<PAGE>
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. 1
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 7. FINANCIAL STATEMENTS.
The information required by this item is incorporated by reference to
the reissued Consolidated Financial Statements and Notes thereto set forth on
pages 2 - __ herein.
<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. The Company's primary
business activity is in the development stage as of December 31, 1995. 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. As further
discussed in Note 2 to the consolidated financial statements, the Company's
recurring operating losses
<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)
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<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
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.
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<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.
-4-
<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.
-5-
<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 EQUIVALENT (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.
-6-
<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
Company's primary business activity is being conducted by Spatialight, Inc.
which is in the development stage as of December 31, 1995. 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.
-7-
<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
-8-
<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.
-9-
<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.
-10-
<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
-11-
<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
---------- -----------
---------- -----------
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<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 - 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.
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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.
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10. SUBSEQUENT EVENTS
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.
******
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, and Rule 12b-15
thereunder, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPATIALIGHT, INC.
Dated: November 22, 1996 By: /s/ William E. Hollis
------------------------------
William E. Hollis
President & Chief Executive
Officer
