<PAGE>

                       U.S. SECURITIES AND EXCHANGE COMMISSION

                                Washington, D.C. 20549

                                     FORM 10-QSB

(Mark One)

[X]  Quarterly report under Section 13 or 15(d) of the Securities and Exchange
     Act of 1934

                    For the quarterly period ended March 31, 1997

[ ]  Transition report under Section 13 or 15(d) of the Exchange Act
                    
        For the transition period from ________________ to ________________

                          Commission File Number 000-19828


                                  Spatialight, Inc. 
                                  -----------------
          (Exact name of small business issuer as specified in its charter)
                                           
                                           
          New York                                        16-1363082
          --------                                        ----------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                       Identification No.)



                     8-C Commercial Blvd., Novato, CA  94949-1625
                     --------------------------------------------
                       (Address of principal executive offices)
                                           
                                           
                                    (415) 883-2693
                                    --------------
                             (Issuer's telephone number)
                                           
     Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 
such shorter period that the registrant was required to file such reports), 
and (2) has been subject to such filing requirements for the past 90 days.    
Yes [X ]    No [  ]


                        APPLICABLE ONLY TO CORPORATE ISSUERS:

    State the number of shares outstanding of each of the issuer's classes of 
common equity, as of the latest practicable date: 8,533,191 shares of common 
stock as of May 15, 1997.

    Transitional Small Business Disclosure Format (check one):
Yes [  ]    No [X ]




<PAGE>


                          SPATIALIGHT, INC. AND SUBSIDIARY

                           Quarterly Report on Form 10-QSB
                         For the Quarter Ended March 31, 1997


                                  Table of Contents

PART I              FINANCIAL INFORMATION

     Item 1.   Condensed Consolidated Financial Statements (unaudited)

               Consolidated Balance Sheets dated
               March 31, 1997 and December 31, 1996......................  3

               Consolidated Statements of Operations
               for the Three Months Ended
               March 31, 1997 and 1996...................................  4

               Consolidated Statements of Cash Flows
               for the Three Months Ended March 31, 1997
               and 1996..................................................  5

               Notes to Condensed Consolidated Financial Statements......  6

     Item 2.   Management's Discussion and Analysis
               of Financial Condition and Results of Operations..........  8

PART II.       OTHER INFORMATION

Item 1.        Legal Proceedings......................................... 13

Item 5.        Other Information......................................... 13

Item 6.        (A) Exhibits and Reports on Form 8-K...................... 15




                                        2

<PAGE>


PART I.   FINANCIAL INFORMATION
Item 1.   Condensed Consolidated Financial Statements

                          SPATIALIGHT, INC. AND SUBSIDIARY
                             Consolidated Balance Sheets
                                     (Unaudited)
<TABLE>
<CAPTION>

                                                    March 31,      December 31,
                                                      1997            1996
                                                   ----------------------------
<S>                                               <C>             <C>
ASSETS

Current assets:
    Cash and cash equivalents                      $1,646,087      $1,324,398
    Accounts receivable                                26,000          40,021
    Inventories                                        93,723          75,401
    Prepaid expenses and other                         26,250          11,911
                                                       ------          ------
             Total current assets                   1,792,060       1,451,731

Property and equipment, net                           103,478          68,817     
Other assets                                           64,009          12,877
                                                       ------          ------
             Total Assets                          $1,959,547      $1,533,425     
                                                   ----------      ----------
                                                   ----------      ----------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accrued expenses and other current liabilities    $42,630        $108,581
    Accounts payable                                  331,094          94,554
    Short term note payable                           750,000         
                                                      -------        --------
             Total current liabilities             $1,123,724        $203,135

    Stockholders' equity:
      Common stock, $.01 par value
      20,000,000 shares authorized: 8,533,191          79,832          79,832
      shares issued and outstanding at 
      March 31, 1997 and December 31, 1996
    Additional paid-in capital                      8,705,137       8,714,539
    Accumulated deficit                            (7,949,146)     (7,464,081)
                                                   -----------     -----------
             Total stockholders' equity               835,823       1,330,290
                                                      -------       ---------
             Total liabilities and     
              stockholders' equity                 $1,959,547      $1,533,425
                                                   ----------      ----------
                                                   ----------      ----------

</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        3


<PAGE>


                          SPATIALIGHT, INC. AND SUBSIDIARY
                       Consolidated Statements of Operations
                                    (Unaudited)



                                                      Three months ended    
                                                           March 31, 
                                                        1997          1996
                                                  -----------------------------
Net sales                                          $       ---    $       ---

Operating expenses:
    Selling, general and administrative expenses       305,168        137,789
    Research and development expenses                  197,374         52,479
                                                      --------        -------
         Total operating expenses                      502,542        190,268
Operating loss                                        (502,542)      (190,268)
                                                      ---------      ---------
Other income:
    Interest income                                     10,546         15,109
    Other income                                         8,842          1,269
                                                         -----          -----
Total other income                                      19,388         16,378
                                                       --------        -------
    Loss before income taxes                          (483,154)      (173,890)

Income tax expense                                       1,911          2,846
    

    Net loss                                         $(485,065)     $(176,736)
                                                     ----------     ----------
                                                     ----------     ----------
Net loss per common share:                             ( .06  )      (  .03  )
                                                       --------      ---------
Weighted average shares used in computing
    net loss per common share                        8,533,191      6,353,191
                                                    ----------      ---------
                                                    ----------      ---------

See accompanying notes to condensed consolidated financial statements

                                        4

<PAGE>


                         SPATIALIGHT, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                                     (Unaudited)

                                                      Three Months Ended
                                                          March 31,
                                                     1997           1996
                                                 ----------------------------
Cash flows from operating activities:
Net loss                                          $(485,065)     $(176,736)
    Adjustments to reconcile net loss to net cash     
    used by operating activities:
        Depreciation and amortization                12,679          4,385
    Changes in assets and liabilities:
        Accounts receivable                          14,021            ---
        Inventories                                 (18,322)           ---
        Prepaid expenses and other assets           (14,339)        (29,178)
        Accounts payable                            236,540            ---
        Accrued expense and other liabilities       (65,951)         30,589
        Other                                       (51,132)         11,250
                                                    --------         ------
           Net cash used by operating activities   (371,569)       (159,690)
                                                   ---------       ---------
Cash flows from investing activities:
    Capital expenditures                            (47,340)            ---
    Collection on notes receivable                       ---         50,000
                                                   ---------         ------
           Net cash used by investing activities     (47,340)        50,000
                                                     -------         ------
Cash flows from financing activities:
    Issuance costs related to common stock issued    (9,402)            ---
    Proceeds from short term notes payable          750,000             ---
                                                    -------
    Net cash provided by financing activities       740,598             ---
                                                    -------
Net increase (decrease) in cash and 
    cash equivalents                                321,689        (109,690)
         Cash at beginning of period              1,324,398         678,300
                                                 ----------        --------
         Cash and cash equivalents at 
          end of period                          $1,646,087        $568,610
                                                 ----------        --------
                                                 ----------        --------

See accompanying notes to condensed consolidated financial statements


                                        5

<PAGE>



                          SPATIALIGHT, INC. AND SUBSIDIARIES
                 Notes to Condensed Consolidated Financial Statements


(1) Basis of Presentation

    The accompanying unaudited condensed consolidated financial statements have
    been prepared in accordance with the instructions to Form 10-QSB but do not
    include all information and footnotes necessary for a fair presentation of
    financial condition, results of operations and cash flows in conformity
    with generally accepted accounting principles.  In the opinion of
    management of Spatialight, Inc. ("Spatialight" or "the Company"), the
    interim condensed consolidated financial statements included herewith
    contain all adjustments (consisting of normal recurring accruals and
    adjustments) necessary for a fair presentation of the Company's financial
    condition as of March 31, 1997 and the results of its operations for the
    three months ended March 31, 1997 and 1996 respectively.  The unaudited
    interim condensed consolidated financial statements should be read in
    conjunction with the Company's 1996 Annual Report on Form 10-KSB/A, which
    contains the audited financial statements and notes thereto, together with
    Management's Discussion and Analysis as of and for the years ended December
    31, 1996 and 1995.
    
    Certain reclassifications have been made to prior period amounts to conform
    to the current period presentation.


(2) Going Concern  Uncertainty

    The Company incurred significant operating losses in each of the last five
    fiscal years, incurred a net loss in fiscal 1996 of $1,178,738 and incurred
    a net loss of $485,065 in the first three months of  1997.  At March 31,
    1997, the Company's accumulated deficit totaled $7,949,146.

    In an effort to improve operating performance, the Company has been and
    will be implementing certain programs and strategies in 1997.  These
    strategies include: 
    
    -    Raising of additional capital
    -    Construction of engineering models to demonstrate proof of technology
         for OEM's
    -    Outsourcing of all manufacturing activities, which will be monitored
         by Company's manufacturing/quality control engineering staff
    -    Developing strategic arrangements with potential customers to share
         development costs and/or licensing of the Company's technology
    
    The successful completion of the Company's development program and,
    ultimately, the attainment of profitable operations is dependant 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.  There can be no assurance that the
    Company will ever be able to achieve revenues in 

                                        6

<PAGE>

    excess of expenses.  The Company expects to incur substantial losses and 
    substantial negative cash flows from operating activities in the 
    foreseeable future.

    The Company believes that its existing cash and cash equivalents will be
    insufficient to sustain the Company's current level of operations and meet
    its financial obligations through the end of 1997.  The Company has engaged
    the services of an investment banking firm to raise additional capital.
    
    The accompanying unaudited 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 matters discussed above, among others, indicate that the Company may be
    unable to continue as a going concern for a reasonable period of time.  The
    condensed 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 for a
    reasonable period of time.

    See also Part II, Item 1. Legal Proceedings


(3) Earnings per share

    In February 1997, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). 
    The Company is required to adopt SFAS 128 in the fourth quarter of fiscal
    1997 and will restate at that time earnings per share (EPS) data for prior
    periods to conform with SFAS 128.  Earlier adoption is not permitted.
    
    SFAS 128 replaces current EPS reporting requirements and requires a dual
    presentation of basic and diluted EPS.  Basic EPS excludes dilution and is
    computed by dividing net income by the weighted average of common shares
    outstanding for the period.  Diluted EPS reflects the potential dilution
    that could occur if securities or other contracts to issue common stock
    were exercised or converted into common stock.
    
    If SFAS 128 had been in effect during the current and prior year, basic EPS
    and Diluted EPS would not have been significantly different than primary
    and fully diluted EPS currently reported for the periods.
    
(4) Short term note payable

    As of March 31, 1997, the Company had a credit agreement with a bank 
    under which it can borrow up to $750,000. The line is secured by a 
    certificate of deposit. The purpose of the line of credit is to 
    facilitate working capital. Under the terms of the credit agreement, 
    interest is accrued at the greater of Prime or the certificate of 
    deposit interest rate plus 2 percent. The line of credit expires on 
    March 8, 1998. As of March 31, 1997, the Company had $750,000 outstanding 
    under this line of credit. This amount was subsequently reduced to $0 in 
    April 1997.

                                        7

<PAGE>


(5) Repriced Stock Options

    On February 25, 1997, The Company repriced the exercise price and extended
the vesting period of all outstanding employee stock options (originally from
$0.875 to $3.13) to $0.625.


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

    The statements in "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" that relate to future plans, events 
or performance are forward-looking statements which involve risks and 
uncertainties.  Actual results, events or performance may differ 
materially from those anticipated in these forward-looking statements as 
a result of a variety of factors.  Readers are cautioned not to place 
undue reliance on these forward-looking statements, which speak only as 
of the date hereof.  The Company undertakes no obligation to publicly 
release the result of any revisions to these forward-looking statements 
that may be needed to reflect events or circumstances after the date 
hereof or to reflect the occurrence of unanticipated events.

    OVERVIEW

    Spatialight 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.  The Company has been producing a limited 
number of 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.  The 
Company has made only limited sales of prototype units to date, and 
there can be no assurance that the Company will ever be able to 
commercialize its technology.

    RESULTS OF OPERATIONS

    Spatialight reported no revenue for the three months ended March 
31,1997, and 1996 respectively.  The Company is continuing to develop 
its technological capabilities and its production capacity and believes 
that significant sales of its Spatial Light Modulator product will be 
required in order for the Company to continue to meet its financial 
obligations and operating plans.  The lack of significant sales would 
have a material adverse affect upon the financial condition of the 
Company, and could cause the Company to cease operations. 

    Selling, general and administrative expenses increased $167,379 or 
122% for the three months ended March 31, 1997 as compared to the three 
months ended March 31, 1996. The increase was due primarily to an 
increase in staffing and infrastructure support costs.

    Research and development expenses increased by $144,895 or 276% for 
the three months ended March 31, 1997 as compared to the three months 
ended March 31, 1996. Research and development expenses represent costs 
incurred, primarily personnel related, for the design and development of 
new products and the redesign of existing prototype products.  The 
Company believes that the development of new products will be required 
to allow it to compete effectively and to achieve future revenues.  The 
Company currently has 11 full time employees whose duties include 
research and development.  The Company intends to continue its product 
enhancement and development programs, focusing on increasing 

                                        8

<PAGE>


the display size and finalizing field sequential color capabilities and 
liquid crystal filling manufacturing processes.  The Company believes 
that such enhancements and new products will be required to exploit 
future markets for large screen monitors, high definition television and 
head mount displays.

    OTHER INCOME (EXPENSE), NET

    Other income, net totaled $8,842 for the three months ended March 
31, 1997 as compared with other income, net of $1,269 for the same 
period in the prior year.

     Interest income for the three months ended March 31, 1997 was 
$10,546 as compared to $15,109 for the three months ended March 31, 
1996.  In the first quarter of 1996, interest of $6,000 was received on 
a note receivable.  The note was written off in the third and fourth 
quarters of 1996, and therefore no interest was received in 1997.

    INCOME TAXES

    Income tax expense represents minimum tax liabilities resulting from 
the Company's operations in California and New York.  No federal income 
tax benefit has been recorded because of the uncertainty of realizing 
the net operating loss carryforwards.

    NET LOSS

    As a result of the above factors the Company recorded a net loss of 
$485,065 or $.06 per share for the three months ended March 31, 1997 and 
a net loss of $176,376 representing $.03 per share for the three months 
ended March 31, 1996.  While the Company is taking steps to improve its 
performance, there can be no assurance that the attempts by management 
at product development will be successful.  Any delay in effecting 
operational performance improvement by the Company or in the further 
development of the SLM by the Company may have a material adverse impact 
on the financial condition of the Company.

    FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

    Net cash used by operating activities totaled $371,569 for the three 
months ended March 31, 1997 as a result of  selling, general, and 
administrative expenses, and research and development expenses incurred 
during the period.

    As of March 31, 1997 the Company had $1,646,087 in cash and cash 
equivalents.  Net working capital was $668,336.

    As of March 31, 1997, the Company had a credit agreement with a bank 
under which it can borrow up to $750,000. The line is secured by a 
certificate of deposit. The purpose of the line of credit is to 
facilitate working capital. Under the terms of the credit agreement, 
interest is accrued at the greater of Prime or the certificate of 
deposit interest rate plus 2 percent. The line of credit expires on 
March 8, 1998. As of March 31, 1997, the Company had $750,000 outstanding 
under this line of credit. This amount was subsequently reduced to $0 in 
April 1997.

    The Company is experiencing negative cash flow from operations resulting in
the need to fund ongoing operations from financing activities.  The future
existence and profitability of the Company is dependent upon its ability to
obtain additional funds to finance operations and expand operations in an effort


                                        9

<PAGE>


to achieve profitability from operations.  No assurance can be given that the
Company's business will ultimately generate sufficient revenue to fund the
Company's operations on a continuing basis.  The matters discussed above, among
others, indicate that the Company may be unable to continue as a going
concern for a reasonable period of time. 


                                        10


<PAGE>

BUSINESS RISKS

    Most of the Company's revenue to date has been derived from research and 
development contracts and limited sales of its SLM devices.  Although the 
Company has demonstrated SLM devices based on its core technology, the 
Company has not yet produced any prototype SLM products with quality and 
resolution sufficient to satisfy commercial end-use applications.  The 
Company recently entered into a contract to produce an engineering prototype 
of a consumer product for mass production.  However, further development and 
testing will be necessary before this product or the Company's other proposed 
products will be available for commercial end-use applications.  Delays in 
development may result in the Company's introduction of its products later 
than anticipated, which may have an adverse effect on both the Company's 
financial and competitive position. Moreover, there can be no assurance that 
the Company will ever be successful in developing or manufacturing a 
commercially viable SLM device or any of its proposed display products.  In 
addition, there is no assurance that an SLM device or any of the Company's 
display products will be technically or commercially successful or that the 
Company will be able to manufacture adequate quantities of its SLM devices or 
any of its display products at commercially acceptable cost levels or on a 
timely basis.

LACK OF SALES, MARKETING AND DISTRIBUTION EXPERIENCE.  The Company currently
employs no full time sales or marketing specialists.  The Company intends to
form alliances with corporate partners for the marketing and distribution of
certain of its anticipated display products.  There can be
no assurance that the Company will be successful in forming and maintaining such
alliances or that the Company's partners will devote adequate resources to
successfully market and distribute these anticipated products.  There can be no
assurance that the Company will be able to attract and retain qualified
marketing and sales personnel, that the Company will be able to enter into
satisfactory agreements with marketing partners or that the Company or its
marketing partners will be successful in gaining market acceptance for its
anticipated products.

NO ASSURANCES OF SUCCESSFUL MANUFACTURING.  The Company has no experience
manufacturing SLM devices or display products.  The Company's facility is
designed principally for research and development and small scale assembly and
inventory storage, and the Company currently engages outside manufacturers to
produce its SLM devices.  The Company is negotiating with several manufacturers
for establishment of full scale integrated manufacturing capacity for its SLM
devices and has reached an agreement with one manufacturer for fabrication of
silicon wafers.  However, no decision has been made by any such manufacturer to
establish such a capability and there can be no assurance that any of them will
do so.  In the event any such manufacturer establishes a full scale integrated
manufacturing capability, the Company could become dependent on such
manufacturer for the manufacture of SLM devices.  The termination or
cancellation of the Company's agreement with the manufacturer could adversely
affect the Company's ability to manufacture its products.  In such event, the
Company could be required to establish an alternative manufacturing relationship
or establish its own manufacturing capability.  There can be no assurance that
the Company would be able to establish such a relationship on acceptable terms
or develop its own manufacturing capability; in any event the time required to
establish such a substitute relationship or capability could substantially delay
the commercialization of the Company's SLM devices and display products, which,
in turn, could have a substantial adverse impact on the Company's results of
operations and financial condition.


                                   11

<PAGE>

PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.  The Company's ability to 
compete effectively with other companies will depend, in part, on the ability 
of the Company to maintain the proprietary nature of its technologies.  
Although the Company has been awarded or has filed applications for several 
patents in the United States, there can be no assurance as to the degree of 
protection offered by these patents, or as to the likelihood that pending 
patents will be issued.  Furthermore, the Company has not yet applied for or 
obtained any foreign patents.  There can be no assurance that competitors, in 
both the United States and foreign countries, many of which have 
substantially greater resources and have made substantial investments in 
competing technologies, will not seek to apply for and obtain patents that 
will prevent, limit or interfere with the Company's ability to make and sell 
its products or intentionally infringe the Company's patents.  The defense 
and prosecution of patent suits is both costly and time consuming, even if 
the outcome is favorable to the Company.  This is particularly true in 
foreign countries.  In addition, there is an inherent unpredictability 
regarding obtaining and enforcing patents in foreign countries. An adverse 
outcome in the defense of a patent suit could subject the Company to 
significant liabilities to third parties, require disputed rights to be 
licensed from third parties, or require the Company to cease selling its 
products.  The Company also relies on unpatented proprietary technology and 
there can be no assurance that others may not independently develop the same 
or similar technology or otherwise obtain access to the Company's proprietary 
technology. To protect its rights in these areas, the Company requires all 
employees and most consultants, advisors and collaborators to enter into 
confidentiality agreements.  There can be no assurance, however, that these 
agreements will provide meaningful protection for the Company's trade 
secrets, know how or other proprietary information in the event of any 
unauthorized use, misappropriation or disclosure of such trade secrets, know 
how or other proprietary information. To date, the Company has no experience 
in enforcing its confidentiality agreements.

RAPID TECHNOLOGICAL CHANGE; COMPETITION.  The electronic imaging display
industry has undergone rapid and significant technological change.  The Company
expects the technology to continue to develop rapidly, and the Company's success
will depend significantly on its ability to maintain a competitive position. 
Rapid technological development may result in actual and proposed products or
processes becoming obsolete before the Company recoups a significant portion of
related research and development, acquisition and commercialization costs.  If
the Company is successful in the development of a commercially viable SLM device
and its proposed display and other products, the Company's ability to compete
will depend in part upon the consistency of product quality and delivery, as
well as pricing, technical capability and servicing, in addition to factors
within and outside its control, including the success and timing of product
introductions by the Company and its competitors, product performance and price,
product distribution and customer support.  There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are equally or more effective than any which are being developed by the
Company or that will render the Company's technology, SLM devices or display
and other products obsolete and non competitive.  In addition, numerous
competitors have substantially greater financial, technical and other resources
than the Company.  The Company may face an aggressive, well financed competitive
response that may include misappropriation of the Company's intellectual
property or predatory pricing.

The electronic imaging display industry has been characterized by rapid and
significant technological advances.  There can be no assurance that the
Company's SLM devices and display products will be reflective of such advances
or that the Company will have sufficient funds to invest in new technologies or


                                    12

<PAGE>

products or processes.  A number of companies in the United States assemble
workstation monitors using LCDs and cathode ray tubes ("CRTs") purchased from
Japan.  A number of Japanese companies build monitors around their LCDs and
CRTs.  Korean companies are also entering the LCD and CRT monitor market. 
Development of improved high definition LCDs and CRTs continues to receive
significant attention by these and other companies.  Although the Company
believes that its SLM products have the capability to improve LCD performance
beyond that of commercially available LCD and CRT based display products, there
is no assurance that manufacturers of LCDs or CRTs will not develop further
improvements of LCD or CRT technology that would eliminate or diminish the
Company's anticipated advantage.

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 carry 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 cost
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.

DEPENDENCE ON KEY PERSONNEL.  The Company is dependent upon its key 
scientific and management personnel, including its Chief Executive Officer, 
William Hollis, and its Vice President, Dean Irwin.  The Company does not 
maintain key man life insurance on Messrs. Hollis or Irwin.  In 1996, the 
Company entered into a three year employment agreement with Mr. Hollis and a 
two year employment agreement with Mr. Irwin.  The loss of the services of 
one or more key individuals may have a material adverse impact on the 
Company.  The Company's success will also depend on its ability to attract 
and retain other highly qualified scientific, marketing, manufacturing and 
other key management personnel.  The Company faces competition for such 
personnel and there can be no assurance that the Company will be able to 
attract or retain such personnel.

DEPENDENCE ON THIRD PARTIES TO DEVELOP PRODUCTS INCORPORATING SLM.  The 
Company intends to develop its SLM devices to be a component for 
incorporation into finished products to be developed, manufactured and 
marketed by third parties. The Company does not plan, nor does it have the 
financial resources, to develop or market any such end products itself. 
Therefore, the Company will be completely dependent upon independent third 
parties for the development, manufacturing and marketing of such products.  
No such products exist today, and the Company does not have commitments from 
any third party for such development, manufacturing or marketing.  There can 
be no assurance that any third party will develop or market a product 
incorporating the Company's SLM's.  If not, there will be no market for the 
Company's SLM's.

DEPENDENCE ON FEW CUSTOMERS.  There were no sales in the quarters ended March 
31, 1997 or 1996. In 1996 sales were made only to 5 customers. There can be 
no assurance that any of the Company's past customers will purchase 
additional units in the future. Loss of any one customer could have a 
material adverse impact on the Company.


                                    13

<PAGE>


PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

     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 (the
"Purchase Agreements"), under which on July 11, 1996 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 the Company's
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. had 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.  On March 3, 1997, a hearing was held with respect
to the Selling Shareholders' request that a writ of attachment on all of the
Company's assets be issued to ensure enforceability of an eventual judgment. 
The court denied the application for the writ without prejudice. 

    The Company intends to defend itself vigorously in both actions and believes
that it is not probable that the shareholders will prevail in rescinding the
Purchase Agreement. The Company may be required to expend substantial funds and
management resources in connection with the defense and any settlement or
judgment; accordingly, the ultimate resolution of this litigation may have a
material adverse effect on the Company's business and financial statements taken
as a whole.   

Item 5.   OTHER INFORMATION

    During the first quarter of 1997, the Company appointed L. John Loomis to
the position of Chief Operating Officer.  Mr. Loomis' responsibilities include
design engineering, manufacturing, and working with customers to develop new
product applications.

    The common stock of the Company has been traded in the over-the-counter 
market since the Company's initial public offering on February 5, 1992. Until 
April 1, 1997, the common stock was listed on the NASDAQ SmallCap Market 
under the symbol "SLHT". NASD delisted the Company from the Nasdaq SmallCap 
Market effective April 2, 1997 because the Company does not meet the 
$2,000,000 minimum total asset requirement for continued listing. Trading in 
the Company's common stock after April 2, 1997 has been conducted in the 
over-the-counter market in the so-called "pink sheets" or the NASD's "OTC 
Bulletin Board". As a result of the delisting, the liquidity of the Company's 
securities may be impaired, not only in the numbers of securities which could 
be bought and sold, but also through delays in the timing of transactions, 
reduction in security analysts' and news media coverage of the Company, and 
lower prices for the Company's securities than might otherwise be obtained.



                                    14

<PAGE>

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits:

         27 Financial Data Schedule

         (b)  Reports on Form 8-k:  

         No reports on Form 8-K were filed during the three months ended March
31, 1997.


                                     15
<PAGE>

                                  SIGNATURES
                                        
      Pursuant to the requirements of the Securities Exchange Act of 1934, 
the Registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

                                     Date:  May 15, 1997
                                          ------------------------------


                                     Spatialight, Inc.


                                     By:  /s/ William E. Hollis
                                        ---------------------------------
                                        William E. Hollis
                                        President, Chief Executive Officer
                                        and Chief Financial Officer




                                    16