<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 March 31, 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: 21,425,370 shares of common
stock as of May 10, 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 March 31, 2001


                                Table of Contents
<TABLE>
<CAPTION>

PART I                     FINANCIAL INFORMATION

<S>                        <C>                                                                     <C>

         Item 1.           Condensed Consolidated Financial Statements (unaudited)

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

                           Condensed Consolidated Statements of Operations
                           for the Three Months Ended March 31, 2001 and 2000........................4

                           Condensed Consolidated Statements of Cash Flows
                           for the Three Months Ended March 31, 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..........................8

PART II                    OTHER INFORMATION

         Item 6.           Exhibits and Reports on Form 8-K..........................................17

</TABLE>

                                       2

<PAGE>   3

PART I.  FINANCIAL INFORMATION
Item 1.  Condensed Consolidated Financial Statements (unaudited)


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


<TABLE>
<CAPTION>
                                                                          March 31,        December 31,
                                                                            2001               2000
                                                                      ---------------- ------------------
<S>                                                                   <C>              <C>
ASSETS

Current assets
  Cash and cash equivalents                                               $    46,266      $   1,035,957
  Accounts receivable                                                             875              2,500
  Other current assets                                                        199,372            159,534
                                                                      ---------------- ------------------
        Total current assets                                                  246,513          1,197,991

Property and equipment, net                                                   592,912            570,585
Other assets                                                                   54,456             31,954
                                                                      ---------------- ------------------

               Total assets                                               $   893,881      $   1,800,530
                                                                      ================ ==================

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
  Accounts payable                                                        $   332,925      $     347,104
  Convertible notes and accrued interest                                    2,842,785          2,742,925
  Accrued expenses and other current liabilities                              104,239            169,196
                                                                      ---------------- ------------------
        Total current liabilities                                           3,279,949          3,259,225

Noncurrent liabilities
  Long term capital lease obligations                                           3,055              4,483
                                                                      ---------------- ------------------

               Total liabilities                                            3,283,004          3,263,708

Commitments and contigencies

Stockholders' deficit:
  Common stock, $.01 par value:
     40,000,000 shares authorized;
    20,843,025 and 20,273,229 shares issued and outstanding
    as of March 31, 2001 and December 31, 2000 respectively                   208,403            202,732
Additional paid-in capital                                                 28,694,002         28,152,272
Accumulated deficit                                                       (31,291,555)       (29,818,182)
                                                                      ---------------- ------------------
        Total stockholders' deficit                                        (2,389,123)        (1,463,178)
                                                                      ---------------- ------------------

Total liabilities and stockholders' deficit                               $   893,881      $   1,800,530
                                                                      ================ ==================



</TABLE>

See accompanying notes to consolidated financial statements.


                                       3

<PAGE>   4

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

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                  March 31,
                                                                       2001                      2000
                                                                  --------------              --------------
<S>      <C>                                                           <C>                       <C>

Revenues                                                          $            -              $       38,400

Cost of revenues
                                                                               -                       7,125
                                                                  --------------              --------------
Gross profits
                                                                               -                      31,275

General and administrative expenses:
          General and administrative expenses                            639,423                     479,205
          Stock-based general and administrative expenses                 49,360                      15,000
                                                                  --------------              --------------
              Total general and administrative expenses                  688,783                     494,205

  Research and development expenses                                      603,802                     808,824
                                                                  --------------              --------------
              Total operating expenses                                 1,292,585                   1,303,029
                                                                  --------------              --------------
              Operating loss                                          (1,292,585)                 (1,271,754)

Other income (expense):

  Interest expense:
          Interest expense                                              (64,065)                    (22,820)
          Stock-based interest expense                                 (118,431)                   (317,913)
                                                                  --------------              --------------
              Total interest  expense                                  (182,496)                   (340,733)

  Interest income                                                          5,558                      24,547
                                                                  --------------              --------------
              Total other income (expense)                             (176,938)                   (316,186)

  Loss from operations before income taxes                           (1,469,523)                 (1,587,940)

Income tax expense                                                         3,850                         800
                                                                  --------------              --------------
               Net loss                                              (1,473,373)                 (1,588,740)

Incentive warrants issued                                                      -
                                                                                                   (606,303)
                                                                  --------------              --------------
Net loss available to common shareholders                         $  (1,473,373)              $  (2,195,043)
                                                                  ==============              ==============
Net loss per share available to common shareholders -             $       (0.07)              $       (0.13)
basic and diluted                                                 ==============              ==============


Weighted average shares used in computing net loss per share -       20,541,528                  17,432,911
basic and diluted                                                 ==============              ==============



</TABLE>

See accompanying notes to consolidated financial statements.


                                       4

<PAGE>   5

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

<TABLE>
<CAPTION>

                                                                                                        Three Months Ended
                                                                                                             March 31,

                                                                                                   2001                     2000
                                                                                                   ----                     -----
<S>                                          <C>                                              <C>                      <C>

Cash flows from operating activities:

Net loss                                                                                      $ (1,473,373)            $ (1,588,740)
Adjustments to reconcile net loss to net cash used by operating activities:
  Depreciation and amortization                                                                     58,566                   45,532
  Stock-based general and administrative expense                                                    49,360                   15,000
  Stock-based interest expense                                                                     118,431                  317,913
  Changes in operating assets and liabilities:
     Accounts receivable                                                                             1,625                  (23,636)
     Inventories                                                                                         -                        -
     Other assets                                                                                  (62,340)                  17,467
     Accounts payable                                                                              (14,179)                 194,890
     Accrued expenses and other current liabilities                                                 36,807                 (304,726)
                                                                                                -----------              -----------

                                             Net cash used by operating activities              (1,285,103)              (1,326,300)

Cash flows from investing activities:
  Purchase of property and equipment                                                               (80,893)                (212,982)
                                                                                                -----------              -----------

                                             Net cash used in investing activities                 (80,893)                (212,982)
                                                                                                -----------              -----------
Cash flows from financing actitivies:
  Payments on capital lease obligations                                                             (1,195)                  (7,823)
  Proceeds from exercise of warrants and options                                                   377,500                4,328,792
                                                                                                -----------              -----------

                                         Net cash provided by financing activities                 376,305                4,320,969

Net increase (decrease) in cash                                                                   (989,691)               2,781,687

Cash at beginning of period                                                                      1,035,957                1,236,609
                                                                                                -----------              -----------
Cash at end of period                                                                         $     46,266             $  4,018,296
                                                                                                ===========              ===========
Supplemental disclosure of cash flow information:

  Income taxes paid during the period                                                         $      3,850                 $606,303
                                                                                                -----------              -----------
  Interest paid during the period                                                             $        411             $    100,503
                                                                                                -----------              -----------
Non cash financing activities:
  Common stock issued upon conversion of notes and interest                                   $     69,425             $          -
  Warrants issued to incent the exercise of certain warrants                                  $          -             $    606,303
</TABLE>

See accompanying notes to 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 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,
data storage and holographic imaging systems.

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.



                                       6

<PAGE>   7

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 $1,473,373 in the three months
ended March 31, 2001. Additionally, as of March 31, 2001, the Company's
accumulated deficit totaled $31,291,555. 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. 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 three months
ended March 31, 2001 and 2000 respectively, are options and warrants to acquire
5,174,812 and 7,630,312 shares of common stock, and 3,425,603 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 March 31, 2001 for the options, warrants and common share
equivalents is $2.30, $3.11, and $1.19, respectively.

5.       Convertible Notes

Convertible notes at March 31, 2001 consist of the following:

A note from Argyle Capital Management Corporation, a company affiliated with
Robert Olins, a Director, Acting Chief Executive Officer, Secretary and
Treasurer of the Company. The outstanding principal as of March 31, 2001 is
$1,188,000. The note accrues interest at 6% and is due on June 30, 2001. The
principal and interest is convertible into the Company's common stock at $.50
per share. As of March 31, 2001, all interest has been converted to stock and
stock-based interest expense was recorded due to the beneficial conversion
feature of the underlying notes. The notes are secured by substantially all the
assets of the Company.

Convertible notes totaling $1,654,785, net of a discount of $1,366,597, and
inclusive of accrued interest, issued to a group of investors associated with
Steven F. Tripp, a Director of the Company. The notes accrue interest at 6%, and
are due June 30, 2001. Of the total amount of the notes, $1,437,500 are
convertible at $3.50 per share; the remaining $1,437,500 are convertible at
$2.25 per share.


                                       7
<PAGE>   8

6.       Issuance of Securities

During the first quarter of 2001 the Company issued 510,000 shares of common
stock upon the exercise of employee stock options. Total cash received was
$377,500. In addition, 59,796 shares were issued upon the conversion of accrued
interest of $121,569 under certain convertible notes, which includes additional
deemed interest of $90,671 due to beneficial conversion features of the
underlying notes.

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 2000 consisted of sales of prototypes.

The Company sells to a small number of customers.

8.       Subsequent Event

In April 2001, the Company raised $1,062,500 in cash and short-term notes
receivable in a private offering of 607, 143 shares to existing investors
affiliated with one of the Company's Directors. Of this amount approximately
$551,000 was received in cash, with the balance due from the investors under
full recourse notes. Principal on the notes is due in eleven monthly payments,
and accrues interest of 6%.

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,"
"interests," 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 March 31, 2001, and the results of operations for
the Company for the three March 31, 2001. 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,
exercise of employee stock options and by the issuance of a series of
convertible securities. 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


                                       8

<PAGE>   9

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. In April 2001, we raised $1,062,500 in a private
offering of 607,143 shares to existing investors affiliated with one of our
Directors. Of this amount approximately $551,000 was received in cash with the
balance due from the investors under full recourse notes. Principal on the notes
is due in eleven monthly payments, and accrues interest of 6%.

Our continued existence is dependent upon our ability to successfully develop,
market and sell our products.

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, optical computing, and holographic
imaging 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 March 31, 2001, we had approximately $46,000 in cash and cash equivalents,
and our net working capital at March 31, 2001 was approximately a negative of
$3,000,000.

Net cash used by operating activities totaled approximately $1,285,000 and
$1,330,000 for the three months ended March 31, 2001 and 2000, respectively.
Cash was used primarily to fund the operating loss.

Net cash provided by financing activities in the three months ended March 31,
2001 was approximately $380,000 as compared to approximately $4,300,000 for the
three months ended March 31, 2000. Cash was provided primarily from proceeds
from the exercise of warrants and options to purchase our common stock.

As of March 31, 2001, we had an accumulated deficit of approximately
$31,000,000. 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


                                       9

<PAGE>   10

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 $0 for the three months ended March 31, 2001, and
$38,400 for the three months ended March 31, 2000. Revenues in 2000 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.

Cost of Revenues. Cost of revenues represents product costs associated with the
production of display prototypes. Cost of revenues for prototypes was $0 for the
three months ended March 31, 2001, and $7,125 for the three months ended March
31, 2000. 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 customers.

General and administrative costs. General and administrative costs were
approximately $640,000 and $480,000 in the three months ended March 31, 2001 and
2000, respectively. These increases were due primarily to increases in
employment and office expenses.

Stock-based general and administrative costs. Stock-based general and
administrative expenses were approximately $50,000 and $15,000 in the three
months ended March 31, 2001 and 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 amount incurred in 2001 relates to the
cost associated with the extension of the exercise period of certain employee
stock options. The amount incurred in 2000 relates to stock issued as payment
for consulting services.

Research and development costs. Research and development costs were
approximately $600,000 and $810,000 in the three months ended March 31, 2001 and
2000, respectively. This decrease was due to a more focused approach in
designing our product, resulting in reduced fabrication costs.

Interest income. Interest income for the three months ended March 31, 2001 and
2000 was approximately $6,000 and $25,000, respectively. The decrease is
consistent with lower cash balances in the first quarter of 2001.

Interest expense. Interest expense for the three months ended March 31, 2001 and
2000 was approximately $64,000 and $23,000, respectively. The increase is
consistent with the higher note balances in 2001.

Stock-based interest expense. Stock-based interest expense for the three months
ended March 31, 2001 and 2000 was approximately $118,000 and $320,000,
respectively. The amounts incurred in 2001 relate to the amortization of the
discount associated with certain convertible notes and amounts associated with
the beneficial conversion feature of interest on certain notes. Amounts incurred
in 2000 relate to the beneficial conversion feature on interest on certain
convertible notes.

                                       10
<PAGE>   11

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 an uncertainty
paragraph in their opinion in the Form 10KSB 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



                                       11
<PAGE>   12

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 is 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 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



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<PAGE>   13

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.



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<PAGE>   14

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. 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.


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<PAGE>   15

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 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.



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<PAGE>   16


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.

SHORTAGES OF COMPONENTS AND MATERIALS MAY DELAY OR REDUCE OUR SALES AND INCREASE
OUR COSTS.

Our inability to obtain sufficient quantities of components and other materials
necessary to produce our displays could result in reduced or delayed sales or
lost orders. Any delay in or loss of sales could adversely impact our operating
results. We obtain many of the materials we use in the manufacture of our
displays from a limited number of foreign suppliers, particularly suppliers
located in the Far East, and we do not have long-term supply contracts with any
of them. As a result, we are subject to economic instability and currency
fluctuations in these countries as well as to increased costs, supply
interruptions, and difficulties in obtaining materials. Our prospective
customers may also encounter difficulties or increased costs in obtaining from
others the materials necessary to produce their products into which our product
solutions are incorporated.



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<PAGE>   17

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.

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 6.       Exhibits and Reports on Form 8-K

Exhibits:




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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: May 11, 2001
                                             ----------------------------

                                       SpatiaLight, Inc.



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


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