<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------

                                  FORM 10-QSB/A

(Mark One)

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

                For the quarterly period ended September 30, 2000

[ ]     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          (IRS Employer Identification No.)
   Incorporation or organization)


                 9 Commercial Blvd., Suite 200, Novato, CA 94949
                    (Address of principal executive offices)


                                 (415) 883-1693
                           (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: 20,783,229 shares of common
stock as of April 6, 2001.

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



<PAGE>   2

                        SPATIALIGHT, INC. AND SUBSIDIARY

                        Quarterly Report on Form 10-QSB/A
                    For the Quarter Ended September 30, 2000


                                Table of Contents


<TABLE>
<S>                                                                           <C>
PART I            FINANCIAL INFORMATION

    Item 1.       Condensed Consolidated Financial Statements (unaudited)

                  Condensed Consolidated Balance Sheets dated
                  September 30, 2000 and December 31, 1999.....................3

                  Condensed Consolidated Statements of Operations
                  for the Three and Nine Months Ended
                  September 30, 2000 and 1999..................................4

                  Condensed Consolidated Statements of Cash Flows
                  for the Nine Months Ended September 30, 2000 and 1999........5

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

    Item 2.       Management's Discussion and Analysis
                  of Financial Condition and Results of Operations.............10

PART II           OTHER INFORMATION

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

    Item 2.       Changes in Securities........................................15

    Item 6.       Exhibits and Reports on Form 8-K.............................15
</TABLE>




                                       2
<PAGE>   3

PART I.   FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements (unaudited)


                Condensed Consolidated Balance Sheets (unaudited)


<TABLE>
<CAPTION>
                                                                 September 30,
                                                                     2000            December 31,
                                                               (amended - note 3)       1999
                                                               ------------------    -----------
<S>                                                            <C>                   <C>
ASSETS

Current assets
   Cash and cash equivalents                                      $  1,118,790         1,236,609
   Accounts receivable                                                  15,750                 0
   Inventories                                                           9,542             5,036
   Other current assets                                                161,947            93,417
                                                                  ------------       -----------
      Total current assets                                           1,306,029         1,335,062

Property and equipment, net                                            675,003           321,853
Other assets                                                            33,834            22,670
                                                                  ------------       -----------

      Total assets                                                $  2,014,866         1,679,585
                                                                  ============       ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
   Accounts payable                                               $    466,830           286,741
   Accrued expenses and other current liabilities                    1,089,850           728,990
   Convertible notes and accrued interest                            1,336,407                 0
                                                                  ------------       -----------
      Total current liabilities                                      2,893,087         1,015,731

Noncurrent liabilities
    Convertible notes and accrued interest                                   0         1,216,337
    Long term capital lease obligations                                  5,850             9,605
                                                                  ------------       -----------
        Total liabilities                                            2,898,937         2,241,673

Commitments and contingencies

Stockholders' equity (deficit)
   Common stock, $.01 par value:
      40,000,000 shares authorized; issued and
      outstanding 20,096,637 at September 30, 2000
      and 16,635,818 at December 31, 1999                              200,966           166,359
Additional paid-in capital                                          27,346,461        20,649,563
Accumulated deficit                                                (28,431,498)      (21,378,010)
                                                                  ------------       -----------
      Total stockholders' equity (deficit)                            (884,071)         (562,088)

Total liabilities and stockholders' equity (deficit)              $  2,014,866         1,679,585
                                                                  ============       ===========
</TABLE>


See accompanying notes to condensed consolidated financial statements




                                       3
<PAGE>   4

                        SPATIALIGHT, INC. AND SUBSIDIARY

          Condensed Consolidated Statements of Operations (unaudited)


<TABLE>
<CAPTION>
                                                             Three Months Ended                  Nine Months Ended
                                                                September 30,                       September 30,
                                                            2000              1999             2000                1999
                                                      (amended note 3)                    (amended note 3)
<S>                                                   <C>                  <C>             <C>                <C>
Revenues                                                      6,790            20,500       $     61,900       $     62,000

Cost of revenues                                              1,250             5,473             15,875             10,945
                                                        ------------       ----------         ----------         ----------
          Gross profits                                       5,540            15,027             46,025             51,055

   Selling, general and administrative expenses             613,358           570,335          1,983,065          1,458,204
   Stock-based general and administrative expenses        1,136,060           326,874          1,151,060            861,736
   Research and development expenses                      1,029,033           559,407          2,709,393          1,332,792
                                                        ------------       ----------         ----------         ----------
          Total operating expenses                        2,778,451         1,456,616          5,843,518          3,652,732

          Operating loss                                 (2,772,911)       (1,441,589)        (5,797,493)        (3,601,677)

Other income (expenses)

   Interest income                                           21,679               492             80,481              8,482
   Interest and other expense                               (24,804)          (51,454)          (125,122)          (161,313)
   Stock-based interest expense                             (96,545)                0           (603,449)                 0
                                                        ------------       ----------         ----------         ----------
          Total other income (expenses)                     (99,670)          (50,962)          (648,090)          (152,831)
                                                        ------------       ----------         ----------         ----------

   Loss from operations before income taxes              (2,872,581)       (1,492,551)        (6,445,583)        (3,754,508)

Income tax expense                                                0                 0              1,600              1,600
                                                        ------------       ----------         ----------         ----------

          Net loss                                       (2,872,581)       (1,492,551)        (6,447,183)        (3,756,108)
                                                        ------------       ----------         ----------         ----------

Incentive warrants issued (note 5)                                0                 0           (606,303)                 0

Net loss available to common shareholders               $ (2,872,581)      (1,492,551)        (7,053,486)        (3,756,108)
                                                        ============       ==========         ==========         ==========

Net loss per share available to common
  shareholders - basic and diluted                      $     (0.14)            (0.12)             (0.37)             (0.31)
                                                        ============       ==========         ==========         ==========

Weighted average shares used in computing
  net loss per share - basic and diluted                 20,079,004        12,838,577         18,843,208         12,061,432
                                                        ============       ==========         ==========         ==========
</TABLE>


See accompanying notes to condensed consolidated financial statements




                                       4
<PAGE>   5

                        SPATIALIGHT, INC. AND SUBSIDIARY

          Condensed Consolidated Statements of Cash Flows (unaudited)


<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                                 September 30,
                                                                               2000
                                                                       (amended - note 3)       1999
                                                                       ------------------    ----------
<S>                                                                    <C>                   <C>
Cash flows from operating activities:
Net loss                                                                    (6,447,183)      (3,756,108)
Adjustments to reconcile net loss to net cash used by
     operating activities:
   Depreciation and amortization                                               153,315          252,054
   Stock-based general and administrative expense                            1,151,060          861,736
   Stock-based interest expense                                                603,449               --
   Changes in operating assets and liabilities:
      Accounts receivable                                                      (15,750)          30,492
      Inventories                                                               (4,506)          (7,628)
      Other current assets                                                     (79,694)         (37,546)
      Accounts payable                                                         180,089          180,017
      Accrued expenses and other current liabilities                          (111,602)         187,010
                                                                           -----------       ----------
         Net cash used by operating activities                              (4,570,822)      (2,289,973)

Cash flows from investing activities:
   Purchase of property and equipment                                         (506,465)        (183,398)
                                                                           -----------       ----------

         Net cash used in investing activities                                (506,465)        (183,398)

Cash flows from financing activities:
   Payments on capital lease obligations                                       (14,672)         (22,801)
   Proceeds from issuance of convertible notes with warrants attached               --          590,880
   Proceeds from sale of warrants                                                   --        1,513,047
   Proceeds from exercise of warrants and options                            4,974,140          316,865
                                                                           -----------       ----------
         Net cash provided by financing activities                           4,959,468        2,397,991

Net decrease cash equivalents                                                 (117,819)         (75,380)

Cash at beginning of period                                                  1,236,609          470,086
                                                                           -----------       ----------

Cash at end of period                                                      $ 1,118,790          394,706
                                                                           ===========       ==========

Supplemental disclosure of cash flow information:
   Income taxes paid during the period                                     $     1,600            1,600
                                                                           -----------       ----------
   Interest paid during the period                                         $    48,667           10,638
                                                                           -----------       ----------
Non cash financing activities:
   Warrants issued to incent the exercise of certain warrants                  606,303
   Conversion of convertible secured notes payable
     and accrued interest thereon to common stock                          $        --          736,422
                                                                           -----------       ----------
</TABLE>


See accompanying notes to condensed consolidated financial statements




                                       5
<PAGE>   6

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


1.      Business Description

SpatiaLight, Inc. and its subsidiary ("SpatiaLight" or the "Company") are in the
business of designing and commercializing miniature, high-resolution active
matrix liquid crystal displays mounted directly on silicon chips. These displays
are also known as and commonly referred to as Liquid Crystal Displays ("LCD"),
Active Matrix Liquid Crystal Displays ("AMLCD"), Liquid Crystal on Silicon
("LCOS"), and Spatial Light Modulators ("SLM"). These displays are designed in a
manner that can potentially provide high-resolution images suitable for
computer, video and other applications while utilizing the existing
manufacturing processes of typical silicon and liquid crystal displays to obtain
economies of scale and thereby reduce costs. To date, the Company has only sold
small quantities of its displays to customers who are evaluating the displays
for use in their products.

The Company has identified a number of potential applications and markets for
products, which can utilize its display technology. Some of these applications
include: large-screen rear-projection television systems, in both standard
television format ("NTSC") and future High Definition Television ("HDTV")
formats; large-screen rear-projection computer monitors in a variety of
resolutions; video projectors for presentations; head-mounted displays which are
used for virtual reality systems, defense, aerospace and gaming applications;
and other potential applications such as point of purchase displays, optical
computing, data storage and holographic imaging systems.

The address and telephone number of the Company's principal executive offices
are 9 Commercial Boulevard, Suite 200, Novato, California 94949, (415) 883-1693.
The Company was organized under the laws of the State of New York in 1989 under
the name of "Sayett Acquisition Company, Inc."; it subsequently changed is name
to Sayett Group and in June 1996 changed its name to SpatiaLight, Inc. The
Company has a wholly owned subsidiary named SpatiaLight of California, Inc.


2.      Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of item 310(b) of
Regulation S-B. Accordingly they do not include all of the 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, the interim condensed
consolidated financial statements included herewith contain all adjustments
(consisting of normal recurring accruals and adjustments) necessary for their
fair presentation. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-KSB, which contains the audited financial statements and notes thereto,
together with the Management's Discussion and Analysis, for the years ended
December 31, 1999 and 1998.




                                       6
<PAGE>   7

3.       Restatement

Subsequent to the issuance of the Company's condensed consolidated financial
statements as of and for the nine months ended September 30, 2000, the Company's
management determined that costs associated with the reinstatement of certain
employee stock options had not been reflected in the Company's financial
statements. The reinstatement of 500,000 options with an exercise price of
$0.75, in connection with a termination settlement, resulted in non-cash
compensation expense of $962,125.

<TABLE>
<CAPTION>
                                                         As
                                                     Previously             As
                                                      Reported           Restated
                                                    ------------       ------------
<S>                                                 <C>                <C>
At September 30, 2000:

Additional paid in capital                          $ 26,384,336       $ 27,346,461
Accumulated deficit                                 $(27,469,373)      $(28,431,498)

For the nine months ended September 30, 2000:

Stock-based general and administrative expense      $    188,935       $  1,151,060
Net loss available to common shareholders           $ (6,091,361)      $ (7,053,486)
Net loss per share available to common
   shareholders - basic and diluted                 $      (0.32)      $      (0.37)
</TABLE>


4.      Per Share Information

Basic loss per common share available to common shareholders excludes dilution
and is computed by dividing loss available to common shareholders by the
weighted-average number of common shares for the period. Diluted loss per common
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Excluded from the computation of diluted loss per share for the three months and
nine months ended September 30, 2000 and 1999, are options and warrants to
acquire 5,922,312 and 6,692,315 shares of common stock, respectively, and
2,786,714 and 5,251,000 common share equivalents relating to convertible secured
notes, from the assumed exercise of such instruments because their effects would
be antidilutive. The weighted average exercise price as of September 30, 2000
for the options, warrants and common share equivalents is $2.34, $3.06, and
$.94, respectively.


5.      Convertible Notes

Convertible notes at September 30, 2000 relate to notes from Argyle Capital
Management Corporation, a company affiliated with Robert Olins, a Director and
Acting Chief Executive Officer of the Company. The notes accrue interest at 6%
and are due on June 30, 2001. The notes plus all accrued interest at the time of
conversion are convertible into the Company's common stock at $.50 per share.
The notes are secured by substantially all the assets of the Company. The
Company has assumed that the accrued interest, at a rate of 6% from July 1 to
September 30, 2000 will be converted into 36,432 shares of common stock. Using
the average stock price of $2.65 for the three-month period to value such
shares, the Company has accrued stock-based interest expense of $96,545 for the
three months ended




                                       7
<PAGE>   8

September 30, 2000. The Company has accrued stock-based interest expense of
$603,449 for the nine months ended September 30, 2000.


6.      Issuance of Securities

During the third quarter of 2000 the Company issued 29,500 and 2,300 shares of
common stock upon the exercise of options and warrants, respectively. Total cash
received was $11,125.

During the third quarter the Company entered into an employment agreement under
the terms of which the employee was granted options to purchase up to 1,975,000
of the Company's common stock at an exercise price of $4.80 per share subject to
meeting certain performance criteria prior to June 30, 2002. The shares will be
issued outside of the 1999 Employee Stock Option Plan and are subject to
approval by the shareholders of the Company.

During the third quarter of 2000, the Company issued an option to purchase
150,000 shares of common stock in exchange for consulting services to be
rendered over a 3-month period. The option has an exercise price of $4.00 A
value of $173,935 was assigned to the option, using the Black-Sholes option
pricing model and the following assumptions: volatility 100%, risk-free
interest rate 6.25%, a dividend yield of 0, a contractual term of 3 years, and
the stock price of $2.1875. This option was recorded as stock-based general and
administrative expense.


7.      Segment Reporting

The Company's chief operating decision-maker, the Chief Executive Officer (CEO),
reviews the Company's financial information as a single "operating segment" to
make decisions about the Company's performance and resource allocation.
Therefore the Company has determined that it operates in a single business
segment. The Company's revenue for 2000 and 1999 consisted of sales of
prototypes and developer kits, respectively.

The Company sells to a small number of customers.


8.      Subsequent events

In connection with the convertible notes described in Note 4, on November 7,
2000 Argyle Capital Management Corp. converted all of its accrued interest into
common shares of the Company. Accrued interest of $84,546 through October 31,
2000 was converted into 169,092 common shares.


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

This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 21E of the Securities and Exchange Act of 1934, as amended, and are
subject to the Safe Harbor provisions created by that statute. In this report,
the words "anticipates," "believes," "expects," "future," "interests," and
similar expressions identify forward-looking statements. Such statements are
subject to certain risks and uncertainties, including, but not limited to, those
discussed herein, and in particular, those contained in this Item 2 as well as
those discussed in the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission on March 31, 2000. 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
results 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.




                                       8
<PAGE>   9

The following is a discussion and analysis of the consolidated financial
condition of the Company as of September 30, 2000, and the results of operations
for the Company for the three months and nine months ended September 30, 2000
and 1999. The following should be read in conjunction with the unaudited
consolidated financial statements and related notes appearing elsewhere herein.


OVERVIEW

SpatiaLight is developing and commercializing a miniature, high-resolution
active matrix liquid crystal display. Our display is designed to be a component
in high-resolution, projected display systems, which may be produced at lower
costs than current or anticipated projection systems. We have produced
development kits, which have been made available to potential customers.
Potential applications of this technology include projection computer monitors
and televisions, head mounted displays, optical computing, holographic imaging
and other display applications. We have made only limited sales to date, and
there can be no assurance that we will ever be able to commercialize our
technology.


LIQUIDITY AND CAPITAL RESOURCES

Most of our revenues to date have been derived from sales of our prototypes and
developer kits. Although we are producing displays in anticipation of mass
production, we have not yet completed our goal of mass production. Delays in
development may result in the introduction of products later than anticipated,
which may have an adverse effect on both our financial and competitive position.
Moreover, we may never be successful in developing or manufacturing a
commercially viable display and in addition, we may never be able to manufacture
adequate quantities of our displays at commercially acceptable cost levels or on
a timely basis.

As of September 30, 2000, we had approximately $1,119,000 in cash and cash
equivalents. This was, in large part, a result of the exercise of warrants by a
group of existing warrant holders during the first quarter of 2000 whereby we
received cash proceeds of approximately $4,000,000. Our net working capital at
September 30, 2000 was approximately $(1,587,000).

Net cash used in operating activities totaled approximately $4,571,000 and
$2,290,000 for the nine months ended September 30, 2000 and 1999, respectively.
Cash was used primarily to fund the operating loss.

Net cash provided by financing activities in the nine months ended September 30,
2000 was approximately $4,959,000 as compared to approximately $2,398,000 for
the nine months ended September 30, 1999. Cash was provided primarily from
proceeds from the exercise of warrants to purchase our common stock and the
exercise of options to acquire our common stock.

As of September 30, 2000, we had an accumulated deficit of approximately
$28,431,000. We have realized significant losses in the past and we expect that
these losses will continue at least through 2000. It is likely that we will have
quarterly and annual losses in 2000 and beyond. We have generated limited
revenues and no profits from operations. The development, commercialization and
marketing of our products will require substantial expenditures for the
foreseeable future. Consequently, we may continue to operate at a loss for the
foreseeable future and there can be no assurance that our business will operate
on a profitable basis.




                                       9
<PAGE>   10

RESULTS OF OPERATIONS

Revenues. Total revenues were approximately $62,000 for the nine months ended
September 30, 2000, and $7,000 for the three months ended September 30, 2000.
Total revenues were $62,000 for the nine months ended September 30, 1999, and
$21,000 for the three months ended September 30, 1999. The revenues earned in
2000 were from the sales of our fifth generation developer kits.

Cost of Revenues. Cost of revenues represents product costs associated with the
production of display prototypes. Cost of revenues for prototypes was
approximately $16,000 and $1,200 for the nine months and three months ended
September 30, 2000, respectively and $11,000 and $5,500 for the nine months and
three months ended September 30, 1999, respectively. Gross margins associated
with sales are not indicative of the gross margins that we expect to realize on
sales of units produced in quantity. Prototypes and developer kits have a higher
unit price than mass-produced units due to the time and effort spent with
customers.

Selling, general and administrative costs. Selling, general and administrative
costs were approximately $1,983,000 and $613,000 in the nine months and three
months ended September 30, 2000, respectively and $1,458,000 and $570,000 in the
nine and three months ended September 30, 1999, respectively. These increases
were due primarily to the cost associated with the implementation of our
accounting system, and accounting and auditing fees.

Stock-based general and administrative costs. Stock-based general and
administrative costs were approximately $1,151,000 and $1,136,000 in the nine
and three months ended September 30, 2000, respectively, and approximately
$862,000 and $327,000 in the nine and three months ended September 30 1999,
respectively. The amounts incurred relate to the valuation of common stock,
stock options, and options issued in exchange for services and other
consideration. The amount incurred in 2000 relates to stock and stock options
issued in exchange for services, as well as the cost associated with the
reinstatement of certain employee stock options. The amount incurred in 1999
relates to consulting services rendered in advising us as to feasible capital
structures and identifying appropriate capital sources.

Research and development costs. Research and development costs were
approximately $2,709,000 and $1,333,000 in the nine months ended September 30,
2000 and 1999, respectively. Research and development costs were approximately
$1,029,000 and $559,000 in the three months ended September 30, 2000 and 1999,
respectively. These increases were due primarily to an increase in salaries and
consulting and other costs associated with the design and implementation of a
new product.

Interest income. Interest income for the nine months ended September 30, 2000
and 1999 was approximately $80,000 and $8,000, respectively. Interest income for
the three months ended September 30, 2000 and 1999 was approximately $22,000 and
$0, respectively. The increase was due to higher cash balances resulting from
the exercise of warrants and options during the first two quarters of 2000.

Interest expense. Interest expense for the nine months ended September 30, 2000
and 1999 was approximately $125,000 and $161,000, respectively. Interest expense
for the three months ended September 30, 2000 and 1999 was approximately $25,000
and $51,000, respectively. The decrease resulted primarily from the conversion
of interest expense associated with certain convertible notes into equity that
was reclassified as stock-based interest expense. In addition, capital lease
obligations are nearing termination resulting in lower interest expense in 2000.




                                       10
<PAGE>   11

Stock-based interest expense. Stock-based interest expense for the nine months
ended September 30, 2000 and 1999 was approximately $603,000 and $0,
respectively. Stock-based interest expense for the three months ended September
30, 2000 and 1999 was approximately $97,000 and $0, respectively. The amounts
incurred in 2000 relate to the assumption that the interest on certain
convertible notes will be converted to equity based on the average fair market
value of the stock over the nine-month period. Amounts incurred in 1999 relate
to warrants issued in connection with a note extension.


BUSINESS RISKS AND UNCERTAINTIES

OUR DISPLAYS MAY NOT SUCCEED COMMERCIALLY.

Our microdisplays may not be accepted by a widespread market. Even if we
successfully mass-produce a display that is used in a retailed product, our
customers may determine not to introduce or may terminate the sale of products
utilizing the technology for a variety of reasons, including the following:

     -  superior technologies developed by our competitors;

     -  price considerations;

     -  lack of anticipated or actual market demand for the products; and

     -  difficulties in inducing companies to begin using our product.


A MARKET FOR OUR PRODUCTS MAY NOT DEVELOP.

Various target markets for our micro-displays, including projectors, monitors,
high-definition televisions, and portable micro-displays, are uncertain, may be
slow to develop, or could utilize competing technologies. High-definition
television has only recently become available to consumers, and widespread
market acceptance is uncertain. In addition, the commercial success of the
portable microdisplay market is uncertain. Gaining acceptance in this market may
prove difficult because of the radically different approach of microdisplays to
the presentation of information. In order for us to succeed, not only must we
sell to those manufacturers that produce end-products microdisplays that are
better and cheaper than the alternatives they would otherwise use, but also, the
manufacturers themselves must develop products that are successful commercially.
Failing to sell to manufacturers or the failure of the ultimate target markets
to develop as we expect will impede our anticipated growth.


WE MAY EXPERIENCE DIFFICULTIES MASS-PRODUCING MICRODISPLAYS.

We need to work closely with our manufacturing sources to commence volume
production of our current prototype. Problems in implementing volume production
or lower than expected manufacturing yields could significantly and adversely
affect us because we will have already incurred the costs for the materials used
in the microdisplay manufacturing process. These problems could cause delays
that might lead our potential customers to seek other sources.

We currently obtain silicon backplanes from the Far East. Some Asian countries
are subject to earthquakes and typhoons. Unless we obtain a second source, any
disruption or termination of our silicon manufacturing operations in Taiwan or
air transportation with the Far East could adversely affect our operations.




                                       11
<PAGE>   12

Our silicon backplanes are assembled in Hong Kong with electronic components to
create microdisplays. Because our assembly contract is relatively new we
anticipate that technical issues in the manufacturing process will need to be
resolved. The design and manufacture of LCDs and display modules are highly
complex processes that are sensitive to a wide variety of factors, including the
level of contaminants in the manufacturing environment, impurities in the
materials used, and the performance of personnel and equipment. Contract
manufacturers do not guarantee their manufacturing yields. In addition, the
complexity of manufacturing processes will increase along with increases in the
sophistication of our display modules. Low manufacturing yields or delivery
problems could adversely affect our operating results.

WE ARE INCURRING SUBSTANTIAL RESEARCH AND DEVELOPMENT COSTS.

We currently have over ten engineers based in California working on prototype
microdisplays. This staffing creates significant research and development costs
that may not be recouped. We have sold our current prototypes to a number of
companies that have indicated they may be willing to incorporate them into
products if they could buy such displays in volume. As we begin the process of
working with third parties to manufacture our designs in volume, we are
continuing to use our engineers to develop subsequent generations of our
microdisplays. As a result, our overhead is expected to increase.

WE MUST FINANCE THE GROWTH OF OUR BUSINESS AND THE DEVELOPMENT OF NEW PRODUCTS.

To remain competitive, we must continue to make significant investments in
research and development, equipment and facilities. Our failure to generate
sales to offset our costs would adversely affect our ability to continue
operating.

We anticipate the need for additional equity or debt financing to provide for
the capital expenditures required to maintain our research and development and
to move to production. We cannot predict the timing or amount of any such
capital requirements at this time. If such financing is not available on
satisfactory terms, we may be unable to expand our business at the rate desired
and our operating results may suffer. Equity financing could result in
additional dilution to existing stockholders. Debt financing increases expenses,
must be repaid regardless of operating results, and is secured against our
assets, potentially leaving fewer resources available for the repayment of
equity holders.

OUR OPERATING RESULTS ARE NEGATIVE AND SUBJECT TO FLUCTUATIONS.

We have not achieved profits in the past five years and have experienced cash
shortages. We will need to achieve substantial sales to support our cost
structure before we can begin to recoup our operating losses and accumulated
deficit. Any progress toward profitability may not be steady and may be subject
to significant periodic or seasonal quarterly fluctuations due to factors
including the following:

     -  introductions of displays and market acceptance of new or new
        generations of displays;

     -  timing of expenditures in anticipation of future orders;

     -  changes in our cost structure;

     -  availability of labor and components;

     -  pricing and availability of competitive products and services;




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     -  the timing of orders;

     -  the volume of orders relative to the capacity we can contract to
        produce;

     -  evolution in the life cycles of customers' products; and

     -  changes or anticipated changes in economic conditions.


WE ARE SUBJECT TO LENGTHY DEVELOPMENT PERIODS AND PRODUCT ACCEPTANCE CYCLES.

Our business model requires us to develop microdisplays that perform better than
existing technologies, contract with one or more third-party manufacturers to
manufacture our prototypes in bulk, and sell the resulting displays to original
equipment manufacturers that will then incorporate it into their products. OEMs
make the determination during their product development programs whether or not
to incorporate our display modules in their products. This requires us to invest
significant amounts of time and capital in designing display modules well before
our customers introduce their products incorporating these displays and before
we can be sure that we will generate any significant sales to our customers or
even recover our investment. Even if a product is successful for a short period,
competition from other sellers could limit the length of time it is successful.


SHORTAGES OF COMPONENTS AND MATERIALS MAY DELAY OR REDUCE OUR SALES AND
INCREASE OUR COSTS.

Our inability to obtain sufficient quantities of components and other materials
necessary to produce our displays could result in reduced or delayed sales or
lost orders. Any delay in or loss of sales could adversely impact our operating
results. We obtain many of the materials we use in the manufacture of our
displays from a limited number of foreign suppliers, particularly suppliers
located in the Far East, and we do not have long-term supply contracts with any
of them. As a result, we are subject to economic instability and currency
fluctuations in these countries as well as to increased costs, supply
interruptions, and difficulties in obtaining materials. Our customers also may
encounter difficulties or increased costs in obtaining from others the materials
necessary to produce their products into which our product solutions are
incorporated.


MARKET ACCEPTANCE OF THE PRODUCTS OF OUR CUSTOMERS IS AN IMPORTANT ELEMENT OF
OUR BUSINESS STRATEGY.

We do not sell any products to end-users. Instead, our business strategy
involves designing and manufacturing various product solutions that our
customers incorporate into their products. As a result, our success will depend
upon the widespread market acceptance of our customers' products. Any
significant slowdown in the demand for our customers' products would adversely
affect our business.

Our dependence on the success of the products of our customers will expose us to
a variety of risks, including our needs to do the following:

     -  maintain customer satisfaction with our design and manufacturing
        services;

     -  match our design and manufacturing capacity with customer demand and to
        maintain satisfactory delivery schedules;

     -  anticipate customer order patterns, changes in order mix, and the level
        and timing of orders that we can meet; and




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     -  adjust to the cyclical nature of the industries and markets we serve.

Our failure to address these risks may cause us to lose sales or for sales to
decline.

WE FACE INTENSE COMPETITION.

We serve intensely competitive industries that are characterized by price
erosion, rapid technological change, and competition from major domestic and
international companies. This intense competition could result in pricing
pressures, lower sales, reduced margins, and lower market share. Some of our
competitors have greater market recognition, larger customer bases, and
substantially greater financial, technical, marketing, distribution and other
resources than we possess. As a result, they may be able to introduce new
products and respond to customer requirements more quickly than we can.

Our competitive position could suffer if one or more of our customers decide to
design and manufacture their own display modules, to contract with our
competitors, or to use alternative technologies. In addition, in our industry
customers typically develop second sources. Second source suppliers may win an
increasing share of a program by competing primarily on price rather than on
design.

Our ability to compete successfully depends on a number of factors, both within
and outside our control. These factors include the following:

     -  our success in designing and manufacturing new display technologies;

     -  our ability to address the needs of customers;

     -  the quality, performance, reliability, features, ease of use, pricing,
        and diversity of our display products;

     -  foreign currency fluctuations, which may cause a foreign competitor's
        products to be priced significantly lower than our displays;

     -  the quality of our customer services;

     -  the efficiency of our production sources;

     -  the rate at which customers incorporate our displays into their own
        products; and

     -  products or technologies introduced by our competitors.


WE DO NOT HAVE LONG-TERM PURCHASE COMMITMENTS FROM OUR PROSPECTIVE CUSTOMERS.

Our prospective customers have not yet provided us with firm or long-term volume
purchase commitments. Although we have begun to negotiate with our customers, we
currently do not have any contracts with our customers. Because we have no firm,
long-term volume purchase commitments we do not have clear order lead times or
basis for inventory allocations. In addition, our prospective customers can
cancel purchase commitments or reduce or delay orders at any time. The
cancellation, delay, or reduction of customer commitments could result in our
holding excess and obsolete inventory or having unabsorbed manufacturing
overhead. Our sales to customers in the electronics industry, which is subject




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to severe competitive pressures, rapid technological change, and product
obsolescence, increases our inventory and overhead risks.


OUR COMMON STOCK MAY NOT BE LIQUID.

We are currently traded on the Nasdaq SmallCap. Any swing in the price of our
stock may be magnified into a material reduction in price because relatively few
buyers may purchase our stock.


THE ELECTRONICS INDUSTRY IS CYCLICAL.

The electronics industry has experienced significant economic downturns at
various times, characterized by diminished product demand, accelerated erosion
of average selling prices, and production over-capacity. In addition, the
electronics industry is cyclical in nature. We may experience substantial
period-to-period fluctuations in future operating results because of general
industry conditions or events occurring in the general economy.


WE MUST EFFECTIVELY MANAGE OUR GROWTH.

The failure to manage our growth effectively could adversely affect our
operations. Our ability to manage our planned growth effectively will require us
to:

     -  enhance our operational, financial, and management systems;

     -  expand our facilities and equipment; and

     -  successfully hire, train, and motivate additional employees, including
        technical staff.

As we expand our overhead and selling expenses will increase. We also may be
required to increase staffing and purchase capital equipment. Customers,
however, generally do not commit to firm production schedules for more than a
short time in advance. Any increase in expenditures in anticipation of future
sales that do not materialize would adversely affect our profitability.


WE MUST PROTECT OUR INTELLECTUAL PROPERTY.

Our success will depend in part on protecting our proprietary technology. Third
parties could claim that we are infringing their patents or other intellectual
property rights. In the event that a third party alleges that we are infringing
its rights, we may not be able to obtain licenses on commercially reasonable
terms from the third party, if at all, or the third party may commence
litigation against us. The failure to obtain necessary licenses or other rights
or the institution of litigation arising out of such claims could materially and
adversely affect us.

We rely on a combination of patent law, trade secret law, attempts to limit
disclosure of our confidential information and contractual provisions to protect
our intellectual property. Trade secret laws and contractual provisions afford
only limited protection. We face risks associated with our intellectual
property, including the following:

     -  pending patent applications may not be issued;




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<PAGE>   16

     -  patents issued to us may be challenged, invalidated, or circumvented;

     -  unauthorized parties may obtain and use information that we regard as
        proprietary despite our efforts to protect our proprietary rights;

     -  others may independently develop similar technology or design around any
        patents issued to us;

     -  intellectual property laws may not protect our intellectual property;
        and

     -  effective protection of intellectual property rights may be limited or
        unavailable in some foreign countries, in which we may operate.


WE DEPEND ON KEY PERSONNEL.

Our development and operations depend substantially on the efforts and abilities
of our senior management and technical personnel. The competition for qualified
management and technical personnel is intense. We are currently seeking a
permanent CEO. The loss of services of one or more of our key employees or the
inability to add key personnel could have a material adverse affect on us.


THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

The market price of our common stock has been extremely volatile, reflecting
reported losses, receipt of additional financing and changes to management.
Other companies have found similar volatility correlates with class action
securities law suits. The trading price of our common stock in the future could
continue to be subject to wide fluctuations in response to various factors,
including the following:

     -  quarterly variations in our operating results;

     -  actual or anticipated announcements of technical innovations or new
        product developments by us or our competitors;

     -  public announcements regarding our business developments;

     -  changes in analysts' estimates of our financial performance;

     -  general conditions in the electronics industry; and

     -  worldwide economic and financial conditions.

In addition the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices for many
high-technology companies and that often have been unrelated to the operating
performance of these companies. These broad market fluctuations and other
factors may adversely affect the market price of our common stock.


SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY AFFECT THE PRICE OF
OUR COMMON STOCK.

Many of our outstanding shares are freely tradable without restrictions or
further registration. Sales of substantial amounts of common stock by our
stockholders, or even the potential for such sales, may affect the market price
of our common stock and could impair our ability to raise capital through the
sale of our equity securities.




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<PAGE>   17

WE COULD BE LIABLE IN CONNECTION WITH PRODUCT LIABILITY CLAIMS.

Product liability claims may be asserted against us in the event that the use of
our products, or products which incorporate our products, are alleged to cause
injury or other adverse effects. Our product liability insurance may not be
adequate to protect us against potential claims. As a result a successful claim
against us could materially affect our financial stability. In addition, our
reputation may be affected by product liability claims regardless of the merit
or eventual outcome of the claim.


WE FACE RISKS ASSOCIATED WITH INTERNATIONAL TRADE AND CURRENCY EXCHANGE.

Political and economic conditions abroad may adversely affect the foreign
manufacture and sale of our displays. Protectionist trade legislation in either
the United States or foreign countries, such as a change in the current tariff
structures, export or import compliance laws, or other trade policies, could
adversely affect our ability to manufacture or sell displays in foreign markets
and to purchase materials or equipment from foreign suppliers.


WE DO NOT PAY CASH DIVIDENDS.

We have never paid any cash dividends on our common stock and do not anticipate
that we will pay cash dividends in the near term. Instead, we intend to apply
earnings to the expansion and development of our business.

PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings

We anticipate that Plaintiffs Tony Romano, Magellin Entertainment Inc. will
dismiss an action they brought against us in San Francisco Superior Court on
January 10, 2000 in return for a small settlement in the next 30 days.

ITEM 2.   Changes in Securities

During the third quarter the Company entered into an employment agreement under
the terms of which the employee was granted options to purchase up to 1,975,000
of the Company's common stock at an exercise price of $4.80 per share subject to
meeting certain performance criteria prior to June 30, 2002. The shares will be
issued outside of the 1999 Employee Stock Option Plan and are subject to
approval by the shareholders of the Company.


ITEM 6.   Exhibits

Exhibits:

          27      Financial Data Schedule




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SIGNATURES


        In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused the report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                      Date:
                           -----------------------------------------------------


                      SpatiaLight, Inc.



                      By:  /s/ ROBERT A. OLINS
                         -------------------------------------------------------
                         Robert A. Olins
                         Acting Chief Executive Officer
                         (Principal Executive, Financial and Accounting Officer)




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