of the common shares being offered under this prospectus are
“underwriters.” Selling shareholders that are underwriters may be subject to
certain statutory liabilities of, including, but not limited to, Sections 11,
12
and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. In addition,
selling shareholders who are deemed underwriters within the meaning of the
Securities Act will be subject to the prospectus delivery requirements of the
Securities Act.
Any
selling shareholder who is a “broker-dealer” is an “underwriter” within the
meaning of Section 2(11) of the Securities Act. The only selling shareholder
who
is a registered broker-dealer is Paulson Investment Company, Inc. and as such
is
an underwriter, within the meaning of the Securities Act, of the common shares
that it is offering under this prospectus. Any profits on the sale of the common
shares by any selling shareholder deemed to be an underwriter and any discounts,
commissions or concessions received by any such broker-dealers or agents will
be
underwriting discounts and commissions under the Securities Act. We do not
have
a material relationship with Paulson Investment Company and it has no right
to
designate or nominate a member or members of the board of directors. Paulson
Investment Company received the common shares being offered by this prospectus
as payment for certain liquidated damages arising from a registration rights
agreement to which we were a party in the January 2006 Financing; therefore,
the
shares being offered by Paulson in this prospectus were acquired in the ordinary
course of business and that they did not have any agreement or understanding,
directly or indirectly, with any person to distribute any of such securities.
In
addition, we are not aware of any underwriting plan or agreement, or passive
market-making or stabilization transactions involving the purchase or
distribution of these securities by Paulson Investment Company. Based on our
inquires of selling shareholders, none of the selling shareholders who are
affiliates of broker-dealers purchased the notes outside of the ordinary course
of business or, at the time of the purchase of the notes, had any agreement
or
understanding, directly or indirectly, with any person to distribute the
securities.
Under
the
securities laws of some states, the common shares may be sold in such states
only through registered or licensed brokers or dealers. In addition, in some
states the common shares may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
There
can
be no assurance that any selling shareholder will sell any or all of the common
shares registered pursuant to the shelf registration statement, of which this
prospectus forms a part.
The
selling shareholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the common shares by the selling shareholders
and
any other participating person. Regulation M may also restrict the ability
of
any person engaged in the distribution of the common shares to engage in
market-making activities with respect to the common shares. All of the foregoing
may affect the marketability of the common shares and the ability of any person
or entity to engage in market-making activities with respect to the common
shares.
We
will
pay all expenses of the registration of the common shares pursuant to the
registration rights agreement, including, without limitation, Securities and
Exchange Commission filing fees and expenses of compliance with state securities
or "blue sky" laws; provided, however, that a selling shareholder will pay
all
underwriting discounts and selling commissions, if any. We will indemnify the
selling shareholders against liabilities, including some liabilities under
the
Securities Act, in accordance with the registration rights agreements, or the
selling shareholders will be entitled to contribution. We may be indemnified
by
the selling shareholders against civil liabilities, including liabilities under
the Securities Act, that may arise from any written information furnished to
us
by the selling shareholder specifically for use in this prospectus, in
accordance with the related registration rights agreements, or we may be
entitled to contribution.
41
Once
sold
under the registration statement, of which this prospectus forms a part, the
shares will be freely tradable in the hands of persons other than our
affiliates.
LEGAL
MATTERS
The
validity of any securities offered by us in the applicable prospectus supplement
will be passed upon by Franklin, Cardwell & Jones, Houston, TX, and for any
underwriters or agents by counsel named in the applicable prospectus
supplement.
EXPERTS
Odenberg,
Ullakko, Muranishi & Co. LLP, an independent registered public accounting
firm, has audited our consolidated financial statements included in our
Annual
Report on Form 10-K/A Amendment No. 2 as of December 31, 2005 and 2004, and
for each of the years in the three-year period ended December 31, 2005
(which
report expresses an unqualified opinion and includes a matter of emphasis
paragraph relating to SpatiaLight, Inc.’s ability to continue as a going
concern), and management’s assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2005 (which is included
in
Management’s Report on Internal Control over Financial Reporting and which
contains an adverse opinion on the effectiveness of internal control over
financial reporting) as set forth in their reports, which are incorporated
by
reference in this prospectus and elsewhere in this registration statement.
Our
consolidated financial statements and management’s assessment of the
effectiveness of our internal control over financial reporting are incorporated
by reference in this prospectus in reliance upon the report of Odenberg,
Ullakko, Muranishi & Co. LLP, given on their authority as experts in
accounting and auditing.
WHERE
TO FIND MORE INFORMATION
We
are a
reporting company and file annual, quarterly and special reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information filed with the SEC may be inspected and copied at the
SEC
Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.
You
may
obtain information about the operation of the SEC Public Reference Room by
calling 1-800-732-0330. You may also inspect our SEC filings free of charge
at
the SEC’s website at http://www.sec.gov. Finally, you may also inspect reports
and other information concerning SpatiaLight at the offices of the National
Association of Securities Dealers, Inc., Market Listing Section, 1735 K Street,
N.W., Washington, D.C.20006. SpatiaLight common shares are traded on The Nasdaq
SmallCap Market under the symbol “HDTV”. SpatiaLight’s website is located at
http://www.spatialight.com. However, the information on our website does not
constitute a part of this prospectus.
The
SEC
allows us to “incorporate by reference” information that we file with them which
means that we can disclose important information to you by referring you to
those documents filed separately with the SEC. The information incorporated
by
reference is considered part of this prospectus and information we later file
with the SEC will automatically update and supersede this information. The
following documents filed by us with the SEC (File No. 000-19828) are
incorporated in this prospectus by reference:
The
description of our common shares contained in our Registration Statement
on Form 8-A filed with the SEC on February 5, 1992, under Section
12 of
the Exchange Act, including any amendment or report filed for the
purpose
of updating that description.
Nothing
in this prospectus shall be deemed to incorporate information furnished but
not
filed with the SEC.
All
documents filed by us with the SEC under Section 13(a), 13(c), 14 or 15(d)
of
the Exchange Act following the date of this prospectus and before the
termination of the offering of the securities under this prospectus shall be
considered incorporated by reference in this prospectus and be a part of this
prospectus from the date of the filing of such documents. Any statement
contained herein or in a document incorporated by reference in this prospectus
shall be deemed to be modified or superseded for purposes of this prospectus
to
the extent that a statement contained in any subsequently filed document, which
also is considered to be incorporated by reference herein, modifies or
supersedes such prior statement. Any statement modified or superseded shall
not
be considered, except as so modified or superseded, to constitute part of this
prospectus. We will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of any and all
of
the documents that have been incorporated by reference in this prospectus or
the
registration statement (other than exhibits to such documents unless exhibits
are specifically incorporated by reference into such documents). Any such
request should be directed to the Assistant Secretary of SpatiaLight, Inc.,
Five
Hamilton Landing, Suite 100, Novato, California94949 (telephone: (415)
883-1693).
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
Our
Bylaws provide that we will indemnify (a) any person made or threatened to
be
made a party to any action or proceeding by reason of the fact that he, his
testator or intestate, is or was a director or officer of SpatiaLight and (b)
any director or officer of SpatiaLight who served any other company in any
capacity at the request of SpatiaLight, in the manner and to the maximum extent
set forth in the Business Corporation Law of the State of New York; and
SpatiaLight may at the discretion of the Board of Directors indemnify all other
corporate personnel to the extent permitted by law.
In
addition, our Certificate of Incorporation provides that no director shall
be
liable to SpatiaLight or its shareholders for damages for any breach of duty
in
such capacity. However, such provision does not eliminate or limit the liability
of any director if a judgment or other final adjudication adverse to him or
her
establishes that his or her acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law or that he or she
personally gained a financial profit or other advantage to which he or she
was
not legally entitled or that his or her acts violated Section 719 of the New
York Business Corporation Law (relating to the making of illegal distributions
to shareholders or loans to directors).
At
present, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of SpatiaLight as to which indemnification
is
being sought nor are we aware of any threatened litigation that may result
in
claims for indemnification by any director, officer, employee or other
agent.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling SpatiaLight as provided
above, we have been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable.
43
WE
HAVE
NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER
THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. YOU SHOULD
RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. THE INFORMATION
IN
THIS PROSPECTUS IS CORRECT AS OF THE DATE OF THIS PROSPECTUS. DELIVERY OF THIS
PROSPECTUS AFTER THE DATE INDICATED BELOW DOES NOT MEAN THAT THE INFORMATION
IS
STILL CORRECT AS OF ANY SUBSEQUENT DATE.
ITEM
14. Other Expenses of Issuance and Distribution.
The
following table itemizes the costs and expenses incurred by us in connection
with the offering of the shares being registered. All of the amounts shown
are
estimates except the SEC registration fee.
Item
Amount
SEC
Registration Fee
$
8,238.99
Accounting
fees and expenses
$
90,000.00
Legal
fees and expenses
$
76,500.00
Printer’s
Fees
$
0
Miscellaneous
expenses
$
0
Total
$
174,738.99
ITEM
15. Indemnification of Directors and Officers.
The
directors of the corporation shall not be personally liable to the corporation
or its shareholders for damages for any breach of duty in such capacity
occurring after the adoption of the provisions authorized in this certificate
of
incorporation, provided, however, that the provisions contained herein shall
not
eliminate such directors’ liability if a judgment or other final adjudication
adverse to the director establishes that (i) the director’s acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation
of
the law; (ii) that the director personally gained a financial profit or other
advantage to which the director was not legally entitled; or (iii) that the
directors’ acts violated the provisions of Section 719 of the New York Business
Corporation Law.
As
authorized by Article V of the Registrant’s Bylaws, directors and officers of
the Registrant, and certain of the Registrant’s employees, have been availed of
the broadest scope of permissible indemnification coverage consistent with
the
New York Business Corporation Law. Article V of the Registrant’s Bylaws provides
as follows:
5.1
INDEMNIFICATION. The Corporation shall indemnify
(a)
any
person made or threatened to be made a party to any action or proceeding by
reason of the fact that he, his testator or intestate, is or was a director
or
officer of the Corporation and (b) any director or officer of the Corporation
who served any other company in any capacity at the request of the Corporation,
in the manner and to the maximum extent permitted by the Business Corporation
Law of New York, as amended from time to time; and the Corporation may, in
the
discretion of the Board of Directors, indemnify all other corporate personnel
to
the extent permitted by law.
II-1
5.2
AUTHORIZATION. The provisions for indemnification set forth in Section 5.1
hereof shall not be deemed to be exclusive. The Corporation is hereby authorized
to further indemnify its directors or officers in the manner and to the extent
set forth in (i) a resolution of the shareholders, (ii) a resolution of the
directors, or (iii) an agreement providing for such indemnification, so long
as
such indemnification shall not be expressly prohibited by the provisions of
the
Business Corporation Law of New York.
The
New
York Business Corporation Law, Article 7, Sections 721-726 provides for the
indemnification and advancement of expenses to officers and directors. Section
721 provides that indemnification and advancement under the New York Business
Corporation Law are not exclusive of any other rights an officer or director
may
be entitled to, provided that no indemnification may be made to or on behalf
of
any director or officer if a judgment or other final adjudication adverse to
the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that the director personally gained a
financial profit or other advantage to which he or she was not legally
entitled.
Section
722 of the New York Business Corporation Law provides that a corporation may
indemnify an officer or director, in the case of third party actions, against
judgments, fines, amounts paid in settlement and reasonable expenses and, in
the
case of derivative actions, against amounts paid in settlement and reasonable
expenses, provided that the director or officer acted in good faith, for a
purpose which he or she reasonably believed to be in the best interests of
the
corporation and, in the case of criminal actions, had no reasonable cause to
believe his conduct was unlawful. In addition, statutory indemnification may
not
be provided in derivative actions (i) which are settled or otherwise disposed
of
or (ii) in which the director or officer is adjudged liable to the
corporation, unless and only to the extent a court determines that the person
is
fairly and reasonably entitled to indemnity.
Section
723 of the New York Business Corporation law provides that statutory
indemnification is mandatory where the director or officer has been successful,
on the merits or otherwise, in the defense of a civil or criminal action or
proceeding. Section 723 also provides that expenses of defending a civil or
criminal action or proceeding may be advanced by the corporation upon receipt
of
an undertaking to repay them if and to the extent the recipient is ultimately
found not to be entitled to indemnification. Section 725 provides for repayment
of such expenses when the recipient is ultimately found not to be entitled
to
indemnification. Section 726 provides that a corporation may obtain
indemnification insurance indemnifying itself and its directors and officers.
We
do not have in effect insurance policies providing both directors and officers
liability coverage and corporate reimbursement coverage.
The
foregoing provisions provide for the indemnification of our directors and
officers in a variety of circumstances, which may include liabilities under
the
Securities Act. It is currently unclear as a matter of law what impact these
provisions will have regarding securities law violations. The SEC takes the
position that indemnification of directors, officers and controlling persons
against liabilities arising under the Securities Act is against public policy
as
expressed in the Securities Act and therefore is unenforceable.
II-2
ITEM
16. Exhibits.
The
following exhibits are filed with this Registration Statement unless otherwise
indicated:
Consent of Odenberg, Ullakko, Muranishi & Co. LLP, Independent Registered Public Accounting Firm *
23.2
Consent
of Franklin, Cardwell & Jones. *
24.1
Power
of attorney. *
_________________
†
To
be filed by amendment to this registration statement or incorporated
by
reference pursuant to a Current Report on Form 8-K, to the extent
applicable, in connection with an
offering.
*
Previously
filed.
ITEM
17. Undertakings.
a.
The
undersigned registrant hereby undertakes:
1. To
file,
during any period in which offers or sales are being made, a post-effective
amendment
to this Registration Statement:
i.
To
include any prospectus required by section 10(a)(3) of the Securities
Act
of 1933;
II-3
ii.
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering
price
set forth in the “Calculation of Registration Fee” table in the effective
registration statement.
iii.
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration statement;
Provided,
however, that:
paragraphs
(a)1(i) and (a)(1)(ii) of this section do not apply if the registration
statement is on Form S-8, and the information required to be included
in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange
Act of
1934 that are incorporated by reference in the registration statement.
Provided
however, that:
Paragraphs
(a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply
if the
registration statement is on Form S-3 or Form F-3 and the information
required to be included in a post-effective amendment by those paragraphs
is contained in reports filed with or furnished to the Commission
by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of the registration
statement.
2.
That,
for the purpose of determining any liability under the Securities
Act of
1933, each such post-effective amendment shall be deemed to be a
new
registration statement relating to the securities offered therein,
and the
offering of such securities at that time shall be deemed to be the
initial
bona fide offering thereof.
3.
To
remove from registration by means of a post-effective amendment any
of the
securities being registered which remain unsold at the termination
of the
offering.
4.
That,
for the purpose of determining liability under the Securities Act
of 1933
to any purchaser:
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be
deemed to be part of the registration statement as of the date the
filed
prospectus was deemed part of and included in the registration statement;
and
II-4
ii.
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii),
or (x)
for the purpose of providing the information required by section
10(a) of
the Securities Act of 1933 shall be deemed to be part of and included
in
the registration statement as of the earlier of the date such form
of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the
issuer
and any person that is at that date an underwriter, such date shall
be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be
deemed
to be the initial bona fide offering thereof. Provided, however,
that no
statement made in a registration statement or prospectus that is
part of
the registration statement or made in a document incorporated or
deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser
with a
time of contract of sale prior to such effective date, supersede
or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective date;
or
b.
If
the registrant is subject to Rule 430C, each prospectus filed pursuant
to
Rule 424(b) as part of a registration statement relating to an
offering,
other than registration statements relying on Rule 430B or other
than
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of
and included in the registration statement as of the date it is first
used
after effectiveness. Provided, however, that no statement made in
a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated
by
reference into the registration statement or prospectus that is part
of
the registration statement will, as to a purchaser with a time of
contract
of sale prior to such first use, supersede or modify any statement
that
was made in the registration statement or prospectus that was part
of the
registration statement or made in any such document immediately prior
to
such date of first use.
5.
That,
for the purpose of determining liability of the registrant under
the
Securities Act of 1933 to any purchaser in the initial distribution
of the
securities: The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to
this
Registration Statement, regardless of the underwriting method used
to sell
the securities to the purchaser, if the securities are offered or
sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be
considered to offer or sell such securities to such
purchaser:
i.
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
ii.
Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
iii.
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant
or its
securities provided by or on behalf of the undersigned registrant;
and
II-5
iv.
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
6.
For
purposes of determining any liability under the Securities Act of
1933,
each filing of the registrant’s annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan’s annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is
incorporated by reference in the registration statement shall be
deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed
to be the initial bona fide offering
thereof.
7.
Insofar
as indemnification for liabilities arising under the Securities Act
of
1933 may be permitted to directors, officers and controlling persons
of
the registrant pursuant to the foregoing provisions, or otherwise,
the
registrant has been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy
as
expressed in the Act and is, therefore, unenforceable. In the event
that a
claim for indemnification against such liabilities (other than the
payment
by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in
the
successful defense of any action, suit or proceeding) is asserted
by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and
will be governed by the final adjudication of such
issue.
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of
the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Novato, State of California on February 13,2007.
SPATIALIGHT,
INC.
By:
/s/
David
F. Hakala
David
F.
Hakala
Chief
Executive Officer, Chief
Operating Officer
and
Principal Financial and
Accounting Officer
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on
the
dates indicated:
Signature
Title
Date
/s/
David F.
Hakala
David
F. Hakala
Chief
Executive Officer, Chief Operating Officer,
Principal
Accounting
and Financial Officer and Director
Consent of Odenberg, Ullakko, Muranishi & Co. LLP, Independent Registered Public Accounting Firm *
23.2
Consent
of Franklin, Cardwell & Jones. *
24.1
Power
of attorney. *
_________________
†
To
be filed by amendment to this Registration Statement or incorporated
by
reference pursuant to a Current Report on Form 8-K, to the extent
applicable, in connection with an
offering.
*
Previously
filed.
Dates Referenced Herein and Documents Incorporated by Reference
