<PAGE>   1
                                 UNITED STATES
                       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, 2001

[  ]     Transition report under Section 13 or 15(d) of the Exchange Act

         For the transition period from ________________  to _________________

                        Commission File Number 000-19828

                                SPATIALIGHT, INC.
        (Exact name of small business issuer as specified in its charter)


                  New York                             16-1363082
                  --------                             ----------
         (State or other jurisdiction of     (IRS Employer Identification No.)
         Incorporation or organization)


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


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


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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 23,527,503 shares of common
stock as of August 8, 2001.

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


<PAGE>   2
                        SPATIALIGHT, INC. AND SUBSIDIARY

                         Quarterly Report on Form 10-QSB
                       For the Quarter Ended June 30, 2001


<TABLE>
<Caption>
                                Table of Contents
                                -----------------
<S>                                                                                                <C>

PART I                     FINANCIAL INFORMATION

         Item 1.           Condensed Consolidated Financial Statements (unaudited)

                           Condensed Consolidated Balance Sheets dated
                           June 30, 2001 and December 31, 2000.......................................3

                           Condensed Consolidated Statements of Operations
                           for the Three months and Six months
                           Ended June 30, 2001 and 2000..............................................4

                           Condensed Consolidated Statements of Cash Flows
                           for the Three months and Six months
                           Ended June 30, 2001 and 2000..............................................5

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

         Item 2.           Management's Discussion and Analysis
                           of Financial Condition and Results of Operations..........................9

PART II                    OTHER INFORMATION

         Item 2.           Changes in Securities and Use of Proceeds.................................19

         Item 4.           Submission of Matters to a Vote of Security Holders.......................19

         Item 6.           Exhibits and Reports on Form 8-K..........................................20
</Table>

                                       2
<PAGE>   3
PART I.     FINANCIAL INFORMATION
Item. 1.    Condensed Consolidated Financial Statements (unaudited)


SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)

<CAPTION>
<TABLE>

                                                                          June 30,               December 31,
                                                                            2001                     2000
                                                                      ------------------        ----------------
<S>                                                                     <C>                          <C>

ASSETS

Current assets
   Cash and cash equivalents                                               $     20,967          $    1,035,957
   Accounts receivable                                                                -                   2,500
   Other current assets                                                         209,575                 159,534
                                                                      ------------------        ----------------
      Total current assets                                                      230,542               1,197,991

Property and equipment, net                                                     532,451                 570,585
Other assets                                                                     47,956                  31,954
                                                                      ------------------        ----------------

      Total assets                                                         $    810,949          $    1,800,530
                                                                      ==================        ================

LIABILITIES AND STOCKHOLDERS'  DEFICIT

Current liabilities
   Accounts payable                                                        $    392,301               $ 347,104
   Short term convertible notes                                                 253,328               2,742,925
   Accrued expenses and other current liabilities                               194,628                 169,196
                                                                      ------------------        ----------------
      Total current liabilities                                                 840,257               3,259,225

Noncurrent liabilities
    Convertible notes                                                         2,267,387                       -
    Long term capital lease obligations                                           1,561                   4,483
                                                                      ------------------        ----------------
      Total liabilities                                                       3,109,205               3,263,708

Commitments and contingencies

Stockholders' deficit Common stock, $.01 par value:
      40,000,000 shares authorized; issued and
      outstanding  23,420,434 at June 30, 2001
      and 20,273,229 at December 31, 2000                                       234,204                 202,732
Additional paid-in capital                                                   36,313,376              28,152,272
Notes receivable for stock                                                     (403,125)                      -
Stock subscription receivable                                                (3,130,006)                      -
Accumulated deficit                                                         (35,312,705)            (29,818,182)
                                                                      ------------------        ----------------
      Total stockholders' deficit                                            (2,298,256)             (1,463,178)

Total liabilities and stockholders' deficit                                $    810,949          $    1,800,530
                                                                      ==================        ================
</TABLE>

See accompanying notes to condensed consolidated financial statements



                                       3
<PAGE>   4

SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

<TABLE>
<CAPTION>

                                                                  Three Months Ended                  Six Months Ended
                                                                      June 30,                             June 30,
                                                                2001             2000               2001              2000
                                                           ------------      ------------       -----------      ------------
<S>                                                         <C>               <C>                <C>              <C>


Revenues                                                   $    10,000       $    16,710        $    10,000      $     55,110

Cost of revenues                                                 1,000             7,500              1,000            14,625
                                                           ------------      ------------       -----------      ------------
          Gross profits                                          9,000             9,210              9,000            40,485

General and administrative expenses:
   General and administrative expenses                         785,274           889,703          1,424,697         1,369,707
   Stock-based general and administrative expenses           1,724,024                 -          1,773,384            15,000
                                                           ------------      ------------       -----------      ------------
          Total general and administrative expenses          2,509,298           889,703          3,198,081         1,384,707

   Research and development expenses                           593,149           871,536          1,196,950         1,680,360
                                                           ------------      ------------       -----------      ------------

          Total operating expenses                           3,102,447         1,761,239          4,395,031         3,065,067
                                                           ------------      ------------       -----------      ------------

          Operating loss                                    (3,093,447)       (1,752,029)        (4,386,031)       (3,024,582)
                                                           ------------      ------------       -----------      ------------
Other income (expenses):

  Interest expense:
          Interest expense                                     (67,629)          (41,264)          (131,694)          (82,102)
          Stock-based interest expense                        (863,536)         (225,225)          (981,967)         (525,121)
                                                           ------------      ------------       -----------      ------------
            Total interest expense                            (931,165)         (266,489)        (1,113,661)         (607,223)

   Interest income                                               5,063            34,256             10,620            58,802
                                                           ------------      ------------       -----------      ------------

          Total other income (expenses)                       (926,102)         (232,233)        (1,103,041)         (548,421)
                                                           ------------      ------------       -----------      ------------

   Loss from operations before income taxes                 (4,019,549)       (1,984,262)        (5,489,072)       (3,573,003)

Income tax expense                                               1,600             1,600              5,450             1,600

          Net loss                                         $(4,021,149)      $(1,985,862)        (5,494,522)       (3,574,603)
                                                           ------------      ------------       -----------      ------------

Incentive warrants issued                                            -                 -                  -          (606,303)

Net loss available to common shareholders                  $(4,021,149)      $(1,985,862)       $(5,494,522)     $ (4,180,906)
                                                           ============      ============       ===========      ============
Net loss per share available to common
   shareholders- basic and diluted                         $     (0.19)      $     (0.12)       $     (0.26)     $      (0.23)
                                                           ============      ============       ===========      ============
Weighted average shares used in computing
 net loss per share- basic and diluted                      21,003,692        17,340,910         20,772,610        18,225,310
                                                           ============      ============       ===========      ============

</TABLE>

See accompanying notes to condensed consolidated financial statements


                                       4


<PAGE>   5

SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

<CAPTION>
<TABLE>
                                                                                          Six Months Ended
                                                                                             June 30,
                                                                                 2001                        2000
                                                                          -----------------           ----------------
<S>                                                                       <C>                          <C>
Cash flows from operating activities:
Net loss                                                                  $     (5,494,522)           $    (3,574,603)
Adjustments to reconcile net loss to net cash used by
  operating activities:
   Depreciation and amortization                                                   134,165                     95,445
   Stock-based general and administrative expense                                1,773,384                     15,000
   Stock-based interest expense                                                    981,967                    525,121
   Changes in operating assets and liabilities:
      Accounts receivable                                                            2,500                    (24,621)
      Inventories                                                                        -                    (28,427)
      Other current assets                                                         (50,041)                  (170,118)
      Accounts payable                                                              45,197                      8,437
      Accrued expenses and other current liabilities                               134,348                    (67,690)
      Other assets                                                                 (16,002)                   (32,101)
                                                                          -----------------           ----------------
               Net cash used in operating activities                            (2,489,004)                (3,253,557)

Cash flows from investing activities:
   Purchase of property and equipment                                              (96,031)                  (288,730)
                                                                          -----------------           ----------------

               Net cash used in investing activities                               (96,031)                  (288,730)

Cash flows from financing activities:
   Payments on capital lease obligations                                            (2,446)                   (13,575)
   Proceeds from issuance of convertible notes                                     250,000                          -
   Proceeds from sale of stock                                                     275,963
   Proceeds from exercise of warrants and options                                1,046,528                  4,961,221
                                                                          -----------------           ----------------
           Net cash provided by financing activities                             1,570,045                  4,947,646

Net (decrease) increase cash equivalents                                        (1,014,990)                 1,405,359
                                                                          -----------------           ----------------
Cash at beginning of period                                                      1,035,957                  1,236,609

Cash at end of period                                                     $         20,967            $     2,641,968
                                                                          =================           ================

Supplemental disclosure of cash flow information:
   Income taxes paid during the period                                    $          5,450            $         1,600
   Interest paid during the period                                        $         67,629            $        46,067

Non cash financing activities:
   Warrants issued to induce the exercise of certain warrants             $              -            $       606,303
   Exercise of warrants in exchange for notes receivable                  $        403,125            $             -
   Discount on convertible notes due to beneficial
     conversion feature                                                   $      1,443,000            $             -
   Sale of stock for stock subscription                                   $      3,130,007            $             -
   Common stock issued upon conversion of interest                        $         69,425            $             -
</TABLE>


See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>   6

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

1.       Business Description

SpatiaLight, Inc. (SpatiaLight or the Company) and its subsidiary SpatiaLight of
California, Inc. (SOC) are in the business of designing high-resolution
microdisplays, which measure 3/4 inch in diagonal and basically consist of
liquid crystals and a glass cover on top of a silicon chip. These displays are
also known as and are commonly referred to as Liquid Crystal Displays (LCD),
Active Matrix Liquid Crystal Displays (AMLCD), Liquid Crystal on Silicon (LCOS),
and Spatial Light Modulators (SLM). These displays are designed in a manner that
can provide high-resolution images suitable for applications such as computer
monitors, high definition television, video projectors and other applications
while utilizing the existing manufacturing processes of typical silicon and
liquid crystal displays to obtain economies of scale and thereby reduce costs.
To date, the Company has only sold sample quantities of its displays to
customers who are evaluating the displays for use in their products.

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

The Company's principal executive offices are located in Novato, California. The
Company was organized under the laws of the State of New York in 1989.

2.       Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of Item 310(b) of
Regulation S-B. Accordingly they do not include all of the information and
footnotes necessary for a fair presentation of financial condition, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management of SpatiaLight, the interim condensed
consolidated financial statements included herewith contain all adjustments
(consisting of normal recurring accruals and adjustments) necessary for their
fair presentation. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-KSB, which contains the audited financial statements and notes thereto,
together with the Management's Discussion and Analysis, for the year ended
December 31, 2000.

3.       Liquidity

The Company's operations are constrained by an insufficient amount of 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
the exercise of warrants and the issuance of convertible securities, which are
secured by substantially all the assets of the Company. The Company continues
its efforts to locate sources of additional financing. There can be no assurance
that additional financing will be available to the Company. For this reason,
there is uncertainty whether the Company can continue as a going concern.
Further, the Company's auditors included a paragraph in their report on the
audited


                                       6

<PAGE>   7

financial statements as of the year ended December 31, 2000, indicating
that substantial doubt exists as to the Company's ability to continue as a going
concern.

The accompanying 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 $5,494,522 in the six months
ended June 30, 2001. Of this amount, approximately $2,800,000 was non-cash
stock-based expenses. Additionally, as of June 30, 2001, the Company's
accumulated deficit totaled $35,312,705. 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 are dependent upon future
events. These events include 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. These matters, 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.

4.       Per Share Information

Basic loss per common share available to common shareholders excludes dilution
and is computed by dividing loss available to common shareholders by the
weighted-average number of common shares for the period. Excluded from weighted
average shares outstanding for the three months and six months ended June 30,
2001 are 2,253,410 shares of common stock issued but held in escrow in
connection with the private stock purchase agreements and warrant installment
notes (see note 6). Diluted loss per common share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Excluded from the computation of
diluted loss per share for the six months ended June 30, 2001 and 2000
respectively, are options and warrants to acquire 8,105,812 and 6,304,812 shares
of common stock, and 3,568,460 and 2,786,714 common share equivalents relating
to convertible secured notes, because the effect of their assumed exercise would
be antidilutive. The weighted average exercise price as of June 30, 2001 for the
options, warrants and common share equivalents is $3.30, $3.11, and $1.21,
respectively.

5.       Convertible Notes

Convertible notes at June 30, 2001 consist of the following:

A note from Argyle Capital Management Corporation, a company affiliated with
Robert A. Olins, a Director, Chief Executive Officer, Secretary and Treasurer of
the Company. The outstanding principal as of June 30, 2001 is $1,188,000, and
accrues interest at 6%. On May 23, 2001 the due date was extended until December
31, 2002, and as a result a discount of $1,188,000 was recorded as additional
paid-in capital due to the beneficial conversion feature at the date of
extension. The principal and interest is convertible into the Company's common
stock at $.50 per share. At June 30, 2001 stock-based interest expense of
approximately $60,000 was recorded due to the beneficial conversion feature of
the underlying notes. The note is secured by substantially all the assets of the
Company.

Convertible notes totaling $2,504,369 inclusive of accrued interest and net of a
discount of $817,160, issued to a group of investors associated with Steven F.
Tripp, a Director of the Company. The notes


                                      7

<PAGE>   8
accrue interest at 6%, and on June 15, 2001 were extended until December 31,
2002. Of the $817,160 discount, $255,000 was recorded as additional paid-in
capital due to the beneficial conversion feature on the date of extension. Of
the total amount of the notes, $1,437,500 is convertible at $3.50 per share; the
remaining $1,437,500 is convertible at $2.25 per share.

A convertible note for $250,000, issued to a shareholder. The note accrues
interest at 6% and is due on December 31, 2001. The note is convertible at $1.75
per share.

6.       Issuance of Securities

During the second quarter of 2001, the Company issued 24,000 shares of common
stock upon the exercise of employee stock options. Total cash received was
$9,655.

On May 15, 2001, the Company sold 600,000 shares of stock under a private stock
purchase agreement. The stock was sold at a price of $1.75 per share. Cash
received was $262,500. The balance of $787,500 will be paid in three equal
quarterly installments of $262,500. An escrow agent is holding the certificates
for the shares being purchased until all three installments have been paid in
full.

On May 15, 2001, the Company sold 1,346,268 shares of stock under a private
stock purchase agreement. The stock was sold at a price of $1.75 per share. Cash
received was $13,462. The balance of $2,342,507 will be paid in four equal
quarterly installments of $585,626. An escrow agent is holding the certificates
for the shares being purchased until all four installments have been paid in
full.

On April 18, 2001 the Company issued warrants to purchase 607,142 shares of
common stock at an exercise price of $1.75 to a group of investors associated
with Steven F. Tripp, a Director of the Company. The warrants were issued in
exchange for the warrant holders' offer to assist the Company by augmenting its
working capital through the purchase of common shares. The warrants were valued
at $68,852 using the Black-Scholes Option Pricing Model and the following
assumptions: stock price $1.75, historical volatility 114%, risk free rate 6%, a
dividend yield of zero, and a contractual term of 7 days. The value of these
incentive warrants is reflected in the statement of operations as a component of
stock-based general and administrative expense.

During the seven days following their issuance, the warrants referred to above
were exercised. Total proceeds were $1,062,500. Of this amount cash totaling
$525,000 was received in exchange for the issuance of 300,000 shares of common
stock. The remaining 307,142 warrants were exercised under warrant installment
notes totaling $492,708 with a payment of $44,792 made on the date of exercise.
The notes are due in eleven equal monthly installments. Interest of 6% is due
and payable on the maturity date. An escrow agent is holding all certificates
for the shares issued under the warrant installment notes until the notes have
been paid in full.

On October 18, 2000 the Company issued stock options to purchase 150,000 shares
of common stock at an exercise price of $1.50 to Steven F. Tripp, a Director of
the Company. The options were issued outside of the employee stock option plan.
The options were issued in exchange for consulting services provided by Mr.
Tripp and were ratified by the shareholders at the annual shareholders' meeting
on June 8, 2001. The options were valued at $440,172 using the Black-Scholes
Option Pricing Model and the following assumptions: stock price $3.12,
historical volatility 100%, risk free rate 4.75%, a dividend yield of zero, and
a contractual term of 10 years. The value of these options is reflected in the
statement of operations as a component of stock-based general and administrative
expense.

On October 18, 2000 the Company issued stock options to purchase 750,000 shares
of common stock at an exercise price of $1.50 to Robert A. Olins, Chief
Executive Officer. The options were issued outside of the employee stock option
plan and were ratified by the shareholders at the annual shareholders'


                                       8

<PAGE>   9


meeting on June 8, 2001. The intrinsic value of $1,215,000 was recorded in
stock-based general and administrative expenses. The recording of that intrinsic
value was required for financial statement reporting purposes because these
stock options could only be valued as of the date of their approval by
shareholders on June 8, 2001 rather than the date of their grant to Mr. Olins on
October 18, 2000.

7.       Segment Information

The Company's chief operating decision-maker, the Chief Executive Officer (CEO),
reviews the Company's financial information as a single "operating segment" to
make decisions about the Company's performance and resource allocation.
Therefore the Company has determined that it operates in a single business
segment. The Company's revenues for 2001 consisted of sales of prototypes. There
were no foreign sales.

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

This Form 10-QSB contains certain forward-looking statements within the meaning
of Section 21E of the Securities and Exchange Act of 1934, as amended, which
statements are subject to the Safe Harbor provisions created by that statute. In
this report, the words "anticipates," "believes," "expects," "future,"
"intends," and similar expressions identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including, but not
limited to, those discussed herein, those contained in this Item, 2 and those
discussed in the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission on April 16, 2001. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be needed
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

The following is a discussion and analysis of the consolidated financial
condition of the Company as of June 30, 2001, and the results of operations for
the Company for the three months and six months ended June 30, 2001 and 2000.
The following should be read in conjunction with the unaudited consolidated
financial statements and related notes appearing elsewhere herein.

GENERAL

Our operations are constrained by an insufficient amount of working capital, and
we continue to experience negative cash flows and net operating expenses. Our
operations in recent months have been funded by the exercise of warrants and
options, the issuance of convertible securities and the sales of common stock
under private stock purchase agreements. We are continuing our efforts to locate
sources of additional financing but there can be no assurance that additional
financing will be available. Our auditors have included a paragraph in their
report on the audited financial statements as of the year ended December 31,
2000, indicating that substantial doubt exists as to our ability to continue as
a going concern.

During fiscal 2001, we intend to meet our working capital and other cash
requirements with cash derived from the exercise of warrants held by existing
investors affiliated with two of our Directors, and from the sale of common
shares in one or more private placements to accredited investors. There can be
no assurance that such private placement(s) will be completed or that such
warrant exercise will occur.

Our continued existence is dependent upon our ability to successfully develop,
market and sell our products. In May 2001 we entered into an agreement with Fuji
Photo Optical Co., Ltd., for the manufacturing of light engines incorporating
our proprietary SpatiaLight imagEngine(TM) LCOS microdisplays. Pursuant to the
agreement Fuji Photo Optical Co., Ltd. will scale up their manufacturing


                                       9

<PAGE>   10

capacity in order to produce a minimum of ten thousand (10,000) light engines
per month incorporating the SpatiaLight imagEngine(TM) microdisplay.

OVERVIEW

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

LIQUIDITY AND CAPITAL RESOURCES

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

As of June 30, 2001, we had approximately $21,000 in cash and cash equivalents,
and our net working capital at June 30, 2001 was approximately a negative of
$610,000.

Net cash used by operating activities totaled approximately $2,489,000 and
$3,254,000 for the six months ended June 30, 2001 and 2000, respectively. Cash
was used primarily to fund the operating loss.

Net cash provided by financing activities in the six months ended June 30, 2001
was approximately $1,570,000 as compared to approximately $4,948,000 for the six
months ended June 30, 2000. Cash was provided primarily from proceeds from the
exercise of warrants and options to purchase our common stock and from the sales
of common stock under private stock purchase agreements.

As of June 30, 2001, we had an accumulated deficit of approximately $35,300,000.
We have realized significant losses in the past and we expect that these losses
will continue at least through 2001. It is likely that we will have quarterly
and annual losses in 2001 and beyond. We have generated limited revenues and no
profits from operations. The development, commercialization and marketing of our
products will require substantial expenditures for the foreseeable future.
Consequently, we may continue to operate at a loss for the foreseeable future
and there can be no assurance that our business will operate on a profitable
basis or will be able to continue as a going concern.


RESULTS OF OPERATIONS

Revenues. Total revenues were $10,000 for the six and three months ended June
30, 2001. Total revenues were $55,110 for the six months ended June 30, 2000,
and $16,710 for the three months ended June 30, 2000. Revenues in both years
were the result of sales of our display developer kits. Revenue from the sales
of prototypes is not indicative of the revenue we expect to realize on sales of
our displays produced in quantity. Prototypes have a higher unit price than mass
produced displays, as they are custom made and require additional parts that are
not required for displays sold in quantity.


                                       10

<PAGE>   11

Cost of Revenues. Cost of revenues represents product costs associated with the
production of display prototypes. Cost of revenues for prototypes was $ 1,000
for the six months and three months ended June 30, 2001, and $14,625 and $7,500
for the six and three months ended June 30, 2000, respectively. Gross margins
associated with sales are not indicative of the gross margins that we expect to
realize on sales of units produced in quantity. Prototypes and developer kits
have a higher unit price than mass-produced units due to the time and effort
spent with customer.

General and administrative costs. General and administrative costs were
approximately $1,425,000 and $1,370,000 in the six months ended June 30, 2001
and 2000, respectively. General and administrative costs were approximately
$785,000 and $890,000 in the three months ended June 30, 2001 and 2000,
respectively. This decrease was due primarily to the cost associated with
accrued severance payable in the second quarter of 2000.

Stock-based general and administrative costs. Stock-based general and
administrative costs were approximately $1,773,000 and $1,724,000 in the six and
three months ended June 30, 2001, respectively, and approximately $15,000 and $0
in the six and three months ended June 30, 2000, respectively. The amounts
incurred relate to the valuation of common stock, stock options, and options
issued in exchange for services and other consideration. The amounts incurred in
2001 relate to the issuance of warrants and options to employees and to
directors for additional services provided. The amount incurred in 2000 relates
to stock issued in exchange for services.

Research and development costs. Research and development costs were
approximately $1,197,000 and $1,680,000 in the six months ended June 30, 2001
and 2000, respectively. Research and development costs were approximately
$593,000 and $872,000 in the three months ended June 30, 2001 and 2000,
respectively. These decreases were due primarily to a more focused approach in
designing our product, resulting in reduced fabrication costs.

Interest income. Interest income for the six months ended June 30, 2001 and 2000
was approximately $10,600 and $58,900, respectively. Interest income for the
three months ended June 30, 2001 and 2000 was approximately $5,000 and $34,300,
respectively. The decrease is consistent with lower cash balances resulting from
the decrease in cash flow from financing activities.

Interest expense. Interest expense for the six months ended June 30, 2001 and
2000 was approximately $131,700 and $82,000, respectively. Interest expense for
the three months ended June 30, 2001 and 2000 was $67,600 and $41,000,
respectively. The increase is consistent with the increased convertible note
balances in 2001.

Stock-based interest expense. Stock-based interest expense for the six months
ended June 30, 2001 and 2000 was approximately $982,000 and $525,000,
respectively. Stock-based interest expense for the three months ended June 30,
2001 and 2000 was approximately $864,000 and $225,000, respectively. The amounts
incurred in 2001 relate primarily to the amortization of the discount associated
with the convertible notes issued in December 1999. The discount related to the
warrants issued in conjunction with the notes and were amortized over the term
of the note using the interest method. In 2001 approximately $872,000 of this
discount was recorded. The amount incurred in 2000 related to the beneficial
conversion feature on interest on certain convertible notes.


                                       11
<PAGE>   12

BUSINESS RISKS AND UNCERTAINTIES

IF WE ARE UNABLE TO OBTAIN FURTHER FUNDING, OUR ABILITY TO OPERATE COULD SUFFER

In the event that we are unable to obtain further funding, or the costs of
development and operations prove greater than anticipated, we may be required to
curtail our operations or seek alternative financing arrangements. Additional
financing may not be available to us on favorable terms or at all. If we have
insufficient funds or are unable to raise additional funds, we may be required
to delay, reduce or cease certain of our programs. This would materially and
adversely affect our business. Our auditors have included a qualifying paragraph
in their opinion in the Form 10-KSB on our financial statements stating that
substantial doubt exists about our ability to continue as a going concern. Also,
refer to Management's Discussion of Financial Condition and Results of
Operations.

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

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

WE ARE INCURRING SUBSTANTIAL RESEARCH AND DEVELOPMENT COSTS.

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

WE MAY EXPERIENCE DIFFICULTIES MASS-PRODUCING MICRODISPLAYS.

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

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

Our silicon backplanes are assembled in Hong Kong with electronic components to
create microdisplays. Because our assembly contract is relatively new we
anticipate that technical issues in the manufacturing process will need to be
resolved. The design and manufacture of LCDs and display

                                       12

<PAGE>   13

modules are highly complex processes that are sensitive to a wide variety of
factors, including the level of contaminants in the manufacturing environment,
impurities in the materials used, and the performance of personnel and
equipment. Contract manufacturers do not guarantee their manufacturing yields.
In addition, the complexity of manufacturing processes will increase along with
increases in the sophistication of our display modules. Low manufacturing yields
or delivery problems could adversely affect our operating results.

A MARKET FOR OUR PRODUCTS MAY NOT DEVELOP.

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

OUR DISPLAYS MAY NOT SUCCEED COMMERCIALLY.

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

o        superior technologies developed by our competitors;

o        price considerations;

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

o        difficulties in inducing companies to begin using our product.

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

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

WE DEPEND ON THE MARKET ACCEPTANCE OF THE PRODUCTS OF OUR PROSPECTIVE CUSTOMERS.

We do not sell any products to end-users. Instead, we design and manufacture
various product solutions that our prospective customers may incorporate into
their products. As a result, our success depends almost entirely upon the
widespread market acceptance of our prospective customers' products. Any


                                       13

<PAGE>   14

significant slowdown in the demand for our prospective customers' products would
adversely affect our business.

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

o        maintain customer satisfaction with our design and manufacturing
         services;

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

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

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

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

WE FACE INTENSE COMPETITION.

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

Our competitive position could suffer if one or more of our prospective
customers decides to design and manufacture their own display modules, to
contract with our competitors, or to use alternative technologies. In addition,
our prospective customers typically develop a second source. Second source
suppliers may win an increasing share of a program. Our ability to compete
successfully depends on a number of factors, both within and outside our
control. These factors include the following:

o        our success in designing and manufacturing new display technologies;

o        our ability to address the needs of customers;

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

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

o        the quality of our customer services;

o        the efficiency of our production sources;

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

o        products or technologies introduced by our competitors.


                                       14
<PAGE>   15

THE ELECTRONICS INDUSTRY IS CYCLICAL.

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

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

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

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

OUR OPERATING RESULTS ARE NEGATIVE AND SUBJECT TO FLUCTUATIONS.

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

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

o        timing of expenditures in anticipation of future orders;

o        changes in our cost structure;

o        availability of labor and components;

o        pricing and availability of competitive products and services;

o        the timing of orders;

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

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

o        changes or anticipated changes in economic conditions.


                                       15
<PAGE>   16

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

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

o        quarterly variations in our operating results;

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

o        public announcements regarding our business developments;

o        changes in analysts' estimates of our financial performance;

o        general conditions in the electronics industry; and

o        worldwide economic and financial conditions.

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

OUR COMMON STOCK MAY NOT BE LIQUID.

We are currently traded on the Nasdaq SmallCap Market. Our stockholders may find
that it is more difficult to sell our common shares than shares that are listed
on the Nasdaq National Market, the American Stock Exchange or New York Stock
Exchange. The trading volume of our shares may be limited in part due to the
marketability of our stock. Any swing in the price of our stock may be magnified
into a material reduction in price because relatively few buyers may be
available to purchase our stock.

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

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

WE DEPEND ON KEY PERSONNEL.

Our development and operations depend substantially on the efforts and abilities
of our senior management and technical personnel. The competition for qualified
management and technical personnel is intense. The loss of services of one or
more of our key employees or the inability to add key personnel could have a
material adverse affect on us. Our success depends on our ability to attract and
retain highly qualified scientific, marketing, manufacturing, financial and
other key management personnel. We face competition for such personnel and there
can be no assurance that we will be able to attract or retain such personnel.


                                       16

<PAGE>   17

WE MUST PROTECT OUR INTELLECTUAL PROPERTY.

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

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

o        pending patent applications may not be issued;

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

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

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

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

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

WE FACE RISKS ASSOCIATED WITH INTERNATIONAL TRADE AND CURRENCY EXCHANGE.

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

WE MUST EFFECTIVELY MANAGE OUR GROWTH.

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

o        enhance our operational, financial, and management systems;

o        expand our facilities and equipment; and

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


                                       17

<PAGE>   18

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

WE COULD BE LIABLE IN CONNECTION WITH PRODUCT LIABILITY CLAIMS.

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

WE DO NOT PAY CASH DIVIDENDS.

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


PART II.   OTHER INFORMATION

ITEM 2 Changes in Securities and Use of Proceeds

(c)  On May 15, 2001, the Company sold 600,000 shares of stock under a private
stock purchase agreement. The stock was sold at a price of $1.75 per share. The
closing price of the stock on that date was $1.78. Cash received was $262,500.
The balance of $787,500 will be paid in three equal quarterly installments of
$262,500. An escrow agent is holding the certificates for the shares being
purchased until all three installments have been paid in full.

On May 15, 2001, the Company sold 1,346,268 shares of stock under a private
stock purchase agreement. The stock was sold at a price of $1.75 per share. The
closing price of the stock on that date was $1.78. Cash received was $13,462.
The balance of $2,342,507 will be paid in four equal quarterly installments of
$585,626. An escrow agent is holding the certificates for the shares being
purchased until all four installments have been paid in full.

On April 18, 2001, the Company issued warrants (having a term of 7 days) to
purchase 607,142 shares of common stock at an exercise price of $1.75, which
was the closing price of the stock on that date, to a group of investors
associated with Steven F. Tripp, a Director of the Company. The warrants were
exercised. Total cash proceeds of $525,000 were received in exchange for the
issuance of 300,000 shares of common stock. The remaining 307,142 warrants were
exercised under warrant installment notes totaling $492,708 with a payment of
$44,792 made on the date of exercise. The notes are due in eleven equal monthly
installments. An escrow agent is holding all certificates issued under the
warrant installment notes until the notes have been paid in full.

The Company used the proceeds from the sale of the securities described in this
Item to fund the costs of its operations and for general working capital
purposes.

In connection with the issuance and sale of the securities described in this
Item, the Company relied upon the exemption from registration under the
Securities Act of 1933, as amended (the "Act"), set forth in Section 4(2)
thereof. Those securities were sold to "accredited investors" within the
meaning of the Act and Commission regulations, virtually all of whom had
previously purchased securities issued by the Company.


                                       18
<PAGE>   19
ITEM 4.  Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Shareholders held June 8, 2001, the shareholders
approved the following proposals:

<TABLE>
<CAPTION>
         PROPOSAL 1.       ELECTION OF DIRECTORS
                                                                    VOTES FOR                 VOTES AGAINST
<S>                                                                 <C>                             <C>
                           Lawrence J. Matteson                     17,524,359                      45,350
                           Robert A. Olins                          17,524,059                      45,650
                           Steven F. Tripp                          17,524,059                      45,650
                           Claude Piaget                            17,524,359                      45,350
</TABLE>

         Directors were elected for a term of one year.

         PROPOSAL 2.       RATIFICATION  AND  APPROVAL OF STOCK  OPTIONS GRANTED
         TO ROBERT A. OLINS,  ACTING CHIEF EXECUTIVE OFFICER, SECRETARY,
         TREASURER AND DIRECTOR

         The shareholders ratified and approved the grant to Robert A. Olins of
         Options to purchase 750,000 Common Shares of the Corporation at an
         Exercise Price of $1.50 per share.

                  Votes For                         17,247,003*
                  Votes Against                        299,895
                  Votes Abstained                       22,811

         PROPOSAL 3.       RATIFICATION AND APPROVAL OF STOCK OPTIONS GRANTED TO
         STEVEN F. TRIPP, DIRECTOR

         The shareholders ratified and approved the grant to Steven F. Tripp of
         Options to purchase 150,000 Common Shares of the Corporation at an
         Exercise Price of $1.50 per share

                  Votes For                         17,268,998*
                  Votes Against                        278,400
                  Votes Abstained                       22,311

         PROPOSAL 4.       RATIFICATION AND APPROVAL OF TIME ACCELERATED
         RESTRICTED STOCK OPTIONS ("TARSAP") GRANTED TO ANNE-MARIE RIBES,
         DIRECTOR OF CORPORATE DEVELOPMENT OF THE CORPORATION

         The shareholders ratified and approved the grant to Anne-Marie Ribes of
         Options to purchase 1,975,000 Common Shares of the Corporation at an
         Exercise Price of $4.80 per share.

                  Votes For                         17,303,828*
                  Votes Against                        229,470
                  Votes Abstained                       36,411

*Includes votes "FOR", by authority conferred by Proxy for Non-votes.

         PROPOSAL 5.       RATIFICATION OF THE APPOINTMENT OF ACCOUNTANTS

         The shareholders ratified the appointment of BDO Seidman LLP as
         independent accountants of the Corporation for the fiscal year ending
         December 31, 2001.

                  Votes For                         17,507,059
                  Votes Against                         53,317
                  Votes Abstained                        9,333


ITEM 6.           Exhibits and Reports on Form 8-K


(a)               Report on Form 8-K:

                  The Company filed an 8-K Report on April 9, 2001.

                  April 9, 2001 - Item 4. Changes in Certifying Accountants

The 8-K report provided information pursuant to Item 4 thereof.


                                       19
<PAGE>   20

SIGNATURES

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

                                    Date:    August  14, 2001
                                           -------------------------------------

                                    SpatiaLight, Inc.



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


                                       20