SpatiaLight, Inc. Investor Presentation The AEA Classic Nasdaq: HDTV November 2005

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1 SpatiaLight, Inc. Investor Presentation The AEA Classic Nasdaq: HDTV November 2005 Ted Banzhaf, EVP SpatiaLight, Inc. President & CEO, SpatiaLight Technologies, Inc.

2 Safe Harbor Statement All statements contained in this presentation that are not statements of historical fact constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of These forward-looking statements include statements relating to the expectations regarding new product offerings, the development and direction of the Company s future operations, future customers and joint ventures. Any one or more of the Company s expectations may not be realized. Although SpatiaLight believes that the expectations reflected in its forward-looking statements are reasonable, such forward-looking statements involve certain risks, uncertainties and other factors that could cause the actual results to be materially different from the historical results or from any future results expressed or implied in such forward-looking statements. Risks and uncertainties are outlined in the Company's filings with the Securities and Exchange Commission, including its most recent Forms 10-Q and 10-K. 2

3 Agenda SpatiaLight Company Summary LCoS Technology and its Competition HDTV Market Overview Opportunity Assessment Summary Q&A 3

4 4 SpatiaLight Company Summary

5 Who is SpatiaLight? A leading developer and manufacturer of state-of-the-art Liquid Crystal on Silicon (LCoS) microdisplay devices for use in rear-projection high definition televisions (HDTVs) and monitors 5

6 SpatiaLight History SpatiaLight incorporated in New York (Kodak spin-off) SpatiaLight IPO Began focus on LCoS microdisplays Completed initial LCoS R & D and began product trials Introduced 1280 x 960p High Definition LCoS display, the T Announced joint venture with LG Electronics Introduced 1920 x 1080p High Definition LCoS display, the T July: LG Electronics contract for the development of a line of 1080p LCoS Televisions for worldwide, mass market distribution in Announced groundbreaking for SpatiaLight Korea January: Announced acquisition of assets from Phillips Electronics LCoS MicroDisplay Systems, which includes production line equipment for LCoS imagers March: SpatiaLight Korea opens 6

7 Management Team Chairman of the Board Lawrence J. Matteson Over 26 years of experience in imaging industry Former Senior VP and GM of Kodak Imaging & Information System Group CEO Robert Olins President of Argyle Capital Management Corp since 1985 and investor in HDTV since 1996 Financed numerous private and public companies in both the US and Europe EVP Ted Banzhaf, President/CEO of Spatialight Technologies Over 14 years experience on Wall Street working with technology growth companies Manufacturing experience in the plastics industry Helped finance numerous early stage public companies Director Claude Piaget, Ph.D. Over 11 years senior executive experience at Philips Electronics in product development, market development and business strategy Former CEO Digital Video Broadcasting (DVB) consortium Chief Operating Officer David F. Hakala, Ph.D. Over 25 years experience in consumer TV-Video and Display Industries Managed TV businesses at RCA; VP Manufacturing Operations and VP Product Development RCA/THOMSON Multimedia Americas Chief Technology Officer Michael Jin, Ph.D. Over 14 years experience in optics and laser industry on the private and government sides Held positions in R&D management, device and process development, contact management SVP of Sales & Marketing Don Suh Over 20 years experience in consumer electronics marketing and management with LG Electronics Director Robert C. Munro Mr. Munro is a Fellow of the Institute of Directors in the United Kingdom. He has extensive global business experience in the banking, real estate and shipping industries. 7

8 SpatiaLight Korea, Inc. Opened March 2005 Significant amount of nearly new equipment purchased from Philips Electronics at substantial discount to retail prices Finished under budget and ahead of schedule Initial capacity: 28,000 chipsets per month Full capacity expansion is planned to occur in 3 phases schedule based on demand Korean Government economic incentives: year land lease exemption (No cost for land to SpatiaLight) 2. Tax Incentive Zone 3. Economic incentives for employee training, R&D, etc. 8

9 9 HDTV vs Russell 2000 Index (3 yr.)

10 LCoS Technology And Its Competition 10

11 What is LCoS? Liquid Crystal on Silicon (LCoS) is a type of microdisplay device that is made from a Silicon microprocessor backplane coupled with a reflective pixelated Liquid Crystal layer surface. An LCoS display is a type of Spatial Light modulator. 11

12 SpatiaLight LCoS Microdisplays imagengine Standard CMOS Wafer (.35 µm) Proprietary IP Manufacturing Process 1920 x 1080p Pixel Array.73 Diagonal Analog VAN mode 3300:1 typical display contrast 12

13 No Color Break-up (Rainbow Effect) LCoS does not have the color break-up problem that many complain about in DLP. A television DLP light engine uses a single panel, as opposed to 3 panels in LCoS. Therefore, each frame must be displayed 3 times, one for each primary color, or sequentially (frame sequential color). This results in lower brightness, color break-up and other picture artifacts. LCoS and LCD processes the 3 primary colors separately but simultaneously by using 3 panels. This is called parallel color and provides a better picture for moving objects and low light scenes. 13

LCoS Light Engine 3 LCoS panels, each with 1920 x 1080p resolution, or 2 megapixels, are used to process the primary colors (from a television perspective) of the spectrum: Red, Green, Blue.

14 LCoS Light Engine 3 LCoS panels, each with 1920 x 1080p resolution, or 2 megapixels, are used to process the primary colors (from a television perspective) of the spectrum: Red, Green, Blue. The colors are combined using prisms to project true color image on screen. The Light Engine is the foundation of the projection television. LCD uses a similar design, while DLP uses a single panel system with a different type of color management system, typically a spinning color wheel (instead of prisms). Projection lens to the screen CMS & LCoS Panel Assembly Lamp FEL PBS 3 rd Lens CMS: Color Management System FEL : Fly Eye Lens PBS : Polarized Beam Splitter Folding Mirror 14 Lamp Housing 1 st Lens 2 nd Lens

15 What is LCoS s Competition? LCoS is one of three types of microdisplays (MDs) now being used in rear projection televisions (RPTVs) Traditionally RPTVs have been built using three cathode ray tube projectors (CRTs) and are very heavy and very bulky With the advent of microdisplays, the marketplace is seeing a replacement cycle from CRT-based to MD-based RPTVs Microdisplays based TVs are much smaller and lighter with the same screen sizes Additionally, with the advent of HDTV, MD RPTVs are seeing tremendous market size growth and potential. The other two MicroDisplay types: 1. DLP Digital Light Processor Invented and sold exclusively by Texas Instruments Single panel (chip) solution in television 2. LCD Projection LCD or High-Temperature Polysilicon Originally invented by Seiko-Epson transmissive (rather than reflective) microdisplay 15

16 LCoS is the Superior Technology True 1920x1080p Contrast Brightness Accurate Color Reproduction Screen Door Effect Color Break-up DLP LCD LCOS = poor = average = excellent 16

17 Unprecedented Picture Quality LCoS has the same high contrast as DLP, but with smoother color gradation and much more vivid color. LCD (Contrast under 1000:1) LCoS / DLP (Contrast over 2000:1) Low light scene reproduction is excellent. LCD/DLP LCoS 17

18 18 HDTV Market Overview

19 Why HDTV? Enabling technology for other CE products 19 Consumer Demand - for higher quality format; a theater-like experience in your own home Image resolution as much as 10x traditional television Widescreen view Surround sound audio Hollywood Standard being set for television and movies at 1920 x 1080 resolution, or more than 2 mega pixels Replacement Cycle - offered to OEMs for televisions New Content Standards available for content providers HD DVD format Catalyst for computers and video gaming Resolution quality enables a television as a computer monitor, or enables OEM to build computer/dvr/video Games into the television Video games are rapidly moving toward 1920 x 1080p resolution HD DVD will have the best picture available (1920 x 1080p), HD DVDs offer more storage space; allows increased features and functionality Virtuous cycle for vendors - The 1920x1080 screen is the ticket to the living room for sales of myriad CE products Creates increased demand for microprocessors, programming, editing capacity, storage space, increased bandwidth for carriers, etc.

20 Proliferation of HD Content 20 Source: DirectTV, networks: All networks in 1080i format except ABC, ESPN and Fox (720p)

21 HDTV Worldwide Sales & Pricing 60.0 $2, $2, HDTV Shipments (in Millions) 30.0 $1,500 Average Price (in $) $1, $ E 2006E 2007E HDTVs HDTV Average Selling Price $ $0 21 Source: Consumer Electronics Association, Hudson Square Research estimates

22 Global HDTV Shipments Market projected to grow at a 5-year CAGR of 61% to 52M units worldwide Represents $494 Billion in annual sales by CAGR = 61% Millions of Units E 2006E 2007E 22 Source: Hudson Square Research

23 Global HDTV Television Shipments (By Form Factor) Thousands of Units Projection HDTV Shipments Plasma HDTV Shipments LCD HDTV Shipments Source: Hudson Square Research

24 US HDTV Television Shipments (By Form Factor) 14,000 12,000 Thousands of Units 10,000 8,000 6,000 4,000 2, Projection HDTV Shipments Plasma HDTV Shipments LCD HDTV Shipments 24 Source: Hudson Square Research

25 Global Projection TV Shipments Growth and Replacement Cycle: Projection television market (typically sizes over 50 ) is expected to grow dramatically, while LCoS is expected to gain dominant market share within the category LCoS 5-year CAGR = 223% Millions of Units CRT LCD DLP LCoS Year 25 Source: Hudson Square Research

26 26 Opportunity Assessment

27 LCoS-HDTV Meets the Masses September 2005: Sony officially introduces its 70, 60 and 50 SXRD [1] (LCoS) 1920x1080p rear projection televisions at CEDIA for availability in the US in the Fall of [1] SXRD technology designed and manufactured by Sony, exclusively for Sony TVs. September 2005: JVC officially introduces its 70, 61 and 56 HD-ILA [2] (LCoS) 1920x1080p rear projection televisions at CEDIA for availability in the US in the Fall of [2] HD-ILA technology designed and manufactured by JVC, exclusively for JVC TVs. September 2005: LGE officially introduces its 71 LCoS (SpatiaLight inside) 1920x1080p rear projection televisions at CEDIA for availability in the US in the Fall of

28 LG Electronics Initial purchase of 9,300 sets of three T-3 imagers with SpatiaLight having the option to increase the purchase order to 16,800. Monthly firm orders to occur thereafter, 6 months in advance of delivery. SpatiaLight gives LGE up to 2 years exclusivity in Korea LGE gives SpatiaLight up to 2 years exclusivity as LCoS supplier LGE intends to offer a complete line of LCoS TVs with initial size introduced at CEDIA (9/05) as 71 Sizes expected to shortly follow anticipated to be 62 and 56 28

29 Worldwide OEM Market Rankings Worldwide Rank & Share by Microdisplay Technology (as of 6/05) DLP LCD Source: SpatiaLight Internal Market Assessment

30 Market Share Rankings U.S. and Worldwide Microdisplay Projection TV Market Share Rank Rank LCOS? # 1. Sony # 2. Samsung # 3. LG # 4. Panasonic # 5. Hitachi # 6. Toshiba # 7. Mitsubishi # 8. RCA Announced: Internally Develop LCoS Currently committed to DLP Announced: SpatiaLight OEM Customer Potential SpatiaLight Customer Potential SpatiaLight Customer Potential SpatiaLight Customer Potential SpatiaLight Customer Potential SpatiaLight Customer 30 Source: SpatiaLight Internal Market Assessment

31 31 Summary

32 SpatiaLight Investment Highlights SpatiaLight s Proven Technology Leadership: Best Projection Technology Industry Leading Yields: Intellectual Property (IP): 5 U.S. patents, others pending Experienced Management Team Exclusive OEM Tier 1 Design Win with LG State-of-the-art Korean manufacturing facility High Growth HDTV Market - Worldwide LCoS expected to take market share from DLP and LCD in 50 and Larger HDTV market Numerous Top Tier 1 HDTV OEM Opportunities 32

33 33 Q & A

LCOS for Large-Screen HDTV

LCOS for Large-Screen HDTV LCOS for LargeScreen HDTV BOB MELCHER, CTO JULY 28, 2004 LCOS HDTV 2 Agenda What is the opportunity for microdisplay HDTVs? Why are LCOS microdisplays the preferred technology for highperformance HDTV?