<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 June 30, 1998
                                       
[ ]  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
      incorporation or organization)                   Identification No.)

                  8-C Commercial Blvd., Novato, CA 94949-6125
       ----------------------------------------------------------------
                   (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  [ ] No  [X]

                     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: 11,282,501 shares of common
stock as of August 5, 1998.

     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 June 30, 1998
                                       
                                       
                               Table of Contents
<TABLE>
<CAPTION>                                       
PART I         FINANCIAL INFORMATION
<S>  <C>       <C>                                                         <C>
     Item 1.   Condensed Consolidated Financial Statements (unaudited)

               Consolidated Balance Sheets dated
               June 30, 1998 and December 31, 1997 . . . . . . . . . . . . .3

               Consolidated Statements of Operations
               for the Three and Six Months Ended
               June 30, 1998 and December 31, 1997 . . . . . . . . . . . . .4

               Consolidated Statements of Cash Flows
               for the Six Months Ended June 30, 1998 and 1997 . . . . . . .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 2.   Changes in Securities . . . . . . . . . . . . . . . . . . . 12


     Item 6.   (a) Exhibits and Reports on Form 8-K. . . . . . . . . . . . 13

</TABLE>
                                       2
<PAGE>
PART I.   FINANCIAL INFORMATION
Item 1.   Condensed Consolidated Financial Statements (unaudited)

                       SPATIALIGHT, INC. AND SUBSIDIARY
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                         June 30,     December 31,
                                                           1998           1997
                                                       ---------------------------
<S>                                                    <C>             <C>
ASSETS

Current assets
   Cash and cash equivalents                              $26,122      $415,624
   Accounts receivable                                      3,383         3,383
   Inventories                                             15,000        15,000
   Prepaid expenses and other                              22,750        27,253
                                                      -----------    ----------
           Total current assets                            67,255       461,260

Property and equipment, net                               195,188       217,984
Other assets                                               37,087        27,701
                                                      -----------    ----------

                          Total assets                   $299,530      $706,945
                                                      -----------    ----------
                                                      -----------    ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Accounts payable                                      $854,004      $796,660
   Short-term notes payable                             1,304,436       932,479
   Accrued expenses and other current liabilities         119,978       127,835
                                                      -----------    ----------
           Total current liabilities                    2,278,418     1,856,974

Non-current liabilities
   Long term capital lease obligations                     40,835        53,480
                                                      -----------    ----------

                          Total liabilities             2,319,253     1,910,454

Commitments and contingencies

Stockholders' equity
   Common stock, $.01 par value:
      20,000,000 shares authorized; issued and
      outstanding 11,282,501 at June 30, 1998
      and 9,201,111 at December 31, 1997                  112,824        92,011
Additional paid-in capital                             10,385,001     9,451,835
Accumulated deficit                                   (12,517,548)  (10,747,355)
                                                      -----------    ----------
Total stockholders' equity                             (2,019,723)   (1,203,509)

Total liabilities and stockholders' equity               $299,530      $706,945
                                                      -----------    ----------
                                                      -----------    ----------

</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
                        SPATIALIGHT, INC. AND SUBSIDIARY

                 Condensed Consolidated Statements of Operations
                                   (Unaudited)
<TABLE>                                   
<CAPTION>                                 
                                                           Three Months Ended            Six Months Ended
                                                                June 30,                      June 30,
                                                          1998           1997           1998           1997
                                                          --------------------          -------------------
<S>                                                     <C>             <C>          <C>            <C>
Revenues
   Contract revenues
   Sales                                                       $0             $0             $0            $0

          Total revenues

Cost of sales                                                   0              0              0             0
                                                       ----------      ---------     ----------     ---------
          Gross Profit                                          0              0              0             0

   Selling, general and administrative expenses           411,163        646,329        874,412       951,497
   Research and development expenses                      338,002        348,976        844,090       546,350
                                                       ----------      ---------     ----------     ---------
                          Total operating expenses        749,165        995,305      1,718,502     1,497,847

          Operating loss                                 (749,165)      (995,305)    (1,718,502)   (1,497,847)

Other income (expenses)

   Interest income                                          2,640          1,839          6,322        12,384
   Other income (expense)                                 (32,321)           (40)       (55,349)        8,802
                                                       ----------      ---------     ----------     ---------
          Total other income (expenses)                   (29,681)         1,799        (49,027)       21,186
                                                       ----------      ---------     ----------     ---------
   Loss from operations before income taxes              (778,846)      (993,506)    (1,767,529)   (1,476,661)

Income taxes                                                2,665          1,412          2,665         3,322
                                                       ----------      ---------     ----------     ---------
          Net loss                                       (781,511)      (994,918)    (1,770,194)   (1,479,983)
                                                       ----------      ---------     ----------     ---------
                                                       ----------      ---------     ----------     ---------
Net loss per share                                          (0.07)         (0.12)         (0.17)        (0.17)
                                                       ----------      ---------     ----------     ---------
                                                       ----------      ---------     ----------     ---------
Shares used in computing net loss per share            11,085,143      8,537,546     10,389,065     8,535,369
                                                       ----------      ---------     ----------     ---------
                                                       ----------      ---------     ----------     ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>
                        SPATIALIGHT, INC. AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                                        
                                                            Six Months Ended
                                                                June 30,
                                                          1998           1997
                                                      ----------     ----------
<S>                                                 <C>             <C>
Cash flows from operating activities:

Net loss                                             ($1,770,193)   ($1,479,983)
Adjustments to reconcile net loss to net cash by
  operating activities:

   Depreciation and amortization                           40,645        22,028
   Non cash stock issuance costs                          183,815             0
   Non cash litigation settlement                               0       300,000
   Non cash compensation                                        0        21,251

   Changes in assets and liabilities:
      Accounts receivable                                       0        36,719
      Inventories                                               0        30,201
      Prepaid expenses and other current assets             4,503       (99,839)
      Other assets                                        (9,386)        (2,391)
      Accounts payable                                    182,194       267,961
      Current portion capital lease obligation              (111)             0
      Accrued expenses and other current liabilities       87,567       (15,045)
                                                       ----------     ----------
               
           Net cash used by operating activities       (1,280,966)     (919,098)

Cash flows from investing activities:
   Capital expenditures                                  (17,849)      (107,585)
                                                      ----------     ----------
           Net cash used by investing activities         (17,849)      (107,585)

Cash flows from financing activities:
   Long term capital lease obligation                    (12,645)             0
   Pay down of notes payable                            (250,000)             0
   Proceeds from short-term notes payable              1,171,957              0
   Common stock issuance costs                                 0         (9,402)
                                                      ----------     ----------
      Net cash provided by financing activities          909,312         (9,402)

Net decrease cash equivalents                           (389,503)    (1,036,085)

Cash at beginning of period                              415,624      1,324,398
                                                      ----------     ----------
Cash at end of period                                    $26,121       $288,313
                                                      ----------     ----------
                                                      ----------     ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
                       SPATIALIGHT, INC. AND SUBSIDIARY
             Notes to Condensed Consolidated Financial Statements
                                       
(1)  Basis of Presentation

     The accompanying condensed consolidated financial statements have been
     prepared in accordance with the instructions to Form 10-QSB but are
     unaudited and do not include all information and footnotes necessary for
     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 June 30, 1998 and the results of its operations for the
     three months and six months ended June 30, 1998 and 1997, respectively.
     The unaudited interim condensed consolidated financial statements should
     be read in conjunction with Company's 1997 Annual Report on Form 10-KSB,
     which contains the unaudited financial statements and notes thereto,
     together with Management's Discussion and Analysis as of and for the years
     ended December 31, 1997 and 1996.
     
(2)  Going Concern Uncertainty

     The Company's operations are severely constrained by its lack of financing
     and inadequate working capital.  The Company continues to experience
     negative cash flows and net operating losses.  The Company's operations in
     recent months have been funded by a series of small loans, the majority of
     which are secured by substantially all the assets of the Company.  Most of
     these loans have been provided by a company affiliated with a Director of
     the Company.  These loan amounts have been adequate for the Company to
     meet payroll and certain other imperative obligations, but various
     accounts payable and other obligations are past due.  The Company is in
     default under certain of the loans made to finance its operations, and is
     negotiating to extend the due dates.  The Company continues its efforts to
     locate sources of financing.  There can be no assurance that additional
     loans or any other financing will be available to the Company.  FOR THIS
     REASON, THERE IS SIGNIFICANT UNCERTAINTY WHETHER THE COMPANY CAN CONTINUE
     AS A GOING CONCERN. 
     
     The accompanying unaudited condensed consolidated financial statements
     have been prepared assuming that the Company will continue as a going
     concern.  This contemplates the realization of assets and the satisfaction
     of liabilities in the normal course of business.  The Company incurred
     significant operating losses in each of the last five fiscal years and
     incurred a net loss of $1,770,193 in the first six months of 1998.
     Additionally, as of June 30, 1998 the Company's accumulated deficit
     totaled $12,517,548.  The Company has generated limited revenues to date
     and the development, commercialization and marketing of the Company's
     products will require substantial expenditures in the foreseeable future.
     The successful completion of the Company's development program and
     ultimately, the attainment of profitable operations, is dependent upon
     future events.  These events include obtaining adequate financing to
     fulfill its development activities, successful commercialization and
     distribution of its displays, and achieving a level of sales adequate to
     support the Company's cost structure.  The matters discussed above, among
     others, indicate that it is likely that the Company will be unable to
     continue as a going concern after a reasonable period of time.
     
                                       6
<PAGE>
     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.
     
     Effective July 1, 1998, the Company's Chairman and Chief Executive Officer
     announced his retirement from the Company and resignation from its Board
     of Directors.  In addition, effective June 24, 1998, the Company's
     President and Chief Operating Officer is no longer employed by the
     Company.  In response to this change in management, the Company has formed
     an Executive Committee, consisting of three Board members, to assist in
     the day to day operation of the Company.  (see Dependence on Key
     Personnel)
     
     In an effort to improve operating performance, the Company has been and
     will be implementing certain programs and strategies in 1998.  These
     strategies include:
     
          -    Raising of additional capital.
          -    Outsourcing of all manufacturing activities.
          -    Developing strategic arrangements with potential customers to 
               share development costs and/or licensing of the Company's 
               technology.
          -    Construction of engineering models to demonstrate proof of 
               technology for OEMs.

     The Company's continuation as a going concern is dependent upon its
     ability to generate sufficient cash flow to meet its obligations on a
     timely basis, to obtain additional financing, and ultimately to attain
     successful operations.  Management is continuing its efforts to obtain
     additional funds so that the Company can meet its obligations and sustain
     its operations.

(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 was required to adopt SFAS 128 in the fourth
     quarter of fiscal 1997 and restated at that time earnings per share (EPS)
     data for prior periods to conform with SFAS 128.
     
     SFAS 128 replaces previous 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.
     
     Because the Company has experienced continuous net losses, basic EPS and
     Diluted EPS are not significantly different than primary and fully diluted
     EPS currently reported for the periods.
     
(4)  Short term notes payable

     Short term notes payable at June 30, 1998 consist of the following:
     
     Short term notes of $1,304,436, including accrued interest.  The
     borrowings were made to provide working capital, and accrue interest at a
     10-12% per annum.  Of the total,

                                       7
<PAGE>
     $1,143,880 is due on September 19, 1998, and the balance was due on
     February 28, 1998.  The Company is in default on the notes due in February
     1998 and is negotiating to extend the dates.

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.

GENERAL

     The Company's operations are severely constrained by its lack of financing
     and inadequate working capital.  The Company continues to experience
     negative cash flows and net operating losses.  The Company's operations in
     recent months have been funded by a series of small loans, the majority of
     which are secured by substantially all the assets of the Company.  Most of
     these loans have been provided by a company affiliated with a Director of
     the Company.  These loan amounts have been adequate for the Company to
     meet payroll and certain other imperative obligations, but various
     accounts payable and other obligations are past due.  The Company is in
     default under certain of the loans made to finance its operations, and is
     negotiating to extend the due dates.  The Company continues its efforts to
     locate sources of financing.  There can be no assurance that additional
     loans or any other financing will be available to the Company.  FOR THIS
     REASON, THERE IS SIGNIFICANT UNCERTAINTY WHETHER THE COMPANY CAN CONTINUE
     AS A GOING CONCERN. See Note 2 of Notes to Condensed Consolidated 
     Financial Statements.

OVERVIEW

     SpatiaLight is developing and commercializing a miniature, proprietary,
     high-resolution active matrix liquid crystal display ("AMLCD") which is
     also known as a Spatial Light Modulator ("SLM").  The Company's SLM is
     designed to be the essential component in high-resolution, electronic
     projected display systems which may be produced at lower costs than
     current or anticipated projection systems.  The Company has produced
     prototype SLM's in small volume 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 data storage and other display
     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.

                                       8
<PAGE>
RESULTS OF OPERATIONS

     SpatiaLight reported no revenue for the six months ended June 30, 1998 or
     for the six months ended June 30, 1997.  The Company is continuing to
     develop its technological capabilities 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.
     Any 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 decreased $77,085 or 8% for
     the six months ended June 30, 1998 as compared to the six months ended
     June 30, 1997.  The decrease was due to a reduction in spending as a
     result of limited cash flow.

     Research and development expenses increased by $297,740 or 55% for the
     six months ended June 30, 1998 as compared to the six months ended June
     30, 1997 and decreased $10,974 or 3% for the three months ended June 30,
     1998 compared to the three months ended June 30, 1997.  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 10 full time employees
     whose duties include research and development.  The Company intends to
     continue its development programs, focusing on increasing the display
     size, capabilities and final manufacturing processes.  The Company
     believes that such developments will be required to exploit future markets
     for large screen projection monitors, high definition televisions and head
     mounted displays.

NET LOSS

     As a result of the above factors the Company recorded a net loss of
     $1,770,194 or $.12 per share for the six months ended June 30, 1998 and a
     net loss of $781,511 or $.07 per share for three months ended June 30,
     1998.  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 $1,280,966 for the six
     months ended June 30, 1998 as a result of selling, general, and
     administrative expenses and research and development expenses incurred
     during the period.

     As of June 30, 1998 the Company had $26,122 in cash and cash equivalents.
     Net working capital was ($1,357,159).

     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 and expand operations in an
     effort 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 

                                       9
<PAGE>
     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.


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.  Further
     development and testing will be necessary before the Company's proposed
     displays will be available for commercial end-use applications.  Delays in
     development may result in the Company's introduction of its displays 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 devices or any of its displays 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 displays.  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 displays.  The Company's facility is designed
     principally for research and development, small-scale assembly and
     inventory storage, and the Company currently anticipates engaging outside
     manufacturers to produce its products utilizing its SLM devices in volume.
     The Company is negotiating with manufacturers to establish full scale
     integrated manufacturing capacity for its SLM devices and has reached an
     agreement with one manufacturer for production of silicon wafers.
     However, no decision has been made by any such manufacturer to establish
     volume capability and there can be no assurance that any of them will do
     so.  In the event any such manufacturer establishes a volume 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 sell its displays.  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 displays, which, in turn, could have substantial adverse
     impact on the Company's results of operations and financial condition.

                                      10
<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 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 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 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 technology
     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 signification portion of related research development,
     acquisition and commercialization costs.  If the Company is successful in
     the development of a commercially viable SLM device, the Company's ability
     to compete will depend in part upon the consistency of display 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 partners,
     product performance and price, product distribution and customer support.
     There can be no assurance that the Company will succeed in developing
     technologies and products that are equally or more effective than any
     which are being developed by the Company's competitors. There can be no
     assurance that competitive processes will not render the Company's
     technology, 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 campaign that may include misappropriation of the
     Company's intellectual property or predatory pricing.

                                      11
<PAGE>
     DEPENDENCE ON KEY PERSONNEL. Effective July 1, 1998, the Company's
     Chairman and Chief Executive Officer William Hollis announced his
     retirement from the Company and resignation from its Board of Directors.
     In addition, effective June 23, 1998, the Company's President and Chief
     Operating Officer, L. John Loomis is no longer employed by the Company.
     Further, on March 20, 1998 Dean Irwin, the Company's Vice President of
     Engineering resigned from his position with the Company.
     
     The Company has formed an Executive Committee, consisting of three Board
     members, Robert A. Olins, Lawrence J. Matteson, and Michael H. Burney to
     assist in the day to day operation of the Company.  The Executive
     Committee immediately appointed Michael H. Burney as the interim Chief
     Executive Officer, Treasurer and Secretary.  The Executive Committee also
     appointed Fred R. Hammett as the Company's interim President.
     
     The Company is utilizing the services of outside consultants in key
     technological areas. The Company's continued success will depend on its
     ability to attract and retain 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 which will 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 any 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.

PART II.  OTHER INFORMATION

Item 2.   During the second quarter of 1998 the Company entered into
     arrangements with accredited individual investors which may require the
     issuance of warrants to purchase up to 162,000 shares of Common Stock at
     exercise prices ranging from $0.50 to $0.85, and which expire no later
     than June 30, 2001 in consideration of the delay of enforcement of default
     conditions for certain loans to the Company.  In issuing these securities
     the Company relied upon the exemption from the registration requirements
     of the Securities Act of 1933, as amended, provided by Section 4(2)
     thereof.

     During the second quarter of 1998, the Company issued a series of
     convertible notes in the aggregate principal amount of $1,113,000 to a
     company affiliated with a Director of the Company.  These notes are
     convertible into Common Shares at a conversion price of $0.50 per Common
     Share. In issuing these securities the Company relied upon the exemption
     from the registration requirements of the Securities Act of 1933, as
     amended, provided by Section 4(2) thereof.

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<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 six months ended June 30,
1998.

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<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: August 12, 1998

                                   SpatiaLight, Inc.

                                   By: /s/ Michael H. Burney
                                       -----------------------------------
                                           Michael H. Burney
                                           Chief Executive Officer
                                           (Principal Executive, Financial
                                             And Accounting Officer)

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