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                          SECURITIES AND EXCHANGE COMMISSION

                                 WASHINGTON, DC 20549

                              -------------------------
                                    FORM 10-KSB/A

                          AMENDMENT TO APPLICATION OR REPORT
                     FILED PURSUANT TO SECTION 12, 13 OR 15(d) OF
                         THE SECURITIES EXCHANGE ACT OF 1934


                     SPATIALIGHT, INC. (f/k/a SAYETT GROUP, INC.)
                  (Exact name of registrant as specified in charter)


                                   AMENDMENT NO. 2

The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for the fiscal year
ended December 31, 1995 on Form 10-KSB as set forth in the pages attached
hereto:

         Item 1.   Description of Business.

         Item 3.   Legal Proceedings

         Item 6.   Management's Discussion and Analysis

         Item 7.   Financial Statements

         Item 13(b).

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ITEM 1.     DESCRIPTION OF BUSINESS

INTRODUCTION. Sayett Group, Inc. (now known as Spatialight, Inc.) (the Company),
incorporated in New York in 1989, is a holding company that is developing high
content information and video displays. Through its investment in WAH-III
Technology Corporation (now known as Spatialight of California, Inc.) (WAH-III),
the Company is involved in an effort to commercialize a small, high resolution
active matrix liquid crystal display (LCD) which would be manufactured
domestically and provide high quality images at a significant reduction in cost.
Initially funded by the Company in December, 1992, WAH-III has subsequently been
producing prototype display systems. These displays have been made available to
potential customers who are involved in the development of applications of this
technology including head-mount displays, optical computing, computer monitors
and other projection applications.

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HISTORIC BACKGROUND AND DISPOSITION OF HISTORICAL OPERATIONS.  The Company was
formed in 1989 to acquire Sayett Technology from Eastman Kodak Company. Sayett
Technology produces and markets a family of electronic imaging equipment and
components for the multimedia marketplace. Following the acquisition of Sayett
Technology, and the Company's initial public offering in 1992, the Company
pursued a strategy of developing or acquiring additional businesses with a
strategic "fit" with the core business of Sayett Technology. These included
Surmotech, Inc. (a surface mount circuit board manufacturer), Inter Vision
Systems, Inc. (a head mount display company) and WAH-III Technology Corporation.

WAH-III was founded in 1991 as a California corporation by W. Albert Hastings,
III. Mr. Hastings was previously employed by a Motorola subsidiary working with
semiconductor-based technologies. Sayett had been WAH-III's sole source of
funding since its first investment on November 25, 1992. Sayett has invested
more than $2 million in WAH-III to date. Sayett completed a reorganization of
WAH-III on January 25, 1995 by completing an 80% acquisition via a stock
transaction and taking over operational control of the Company and began
reporting WAH-III as a consolidated subsidiary.


During 1995, the Company determined that it could no longer follow its previous
strategy.  Surmotech's inability to generate sufficient orders in its low
margin, high volume business led to increasing losses in Surmotech.  Sayett
Technology faced increasing competition from larger, better-capitalized
competitors including Sharp, In Focus and nView.  The competitive nature of the
marketplace led to ever-shortening product cycles and narrower margins, and the
Company discovered that it was unable to recover its development costs on new
products.  This led to increasing losses in Sayett Technology which were being
supported by the Company.  Simultaneously, the Company invested $1,300,000
in InterVision System (ISI), which ISI completely expended in its efforts to
commercialize its head mount display product. The Company's obligation to fund
the ongoing operations of Intervision ended in March 1995; the Company has not
provided additional funding toIntervision since that time.

After the Company increased its interest in WAH-III to 80% in January 1995, it
undertook a thorough re-evaluation of the technology, stage of development and
potential markets for the WAH-III LCD under development.  The results of that
re-evaluation convinced the Company that this product had great potential if
successfully developed.  However, given its limited financial resources, the
Company was unable to both support its operating subsidiaries and pursue the
development of the WAH-III LCD.  Therefore, the decision was made to divest the
operating subsidiaries and focus the Company's resources on the development of
the WAH-III LCD.

The assets of Surmotech were sold in June 1996 to its manager for $188,000 cash.
The Company retained the liabilities of Surmotech, including the existing
lawsuit relating to its lease in North Carolina. See Legal Proceedings. In 
August the Company commenced a search for a purchaser for Sayett Technology, 
by sending preliminary information packages to entities identified by

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the Company as potential purchasers. Those companies which expressed interest in
purchasing Sayett Technology were sent additional due diligence information.
Ultimately, the results of that effort produced no potential purchasers for
Sayett Technology.

The Company was then faced with the question whether to shut down its
subsidiary. In that atmosphere, in late November 1995, the Company's chief
financial officer and Sayett Technology's president approached the Board of
Directors  and proposed to buy the Company. After extensive negotiations over
price and terms, in which the parties were each represented by counsel, the
Board agreed to sell the stock of Sayett Technology to these officers. Selling
the stock meant that all liabilities of the subsidiary were assumed by the
purchasers. The purchasers paid $300,000 by delivery of a promissory note
secured by the stock of Sayett Technology; $50,000 of principal plus accrued
interest was paid on March 31, 1996.  The Board obtained an independent expert
opinion as to the fairness of the transaction. 

The divestiture of its operating subsidiaries was intended to end the continued
operating losses projected for those entities and to permit the Company to focus
its management capabilities and its financial resources on the development of
the WAH-III LCD. In fact, this intended result has been accomplished. However,
the divestitures also eliminated the bulk of the Company's sources of operating
revenues. Until it is successful in developing and marketing the LCD product,
the Company will be dependent upon its existing financial resources and outside
funding to support its activities.

TECHNOLOGY. An LCD consists of liquid crystal material between two pieces of
glass, and associated polarizers. The liquid crystal material has long tubular
molecules with a natural twist. These molecules untwist in response to an
applied electric field. As the molecules untwist, light can pass through the
glass. Projection panels generally use super-twisted nematic ("STN") LCDs
invented in 1983. Molecules in STN LCDs have a high degree of twist and are very
responsive to an applied electric field. These characteristics first permitted
the manufacture of LCDs in sizes and resolutions suitable for use in computer
displays and projection panels.

Technologies for developing color with LCDs fall into two categories, additive
and subtractive. Additive color techniques require each dot or picture element
("pixel") on the display screen to be divided into three sub-pixels. A color
filter is applied to each sub-pixel, causing each sub-pixel to transmit red,
green, or blue light. The viewer's eye combines the colored light from the three
sub-pixels to create the perception of the full spectrum of colors. Additive
technologies, also referred to as "color filtered" technologies, include both
passive and active matrix approaches. To date active matrix has been most
commonly accomplished through the use of thin film transistor ("TFT")
technology, in which a transistor is placed on the glass substrate at each
sub-pixel location and is used to control that sub-pixel.

TFT panels require multiple transistors at each pixel location. A standard 640 X
480 pixel screen requires a minimum of 921,000 transistors placed on the glass
panel, resulting in lower manufacturing yields and correspondingly higher costs.
TFT panels are considerably

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faster in operation than comparable passive panels, which is a major advantage
of color TFT panels over color stacked panels in interactive applications such
as computer animation and video presentations.

The high cost of TFT panels and supply limitations from Japanese suppliers
prompted the Company to invest in WAH-III Technology Corporation in December
1992. WAH-III is in the process of developing a small, high resolution active
matrix LCD which would not require the array of transistors to be placed on the
glass at each pixel location. As a result of this patent pending process
improvement, the WAH-III LCDs are expected to be much less expensive than
TFT-based active matrix LCDs while exhibiting similar performance
characteristics. During 1993, 1994 and 1995, WAH-III manufactured numerous
prototype LCD's and made them available to customers who are developing products
around a small-format display. While the Company is convinced of the commercial
viability of the WAH-III efforts, there is no assurance that this process will
be successful in full commercialization. A failure of this effort could have a
significant adverse effect on the financial performance of Sayett Group.

PRODUCT DEVELOPMENT. WAH-III has designed a miniature (.75" diagonal) highly
efficient reflective active matrix liquid crystal display (AMLCD) that is also
known as a spatial light modulator (SLM). This device is capable of handling
computer and video output at very high speeds, clarity and contrast.

The device functions as an electronically variable retarder offering gray
scaling at 256 levels per pixel. The current device is a 2 dimensional array of
740 x 512 pixels on 20 micron centers. Low manufacturing costs compared to other
LCDs are anticipated due to the fundamental chip technology utilized and the
placement of the pixel format directly onto the silicon wafer itself, as
described above.  In addition to anticipated lower costs in high volume
manufacturing, the device is anticipated to have improved light efficiency
compared to TFT displays used in today's computer projectors and computer
monitors.

Additional effort and funds will be required in order to design and produce a
1280x1024 format device for XVGA applications in holographic storage large
screen monitors and head mount displays (HMDs). Engineering efforts are also
required to finalize field sequential color capabilities, and display filing,
sealing and wire bonding processes. 


APPLICATIONS AND MARKETS. The Company believes that the cost and configuration
of the WAH-III AMLCD will make it an ideal technology for certain applications
within the display industry. In particular, the Company has identified
significant competitive advantages which should be attainable with respect to
the Company's AMLCD when used for LCD projection systems, as a substitution for
computer monitors, and within head mounted displays.  In describing the
anticipated markets for this product, however, it must be emphasized that there
are not currently any products produced for the marketplace which utilize the
Company's AMLCD; the Company will be completely dependent on third party
manufacturers to develop and market such products after the Company has
demonstrated the viability of its display.  

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LCD PROJECTION SYSTEMS:

While the original video-only projectors were reasonable in size and moderate in
cost (approximately $4,000), full-resolution computer data and video projectors
have been large and expensive. The current technology of TFT LCDs results in a
light efficiency of less than 10%. This problem, coupled with the desire for
large projected images, has made it necessary for LCD projection systems to use
expensive light sources which are quite heavy and require extensive cooling.
Because of the anticipated high efficiency of the Company's AMLCD and its small
size and weight, the power and illumination requirements associated with a
projection system could be significantly reduced. The resultant size of a
projection system would be competitive with video-only projection systems.
Moreover, the cost of a color AMLCD should be significantly less than that of
conventional TFT-based products when produced in volume.

It is estimated that LCD projectors will represent a market of $384 million by
1997. A lower-cost small-format product could have a significant impact upon
this market. The Company intends to pursue that market in conjunction with LCD
projection manufacturers.  Several manufacturers currently make projection
systems based in LCD technology, including Sharp, InFocus, nView, and Proxima.

COMPUTER MONITOR ALTERNATIVES:

The same concepts used for LCD projection systems can be applied to enclosed
projection systems as an alternative to CRT (cathode ray tube) technology. The
Company's LCD can be placed in the back of a display "box" with the image
projected upon a screen similar to the way in which projection TV systems
operate today. The Company has to date been able to increase its resolutions in
multiples without increasing cost dramatically due to the low cost process
associated with manufacturing its components. As a result, the Company believes
that the WAH-III computer and video display system can be configured to be
whatever size is demanded by the user. The incremental cost of moving from one
screen size to the next should be minimal since it will only involve increasing
the dimensions of  "benign" componentry associated with display.

In contrast, CRT systems must be designed from the start to be the same size as
the ultimate display. The cost of these systems is, therefore, dependent upon
the volume for that particular size and resolution of the CRT. The increase in
desired sizes and resolutions will require an alternative to the historical CRT
technology. The Company hopes to exploit this opportunity.

HEAD MOUNTED DISPLAYS:

Head mounted displays utilize visors or small CRT screens to display information
from an apparatus which is worn around a persons head. Significant attention has
been paid by the media to virtual reality applications of head mounted displays
which encompass the eyes and ears of the wearer. As display prices decline, it
is believed that these devices will become more readily accepted by the mass
market for video games and training programs.


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In the meantime, the area where the Company envisions significant growth within
the next five years involves the use of head mounted displays which can be
easily viewed while an individual performs another task. By adding a "wearable"
computer in the form of a belt which is battery operated and connected to a head
mounted display, some complicated maintenance and repair procedures can be
greatly simplified.

An example of this application involves the use by the military of a wearable
computer with a head mounted display that allows voice activated computing. When
performing maintenance procedures on a large aircraft or ship, the schematic
diagram for the particular area being maintained along with the procedures
associated with maintenance can be called up by voice command while the
maintenance person executes their tasks. This frees the worker from carrying
numerous manuals which must be "flipped through" in order to find the proper
schematic and procedure. It also allows individuals who are entering "disaster
areas" including fires and ruptures to identify the affected componentry and
propose a plan of action in order to remedy the situation quickly. For these
reasons and many more, the US. government has become interested in finding
smaller displays which can be used for head mounted applications. Several
companies, including Kaiser, Kopin and Virtual I-O, currently are producing
HMD's. These products do not currently utilize the Company's LCD, however.

SPATIAL LIGHT MODULATORS

When WAH-III was formed in 1991, the Spatial Light Modulator (SLM) market was
not initially determined to be an area of focus. Subsequent advances in optical
computing and optical data storage technology coupled with interest in the
Company's technology from a number of prominent companies and research
institutions have led Company management to conclude that the SLM market
represents a significant opportunity.

The SLM market is currently a high dollar, low volume market, because companies
are purchasing small numbers of hand produced units for testing and product
development purposes.  Most SLMs range in price from $8,000 to $50,000, which is
significantly above the Company's cost to produce an individual SLM.  The low
volume, high price nature of the marketplace is expected to continue for the
near term, until one or more third parties develop high volume products
utilizing the SLM.  In the long term, it is anticipated that the SLM market will
become a multi billion dollar market.  The Company intends to develop its SLM to
take advantage of that market opportunity.

At this time, there are two primary applications for SLMs; optical computing and
optical data storage systems.

i)  OPTICAL COMPUTING  

By using the speed of light, it is believed that optical computing systems will
be able to far exceed the speed and storage constraints inherent within current
micro processing technology. The first step toward complete optically-based
systems will involve the development of fully functional optical correlators. An
optical correlator is a massive parallel processing computer which is utilized
for pattern recognition where large amounts of information must be processed in
parallel in "real time". The US. military is

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spearheading research in this area to develop "friend or foe" battlefield
recognition systems.

The Company has been developing prototype SLMs under a contract with Teledyne
Brown Engineering (TBE) for use in an optical correlator which is being
developed by them in conjunction with TRW. TBE has completed a prototype optical
correlator which, for certain applications, operates at speeds which are ten
times faster than a Cray super computer.

In addition to military applications, optical correlators are predicted to be
highly effective for systems including commercial and consumer security, robotic
vision and robotic intelligence, high speed databases, manufacturing quality
inspection, signature recognition and artificial intelligence.

ii) OPTICAL DATA STORAGE SYSTEMS

Light-based storage systems have already made significant inroads against
magnetic media over the past five years. Many personal computer systems now
include compact disc drives as standard equipment. Advanced optical data storage
systems now under development offer the potential for 10 times greater storage
densities than current CDROM (compact disc read only memory) drives. These
systems have the potential to provide data access and transfer rates which
approach speeds which are 1000 times faster than conventional storage systems.

It is anticipated that the performance of these new systems will result from the
use of laser light in creating a three dimensional, holographic image onto a
crystal. In the projected prototype system, the image created will be controlled
by a SLM in the optical system and will result in a storage density that far
exceeds the two dimensional approach used by optical discs, magnetic discs and
electronic chips. As a result, the data access and transfer capabilities of
holographic data storage systems may become exponentially faster than
conventional systems.

Holographic systems require SLMs that have high light efficiency, resolution,
and levels of gray scale. The Company believes that its SLM will be capable of
modulating significantly more data than other SLM products due to its superior
specifications.  Holographic storage systems are still in development; no such
product is currently on the market.

MARKETING AND DISTRIBUTION. The Company announced the commercial availability of
the SLM on July 11, 1995 at the SPE conference in San Diego. WAH-III has a
non-exclusive distribution agreement with Meadowlark Optics in Longmount, CO to
market the device in low volumes primarily to large corporate research
departments and university research labs. In single quantities, the retail 
list price as of December 31, 1995 was $25,000 including the electronics. 
WAH-III has also benefited directly from sales of its SLM to Teledyne Brown 
Engineering (TBE), a business unit of Teledyne. TBE has utilized the WAH-III 
SLM for several project applications including optical scanning/computing and 
head mounted displays (HMDs).

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The Company is currently dependent for its sales to Meadowlark Optics and on to
Northrup Grumman, which in 1995 accounted for 61% and 39% of the Company's
sales, respectively.

WAH-III has also been working closely with a major government contractor who is
planning to develop a holographic mass storage and retrieval product for the
commercial market. The contractor has a joint partnership with a non-military
company and the WAH-III SLM is one of the critical components to this holography
application where light reflectivity and surface flatness are critical. This is
still an early stage product development effort by the WAH-III's customer.

MANUFACTURING AND SUPPLY. WAH-III subcontracts with outside suppliers for the
manufacture of its displays (SLMs and LCDs). The Company currently undertakes
final assembly and testing of the products before shipment. The companies
utilized in the production process have extensive experience in semiconductor
fabrication and LCD manufacturing. The Company believes that available
manufacturing capacity at its subcontractor facilities is sufficient to satisfy
potential demand for the foreseeable future.

The Company's principal suppliers are Orbit Semiconductors for wafers,
Meadowlark Optics for process manufacturing including mounting glass to die,
filling liquid crystal, and sealing, and DCI for wire bonding of display to
circuit board. During the first quarter of 1996, the Company experienced
production problems resulting from the actions of one of its subcontractors,
which subcontractor changed the liquid crystal material and made manufacturing
process changes that the Company had not authorized.  These changes resulted in
the failure of the resulting products to meet minimum specifications, and
prevented the Company from shipping any production the first quarter.  As a
result of this inability to ship, the Company determined that its investment in
WAH-III Technology Company, Inc. had been impaired, and wrote off the goodwill
associated with that investment.  See footnote 4 to Sayett Group, Inc. and
Subsidiaries Consolidated Financial Statements, at pages 26-27 of the Company's
Annual Report on Form 10-KSB for the period ended December 31, 1995.

The Company's ability to continue to develop and improve its designs was
limited, prior to 1996, by the necessity to fund its operating subsidiaries and
a concomitant lack of financial resources to devote to this development.  The
divestiture of Surmotech and Sayett Technology has enabled the Company to devote
its full resources in 1996 and beyond to the development of the WAH-III LCD. 
The raising of additional capital in July 1996 has allowed the Company to
accelerate this process by improving facilities and hiring additional
engineering staff.

COMPETITION. The active matrix LCD market has been dominated by Japanese
manufacturers with UPS. manufacturers garnering less than 1% of the worldwide
market. Japanese companies including Sharp, Hitachi, Seiko, Epson, Sanyo and
Toshiba (in partnership with IBM) have invested heavily in this market and,
historically, concentrated on larger format (8" to 10") displays used in
portable computers. To date, attempts by US.

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based manufacturers to supplant Japanese dominance in computer flat screens have
resulted in disappointment.

Kopin Corporation of Taunton, Massachusetts has developed a rival technology
which it has been attempting to commercialize since the early 1990s. Sayett
management believes that the Kopin approach is more complex than the approach
being used by WAH-III. Xerox Corporation recently announced that it will be
producing a 7 million pixel display LCD for certain high cost applications. The
Company does not believe that this particular product will be a direct
competitor with products from WAH-III. Other, well capitalized companies have
attempted to design and produce an LCD or SLM. These include OIS Ovonics and
Motif, a joint venture involving Motorola and In Focus Systems. 

Perhaps the greatest competitive threat to the success of the WAH-III display is
represented by the significant growth of polysilicon displays from Japanese
manufacturers including Epson and Sony. These small, high resolution displays do
not yet meet the performance criteria being set by the Company for its WAH-III
SLM product. With continued development, however, the low cost and high volumes
associated with polysilicon LCDs could prove to be formidable for the Company in
its quest to gain market share in the display industry.

PATENTS AND TRADEMARKS. WAH-III has obtained three patents on its process, and
has a number of additional patent applications in process. Sayett also protects
its proprietary information through non-disclosure agreements with customers and
suppliers. The Company generally requires its employees to execute
confidentiality agreements on the commencement of employment. The agreements
generally provide that all inventions or discoveries by the individual belong to
the Company and that all confidential information developed or made known to the
individual during the term of employment shall be kept confidential and not
disclosed to third parties.

LEGAL PROCEEDINGS. Surmotech, Inc. has been sued in North Carolina relating 
to a lease for real property which was executed, but the space was never 
completed or occupied. This claim has been settled. In addition, the Company 
has been sued by the investors in its July, 1996 financing for a series of 
claims arising out of the delay in filing a registration statement for the 
Shares issued in the financing. The Company is not a party to any other 
currently pending legal proceedings, or contemplated governmental authority 
proceeding, of which the Company is aware.  See Item 3. Legal Proceedings 
below.

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PRODUCT LIABILITY. As a manufacturer and marketer of electronic equipment and
components, the Company may be subject to potential product liability claims.
There can be no assurance that the Company will have sufficient insurance to
cover all possible liabilities. In the event of a successful suit against the
Company, such an insufficiency of insurance coverage could have a material
adverse impact on the financial condition of the Company. In addition, the costs
of defending or settling a product liability action and the negative publicity
arising therefrom could have a material adverse impact on the Company. The
Company is not aware of any current pending or threatened product liability
claim against it.

ENVIRONMENTAL COMPLIANCE. The Company has not been materially affected by nor
has it incurred any significant costs related to compliance with federal, state
or local environmental laws.

EMPLOYEES. As of December 31, 1995, the Company had 5 employees, all of whom
were full-time. Employment is divided among two functional areas with 2 in
engineering and 3 in finance and administration. The employees are not
represented by any collective bargaining organizations.  The loss of either Mr.
William Hollis, the Company's Chief Executive Officer, or of Mr. Dean Irwin, its
Vice President, could have a material adverse affect on the business of the
Company.

ITEM 3. LEGAL PROCEEDINGS.

Surmotech, Inc. has been sued in North Carolina relating to a lease for real
property which was executed, but the space was never completed or occupied. The
Company is vigorously defending this claim. The Company is not a party to any
other currently pending legal proceedings, or contemplated governmental
authority proceeding of which the Company is aware.

The case was commenced May 16, 1995 by Parker-Raleigh Development I-Limited
Partnership and Parker-Raleigh Development XX Limited Partnership as plaintiffs
against Surmotech, Inc. and Intervision Systems, Inc. and is pending in Superior
Court, Wake County, North Carolina.  The Company was added as a defendant in
September, 1996.  The action arises out of a series of leases for industrial
space.  Surmotech originally executed a lease for space in North Carolina.  When
it was subsequently determined that Surmotech would not commence operations in
North Carolina, Surmotech negotiated a settlement pursuant to which the Landlord
agreed to release Surmotech from its obligation in exchange for a lease to be
executed by Intervision.  The plaintiffs' new claim, and the court has held,
that Surmotech breached the settlement agreement because Intervision never
entered into a valid lease.  The original claim was for money damages of
$100,000 plus interest and costs.  The plaintiffs have recently claimed damages
totaling approximately $370,000.  A mediation session to explore settlement 
was held on January 23, 1997. As a result of that mediation, Spatialight 
has agreed to settle the lawsuit for payments totalling $60,500.

By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and Sabotini, 
Ltd. (the "Investors") notified the Company that these Investors were 
electing to rescind the Share Purchase Agreements dated July 10, 1996, as 
amended, under which the Investors purchased a total of 2,135,000 shares of 
common stock in the Company, and were demanding a refund by January 17, 1997 
of the purchase price of such shares, or $1,783,125, plus interest. The 
alleged ground for rescission is the fact that this registration statement on 
Form S-3 pertaining to the resale of such shares was not declared effective 
by the SEC on or before December 31, 1996. Subsequently, by letter dated 
February 3, 1997, counsel for the Investors notified the Company that 
Jalcanto, Ltd. has retracted its demand for rescission, with reservation of 
all rights. The letter reiterated the rescission demand on behalf of Sabotini 
Ltd., and the request that the Company return $891,562.50.

On February 5, 1997, the Company was served notice that it has been sued by 
each of the Investors in the Superior Court of the State of California for 
the County of Marin. Each Investor filed a complaint for breach of contract, 
specific performance and indemnification relating to the alleged failure to 
timely complete this registration statement. In addition, each complaint 
requests that the court issue a preliminary and permanent injunction against 
future issuances of shares of the Company's common stock or securities 
convertible into common stock without the Investor's consent. The complaint 
filed by Sabotini Ltd. also requests rescission and the return of the full 
purchase price of its shares.

Along with its complaint, Sabotini Ltd. has requested that the court 
immediately issue a writ to attach approximately $920,000 of the Company's 
assets as security for the ability to enforce any eventual judgement. A 
hearing on the application for a writ of attachment is set for February 26, 
1997. If the court issues a writ of attachment, the Company would be deprived 
of substantially all of its working capital, which would have an immediate 
material adverse effect on the Company's business and financial position and 
its ability to fund ongoing operating expenses.

The Company intends to defend itself vigorously in both actions. The Company 
may be required to expend substantial funds and management resources in 
connection with the defense and any settlement or judgement, which could have 
a material adverse effect on the Company's business and financial position.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following Management Discussion and Analysis should be read in conjunction
with this entire Form 10-KSB 1995 Annual Report. Particular attention should be
directed to the Consolidated Financial Statements as they are found on pages
17-30. It should be noted that the financial statements presented herein have
been adjusted to reflect the operations of Sayett Technology, Inc. and
Surmotech, Inc. as "Discontinued Operations". As a result, the sales and
expenses associated with those two wholly-owned subsidiaries of Sayett Group for
the years ended December 31, 1995 and 1994 have been condensed and are being
reported as a single line within the body of the statement of operations
entitled "Losses from Discontinued Operations, Net of Income Tax".

RESULTS OF OPERATIONS

Revenues. Net sales for the year ended December 31, 1995 were $95,857. This
amount represented sales of four "Spatial Light Modulators" (SLMs) by WAH-III
Technology


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Corporation (WAH-III) to two customers. Sayett Group, Inc. reported no sales
from its continuing operations for the year ended December 31, 1995. The company
believes that a significant increase in sales of its Spatial Light Modulator
product will be required in order for the entity, to continue as a going
concern. The lack of significant sales improvement will have a material adverse
affect upon the financial condition of the Company.

OPERATING EXPENSES. The cost of sales reported for the year ended December 31,
1995 represented product costs associated with the production of prototype SLMs.
The Company did not consolidate its operations with WAH-III for the year ended
December 31, 1994 and, therefore, did not report any costs of sales for 1994. 
The Company anticipates that the cost of sales will increase at a rate 
greater than any increases in sales due to the prototype nature of initial 
sales of the product and the potential impact of competition relative to 
volume sales of SLMs.

Selling, general and administrative expenses declined by $296,768 or 36.2% when
comparing the year ended December 31, 1995 with the year ended December 31, 
1994. This reduction reflected payroll and administrative expense reductions 
implemented by Sayett Group during the latter part of 1994 including the 
elimination of two accounting staff positions ($75,000), reduction of 
engineering ($80,000) and sales ($30,000) staff, and outsourcing of 
government contract sales to an independent contractor ($100,000). Further 
reductions were implemented during the fourth quarter of 1995, which should 
result in lower future selling, general and administrative expenses for 1996.

Research and development expenses recorded for 1995 reflected the consolidation
of WAH-III and Sayett Group activities for that year. The 1994 period did not
include WAH-III. While the Company believes that it can complete the development
and commercialization of the WAH-III SLM, additional, significant expenditures
for research and development may be required. The inability of the Company to
achieve full commercialization of the WAH-III product and the lack of sufficient
financial resources to adequately fund development efforts could have a material
adverse impact upon the financial condition of the Company.

"Other" operating expense was recorded for the year ended December 31, 1995
related to the impairment of goodwill associated with the purchase of a majority
interest in WAH-III Technology Corporation during the first quarter of 1995. At
the time of the purchase, it was anticipated that the sales of SLMs from WAH-III
would continue to increase during the remainder of 1995 as production processes
and component specifications were finalized for commercialization. While the
sales performance of WAH-III showed substantial improvement during the second
and third quarters of 1995, the Company was unable to continue selling its
products to one of its major customers. As a result, the sales performance of
WAH-III declined to near zero during the fourth quarter of 1995. This decline,
coupled with the sale of Sayett Technology and the resultant diminished
prospects that vertical integration would be available for WAH-III within Sayett
Group, indicated that the goodwill of $1,475,965 which was recorded upon the
purchase of WAH-III was substantially impaired. This impairment caused a charge
to other operating expense of


                                          10

<PAGE>

$1,475,965 on December 31, 1995. The charge is not expected to recur due to the
fact that there is no further goodwill associated with the investment by the
Company in WAH-III.

The impact of the impairment of goodwill and increased operating expenses
recorded during 1995, resulted in total operating expenses of $2,522,457 for the
period versus total operating expenses of $820,708 for the year ended December
31, 1994. While the Company does not anticipate a recurrence of the impairment
of goodwill, the Company will be required to invest substantial additional sums
in its WAH-III subsidiary in order to make the product sufficiently competitive
and cost effective in the marketplace. To achieve its goals, the Company will
require significant, additional funding from outside sources. Should the Company
be unable to secure such funding, there would be substantial doubt as to its
ability to continue as a going concern.

OTHER NON OPERATING INCOME (EXPENSE)

During 1994, the Company committed to invest $1,350,000 in Inter Vision Systems,
Inc., a developer of head mounted computer and display systems. InterVision
utilized the funding provided by the Company in an intensive combined effort to
perfect its product and to generate sales thereof; these efforts proved largely
ineffective and InterVision expended all of the cash invested by the Company
within 18 months. Because the Company had provided substantially all of the
capitalization of InterVision, the equity method of accounting was applied to
the results of InterVision and resulted in a charge of $925,286 for the 1994
period. 

Also, during 1994, the Company applied the equity method of accounting to its
investment in WAH-III Technology Corp. convertible debentures and recorded a
charge of $612,000 in connection with its investment with WAH-III. The
combination of these two charges totaled $1,537,286 for the year ended December
31, 1994.


During 1995, the Company recorded a charge of $424,714 representing its equity
in the loss of Inter Vision Systems, Inc. This charge brought the Company's
investment in Inter Vision to zero as of September 30, 1995. The future
viability of Inter Vision is uncertain at this time and the Company does not
anticipate recovering any of its investment. It is therefore, anticipated that
this charge will not recur in future periods.

Interest income recorded for the two periods being compared was relatively
constant. This is the result of two factors. First, the Company invested all of
its idle cash in interest bearing, short-term securities during 1995. This had
the effect of increasing interest income from idle cash balances. During 1994,
the Company received interest income from its investment in debentures in
WAH-III Technology Corporation. Due to the conversion of those debentures, the
Company did not receive interest income from them in 1995. It is anticipated
that interest income will continue to decline significantly until such time as
the Company can secure additional financing.

During 1994, the Company posted a loss on its investments of idle cash which
totaled $161,217. The loss during 1994 was related to the impact which rising
interest rates had


                                          11

<PAGE>

upon the value of fixed income securities held in the Company's portfolio. The
Company had been using an investment management firm for the purpose of
investing idle cash balances and terminated its relationship with the firm
during 1994. As a result, the Company invested its idle cash in interest bearing
securities of a short term nature during 1995 and did not sustain any loss of
principal during the year.

Other (loss) and income items declined by $10,092 when comparing the two periods
due to the impact of certain fixed asset sales and other, non-operating costs
sustained by the Company during 1995.

INCOME TAXES. Income tax expense represents minimum tax liabilities resulting
from the Company's operations in California and New York State. While the
Company has in excess of $4,000,000 of net operating loss deductions and credits
to be applied against future tax liabilities, the potential tax benefit
associated with these items has been offset by an allowance account due to the
Company's limited operating history and recurring operating losses.

LOSS FROM CONTINUING OPERATIONS. As a result of the above factors, the Company
recorded a loss from continuing operations of $2,791,990 for the period ended
December 31, 1995. During 1994, the Company recorded a loss from continuing
operations of $2,444,140. The level of loss sustained in both periods is not
anticipated to recur. Substantial operating performance improvements, however,
will be needed in the near term in order for the Company to continue as a going
concern.

DISCONTINUED OPERATIONS. During 1995, the Company sold Surmotech, Inc., a
manufacturer of populated circuit boards on July 1. The Company also completed
the sale of its Sayett Technology, Inc. subsidiary on December 29, 1995. As a
result of these two sales, the net operating results for the two entities have
been combined and reported as "losses from discontinued operations, net of
income tax". While the combined losses from these entities totaled $49,215 for
the year ended December31, 1994, they increased substantially to total
$1,796,757 for the year ended December 31, 1995. The losses in Surmotech
resulted from an inability to attract sufficient orders in what is a high
volume, low margin commodity business. Sayett Technology's losses were
compounded by shorter product cycles and competitive pressure on prices,
combined with an increasing inability to compete with larger, better-capitalized
entities selling essentially the same products. In addition, Sayett Technology's
losses were increased by the expiration of certain amortizing liabilities
arising from the original purchase from Kodak. The consistent, recurring losses
sustained by both companies prompted the Company to sell these entities in order
to focus on its LCD manufacturing venture, WAH-III Technology Corporation.  The
Company does not believe that it has incurred any potential liabilities arising
from the sale of these entities.

In connection with the sale of Surmotech and Sayett Technology, the Company
recorded a loss of $66,636 for the year ended December 31, 1995. Neither of
these losses are anticipated to recur in the future.


                                          12

<PAGE>

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities totaled $36,252 for the year ended
December31, 1995. The Company offset its loss of $4,655,383 through non-cash
activities including depreciation, losses in invested companies and other
operating expenses which aggregated $2,258,369. The Company generated cash
through reductions in assets including investments, accounts receivable,
inventories, prepaid expenses and other current assets totaling $3,344,412.
Through reducing liabilities including accounts payable, accrued expenses and
product warranty liability, the Company used $941,859. The Company anticipates a
continued benefit from the non-cash cost of depreciation expense in the future.
The amount posted for losses in invested companies is not expected to recur. The
Company does not anticipate being able to benefit from reductions in non-cash
assets and increases in liabilities in future periods.

During 1995, the Company expended $423,479 due to its investing activities. The
Company spent $212,831 for capital expenditures and $375,000 in satisfaction of
its commitment to invest in Inter Vision Systems. As an offset to these
expenditures, the Company generated $164,352 from the sale of its Surmotech and
Sayett Technology subsidiaries. With the exception of some continuing capital
expenditures in order to complete the commercialization of the WAH-III LCD, none
of the other factors involved in investing activities are anticipated to recur
in the future.

The operating and investing activities identified above resulted in a net
decrease in cash and cash equivalents of $459,731 for the period. Many of the
items discussed herein which served to offset the impact of the substantial loss
sustained by the Company are not expected to recur. While the Company has
implemented specific programs in order to address its operating performance and
has shed previously unprofitable operations, there can be no assurance that the
Company will be able to reverse its historical trend of declining cash and
investment balances.

LIQUIDITY

As of December 31, 1995, the Company had $713,000 in cash and money market
accounts. Net working capital approximated $612,000 and the Company had a
current ratio of 14.7 to 1. Management does not believe that it currently has
sufficient liquid assets in order to operate the Company through 1996 at the
level necessary to develop and exploit the WAH-III technology. It is believed,
therefore, that raising additional financing for the Company will be critical to
its ultimate survival and will be required prior to the end of the third quarter
of 1996.

CAPITAL RESOURCES

During 1995, the Company expended $212,831 for capital purchases. Additional,
substantial investments in capital equipment may be required for the Company to
bring its WAH-III subsidiary closer to commercial production of a small liquid
crystal display, also known as a spatial light modulator. The Company is
currently seeking outside sources of capital to effect such funding. To this
date, however, the Company has not been successful

                                          13

<PAGE>

in securing such financing and any lack thereof will have a material adverse
impact on the further development efforts at WAH-III and the financial viability
of the Company.

EFFECT OF INFLATION

The Company has not and does not anticipate being materially affected by
inflation at this time.



                                          14
<PAGE>

Item 7.   Financial Statements 

                        SPATIALIGHT, INC.


                        Financial Statements as of and for the 
                        Years Ended December 31, 1995 and 1994 
                        and Independent Auditors' Report




                                        15
<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of 
Spatialight, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of
Spatialight, Inc. and subsidiaries (the "Company") (formerly Sayett
Group, Inc.) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1995. 
Those financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the ;amounts and disclosures in the
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Spatialight, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  As
discussed in Note 1 to the consolidated financial statements, successful
completion of the Company's development program and, ultimately, the
attainment of profitable operations is dependent on future events,
including obtaining adequate financing to fulfill its development
activities, successful launching of the commercial production and
distribution of its products and achieving a level of sales adequate to
support the Company's cost structure. The Company's recurring operating
losses 

                                      16
<PAGE>

and the continuing decline in stockholders' equity raise substantial
doubt about its ability to continue as a going concern.  Management's
plans concerning these matters are also described in Note 1.  The
consolidated financial statements do not include any adjustments that
might result from the outcome of  these uncertainties.



Deloitte & Touche LLP
San Francisco, California
February 29, 1996 (November 11, 1996 as to 
Notes 5 and 10, February 10, 1997 as to Note 11)


                                     17
<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
                                                                    1995              1994
ASSETS

<S>                                                               <C>               <C>
CURRENT ASSETS:

  Cash and cash equivalents, including short-term
    investments of $670,757 and $940,986                          $  678,300        $ 1,138,031
  Investments                                                              -            571,714
  Note receivable - current (Notes 2 and 10)                          81,451                  -
  Prepaid expenses and other current assets                            5,804             81,166
  Accounts receivable, less allowance for doubtful
    accounts of $152,000 in 1994                                           -            984,020
  Other receivables                                                        -            124,763
  Inventories (Note 2)                                                     -          1,481,842
                                                                  ----------        -----------
           Total current assets                                      765,555          4,381,536
                                                                  ----------        -----------
PROPERTY AND EQUIPMENT, Net (Note 3)                                  51,795            482,019
                                                                  ----------        -----------
OTHER ASSETS:
  Note receivable - noncurrent (Notes 2 and 10)                      218,549                  -
  Notes receivable from investee, net (Note 4)                             -            666,105
  Investment (Note 5)                                                      -            424,714
  Other assets                                                             -             61,400
                                                                  ----------        -----------
           Total other assets                                        218,549          1,152,219
                                                                  ----------        -----------
TOTAL ASSETS                                                      $1,035,899        $ 6,015,774
                                                                  ----------        -----------
                                                                  ----------        -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accrued expenses and other current liabilities                  $   52,108        $    68,812
  Accounts payable                                                         -            547,581
  Product warranty                                                         -            182,930
  Amount payable to investee (Note 5)                                      -            375,000
                                                                  ----------        -----------
           Total current liabilities                                  52,108          1,174,323
                                                                  ----------        -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)

STOCKHOLDERS' EQUITY (Notes 7 and 10):
  Common stock, $.01 par value:
    20,000,000 shares authorized; issued and outstanding
      6,353,191 shares and 5,998,648 shares                           63,532             59,986
  Additional paid-in capital                                       7,205,602          6,411,425
  Retained deficit                                                (6,285,343)        (1,629,960)
                                                                  ----------        -----------
           Total stockholders' equity                                983,791          4,841,451
                                                                  ----------        -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $1,035,899        $ 6,015,774
                                                                  ----------        -----------
                                                                  ----------        -----------
</TABLE>

See notes to consolidated financial statements.

                                             - 18 -
<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
                                                                       1995               1994
<S>                                                                 <C>                 <C>
NET SALES (Note 8)                                                  $    95,857         $       -

OPERATING EXPENSES:
  Cost of sales                                                          32,786                 -
  Selling, general and administrative expenses                          503,940              820,708
  Research and development expenses                                     509,766                 -
  Other expense (Note 4)                                              1,475,965                 -
                                                                    -----------         ------------
           Total operating expenses                                   2,522,457              820,708
                                                                    -----------         ------------
OPERATING LOSS                                                       (2,426,600)           (820,708)
                                                                    -----------         ------------
OTHER (EXPENSE) INCOME:
  Losses in investee companies (Notes 4 and 5)                         (424,714)         (1,537,286)
  Interest income                                                        63,427               68,484
  Other (loss) income                                                    (2,705)               7,387
  Investment loss                                                          -                (161,217)
                                                                    -----------         ------------
           Total other expense                                         (363,992)         (1,622,632)
                                                                    -----------         ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
  INCOME TAXES                                                       (2,790,592)         (2,443,340)

INCOME TAXES (Note 6)                                                    (1,398)               (800)
                                                                    -----------         ------------
LOSS FROM CONTINUING OPERATIONS                                      (2,791,990)         (2,444,140)

DISCONTINUED OPERATIONS (Note 2):
  Losses from operations of discontinued subsidiaries,
    net of income taxes                                              (1,796,757)            (49,215)
  Loss on disposal of discontinued subsidiaries, net of
    income taxes                                                        (66,636)               -
                                                                    -----------         ------------
NET LOSS                                                             (4,655,383)         (2,493,355)
                                                                    -----------         ------------
                                                                    -----------         ------------
NET LOSS PER COMMON SHARE:
  From continuing operations                                        $     (0.44)        $     (0.40)
  From operations of discontinued subsidiaries                            (0.28)              (0.01)
  From disposal of discontinued subsidiaries                              (0.01)               -
                                                                    -----------         ------------
NET LOSS                                                            $     (0.73)        $     (0.41)
                                                                    -----------         ------------
                                                                    -----------         ------------
</TABLE>

See notes to consolidated financial statements.


                                                   - 19 -

<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
                                      $.01 Par
                                       Value           Additional          Retained            Total
                                       Common            Paid-in           Earnings        Stockholders'
                                       Stock             Capital           (Deficit)           Equity
<S>                                     <C>             <C>               <C>               <C>
BALANCE, JANUARY 1, 1994                $59,761         $6,355,400        $   863,395       $ 7,278,556

EXERCISE OF STOCK OPTIONS                   225             56,025                               56,250

NET LOSS                                   -                  -            (2,493,355)       (2,493,355)
                                        -------         ----------        -----------       -----------

BALANCE, DECEMBER 31, 1994               59,986          6,411,425         (1,629,960)        4,841,451

ISSUANCE OF COMMON STOCK (Note 4)         3,546            794,177                              797,723

NET LOSS                                      -                  -         (4,655,383)       (4,655,383)
                                        -------         ----------        -----------       -----------

BALANCE, DECEMBER 31, 1995              $63,532         $7,205,602        $(6,285,343)      $   983,791
                                        -------         ----------        -----------       -----------
                                        -------         ----------        -----------       -----------
</TABLE>

See notes to consolidated financial statements.

                                                   - 20 -
<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
                                                                            1995            1994
<S>                                                                    <C>               <C>
OPERATING ACTIVITIES:
  Net loss                                                             $(4,655,383)      $(2,493,355)
  Adjustments to reconcile net loss to net cash (used)
    provided by operating activities:
    Depreciation and amortization                                          357,690           586,645
    Losses in investee companies                                           424,714         1,537,286
    Other expense                                                        1,475,965              -
    Loss on disposal of discontinued subsidiaries                          (41,791)             -
    Amortization of excess of fair market value over net
      assets acquired                                                         -             (755,306)
    Changes in assets and liabilities:
      (Increase) decrease in:
        Investments                                                        571,714         3,006,036
        Accounts receivable                                              1,012,020           (77,767)
        Inventories                                                      1,481,842           377,558
        Other receivables                                                  124,763           (60,920)
        Prepaid expenses and other current assets                           89,001           (13,124)
        Other assets                                                        65,072           (61,400)
      Increase (decrease) in:
        Accounts payable                                                  (592,032)          359,495
        Accrued expenses and other current liabilities                    (166,897)         (128,756)
        Product warranty                                                  (182,930)           14,189
                                                                        ----------       -----------
           Net cash (used) provided by operating activities                (36,252)        2,290,581
                                                                        ----------       -----------
INVESTING ACTIVITIES:
  Capital expenditures                                                    (212,831)         (255,339)
  Purchase of equity investment                                           (375,000)         (975,000)
  Increase in notes and advances receivable                                   -             (838,105)
  Net proceeds from acquisitions/disposals                                 164,352              -   
                                                                        ----------       -----------
           Net cash provided (used) by investing activities               (423,479)       (2,068,444)
                                                                        ----------       -----------
FINANCING ACTIVITY:
  Exercise of stock options                                                   -               56,250
                                                                        ----------       -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                      (459,731)          278,387

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                             1,138,031           859,644
                                                                        ----------       -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                                  $  678,300       $ 1,138,031
                                                                        ----------       -----------
                                                                        ----------       -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
  FINANCING ACTIVITIES:

  On January 1, 1995, the Company converted its debentures in WAH-III 
  Technology Corp., valued at   $466,105 for common stock in WAH-III.  On 
  February 7, 1995, the Company issued 354,543 shares   of common stock with an
  approximate value of $797,723 in conjunction with its acquisition of
  WAH-III (See Note 4 to Consolidated Financial Statements).

  During 1994, the Company acquired 40% of the common stock of InterVision 
  Systems, Inc. for $1,350,000, of which $375,000 was payable as of December
  31, 1994.

See notes to consolidated financial statements.

                                        - 21 -


<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 
      POLICIES

      PRINCIPLES OF CONSOLIDATION AND DESCRIPTION OF BUSINESS - The
      consolidated financial statements include the accounts of
      Spatialight, Inc. (formerly Sayett Group, Inc. - See Note 10),
      its wholly-owned subsidiaries Sayett Technology, Inc., Sayett
      Displays, Inc. (formerly Sayett Distributing, Inc.), Sayett
      International, Inc. and Surmotech, Inc., and its
      majority-owned subsidiary WAH-III Technology Corporation from
      February 7, 1995 (See Notes 2 and 4).  All significant
      intercompany accounts and transactions have been eliminated in
      consolidation.  Spatialight, Inc. and subsidiaries (the
      Company) operates primarily in one industry segment.  Its
      principal business is designing, manufacturing, and marketing
      of high content information display system components for the
      optical computing, computer monitoring/projection, holography,
      and multimedia industries.

      BASIS OF PRESENTATION - The accompanying consolidated
      financial statements have been prepared on a going concern
      basis which contemplates the realization of assets and the
      satisfaction of liabilities in the normal course of business. 
      The Company incurred significant operating losses in each of
      the last five fiscal years and incurred a net loss in fiscal
      1995 of $4,655,383.  Additionally, as of December 31, 1995 the
      Company's retained deficit totalled $6,285,343, its
      stockholders' equity balance declined $3,857,660, and it's
      total cash, cash equivalents and investment balances totalled
      $678,300, a decline of $1,031,445 from 1994.  The successful
      completion of the Company's development program and,
      ultimately, the attainment of profitable operations is
      dependent on future events, including obtaining adequate
      financing to fulfill its development activities, successful
      launching of the commercial production and distribution of its
      products and achieving a level of sales adequate to support
      the Company's cost structure.  These factors among others may
      indicate that the Company will be unable to continue as a
      going concern for a reasonable period of time.  The
      consolidated financial statements do not include any
      adjustments relating to the recoverability and classification
      of recorded asset amounts or the amounts and classification of
      liabilities that might be necessary should the Company be
      unable to continue as a going concern.

      In an effort to improve operating performance, the Company has
      been and will be implementing certain programs and strategies
      in 1996.  These strategies include:

      - Raising of additional capital; a private placement and
        issuance of convertible preferred stock are currently being
        contemplated.


      - Outsourcing of all manufacturing activities with high volume
        manufacturing specialists that will be monitored by Company
        manufacturing/quality control engineering staff.

      - Developing strategic arrangements with potential customers
        to share development costs.

      - Combining of marketing and sales activities of a small
        in-house sales engineering staff with commissioned
        representatives.  

                                       - 22 -
<PAGE>

      ESTIMATES - The preparation of consolidated financial
      statements in conformity with generally accepted accounting
      principles requires  management to make estimates and
      assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial
      statements and the reported amounts of revenues and expenses
      during the reporting period.  Actual results could differ from
      those estimates.

      INVESTMENTS - The Company's short-term investments as of
      December 31, 1994 are classified as trading securities since
      the Company intends to buy and sell the securities in the near
      term with the objective of generating profits on short-term
      differences in price.  Such securities are reported at fair
      value in the consolidated balance sheets and any unrealized
      holding gains and losses are included in earnings.  As of
      December 31, 1994, the unrealized holding loss for the
      investments was approximately $73,000.

      CONCENTRATIONS OF CREDIT RISK - Financial instruments which
      potentially subject the Company to concentration of credit
      risk consist principally of marketable investment securities
      and accounts receivable.  The Company places its short-term
      cash investments ($670,757 and $1,512,700 as of December 31,
      1995 and 1994, respectively) with quality financial
      institutions and, by policy, limits the amount of credit
      exposure to any one financial institution.

      The risk associated with the concentration of accounts
      receivable is limited due to the large number of customers and
      their geographic dispersion.  The Company performs ongoing
      credit evaluations of its customers' financial condition but
      does not require collateral to support customer receivables. 
      The Company establishes an allowance for doubtful accounts
      based upon factors surrounding the credit risk of specific
      customers, historical trends and other information.

      INVENTORIES - Inventories are stated at the lower of cost or
      market, cost being determined on a first-in, first-out (FIFO)
      basis.

      PROPERTY AND EQUIPMENT - Property and equipment are recorded
      at cost while repairs and maintenance costs are expensed in
      the period incurred.  Depreciation and amortization of
      property and equipment is calculated on a straight-line basis
      over the estimated useful lives of the assets, as follows:

      Leasehold improvements              2-5 years (or lease term if shorter)
      Office furniture and fixtures         3 years
      Machinery and equipment               5 years
      Demonstration units             1.5 - 3 years

      PRODUCT WARRANTY - The Company accrues costs related to
      warranty obligations incurred in connection with the sale of
      goods.  In the opinion of Company management, the product
      warranty liability is a reasonable estimate of future claims
      under warranty obligations.

      REVENUE RECOGNITION - Revenue is generally recognized at the
      time product is shipped.

      INCOME TAXES - Income taxes are provided on the income earned
      in the consolidated statements of operations regardless of the
      periods when such items are reported for tax purposes. 
      Deferred income taxes are provided to reflect the impact of
      "temporary differences" between the amounts of assets and
      liabilities for financial reporting purposes and such amounts
      as measured by tax laws and regulations.

      NET LOSS PER COMMON SHARE - Net loss per common share for 1995
      and 1994 is based on the weighted average number of common
      shares outstanding during the year; stock options and warrants
      were not 

                                       - 23 -
<PAGE>

      included since their effect would be antidilutive.  The
      weighted average number of common shares outstanding in 1995
      and 1994 was 6,312,283 and 6,063,571, respectively.

      RESEARCH AND DEVELOPMENT - Research and development costs are
      charged to expense when incurred.

      CONSOLIDATED STATEMENTS OF CASH FLOWS - Cash and cash
      equivalents includes cash balances and money market accounts
      which have maturities of three months or less.

      STOCK-BASED COMPENSATION - In October 1995, the Financial
      Accounting Standards Board issued Statement of Financial
      Standards No., 123, "Accounting for Stock-Based Compensation,"
      which requires adoption by the Company in 1996.  Pursuant to
      the new standard, companies are encouraged, but not required,
      to adopt the fair value method of accounting for employee
      stock-based transactions.  Under the fair value method,
      compensation cost is measured at the grant date based on fair
      value of the award and is recognized over the service period,
      which is usually the vesting period.  Companies are also
      permitted to continue to account for such transactions under
      Accounting Principles Board Opinion No. 25, "Accounting for
      Stock Issued to Employees," but would be required to disclose
      in a note to the consolidated financial statements pro forma
      net income and earnings per share as if the Company had
      applied the new method of accounting.  The Company has not yet
      determined if it will elect to change to the fair value
      method, nor has it determined the effect the new standard will
      have on net income and earnings per share should it elect to
      make such a change.  Adoption of the new standard will have no
      effect on the Company's cash flows.

2.    DISCONTINUED OPERATIONS

      On July 1, 1995 the Company sold Surmotech, Inc., a
      wholly-owned subsidiary, for $188,000 in cash.

      On December 29, 1995 the Company sold Sayett Technology, Inc.,
      a wholly-owned subsidiary, to former management members of the
      Company for $300,000 in the form of a note receivable.  Under
      the terms of the note, which bears interest at 8% per year,
      the first principal payment of $50,000 plus interest of $6,000
      is due March 31, 1996.  The balance of the note will be paid
      in equal monthly installments of principal and interest in the
      amount of $5,069 for sixty months ending in April, 2001.  See
      Note 10.

      As a result of the aforementioned sales, the Company is
      reporting the results of the two subsidiaries as discontinued
      operations for all periods presented in the consolidated
      financial statements.  Net sales from the discontinued
      operations in 1995 and 1994 totalled $5,462,000 and
      $6,664,000, respectively.

                                       - 24 -
<PAGE>

3.    PROPERTY AND EQUIPMENT

      Property and equipment as of December 31 consist of the
      following:

                                           1995          1994

      Leasehold improvements            $   -        $   93,533
      Office furniture and fixtures      115,768        205,313
      Machinery and equipment               -           571,404
      Demonstration units                   -           257,269
                                        --------     ----------
                                         115,768      1,127,519
      Less accumulated depreciation
      and amortization                    63,973        645,500
                                        --------     ----------
                                        $ 51,795     $  482,019
                                        --------     ----------
                                        --------     ----------
4.    NOTES RECEIVABLE

      In November 1992, the Company entered into a Subscription and
      Stock Purchase Agreement (the Agreement) with WAH-III
      Technology Corp. (WAH-III), a development stage company that
      develops, designs and manufactures electronic display
      products, including a small, high content liquid crystal
      display (LCD).  Through the Agreement and subsequent
      amendments, the Company purchased and held, as of December 31,
      1994, notes receivable totalling $1,078,105.  Additionally,
      the Company made advances to WAH-III under a line of credit
      agreement totalling $200,000 as of December 31, 1994.

      On January 1, 1995, the Company converted its notes receivable
      from WAH-III and received 2,703,427 shares of WAH-III common
      stock which increased its ownership of WAH-III to
      approximately 68%.  On February 7, 1995, the Company exchanged
      354,543 shares of it's common stock for 531,815 shares of
      WAH-III common stock which further increased it's ownership of
      WAH-III to approximately 80.3%.  The notes receivable
      conversion and exchange of shares in 1995 gives rise to a
      difference between the Company's investment and the underlying
      equity in the net assets of WAH-III.  This excess of purchase
      price over the net assets acquired ("goodwill") totalled
      $1,475,965.  The operating results of WAH-III have been
      included in the Company's consolidated financial statements
      since January 1, 1995.  The absence of a minority interest
      balance on the consolidated balance sheet as of December 31,
      1995 is due to a deficiency in WAH's net assets due to its
      recurring losses.  Additionally, losses applicable to the
      minority interest have been charged against the Company's
      interest as there is no obligation of the minority interest to
      make good such losses.

      The following unaudited pro forma results of operations assume
      the acquisition of 80.3% of WAH-III's common stock occurred on
      January 1, 1994:

      Net sales                                             $   88,800
      Net loss from continuing operations                   $2,955,000
      Net loss from continuing operations per common share  $      .49

      The pro forma financial information is not necessarily
      indicative of the operating results that would have occurred
      had the WAH-III acquisition been consummated as of January 1,
      1994, nor are they necessarily indicative of future operating
      results.  The pro forma operating results for 1995, assuming
      the Company owned 80.3% of the WAH-III's common stock on
      January 1, 1995, are not materially different than the actual
      results reported.

                                   - 25 -
<PAGE>

      Upon the acquisition of a controlling interest in WAH-III, the
      Company implemented an operational plan in order to achieve
      commercial production of the product and wider distribution
      during the remainder of 1995.  The plan included the addition
      of a distributor and the selection of the WAH-III device for
      an optical computing project being undertaken by a major
      customer.  The target sales levels which were proposed under
      the plan were substantially achieved during the third quarter
      ended September 30, 1995.  A contract was also executed with a
      major distributor during this period as well.

      Unfortunately, the WAH-III product was not selected for use by
      the major customer within their project, and WAH-III
      experienced difficulties in improving their design in order to
      continue selling to their other major customer.  While the
      difficulties associated with these issues were anticipated to
      be short-term, their impact has caused purchase orders for the
      WAH-III product to cease until such time as the product can be
      adjusted.  Additionally, as discussed in Note 2, the Company
      sold its electronic presentation systems subsidiary, Sayett
      Technology ("STI") on December 29, 1995.  It is anticipated
      that the sale of STI will preclude any potential vertical
      integration of the WAH-III LCD into the product line of STI. 
      This integration was contemplated as part of the Company's
      decision to acquire a controlling interest in WAH-III in
      January 1995.

      Based upon the lack of orders for the WAH-III product, coupled
      with the loss of potential vertical integration which could
      have been realized from continued ownership of STI, it is
      believed that the goodwill associated with the acquisition of
      an 80% interest in WAH-III by the Company has been
      significantly impaired.  The future uncertainty surrounding
      the procurement of additional customer orders and new
      applications for the WAH-III product, as well as the need for
      obtaining additional financing, mandated that the Company
      write-off the remaining balance of goodwill in December 1995. 
      The Company's write-off was based, in part, on a comparison of
      the Company's best estimate of the undiscounted future cash
      flows of WAH-III to the carrying value of the goodwill.  The
      charge associated with this write-off, $1,194,465, and the
      goodwill amortization prior to December 1995, $281,500, are
      included in other expense in the 1995 consolidated statement
      of operations.  The goodwill was being amortized over 5 years.

      During 1994, the Company accounted for its investment in
      WAH-III using the equity method of accounting which required
      that the original investment and advances be recorded at cost
      and adjusted by the Company's share of undistributed earnings
      or losses of WAH-III.  The equity in the loss generated by
      WAH-III in 1994 and an estimate of an impairment in the
      Company's investment totalled $612,000 which was recorded as a
      reduction of the Company's notes receivable from WAH-III and a
      corresponding charge in the consolidated statement of
      operations in 1994.

5.    INVESTMENT

      During 1994, the Company acquired 40% of the common stock of
      InterVision Systems, Inc. (ISI), a newly formed Delaware
      Corporation that produces head-mounted displays utilizing a
      wearable computer, for $1,350,000 of which $375,000 was
      payable as of December 31, 1994.  The Company accounted for
      its investment using the equity method of accounting which
      required that the original investment be recorded at cost and
      adjusted by the Company's share of undistributed earnings or
      losses of ISI.  The Company's investment has been totally
      impaired due to the losses generated by ISI through the period
      ended December 31, 1995.  The Company has measured the
      impairment by reducing its investments for 100% of the losses
      generated by ISI in 1994, which totalled $925,286, since the
      Company essentially provided 100% of ISI's capitalization and,
      therefore, has all the capital-at-risk.  ISI's losses exceeded
      the Company's carrying value of the investment in 1995
      resulting in an additional impairment loss of 

                                       - 26 -
<PAGE>

      $424,714 in 1995.  The Company's investment has been totally
      written-off as of December 31, 1995 and the Company does not
      anticipate that its investment will be recovered.

      Summarized condensed financial information of ISI as of and
      for the period ended December 31, 1994 is as follows:

      Results of Operations

      Sales                                       $267,167
      Net loss                                    $925,286

      Balance Sheet Data

      ASSETS:
       Current assets                             $562,865
       Furniture and equipment                      22,522
       Other assets                                  4,000
                                                  --------

      Total Assets                                $589,387
                                                  --------
                                                  --------
      LIABILITIES AND STOCKHOLDERS' EQUITY:
      Current liabilities                         $164,673
      Stockholders' equity                         424,714
                                                  --------

      Total Liabilities and Stockholders' Equity  $589,387
                                                  --------
                                                  --------
6.    INCOME TAXES

      The income tax benefit (provision) including the effect of
      continuing and discontinued operations in the accompanying
      consolidated statements of operations is as follows:

                                              1995        1994  
       Currently refundable (payable),     
         primarily state taxes             $ (1,398)   $ 22,365 
                                           ---------   --------
                                           ---------   --------

      The income tax benefit (provision) differs from those computed
      using the statutory federal tax rate of 34%, due to the
      following:

                                             1995           1994

Benefit at statutory federal rate        $ 948,801      $   855,345
State benefit (taxes)                       (1,398)          22,365
Amortization of excess fair value over
  net assets acquired                         -             256,804
Increase in valuation allowance, net of 
  current amounts related to former and 
  current subsidiaries                    (948,801)      (1,109,246)
Other                                         -              (2,903)
                                         ----------     -----------
                                         $  (1,398)     $    22,365
                                         ----------     -----------


                                       - 27 -
<PAGE>

      As discussed in Note 2, the Company sold two subsidiaries
      during 1995.  Any tax benefits arising from the disposal of
      these subsidiaries have been completely offset by an increase
      in the Company's valuation allowance.

      The net deferred tax assets (liabilities) as of December 31,
      1995 and 1994 are as follows:

                                                      1995           1994

      CURRENT:
        Inventory reserves                        $      -       $    58,686
        Bad debt reserves                                -            51,680
        Warranty liability                               -            62,196
        Other                                            -             4,399
        Valuation allowance                              -       $  (176,961)
                                                  -----------    -----------

                                                  $      -       $      -
                                                  -----------    -----------
      NONCURRENT:
        Depreciation and amortization             $      -       $    17,776
        Equity in losses of investees               1,168,908        539,677
        State taxes, net                              222,905         12,874
        Tax loss carryforwards                      1,515,752      1,240,199
        Federal tax credit                                  0         48,734
        Less valuation allowance                  $(2,907,565)   $(1,859,260)
                                                  -----------    -----------
                                                  $         -           -
                                                  -----------    -----------
                                                  -----------    -----------

      At December 31, 1995, the Company had net operating loss
      ("NOL") carryforwards of approximately $4,000,000, available
      to offset United States taxable income.  The NOL carryforwards
      will expire over a period of time through 2010.

      Income taxes (refunded) paid in 1995 and 1994 totalled
      $(1,912) and $(6,628), respectively.

7.    STOCKHOLDERS' EQUITY

      WARRANTS - All of the Company's warrants, which totalled
      908,400 as of December 31, 1994, expired on February 5, 1995. 
      During 1995 and 1994, no warrants were exercised.

      STOCK OPTION PLAN - The Company has various Stock Option Plans
      primarily for employees and directors.  The Plans authorize
      the issuance of options to purchase up to 1,010,000 shares of
      the Company's common stock.  The Plans provide for options
      which may be issued as nonqualified or qualified incentive
      stock options under Section 422A of the Internal Revenue Code
      of 1986, as amended.

      Options under the Plans are granted at the discretion of the
      Board of Directors.  The exercise prices of qualified
      incentive stock options granted under the Plans have not been
      less than the fair market value of the Company's stock at the
      date of grant.  While the exercise price of nonqualified stock
      options under the Plans is set at the discretion of the Board
      of Directors at the date of grant, all nonqualified options
      granted through 1995 have been granted at fair market value. 
      The option holders may exercise half of their options
      beginning one year after the date of grant and then are fully
      vested in the unexercised options two years from the date of
      grant.  Options expire 10 years from the date of grant.

                                 - 28 -

<PAGE>

      The following is a status of the options under the Plans and a
      summary of the changes in options outstanding during 1995 and
      1994:

                                                     1995              1994
 
      Shares under option, beginning of year        443,500           435,000

      Options granted                               195,300            47,000

      Options cancelled                            (428,800)          (16,000)

      Options exercised at $2.50 per share             -              (22,500)
                                                  ----------         ---------
      Shares under option, end of year              210,000           443,500
                                                  ----------         ---------
                                                  ----------         ---------

      Price range                              $1.44 to $3.13    $2.50 to $7.25
                                               --------------    --------------
                                               --------------    --------------

      Options exercisable as of December 31, 1995 totalled approximately 
      125,000 options at an average price of $2.79.

8.    SALES INFORMATION

      Two customers accounted for 61% and 39% of the Company's
      consolidated net sales in 1995.

9.    COMMITMENTS AND CONTINGENCIES

      The Company has various operating lease arrangements for
      equipment and office space.  Total rent expense under
      operating leases amounted to approximately $35,000 and $37,000
      in 1995 and 1994, respectively.  Future minimum lease payments
      under noncancelable operating leases are approximately:

                        Year Ending
                        December 31

                           1996                        39,000
                           1997                        21,000
                           1998                         4,000
                                                       ------

                                                       64,000
                                                       ------
                                                       ------

      CONTINGENT PAYMENT CONTRACTS - Prior to December 31, 1994, WAH-III
      entered into certain contracts with service providers and with
      several employees to lease space and obtain research,
      development, marketing, legal and other services.  These
      contracts provide for payments to these service providers and
      employees as WAH-III achieves specified cumulative unit sales
      or revenue levels.  There are no required payments under the
      contracts if minimum cumulative unit sales or revenue levels
      are not achieved.  The contracts do not have expiration dates. 
      As of December 31, 1995 and 1994, services under these
      contracts have been provided to the Company; however, no
      amounts have been accrued as a liability because achievement
      of the minimum required cumulative unit sales or revenue
      levels is not considered probable as of that date.  As of
      December 31, 1995, the maximum potential liability of the
      Company under these contracts is approximately $1,100,000.

                                - 29 -
<PAGE>

10.   SUBSEQUENT EVENTS - 1996

      On May 17, 1996, the Company's Board of Directors and
      Shareholders approved a change in the Company's name from
      Sayett Group, Inc. to Spatialight, Inc.

      On July 11, 1996, the Company sold 1,585,000 shares of its
      common stock, par value $.01, at $1.125 per share or
      $1,783,125 in gross proceeds.  In conjunction with the sale of
      common stock, the Company also issued warrants to purchase an
      additional 1,585,000 shares of the Company's common stock,
      exercisable at any time prior to July 15, 2001, at an exercise
      price of $1.00 before July 15, 1997, $1.25 through July 1999
      and $1.50 thereafter.  Net proceeds received by the Company
      related to this placement were $1,577,499.

      On November 11, 1996, in connection with the approval by the
      above-mentioned investors to permit a future additional
      offering of common stock (relating to the Company's planned
      stock for stock exchange to acquire the remaining 20% of
      common shares of WAH-III owned by the original owners), the
      Company entered into an Amendment Agreement which re-priced
      the July 11, 1996 sale of common stock from $1.125 per share
      to $.8352 per share and issued an additional 550,000 shares to
      the investors.

      The Company believes that its existing cash and cash
      equivalents as of November 11, 1996 will be sufficient to
      sustain the Company's current level of operations and meet its
      financial obligations through the end of 1996 and into 1997.

      In September 1996, management determined that the note
      receivable related to the sale of Sayett Technology, Inc. (see
      Note 2) was not fully collectible.  Accordingly, the Company
      recorded an allowance of $121,072 in September 1996 to reduce
      the carrying amount of the note to management's best estimate
      of the amount that will be collected, $121,073 at September
      30, 1996.

11.   SUBSEQUENT EVENTS - 1997

      By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and 
      Sabotini, Ltd. (the "Investors") notified the Company that these 
      Investors were electing to rescind the Share Purchase Agreements dated 
      July 10, 1996, as amended, under which the Investors purchased a total 
      of 2,135,000 shares of common stock in the Company, and were demanding a 
      refund by January 17, 1997 of the purchase price of such shares, or 
      $1,783,125, plus interest. The alleged ground for rescission is the fact 
      that this registration statement on Form S-3 pertaining to the resale of 
      such shares was not declared effective by the SEC on or before 
      December 3, 1996. Subsequently, by letter dated February 3, 1997, counsel 
      for the Investors notified the Company that Jalcanto, Ltd. has retracted 
      its demand for rescission, with reservation of all rights. The letter 
      reiterated the rescission demand on behalf of Sabotini Ltd., and the 
      request that the Company return $891,562.50.

      On February 5, 1997, the Company was served notice that it has been sued 
      by each of the Investors in the Superior Court of the State of California 
      for the County of Marin. Each Investor filed a complaint for breach of 
      contract, specific performance and indemnification relating to the 
      alleged failure to timely complete this registration statement. In 
      addition, each complaint requests that the court issue a preliminary and 
      permanent injunction against future issuances of shares of the Company's 
      common stock or securities convertible into common stock without the 
      Investor's consent. The complaint filed by Sabotini Ltd. also requests 
      rescission and the return of the full purchase price of its shares.

      Along with its complaint, Sabotini Ltd. has requested that the court 
      immediately issue a writ to attach approximately $920,000 of the 
      Company's assets as security for the ability to enforce any eventual 
      judgement. A hearing on the application for a writ of attachment is set 
      for February 26, 1997. If the court issues a writ of attachment, the 
      Company would be deprived of substantially all of its working capital, 
      which would have an immediate material adverse effect on the Company's 
      business and financial position and its ability to fund ongoing operating 
      expenses.

      The Company intends to defend itself vigorously in both actions. The 
      Company may be required to expend substantial funds and management 
      resources in connection with the defense and any settlement or judgement, 
      which could have a material adverse effect on the Company's business and 
      financial position.


                                 ******

                                 - 30 -

<PAGE>

ITEM 13(b)

On December 29, 1995, the Company consummated the sale of 100% of the
outstanding shares of stock of its subsidiary, Sayett Technology Corporation, to
STI Acquisition Corporation (STI). STI is a newly-formed New York corporation,
formed specifically to undertake the acquisition to Sayett Technology, Inc. The
principals of STI are former management personnel of Sayett Group, Inc.: Donald
Bauch, who was President of Sayett Technology, Inc., and Jeffrey B. Spear,
former Treasurer and Chief Financial Officer of the Company, who resigned upon
consummation of the acquisition. Donald Bauch is the brother of Raymond L.
Bauch, a member of the Board of Directors and the largest Shareholder of the
Company. The terms and conditions of the purchase are set forth in the Stock
Purchase Agreement between STI Acquisition Corporation and the Company, dated
December 29, 1995.

By purchasing the shares of stock of Sayett Technology, Inc., STI has acquired,
and the Company has disposed of, all of the assets which comprised its LCD
projection equipment manufacturing and sale business. These include all current
assets of Sayett Technology, including cash and accounts receivable, inventory,
equipment, and intellectual property, including patents and trademarks and the
rights to use the name "Sayett". 

The purchase price for the stock of Sayett Technology, Inc. was $300,000,
represented by the promissory note of STI payable $50,000 in principal plus
accrued interest on March 31, 1996, and thereafter sixty (60) equal monthly
amortizing payments of $5,069.10 each. The Purchaser also agreed to pay a
royalty for the transfer of intellectual property based upon the achievement of
certain sales levels annually through December 31, 1998.

In addition, by purchasing stock, the buyer assumed the existing liabilities of
Sayett Technology, Inc., including accounts payable, accrued expenses and
warranty reserve. STI and Sayett Technology have agreed to jointly indemnify the
Company against any and all operating liabilities of Sayett Technology.

The Company had sought an independent buyer for Sayett Technology throughout the
second half of 1995.  Despite contacting all entities within the industry who
were believed to be credible potential buyers, the Company did not receive a
single viable offer for the Sayett Technology.  The Company then considered the
offer from its managers.  

The consideration for the sale was arrived at through negotiations between the
parties, each of whom was separately represented by counsel.  The Board of
Directors received an

                                          31

<PAGE>

independent opinion as to the fairness of the transaction from Empire Valuation
Services, who based its judgment upon an analysis of the value of Sayett
Technology as a going concern, taking into account all relevant factors
including review of financial condition and performance, operating history and
management, public stock performance of comparable entities, historic and
projected cash flows, and current balance sheet and net asset value.  The
proposal to sell to STI was approved by all members of the Board.  


                                          32

<PAGE>


                                      SIGNATURES


            In accordance with Section 13 or 15(d) of the Exchange Act, and 
Rule 12b-15 thereunder, the Registrant caused this amendment to its report to 
be signed on its behalf by the undersigned, thereunto duly authorized.

                                               SPATIALIGHT, INC.

Dated:  February 10, 1997                      By: /s/ William E. Hollis
                                              ------------------------------

                                                    William E. Hollis
                                                    President, 
                                                    Chief Executive Officer,
                                                    Principal Financial Officer
                                                    and Principal Accounting 
                                                    Officer.


                                          33