<PAGE>

                       U.S. SECURITIES AND EXCHANGE COMMISSION

                                Washington, D.C. 20549

                                     FORM 10-QSB

(Mark One)

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

                    For the quarterly period ended March 31, 1998

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

                          Commission File Number 000-19828


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


                     8-C Commercial Blvd., Novato, CA  94949-1625
                     --------------------------------------------
                       (Address of principal executive offices)

                                    (415) 883-1693
                                    --------------
                             (Issuer's telephone number)

     Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 
such shorter period that the registrant was required to file such reports), 
and (2) has been subject to such filing requirements for the past 90 days.    
Yes [  ]    No [X]

                        APPLICABLE ONLY TO CORPORATE ISSUERS:

    State the number of shares outstanding of each of the issuer's classes of 
common equity, as of the latest practicable date: 11,282,501 shares of common 
stock as of May 6, 1998.

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

<PAGE>


                          SPATIALIGHT, INC. AND SUBSIDIARY

                           Quarterly Report on Form 10-QSB
                         For the Quarter Ended March 31, 1998


                                  Table of Contents

PART I              FINANCIAL INFORMATION

<TABLE>

     <C>       <S>                                                        <C>

     Item 1.   Condensed Consolidated Financial Statements (unaudited)

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

               Consolidated Statements of Operations
               for the Three Months Ended
               March 31, 1998 and 1997...................................  4

               Consolidated Statements of Cash Flows
               for the Three Months Ended March 31, 1998
               and 1997..................................................  5

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

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

PART II.       OTHER INFORMATION
     
     Item 2.   CHANGES IN SECURITIES

     Item 6.   (A) Exhibits and Reports on Form 8-K...................... 14

</TABLE>

                                       2

<PAGE>

PART I.   FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements (Unaudited)

                          SPATIALIGHT, INC. AND SUBSIDIARY
                       Condensed Consolidated Balance Sheets
                                    (Unaudited)

<TABLE>
<CAPTION>

                                                 March 31,    December 31,
                                                   1998          1997
                                                ----------    ------------
<S>                                             <C>           <C>
ASSETS

Current assets
  Cash and cash equivalents                       $283,075     $415,624 
  Accounts receivable                                3,383        3,383 
  Inventories                                       15,000       15,000 
  Prepaid expenses and other                        26,655       27,253 
                                                ----------    ---------
          Total current assets                     328,113      461,260 

Property and equipment, net                        216,589      217,984 
Other assets                                        34,341       27,701 
                                                ----------    ---------
               Total assets                       $579,043     $706,945
                                                ----------    ---------
                                                ----------    ---------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                                $736,819     $796,660 
  Short-term notes payable                       1,085,984      932,479 
  Accrued expenses and other current               114,957      127,835
                                                ----------   ----------
        Total current liabilities                1,937,760    1,856,974 

Non-current liabilities
  Long term capital lease obligations               47,953       53,480
                                                ----------   ----------


               Total liabilities                 1,985,713    1,910,454 

Commitments and contingencies

Stockholders' equity
  Common stock, $.01 par value:
     20,000,000 shares authorized; issued,
     and outstanding  10,523,916 shares at 
     March 31, 1998, and 9,200,751 shares at 
     December 31, 1997                              99,039       85,811 
Additional paid-in capital                      10,230,329    9,458,035 
Accumulated deficit                            (11,736,038) (10,747,355)
                                                ----------   ----------
        Total stockholders' equity              (1,406,670)  (1,203,509)
                                                ----------   ----------
Total liabilities and stockholders'               $579,043     $706,945
                                                ----------   ----------
                                                ----------   ----------

</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                      3

<PAGE>

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

<TABLE>
<CAPTION>

                                                     March 31,  March 31,
                                                       1998       1997
                                                    ---------- -----------
<S>                                                <C>         <C>
Revenues
  Contract revenues                                        $0         $0
  Sales                                                     0          0
                                                    ---------  ---------
               Total revenues                               0          0

Cost of sales                                               0          0
                                                    ---------  ---------
          Gross profit                                      0          0

  Selling, general and administrative expenses        463,248    305,168
  Research and development expenses                   506,089    197,374
                                                    ---------  ---------
             Total operating expenses                 969,337    502,542

             Operating loss                          (969,337)  (502,542)

Other income (expense)

  Interest income                                       3,683     10,546
  Other income (expense)                              (23,029)     8,842 
                                                    ---------  ---------
             Total other income (expense)             (19,346)    19,388

  Loss from operations before income taxes           (988,683)  (483,154)

Income taxes                                                0      1,911 
                                                    ---------  ---------
               Net loss                             ($988,683) ($485,065)
                                                    ---------  ---------
                                                    ---------  ---------
Net loss per share                                      (0.10)     (0.06)
                                                    ---------  ---------
Shares used in computing net loss per share         9,640,554  8,533,191
                                                    ---------  ---------
                                                    ---------  ---------

</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                      4

<PAGE>

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

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                       March 31,     March 31,
                                                         1998           1997
                                                      -----------  -------------
<S>                                                   <C>          <C>
Cash flows from operating activities:

Net loss                                               ($988,683)     ($485,065)
Adjustments to reconcile net loss to net cash 
 used by operating activities:

  Depreciation and amortization                           20,380         12,679 
  Non cash stock issuance costs                          115,358              0 
  Changes in assets and liabilities:
     Accounts receivable                                       0         14,021 
     Inventories                                               0        (18,322)
     Prepaid expenses and other current assets               598        (14,339)
     Other assets                                         (6,640)       (51,132)
     Accounts payable                                     65,009        236,540 
     Current portion capital lease obligation               (771)             0 
     Accrued expenses and other current liabilities       83,206        (65,951)
                                                        --------     ----------
            Net cash used by operating activities       (711,543)      (371,569)

Cash flows from investing activities:
  Capital expenditures                                   (18,985)       (47,340)
                                                        --------     -----------
            Net cash used by investing activities        (18,985)       (47,340)

Cash flows from financing activities:
  Long term capital lease obligation                      (5,527)            --
  Proceeds from short-term notes payable                 603,505        750,000 
  Common stock issuance costs                                  0         (9,402)
                                                        --------     ----------
        Net cash provided by financing activities        597,978        740,598 

Net (decrease) increase cash and cash equivalents       (132,550)       321,689 

Cash at beginning of period                              415,625      1,324,398
                                                        --------     ----------
Cash at end of period                                   $283,075     $1,646,087 
                                                        --------     ----------
                                                        --------     ----------

</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 March 31, 1998 and the results of its operations for the
    three months ended March 31, 1998 and 1997 respectively.  The unaudited
    interim condensed consolidated financial statements should be read in
    conjunction with the Company's 1996 Annual Report on Form 10-KSB, which
    contains the unaudited financial statements and notes thereto, together 
    with Management's Discussion and Analysis as of and for the years ended
    December 31, 1997 and 1996.

(2) Going Concern Uncertainty

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

     The accompanying unaudited condensed consolidated financial statements have
     been prepared assuming that the Company will continue as a going concern. 
     This contemplates the realization of assets and the satisfaction of
     liabilities in the normal course of business. The Company incurred
     significant operating losses in each of the last five fiscal years and
     incurred a net loss of $988,683 in the first three months of 1998. 
     Additionally, as of March 31, 1998 the Company's accumulated deficit
     totaled $11,736,038.  The Company has generated limited revenues to date
     and the development, commercialization and marketing of the Company's
     products will require substantial expenditures in the foreseeable future. 
     The successful completion of the Company's development program and
     ultimately, the attainment of profitable operations, is dependent upon
     future events.  These events include the obtaining adequate financing to
     fulfill its development 

                                      6

<PAGE>

     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.  These matters discussed
     above, among others, may indicate that the Company will 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.
     
     In an effort to improve operating performance, the Company has been and
     will be implementing certain programs and strategies in 1998.  These
     strategies include: 
     
     -    Raising of additional capital.
     -    Outsourcing of all manufacturing activities, 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. 
     
     Construction of engineering models to demonstrate proof of technology for
     OEM's. 
     
     The Company's continuation as a going concern is dependent upon its 
     ability to generate sufficient cash flow to meet its obligations on a 
     timely basis, to obtain additional financing, and ultimately to attain 
     successful operations. Management is continuing its efforts to obtain 
     additional funds so that the Company can meet its obligations and 
     sustain its operations.
     
(3)  Earnings per share

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
     The Company was required to adopt SFAS 128 in the fourth quarter of fiscal
     1997 and restated at that time earnings per share (EPS) data for prior
     periods to conform with SFAS 128.  
         
     SFAS 128 replaces previous EPS reporting requirements and requires a dual
     presentation of basic and diluted EPS.  Basic EPS excludes dilution and is
     computed by dividing net income by the weighted average of common shares
     outstanding for the period.  Diluted EPS reflects the potential dilution
     that could occur if securities or other contracts to issue common stock
     were exercised or converted into common stock.

     Because the Company has experienced continuous net losses, basic EPS
     and Diluted EPS are not significantly different than primary and fully
     diluted EPS currently reported for the periods.
    
(4)  Short term note payable

     Short-term notes payable at March 31, 1998 consist of the following:

                                      7

<PAGE>

     A line of credit for $250,000 under a credit agreement with a bank under
     which the Company 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 June 8, 1998.
     
     Short-term notes of $735,985, including accrued interest.  The borrowings
     were made to provide working capital, and accrue interest at 10-12% per
     annum.  Of the total, $579,000 is due on May 22, 1998, and the balance was
     due on February 28, 1998.  The Company is in default on the notes and is
     negotiating to extend the due dates.
     
     A convertible debenture with a principal amount of $100,000 was issued to a
     purchaser outside of the United States in conjunction with a private
     placement.  The debenture has a two year term, carries a 3% interest rate
     and is convertible into the Company's common stock at 120% of the five day
     average closing bid price for the stock at the issuance date or, if lower,
     75% of the five day average closing bid price of the stock at the time the
     debt is converted. The debenture is recorded in short-term liabilities. 
     Subsequent to March 31, 1998, the debenture was converted to 305,989 shares
     of common stock.

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

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

GENERAL

     The Company's operations are severely constrained by its lack of financing
     and inadequate working capital.  The Company continues to experience
     negative cash flows, and net operating losses.  The Company's operations in
     recent months have been funded by a series of relatively small loans; some
     secured by substantially all the assets of the Company.  Most of these
     loans have been provided by persons affiliated with major shareholders of
     the Company or with management.  These loan amounts have been adequate for
     the Company to meet payroll and certain other imperative obligations, but
     various accounts payable and other obligations are past due.  The Company
     is in default under certain of the loans made to finance its operations,
     and is negotiating to extend the due dates.  The Company continues its
     efforts to locate sources of financing.  There can be no assurance that
     additional loans or any other financing will be available to the Company. 
     FOR THIS 

                                      8

<PAGE>

     REASON, THERE IS UNCERTAINTY WHETHER THE COMPANY CAN CONTINUE AS A
     GOING CONCERN.  See Note 2 of Notes to Condensed Consolidated Financial
     Statements.
     
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 revenue for the three months ended March 31,1998,
     and 1997 respectively.  The Company is continuing to develop its
     technological capabilities and its production capacity and believes that
     significant sales of its Spatial Light Modulator product will be required
     in order for the Company to continue to meet its financial obligations and
     operating plans.  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 $167,379 or 52% for
     the three months ended March 31, 1998 as compared to the three months ended
     March 31, 1997. The increase was due primarily to costs associated with the
     conversion of debt to equity.
     
     Research and development expenses increased by $308,715 or 156% for the
     three months ended March 31, 1997 as compared to the three months ended
     March 31, 1997. Research and development expenses represent costs incurred,
     primarily personnel related, for the design and development of new products
     and the redesign of existing prototype products.  The Company believes that
     the development of new products will be required to allow it to compete
     effectively and to achieve future revenues.  The Company currently has 11
     full time employees whose duties include 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.

                                      9

<PAGE>

NET LOSS

     As a result of the above factors the Company recorded a net loss of
     $988,683 or $.10 per share for the three months ended March 31, 1998 and a
     net loss of $485,065 representing $.06 per share for the three months ended
     March 31, 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 $711,543 for the three months
     ended March 31, 1998 as a result of selling, general, and administrative
     expenses, and research and development expenses incurred during the period.
     
     As of March 31, 1998 the Company had $283,075 in cash and cash 
     equivalents.  Net working capital was ($1,609,647).
     
     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 March 31, 1998
     the Company has borrowed $250,000 under the line of credit and no
     additional borrowing is available.  The line of credit accrues interest at
     the greater of Prime or the Certificate of Deposit interest rate plus 2%
     and expires in June 1998.
     
     The Company is experiencing negative cash flow from operations resulting in
     the need to fund ongoing operations from financing activities.  The future
     existence and profitability of the Company is dependent upon its ability to
     obtain additional funds to finance operations and expand operations in an
     effort 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 

                                      10

<PAGE>

     the Company's financial and competitive position. Moreover, there can be 
     no assurance that the Company will ever be successful in developing or 
     manufacturing a commercially viable SLM device or any of its proposed 
     display products.  In addition, there is no assurance that an SLM device
     or any of the Company's display products will be technically or 
     commercially successful or that the Company will be able to manufacture
     adequate quantities of its SLM devices or any of its display products at
     commercially acceptable cost levels or on a timely basis.
     
     LACK OF SALES, MARKETING AND DISTRIBUTION EXPERIENCE.  The Company
     currently employs no full time sales or marketing specialists.  The Company
     intends to form alliances with corporate partners for the marketing and
     distribution of certain of its anticipated display products.  There can be
     no assurance that the Company will be successful in forming and maintaining
     such alliances or that the Company's partners will devote adequate 
     resources to successfully market and distribute these anticipated products.
     There can be no assurance that the Company will be able to attract and
     retain qualified marketing and sales personnel, that the Company will be
     able to enter into satisfactory agreements with marketing partners or that
     the Company or its marketing partners will be successful in gaining market
     acceptance for its anticipated products.
     
     NO ASSURANCES OF SUCCESSFUL MANUFACTURING.  The Company has no experience
     manufacturing SLM devices or display products.  The Company's facility is
     designed principally for research and development and small-scale assembly
     and inventory storage, and the Company currently engages outside
     manufacturers to produce its SLM devices.  The Company is negotiating with
     several manufacturers for establishment of full scale integrated
     manufacturing capacity for its SLM devices and has reached an agreement
     with one manufacturer for fabrication of silicon wafers.  However, no
     decision has been made by any such manufacturer to establish such a
     capability and there can be no assurance that any of them will do so.  In
     the event any such manufacturer establishes a full scale integrated
     manufacturing capability, the Company could become dependent on such
     manufacturer for the manufacture of SLM devices.  The termination or
     cancellation of the Company's agreement with the manufacturer could
     adversely affect the Company's ability to manufacture its products.  In
     such event, the Company could be required to establish an alternative
     manufacturing relationship or establish its own manufacturing capability. 
     There can be no assurance that the Company would be able to establish such
     a relationship on acceptable terms or develop its own manufacturing
     capability; in any event the time required to establish such a substitute
     relationship or capability could substantially delay the commercialization
     of the Company's SLM devices and display products, which, in turn, could
     have a substantial adverse impact on the Company's results of operations
     and financial condition.
     
     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

                                      11

<PAGE>

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

                                      12

<PAGE>

     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.
     
     DEPENDENCE ON KEY PERSONNEL.  The Company is dependent upon its key
     scientific and management personnel, including its Chief Executive Officer,
     William Hollis, and its President, L. John Loomis.  During 1997 the Company
     hired several additional technical and scientific staff members to
     complement and reduce the Company's dependence on any individual employee. 
     As of March 21, 1998, Mr. Dean Irwin, former Vice President of Engineering
     resigned as an officer and employee and his role with the Company has
     changed to a consultant technology advisory capacity. The Company's success
     will always depend on its ability to attract and retain other highly
     qualified scientific, marketing, manufacturing and other key management
     personnel.  The Company faces competition for such personnel and there can
     be no assurance that the Company will be able to attract or retain such
     personnel.
     
     DEPENDENCE ON THIRD PARTIES TO DEVELOP PRODUCTS INCORPORATING SLM.  The
     Company intends to develop its SLM devices to be a component for
     incorporation into finished products to be developed, manufactured and
     marketed by third parties. The Company does not plan, nor does it have the
     financial resources, to develop or market any such end products itself.
     Therefore, the Company will be completely dependent upon independent third
     parties for the development, manufacturing and marketing of such products.
     No such products exist today, and the Company does not have commitments
     from any third party for such development, manufacturing or marketing. 
     There can be no assurance that any third party will develop or market a
     product incorporating the Company's SLM's.  If not, there will be no market
     for the Company's SLM's.

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<PAGE>

PART II. OTHER INFORMATION

Item 2.  CHANGES IN SECURITIES

     During the first quarter of 1998, 364,700 shares of the Company's Common
     Stock were issued to vendors in consideration for computer software and
     consultant services rendered.  The shares were issued pursuant to the
     exemption from the registration requirements of the Securities Act of 1933,
     as amended, provided by Section 4(2) thereof.
      
Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits:
     
              27 Financial Data Schedule
     
              (b)  Reports on Form 8-k:  
     
     No reports on Form 8-K were filed during the three months ended March
     31, 1998.

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<PAGE>

                                  SIGNATURES

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

                                     Date:  May 14, 1998
                                          ------------------------------


                                     SpatiaLight, Inc.


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


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