UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A*

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended: December 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-26460

SPATIALIZER AUDIO LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4484725
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2060 East Avenida de Los Arboles, # D190, Thousand Oaks, California      91362-1376

(Address of principal corporate offices)

Telephone Number: (408) 453-4180

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filed” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second quarter (June 30, 2007) was approximately $2,600,000.

As of February 25, 2008, there were 65,000,000 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

* This Form 10-K/A was filed April 15, 2009 to respond to SEC staff comments.  Such filing did not reflectthe actual date of filing.  This Amendment reflects today’s filing date, May 6, 2009.

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TABLE OF CONTENTS

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

    This Annual Report on Form 10-K/A contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or that any potential transactions herein described will be realized or consummated. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under Item 1A, Risk Factors, among other factors, could cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

PART I

Item 1. Business

Overview

Spatializer Audio Laboratories, Inc. (“Spatializer” or “Company”) had been a developer, licensor and marketer of next generation technologies for the consumer electronics, personal computing, entertainment and cellular telephone markets. Our technology was incorporated into products offered by our licensees and customers on various economic and business terms. We were incorporated in the State of Delaware in February 1994 and are the successor company in a Plan of Arrangement pursuant to which the outstanding shares of Spatializer, a publicly held Yukon, Canada corporation, were exchanged for an equal number of shares of our common stock. Our corporate office is located at 2060 East Avenida de Los Arboles, # D190, Thousand Oaks, California 91362-1376.

The Company’s wholly-owned subsidiary, Desper Products, Inc. (“DPI” or “Desper Products”), had been in the business of developing proprietary advanced audio signal processing technologies and products for consumer electronics, entertainment, and multimedia computing. All Company revenues were generated from this subsidiary. Desper Products was the owner of all technology which was acquired by DTS, Inc. on July 2, 2007. Desper Products is a California corporation incorporated in June 1986.

Copies of this Annual Report, including our financial statements, and our quarterly reports on Form 10-Q as well as other corporate information, including press releases, of interest to our stockholders are available by writing us at, 2060 East Avenida de Los Arboles, # D190, Thousand Oaks, California 91362-1376. As used herein, Spatializer, the “Company,” “we” or “our” means Spatializer Audio Laboratories, Inc. and its wholly-owned subsidiaries.

Background of the Sale of Assets and Dissolution

Spatializer had been under acute market pressure since 2002. In 2002, a personal computer account began migrating to a totally new operating system, which did not include any audio enhancements. The migration was completed in 2003 and the former licensee chose not to include any audio software enhancements, including those from Spatializer. This account had accounted for approximately 40% of Spatializer’s annual revenues.

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In 2003, Spatializer experienced declining revenue from three major customers, primarily from the curtailment or cessation of use of its products by these customers. Two of these cases were in the DVD player market, where Spatializer historically had been strong. During 2003, the DVD player market became largely commoditized, resulting in intense pricing pressure and a steep decline in price and margins. Manufacturers were forced to strip out features, such as those offered by Spatializer, in order to compete. One of Spatializer’s accounts switched to outside sourcing and Spatializer was able to expand its relationship with their supplier to recapture most of that revenue. However, a major new design win Spatializer was projecting for the DVD market was cancelled due to these cost constraints.

In 2004, the revenue mix by licensee platform was significantly different compared to the prior year. The decrease in revenue on the DVD and personal computer accounts previously discussed generated approximately 56% of total fiscal 2003 revenue, which was lost in 2004. These losses were partially offset by three new revenue sources in cellular phones, mobile audio semiconductors and personal computers and the expansion of an existing license relating to recordable DVD. Cellular phone, mobile audio and the personal computer markets had been targeted by Spatializer for replacing the losses in the DVD player category. Nevertheless, market pressures mounted and Spatializer was forced to substantially reduce overhead in order to remain liquid.

On December 19, 2005, at a regularly scheduled board of directors meeting, the board of directors of Spatializer discussed Spatializer’s current financial outlook. Management indicated to the board of directors that two customers, the revenues from which accounted for approximately 70% of Spatializer’s income during 2005, would not be sustainable in 2006. This called into question the ability of the Company to operate as a going concern. The Company’s financial statements have been prepared assuming that it will continue as a going concern.

As previously reported, on September 18, 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly owned subsidiary thereof pursuant to which the Company and DPI agreed to sell substantially all of their intellectual property assets. A special stockholders meeting was called for January 24, 2007 to approve sale of assets and to authorize the dissolution of the Company. Proxies were mailed on or about December 1, 2006. The meeting was adjourned without a final vote in the Board’s view of the best interest of the stockholders. The meeting was reconvened on February 21, 2007. The vote required to approve the asset sale and dissolution was a majority of the shares outstanding on the record date. The dissolution proposal was contingent upon approval of the asset sale. A total of 15,334,520 shares voted on the asset sale proposal, of which 14,407,084 shares were voted in favor, 823,182 shares voted against and 104,284 votes abstained. Although the votes cast on the proposal to sell the assets was overwhelmingly in favor thereof, the requisite vote was not obtained. As a result, the proposal regarding dissolution was not presented to a vote of stockholders.

On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 16,236,615 shares for an aggregate purchase price of $422,152, of which $259,786 was placed into escrow and was released ten days after the closing of the sale of assets to DTS.

The Company re-solicited a vote on the sale of assets to DTS in the second quarter of 2007. The Asset Purchase Agreement and the transactions contemplated therein were approved by the stockholders of the Company at a special meeting on June 15, 2007. The Asset Purchase Agreement was consummated with DTS on July 2, 2007. Upon the conclusion of a nine month indemnification period, the Company plans to distribute substantially all of its remaining cash assets to its stockholders, after satisfying its liabilities and leaving a $100,000 cash residual. There is no assurance that there will be any funds available for distribution to stockholders. The Company has no plans to dissolve.

Our financial statements, beginning on page 18 hereof, contain information relating to our revenues, loss and total assets for the fiscal year ended December 31, 2007.

4

Licensing Activities

We ceased all licensing activities in 2007 and all material license agreements were sold to DTS, Inc. on July 2, 2007.

As of July 2, 2007, the date of the asset sale, our technology had been incorporated in products offered by more than 105 separate OEM Licensees and customers on various economic and business terms. Some of these OEM Licenses required a license issuance fee and/or a separate per unit royalty, while others were licensed under the Logo Usage Agreement (“LUA”) or were authorized customers under bundled royalty licenses with the IC foundries.

In 2007 two major customers, Sharp and Samsung, not presented in order of importance, each accounted for 10% or more of our total royalty revenues. One OEM accounted for 83% and one accounted for 12% of our royalty revenues during 2007. All other OEM’s accounted for less than 5% of royalty revenues individually..

Customers, Revenues and Expenses

We generated revenues in our audio business from royalties pursuant to our Foundry, OEM, and other licenses, and from non-recurring engineering fees to port our technologies to specific licensees’ applications. Our royalty revenues, which totaled $750,000 in 2007, were derived entirely from Foundry and OEM license fees and royalties.

Historically, we sought to maximize return on our intellectual property base by concentrating our efforts in higher margin licensing and software products and eliminating our hardware product operations. Licensing operations have been managed internally by our personnel and through use of an international sales representative force.

In 2007, revenues increased as compared with the prior year due to a one time extension of an existing license agreement in which the initial authorized usage had been exhausted and replenishment was necessary.

Competition

We competed with a number of entities that produce various audio enhancement processes, technologies and products, some utilizing traditional two-speaker playback, others utilizing multiple speakers, and others restricted to headphone listening. These include the consumer versions of multiple speakers, matrix and discrete digital technologies developed for theatrical motion picture exhibition (like Dolby Digital®, Dolby ProLogic®, and DTS®), as well as other technologies designed to create an enhanced stereo image from two or more speakers.

Our principal competitors in the field of virtual audio were SRS Labs, Inc. and Dolby Laboratories, Inc. In addition, some DSP foundries and OEMs have proprietary virtual audio technologies that they regularly offer to OEMs at no cost. These companies had substantially greater resources than us to devote to further technologies and new product developments.

We were unable to compete in this market, even though we offered a single source, complete suite of patented and proprietary 3D Stereo, interactive positional, virtual surround sound, headphone and speaker virtualization technologies. We lacked sufficient financial resources to compete, our customers were too strong, we were closely dependent on third party licensee marketing plans which generally presented a longer or uncertain revenue stream than our cash resources could support and found the market less receptive to our value proposition than we had expected. This resulted in an inhospitable market for our products and we could not compete.

Research and Development

Our research and development expenditures in 2007, 2006 and 2005 were approximately 0%, 23% and 30% of total operating expenses, respectively. These expenses consisted of salaries and related costs of employees and consultants engaged in ongoing research, design and development activities and costs for engineering materials and supplies.

5

From May 2006 onward, we had no employees in our R&D group, based on our board of directors’ decision to offer our assets for sale. We discontinued our technology development in December 2005 and support efforts in May 2006 when the sole engineer resigned. As a result, there were no such expenditures in 2007.

Intellectual Property and Proprietary Information

We relied on a variety of intellectual property protections for our products and services, including patent, copyright, trademark and trade secret laws, and contractual obligations. All of our intellectual property was sold to DTS, Inc. on July 2, 2007.

Employees

We began and ended 2007 with no full time employees and one part time employee. None of our employees are represented by a labor union or are subject to a collective bargaining agreement.

Item 1A. Risk Factors

This Annual Report on Form 10-K/A contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or any transactions described herein will be realized. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption “Factors That May Affect Future Results” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, herein, among others, would cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

Our business environment was very competitive, which impacted us in various ways, namely to cease operations and sell the assets of the Company and those of Desper Products, Inc. As a result of the consummation of that asset sale, the following risk factors became more relevant:

Unforeseen Claims May Arise Relating to the Sale of Assets to DTS, Inc. Which Could Reduce or Eliminate Any proposed Cash Distribution to Stockholders

After a long process of negotiation and stockholder approval, the Company’s assets were sold to a subsidiary of DTS, Inc on July 2, 2007. The transaction includes a nine month window within which DTS may file any claims for breaches of our representations and warranties. Although we believe our representations and warranties to be true and complete, it is possible that an unforeseen claim may arise that could put financial demands on the Company.

The Company Has No Means to Generate Revenue

We have no source of revenue. Accordingly, we intend to marshal our assets and satisfy liabilities and, after the contractual nine month indemnification period relating to the sale of assets on July 2, 2007, we intend to distribute the remaining cash assets of the company, other than a $100,000 cash residual. While we expect there will be a distribution to stockholders, there is no assurance of the amount thereof or that there will be any remaining cash for distribution.

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The Amount of Any Cash Distribution to Stockholders is Undeterminable

Even if we are diligent in marshalling our assets, the amount of the ultimate cash distribution, if any, is undeterminable. Unforeseen legal fees, creditors and other unasserted claims and or the cost of contacting stockholders and physically distributing the cash may be greater than anticipated. This would reduce or eliminate cash available for distribution.

A New Management Group, Involved in the April 25, 2007 Stock Offering Is Anticipated to Take Control of the Company After the Cash Distribution, No Funding Source or Business Model Has Been Revealed. Existing Stockholders Likely Will be Diluted

Upon distribution of the cash assets, it is anticipated that each of Messrs. Mandell and Civelli will resign from the Board of Directors and the new investor group involved in the April 25, 2007 stock offering will take management control of the Company. Although there is no assurance thereof, the new investors in the Company may bring forth their own plan in the future regarding the direction of the Company. Should the new management believe it in the Company’s and stockholders’ best interests to raise additional financing to pursue new business opportunities, such new financing is likely to dilute existing stockholders. Stockholders at the special meeting held on June 15, 2007 approved amending the Company’s charter and gave the Board of Directors authority to affect a substantial reverse stock split at the time of its choosing and to increase the number of authorized common and preferred shares. While a new financing and new business model, if effected, could be successful, there is no assurance this will occur or, if it occurs, that it would be successful.

The Market For Our Stock Is Not Liquid And The Stock Price Is Subject To Volatility

Our stock is quoted on the OTC Bulletin Board, where low trading volume and high volatility is often experienced. While a few firms make a market in our stock, the historically low trading volume and relatively few market makers of our stock makes it more likely that a severe fluctuation in volume, either up or down, will significantly impact the stock price. There can be no assurance that these market makers will continue to quote our stock and a reduction in such market makers would negatively impact trading liquidity. Further, with our constrained resources and increased cost and time associated with implementation of Sarbanes-Oxley, it may not be possible for us to remain listed on the OTC Bulletin Board in the future as a fully reporting company. Lastly, the uncertainty of the future of the Company may limit the liquidity of our stock. This and the existing limited market and volume in the trading of our stock, may result in our stockholders having difficulty selling our common stock. The trading price of our Common Stock has been, and will likely continue to be, subject to wide fluctuations in response to possible claims arising from our asset sale, the uncertainty of the future of the Company, general market fluctuations and other events and factors, some of which may be beyond our control.

The Lack of Personnel Has Created a Deficiency in the Segregation of Duties That Has Been Disclosed as a Material Weakness

Due to the Company’s present circumstances, there are only one remaining part-time employee (Chairman) and a contract bookkeeper that are responsible for maintenance of the accounting records and other aspects of internal control. Thus, segregation of duties is limited, and there is limited oversight of the remaining employee. Although the financials are reviewed by the Company’s registered public accounting firm quarterly, and disbursements are initiated by the bookkeeper and then signed by the Chairman, the lack of personnel has created a material weakness that the Company, due to limited operations, cannot rectify at this time.

Item 1B. Unresolved Staff Comments

Not applicable.

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Item 2. Properties

Our corporate office and research center in San Jose, California, was the primary location for our audio technology division, Desper Products, Inc. We occupied approximately 1,300 square feet with an annual rent on a full service basis of approximately $26,275 in calendar 2006. The lease expired on December 31, 2006 and, based upon the decision to try to sell the Company’s assets, was not renewed. We leased our space at rental rates and on terms which management believed were consistent with those available for similar space in the applicable local area. Such property was well maintained and adequate to support our requirements. We have no leased facilities as of December 31, 2007.

Item 3.  Legal Proceedings

From time to time we may be involved in various disputes and litigation matters arising in the normal course of business. As of the date of this Annual Report on Form 10-K/A, we are not involved in any legal proceedings that are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our results of operations of the period in which the ruling occurs. Our estimate of the potential impact on our financial position or overall results of operations for the above legal proceedings could change in the future. At present, there are no active legal proceedings.

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

Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Common Stock was listed and commenced trading on the NASDAQ SmallCap market on August 21, 1995 under the symbol “SPAZ”. In January 1999, the Common Stock was delisted by the NASDAQ SmallCap Market due to our inability to maintain listing requirements. Our Common Stock immediately commenced trading on the OTC Bulletin Board under the same symbol. The following table sets forth the high and low bid price of our Common Stock as reported on the OTC Bulletin Board for fiscal years 2005 and 2006. The quotations listed below reflect interim dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.

Period:	High (U.S. $)		Low (U.S. $)
2006
First Quarter	$	0.04	$	0.02
Second Quarter	$	0.03	$	0.02
Third Quarter	$	0.02	$	0.01
Fourth Quarter	$	0.02	$	0.02
2007
First Quarter	$	0.02	$	0.03
Second Quarter	$	0.03	$	0.05
Third Quarter	$	0.04	$	0.06
Fourth Quarter	$	0.04	$	0.05

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On February 8, 2008 the closing price reported by the OTC Bulletin Board was U.S. $0.04. Stockholders are urged to obtain current market prices for our Common Stock. Computershare Investor Services, LLC is our transfer agent and registrar.

To our knowledge, there were approximately 200 holders of record of the stock of the Company as of February 8, 2008. Our transfer agent has indicated that beneficial ownership is in excess of 2,400 stockholders.

We have not paid any cash dividends on our Common Stock and have no present intention of paying any dividends. Our current policy is to retain earnings, if any, for operations in connection with winding up of our business. Our future dividend policy will be determined from time to time by the Board of Directors.

The Company did not repurchase any of its equity securities during the fourth quarter of the fiscal year ended December 31, 2007.

Item 6. Selected Financial Data

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and related Notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in Item 7. The selected financial data shown below are derived from our consolidated financial statements that have been audited by the Company’s independent certified public accountants, Farber Hass Hurley McEwen LLP for the years ended December 31, 2005, 2004, and 2003 and Ramirez International Financial & Accounting Services, Inc. for the years ended December 31, 2006 and 2007. The consolidated financial statements for the years ended December 31, 2005, 2006 and 2007 and the reports thereon are included elsewhere in this Report.

	Fiscal Year Ended
	December 31, 2003			December 31, 2004			December 31, 2005			December 31, 2006			December 31, 2007
Consolidated Statement of Operations Data (as restated):
Discontinued Operations:
Revenues	$	1,269		$	1,106		$	1,192		$	333		$	751
Cost Of Revenues		(122	)		(111	)		(106	)		(1	)		(63	)
Gross Profit		1,147			995			1,086			332			688
Operating Expenses from discontinued operations		(1,215	)		(843	)		(939	)		(459	)		(224	)
Gain on Sale of Assets		0			0			0			0			515
Gain (Loss) from discontinued operations		(68	)		152			147			(127	)		979
Continuing Operations:
Operating Expenses from continuing operations		(416	)		(303	)		(238	)		(227	)		(210	)
Other Income (Expense), Net		(6	)		(5	)		8			6			38
Income taxes		(5	)		(1	)		(1	)		(5	)		(0	)
Loss from continuing operations		(427	)		(309	)		(229	)		(226	)		(172	)
Net Income (Loss)	$	(495	)	$	(157	)	$	(82	)	$	(353	)	$	807
Basic Income (Loss) Per Share	$	(0.01	)	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.01
Diluted Income (Loss) Per Share	$	(0.01	)	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.01
Weighted Average Common Shares		47,309,171			46,975,363			46,990,059			48,763,383			59,884,354
Consolidated Balance Sheet Data
Cash and Cash Equivalents	$	590		$	871		$	551		$	229		$	582
Working Capital		793			603			560			242			1,557
Total Assets		1,205			1,464			897			464			1,605
Redeemable Preferred Stock		1			1			0			0			0
Advances From Related Parties		108			0			0			0			0
Total Shareholders’ Equity	$	955		$	798		$	717		$	377		$	1,577

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Revenues increased to $751,000 for the year ended December 31, 2007 compared to $333,000 for the year ended December 31, 2006, an increase of 216%. Revenues are almost entirely comprised of royalties pertaining to a one time agreement extension of the licensing of Spatializer® audio signal processing algorithms. Revenues also reflect dormant licensing activity in 2007. As we sold all of our operating assets in 2007, we have no means to generate new revenues.

Net income was $807,000 for the year ended December 31, 2007 compared to net loss of $353,000 for the year ended December 31, 2006. Net income for the current period is primarily the result of the sale of assets, a one time licensing extension and lower operating expenses.

At December 31, 2007, we had $582,000 in cash and cash equivalents, as compared to $229,000 at December 31, 2006. The increase in cash resulted primarily from the asset sale and stock sale. We also had $1,000,000 in a certificate of deposit at Citibank which matured in February 2007. We had working capital of $1,557,000 at December 31, 2007 as compared with working capital of $242,000 at December 31, 2006.

We ceased operations in 2006 and sold substantially all of our assets, including our intellectual property, on July 2, 2007.

Approach to MD&A

The purpose of MD&A is to provide our shareholders and other interested parties with information necessary to gain an understanding of our financial condition, changes in financial condition and results of operations. As such, we seek to satisfy three principal objectives:

• to provide a narrative explanation of a company’s financial statements “in plain English” that enables the average investor to see the company through the eyes of management;

• to enhance the overall financial disclosure and provide the context within which financial information should be analyzed; and

• to provide information about the quality of, and potential variability of, a company’s earnings and cash flow, so that investors can ascertain the likelihood and relationship of past performance being indicative of future performance.

We believe the best way to achieve this is to give the reader:

• An understanding of our operating environment and its risks

• An outline of critical accounting policies

• A review of our corporate governance structure

• A review of the key components of the financial statements and our cash position and capital resources

• A review of the important trends in the financial statements and our cash flow

• Disclosure on our internal controls and procedures

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Operating Environment

Our business environment was very competitive, which factor impacted us in various ways, some of which are discussed in greater detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. As a result, as previously disclosed, the Board of Directors decided in 2006 to cease operations and sell the assets of the Company and those of Desper Products, Inc. As a result of the consummation of that asset sale, the following risk factors became more relevant:

• The Company Has No Means to Generate Revenue

• The Amount of Any Cash Distribution to Stockholders is Undeterminable

• A New Management Group, Involved in the April 25, 2007 Stock Offering Is Anticipated to Take Control of the Company After the Cash Distribution, No Funding Source or Business Model Has Been Revealed. Existing Stockholders Likely Will be Diluted

In December 2005 our revenues were stagnant, with those from certain of our major customers winding down. Revenues from certain of our other customers appeared not to be sustainable in the future. In December 2005, two of our three independent directors resigned and the Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Secretary resigned from all positions held with the Company other than as a director, Chairman and Secretary. For these and other reasons, and after exploring other exit strategies and opportunities, our Board of Directors concluded in December 2005 to attempt to sell the Company either through a sale of assets or a sale of multiple, non-exclusive perpetual licenses with a subsequent sale of the residual assets and engaged Strategic Equity Group to assist us in this endeavor. After a long process of negotiation and stockholder approval, the assets were sold to a subsidiary of DTS, Inc on July 2, 2007. The transaction includes a nine month window within which DTS may file any claims for breaches of our representations and warranties. Although we believe our representations and warranties to be true and complete, it is possible that an unforeseen claim may arise that could put financial demands on the Company.

We have had no source of revenue since the beginning of third quarter 2007. Based on current and projected operating levels, we do not believe that we can maintain our liquidity position at a consistent level, on a short-term or long-term basis, without a new business model and outside funding. As such, we intend to marshal our assets and satisfy liabilities and, after the contractual nine month indemnification period relating to the sale of assets on July 2, 2007, and distribute to our stockholders the remaining cash assets of the company, other than a $100,000 cash residual. While we expect there will be a distribution to stockholders, there is no assurance of the amount thereof or that there will be any remaining cash for distribution.

Even if we are diligent in marshalling our assets, the amount of the ultimate cash distribution, if any, is undeterminable. Unforeseen legal fees, creditors and other unasserted claims and or the cost of contacting stockholders and physically distributing the cash may be greater than anticipated. This will reduce or eliminate cash available for distribution.

Upon distribution of the cash assets, it is anticipated that each of Messrs. Mandell and Civelli will resign from the Board of Directors and the new investor group involved in the April 25, 2007 stock offering will take management control of the Company. Although there is no assurance thereof, the new investors in the Company may bring forth their own plan in the future regarding the direction of the Company. Should the new management believe it in the Company’s and stockholders’ best interests to raise additional financing to pursue new business opportunities, such new financing is likely to dilute existing stockholders. Stockholders at the special meeting held on June 15, 2007 approved amending the Company’s charter and gave the Board of Directors authority to affect a substantial reverse stock split at the time of its choosing and to increase the number of authorized common and preferred shares. While a new financing and new business model, if affected, could be successful, there is no assurance this will occur.

11

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. In consultation with our Board of Directors and Audit Committee, we identified three accounting policies that we believe have historically been critical to an understanding of our financial statements. These are important accounting policies that require management’s most difficult, subjective judgments. While these policies become much less relevant in the absence of revenue generating assets, they remain relevant in the review of prior period financial statements in this report and in understanding the residual revenue in the current quarter.

The first critical accounting policy relates to revenue recognition. Royalty revenues have been recognized upon shipment of products incorporating the related technology by the original equipment manufacturers (OEMs) and foundries. These revenues were reported to us by our Licensees in formal, written royalty reports, which serve as the basis for our quarterly revenue accruals. Infrequently, certain written reports were received after our required reporting deadlines, sometimes due to contractual requirements. In such cases, management tried to obtain verbal reports or informal reports from the Licensee. In the absence of such information, management has utilized conservative estimates based on information received or historical trends. In such isolated cases, management strives to under-estimate such revenues to err on the side of caution. In the event such estimates are used, the revenue for the following quarter is adjusted based on receipt of the written report. In addition, any error in Licensee reporting, which is very infrequent, is adjusted in the subsequent quarter when agreed by both parties as correct.

The second critical accounting policy relates to research and development expenses. We expensed all research and development expenses as incurred. Costs incurred to establish the technological feasibility of our algorithms (which is the primary component of our licensing) were expensed as incurred and included in Research and Development expenses. Such algorithms were refined based on customer requirements and licensed for inclusion in the customer’s specific product. There are no production costs to capitalize as defined in Statement on Financial Accounting Standards No. 86.

The third critical accounting policy relates to our long-lived assets. Substantially all of our assets were sold on July 2, 2007 at a net realized value in excess of carrying value. The Company has continually reviewed the recoverability of the carrying value of long-lived assets using the methodology prescribed in Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” The Company also reviewed long-lived assets and the related intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon such an occurrence, recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows to which the assets relate, to the carrying amount. If the asset was determined to be unable to recover its carrying value, then intangible assets, if any, are written down first, followed by the other long-lived assets to fair value. Fair value is determined based on discounted cash flows, appraised values or management’s estimates, depending on the nature of the assets. Our intangible assets consisted primarily of patents. We capitalized all costs directly attributable to patents and trademarks, consisting primarily of legal and filing fees, and amortize such costs over the remaining life of the asset (which range from 3 to 20 years) using the straight-line method. In accordance with SFAS 142, “Goodwill and Other Intangible Assets”, only intangible assets with definite lives are amortized. Non-amortized intangible assets are instead subject to annual impairment testing. The gain on the sale of the Company’s assets proves that the historical net carrying value of its assets exceeded the current carrying value.

Our financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s current circumstances, including the sale of all its revenue generating assets and significant operating losses, raise substantial doubt about the likelihood that the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

12

Key Components of the Financial Statements and Important Trends

The Company’s financial statements, including the Consolidated Balance Sheets, the Consolidated Statements of Operations, the Consolidated Statements of Cash Flows and the Consolidated Statements of Stockholders’ Equity, should be read in conjunction with the Notes thereto included elsewhere in this report. MD&A explains the key components of each of these financial statements, key trends and reasons for reporting period-to-period fluctuations.

The Consolidated Balance Sheet provides a snapshot view of our financial condition at the end of our fiscal year. A balance sheet helps management and our stockholders understand the financial strength and capabilities of our business. Balance sheets can help identify and analyze trends, particularly in the area of receivables and payables. A review of cash balances compared to the prior years and in relation to ongoing profit or loss can show the ability of the Company to withstand business variations. The difference between Current Assets and Current Liabilities is referred to as Working capital and measures how much in liquid assets a company has available to build its business. Receivables that are substantially higher than revenue for the quarter may indicate a slowdown of collections, with an impact on future cash position. This is addressed further in MD&A under Liquidity and Capital Resources.

The Consolidated Statement of Operations tells the reader whether the Company had a profit or loss. It shows key sources of revenue and major expense categories. It is important to note period-to-period comparisons of each line item of this statement, reasons for any fluctuation and how costs are managed in relation to the overall revenue trend of the business. These statements are prepared using accrual accounting under generally accepted accounting standards in the United States. This is addressed further in MD&A under Revenues and Expenses.

The Consolidated Statement of Cash Flows explains the actual sources and uses of cash. Some expenses of the Company, such as depreciation and amortization, do not result in a cash outflow in the current period, since the underlying patent expenditure or asset purchase was made years earlier. New capital expenditures, on the other hand, result in a disbursement of cash, but will be expensed in the Consolidated Statement of Operations over their useful lives. Fluctuations in receivables and payables also explain why the net change in cash is not equal to the net loss reported on the Statement of Operations. Therefore, it is possible that the impact of a net loss on cash is less or more than the actual amount of the loss. This is discussed further in MD&A under Liquidity and Capital Resources.

The Consolidated Statement of Changes in Stockholders’ Equity shows the impact of the operating results on the Company’s equity. In addition, this statement shows new equity brought into the Company through stock sales or stock option exercise. This is discussed further in MD&A under Liquidity and Capital Resources.

Results of Operations

The following discussion and analysis relates to our results of operations for the year ended December 31, 2007 compared to the year ended December 31, 2006, and the year ended December 31, 2006 compared to the year ended December 31, 2005. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this report.

For the Year Ended December 31, 2007, Compared to the Year Ended December 31, 2006

Continuing Operations

Operating Expenses

Operating expenses from continuing operations for the year ended December 31, 2007 decreased to $210,000 from $227,000 for the year ended December 31, 2006. The decrease resulted  from a decline in general and administrative expenses, primarily due to lower general operating costs, partially offset by increased legal and accounting expenses related to public filings, in part in response to the additional requirements imposed on public companies by the Sarbanes-Oxley Act. General operating costs include rent, telephone, legal, public filing, office supplies and stationery.

13

Loss from continuing operations

The loss from continuing operations was $172,000 for the year ended December 31, 2007, compared to a loss of $226,000 for the year ended December 31, 2006. The decreased loss for the current period is the result of lower operating costs.

Discontinued Operations

Revenues

Revenues from discontinued operations increased to $751,000 for the year ended December 31, 2007 compared to $333,000 for the year ended December 31, 2006, an increase of 216%. Revenues in 2007 were almost entirely comprised of a one time extension of an existing agreement pertaining to the licensing of Spatializer® audio signal processing algorithms.

               The increase in revenue resulted primarily from a one time extension in Q1 2007 of an existing licensing agreement in which the initial authorized usage had been exhausted and replenishment was necessary. This was partially offset by no revenue in the third and fourth quarter of 2007 as a result of the sale of the underlying technology assets.

Gross Profit

Gross profit from discontinued operations increased to $687,000 for the year ended December 31, 2007 from $332,000 in the comparable period last year, an increase of 107%. Gross margin was 91% of revenue in the year ended December 31, 2006 compared with 99% of revenue for the comparable period last year. The increase in gross profit resulted from increased revenue, partially offset by lower gross margin. Gross margin declined due to a distributor commission paid on the extension contract. We maintained a high margin since revenues are from licensing and royalty activities, which have little or no associated direct manufacturing or selling costs other than commissions paid to our independent representatives that solicit and oversee the particular accounts. All development costs are expensed as engineering and development expenses in the period they are incurred. In 2006, all major relationships with distributors had been terminated and no commissions were earned or payable. In 2007, we paid a commission on the license extension where the former distributor assisted us.

Operating Expenses

Operating expenses for discontinued operations for the year ended December 31, 2007 decreased to $223,000 (30% of sales) from $459,000 (138% of sales) for the year ended December 31, 2006, a decrease of 51%. The decrease in operating expenses resulted primarily from decreases in general and administrative expense, sales and marketing expense, and research and development expense, due to the suspension of operations.

General and Administrative

General and administrative expense for discontinued operations decreased to $223,000 for the year ended December 31, 2007 from $300,000 for the year ended December 31, 2006, a decrease of 26%. The decrease is primarily due to discontinued general operating costs, such as rent, telephone, depreciation and similar costs.

Research and Development

Research and development costs for discontinued operations decreased to $0 for the year ended December 31, 2007, compared to $158,000 for the year ended December 31, 2006. The decrease in research and development expense was due to the elimination of an in-house applications engineering position and the resignation of the principal engineer in May 2006.

Sales and Marketing

Sales and marketing costs for discontinued operations decreased to $0 for the year ended December 31, 2007, compared to $1,000 for the year ended December 31, 2006. The decrease in such expenses resulted from cessation of all licensing and marketing activities in January 2006 due to the suspension of operations.

14

Gain (Loss) from Discontinued Operations

Income from discontinued operations was $979,000 for the year ended December 31, 2007, compared to a loss of $127,000 for the year ended December 31, 2006. The increased net income for the current period is primarily the result of a gain of $515,077 on the sale of assets, and lower operating costs.

Net Income (Loss)

Net income was $807,000 for the year ended December 31, 2007, compared to net loss of $353,000 for the year ended December 31, 2006. The increased net income for the current period is primarily the result of the sale of assets and lower operating costs.

For the Year Ended December 31, 2006, Compared to the Year Ended December 31, 2005

Continuing Operations

Operating Expenses

Operating expenses from continuing operations for the year ended December 31, 2006 decreased to $227,000 from $238,000 for the year ended December 31, 2005. The decrease resulted from a decline in general and administrative expenses due to the suspension of operations.

The decline is primarily due to reduced CEO travel and general operating costs, partially offset by increased legal and accounting expenses related to public filings, in part in response to the additional requirements imposed on public companies by the Sarbanes-Oxley Act. General operating costs include rent, telephone, legal, public filing, office supplies and stationery.

Loss from continuing operations

The loss from continuing operations was $226,000 for the year ended December 31, 2006, compared to a loss of $229,000 for the year ended December 31, 2005. The decreased loss was the result of lower operating costs.

Discontinued Operations

Revenues

Revenues from discontinued operations decreased to $333,000 for the year ended December 31, 2006 compared to $1,192,000 for the year ended December 31, 2005, a decrease of 72%. Revenues are almost entirely comprised of royalties pertaining to the licensing of Spatializer® audio signal processing algorithms.

The decrease in revenue resulted partially from the absence of recognition of deferred revenue in the current year, as compared to 2005, in which a royalty advance received during 2004 was recognized. In addition, programs were not renewed or extended due to the termination of operations of the Company in January 2006. Existing revenues are derived from legacy licensing programs and are expected to wind down.

Gross Profit

Gross profit from discontinued operations decreased to $332,000 for the year ended December 31, 2006 compared to $1,086,000 in the comparable period last year, an decrease of 69%. Gross margin was 99% of revenue in the year ended December 31, 2006 compared with 91% of revenue for the comparable period last year. The decrease in gross profit resulted from lower revenues in fiscal 2006, partially offset by higher margins. We maintain a high margin since revenues are from licensing and royalty activities, which have little or no associated direct manufacturing or selling costs other than commissions paid to our independent representatives that solicit and oversee the particular accounts. All development costs are expensed as engineering and development expenses in the period they are incurred. In 2006, all major relationships with distributors were terminated and no commissions were earned or payable.

15

Operating Expenses

Operating expenses for discontinued operations for the year ended December 31, 2006 decreased to $459,000 (138% of sales) from $939,000 (79% of sales) for the year ended December 31, 2005, a decrease of 51%. The decrease in operating expenses resulted primarily from decreases in general and administrative expense, sales and marketing expense, and research and development expense due to the suspension of operations.

General and Administrative

General and administrative expense for discontinued operations decreased to $300,000 for the year ended December 31, 2006 from $432,000 for the year ended December 31, 2005, a decrease of 31%. The decrease is primarily due to discontinued CEO travel and general operating costs, including rent, telephone, depreciation and similar costs.

Research and Development

Research and development costs for discontinued operations decreased to $158,000 for the year ended December 31, 2006, compared to $354,000 for the year ended December 31, 2005, a decrease of 55%. The decrease in research and development expense was due to the elimination of an in-house applications engineering position and the resignation of the principal engineer in May 2006.

Sales and Marketing

Sales and marketing costs for discontinued operations decreased to $1,000 for the year ended December 31, 2006, compared to $152,000 for the year ended December 31, 2005, a decrease of 99%. The decrease in such expenses resulted from cessation of all licensing and marketing activities in January 2006 due to the suspension of operations.

Gain (Loss) from Discontinued Operations

The loss from discontinued operations was $127,000 for the year ended December 31, 2006, compared to income of $148,000 for the year ended December 31, 2005. The increased net loss for the current period is primarily the result of lower revenue, partially offset by lower overhead.

Net Income (Loss)

The net loss was $226,000 for the year ended December 31, 2006, compared to net loss of $229,000 for the year ended December 31, 2005. The increased net loss for the current period is primarily the result of lower revenue, partially offset by lower overhead.

Liquidity and Capital Resources

At December 31, 2007, we had $582,000 in cash and cash equivalents as compared to $229,000 at December 31, 2006. We also had a $1,000,000 certificate of deposit at Citibank. The increase in cash primarily resulted from the sale of assets and the sale of stock. We had working capital of $1,557,000 at December 31, 2007 as compared with working capital of $242,000 at December 31, 2006.

As previously disclosed, pursuant to an Asset Purchase Agreement, we sold substantially all of our assets and those of our wholly owned subsidiary, DPI (excluding certain assets, such as cash), to a wholly owned subsidiary of DTS, Inc. This transaction was approved by the stockholders on June 15, 2007 and was closed on July 2, 2007.

16

There is no current source of future cash flow for the Company as we sold substantially all of our audio assets and those of our wholly owned subsidiary, Desper Products, Inc., on July 2, 2007.

Based on current and projected operating levels, we do not believe that we can maintain our liquidity position at a consistent level, on a short-term or long-term basis, without a new business model and outside funding. As such, we intend to marshal our assets and after a contractual nine month indemnification period relating to the sale of assets on July 2, 2007, we will distribute the remaining cash assets of the company, after satisfying liabilities and leaving a $100,000 cash residual. Upon distribution of the cash assets, it is anticipated that each of Messrs. Mandell and Civelli will resign from the Board of Directors and the new investor group involved in the April 25, 2007 stock offering will take management control of the Company. Although there is no assurance thereof, the new investors in the Company may bring forth their own plan in the future regarding the direction of the Company, including new, revenue generating businesses.

In September 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly owned subsidiary thereof pursuant to which we agreed to sell substantially all of our assets (other than certain excluded assets, such as cash). The consummation of the asset sale was subject to approval of holders of a majority of the outstanding shares of the Common Stock of the Company. In April 2007, the Company sold an aggregate of 16,236,615 shares of its Common Stock to certain investors.

The Company held a special meeting of stockholders on June 15, 2007 to vote on the asset sale transaction but not with respect to the dissolution of the Company. The asset sale transaction was approved. The asset sale transaction closed on July 2, 2007. There is no assurance that there will be any funds available for distribution to stockholders.

Net Operating Loss Carryforwards

At December 31, 2007, we had net operating loss carryforwards for Federal income tax purposes of approximately $26,000,000 which are available to offset future Federal taxable income, if any, through 2015. Approximately $21,700,000 of these net operating loss carryforwards are subject to an annual limitation of approximately $1,000,000.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” . SFAS 157 replaces the different definitions of fair value in the accounting literature with a single definition. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for fair-value measurements already required or permitted by other standards for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company has not yet determined the impact, if any, of adopting the provisions of SFAS 157 on its financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 apply only to entities that elect the fair value option; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available for sale and trading securities. The Company has not yet determined the impact, if any, of adopting the provisions of SFAS 157 on its financial position, results of operations and cash flows.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We have not been exposed to material future earnings or cash flow fluctuations from changes in interest rates on our short-term investments at December 31, 2007. A hypothetical decrease of 100 basis points in interest rate (ten percent of our overall earnings rate) would not result in a material fluctuation in future earnings or cash flow. We have not entered into any derivative financial instruments to manage interest rate risk or for speculative purposes and we are not currently evaluating the future use of such financial instruments.

Item 8. Financial Statements and Supplementary Data

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Spatializer Audio Laboratories, Inc.:

We have audited the accompanying consolidated balance sheets of Spatializer Audio Laboratories, Inc. and subsidiaries (“Company”) as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spatializer Audio Laboratories, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s circumstances raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As described in Note 11, the Company has restated its consolidated statements of operations to reflect discontinued operations separately in conformity with accounting principles generally accepted in the United States of America.

/s/ RAMIREZ INTERNATIONAL

Financial & Accounting Services, Inc.

Irvine, California

March 26, 2008, except for Note 11 as to which the date is April 15, 2009

18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Spatializer Audio Laboratories, Inc.:

We have audited the accompanying consolidated statements of operations, shareholder’s equity and cash flows of Spatializer Audio Laboratories, Inc. and subsidiaries (The “Company”) as of December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Spatializer Audio Laboratories, Inc. and subsidiaries for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company’s circumstances raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As described in Note 11, the Company has restated its consolidated statements of operations to reflect discontinued operations separately in conformity with accounting principles generally accepted in the United States of America.

/s/ FARBER HASS HURLEY LLP

(formerly Farber Hass Hurley & McEwen LLP)

Camarillo, California

February 24, 2006, except for Note 11 as to which the date is April 15, 2009

19

SPATIALIZER AUDIO LABORATORIES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2007		2006
ASSETS
Current Assets:
Cash and Cash Equivalents	$	582,019	$	228,940
Short-Term Investments		1,000,000		0
Accounts Receivable		0		74,828
Prepaid Expenses and Other Current Assets		22,989		25,073
Total Current Assets		1,605,008		328,841
Property and Equipment, Net		0		3,477
Intangible Assets, Net Held for Sale		0		131,258
Total Assets	$	1,605,008	$	463,576
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes Payable		9,680		9,670
Accounts Payable		900		32,136
Accrued Wages and Benefits		1,323		3,169
Accrued Professional Fees		36,000		41,900
Accrued Commissions		0		200
Accrued Expenses		0		0
Total Current Liabilities		47,903		87,075
Commitments and Contingencies
Stockholders’ Equity (Deficit):
Common shares, $0.01 par value; 300,000,000 shares authorized; 65,000,000 shares issued and outstanding at December 31, 2007 and 48,763,383 issued and outstanding at December 31, 2006, respectively		650,000		487,634
Additional Paid-In Capital		46,634,856		46,423,893
Accumulated Deficit		(45,727,751)		(46,535,026)
Total Stockholders’ Equity		1,557,105		376,501
Total Liabilities and Stockholders’ Equity	$	1,605,008	$	463,576

20

SPATIALIZER AUDIO LABORATORIES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(as restated)

	Year Ended December 31,
	2007			2006			2005
Operating Expenses:
General and Administrative	$	210,350		$	226,551		$	237,894
		210,350			226,551			237,894
Operating Loss		(210,350	)		(226,551	)		(237,894	)
Interest Income		40,740			6,730			13,230
Interest Expense		(2,311	)		(2,266	)		(5,269	)
Other Income (Expense), Net		0			1,251			0
		38,429			5,715			7,961
Loss from continuing operations before income taxes		(171,921	)		(220,836	)		(229,933	)
Income Taxes		0			(4,800	)		874
Loss from continuing operations		(171,921	)		(225,636	)		(229,059	)
Gain (Loss) from discontinued operations (Note 11)		979,197			(126,990	)		147,544
Net Income (Loss)	$	807,276		$	(352,626	)	$	(81,515	)
Basic and Diluted Income (Loss) per Share:	$	.01		$	(.01	)	$	(.00	)
Weighted-Average Shares Outstanding		59,884,354			48,763,385			46,990,059

See accompanying notes to consolidated financial statements

21

SPATIALIZER AUDIO LABORATORIES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2007			2006			2005
Cash Flows from Operating Activities:
Net Loss	$	807,276		$	(352,626	)	$	(81,515	)
Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by Operating Activities:
Gain on Sale of Assets		(515,077	)
Depreciation		0			14,926			16,401
Amortization		0			22,303			31,030
Stock and Options Issued for Services								1,000
Net Compensation Expense on Vested Options		0			11,725
Net Change in Assets and Liabilities:
Accounts Receivable		74,828			80,405			170,479
Prepaid Expenses, Deposits and Other Assets		2,084			9,031			36,836
Accounts Payable		(31,236	)		17,941			(57,678	)
Accrued Expenses and Other Liabilities		(7,947	)		(109,612	)		18,274
Deferred Revenue		0			0			(391,395	)
Net Cash Provided (Used) by Operating Activities		329,928			(305,907	)		(256,568	)
Cash Flows from Investing Activities:
Short Term Investments		(1,000,000	)		0			0
Net proceeds from Asset Sale		649,812			0			0
Purchase of Property and Equipment		(0	)		(0	)		(5,277	)
Intangible Assets		0			(15,013	)		(2,868	)
Net Cash Used by Investing Activities		(350,188	)		(15,013	)		(8,145	)
Cash Flows from Financing Activities:
Issuance (Repayment) of Notes Payable		10			(773	)		(55,809	)
Issuance of Common Stock Net of Transaction Costs		373,329			0			0
Net Cash Provided by (Used) by Financing Activities		373,339			(773	)		(55,809	)
Increase (Decrease) in Cash and Cash Equivalents		353,079			(321,693	)		(320,522	)
Cash and Cash Equivalents, Beginning of Year		228,940			550,633			871,155
Cash and Cash Equivalents, End of Year	$	582,019		$	228,940		$	550,633
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for:
Interest	$	2,311		$	2,266		$	5,269
Income Taxes	$	418		$	4,800		$	0

See accompanying notes to consolidated financial statements

22

SPATIALIZER AUDIO LABORATORIES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Common Shares		Common Shares
					Additional Paid-In- Capital						Total Stockholders’ Equity
	Number of  Shares		Par Value					Accumulated Deficit
Balance, December 31, 2004		46,975,365	$	469,754	$	46,428,866		$	(46,100,885	)	$	797,735
Conversion of Series B-1 Pfd to Common Shares		1,788,018		17,880		(16,698	)					1,182
Net Loss									(81,515	)		(81,515	)
Balance, December 31, 2005		48,763,383	$	487,634	$	46,412,168		$	(46,182,400	)	$	717,402
Net Compensation Expense on Vested Options						11,725						11,725
Net Loss									(352,626	)		(352,626	)
Balance, December 31, 2006		48,763,383	$	487,634	$	46,423,893		$	(46,535,026	)	$	376,501
Issuance of Common Stock				162,366		210,963						373,329
Net Income									807,276			807,276
Balance, December 31, 2007		65,000,000	$	650,000	$	46,634,856		$	(45,727,751	)	$	1,557,105

See accompanying notes to consolidated financial statements

23

SPATIALIZER AUDIO LABORATORIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Ability to Continue as a Going Concern, Sale of All or Substantially All of the Assets of Spatializer Audio Laboratories, Inc. and Desper Products, Inc. and Dissolution of Spatializer

Spatializer has been a developer, licensor and marketer of next generation technologies for the consumer electronics, personal computing, entertainment and cellular telephone markets. Our technology is incorporated into products offered by our licensees and customers on various economic and business terms.

The Company’s wholly-owned subsidiary, Desper Products, Inc. (“DPI”), has been in the business of developing proprietary advanced audio signal processing technologies and products for consumer electronics, entertainment, and multimedia computing. All Company revenues are generated from DPI.

On December 19, 2005, at a regularly scheduled board of directors meeting, the board of directors of Spatializer discussed Spatializer’s current financial outlook. Management indicated to the board of directors that two customers, the revenues from which accounted for approximately 70% of Spatializer’s income during 2005, would not be sustainable in 2006. This called into question the ability of the Company to operate as a going concern. The Company’s financial statements have been prepared assuming that it will continue as a going concern.

As previously reported, on September 18, 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly owned subsidiary thereof pursuant to which the Company and DPI agreed to sell substantially all of their intellectual property assets. A special stockholders meeting was called for January 24, 2007 to approve sale of assets and to authorize the dissolution of the Company. Proxies were mailed on or about December 1, 2006. The meeting was adjourned without a final vote in the Board’s view of the best interest of the stockholders. The meeting was reconvened on February 21, 2007. The vote required to approve the asset sale and dissolution was a majority of the shares outstanding on the record date. The dissolution proposal was contingent upon approval of the asset sale. A total of 15,334,520 shares voted on the asset sale proposal, of which 14,407,084 shares were voted in favor, 823,182 shares voted against and 104,284 votes abstained. Although the votes cast on the proposal to sell the assets was overwhelmingly in favor thereof, the requisite vote was not obtained. As a result, the proposal regarding dissolution was not presented to a vote of stockholders.

On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 16,236,615 shares for an aggregate purchase price of $422,152, of which $259,786 was placed into escrow and was released ten days after the closing of the sale of assets to DTS.

The Company re-solicited a vote on the sale of assets to DTS in the second quarter of 2007. The Asset Purchase Agreement and the transactions contemplated therein were approved by the stockholders of the Company at a special meeting on June 15, 2007. The Asset Purchase Agreement was consummated with DTS on July 2, 2007. Upon the conclusion of a nine month indemnification period, the Company plans to distribute substantially all of its remaining cash assets to its stockholders, after satisfying its liabilities and leaving a $100,000 cash residual. There is no assurance that there will be any funds available for distribution to stockholders. The Company has no plans to dissolve.

The foregoing financial information has been prepared assuming that the Company will continue as a going concern. As discussed above, the Company’s current circumstances, including significant operating losses, raise substantial doubt about the likelihood that the Company will continue as a going concern. The foregoing financial information does not include any adjustments that might result from the outcome of this uncertainty.

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(2) Significant Accounting Policies

Basis of Consolidation — The consolidated financial statements include the accounts of Spatializer Audio Laboratories, Inc. and its wholly-owned subsidiary, Desper Products, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Corporate administration expenses are not allocated to subsidiaries.

Revenue Recognition — The Company recognizes revenue from product sales upon shipment to the customer. License revenues are recognized when earned, in accordance with the contractual provisions. Royalty revenues are recognized upon shipment of products incorporating the related technology by the original equipment manufacturers (OEMs) and foundries. The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin 104.

Concentration of Credit Risk — Financial instruments, which potentially subject the company to concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable. At December 31, 2007 and 2006, substantially all cash and cash equivalents and short term investments (consisting of a certificate of deposit) were on deposit at one financial institution, Citibank FSB and thus were in excess of FDIC insurance limits.

At December 31, 2007, two major customers, not presented in order of importance, each accounted for 10% or more of our total accounts receivable: Sharp and Samsung, not presented in order of importance, each accounted for 10% or more of our total royalty revenues. One OEM accounted for 83% and one accounted for 12% of our royalty revenues during 2007. There were no accounts receivable at December 31, 2007. At December 31, 2006, two major customers, not presented in order of importance, each accounted for 10% or more of our total accounts receivable: Sharp and Orion Corporation. One customer accounted for 81% and one accounted for 10% of our total accounts receivable at December 31, 2006.

The Company performs ongoing credit evaluations of its customers and normally does not require collateral to support accounts receivable. Since all receivables have been collected as of December 31, 2007, no allowance for doubtful accounts has been provided.

The Company does not apply interest charges to past due accounts receivable.

Cash and Cash Equivalents — Cash equivalents consist of highly liquid investments with original maturities of three months or less.

Customers Outside of the U.S. — Sales to foreign customers were 100%, 93% and 95% of total sales in the years ended December 31, 2007 and 2006 and 2005, respectively.

Major Customers — During the year ended December 31, 2007, two customers accounted for 83% and 12%, respectively, of the Company’s net sales. During the year ended December 31, 2006, two customers accounted for 49% and 20%, respectively, of the Company’s net sales. During the year ended December 31, 2005, three customers accounted for 42%, 23% and 12%, respectively, of the Company’s net sales.

Research and Development Costs — The Company expenses research and development costs as incurred, which is presented as a separate line on the statement of operations.

Advertising Costs — Costs incurred for producing and communicating advertising are expensed when incurred and included in selling, general and administrative expenses. Consolidated advertising expense amounted to $0, $0 and $18,931 in 2007, 2006 and 2005, respectively.

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Property and Equipment — Property and equipment were stated at cost. Major renewals and improvements were charged to the asset accounts while replacements, maintenance and repairs, which did not improve or extend the lives of the respective assets, were expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. Property and equipment are depreciated over the useful lives of the asset ranging from 3 years to 5 years under the straight line method. All fixed assets were sold on July 2, 2007.

Intangible Assets — Intangible assets consisted of patent costs and trademarks which were amortized on a straight-line basis over the estimated useful lives of the patents which range from five to twenty years. All intangible assets were sold on July 2, 2007.

Earnings Per Share — The Company determines earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (“SFAS 128”). Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Since the Company generated net losses in 2006 and 2005, outstanding stock options and warrants would have been anti-dilutive and were not applicable to this calculation.

The following table presents contingently issuable shares, options and warrants to purchase shares of common stock that were outstanding during year ended December 31, 2007. The calculation of diluted earnings per share considers shares contingently issued in the year ended December 31, 2007.

	2007
Options		1,150,000
Warrants		0
		1,150,000

Stock Option Plan — During the year ended December 31, 2005, the Company determined the effects of stock based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation ,as amended which permitted entities to recognize expense using the “fair-value” method over the vesting period of all employee stock-based awards on the date of grant. Alternatively, SFAS No. 123 allowed entities to continue to utilize the “intrinsic value” method for equity instruments granted to employees and provide pro forma net income (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants after 1994 as if the fair-value-based method defined in SFAS No. 123 has been applied. The Company elected to continue to utilize the “intrinsic value” method for employee stock option grants and provide the pro forma disclosure provisions of SFAS No. 123 (Note 7)

On January 1, 2006 the Company adopted SFAS 123R, Share Based Payment, using the modified prospective transition method to account for changes to the method of accounting for options outstanding at the effective date. Estimated compensation cost of $11,725 related to vested options outstanding as of January 1, 2006, net of those cancelled or expired during 2006, has been recognized as additional paid-in capital. The statement of operations for period prior to the effective date have not been restated.

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Impairment of Long-Lived Assets and Assets to be Disposed of — The Company adopted the provisions of SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, on January 1, 2002. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amounts of the assets exceed the fair value of the assets.

Segment Reporting — The Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”), in December 1997. MDT has been considered a discontinued operation since September 1998. The Company had only one operating segment, DPI, the Company’s audio enhancement licensing business.

Income Taxes — Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Recent Accounting Pronouncements — In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 replaces the different definitions of fair value in the accounting literature with a single definition. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for fair-value measurements already required or permitted by other standards for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company has not yet determined the impact, if any, of adopting the provisions of SFAS 157 on its financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 apply only to entities that elect the fair value option; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available for sale and trading securities. The Company has not yet determined the impact, if any, of adopting the provisions of SFAS 157 on its financial position, results of operations and cash flows.

Use of Estimates — Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

Fair Value of Financial Instruments — The carrying values of cash equivalents, short term investments, accounts receivable, notes payable, accounts payable and accrued liabilities at December 31, 2007 and 2006 approximated fair value due to their short maturity or nature.

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(3) Property and Equipment

Property and equipment, as of December 31, 2007 and 2006, consists of the following:

	2007			2006
Office Computers, Software, Equipment and Furniture		$	0		$	337,145
Test Equipment			0			73,300
Tooling Equipment			0			45,539
Trade Show Booth and Demonstration Equipment			0			174,548
Automobiles			0			7,000
Total Property and Equipment			0			637,531
Less Accumulated Depreciation and Amortization			0			634,054
Property and Equipment, Net		$	0		$	3,477

(4) Intangible Assets

Intangible assets, as of December 31, 2007 and 2006 consist of the following:

	2007			2006
Capitalized Patent, Trademarks and Technology Costs		$	0		$	540,708
Less Accumulated Amortization			0			409,450
Intangible Assets, Net		$	0		$	131,258

(5) Notes Payable

The Company was indebted to the Premium Finance, Inc., an unrelated insurance premium finance company, in the amount of $9,680 at December 31, 2007. This note finances the Company’s annual Directors’ and Officers’ Liability Insurance. This amount bears interest at a fixed rate of 13.25% annually, is paid in monthly installments of $4,835 that commenced on June 1, 2007 and continues for nine months until the entire balance of principal and interest is paid in full.

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(6) Shareholders’ Equity

On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 16,236,615 shares for an aggregate purchase price of $162,366.15. At the closing of the stock sale, the investors delivered into escrow an additional contingent amount of $259,786. Such escrowed funds were released to the Company on July 16, 2007, within the prescribed period after the closing of the transactions contemplated by the Asset Purchase Agreement, dated as of September 18, 2006 by and between the Company, DPI, DTS, Inc. and its wholly owned subsidiary.

(7) Stock Options

In 1995, the Company adopted a stock option plan (the “Plan”) pursuant to which the Company’s Board of Directors may grant stock options to directors, officers and employees. The Plan which was approved by the stockholders authorizes grants of options to purchase authorized but unissued common stock up to 10% of total common shares outstanding at each calendar quarter, 6,500,000 as of December 31, 2007. No stock options were granted under the Plan in fiscal 2007.. Outstanding stock options under the Plan have five-year terms and vest and become fully exercisable up to three years from the date of grant. The Plan expired in February 2005. To date, the Company has not adopted a new stock option plan.

						Weighted-Average
	Exercisable		Number			Exercise Price
Options outstanding at December 31, 2004		2,381,666		2,635,000		$	0.11
Options granted				500,000		$	0.10
Options exercised				(0	)	$	—
Options forfeited/expired				(325,000	)	$	0.31
Options outstanding at December 31, 2005		2,726,666		2,810,000		$	0.10
Options granted				(0	)	$	0.10
Options exercised				(0	)	$	—
Options forfeited/expired		(976,666		(1,060,000	)	$	0.10
Options outstanding at December 31, 2006		1,750,000		1,750,000		$	0.09
Options granted				(0	)
Options exercised				(0	)	$	—
Options forfeited/expired		(600,000		(600,000	)	$	0.12
Options outstanding at December 31, 2007		1,150,000		1,150,000		$	0.08

At December 31, 2007 there were no additional shares available for grant under the Plan, since the Plan had expired in 2005. The per share weighted-average fair value of stock options granted during 2005 was $0.02, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumption: expected dividend yield 0%, risk-free interest rate of 4.5%, expected volatility of 150% and an expected life of 5 years.

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Through December 31, 2005, as permitted by SFAS No. 123, the Company applied the “intrinsic value” method outlined in APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost was recognized for the fair value of its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net loss for the year December 31, 2005 would have been increased to the pro forma amounts indicated below:

NET INCOME (LOSS):
As Reported	$	(81,515	)
Pro Forma	$	(89,715	)
BASIC AND DILUTED LOSS:
As Reported	$	(0.00	)
Pro Forma	$	(0.00	)

Effective January 1, 2006, the Company adopted SFAS 123R “Share Based Payments, using the modified prospective transition method to account for changes to the method of accounting for 1,750,000 vested options outstanding at the effective date. Estimated compensation cost related to vested options outstanding as of January 1, 2006 was recognized as additional paid-in capital. During the year ended December 31, 2006, 1,060,000 vested options expired or were cancelled, resulting in a reduction of compensation cost and additional paid-in capital. Net compensation cost recorded for the year ended December 31, 2006 was $11,725; net loss for the year was increased by a corresponding amount, or a basic and diluted loss per share of $0.00. The grant-date fair value of vested options was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield — 0%; risk-free interest rate of 4.5%, expected volatility of 100% and an expected life of 3 years.

Net compensation cost recorded for the year ended December 31, 2007 was $13,455; net income for the year was reduced by a corresponding amount, or a basic and diluted loss per share of $0.00. The grant-date fair value of vested options was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield — 0%; risk-free interest rate of 2.2%, expected volatility of 100% and an expected life of 1.5 years.

Options to purchase 600,000 shares of common stock were cancelled in the quarter ended September 30, 2006 to two former directors as a result of their resignation form the Board of Directors, per the Plan requirements.

Options to purchase 210,000 shares of common stock previously granted to two directors and two employees, at an exercise price of $0.30 expired in April and May 2006.

Options to purchase 250,000 shares of common stock previously granted to one employee, at an exercise price of $0.05 were cancelled after the resignation of the employee per terms of the option agreement in August 2006.

In June 2007, options to purchase 600,000 shares of common stock, at an exercise price of $0.12 per share, granted to two sitting directors expired.

At December 31, 2007 and December 31, 2006, the number of options exercisable and fully vested was 1,150,000. The weighted-average exercise price of those options was $0.08; the weighted average remaining contractual term was 1.5 years; and the aggregate intrinsic value was zero per share.

There were no warrants outstanding at December 31, 2007 or 2006.

(8) Income Taxes

The Company files a consolidated return for U.S. income tax purposes. Income tax expense for the years ended December 31, 2007, 2006 and 2005 consisted of the following:

	2007				2006			2005
State franchise tax		$	0		$	4,800			400
Federal taxes			(0	)	$	(0	)		(1,274	)
Total		$	0		$	4,800			(874	)

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Certain revenues received from customers in foreign countries are subject to withholding taxes that are deducted from outgoing funds at the time of payment. These taxes range from approximately 10% to 16.5% and are recorded as net royalty revenue.

Income tax expense for the years ended December 31, 2006 and 2005 differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent to loss before income taxes primarily due to the generation of additional net operating loss carry forwards for which no tax benefit has been provided. In the year ended December 31, 2007, net operating loss carry forwards of $800,000 were used.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2007 is composed primarily of the net loss carry forwards. The net change in the total valuation allowance for the year ended December 31, 2007 resulted in the reduction of income tax expense of approximately $300,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, management believes it is more likely than not the Company will not realize the benefits of these deductible differences and has established a valuation allowance to fully reserve the deferred tax assets at December 31, 2007. Additionally, the ultimate realizability of net operating losses may be limited by change of control provisions under Section 382 of the Internal Revenue Code.

At December 31, 2007, the Company had net operating loss carry forwards for Federal income tax purposes of approximately $26,000,000 which are available to offset future Federal taxable income, if any, through 2015. Approximately $21,000,000 of these net operating loss carry forwards are subject to an annual limitation of approximately $1,000,000.

(9) Commitments and Contingencies

We also anticipate that, from time to time, we may be named as a party to legal proceedings that may arise in the ordinary course of our business.

Operating Lease Commitments

The Company was obligated under one non-cancelable operating lease as of December 31, 2006. Minimum rental payments for this operating lease were approximately $400 through April 2007, when the lease expired.

Rent expense amounted to approximately $33,000, $25,000 and $ 23,000 for the years ended December 31, 2006, 2005 and 2004, respectively, and related primarily to leases for office space. These leases expired during 2006 and were not renewed. No space was leased in 2007.

(10) Profit Sharing Plan

The Company had a 401(k) profit sharing plan covering substantially all employees, subject to certain participation and vesting requirements. The Company was permitted to make discretionary contributions to this plan, but had never done so over the life of this plan. The amount charged to administrative expense for the Plan in 2006 and 2005 was approximately $2,000 per annum. This plan was dissolved in early 2007.

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(11) Discontinued Operations

Substantially all of the operating assets of the Company were disposed in a transaction with DTS that was effective in July 2007.  The consolidated statements of operations for the years ended December 31, 2007, 2006 and 2005 have been restated, with no effects on previously reported net income (loss) or stockholders’ equity, to reflect separately, as discontinued operations, the following activities related to the disposed assets.

	Year Ended December 31,
	2007		2006			2005
Revenues:
Royalty Revenues	$	750,706	$	333,201		$	1,192,447
Cost of Revenues		63,269		897			106,062
		687,437		332,304			1,086,385
Operating Expenses:
General and Administrative		223,317		300,314			432,230
Research and Development		0		157,739			354,138
Sales and Marketing		0		1,241			152,473
		223,317		459,294			938,841
Income (Loss) from discontinued operations before gain on sale of assets		464,120		(126,990	)		147,544
Gain On Sale of Assets		515,077		0			0
Gain (Loss) from discontinued operations	$	979,197	$	(126,990	)	$	147,544

(12) Quarterly Financial Data (unaudited) (as restated)

The following summary of the quarterly results of operations for the years ended December 31, 2007 and 2006 has been restated to reflect separately the results of continuing and discontinued operations, to coincide with the restatement of the Company’s consolidated statements of operations described in Note 11 :

	Quarter Ended
2007	March 31			June 30			September 30			December 31
Discontinued Operations
Net Revenues	$	359,684		$	360,914		$	30,107		$	0
Gross Margin	$	328,191		$	329,602		$	29,643			40
Gain (Loss) from discontinued operations	$	303,076		$	210,872		$	492,655		$	(27,406	)
Loss from continuing operations	$	(69,419	)	$	(61,104	)	$	(20,313	)	$	(21,085	)
Net Income (Loss)	$	233,657		$	149,768		$	472,342		$	(48,491	)
Basic Income (Loss) Per Share	$	0.00		$	0.00		$	0.01		$	(0.00	)

	Quarter Ended
2006	March 31			June 30			September 30			December 31
Discontinued Operations
Net Revenues	$	100,488		$	92,868		$	67,744		$	72,101
Gross Margin	$	90,299		$	83,580		$	60,970		$	97,455
Gain (Loss) from discontinued operations	$	(121,483	)	$	3,618		$	(14,431	)	$	5,306
Loss from continuing operations	$	(51,908	)	$	(66,607	)	$	(47,367	)	$	(59,754	)
Net Income (Loss)	$	(173,391	)	$	(62,989	)	$	(61,798	)	$	(54,448	)
Basic (Loss) Per Share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

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Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure

In February 2007, Farber Hass Hurley McEwen LLP resigned as the independent auditors for the Company and Ramirez International Financial & Accounting Services, Inc. was engaged as the independent auditors for the Company. Such matters were previously disclosed in a From 8-K filed with the Securities and Exchange Commission with date of earliest event reported of February 8, 2007. The change in independent auditors was not in connection with any disagreement of the type described in paragraph (a)(1)(iv) of Item 304(a) of Regulation S-K or any reportable event as described in paragraph (a)(1)(v) of said Item 304(a).

Item 9A(T). Controls and Procedures

Management’s Report on Internal Control Over Financial Reporting

              Management of the Company is responsible for the preparation, integrity and fair presentation of its published consolidated financial statements. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles and, as such, include amounts based on judgments and estimates made by management. The Company also prepared the other information included in the annual report and is responsible for its accuracy and consistency with the consolidated financial statements.

                Management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability to record, process, summarize and report reliable financial data. The Company maintains a system of internal control over financial reporting, which is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable published financial statements and safeguarding of the Company’s assets. The system includes a documented organizational structure and division of responsibility, established policies and procedures, including a code of conduct to foster a strong ethical climate, which are communicated throughout the Company, and the careful selection, training and development of our people.

              The Board of Directors is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Board of Directors is responsible for the appointment and compensation of the independent registered public accounting firm. Corrective actions are being taken to address control deficiencies and other opportunities for improving the internal control system as they are identified.

                Management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

                The Company assessed its internal control system as of December 31, 2007 in relation to criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, the Company believes that, as of December 31, 2007, its system of internal control over financial reporting was ineffective. The Company carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934. Due to the Company’s circumstances for the period covered by this annual report, there was only one remaining part-time employee and a contract bookkeeper that were responsible for maintenance of the accounting records and other aspects of internal control. Thus, segregation of duties was limited and there was limited oversight of the remaining employee. While the contract bookkeeper initiated disbursements, and while the employee signed the checks, the lack of segregation of duties, forced by the circumstances, must be deemed a material weakness in internal controls. Consequently, as of the date of this amended annual  report, the Chairman of the Board and President, acting as the principal executive officer and its principal financial officer of the Company, have concluded that our disclosure controls and procedures as of December 31, 2007 were ineffective.

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In order to remediate this material weakness existing at year-end, we have taken the steps described below during 2008.  After current management gained control of the Company in April 2008, the Company appointed a Chief Financial Officer so that the respective duties of the principal executive officer and principal financial officer (unlike recent prior years) are now segregated, and there are three functioning directors.  In addition, the Company is no longer a one-person operation, there now being three people involved in any Company financial transactions.  Specifically, all bills are sent to the bookkeeper and the President/CEO authorizes all expenditures, checks are then drawn by the bookkeeper for payment based on such authorization and, finally, the CFO actually signs the check and distributes them.  In fact, with regard to all expenditures, the President/CEO has never signed a check, the CFO can not sign a check unless the bookkeeper has prepared it, and the bookkeeper has no check signing authority. With regard to revenues, since the Company has discontinued operations, its only function being to find a merger partner, revenues are minimal (currently interest only) and the foregoing internal process, put in place during 2008, should reflect a substantive improvement over that of recent prior years, current management believing that it will have remediated the material weakness existing at year-end 2007. 

                The consolidated financial statements have been audited by the independent registered public accounting firm of Ramirez International Financial & Accounting Services, Inc., which was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the Board of Directors. The report of the Company’s independent registered public accounting firm is presented within this annual report. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Director, Executive Officers and Corporate Governance

Directors and Officers

HENRY R. MANDELL, age 51. Chairman since February 2000; Chief Executive Officer from February 2000 through January 6, 2006; Interim Chief Executive Officer from September 1998 to February 2000; Secretary since September 1998; Chief Financial Officer from March 1998 through January 6, 2006; Senior Vice President, Finance from March 1998 until September 1998. Executive Vice President and Chief Financial Officer of The Sirena Apparel Group, Inc. from November 1990 to January, 1998. Senior Vice President of Finance and Administration for Media Home Entertainment, Inc. from April 1985 to November 1990. Director of Finance and Accounting for Oak Media Corporation from June 1982 to April 1985. Senior Corporate Auditor for Twentieth Century Fox Film Corporation from June 1981 to June 1982. Mr. Mandell was a Senior Auditor for Arthur Young and Company from August 1978 to June 1981, where he qualified as a Certified Public Accountant. Mr. Mandell is currently the President and Chief Operating Officer of several operating entities in the apparel industry doing business as Ed Hardy and Christian Audigier

CARLO CIVELLI, age 57. Director since March 1993. Previously, Mr. Civelli was our VP Finance - Europe from August 1991 to March 1995. Has extensive experience in financing emerging public companies and has been instrumental in funding approximately 50 new ventures of the past 20 years which include Breakwater Resources, Callinan Mines, Granges Exploration, Namibian Minerals, Napier International Tech, Norst Interactive, DRC Resources, DMX Digital Music. Managing Director of Clarion Finanz AG, Zurich, Switzerland, for more than the last ten years. Director and Financial Consultant to Clarion Finanz AG.

JAY GOTTLIEB, age 63. Director since May 2007. Mr. Gottlieb has been a private investor in various companies since 1998. He is involved in analysis and investment in undervalued special situations and shell corporations. He presently owns between 5% and 21% of 14 public companies and is a member of the Board of Directors of Spatializer Audio Laboratories, Inc. From 1992 to 1998 he was the editor of an investment service that analyzed and published extensive data on companies planning initial public offerings. From 1977 to 1991 Mr. Gottlieb was the President and Chairman of the Board of The Computer Factory, Inc., a nationwide organization involved in retail and direct sales, servicing and leasing of personal computers. From 1969 to 1988 he was President of National Corporate Sciences, Inc., a registered investment advisory service. Mr. Gottlieb holds a Bachelor of Arts from New York University.

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Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3 and 4 furnished to us during the fiscal year ended December 31, 2007, we are not aware of any director, officer or beneficial owner of more ten percent (10%) of the Common Stock of the Company who failed to file on a timely basis any reports required by Section 16(a) of the Securities Exchange Act of 1934.

Code of Ethics

We adopted a Code of Ethics that applies to all of our directors, officers and employees, including our Chief Executive Officer, our Chief Financial Officer and other senior financial officers. At present, the Company’s only employee is Henry R. Mandell who is serving as Chairman of the Board and Secretary. The Company will provide a copy of our code of ethics to any person, free of charge, upon written request sent to our principal corporate office at 2060 East Avenida de Los Arboles, # D190, Thousand Oaks, California 91362-1376.

Corporate Governance

During the fiscal year ended December 31, 2005, Gilbert Segel served as the sole member of the Audit Committee until his resignation from the Board of Directors on and effective as of December 19, 2005, Mr. Segel was considered independent, as defined in the NASD listing standards, and met the criteria for independence set forth in the rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). After Mr. Segel’s resignation in 2005, no members were nominated or appointed to the Audit Committee. Accordingly, the Audit Committee held no meetings in fiscal 2007. At present, the entire Board is acting in lieu of the Audit Committee.

Item 11.  Executive Compensation

Compensation Discussion and Analysis

Henry Mandell is the sole employee of the Company and serves as both the Chairman of the Board and the Secretary of the Company. On December 19, 2005, Henry Mandell gave notice that he was resigning from all positions held by him with the Company, other than as a director, Chairman of the Board and Secretary thereof, effective as of January 6, 2006. Effective as of January 6, 2006, the Company entered into an agreement with Mr. Mandell to continue his employment with the Company as Chairman and Secretary. Under the terms of that agreement, Mr. Mandell continues to provide certain specified services to the Company, which services may be provided in person, by telephone, by email or otherwise as Mr. Mandell sees fit, such services to be rendered at such hours and/or on weekends as he may determine. Those services include without limitation supervising the preparation of the Company’s financial statements and records, reviewing and authorizing day to day disbursements, supervising all of the Company’s licensing and business activities, handling stockholder communications and serving as the contact person with the Company’s financial advisor. He is permitted to accept, and has accepted, other employment during the term of the agreement.

As an incentive for Mr. Mandell to continue in the employ of the Company during the term of the agreement, and in consideration for foregoing certain severance pay to which he otherwise may have been entitled, the Company agreed to pay him a lump sum payment of $35,733.33, which amount was paid concurrently with the execution of the agreement. He is entitled to a monthly salary of $5,000 during the term of the agreement, a bonus of $10,000 for his assistance in the preparation of the Company’s Form 10-K of the Company for the fiscal year ended December 31, 2005 and a separate bonus of $5,000 each for his assistance on each Form 10-Q upon which he assists for any quarterly period ending after December 31, 2005 and for each proxy statement. Additionally, should the Company be sold or enter into certain specified extraordinary transactions during the term of the agreement, Mr. Mandell is entitled to an additional bonus equal to 3.5% of the total consideration, not to exceed $150,000. During the term of the agreement, he is also entitled to employee benefits and reimbursement of reasonable, actual and necessary business expenses. These amounts were determined by Mr. Mandell and Mr. Civelli based on the amount of time expected to be expended by Mr. Mandell in pursuing the winding up of the Company’s business operations and the financial status of the Company.

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The agreement contains certain non-competition, non-solicitation and confidentiality provisions. The agreement terminated certain provisions of Mr. Mandell’s then existing extended employment agreement (including without limitation the compensation and severance pay obligations thereunder) but continued certain other provisions thereof (such as the proprietary information, confidentiality and other similar provisions thereunder).

The agreement was scheduled to terminate by its terms upon the earlier of the consummation of certain extraordinary transactions, the expiration, termination or non-renewal of the directors’ and officers’ insurance policy of the Company under which Mr. Mandell is covered as a director and officer of the Company and June 30, 2006. The agreement was extended through the earlier of the date of dissolution of the Company and June 30, 2007. The Company may terminate Mr. Mandell’s employment at any time during the term and Mr. Mandell may voluntarily resign his employment at any time during such term.

The monthly income was agreed to be paid in order that the Company would have an employee to oversee the sale of the assets of the Company, manage remaining business relationships and the supervise the dissolution of the Company or any other transaction in connection with the wind down of the business operations of the Company. The additional sums for preparation of the Form 10-Qs and Form 10-Ks were to compensate Mr. Mandell for the additional responsibilities to be borne by him in connection therewith. The proposed bonus was intended to incentivize Mr. Mandell to continue the efforts to sell the Company and to maximize value for the stockholders. Based on the aggregate price obtained in the sale of asset transaction, Mr. Mandell was paid a bonus of $35,000 in fiscal 2007.

The Company is trying to minimize its cash outflow, maximize value for the stockholders and wind down its current business operations. As such, it is no longer trying to incentivize employees with long-term compensation plans or stock option grants or other forms of equity ownership. Although the Company does not intend to increase Mr. Mandell’s compensation package, any such determination would be made by the Board, consisting of Messrs. Mandell, Civelli and Gottlieb.

Officer Compensation

The following table sets forth information concerning the compensation of Mr. Mandell, the only executive officer and employee of the Company during fiscal 2007:

SUMMARY COMPENSATION TABLE
										All Other
					Options					Compensation
Name and Principal Position	Year		Salary($)		Awards($)		Bonus			($)			Total ($)
Henry R. Mandell, Chairman and		2007	$	95,000				35,000	(1)	$	20,000	(2)	$	150,000
Secretary		2006	$	90,000		—				$	19,000	(2)	$	109,000
		2005	$	214,200		8,000				$	16,000		$	238,200

(1)	Includes contractual Bonus on sale of assets of 3.5% of selling price ($35,000)
(2)	Cost of health insurance premiums

For a narrative description of Mr. Mandell’s employment agreement, see the description thereof set forth under “Compensation Discussion and Analysis” above.

Mr. Mandell did not receive any equity incentive plan awards during the fiscal year ended December 31, 2007. The following table sets forth information concerning unexercised options held by Mr. Mandell as of December 31, 2007. All options held by Mr. Mandell are fully vested.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
Number of Securities Underlying Unexercised Options(#) Exercisable		Number of  Securities Underlying Unexercised Options(#) Unexercisable		Weighted Average Option Exercise Price($)
						Option Expiration
						Date
	500,000		500,000	$	0.10		2/2010
	50,000		50,000	$	0.09		06/2009
	350,000		350,000	$	0.05		11/2008
	50,000		50,000	$	0.07		06/2008

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Mr. Mandell did not exercise any options during the fiscal year ended December 31, 2007 and all options held by Mr. Mandell were fully vested prior to January 1, 2007.

Director Compensation

None of the Company’s directors received any cash compensation, stock option awards or other arrangements for services provided in their capacity as directors during the fiscal year ended December 31, 2007.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information (except as otherwise indicated by footnote) as to shares of common stock owned as of March 7, 2008 or which can be acquired within sixty days of March 7, 2008 by (i) each person known by management to beneficially own more than five percent (5%) of Spatializer’s outstanding common stock, (ii) each of Spatializer’s directors, and officers, and (iii) all executive officers and directors as a group. On March 12, 2008, there were 48,763,383 shares of common stock outstanding.

	AMOUNT AND
	NATURE OF
	BENEFICIAL		PERCENT OF
NAME OF BENEFICIAL OWNER	OWNERSHIP		CLASS
Jay Gottlieb(1)(2)		13,605,615		20.9	%
Greggory A. Schneider(1)(3)		6,497,500		10.0	%
Carlo Civelli(1)(4)		5,763,780		8.6	%
Henry R. Mandell(1)(5)		1,662,875		2.6	%
All directors and executive officers as a group (3 persons)(1)(4)(5)		21,032,270		32.1	%

(1)	The persons named in the table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, subject to community property laws, where applicable, and the information contained in the footnotes to this table.
(2)	Based on the Schedule 13D filed by Mr. Gottlieb with the Securities and Exchange Commission on April 30, 2007. Mr. Gottlieb’s address is 27 Misty Brook Lane, New Fairfield, Connecticut 06812.
(3)	Based on the Schedule 13D filed by Mr. Schneider with the Securities and Exchange Commission on April 30, 2007. Mr. Schneider’s address is 10445 Wilshire Blvd., #1806, Los Angeles, California 90024.
(4)	Carlo Civelli controls Clarion Finanz AG, a non-reporting investment company. Holdings of Mr. Civelli and Clarion Finanz AG are combined, and include all shares of Spatializer held of record or beneficially by them, and all additional shares over which he either currently exercises full or partial control, without duplication through attribution. Includes 250,000 options to acquire common stock held by Mr. Civelli, all of which are vested and currently exercisable. Mr. Civelli’s address is Gerberstrasse 5 8023, Zurich, Switzerland.
(5)	Includes 950,000 options held by Mr. Mandell, all of which are vested and are exercisable at various prices from $0.05 to $0.30. This includes options granted on February 21, 2005, and exercisable at $0.10 per share, relating to the extension of Mr. Mandell’s employment agreement in 2005. The options have varying expiration dates of which the final such expiration date is February 21, 2010.

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During fiscal 2007, the Company concurrently sold to Mr. Gottlieb 8,739,115 shares, to Mr. Schneider 4,272,500 shares and to another third party 3,225,500 shares of Common Stock ,all upon similar terms and conditions. Such persons have disclaimed being a “group” for Schedule 13D reporting purposes. The shares so acquired, together with shares previously acquired by certain of such persons in the open market, represent, in the aggregate, more than 35% of the issued and outstanding shares of the Company’s Common Stock.

The following table sets forth certain information relating to the equity compensation plans of the Company as of December 31, 2007:

Equity Compensation Plan Information
	Number of securities								Number of securities remaining available for
	to be issued				Weighted-average				future issuance under
	upon exercise of				exercise price of				equity compensation plans
	outstanding options,				outstanding options,				(excluding securities
Plan category	warrants and rights				warrants and rights				reflected in column (a))
	(a)				(b)				(c)
Equity compensation plans approved by security holders		1,150,000	(1	)	$	0.07	(1	)		0
Equity compensation plans not approved by security holders		0				0				0
Total		1,150,000			$	0.07				0

(1) Represents options to acquire the Company’s Common Stock under the Company’s 1995 Stock Option Plan and 1996 Incentive Plan approved by the Company’s stockholders in 1995 and 1996, respectively. The 1995 Plan authorizes grants of options to purchase authorized but unissued common stock in an amount of up to 10% of total common shares outstanding at each calendar quarter or 6,500,000 as at December 31, 2007. Stock options are granted with an exercise price equal to the stock’s fair market value at the date of grant. Stock options have five-year terms and vest and become fully exercisable as determined by the committee on date of grant. The 1996 Plan supplements the 1995 Plan by allowing for stock appreciation, incentive shares and similar accruals aggregating not more than the equivalent of 500,000 shares and the regrant of any Performance Shares that become available for regrant. See Note 2. Since the Plan expired in 2005, there can be no new issues of options.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The Company and Henry R. Mandell, the Chairman and Secretary of the Company and the Company’s sole employee during the period covered by this annual request, are parties to an employment agreement entered into in January 2006. Under the terms of that agreement, Mr. Mandell was paid $35,000 relating to the sale of assets of the Company consummated in July 2007.

As the Company for the period covered by this amended annual report has only one employee and three directors, none of whom would be considered “independent”, the Company has no formal policy in place as to the procedure for approving any transactions between the Company and its related persons (including officers, directors and stockholders). In the event that the Company should undertake any transaction that would require disclosure under this section, the Company may consider, in light of all then existing facts and circumstances, whether stockholder approval thereof should be sought. The Board did not seek approval or ratification of the employment agreement with Mr. Mandell based in large part on the circumstances of the Company at the time such agreement was executed.

The Company for the period covered by this amended annual report does not currently have any director that would be considered independent under the definition thereof underany national securities exchange or any inter-dealer quotation system

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Item 14. Principal Accountant Fees and Services

The following summarizes the fees paid to Ramirez International Financial & Accounting Services, Inc. the principal accountant for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2006 and 2007:

	December 31,
	2006		2007
Audit Fees (1)	$	35,000	$	20,000
Audit Related Fees (3)		8,400		17,500
Tax Fees (2)		8,900		8,000
All Other Fees		8,400		—
Total Fees	$	52,300	$	45,500

(1)	Audit Fees are fees for professional services rendered for the annual audit, the reviews of the Company’s financial statements included in Form 10-Qs and services normally provided in connection with statutory and regulatory filings. These fees were paid to Ramirez International Financial and Accounting Services, Inc.
(2)	Tax Fees are fees for professional services rendered for tax compliance, tax planning and tax advice, paid to Farber Hass Hurley LLP.
(3)	Relates to review of Form 10-Qs.

Although the Audit Committee had not adopted policies and procedures for the pre-approval of audit and non-audit services rendered by the Company’s independent auditors, the charter of the Audit Committee requires that the Audit Committee pre-approve the engagement of the auditor to perform all proposed audit, review and attest services, as well as engagements to perform any proposed permissible non-audit services. The pre-approval of services was delegated to the Company’s Chief Financial Officer with the decision to be reported to the Audit Committee and ratified at its next scheduled meeting. One hundred percent of the auditors’ fees were pre-approved by the Audit Committee during 2005. Since 2006, the Audit Committee had no members nor a Chief Financial Officer. Thus, the Company’s Board of Directors has and will be responsible for serving in the capacity of the Audit Committee and approving audit and non-audit services to be rendered by the Company’s independent auditor until such time, if any, as members may be appointed to the Audit Committee.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

     See Item 8.

(b) Exhibits

      The following Exhibits are filed as part of, or incorporated by reference into, this Report:

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Exhibit
Number		Description
2.1		Arrangement Agreement dated as of March 4, 1994 among Spatializer-Yukon, DPI and Spatializer-Delaware (Incorporated by reference to the Company’s Registration Statement on Form S-1,Registration No 33-90532, effective August 21, 1995.)
2.2		Asset Purchase Agreement dated as of September 18, 2006 among the Company, Desper Products, Inc., DTS, Inc. and DTS-BVI (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.)
3.1		Certificate of Incorporation of Spatializer-Delaware as filed February 28, 1994. (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 33-90532,effective August 21, 1995.)
3.2		Amended and Restated Bylaws of Spatializer-Delaware. (Incorporated by reference to the Company’s Registration Statement on Form S-1,Registration No. 33-90532, effective August 21, 1995.)
3.3		Certificate of Designation of Series B 10% Redeemable Convertible Preferred Stock of the Company as filed December 27, 1999 (Incorporated by reference to the Company’s Annual Report on Form10-K, for the period ended December 31, 1999.)
3.4		Certificate of Amendment of Certificate of Incorporation of the Company as filed on February 25, 2000 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31, 1999.)
3.5		Certificate of Designation of Series B-1 Redeemable Convertible Preferred Stock as filed December 20, 2002 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31, 2002.)
3.6		Certificate of Elimination of Series A Preferred Stock as filed December 26, 2002 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31,2002.)
3.7		Certificate of Elimination of Series B Preferred Stock as filed December 26,2002 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31,2002.)
10.1		Spatializer-Delaware Incentive Stock Option Plan (1995 Plan). (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 33-90532, effective August 21,1995.)
10.2		Spatializer-Delaware 1996 Incentive Plan. (Incorporated by reference to the Company’s Proxy Statement dated June 25, 1996 and previously filed with the Commission.)
10.3		Form of Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005.)
10.4		License Agreement dated June 29, 1994 between DPI and MEC. (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 33-90532, effective August 21,1995.)
10.5		Employment Agreement dated November 12, 2005, between the Company and Henry Mandell, as amended. (Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005.)
10.6	Related Party Promissory Note to the Successor Trustee of the Ira A. Desper Marital Trust dated November 1, 2003. (Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K, for the period ended December 31, 2005.)
10.7	Lease for Office and Research Center in San Jose, CA. (incorporated by reference to )
10.8	Lease for Executive Office in Westlake Village, CA. (incorporated by reference to)
10.9	License Agreement between Spatializer Audio Laboratories, Inc., Desper Products, Inc. and Samsung Electronics, effective August 22, 2005. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.)
10.10	Employment Agreement dated January 6, 2006, between the Company and Henry Mandell. (Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2006.)
10.12	Management’s Report on Internal Control Over Financial Reporting
10.11	Amendment to Employment Agreement between the Company and Henry Mandell
21.1	Subsidiaries of the Company
23.1	Consent of Independent Registered Public Accounting Firm
23.2	Consent of Independent Registered Public Accounting Firm
31.1	Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended)

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 6, 2009

SPATIALIZER AUDIO LABORATORIES, INC.

(Registrant)

/s/ Jay Gottlieb                                           

Jay Gottlieb 

Chairman, President, Secretary, Treasurer and Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Jay Gottlieb
Jay Gottlieb	Director, Chairman, Secretary, Treasurer  and Principal Executive Officer	May 6, 2009
/s Greggory Schneider
Greggory Schneider	Director, Chief Financial and Principal Financial Officer	May 6, 2009
/s/ Michael Pearce
Michael Pearce	Director	May 6, 2009

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EXHIBIT 21.1

SUBSIDIARY OF THE COMPANY

Name of Subsidiary	Percentage of Ownership	State of Incorporation
Desper Products, Inc.	100%	California

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EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Spatializer Audio Laboratories, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-27453 and 333-41170) of Spatializer Audio Laboratories, Inc. of our report dated March 26, 2008 (except for Note 11 as to which the date is April 15, 2009), related to the consolidated balance sheets of Spatializer Audio Laboratories, Inc. and subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended, which report appears in the annual report on Form 10-K/A of Spatializer Audio Laboratories, Inc. for the year ended December 31, 2007.

/s/ RAMIREZ INTERNATIONAL

Financial & Accounting Services, Inc.

Irvine, California

April 15, 2009

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EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Spatializer Audio Laboratories, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-27453 and 333-41170) of Spatializer Audio Laboratories, Inc. of our report dated February 24, 2006 (except for Note 11 as to which the date is April 15, 2009), related to the consolidated statements of income, stockholders’ equity and cash flows for the year ended December 31, 2005 of Spatializer Audio Laboratories, Inc. which report appears in the annual report on Form 10-K/A of Spatializer Audio Laboratories, Inc. for the year ended December 31, 2007.

/s/ FARBER HASS HURLEY LLP

(formerly Farber Hass Hurley & McEwen LLP)

Camarillo, California

April 15, 2009

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EXHIBIT 31.1

CERTIFICATIONS

I, Jay Gottlieb, certify that:

1.  I have reviewed this annual report on Form 10-K/A of Spatializer Audio Laboratories, Inc. (“registrant”) for the period ended December 31, 2007;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2009
	/s/ Jay Gottlieb
	Jay Gottlieb
	Chairman of the Board, Secretary, Treasurer and Principal Executive Officer

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EXHIBIT 31.2

CERTIFICATIONS

I, Greggory Schneider, certify that:

1.  I have reviewed this annual report on Form 10-K/A of Spatializer Audio Laboratories, Inc. (“registrant”) for the period ended December 31, 2007;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2009
	/s/ Greggory Schneider
	Greggory Schneider
	Director, Chief Financial and Principal Financial Officer

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Spatializer Audio Laboratories, Inc. (the “Company”) hereby certifies with respect to the Annual Report on Form 10-K/A of the Company for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the “Report”) that to his knowledge:

	1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
	2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 6, 2009
			/s/ Jay Gottlieb
			Jay Gottlieb
			Chairman of the Board, President, Secretary, Treasurer and Principal Executive Officer

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EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Spatializer Audio Laboratories, Inc. (the “Company”) hereby certifies with respect to the Annual Report on Form 10-K/A of the Company for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (the “Report”) that to his knowledge:

	1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
	2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 6, 2009
			/s/ Greggory Schneider
			Greggory Schneider
			Director, Chief Financial and Principal Financial Officer

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