<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 September 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: 9,201,191 shares of
common stock as of November 14, 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 September 30, 1997
                                      
                                      
                              Table of Contents
                                      
<TABLE>
<S>                 <C>
PART I              FINANCIAL INFORMATION

     Item 1.        Condensed Consolidated Financial Statements (unaudited)

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

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

                    Consolidated Statements of Cash Flows
                    for the Nine Months Ended September 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 2. (c )   Recent Sales of Unregistered Securities.....................13

     Item 6. (A)    Exhibits and Reports on Form 8-K............................14
</TABLE>


                                      2

<PAGE>

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

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

<TABLE>
<CAPTION>
                                                      September 30,   December 31,
                                                          1997           1996
                                                      ----------------------------
<S>                                                   <C>             <C>
ASSETS

Current assets:
 Cash and cash equivalents                               $343,781     $1,324,398
 Accounts receivable                                      102,000         40,021
 Inventories                                               15,000         75,401
 Prepaid expenses and other                               117,664         11,911
                                                      -----------     ----------
 Total current assets                                     578,445      1,451,731


Property and equipment, net                               191,909         68,817
Other assets                                               22,940         12,877
                                                      -----------     ----------

     Total assets                                        $793,294     $1,533,425
                                                      -----------     ----------
                                                      -----------     ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accrued expenses and other current liabilities          $100,363       $108,581
 Accounts payable                                         491,752         94,554
 Short term note payable                                  300,000             --
                                                      -----------     ----------
     Total current liabilities                            892,115       $203,135

 Long term capital lease obligations                       41,466             --
                                                      -----------     ----------
          Total liabilities                               933,581        203,135

 Stockholders' equity:
   Common stock, $.01 par value
   20,000,000 shares authorized: 8,547,191 and            79,972         79,832
   8,533,191 shares issued and outstanding at 
   September 30, 1997 and December 31, 1996
 Additional paid-in capital                             9,026,248      8,714,539
 Accumulated deficit                                  (9,246,507)    (7,464,081)
                                                      -----------     ----------
     Total stockholders' equity                         (140,287)      1,330,290
                                                      -----------     ----------

 Total liabilities and stockholders' equity              $793,294     $1,533,425
                                                      -----------     ----------
                                                      -----------     ----------

</TABLE>

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            Nine months ended
                                                           September 30,                 September 30,
                                                        1997           1996           1997          1996
                                                  ----------------------------------------------------------
<S>                                               <C>              <C>             <C>           <C>
Revenues:
 Sales                                                     $0        $32,000             $0       $108,100
 Contract revenues                                    325,000              0        325,000              0
                                                   ----------      ---------      ---------      ---------
          Total revenues                              325,000         32,000        325,000        108,000
     
Cost of sales                                               0         38,285              0         56,825
                                                   ----------      ---------      ---------      ---------

     Gross profit                                     325,000         (6285)        325,000         51,815

 Selling, general and administrative expenses         257,619        213,300      1,209,116        539,080
 Research and development expenses                    364,525         65,410        910,875        195,835
 Write down of note receivable                             --        121,702             --        121,702
                                                   ----------      ---------      ---------      ---------
       Total operating expenses                       622,144        400,412      2,119,991        856,607

       Operating loss                                (297,144)      (406,697)    (1,794,991)      (804,802)

Other income (expense):

 Interest income                                          121         21,091         12,505         39,657
 Other income (expense), net                           (5,883)        (7,976)         2,920        (11,370)
                                                   ----------      ---------      ---------      ---------

Total other income (expense)                           (5,762)        13,115         15,425         28,287
                                                   ----------      ---------      ---------      ---------

 Loss before income taxes                            (302,906)      (393,582)    (1,779,566)      (776,515)

Income tax expense                                       (463)           953          2,860          4,839

     Net loss                                        (302,443)      (394,535)    (1,782,426)      (781,354)

Net loss per common share:                               (.04)          (.05)          (.21)          (.11)


Weighted average shares used in computing
 net loss per common share                          8,547,191      7,810,908      8,539,310      6,854,097
                                                   ----------      ---------      ---------      ---------

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


                                        4
<PAGE>

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

<TABLE>
<CAPTION>
                                                             Nine  Months Ended
                                                                September 30,
                                                             1997            1996
                                                             ----            ----
<S>                                                      <C>              <C>
Cash flows from operating activities:

Net loss                                                 $(1,782,426)     $(781,354)
Adjustments to reconcile net loss to net cash
  used in operating activities:
   Depreciation and amortization                              46,697         13,579
   Write down of note receivable                                            121,702
   Non cash litigation settlement                            300,000             --
   Non cash compensation                                      21,251
   Changes in assets and liabilities:
     Trade and other receivables, net                        (61,979)            --
     Inventories                                              60,401        (98,058)     
     Prepaid expenses                                       (105,753)       (18,726)
     Accounts payable                                        397,198             --
     Accrued expenses and other liabilities                   (8,218)       140,375
     Other assets                                            (10,063)        (7,343)
                                                         -----------     ----------

          Net cash used in operating activities           (1,142,893)      (629,825)

Cash flows from investing activities:
  Capital expenditures                                      (128,323)       (16,382)
  Collection on notes receivable                                  --         50,000
  Purchase of short term investments available for sale           --     (1,172,899)
                                                         -----------     ----------
          Net cash used in investing activities             (128,323)    (1,139,281)

Cash flows from financing activities:
  Draw on bank line of credit                                250,000             --
  Issuance of notes payable                                   50,000             --
  Issuance costs related to common stock issued               (9,402)     1,577,499 
                                                         -----------     ----------
          Net cash provided by financing activities          290,598      1,577,499

Net decrease in cash and cash equivalents                   (980,618)      (191,607)

Cash at beginning of period                                1,324,398        678,300
                                                         -----------     ----------
Cash at end of period                                     $  343,781     $  486,693
                                                         -----------     ----------
                                                         -----------     ----------

</TABLE>

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 September 30, 1997 and the results of its operations
      for the three months and nine months ended September 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 $1,782,426 in the first nine months of
      1997.  At September 30, 1997, the Company's accumulated deficit
      totaled $9,246,507.

      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 dependent on
      future events, including obtaining adequate financing to fulfill its
      development activities, successful launching of the commercial
      production and distribution of its products and achieving a level of
      sales adequate to support the Company's cost structure.  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)  Short term notes payable

      As of September 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 September 30, 1997,
      $250,000 was outstanding under this credit agreement and  no
      additional borrowings were available.
 
      In September 1997 the Company borrowed $50,000 under a promissory
      note.  The note is payable on February 28, 1998 and accrues interest
      at 12%.  In addition, the lender received a warrant to purchase 6,500
      shares of the Company's common stock.
 


                                       7

<PAGE>
 
 
 
 
 (5)  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.
      
 (6)  Subsequent event

      On October 31, 1997, the Company acquired the 20% of Spatialight of
      California that it did not previously own, in exchange for 629,000
      shares of the Company's common stock. The Company has not yet
      determined the allocation of the purchase price.


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


      Overview


      Spatialight is 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.


                                       8

<PAGE>

      Results of Operations


      The Company reported revenues of  $325,000 for the quarter ended
      September 30, 1997 under a non-recurring engineering contract. The
      Company was contracted by a customer to provide a set of
      specifications and development plans for a product using the
      Company's technology. 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 by $670,035
      for the nine months ended September 30, 1997 as compared to the nine
      months ended September 30, 1996, and by $44,319 for the three months
      ended September 30, 1997 compared to the three months ended September
      30, 1996.  The increases were due primarily to an increase in
      staffing and infrastructure support costs, and a $300,000 litigation
      settlement expense in the quarter ended June 30, 1997.
      
      Research and development expenses increased by $715,040 for the nine
      months ended September 30, 1997 as compared to the nine months ended
      September 30, 1996 and by $299,115 for the three months ended
      September 30, 1997 compared to the three months ended September 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 10 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.



      Net Loss

      As a result of the above factors the Company recorded a net loss of
      $1,782,426 or $.21 per share for the nine months ended September 30,
      1997 and a net loss of  $302,444 representing $.04 per share for the
      three months ended September 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 $1,142,893 for the nine
      months ended September 30, 1997 primarily as a result of net losses
      incurred of $1,782,426, which consisted of selling, general, and
      administrative expenses, and research and development expenses
      incurred during the period.


                                       9

<PAGE>

      As of September 30, 1997 the Company had $343,781 in cash and cash
      equivalents.  Net working capital was ($313,670).

      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
      September 30, 1997, the Company has borrowed $250,000 under the line
      of credit and no additional borrowings were available.  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 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 


                                       10

<PAGE>

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


      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 



                                       11

<PAGE>

      Company's ability to compete will depend in part upon the consistency 
      of product quality and delivery, as well as pricing, technical 
      capability and servicing, in addition to factors within and outside 
      its control, including the success and timing of product introductions 
      by the Company and its competitors, product performance and price, 
      product distribution and customer support.  There can be no assurance 
      that the Company's competitors will not succeed in developing 
      technologies and products that are equally or more effective than 
      any which are being developed by the Company or that will render the 
      Company's technology, SLM devices or display and other products 
      obsolete and non-competitive.  In addition, numerous competitors have 
      substantially greater financial, technical and other resources than 
      the Company.  The Company may face an aggressive, well financed 
      competitive response that may include misappropriation of the 
      Company's intellectual property or predatory pricing.
      
      The electronic imaging display industry has been characterized by
      rapid and significant technological advances.  There can be no
      assurance that the Company's SLM devices and display products will be
      reflective of such advances or that the Company will have sufficient
      funds to invest in new technologies or 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 1997, the Company
      entered into a three year employment agreement with Mr. Irwin, a four
      year employment agreement with Mr. Hollis, and a five 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 



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<PAGE>

      will be completely dependent upon independent third parties for the 
      development, manufacturing and marketing of such products.  No such 
      products exist today, and the Company does not have commitments from 
      any third party for such development, manufacturing or marketing.  
      There can be no assurance that any third party will develop or market a 
      product incorporating the Company's SLM's.  If not, there will be no 
      market for the Company's SLM's.
      

      DEPENDENCE ON FEW CUSTOMERS.  There were no sales in the nine months
      ended September 30, 1997 , only the contract revenues described
      above.  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 2(c).   Recent Sales of Unregistered Securities

             In the quarter ended September 30, 1997 the Company issued a
             warrant to purchase 6,500 shares of the Company's common 
             stock pursuant to a Note Purchase Agreement.

   
   
   
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 nine months
                  ended September 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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