-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HTNarr6g9CtqcjRieEMpAP4nCo8Zf/gGIJZI/Ith32cfhWfYserIM+TdUwmlg4wp lvNxscZAF1N4dM1wbA+YwQ== 0000950150-97-001678.txt : 19971117 0000950150-97-001678.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950150-97-001678 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPATIALIZER AUDIO LABORATORIES INC CENTRAL INDEX KEY: 0000890821 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 954484725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26460 FILM NUMBER: 97720260 BUSINESS ADDRESS: STREET 1: 20700 VENTURA BOULEVARD SUITE 134 STREET 2: STE 1100 CITY: WOODLAND HILLS STATE: CA ZIP: 90034 BUSINESS PHONE: 3102273370 MAIL ADDRESS: STREET 1: 20700 VENTURA BLVD. #134 CITY: WOODLAND HILLS STATE: CA ZIP: 90034 10-Q 1 FORM 10-Q DATED 9/30/97 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED: SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 33-90532 ------------------------ SPATIALIZER AUDIO LABORATORIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4484725 (STATE OR OTHER (I.R.S. EMPLOYER JURISDICTION OF IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
20700 VENTURA BOULEVARD, SUITE 134 WOODLAND HILLS, CALIFORNIA 91364-2357 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) TELEPHONE NUMBER: (818) 227-3370 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [X] NO [ ] As of November 6, 1997 there were 20,893,679 shares of the Registrant's Common Stock outstanding. ================================================================================ 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (UNAUDITED) Current Assets: Cash and Cash Equivalents..................................... $ 770,203 $ 1,587,395 Trade Receivables and Employee Advances....................... 833,970 820,856 Inventory..................................................... 100,871 296,539 Prepaid Expenses and Deposits................................. 163,843 260,984 ------------ ------------ Total Current Assets.................................. 1,868,887 2,965,774 Fixed Assets, Net (Note 3)...................................... 614,859 622,856 Intangible Assets (Note 4)...................................... 575,575 451,733 Other Assets.................................................... 102,653 100,832 ------------ ------------ $ 3,161,974 $ 4,141,195 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable.............................................. $ 381,207 $ 403,870 Accrued Liabilities........................................... 185,722 333,152 Advances from Related Parties................................. 112,500 112,500 Notes Payable................................................. 69,824 23,800 ------------ ------------ Total Current Liabilities............................. 749,253 873,322 ------------ ------------ Shareholders' Equity: Preferred shares, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding............................ -- -- Common shares, $.01 par value, 50,000,000 shares authorized, 20,826,429 and 19,115,429 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively..... 208,264 191,154 Additional Paid-In Capital.................................... 40,514,790 38,527,775 Accumulated Deficit........................................... (38,310,333) (35,451,056) ------------ ------------ Total Shareholders' Equity............................ 2,412,721 3,267,873 ------------ ------------ $ 3,161,974 $ 4,141,195 ============ ============
See accompanying notes to consolidated financial statements 1 3 SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTH PERIOD FOR THE NINE MONTH PERIOD ENDED ENDED ------------------------------- ------------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Revenues: Product Revenues.................... $ 26,911 $ 72,417 $ 312,698 $ 265,681 Licensing Revenues.................. 805,971 399,760 1,615,514 1,143,074 ----------- ----------- ----------- ----------- 832,882 472,177 1,928,212 1,408,755 Cost of Revenues................. 36,261 70,113 223,502 153,799 ----------- ----------- ----------- ----------- 796,621 402,064 1,704,710 1,254,956 ----------- ----------- ----------- ----------- Operating Expenses: General and Administrative.......... 458,236 561,830 1,566,791 1,632,783 Research and Development............ 775,166 561,446 2,154,231 1,073,065 Sales and Marketing................. 211,519 396,885 831,403 1,298,718 In Process Research & Development (Note 5)....................... -- -- -- 679,684 ----------- ----------- ----------- ----------- 1,444,921 1,520,161 4,552,425 4,684,250 ----------- ----------- ----------- ----------- Operating Loss................... (648,300) (1,118,097) (2,847,715) (3,429,294) Interest and Other Income............. 11,645 38,777 43,337 103,094 Interest and Other Expense............ (6,028) (3,392) (15,647) (10,995) ----------- ----------- ----------- ----------- 5,617 35,385 27,690 92,099 Loss Before Income Taxes......... (642,683) (1,082,712) (2,820,025) (3,337,195) Income Taxes..................... (18,752) (18,967) (39,252) (293,385) ----------- ----------- ----------- ----------- Net Loss......................... $ (661,435) $ (1,101,679) $ (2,859,277) $ (3,630,580) =========== =========== =========== =========== Net Loss Per Common Share........ $ (0.03) $ (0.08) $ (0.14) $ (0.29) =========== =========== =========== =========== Weighted Average Common Shares Outstanding......................... 20,807,516 13,107,485 20,406,282 12,710,884 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements 2 4 SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED --------------------------- SEPTEMBER SEPTEMBER 30, 30, 1997 1996 ----------- ----------- Cash Flows from Operating Activities: Net Loss........................................................ $(2,859,277) $(3,630,580) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization................................ 211,625 91,343 In Process Research & Development (Note 5)................... -- 679,684 Net Change in Assets and Liabilities: Trade Receivables & Employee Advances........................ (13,114) (324,052) Inventory.................................................... 195,668 (78,941) Prepaid Expenses and Deposits................................ 97,141 (188,642) Accounts Payable............................................. (22,663) 171,243 Accrued Liabilities.......................................... (147,430) (22,583) Other Assets................................................. (1,821) -- ----------- ----------- Net Cash Used in Operating Activities............................. (2,539,871) (3,302,528) ----------- ----------- Cash Flows from Financing Activities: Issuance of Common Shares, net............................... 2,004,125 4,511,129 Due to Related Parties....................................... -- (212,561) Issuance of Notes Payable.................................... 59,532 15,237 Repayment of Notes Payable................................... (13,508) (4,884) ----------- ----------- Net Cash Provided by (Used In) Financing Activities............... 2,050,149 (4,308,921) ----------- ----------- Cash Flows from Investing Activities: Purchase of Fixed Assets (Note 5)............................ (179,633) (199,289) MDT Asset Acquisition (Note 5)............................... -- (1,062,156) Increase in Intangible Assets (Note 5)....................... (147,837) 7,225 ----------- ----------- Net Cash Used in Investing Activities............................. (327,470) (1,254,220) ----------- ----------- Decrease in Cash and Cash Equivalents............................. (817,192) (247,827) Cash and Cash Equivalents, Beginning of Period.................... 1,587,395 3,113,057 ----------- ----------- Cash and Cash Equivalents, End of Period.......................... $ 770,203 $ 2,865,230 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest..................................................... $ 15,647 $ 10,996 Income Taxes................................................. $ 39,252 $ 293,385
See accompanying notes to consolidated financial statements 3 5 SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
COMMON SHARES ---------------------------------------- TOTAL NUMBER OF ADDITIONAL ACCUMULATED SHAREHOLDERS' SHARES PAR VALUE PAID-IN-CAPITAL DEFICIT EQUITY ---------- --------- --------------- ------------ ------------- Balance, December 31, 1996....... 19,115,429 $ 191,154 $38,527,775 $(35,451,056) $ 3,267,873 Private Placements, Net (Note 6). 1,667,500 16,675 1,949,468 1,966,143 Options Exercised................ 43,500 435 37,547 37,982 Net Loss......................... (2,859,277) (2,859,277) ---------- -------- ----------- ------------ ---------- Balance, September 30, 1997...... 20,826,429 $ 208,264 $40,514,790 $(38,310,333) $ 2,412,721 ========== ======== =========== ============ ==========
See accompanying notes to consolidated financial statements 4 6 SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NATURE OF BUSINESS Spatializer Audio Laboratories, Inc. and subsidiaries (the "Company") is in the business of technology development and licensing. The Company's wholly owned subsidiary Desper Products, Inc. ("DPI") is in the business of developing proprietary advanced audio signal processing technologies and products for consumer electronics, entertainment, and multimedia computing. The Company's wholly owned subsidiary, MultiDisc Technologies, Inc. ("MDT") is in the business of developing scaleable, modular compact disc/DVD server technologies for licensing. Currently the development focus is on technologies associated with a network based compact disc/DVD server for internet and intranet applications. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The interim consolidated financial statements of the Company are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. Accordingly, your attention is directed to footnote disclosures found in the December 31, 1996 Annual Report and particularly to Note 1 which includes a summary of significant accounting policies. Basis of Consolidation The consolidated financial statements include the accounts of Spatializer Audio Laboratories, Inc. and its wholly owned subsidiaries, Desper Products, Inc. and MultiDisc Technologies, Inc. All material inter-company transactions have been eliminated. Research and Development Expenditures The Company expenses research and development expenditures as incurred. (3) FIXED ASSETS Fixed assets, at cost, as of September 30, 1997 and December 31, 1996 consist of the following:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Office Computers, Software, Equipment and Furniture........ $ 751,927 $595,993 Test Equipment............................................. 114,225 97,928 Tooling Equipment.......................................... 44,136 44,136 Trade Show Booth and Demonstration Equipment............... 135,222 130,846 Leasehold Improvements..................................... 48,782 45,756 ---------- -------- 1,094,292 914,659 Less Accumulated Depreciation and Amortization............. 479,433 291,803 ---------- -------- $ 614,859 $622,856 ========== ========
5 7 SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) INTANGIBLE ASSETS Intangible assets, as of September 30, 1997 and December 31, 1996 consist of the following:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Capitalized patent and technology costs.................... $ 457,059 $309,222 Capitalized patent costs in association with MDT Asset Acquisition.............................................. 200,000 200,000 -------- -------- 657,059 509,222 Less Accumulated Amortization.............................. 81,484 57,489 -------- -------- $ 575,575 $451,733 ======== ========
(5) ASSET ACQUISITION In September 1996, the Company purchased certain assets from Home Theater Products International, Inc. ("HTP"), a debtor in possession, for $1,062,156 including acquisition costs. Of the purchase price, $679,684 was allocated to In-Process Research & Development ("IPR&D") and expensed at the Closing. IPR&D is defined as those research and development efforts that, as of the acquisition date, June 24, 1996, have not yet generated commercializable products and thus the revenue generating capability of the products is uncertain. At the date of acquisition there were no existing products acquired. IPR&D represents 64% of the total acquisition costs. The remaining 36% was allocated as follows: approximately $200,000 to intangible assets, primarily representing acquired patent applications, and approximately $182,000 to fixed assets, including computers, office equipment, and furniture. The Company has not begun amortizing the intangible assets purchased since the patents had not been approved as of September 30, 1997. (6) SHAREHOLDERS' EQUITY During the nine month period ended September 30, 1997, shares of common stock were issued as follows: In March 1997, the Company completed a private placement of 1,600,000 units at a price of $1.25 US per unit comprised of one common share of the Company's stock and one-half of one, one-year non-transferable common stock purchase warrant. One warrant entitles the holder to purchase one additional share of common stock in the capital of the Company on or before April 7, 1998 at the price of $1.75 US per share. The Company received proceeds of $1,966,143 from the private placement of the Company's common stock, net of finders fees of $33,857 in cash and 67,500 shares of common stock valued at $1.75 US per share. On July 18, 1997, the Compensation Committee of the Board of Directors took action to re-price qualified stock options to purchase 220,103 shares of common stock granted to various employees beginning in September, 1995. The option exercise price for these shares was adjusted to $1.31 per share (the closing market price on July 18, 1997), reducing grant date exercise prices ranging from $1.50 to $4.73 per share. The vesting schedules and expiration dates for these options were not modified. (7) MAJOR CUSTOMERS A substantial portion of the Company's licensing revenues are derived primarily from running royalties based on usage and include revenues from three major customers. In the nine-month period ended September 30, 1997 these major customers represent 57%, 22% and 6%, respectively, compared to 30%, 23% and 16% for the same period in 1996. 6 8 SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) SUBSEQUENT EVENT On October 31, 1997, the Company entered into a line of credit agreement with Silicon Valley Bank for up to $600,000 in short term financing based upon the Company's accounts receivable base. As of November 13, 1997 there were no borrowings against this line of credit. On November 5, 1997, the Board of Directors adopted a plan in which MDT will be spun-off into a newly formed and separately financed corporation. Venture and strategic investors are expected to provide a minimum of $6,000,000 in new equity financing to this new company, resulting in a post-financing valuation for this new company of not less than $18,000,000. Under the plan, the Company will, upon closing, receive approximately 67% interest in this new company which will be distributed to the Company's shareholders of record on January 7, 1998. The spin-off is subject to the Company obtaining an independent fairness opinion on behalf of shareholders and shareholder approval. 7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis relates to the financial condition and results of operations of Spatializer Audio Laboratories, Inc. and subsidiaries (the "Company") for the nine-month and three-month periods ended September 30, 1997, compared with the nine-month and three-month periods ended September 30, 1996. RESULTS OF OPERATIONS FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997, COMPARED TO THE SAME PERIODS ENDED SEPTEMBER 30, 1996 Revenues The Company reported an increase in revenues of 37% or $520,000, reaching $1,928,000 for the nine-month period ended September 30, 1997 compared to $1,409,000 for the nine-month period ended September 30, 1996. The Company reported increased revenues of 76% or $361,000, reaching $833,000 for the three-month period ended September 30, 1997 compared to $472,000 for the three-month period ended September 30, 1996. Revenues include sales of professional recording systems, consumer products, license issuance fees and royalties pertaining to the licensing of Spatializer(R) audio signal processing designs. The increase in revenues is attributed primarily to an increase in recurring royalties for the licensing of the Spatializer technologies, reporting of which is based upon product sales reports supplied by the Company's customers. The increase in recurring royalties reflects strong unit license growth as a direct result of design wins and product introductions from the forty-seven new customers adopting the usage of Spatializer(R) advanced audio solutions over the last five quarters. In addition, the Company further solidified its market position in multimedia computing with the signing during the quarter of a multi-year, multi-technology license agreement with one of the Company's IC Foundries. A portion of the Company's revenues are for product sales based on the shipment of the Company's consumer product, the HTMS-2510(TM), which inventory is expected to be depleted over the next couple of quarters due to discontinued production of this product. In the future the Company expects the majority of revenues to come from licensing activities. Gross profit for the nine-month period ended September 30, 1997, was approximately 88% as compared with 89% for the same period in 1996. The Company maintains a high margin as the majority of revenues are from licensing activities which have little or no direct costs associated with them. Operating Expenses The operating expenses for the nine-month period ended September 30, 1997 decreased by approximately 3% or $132,000 for a total of $4,552,000 compared to $4,684,000 for the same nine-month period in 1996. Operating expenses for the three-month period ended September 30, 1997, decreased by approximately 5% or $75,000, for a total of $1,445,000 compared to $1,520,000 for the same period of 1996. The reduction in operating costs is a direct result of continued cost controls implemented in the forth quarter of 1996. The effects of these costs controls can be seen primarily in the General and Administrative and Sales and Marketing departments. Cost savings measures in the Company's Research and Development departments for DPI, the Company's advanced audio technology business, have been more than offset by increased costs in MDT, the Company's server technology business. 8 10 General and Administrative General and administrative costs had a decrease of approximately 4% or $66,000, to $1,567,000 for the nine-month period ended September 30, 1997 as compared with $1,633,000 for the same period in 1996. General and administrative costs had a decrease of approximately 18% or $104,000, for a total of $458,000 for the three-month period ended September 30, 1997 as compared with $562,000 for the same period in 1996. The change is primarily the result of increased payroll and payroll related costs as the Company transitioned consulting and temporary help to permanent positions during 1996 partially offset by cost savings in professional service fees and general operating costs. General operating costs include rent, telephone, office supplies and stationery, postage, depreciation and similar costs. Research and Development Research and Development costs increased by approximately 101% or $1,081,000, to $2,154,000 for the nine-month period ended September 30, 1997, compared to $1,073,000 for the same nine-month period in 1996. The research and development activity grew approximately 38% or $214,000, to $775,000 for the three-month period ended September 30, 1997, compared to $561,000 for the same period in 1996. The increase in research and development expense was due to the increased cost of MDT's research and development activity of technology demonstrators for the MultiDisc eXpandable Network Server, XNS(TM), technology partially offset by savings in the DPI subsidiary of the Company. MDT, which began operations on June 24, 1996, represented approximately 76% or $1,632,000 of the total research and development costs of $2,154,000 for the nine-month period ended September 30, 1997 and approximately 81% or $631,000 of the total research and development costs of $775,000 for the three-month period ended September 30, 1997. In addition, the Company continued efforts to identify, validate, and develop new product ideas through DPI. Specific engineering efforts were directed toward porting support of N22(TM) -- Digital Virtual Surround technologies to current and potential licensees during the quarter and toward enCompass, a true interactive, real-time 3-D audio positioning technology. A one-time cost for In Process Research and Development of $679,684 is included in the operating expenses for the nine-month period ended September 30, 1996 and is related to the acquisition of assets in the prior year period. This one-time cost is not included in research and development department costs for purposes of a more accurate comparison of actual and on-going research and development costs of the Company. Sales and Marketing Sales and marketing costs decreased approximately 36%, or $467,000 for a total of $831,000 for the nine-month period ended September 30, 1997, compared to $1,299,000 for the same nine-month period in 1996. Sales and marketing costs decreased approximately 47%, or $185,000, for a total of $212,000 for the three- month period ended September 30, 1997, compared to $397,000 for the same period in 1996. The decrease is attributed to cost containment efforts which began in the fourth quarter of 1996 along with a reduction in 1997 trade show and trade show related costs and advertising costs associated with the 1996 launch of the Company's discontinued consumer product, the HTMS-2510. 9 11 Liquidity and Capital Resources During the three-month period ended September 30, 1997 the Company's audio licensing subsidiary, DPI, was profitable for the first time in the Company's history. The results of operations do not reflect this profitability because of the Company's commitment to the development of the MultiDisc server technology. In an effort to relieve the Spatializer shareholders from the significant capital outlays and negative earnings impact of funding this development, on November 5, 1997, the Board of Directors adopted a plan in which MDT, will be spun-off into a newly formed and separately financed corporation. Under the plan, the Company will, upon closing, receive approximately 67% interest in this new company which will be distributed to the Company's shareholders of record on January 7, 1998. Venture and strategic investors are expected to provide a minimum of $6,000,000 in new equity financing to this new company, resulting in a post-financing valuation for this new company of not less than $18,000,000. The spin-off is subject to the Company obtaining an independent fairness opinion on behalf of shareholders and shareholder approval. If MDT is not successful in its plan for independent funding then cash and cash equivalents and cash generated from the Company's existing operations is not expected to be sufficient for the Company to meet the Company's operating obligations and the anticipated additional research, development, and commercial prototype cost for the MultiDisc business during the next twelve months. As a result, the Company would need to identify other debt, equity or strategic investment sources, and if such funding were not available, management may be required to modify or delay the timing of the additional MultiDisc development activities. At September 30, 1997, the Company had $770,000 in cash and cash equivalents as compared to $1,587,000 at December 31, 1996. The decrease in cash and cash equivalents is attributed to cash used for the development of MDT's principal technology demonstrators and cash used in other operating activities. The Company had working capital of $1,120,000 at September 30, 1997 as compared with $2,092,000 at December 31, 1996. The Company's future cash flow will come primarily from the audio signal processing licensing business' Foundry and Original Equipment Manufacturers' ("OEM") royalties and common stock issuances; including warrant and option exercises. At September 30, 1997 the Company had five Foundry licensees and sixty-two OEM Licensees for its audio signal processing business as compared with three Foundry licensees and forty-eight OEM Licensees at December 31, 1996. The Company is actively engaged in negotiations for additional audio signal processing licensing arrangements which will generate additional cash flow without imposing any substantial costs on the Company. The Company continues to have no long-term debt and has no present commitments or agreements which would require any long-term debt to be incurred. The Company owed $112,500 to related parties as of September 30, 1997 and at December 31, 1996. On July 18, 1997, the Compensation Committee of the Board of Directors took action to re-price qualified stock options to purchase 220,103 shares of common stock granted to various employees beginning in September, 1995. The option exercise price for these shares was adjusted to $1.31 per share (the closing market price on July 18, 1997) reducing grant date exercise prices ranging from $1.50 to $4.73 per share. The vesting schedules and expiration dates for these options were not modified. On October 31, 1997, the Company entered into a line of credit agreement with Silicon Valley Bank for up to $600,000 in short term financing based upon the Company's accounts receivable base. As of November 13, 1997 there were no borrowings against this line of credit. 10 12 Recently Issued Accounting Standards The Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" ("FAS 128"), in February 1997. FAS 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt the provision in the fourth quarter of 1997. FAS 128 requires the presentation of "Basic" earnings per share which represents income available to common shareholders divided by the weighted average number of common shares outstanding for the period. A dual presentation of "Diluted" earnings per share will also be required. The Diluted presentation is similar to the current presentation of all prior period earnings per share data presented. Management believes the adoption of FAS 128 will not have a material impact on the Company's financial position or results of operations. The Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("FAS 130"), in June 1997. FAS 130 establishes standards for reporting and display of comprehensive income and its components in financial statements. FAS 130 is effective for both interim and annual periods beginning after December 15, 1997. The Company will adopt FAS 130 in the first quarter of fiscal year end December 31, 1998. Management believes that the adoption of FAS 130 will not have a material impact on the Company's financial position or results of operations. The Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"), in June 1997. FAS 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. It replaces the "industry segment" concept of FAS No. 14. "Financial Reporting for Segments of a Business Enterprise", with a "management approach" concept as to basis for identifying reportable segments. FAS 131 is effective for financial statements for periods beginning after December 15, 1997. The Company will adopt FAS 131 in the annual financial statements of fiscal year end December 31, 1998. Management believes that the adoption of FAS 131 will not have a material impact on the Company's financial position of results of operations. 11 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the Company's Form 10-K for the year ended December 31, 1996 with respect to the Company's litigation with QSound Labs, Inc. In the nine-month period ended September 30, 1997 the parties filed their legal briefs with the Court of Appeals for the Federal Circuit with respect to the appeal taken by QSound. On November 5, 1997 counsel for the respective parties presented oral argument to a three judge panel of that Court of Appeals. The parties are now awaiting that court's decision. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the security holders of the Company either through solicitation of proxies or otherwise in the third quarter of the fiscal year ending September 30, 1997. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8K (a) 11.1 Computation of Loss Per Common Share 21.1 Schedule of Subsidiaries of the Company (b) None 12 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 13, 1997 SPATIALIZER AUDIO LABORATORIES, INC. (Registrant) /s/ STEVEN D. GERSHICK -------------------------------------- STEVEN D. GERSHICK President & Chief Executive Officer /s/ MICHAEL R. BOLCEREK -------------------------------------- MICHAEL R. BOLCEREK Chief Financial Officer 13 EX-11.1 2 COMPUTATION OF LOSS PER COMMON SHARE 1 EXHIBIT 11.1 SPATIALIZER AUDIO LABORATORIES, INC. COMPUTATION OF LOSS PER COMMON SHARE
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Primary Earnings Per Common Share: Weighted Average Common Shares............. $ 20,807,516 $ 18,881,185 $ 20,406,282 $ 18,487,584 Weighted Average Escrowed Performance Shares(1)................................ -- (5,776,700) -- (5,776,700) ----------- ----------- ----------- ----------- Adjusted Weighted Average Common Shares.... 20,807,516 13,104,485 20,406,282 12,710,884 =========== =========== =========== =========== Net Loss for Period........................ $ (661,435) $ (1,101,679) $ (2,859,277) $ (3,630,580) =========== =========== =========== =========== Primary Loss Per Share..................... $ (0.03) $ (0.08) $ (0.14) $ (0.29) =========== =========== =========== =========== Fully Diluted Earnings Per Common Share: Adjusted Weighted Average Common Shares.... $ 20,807,516 $ 13,104,485 $ 20,406,282 $ 12,710,884 Weighted Average Escrowed Performance Shares(1)................................ -- 5,776,700 -- 5,776,700 Shares to be issued on Option Exercise(2).............................. 1,081,184 752,455 1,081,184 673,659 Shares to be issued on Warrant Exercise(2).............................. 265,151 208,880 265,151 217,267 ----------- ----------- ----------- ----------- Fully Diluted Weighted Average Common Shares................................... 22,153,851 18,881,185 21,752,617 18,487,584 =========== =========== =========== =========== Net Loss for Period (from above)........... $ (661,435) $ (1,101,679) $ (2,859,277) $ (3,630,580) =========== =========== =========== =========== Fully Diluted Loss Per Share............... $ (0.03) $ (0.06) $ (0.13) $ (0.20) =========== =========== =========== ===========
- --------------- (1) Escrowed performance shares were excluded from the determination of primary loss per share until conditions for release were met on December 30, 1996 at which time they were released. (2) Outstanding options and warrants to purchase common shares have not been included in the calculation of primary loss per share as the effect of including such securities would be antidilutive. For purposes of computing the fully diluted loss per share, the treasury stock method has been used and the shares have been treated as outstanding for the entire period. EX-21.1 3 SCHEDULE OF SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SPATIALIZER AUDIO LABORATORIES, INC. SCHEDULE OF SUBSIDIARIES OF THE COMPANY Desper Products, Inc. -- California, USA MultiDisc Technologies, Inc. -- Delaware, USA EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE SEPTEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 770,203 0 833,970 0 100,871 1,868,887 1,094,292 479,433 3,161,974 749,253 0 0 0 208,264 0 3,161,974 1,928,212 1,928,212 223,502 4,552,425 0 0 15,647 (2,820,025) (39,252) (2,859,277) 0 0 0 (2,859,277) (.14) (.13)
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