<PAGE>

                                 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, 1999

[ ]  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: 11,611,380 shares of common
stock as of May 3, 1999.

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


<PAGE>


                       SPATIALIGHT, INC. AND SUBSIDIARIES

                         Quarterly Report on Form 10-QSB
                      For the Quarter Ended March 31, 1999


                                Table of Contents
                                -----------------

<TABLE>
<CAPTION>
PART I                     FINANCIAL INFORMATION
<S>      <C>               <C>
         Item 1.           Condensed Consolidated Financial Statements (unaudited)

                           Consolidated Balance Sheets dated
                           March 31, 1999 and December 31, 1998.....................................3

                           Consolidated Statements of Operations
                           for the Three Months Ended
                           March 31, 1999 and 1998..................................................4

                           Consolidated Statements of Cash Flows
                           for the Three Months Ended March 31, 1999 & 1998.........................5

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

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

PART II                    OTHER INFORMATION

         Item 2.           Changes in Securities....................................................13

         Item 6.           (a) Exhibits and Reports on Form 8-K.....................................13
</TABLE>



                                       2


<PAGE>



PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements (Unaudited)

SPATIALIGHT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

<TABLE>
<CAPTION>
                                                                   March 31,                     December 31,
                                                                      1999                           1998
                                                                -------------------------------------------------
<S>                                                                    <C>                             <C>      
ASSETS

Current assets:
   Cash and cash equivalents                                           $ 274,797                       $ 470,086
   Accounts receivable                                                    11,525                          30,492
   Inventories                                                            14,191                          18,296
   Other                                                                  62,425                               0
                                                                -----------------             -------------------
     Total current assets                                                362,938                         518,874

Property and equipment, net                                              223,016                         221,498
Other                                                                    135,992                         187,204
                                                                -----------------             -------------------

          Total assets                                                 $ 721,946                       $ 927,576
                                                                -----------------             -------------------
                                                                -----------------             -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Accounts payable                                                    $ 464,078                       $ 466,031
   Short term notes payable                                            3,925,606                       3,337,508
   Accrued expenses and other liabilities                                 69,721                          96,693
                                                                -----------------             -------------------
     Total current liabilities                                         4,459,405                       3,900,232

Noncurrent liabilities
   Long term capital lease obligations                                    17,597                          25,420
                                                                -----------------             -------------------
          Total liabilities                                            4,477,002                       3,925,652

Commitments and contingencies

Stockholders' equity (deficit):
   Common stock, $.01 par value:
      20,000,000 shares authorized; 11,555,554
      and 11,413,501 shares issued and outstanding
      at March 31, 1999 and December 31, 1998                            115,556                         114,135
Additional paid-in capital                                            11,014,095                      10,854,938
Accumulated deficit                                                  (14,884,707)                    (13,967,149)
                                                                -----------------             -------------------
     Total stockholders' equity(deficit)                              (3,755,056)                     (2,998,076)

          Total liabilities and
          stockholders' equity (deficit)                               $ 721,946                       $ 927,576
                                                                -----------------             -------------------
                                                                -----------------             -------------------
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3


<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                               March 31,
                                                                      1999                    1998
                                                               -------------------       ---------------
<S>                                                                      <C>                         <C>
Revenues:

   Sales                                                                 $ 31,500                    $0
                                                               -------------------       ---------------
          Total revenues                                                   31,500                     0

Cost of sales                                                               4,104                     0
                                                               -------------------       ---------------
          Gross profit                                                     27,396                     0

   Selling, general and administrative expenses                           538,277               463,248
   Research and development expenses                                      360,070               506,089
                                                               -------------------       ---------------
          Total operating expenses                                        898,347               969,337

          Operating loss                                                 (870,951)             (969,337)

Other income (expense)
   Interest income                                                          3,291                 3,683
   Interest and other expense                                             (49,898)              (23,029)
                                                               -------------------       ---------------
          Total other expense                                             (46,607)              (19,346)


   Loss from operations before income taxes                              (917,558)             (988,683)

Income taxes                                                                    0                     0
                                                               -------------------       ---------------
          Net loss                                                     $ (917,558)           $ (988,683)
                                                               -------------------       ---------------
                                                               -------------------       ---------------
Net loss per share (basic and diluted)                                      (0.08)                (0.10)

Weighted average shares used in computing                              11,488,099             9,640,554
                                                               -------------------       ---------------
                                                               -------------------       ---------------
   net loss per share -  basic and diluted

</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       4

<PAGE>

SPATIALIGHT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

<TABLE>
<CAPTION>

                                                                            Three Months Ended
                                                                               March 31,
                                                                        1999                   1998
                                                                  ----------------------------------------
<S>                                                                     <C>                    <C>        
Cash flows from operating activities:

Net loss                                                                $ (917,558)            $ (988,683)

Adjustments to reconcile net loss to net cash 
 used by operating activities:
Non-cash items:
   Depreciation and amortization                                            24,196                 20,380
   Warrants issued as payment for services                                 134,962                      0
   Common stock issued as compensation to employees
     and consultants                                                        17,220                      0
   Common stock payable as payment of interest                               8,396
   Non-cash costs of financing                                                   0                115,358
   Changes in assets and liabilities:
      Accounts receivable                                                   18,967                      0
      Inventories                                                            4,105                      0
      Other current assets                                                 (62,425)                   598
      Other assets                                                          51,212                 (6,640)
      Accounts payable                                                      (1,953)                65,009
      Current portion captial lease obligation                                 552                   (771)
      Accrued expenses and other current liabilities                       (27,524)                83,206
                                                                  -----------------      -----------------

                     Net cash used by operating activities                (749,850)              (711,543)

Cash flows from investing activities:
   Capital expenditures                                                    (25,714)               (18,985)
                                                                  -----------------      -----------------

                     Net cash used by investing activities                 (25,714)               (18,985)

Cash flows from financing activities:
   Long term capital lease obligation                                       (7,823)                (5,527)
   Proceeds from short term notes payable                                  588,098                603,505
                                                                  -----------------      -----------------
                 Net cash provided by financing activities                 580,275                597,978

Net decrease cash and cash equivalents                                    (195,289)              (132,550)

Cash and cash equivalents at beginning of period                           470,086                415,625
                                                                  -----------------      -----------------

Cash and cash equivalents at end of period                               $ 274,797              $ 283,075
                                                                  -----------------      -----------------
                                                                  -----------------      -----------------
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                       5


<PAGE>


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

1.       Business Description

SpatiaLight, Inc. and Subsidiary ("SpatiaLight" or the "Company) is in the
business of designing and commercializing miniature, high-resolution active
matrix liquid crystal displays mounted directly on silicon chips. 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 potentially provide high-resolution images suitable for
computer, video 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 future 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 address and telephone number of the Company's principal executive offices
are 9 Commercial Boulevard, Suite 200, Novato, California 94949, (415) 883-1693.
The Company was organized under the laws of the State of New York in 1989 under
the name of "Sayett Acquisition Company, Inc."; it subsequently changed its name
to Sayett Group, Inc. and, in June 1996, changed its name again to SpatiaLight,
Inc. The Company has a wholly owned subsidiary named SpatiaLight of California,
Inc.

2.       Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB but do not include
all information and footnotes necessary for a fair presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management of SpatiaLight,
Inc. ("SpatiaLight" or "the Company"), the interim condensed consolidated
financial statements included herewith contain all adjustments (consisting of
normal recurring accruals and adjustments) necessary for a fair presentation of
the Company's financial condition as of March 31, 1999 and the results of its
operations for the three months ended March 31, 1999 and 1998. 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 Management's
Discussion and Analysis, for the years ended December 31, 1998 and 1997.


                                       6


<PAGE>


3.       Going Concern Uncertainty

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
loans and 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 loans or any
other financing will be available to the Company. For this reason, there is
uncertainty whether the Company can continue as a going concern.

The accompanying 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 $917,558 in the three months
ended March 31, 1999. Additionally, as of March 31, 1999 the Company's
accumulated deficit totaled $14,884,707. The Company has generated limited
revenues to date and the development, commercialization and marketing of the
Company's products will require substantial expenditures in the foreseeable
future. The successful completion of the Company's development program and
ultimately, the attainment of profitable operations, is dependent upon future
events. These events include 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.

In an effort to improve operating performance, the Company has been and will be
implementing certain programs and strategies in 1999. These strategies include:

         -    Raising additional capital.
         -    Outsourcing of all manufacturing activities, which will be
              monitored by Company's staff.
         -    Developing strategic alliances with potential customers and/or
              licensing of the Company's technology.
         -    Development contracts with customers to customize the Company's
              displays for use in their products.

4.       Loss Per Common Share

Basic loss per common share excludes dilution and is computed by dividing loss
attributable to common stockholders by the weighted-average number of common
shares outstanding 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. Common share
equivalents are excluded from the computation in loss periods, as their effect
would be antidilutive.


                                       7


<PAGE>


5.       Short term notes payable

Short term convertible notes payable at March 31, 1999 consist of short term
convertible securities totaling 3,925,606, including accrued interest. The
securities accrue interest at 6% and are due on December 31, 1999. The
securities are convertible into the Company's common stock at $.50 to $.75 per
share and are secured by substantially all the assets of the Company.

3.       Issuance of Common Stock

During the first quarter of 1999, the Company issued 142,053 shares of common
stock that had been subscribed to in 1998. In addition, the Company committed to
issue 18,182 shares to one employee and one contractor. The expense associated
with this commitment is $17,220 and is recorded in research and development
expense. The subscribed shares are recorded in additional paid-in capital. The
Company committed to issue an additional 4,849 shares of stock in exchange for 
$8,396 of interest expense incurred in 1998.

During the first quarter of 1999, the Company issued an immediately 
exercisable Class A Warrant to purchase 100,000 shares of the Company's 
common stock at an exercise price of $1.50 per share which expires on 
November 15, 2000. A Class B Warrant will be issued by the Company to 
purchase 100,000 shares of the Company's common stock at an exercise price of 
$2.00 per share which is exercisable from the date the Class A warrant is 
exercised and expires on November 15, 2001.  A Class C Warrant will be issued 
by the Company to purchase 100,000 shares of the Company's common stock at an 
exercise price of $2.50 per share which is exercisable from the date the 
Class B warrant is exercised and expires on November 15, 2002. The warrants 
are in exchange for services rendered which resulted in the identification of 
sources of funding for the Company. In issuing these securities the Company 
relied upon the exemption from the registration requirements of the 
Securities Act of 1933, as amended, provided by Section 4(2) thereof.

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, and is
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, and in particular, those contained in this Item 2 as well as
those discussed in the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission on March 31, 1999. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be needed
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

GENERAL

The Company's operations are 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
loans and by a series 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 loans or any other financing will be available to the Company. For
this reason, there is uncertainty whether the Company can continue as a going
concern. See Note 3 of Notes to Condensed Consolidated Financial Statements.


                                       8


<PAGE>


OVERVIEW

SpatiaLight is developing and commercializing a miniature high-resolution 
active matrix liquid crystal display. The Company's display is designed to be 
the essential component in high-resolution, projected display systems which 
may be produced at lower costs than current or anticipated projection 
systems. The Company has 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, holographic imaging and other display applications. The 
Company has made only limited sales to date, and there can be no assurance 
that the Company will ever be able to commercialize its technology.

LIQUIDITY AND CAPITAL RESOURCES

Most of the Company's revenue to date has been derived from limited sales of its
displays. Although the Company is producing displays worthy of advanced
characterization in anticipation of mass production, the Company has not yet
completed its goal of mass production. Further development and testing will be
necessary before this product or the Company's other proposed products will be
available for commercial end-use applications. Delays in development may result
in the Company's introduction of products later than anticipated, which may have
an adverse effect on both the Company's financial and competitive position.
Moreover, the Company may never be successful in developing or manufacturing a
commercially viable display. In addition, the display may never be technically
or commercially successful and the Company may never be able to manufacture
adequate quantities of its displays at commercially acceptable cost levels or on
a timely basis.

The Company is experiencing negative cash flow from operations, resulting in the
need to fund ongoing operations from financing activities. The future existence
and profitability of the Company is dependent upon its ability to obtain
additional funds to finance operations and expand operations in an effort to
achieve profitability from operations. The Company's business may not ultimately
generate sufficient revenue to fund the Company's operations on a continuing
basis. The matters discussed below, among others, may indicate that the Company
will be unable to continue as a going concern for a reasonable period of time.

As of March 31, 1999, the Company had $274,797 in cash and cash equivalents.
Accounts receivable at March 31, 1999 totaled $11,525 and represented primarily
amounts due on developer kits shipped in the first quarter. The Company's net
working capital at March 31, 1999 was approximately ($4,096,467).

Net cash used by operating activities totaled $749,850 and $711,543 for the 
three months ended March 31, 1999 and 1998, respectively. This change was due 
primarily to the pay-down of accounts payable and other accrued and current 
liabilities. Net cash that was provided by financing activities in the three 
months ended March 31, 1999 was $580,275, as compared to 597,987 for the 
first quarter in 1998.

As of March 31, 1999, the Company had an accumulated deficit of $14,884,707. The
Company has realized significant losses in the past and expects that these
losses will continue at least through 1999. It is likely that the Company will
have quarterly and annual losses in 1999 and beyond. The Company has generated
limited revenues and no profits from operations. The development,
commercialization and marketing of the Company's products will require
substantial expenditures for the foreseeable future. Consequently, the Company
may continue to operate at a loss for the foreseeable future and there can be no
assurance that the Company's business will operate on a profitable basis.


                                       9


<PAGE>

RESULTS OF OPERATIONS

Total revenues for the three months ended March 31, 1999 were $31,500,
representing a 100% increase over the comparable quarter of 1998. This is due to
sales of developer kits in the first quarter of 1999.

Cost of sales represents product costs associated with the production of display
developer kits. Cost of sales was $4,104 and $0, in the quarters ended March 31,
1999 and 1998 respectively. There were no product sales in the first quarter of
1998.

Selling, general and administrative costs were $538,277 in the three months 
ended March 31, 1999. The increase of approximately $75,000 or 16% over the 
first quarter of 1998 is due primarily to an increase in consulting expenses 
of $135,000. This consulting expense is the result of the issuance of a 
warrant during the first quarter of 1999 in exchange for consulting services 
rendered. This increase in expenses for 1999 was offset by a decrease in 
recruitment and bonus expenses as well as decreased marketing expenses. 
Research and development costs of $360,070 for the three months ended March 
31, 1999 decreased 29% from the comparable quarter in the prior year. This 
decrease was also due to a decrease in bonus expense, materials and supplies.

Interest expense for the three months ended March 31, 1999 was $48,898, an
increase of 117% over the comparable quarter of 1998. The increase was due to
interest related to convertible securities issued during 1998 and the first
quarter 1999.

BUSINESS RISKS AND UNCERTAINTIES

Use of Display Products. Although the Company has produced displays based upon
its technology, the Company has not yet had its display incorporated into any
commercial end-use application. Delays in development may result in the
Company's introduction of its displays later than anticipated, which may have a
material adverse effect on both the Company's financial and competitive
position. Moreover, the Company may never be successful in developing or
manufacturing a commercially viable display or any of its expected applications.
In addition, displays or products that the Company may develop may not be
technically or commercially successful and the Company may not be able to
manufacture or obtain a supplier for adequate quantities of its displays, or any
of its display products at commercially acceptable cost levels or on a timely
basis.

Delays in development may result in the Company's introduction of products later
than anticipated, which may have an adverse effect on both the Company's
financial and competitive position. Moreover, the Company may never be
successful in developing or manufacturing a commercially viable display. In
addition, the display may never be technically or commercially successful and
the Company may not be able to manufacture adequate quantities of its displays
at commercially acceptable cost levels or on a timely basis.

Highly Competitive Market. The display industry has and continues to undergo
rapid and significant technological change. The Company expects display
technology to continue to develop rapidly, and the Company's success will depend
significantly on its ability to attain and maintain a competitive position.
Rapid technological development may result in actual and proposed displays,
products or processes becoming obsolete before the Company recoups a significant
portion of related research and development, acquisition and commercialization
costs.

If the Company is successful in the development of a commercially viable
display, the Company's abilities to compete will depend in part upon the
consistency of the display, the quality and delivery, as well as pricing,
technical capability and servicing, in addition to factors within and outside
its control, including the success and timing of product distribution and
customer support. The Company's competitors may not succeed in developing
technologies and products that are equally or more efficient than any which are
being developed by 


                                       10


<PAGE>


the Company or that will render the Company's technology, displays and other
products obsolete and non-competitive.

The Company's displays may not be representative of the rapid and significant
technological advances which have characterized the micro-display market or that
the Company will have sufficient funds to invest in new technologies or products
or processes. Although the Company believes that its displays have
specifications and capabilities which equal or exceed that of commercially
available LCD and Cathode Ray Tube ("CRT" or "Television") based display
products, the manufacturers of these products may develop further improvements
of their existing technology that would eliminate or diminish the Company's
anticipated advantage.

In addition, numerous competitors have substantially greater financial,
technical, marketing, distribution and other resources than the Company. The
Company may also face an aggressive, well financed competitive response that may
include misappropriation of the Company's intellectual property or predatory
pricing.

Dependence on Third Parties. The Company does not currently plan, nor does the
Company currently have the financial resources to develop or market any end
products utilizing the Company's displays. Therefore, the Company will be
completely dependent upon independent third parties for the development,
manufacturing and marketing of such products. No such products exist today using
the Company's display, and the Company does not have commitments from any third
party for such development, manufacturing or marketing. There can be no
assurance that any third party will develop or market a product incorporating
the Company's display.

The Company may not be successful in forming and maintaining such alliances and
the Company's partners may not devote adequate resources to successfully market
and distribute these anticipated products. The Company may not be able to enter
into satisfactory agreements with marketing partners, and the Company or its
marketing partners may not be successful in gaining market acceptance for its
anticipated products.

Any termination of a contract could have a material adverse effect on the
Company's ability to meet its anticipated commitments to customers while the
Company identifies and qualifies replacement manufacturers. The Company could
become dependent on any manufacturer and any termination or cancellation of the
Company's agreement with the manufacturer could adversely affect the Company's
ability to manufacture its products. In anticipation of such an event, the
Company plans to establish an alternative manufacturing relationship.

Intellectual Property and Proprietary Rights. The defense and prosecution of
patent suits is both costly and time-consuming, even if the outcome is favorable
to the Company. This is particularly true in foreign countries. In addition,
there is an inherent unpredictability regarding obtaining and enforcing patents
in foreign countries. An adverse outcome in the defense of a patent suit could
subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties, or require the Company to
cease selling it products.

The Company also relies on unpatented proprietary technology and there can be no
assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's proprietary technology.
To protect its rights in these areas, the Company requires all employees and
technology consultants, advisors and collaborators to enter into confidentiality
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
To date, the Company has no experience in enforcing its confidentiality
agreements.


                                       11


<PAGE>


Dependence on Key Personnel. The Company is dependent upon its key management
and scientific personnel including its Chief Executive Officer and Treasurer,
Michael H. Burney, President, Fred R. Hammett, and Vice President of
Engineering/Manufacturing, Miles L. Scott. The Company's success depends on its
ability to attract and retain highly qualified scientific, marketing,
manufacturing, financial and other key management personnel. The Company faces
competition for such personnel and there can be no assurance that the Company
will be able to attract or retain such personnel.

         Year 2000 Risks. As is true for most companies, the Year 2000 computer
issue creates a risk for SpatiaLight. If systems do not correctly recognize date
information when the year changes to 2000, there could be an adverse impact on
the Company's operations. The risk for SpatiaLight exists in two areas: systems
used by the Company to run its business and systems used by the Company's
suppliers. The Company is currently evaluating its exposure in both of these
areas. The Company is not aware of any potential problems that could exist with
its potential products.

SpatiaLight in the process of conducting a comprehensive inventory and
evaluation of its systems, equipment and facilities. SpatiaLight has a project
scheduled to replace or upgrade systems and equipment that are known to be Year
2000 non-compliant. The Company has not identified alternative remediation plans
in the unlikely case that upgrade or replacement is not feasible. The Company
will consider the need for such remediation plans as it continues to assess the
Year 2000 risk. For the Year 2000 non-compliance issues identified to date, the
cost of upgrade or remediation is not expected to be material to the Company's
operating results. The Company expects to conclude its estimates of cost by the
end of the calendar year. If implementation of replacement systems is delayed,
or if significant new non-compliance issues are identified, the Company's
results of operations or financial condition could be materially adversely
affected.

SpatiaLight is also in the process of contacting its critical suppliers to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant. Where practicable, SpatiaLight will attempt to
mitigate its risks with respect to the failure of suppliers to be Year 2000
ready. In the event that suppliers are not Year 2000 compliant, the Company will
seek alternative sources of supplies. However, such failures remain a
possibility and could have an adverse impact on the Company's results of
operations or financial condition. The Company believes its potential products
are Year 2000 compliant.

Market for Common Stock. Because the Company's securities are traded on the
NASD's "Electronic Bulletin Board", the liquidity of the Company's securities
could be impaired, not only in the numbers of securities which could be bought
and sold, but also through delays in the timing of transactions, reduction in
security analysts' and news media coverage of the Company, and lower prices for
the Company's securities than might otherwise be obtained.

PART II.          OTHER INFORMATION

ITEM 2.

During the first quarter of 1999, the Company issued an immediately 
exercisable Class A Warrant to purchase 100,000 shares of the Company's 
common stock at an exercise price of $1.50 per share which expires on 
November 15, 2000. A Class B Warrant will be issued by the Company to 
purchase 100,000 shares of the Company's common stock at an exercise price of 
$2.00 per share which is exercisable from the date the Class A warrant is 
exercised and expires on November 15, 2001.  A Class C Warrant will be issued 
by the Company to purchase 100,000 shares of the Company's common stock at an 
exercise price of $2.50 per share which is exercisable from the date the 
Class B warrant is exercised and expires on November 15, 2002. The warrants 
are in exchange for services rendered which resulted in the identification of 
sources of funding for the Company. In issuing these securities the Company 
relied upon the exemption from the registration requirements of the 
Securities Act of 1933, as amended, provided by Section 4(2) thereof.

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<PAGE>


During the first quarter of 1999, the Company issued convertible notes in the
aggregate principal amount of $558,000. These notes are convertible into common
shares at a conversion price of $0.75 per Common Share. In issuing these
securities the Company relied upon the exemption from the registration
requirements of the Securities Act of 1933, as amended, provided by Section 4(2)
thereof.

ITEM 5.           OTHER INFORMATION

Proposals of shareholders intended to be presented at the 1999 Annual Meeting 
of Shareholders of the Company must have been received by the Company at 9 
Commercial Boulevard, Suite 200, Novato, CA 94949, a reasonable time prior to 
the solicitation of proxies from shareholders for this annual meeting is made.




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<PAGE>


ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

     (a)          Exhibits:
                  27    Financial Data Schedule
                  10.22 Standard Office Lease, dated February 22, 1999, 
                        between Dennis A. and Susan Johann Gilardi and 
                        SpatiaLight, Inc.
                  23.1  Consent of DeLoitte & Touche, LLP (incorporated by 
                        reference to the Company's registration statement 
                        on Form S-8 as filed with the Securities and Exchange 
                        Commission on August 1, 1994.

     (b)          Reports on Form 8-K:

     No reports on Form 8-K were filed during the three months ended March 31,
1999.


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<PAGE>



                                   SIGNATURES


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


                                      Date:            May 17, 1999
                                           -------------------------------------

                                      SpatiaLight, Inc.

                                      By:  /s/ Michael H. Burney
                                         ---------------------------------------
                                            Michael H. Burney
                                            Chief Executive Officer
                                            (Principal Executive, Financial
                                               And Accounting Officer)





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