<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, 1997

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

                           Commission File Number 000-19828
                                           
                                           
                                  SPATIALIGHT, INC.
                                  -----------------
          (Exact name of small business issuer as specified in its charter)
                                           
                                           
            New York                                     16-1363082
            --------                                     ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                     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 [X]    No [ ]
                                           
                         APPLICABLE ONLY TO CORPORATE ISSUERS:
                                           
     State the number of shares outstanding of each of the issuer's classes 
of common equity, as of the latest practicable date: 8,547,191 shares of 
common stock as of August 8, 1997.

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

<PAGE>

                          SPATIALIGHT, INC. AND SUBSIDIARIES
                                           
                           Quarterly Report on Form 10-QSB
                         For the Quarter Ended June 30, 1997
                                           
                                           
                                  TABLE OF CONTENTS
                                           
PART I          FINANCIAL INFORMATION

    Item 1.     Condensed Consolidated Financial Statements (unaudited)        

                Consolidated Balance Sheets dated
                June 30, 1997 and December 31, 1996............................3

                Consolidated Statements of Operations
                for the Three and Six Months Ended
                June 30, 1997 and 1996.........................................4

                Consolidated Statements of Cash Flows
                for the Six Months Ended June 30, 1997
                and 1996.......................................................5

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

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

PART II.        OTHER INFORMATION

    Item 1.     Legal Proceedings.............................................14

    Item 4.     Submission of Matters to a Vote of Security Holders...........15

    Item 6.(A)  Exhibits and Reports on Form 8-K..............................16


                                       2
<PAGE>



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

                          SPATIALIGHT, INC. AND SUBSIDIARIES
                             Consolidated Balance Sheets
                                     (Unaudited)

                                                      June 30,      December 31,
                                                        1997           1996
                                                      --------------------------
ASSETS

Current assets:
    Cash and cash equivalents                         $288,313     $1,324,398
    Accounts receivable                                  3,302         40,021
    Inventories                                         45,200         75,401
    Prepaid expenses and other                         111,750         11,911
                                                   -----------    -----------
         Total current assets                          448,565      1,451,731

Property and equipment, net                            207,528         68,817
Other assets                                            15,268         12,877
                                                   -----------    -----------
         Total assets                                 $671,361     $1,533,425
                                                   -----------    -----------
                                                   -----------    -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accrued expenses and other current liabilities     $93,536       $108,581
    Accounts payable                                   362,515         94,554
                                                   -----------    -----------
         Total current liabilities                     456,051       $203,135

    Long term capital lease obligations                 53,154        ----   
                                                   -----------    -----------
         Total liabilities                             509,205        203,135

    Stockholders' equity:
      Common stock, $.01 par value
      20,000,000 shares authorized:
      8,547,191 and 8,533,191                           79,972         79,832
      shares issued and outstanding at
      June 30, 1997
      and December 31, 1996                             
    Additional paid-in capital                       9,026,248      8,714,539  
    Accumulated deficit                             (8,944,064)    (7,464,081)
                                                   -----------    -----------
         Total stockholders' equity                    162,156      1,330,290
                                                   -----------    -----------

         Total liabilities and
         stockholders' equity                         $671,361     $1,533,425
                                                   -----------    -----------
                                                   -----------    -----------

See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

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

<TABLE>
<CAPTION>

                                                          Three months ended         Six months ended
                                                               June 30,                   June 30,
                                                          1997          1996         1997          1996
                                                       -------------------------------------------------
<S>                                                  <C>           <C>         <C>           <C>
Sales                                                   $  ---        $76,100    $   ---         $76,100
Cost of sales                                              ---         18,000        ---          18,000
                                                       ---------    ---------    ----------    ---------
    Gross profit                                          ----         58,100       -----         58,100

    Selling, general and administrative expenses         646,329      187,991       951,497      325,780
    Research and development expenses                    348,976       77,946       546,350      130,425
                                                       ---------    ---------    ----------    ---------
            Total operating expenses                     995,305      265,937     1,497,847      456,205

            Operating loss                              (995,305)    (207,837)   (1,497,847)    (398,105)
    
Other income (expense):

    Interest income                                        1,839        3,457        12,384       18,566     
    Other income (expense), net                              (40)      (4,663)        8,802       (3,394)
                                                       ---------    ---------    ----------    ---------
Total other income (expense)                               1,799       (1,206)       21,186       15,172
                                                       ---------    ---------    ----------    ---------

      Loss before income taxes                          (993,506)    (209,043)   (1,476,661)    (382,933)
    
Income tax expense                                         1,412        1,040         3,322        3,886
                                                       ---------    ---------    ----------    ---------
    
    Net loss                                            (994,918)    (210,083)   (1,479,983)    (386,819)
                                                       ---------    ---------    ----------    ---------
                                                       ---------    ---------    ----------    ---------

Net loss per common share:                                  (.12)        (.03)         (.17)        (.06)     


Weighted average shares used in computing
    net loss per common share                          8,537,546    6,398,191     8,535,369    6,398,191
                                                       ---------    ---------    ----------    ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements

                                       4

<PAGE>




                          SPATIALIGHT, INC. AND SUBSIDIARIES
                   Condensed Consolidated Statements of Cash Flows
                                     (Unaudited)
                                           
                                                        Six Months Ended
                                                            June 30,
                                                      1997             1996
                                                   ---------------------------
Cash flows from operating activities:

Net loss                                           $(1,479,983)     $(386,819)
Adjustments to reconcile net loss to net cash                 
   used by operating activities:
    Depreciation and amortization                       22,028          8,770
    Non cash litigation settlement                     300,000         ------ 
    Non cash compensation                               21,251
    Changes in assets and liabilities:
       Trade and other receivables, net                 36,719        (47,255)
       Inventories                                      30,201        (18,000) 
       Prepaid expenses                                (99,839)       (41,156)
       Accounts payable                                267,961          ---- 
       Accrued expenses and other liabilities          (15,045)        87,471
       Other assets                                     (2,391)        33,526
                                                    ----------       --------

         Net cash used by operating activities        (919,098)      (363,463)
                                                    ----------       --------

Cash flows from investing activities:
    Capital expenditures                              (107,585)        ------
    Collection on notes receivable                           0         50,000
                                                    ----------       --------
         Net cash provided (used) by investing
         activities                                   (107,585)        50,000

Cash flows from financing activities:                                        
    Issuance costs related to common stock issued       (9,402)             0
                                                    ----------       --------
         Net cash used by financing activities          (9,402)             0

Net decrease in cash and cash equivalents           (1,036,085)      (313,463)
                                                    ----------       --------

Cash at beginning of period                          1,324,398        678,300
                                                    ----------       --------

Cash at end of period                                 $288,313       $364,837
                                                    ----------       --------
                                                    ----------       --------

See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>





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

(1) Basis of Presentation

    The accompanying unaudited condensed consolidated financial statements have
    been prepared in accordance with the instructions to Form 10-QSB but do not
    include all information and footnotes necessary for a fair presentation of
    financial condition, results of operations and cash flows in conformity
    with generally accepted accounting principles.  In the opinion of
    management of Spatialight, Inc. ("Spatialight" or "the Company"), the
    interim condensed consolidated financial statements included herewith
    contain all adjustments (consisting of normal recurring accruals and
    adjustments) necessary for a fair presentation of the Company's financial
    condition as of June 30, 1997 and the results of its operations for the
    three months and six months ended June 30, 1997 and 1996 respectively.  The
    unaudited interim condensed consolidated financial statements should be
    read in conjunction with the Company's Annual Report on Form 10-KSB/A,
    which contains the audited financial statements and notes thereto, together
    with Management's Discussion and Analysis as of and for the years ended
    December 31, 1996 and 1995.
    

(2) Going Concern  Uncertainty

    The Company incurred significant operating losses in each of the last five
    fiscal years, incurred a net loss in fiscal 1996 of $1,178,738 and incurred
    a net loss of $1,479,983 in the first six months of 1997.  At June 30,
    1997, the Company's accumulated deficit totaled $8,944,064.

    In an effort to improve operating performance, the Company has been and
    will be implementing certain programs and strategies in 1997.  These
    strategies include: 
    
    -    Raising of additional capital
    -    Construction of engineering models to demonstrate proof of technology
         for OEM's
    -    Outsourcing of all manufacturing activities, which will be monitored
         by Company's manufacturing/quality control engineering staff
    -    Developing strategic arrangements with potential customers to share
         development costs and/or licensing of the Company's technology
    
    The successful completion of the Company's development program and,
    ultimately, the attainment of profitable operations is dependant on future
    events, including obtaining adequate financing to fulfill its development
    activities, successful launching of the commercial production and
    distribution of its products and achieving a level of sales adequate to
    support the Company's cost structure.  There can be no assurance that the
    Company will ever be able to achieve revenues in excess of expenses.  The

                                       6
<PAGE>

    Company expects to incur substantial losses and substantial negative cash
    flows from operating activities in the foreseeable future.
    
    The Company believes that its existing cash and cash equivalents will be
    insufficient to sustain the Company's current level of operations and meet
    its financial obligations through the end of 1997.  The Company has engaged
    the services of an investment banking firm to raise additional capital.
    
    The accompanying unaudited condensed consolidated financial statements have
    been prepared on a going concern basis, which contemplates the realization
    of assets and the satisfaction of liabilities in the normal course of
    business.  The matters discussed above, among others, indicate that the
    Company may be unable to continue as a going concern for a reasonable
    period of time.  
    
    The condensed consolidated financial statements do not include any
    adjustments relating to the recoverability and classification of recorded
    asset amounts or the amounts and classification of liabilities that might
    be necessary should the Company be unable to continue as a going concern.
    
    
(3) Earnings per share

    In February 1997, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). 
    The Company is required to adopt SFAS 128 in the fourth quarter of fiscal
    1997 and will restate at that time earnings per share (EPS) data for prior
    periods to conform with SFAS 128.  Earlier adoption is not permitted.
    
    SFAS 128 replaces current EPS reporting requirements and requires a dual
    presentation of basic and diluted EPS.  Basic EPS excludes dilution and is
    computed by dividing net income (loss) by the weighted average of common
    shares outstanding for the period.  Diluted EPS reflects the potential
    dilution that could occur if securities or other contracts to issue common
    stock were exercised or converted into common stock.
    
    If SFAS 128 had been in effect during the current and prior year, basic EPS
    and diluted EPS would not have been significantly different than primary
    and fully diluted EPS currently reported for the periods.
    
(4) Litigation settlement
    
    On January 13, 1997, Jalcanto, Ltd. and Sabotini, Ltd. (The "Investors")
    notified the Company that they were electing to rescind the Share Purchase
    Agreements dated July 10, 1996, as amended, under which on July 11, 1996
    the Investors purchased a total of 2,135,000 shares of common stock in the
    Company, and were demanding a refund by January 17, 1997 of the purchase
    price of such shares, or $1,783,125, plus interest.  The alleged ground for
    rescission was the fact that the Company's registration statement on Form
    S-3 pertaining to the resale of such shares was not declared effective by
    the SEC on or before December 31, 1996.  Subsequently, by letter dated
    February 3, 1997, the Investors notified the Company that Jalcanto, Ltd.
    had retracted its demand for rescission, with reservation of all rights. 
    The letter reiterated the rescission demand on behalf of Sabotini, Ltd.,
    and the request that the Company return approximately $892,000.

                                       7
<PAGE>

    
    On February 5, 1997, the Company was served notice that it has been sued by
    each of the Investors in the Superior Court of the State of California for
    the County of Marin.
    
    On June 19, 1997, the Company and the Investors entered into a settlement
    agreement under which the Company issued 400,000 additional warrants (which
    expire in the year 2000) to purchase the Company's common stock at $1.00
    per share, and reduced the exercise price of the existing 1,585,000
    warrants (which expire in the year 2001) to $1.00 per share.  The issuance
    of the additional 400,000 warrants resulted in a $300,000 litigation
    settlement expense, which is included in selling, general and
    administrative expenses in the three months ended June 30, 1997.
    
    
(5) Short term note payable

    As of June 30, 1997, the Company had a credit agreement with a bank under 
    which it can borrow  up to an amount equal to the Certificate of Deposit, up
    to a maximum of $750,000. The purpose of the line of credit is to facilitate
    working capital. Under the terms of the credit agreement, interest is 
    accrued at the greater of Prime or the certificate of deposit interest rate 
    plus 2 percent. The line of credit expires on March 8, 1998.  As of June 30,
    1997 no amounts were outstanding and available borrowings were $250,000.
    
(6) New accounting standards

    In June 1997, the Financial Accounting Standards Board issued Statements of
    Financial Accounting Standards No. 130 (REPORTING COMPREHENSIVE INCOME),
    which requires that an enterprise report, by major components and as a
    single total, the change in its net assets during the period from nonowner
    sources; and No. 131 (DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
    RELATED INFORMATION), which establishes annual and interim reporting
    standards for an enterprise's operating segments and related disclosures
    about its products, services, geographic areas, and major customers. 
    Adoption of these statements will not impact the Company's consolidated
    financial position, results of operations or cash flows, and any effect
    will be limited to the form and content of its disclosures.  Both
    statements are effective for fiscal years beginning after December 15,
    1997, with earlier application permitted.


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.


                                       8
<PAGE>
    

    OVERVIEW


    Spatialight is in the business of designing, producing, and commercializing
    a miniature, proprietary, high resolution active matrix liquid crystal
    display ("AMLCD").  The AMLCD, when mounted on a semiconductor chip, is
    known as a Spatial Light Modulator ("SLM"). The Company's SLM is designed
    to be the essential component in both small and large sized, high
    resolution, electronic display systems which may be produced at lower costs
    than current or anticipated display systems. The Company has produced
    prototype SLM's in small volume which have been made available to potential
    customers who are involved in the development of applications of this
    technology, including manufacturers of computer monitors, headset displays,
    optical computing equipment, 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.


    RESULTS OF OPERATIONS


    Spatialight reported no sales for the six months ended June 30, 1997.  The
    Company is continuing to develop its technological capabilities and its
    production capacity and believes that significant sales of its SLM 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 increased $625,717 for the six
    months ended June 30, 1997 as compared to the six months ended June 30,
    1996, and $458,338 for the three months ended June 30, 1997 compared to the
    three months ended June 30, 1996.  The increase was due primarily to an
    increase in staffing and infrastructure support costs, and a $300,000
    litigation settlement expense discussed below.

    Research and development expenses increased by $415,925 for the six months
    ended June 30, 1997 as compared to the six months ended June 30, 1996 and
    $271,030 for the three months ended June 30, 1997 compared to the three
    months ended June 30, 1996. Research and development expenses represent
    costs incurred, primarily personnel related, for the design and development
    of new products and the redesign of existing prototype products.  The
    Company believes that the development of new products will be required to
    allow it to compete effectively and to achieve future revenues.  The
    Company currently has 11 full time employees whose duties involve research
    and development.  The Company intends to continue its product enhancement
    and development programs, focusing on increasing the display size and
    finalizing field sequential color capabilities and liquid crystal filling
    manufacturing processes.  The Company believes that such enhancements and
    new products will be required to exploit future markets for large screen
    monitors, high definition television and head mount displays.

    LITIGATION SETTLEMENT
    
    On January 13, 1997 Jalcanto, Ltd. and Sabotini, Ltd. (The "Investors")
    notified the Company that they were electing to rescind the Share Purchase
    Agreements dated July 10, 1996, as amended, under which 

                                       9
<PAGE>

    on July 11, 1996 the Investors purchased a total of 2,135,000 shares of 
    common stock in the Company, and were demanding a refund by January 17, 
    1997.of the purchase price of such shares, or $1,783,125, plus interest.  
    The alleged ground for rescission was the fact that the Company's 
    registration statement on Form S-3 pertaining to the resale of such shares 
    was not declared effective by the SEC on or before December 31, 1996.  
    Subsequently, by letter dated February 3, 1997, the Investors notified the 
    Company that Jalcanto, Ltd. had retracted its demand for rescission, with 
    reservation of all rights. The letter reiterated the rescission demand on 
    behalf of Sabotini, Ltd., and the request that the Company return 
    approximately $892,000.
    
    On February 5, 1997, the Company was served notice that it has been sued by
    each of the Investors in the Superior Court of the State of California for
    the County of Marin.
    
    On June 19, 1997, the Company and the Investors entered into a settlement
    agreement under which the Company issued 400,000 additional warrants (which
    expire in the year 2000) to purchase the Company's common stock at $1.00
    per share and reduced the exercise price of the existing 1,585,000 warrants
    (which expire in the year 2001) to $1.00 per share.  The issuance of the
    additional 400,000 warrants resulted in a $300,000 litigation settlement
    expense, which is included in selling, general and administrative expenses
    in the three months ended June 30, 1997.
    
    NET LOSS

    As a result of the above factors the Company recorded a net loss of
    $1,479,983 or $.17 per share for the six months ended June 30, 1997 and a
    net loss of $994,918 representing $.12 per share for the three months ended
    June 30, 1997.  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 $919,098 for the six months
    ended June 30, 1997 primarily as a result of net losses incurred of
    $1,479,983, which consisted of selling, general, and administrative
    expenses, and research and development expenses incurred during the period.

    As of June 30, 1997 the Company had $288,313 in cash and cash equivalents. 
    Net working capital was ($7,486).

    The Company has secured a line of credit for up to a maximum of $750,000,
    based on the amount in the Certificate of Deposit.  As of June 30, 1997,
    $250,000 was available under the line of credit.  The line of credit
    accrues interest at the greater of Prime or the Certificate of Deposit
    interest rate plus 2% and expires in March 1998.

    The Company is experiencing negative cash flows from operations and
    believes that its existing cash and cash equivalents will be insufficient
    to sustain the Company's current level of operation and meet its financial
    obligations through the end of 1997.  As a result, the Company will need to
    fund ongoing operations from financing activities.  The future existence
    and profitability of the Company is dependent 

                                       10
<PAGE>

    upon its ability to obtain additional funds to finance operations 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 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.  The
    Company recently entered into a contract to produce an engineering
    prototype of a consumer product for mass production.  However, further
    development and testing will be necessary before this product or the
    Company's other proposed products will be available for commercial end-use
    applications.  Delays in development may result in the Company's
    introduction of its products later than anticipated, which may have an
    adverse effect on both the Company's financial and competitive position. 
    Moreover, there can be no assurance that the Company will ever be
    successful in developing or manufacturing a commercially viable SLM device
    or any of its proposed display products.  In addition, there is no
    assurance that an SLM device or any of the Company's display products will
    be technically or commercially successful or that the Company will be able
    to manufacture adequate quantities of its SLM devices or any of its display
    products at commercially acceptable cost levels or on a timely basis.

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

    NO ASSURANCES OF SUCCESSFUL MANUFACTURING.  The Company has no experience
    manufacturing SLM devices or display products.  The Company's facility is
    designed principally for research and development and small scale assembly
    and inventory storage, and the Company currently engages outside
    manufacturers to produce its SLM devices.  The Company is negotiating with
    several manufacturers for establishment of full scale integrated
    manufacturing capacity for its SLM devices and has reached an agreement
    with one manufacturer for fabrication of silicon wafers.  However, no
    decision has been made by any such manufacturer to establish such a
    capability and there can be no assurance that any of them will do so.  In
    the event any such manufacturer establishes a full scale integrated
    manufacturing capability, the Company could become dependent on such
    manufacturer for the manufacture of SLM devices.  The termination or
    cancellation of the Company's agreement with the 

                                       11
<PAGE>

    manufacturer could adversely affect the Company's ability to manufacture 
    its products.  In such event, the Company could be required to establish an 
    alternative manufacturing relationship or establish its own manufacturing 
    capability. There can be no assurance that the Company would be able to 
    establish such a relationship on acceptable terms or develop its own 
    manufacturing capability; in any event the time required to establish such a
    substitute relationship or capability could substantially delay the 
    commercialization of the Company's SLM devices and display products, which, 
    in turn, could have a substantial adverse impact on the Company's results of
    operations and financial condition.


    PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.  The Company's ability to
    compete effectively with other companies will depend, in part, on the
    ability of the Company to maintain the proprietary nature of its
    technologies.  Although the Company has been awarded or has filed
    applications for several patents in the United States, there can be no
    assurance as to the degree of protection offered by these patents, or as to
    the likelihood that pending patents will be issued.  Furthermore, the
    Company has not yet applied for or obtained any foreign patents.  There can
    be no assurance that competitors, in both the United States and foreign
    countries, many of which have substantially greater resources and have made
    substantial investments in competing technologies, will not seek to apply
    for and obtain patents that will prevent, limit or interfere with the
    Company's ability to make and sell its products or intentionally infringe
    the Company's patents.  The defense and prosecution of patent suits is both
    costly and time consuming, even if the outcome is favorable to the Company. 
    This is particularly true in foreign countries.  In addition, there is an
    inherent unpredictability regarding obtaining and enforcing patents in
    foreign countries.  An adverse outcome in the defense of a patent suit
    could subject the Company to significant liabilities to third parties,
    require disputed rights to be licensed from third parties, or require the
    Company to cease selling its products.  The Company also relies on
    unpatented proprietary technology and there can be no assurance that others
    may not independently develop the same or similar technology or otherwise
    obtain access to the Company's proprietary technology.  To protect its
    rights in these areas, the Company requires all employees and most
    consultants, advisors and collaborators to enter into confidentiality
    agreements.  There can be no assurance, however, that these agreements will
    provide meaningful protection for the Company's trade secrets, know how or
    other proprietary information in the event of any unauthorized use,
    misappropriation or disclosure of such trade secrets, know how or other
    proprietary information.  To date, the Company has no experience in
    enforcing its confidentiality agreements.
    
    RAPID TECHNOLOGICAL CHANGE; COMPETITION.  The electronic imaging display
    industry has undergone rapid and significant technological change.  The
    Company expects the technology to continue to develop rapidly, and the
    Company's success will depend significantly on its ability to maintain a
    competitive position.  Rapid technological development may result in actual
    and proposed products or processes becoming obsolete before the Company 
    recoups a significant portion of related research and development, 
    acquisition and commercialization costs.  If the Company is successful in 
    the development of a commercially viable SLM device and its proposed display
    and other products, the Company's ability to compete will depend in part 
    upon the consistency of product quality and delivery, as well as pricing, 
    technical capability and servicing, in addition to factors within and 
    outside its control, including the success and timing of product 
    introductions by the Company and its competitors, product performance and 
    price, product distribution and customer support.  There can be no 
    assurance that the Company's competitors will not succeed in developing 
    technologies and products that are equally or more effective than any which 
    are being developed by the Company or that will render the Company's 

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<PAGE>

    technology, SLM devices or display and other products obsolete and 
    non-competitive.  In addition, numerous competitors have substantially 
    greater financial, technical and other resources than the Company.  The 
    Company may face an aggressive, well financed competitive response that may 
    include misappropriation of the Company's intellectual property or predatory
    pricing.
    
    The electronic imaging display industry has been characterized by rapid and
    significant technological advances.  There can be no assurance that the
    Company's SLM devices and display products will be reflective of such
    advances or that the Company will have sufficient funds to invest in new
    technologies or products or processes.  A number of companies in the United
    States assemble workstation monitors using LCDs and cathode ray tubes
    ("CRTs") purchased from Japan.  A number of Japanese companies build
    monitors around their LCDs and CRTs.  Korean companies are also entering
    the LCD and CRT monitor market.  Development of improved high definition
    LCDs and CRTs continues to receive significant attention by these and other
    companies.  Although the Company believes that its SLM products have the
    capability to improve LCD performance beyond that of commercially available
    LCD and CRT based display products, there is no assurance that
    manufacturers of LCDs or CRTs will not develop further improvements of LCD
    or CRT technology that would eliminate or diminish the Company's
    anticipated advantage.
    
    PRODUCT LIABILITY.  As a manufacturer and marketer of electronic equipment
    and components, the Company may be subject to potential product liability
    claims.  There can be no assurance that the Company will carry sufficient
    insurance to cover all possible liabilities.  In the event of a successful
    suit against the Company, such an insufficiency of insurance coverage could
    have a material adverse impact on the financial condition of the Company. 
    In addition, the cost of defending or settling a product liability action
    and the negative publicity arising therefrom could have a material adverse
    impact on the Company. The Company is not aware of any current pending or
    threatened product liability claim against it.
    
    DEPENDENCE ON KEY PERSONNEL.  The Company is dependent upon its key
    scientific and management personnel, including its Chief Executive Officer,
    William Hollis, its President, L. John Loomis, and its Vice President, Dean
    Irwin.  The Company does not maintain key man life insurance on Messrs.
    Hollis, Loomis or Irwin.  In 1996, the Company entered into a three year
    employment agreement with Mr. Hollis and a two year employment agreement
    with Mr. Irwin.  In 1997 the Company entered into a two year employment
    agreement with Mr. Loomis.  The loss of the services of one or more key
    individuals may have a material adverse impact on the Company.  The
    Company's success will also depend on its ability to attract and retain
    other highly qualified scientific, marketing, manufacturing and other key
    management personnel.  The Company faces competition for such personnel and
    there can be no assurance that the Company will be able to attract or
    retain such personnel.
    
    DEPENDENCE ON THIRD PARTIES TO DEVELOP PRODUCTS INCORPORATING SLM.  The
    Company intends to develop its SLM devices to be a component for
    incorporation into finished products to be developed, manufactured and
    marketed by third parties. The Company does not plan, nor does it have the
    financial resources, to develop or market any such end products itself. 
    Therefore, the Company will be completely dependent upon independent third
    parties for the development, manufacturing and marketing of such products. 
    No such products exist today, and the Company does not have commitments
    from any third party for such development, manufacturing or marketing. 
    There can be no 

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<PAGE>

    assurance that any third party will develop or market a product 
    incorporating the Company's SLM's.  If not, there will be no market for the 
    Company's SLM's.
    
    
    DEPENDENCE ON FEW CUSTOMERS.  There were no sales in the six months ended
    June 30, 1997  and in 1996  all sales were to five customers.  In 1996,
    only one customer purchased more than one SLM unit from the Company. All of
    the units sold have been prototypes. The Company continues to be dependent
    on a few customers for its sales.  There can be no assurance that any of
    the Company's past customers will purchase additional units in the future.
    Loss of any one customer could have a material adverse impact on the
    Company.
    

PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

         
    By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and Sabotini,
    Ltd. (the "Investors") notified the Company that these Investors were
    electing to rescind the Share Purchase Agreements dated July 10, 1996, as
    amended (the "Purchase Agreements"), under which on July 11, 1996 the
    Investors purchased a total of 2,135,000 shares of common stock in the
    Company, and were demanding a refund by January 17, 1997 of the purchase
    price of such shares, or $1,783,125, plus interest.  The alleged ground for
    rescission is the fact that the Company's registration statement on Form S-3
    pertaining to the resale of such shares was not declared effective by the
    SEC on or before December 31, 1996.  Subsequently, by letter dated February
    3, 1997, counsel for the Investors notified the Company that Jalcanto, Ltd.
    had retracted its demand for rescission, with reservation of all rights.
    The letter reiterated the rescission demand on behalf of Sabotini, Ltd.,
    and the request that the Company return $891,562.50.
    
    On February 5, 1997, the Company was served notice that it has been sued by
    each of the Investors in the Superior Court of the State of California for
    the County of Marin.  Each Investor filed a complaint for breach of
    contract, specific performance and indemnification relating to the alleged
    failure to timely complete this registration statement.  In addition, each
    complaint requests that the court issue a preliminary and permanent
    injunction against future issuances of shares of the Company's common stock
    or securities convertible into common stock without the Investor's consent.
    The complaint filed by Sabotini Ltd. also requests rescission and the
    return of the full purchase price of its shares.  On March 3, 1997, a
    hearing was held with respect to the Selling Shareholders' request that a
    writ of attachment on all of the Company's assets be issued to ensure
    enforceability of an eventual judgment.  The court denied the application
    for the writ without prejudice. 

    On June 19, 1997, the Company and the Investors entered into a settlement
    agreement under which, in exchange for an additional 400,000 warrants to
    purchase the Company's common stock at $1.00 per share, the Investors
    agreed to waive and release the Company from certain covenants of share
    purchase agreements between the respective parties.  In addition, the
    Company reduced the exercise price of the existing 1,585,000 warrants to
    $1.00 per share.   The Investors agreed to release the Company from any and
    all claims, known or unknown, arising from any of the matters alleged in
    the underlying lawsuits, and the cases were dismissed.

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<PAGE>

Item 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    At the Annual Meeting of the Stockholders of the Company held on June 20,
    1997, the stockholders of the Company approved the following:
    
    -    The election of the Board of Directors consisting of four directors.
         Each director shall hold office until the next annual meeting of
         shareholders and until the successor of the Director is duly elected
         and qualifies.
    
    -    The amendment of the Company's 1993 Employee Stock Option Plan to
         increase the number of shares eligible for distribution thereunder
         from 415,000 to 1,415,000.
    
    -    The appointment of Deloitte and Touche LLP as the Company's
         independent auditors for the year ending December 31, 1997.
    
    The table below sets forth the number of votes cast for or withheld for
    each nominee to the Company's Board of Directors, as well as votes cast for
    other proposals discussed above at the June 20, 1997 Shareholders Meeting:
    
                                  ELECTION OF DIRECTORS
    
              Nominee                  For            Against        Withheld
              -------                  ---            -------        --------
              Michael H. Burney        5,673,908      24,300         151,210
    
              William E. Hollis        5,673,908      24,300         151,210
    
              L. John Loomis           5,648,808      49,400         151,210
    
              Lawrence J. Matteson     5,668,908      29,300         151,210
    
    As to the proposal to amend  the Company's 1993 Employee Stock Option Plan
    to increase the number of shares eligible for distribution thereunder from
    415,000 to 1,415,000:
    
              5,089,817 shares have voted FOR
    
              403,400   shares have voted AGAINST and
    
              11,016    shares have ABSTAINED
    

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<PAGE>
    
    As to the proposal to ratify the appointment of Deloitte and Touche LLP as
    the Company's independent auditors for the year ending December 31, 1997:
    
         5,800,502 shares have voted FOR
    
         12,450    shares have voted AGAINST and

         36,166    shares have ABSTAINED
    
    
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, 1997.

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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:               
                                   ---------------------------------------------

                              Spatialight, Inc.

                              By:            
                                 -----------------------------------------------
                                 William E. Hollis
                                 Chairman of the Board, Chief Executive Officer 
                                 and Chief Financial Officer


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