<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                        --------------------------------
                                   FORM 10-QA
                        --------------------------------

 (MARK ONE)

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

         For the period ended:  MARCH 31, 1998

                                       OR

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

                        Commission File Number: 33-90532


                      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.)

                       20700 VENTURA BOULEVARD, SUITE 134
                      WOODLAND HILLS, CALIFORNIA 91364-2357

                    (Address of principal executive offices)

                        TELEPHONE NUMBER: (818) 227-3370

              (Registrant's telephone number, including area code)


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  [X]                                       NO  [ ]

As of May 1, 1998 there were 21,442,345 shares of the Registrant's Common Stock
outstanding.


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<PAGE>   2

                          PART I. FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 March 31,          December 31,
                                                                   1998                 1997
                                                               ------------         ------------
                                                               (unaudited)
<S>                                                            <C>                  <C>         
Current Assets:
     Cash and Cash Equivalents                                 $    151,043         $    577,413
     Accounts Receivable, net                                       672,736              911,505
     Employee Advances                                               52,274               59,086
     Inventory                                                       91,300               93,250
     Prepaid Expenses and Deposits                                  195,874              135,702
     Deferred Transaction Costs                                     182,294              146,529
                                                               ------------         ------------
                                                                  1,345,521            1,923,485

Property and Equipment, net                                         550,668              586,961
Intangibles, Net                                                    719,347              654,668

Total Assets                                                   $  2,615,536         $  3,165,114
                                                               ============         ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
     Bank Line of Credit Payable                               $         --         $    400,000
     Notes Payable                                                   58,544               64,272
     Accounts Payable                                               747,151              651,376
     Accrued Liabilities                                             44,445               79,140
     Accrued Wages and Benefits                                     350,980              332,713
     Due to Related Parties                                         762,500              112,500
                                                               ------------         ------------
         Total Current Liabilities                                1,963,620            1,640,001

Shareholders' Equity:
     Preferred shares, $.01 par value, 1,000,000 shares
        authorized, no shares issued or outstanding                      --                   --
     Common shares, $.01 par value, 50,000,000 shares
        authorized, 21,423,345 and 21,410,012 shares
        issued and outstanding at March 31, 1998 and
        December 31, 1997, respectively                             214,233              214,100
     Additional Paid-In Capital                                  41,528,772           41,481,890
     Accumulated Deficit                                        (41,091,089)         (40,170,877)
                                                               ------------         ------------
         Total Shareholders' Equity                                 651,916            1,525,113

                                                               $  2,615,536         $  3,165,114
                                                               ============         ============
</TABLE>



                                        2

<PAGE>   3

                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                For the Three Month Period
                                                    Ended March 31,
                                           ---------------------------------
                                               1998                 1997
                                           ------------         ------------
<S>                                        <C>                  <C>         
Revenues:

  Royalty Revenues                         $    516,344         $    397,715
  Product Revenues                                7,065              120,747
                                           ------------         ------------
                                                523,409              518,462

Cost of Revenues                                 20,359               64,255
                                           ------------         ------------
Gross Profit                                    503,050              454,206

Operating Expenses:
  General and Administrative                    440,122              573,098
  Research and Development                      599,537              568,829
  Sales and Marketing                           361,473              341,358
                                           ------------         ------------
                                              1,401,132            1,483,285
                                           ------------         ------------

Operating Loss                                 (898,082)          (1,029,079)

Interest Income                                   1,079               17,624
Interest Expense                                (12,057)              (4,320)
Other Expense, net                                   --               (8,166)
                                           ------------         ------------
                                                (10,978)               5,138
                                           ------------         ------------

Loss Before Income Taxes                       (909,060)          (1,023,940)

Income Taxes                                    (11,152)              (2,898)

Net Loss                                   $   (920,212)        $ (1,026,839)
                                           ============         ============
Basic and Diluted Loss Per Share           $      (0.04)        $      (0.05)
                                           ============         ============
Weighted Average Shares Outstanding          21,418,160           19,591,540
                                           ============         ============
</TABLE>



                                        3
<PAGE>   4

                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                            Three Month Period Ended
                                                                   March 31,
                                                         -------------------------------
                                                            1998                 1997
                                                         -----------         -----------
<S>                                                      <C>                 <C>         
Cash flows from operating activities:
   Net Loss                                              $  (920,212)        $(1,026,839)
   Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
   Depreciation and Amortization                              58,074              56,857
   Options Issued for Services                                34,311                  --
Net change in Assets and Liabilities:
   Accounts Receivable and Employee Advances                 245,581               9,836
   Inventory                                                   1,950              56,685
   Prepaid Expenses and Deposits                             (60,172)             87,542
   Other Assets                                              (35,765)                 --
   Accounts Payable                                           95,775            (147,488)
   Accrued Liabilities                                       (16,428)            (86,246)
                                                         -----------         -----------
Net Cash Used In Operating Activities                       (596,886)         (1,049,653)
                                                         -----------         -----------
Cash Flows from Investing Activities:
   Purchase of Property and Equipment                        (12,880)            (86,000)
   Increase in Intangible Assets                             (73,580)            (47,258)
                                                         -----------         -----------
Net Cash Used in Investing Activities                        (86,460)           (133,258)
                                                         -----------         -----------
Cash flows from Financing Activities:
   Issuance of Common Shares, net                                 --           1,966,144
   Exercise of Options                                        12,704              20,741
   Issuance of Related Party Payable                         650,000                  --
   Repayment of Bank Line of Credit                         (400,000)                 --
   Repayment of Notes Payable                                 (5,728)             (2,336)
                                                         -----------         -----------
Net Cash Provided by Financing Activities                    256,976           1,984,549
                                                         -----------         -----------
Increase (Decrease) in Cash and Cash Equivalents            (426,370)            801,638

Cash and Cash Equivalents, Beginning of Period               577,413           1,587,395
                                                         -----------         -----------

Cash and Cash Equivalents, End of Period                 $   151,043         $ 2,389,033
                                                         ===========         ===========

Supplemental Schedule of Non-Cash Investing
   and Financing Activities:
  Capital Expenditures Financed by
   Lease Obligations and Notes Payable                   $        --         $    59,000
                                                         ===========         ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid during the period for:
   Interest                                              $    12,057         $     4,320
   Income Taxes                                               11,152               2,898
                                                         ===========         ===========
</TABLE>



                                        4
<PAGE>   5

                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (unaudited)

<TABLE>
<CAPTION>
                                             Common Shares
                                   --------------------------------                                                    Total
                                    Number of                              Additional          Accumulated          Shareholders'
                                     shares             Par value        paid-in-capital         Deficit               Equity
                                   ------------        ------------      ---------------       ------------         ------------
<S>                                <C>                 <C>                 <C>                 <C>                  <C>         
Balance, December 31, 1997           21,410,012        $    214,100        $ 41,481,890        $(40,170,877)        $  1,525,113

Options Exercised                        13,333                 133              12,571                  --               12,704
Options Issued for Services                  --                  --              34,311                  --               34,311
Net Loss                                     --                  --                  --            (920,212)            (920,212)

                                   ------------        ------------        ------------        ------------         ------------
Balance, March 31, 1998              21,423,345        $    214,233        $ 41,528,772        $(41,091,089)        $    651,916
                                   ============        ============        ============        ============         ============
</TABLE>



                                       5
<PAGE>   6

                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(1)      NATURE OF BUSINESS

Spatializer Audio Laboratories, Inc. and subsidiaries (the "Company") is in the
business of developing and licensing technology.

The Company's wholly owned subsidiary Desper Products, Inc. ("DPI") is in the
business of developing proprietary advanced audio signal processing technologies
and products for consumer electronics, entertainment, and multimedia computing.

The Company's wholly owned subsidiary, MultiDisc Technologies, Inc. ("MDT") is
in the business of developing scaleable, modular compact disc ("CD") and digital
versatile disc ("DVD") server technologies associated with a network based
("CD")/DVD server for internet and intranet applications. MDT plans to both
license its technology or engage in third party manufacturing arrangements.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim consolidated financial statements of the Company are condensed and
do not include some of the information necessary to obtain a complete
understanding of the financial data. Management believes that all adjustments
necessary for a fair statement of results have been included in the unaudited
consolidated Financial Statements for the interim periods presented.
Accordingly, your attention is directed to footnote disclosures found in the
December 31, 1997 Annual Report and particularly to Note 1 which includes a
summary of significant accounting policies.

Basis of Consolidation

The consolidated financial statements include the accounts of Spatializer Audio
Laboratories, Inc. and its wholly owned subsidiaries, Desper Products, Inc. and
MultiDisc Technologies, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.

Revenue Recognition

The Company accrues foundry revenues based on licensee royalty reports,
management estimates and reports from third parties. Under the terms of its
license agreements, the Company has the right to conduct periodic royalty
audits. During the quarter ended March 31, 1998, it exercised this right with
regard to a major customer. Based upon the audit results, in the quarter ending
March 31, 1998, the Company accrued royalty revenue of $362,750 from this
foundry licensees. In addition, the audit findings identified potential
underpayments by this licensee relating to 1997, which the Company has not
accrued. On June 11, 1998, the Company reached an agreement in principle with
this customer which will result in the payment by June 30, 1998 of $350,000 to
settle this claim. The Company expects that per unit royalty revenues for the
second quarter of 1998 will be significantly lower than per unit royalty
revenues recognized in the first quarter of 1998. This would be exclusive of any
royalty revenues generated from advances on any new licensing transactions
consummated in the second quarter. 

Research and Development Expenditures

The Company expenses research and development expenditures as incurred.



                                       6

<PAGE>   7
(3)      LOSS PER SHARE

The following table presents options and warrants to purchase shares of common
stock that were outstanding during the three month periods ended March 31, 1998
and 1997 which were not included in the computation of diluted loss per share
because the impact would have been antidilutive:

<TABLE>
<CAPTION>
                            1998             1997
                          ---------        ---------
<S>                       <C>              <C>      
          Options         2,010,070        1,070,070
          Warrants          959,750          834,750
                          ---------        ---------
                          2,968,820        1,904,820
                          =========        =========
</TABLE>

(4)      COMPREHENSIVE INCOME

The Financial Accounting Standards Board issued Statement No. 130, Reporting
Comprehensive Income ("SFAS 130"), in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company adopted SFAS No. 130 January 1, 1998.
Comprehensive income (loss) is the change in equity of a business enterprise
during a period from transactions and all other events and circumstances from
nonowner sources. Other comprehensive income (loss) includes foreign currency
items, minimum pension liability adjustments, and unrealized gains and losses on
certain investments in debt and equity securities. The Company did not have
components of other comprehensive income (loss) during the three-month periods
ended March 31, 1998 and 1997. As a result, comprehensive loss is the same as
the net loss for the three-month periods ended March 31, 1998 and 1997.

(5)      SEGMENT REPORTING

The following table presents information about reported segment losses and
segment assets as of and for the three month periods ended March 31, 1998 and
1997.

<TABLE>
<CAPTION>
                                                     1998                                              1997
                                 ---------------------------------------------      ---------------------------------------------

                                                                    SEGMENT                                             SEGMENT
                                     DPI              MDT             TOTAL             DPI             MDT              TOTAL
                                 -----------      -----------      -----------      -----------      -----------      -----------
<S>                              <C>              <C>              <C>              <C>              <C>              <C>        
      Revenues from External
                   Customers     $   523,409      $        --      $   523,409      $   518,462      $        --      $   518,462

                Segment Loss        (215,259)        (673,882)        (889,141)        (461,568)        (505,785)        (967,353)

              Segment Assets       1,321,375          854,885        2,176,260        1,698,660          607,850        2,306,510
</TABLE>

The following is a reconciliation of reportable segment loss to the Company's
consolidated totals.

<TABLE>
<CAPTION>
          LOSS:                                          1998                  1997
                                                      -----------           -----------
<S>                                                   <C>                   <C>         
          Total Loss for Reportable Segments          $  (889,141)          $  (967,353)
          Other Corporate Expenses                        (31,071)              (59,486)
                                                      -----------           -----------
          Consolidated Total                          $  (920,212)          $(1,026,839)
                                                      ===========           ===========
</TABLE>



                                       7

<PAGE>   8

(6)      MAJOR CUSTOMERS

A substantial portion of the Company's licensing revenues are derived primarily
from running royalties based on usage and include revenues from three major
customers. The following customers comprised greater than 10% of total revenues
during the three months ended March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                 1998            1997
                              -----------     -----------
<S>                           <C>             <C>
             Customer A          63%             26%
             Customer B          16%             16%
             Customer C           5%             18%
             Customer D           2%             12%
</TABLE>

(7)       CONTINGENCIES

Legal

On August 29, 1996, the Court granted the Company's summary judgment motion in
its entirety and denied the motion by QSound in the pending patent infringement
litigation between the Company and QSound. In granting the Company's summary
judgment motion, the Court found that the Company's IC (Integrated Circuit) does
not infringe the QSound patent and denied QSound's motion with respect to
infringement. The Company's claim that the QSound patent is invalid was not
decided and, since the issues which the Court would need to consider on the
patent invalidity claim are similar to certain issues considered in the
infringement claim, QSound was granted the right to immediately appeal the
denial of its motion and trial on the invalidity issue was deferred until after
that appeal. In substance, the Court's finding confirms the Company's position
that there is no infringement by the Company's IC of any patent held by QSound
and that the claims by QSound were without merit. The Court of Appeals for the
Federal Circuit heard oral arguments on November 5, 1997. The parties are now
waiting for the decision of the appellate court. If the appeal is denied and the
Court's decision is confirmed on appeal, the Company intends to pursue the
remaining claims for damages and for a decision that the QSound patent is
invalid. If the appeal is granted and the Court's decision on the motion is
overruled, a trial on the merits would follow at which time the Company will
again assert its current position, which already was adopted in the grant of the
Company's summary judgment motion, and will assert its remaining claims against
QSound. QSound has appealed and the appeal is pending.


(8)      SUBSEQUENT EVENT

On April 14, 1998, the Company entered into a $5 million private placement of
which $3 million has been funded. In connection with the private placement, the
Company authorized 100,000 shares of a new Series A, 7% Convertible Preferred
Stock at a stated price of $50 per share and issued 60,000 shares for the $3
million investment. Of the balance of the $5 million, $1 million will be funded
within 45 days of the closing and $1 million will be funded between 60 and 120
days after the effective date of a registration statement covering the common
stock into which the Preferred Stock is convertible. In connection with the
private placement, the Company agreed to issue 1,000,000 common stock purchase
warrants, exercisable for three years and entitling the holders to acquire one
share of the Company's common stock for each warrant. Of the warrants, 750,000
are being issued to investors (of which 450,000 were issued) and 250,000
warrants are being issued to placement agents (of which 150,000 were issued).
The investor warrants are exercisable at 140% and the placement warrants are
exercisable at 120%, respectively, of the average closing bid price of the
Company's common stock for the 10 days preceding the closing. In addition, cash
placement fees of 10% will be paid. A related party of the Company received
50,000 of the 



                                       8
<PAGE>   9

placement agent warrants and $100,000 of the placement agent cash fee for
arranging $1 million of the current investment. The Company has responded to an
inquiry from NASDAQ and confirmed that based on the April 14, 1998 financing,
the Company meets the requirements for its continued listing on the NASDAQ Small
Cap Market. In addition to the private placement, during the first quarter of
1998 the Company received short term unsecured advances of $650,000 from a
related party, all of which are intended to be repaid with interest at 10% per
annum on or before December 31, 1998.

In the private placement, the participants were granted certain rights to
participate in the separate financing of approximately $6 million currently
being pursued by the Company to fund the commercial introduction of its
MultiDisc CD/DVD server technology

The following is proforma information for certain consolidated balance sheet
line items presented as if the sale of the $3 million of convertible preferred
stock had occurred on March 31, 1998.


<TABLE>
<CAPTION>
                                                            March 31, 1998
                                                    --------------------------------
                                                    As Reported          Pro Forma
                                                    -----------          -----------
<S>                                                 <C>                  <C>        
            Assets:
              Cash and Cash Equivalents             $   151,043          $ 2,851,043

            Shareholder's Equity:
              Convertible Preferred Stock,
                $.01 par value                               --                  600
              Additional Paid in Capital             41,528,772           44,228,172
</TABLE>



                                       9
<PAGE>   10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS



The following discussion and analysis relates to the financial condition and
results of operations of Spatializer Audio Laboratories, Inc. and subsidiaries
(the "Company") for the three-month period ended March 31, 1998, compared with
the three-month period ended March 31, 1997

RESULTS OF OPERATIONS

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998, COMPARED TO THE THREE-MONTH
PERIOD ENDED MARCH 31, 1997


REVENUES

Revenues increased from $518,000 for the three-month period ended March 31, 1997
to $523,000 for the current period in 1998, an increase of 1%. Revenues include
royalties pertaining to the licensing of Spatializer(R) audio signal processing
designs and sales of professional recording systems and consumer products.

The increase in revenues is attributed primarily to an increase in recurring
royalties for the licensing of the Spatializer technologies and on chip foundry
sales incorporating the usage of Spatializer(R) advanced audio solutions by the
Company's licensees.

Royalty revenue in the current quarter represented virtually all of the
Company's revenue while comparable period sales last year included $121,000 of
product sales, which have been virtually discontinued. The Company made the
decision late last year to discontinue sales of such products in order to focus
its efforts on licensing and software-only products.

Gross profit increased from $454,000 (88% of revenues) for the three-month
period ended March 31, 1997, to $503,000, (96% of revenues) in the current
period in 1998, an increase of 11%. Gross profit and increased due to the
increase in revenue as well as the shift in product mix to royalty revenues,
which provide a higher margin than product revenues.

OPERATING EXPENSES

The operating expenses decreased from $1,483,000 (286% of revenues) for the
three-month period ended March 31, 1997 to $1,401,000 (268% of revenue) for the
current period in 1998, a decrease of 6%. The reduction in operating costs is a
direct result of continued cost controls implemented last year. The effects of
these costs controls can be seen primarily in the General and Administrative
departments due to lower payroll and legal expenses.

       GENERAL AND ADMINISTRATIVE

General and administrative costs declined from $573,000 for the three-month
period ending March 31, 1997 to $440,000 for the current period in 1998, a
decrease of 23%. The reduction in operating costs is a direct result of
continued cost controls implemented last year as well as a reduction in legal
fees pertaining to the Q-Sound litigation.

       RESEARCH AND DEVELOPMENT

Research and Development costs increased from $569,000 for the three-month
period ended March 31, 1997 to $600,000 for the current period in 1998 an
increase of 5%. The increase in research and development expense was due to the
increased investment in MDT's research and development activity particularly for
prototypes of the MultiDisc eXpandable Network Server, XNSTM technology
partially offset by efficiencies in focusing research and development at DPI.



                                       10
<PAGE>   11

MDT, which began operations on June 24, 1996, represented approximately 71% or
$427,000 of the total research and development costs of $600,000 for the
three-month period ended March 31, 1998. In addition, the Company continued
efforts to identify, validate, and develop new products at DPI. Specific
engineering efforts were directed toward porting support of N-2-2(TM) - Digital
Virtual Surround technologies to current and potential licensees during the
quarter and toward an advanced version of enCompass(TM), an interactive,
real-time 3-D audio positioning technology.

         SALES AND MARKETING

Sales and marketing costs increased from $341,000 for the three-month period
ended March 31, 1997 to $361,000 for the current period in 1998, an increase of
6%. The increase is attributed to the hiring of an additional sales executive at
DPI, and the initiation of marketing activity at MDT as it enters its next phase
of development.

NET LOSS

The net loss declined from $1,027,000 (198% of revenues) in the three month
period ended March 31, 1997 to $920,000 (176% of revenues) for the current
period in 1998, a decrease of 10%. The decreased net loss for the period is
primarily a result of the increase in gross profit and cost savings realized by
the continuation of the Company's cost cutting measures begun last year.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company had $151,000 in cash and cash equivalents as
compared to $577,000 at December 31, 1997. The decrease in cash and cash
equivalents is attributed to cash used for the development of MDT's principal
technology demonstrators and cash used in other operating activities. The
Company had a working capital deficit of $618,000 at March 31, 1998 as compared
with working capital of $283,000 at December 31, 1997. The Company's future cash
flows are expected to come primarily from the audio signal processing licensing
business' Foundry and Original Equipment Manufacturers' ("OEM") royalties,
common and/or preferred stock issuances including warrant and option exercises,
or through venture or strategic investors in MDT. At March 31, 1998 the Company
had five Foundry licensees, sixty-nine OEM Licensees and sixteen authorized
customers for its audio signal processing business as compared with five Foundry
licensees and sixty-two OEM Licensees and fourteen authorized customers at
December 31, 1997. The Company is actively engaged in negotiations for
additional audio signal processing licensing arrangements which will generate
additional cash flow without imposing any substantial costs on the Company.

The Company continues to have no material long-term obligations and has no
present commitments or agreements which would require any long-term debt or
obligations to be incurred. The Company owed $112,500 to related parties as of
March 31, 1998 and at December 31, 1997.

On April 14, 1998, the Company entered into a $5 million private placement of
which $3 million has been funded. In connection with the private placement, the
Company authorized 100,000 shares of a new Series A, 7% Convertible Preferred
Stock at a stated price of $50 per share and issued 60,000 shares for the $3
million investment. Of the balance of the $5 million, $1 million will be funded
within 45 days of the closing and $1 million will be funded between 60 and 120
days after the effective date of a registration statement covering the common
stock into which the Preferred Stock is convertible. In connection with the
private placement, the Company agreed to issue 1,000,000 common stock purchase
warrants, exercisable for three years and entitling the holders to acquire one
share of the Company's common stock for each warrant. Of the warrants, 750,000
are being issued to investors (of which 450,000 were issued) and 250,000
warrants are being issued to placement agents (of which 150,000 were issued).
The investor warrants are exercisable at 140% and the placement warrants are
exercisable at 120%, respectively, of the average closing bid price of the
Company's common stock for the 10 days preceding the closing. 



                                       11
<PAGE>   12

In addition, cash placement fees of 10% will be paid. A related party of the
Company received 50,000 of the placement agent warrants and $100,000 of the
placement agent cash fee for arranging $1 million of the current investment.

Holders of the Series A Preferred Stock have a right to convert their shares, at
their option on the earlier of (x) ninety (90) days after issuance or (y) on the
effective date of this Registration (the "Conversion Date") with such conversion
to be based on a per share conversion price ("Conversion Price") equal to the
lesser of a price that reflects a discount (the "Conversion Discount") to the
average of any three (3) consecutive closing bid prices for the Company's Common
Stock within twenty (20) trading days immediately prior to the conversion date
(the "Floating Conversion Price") or a price which is equal to one hundred
thirty percent (130%) of the closing bid prices of the Company's Common Stock
for the ten (10) trading days immediately preceding the date of issuance (the
"Fixed Conversion Price") provided that in determining the Conversion Price, the
holder shall not count any day on which its sales account for greater than
twenty percent (20%) of the volume of the Company's Common Stock and on which
the holder has sales in the last hour of trading. The Conversion Discount shall
be equal to fifteen percent (15%) if the Conversion Rights are exercised within
one hundred twenty (120) days of first issuance of the Series A Preferred Stock,
shall be equal to seventeen and one-half percent (17.5%) if the Conversion
Rights are exercised after one hundred twenty (120) days and prior to one
hundred forty-nine days of first issuance of the Series A Preferred Stock; and
shall be equal to twenty percent (20%) if the Conversion Rights are exercised
after one hundred fifty (150) days from first issuance of the Series A Preferred
Stock. The time periods are adjusted in the event that a Registration Statement
becomes effective prior to the 90th day and the applicable Conversion Discount
shall increase by five percent (5%) if the Company is de-listed on NASDAQ. In
addition, the percentage of shares that can be converted at any one time is
limited during such time periods and the holders cannot own more than 4.99% of
the equity of the Company after the Conversion.

The beneficial conversion feature of the Series A Preferred Stock will be
recorded as a dividend using the most favorable conversion terms available to
the shareholder to calculate the dividend in accordance with EITF Topic D-60.
Since the Company has an accumulated deficit and, under Delaware Law, must
charge dividends against additional paid in capital, the net impact of recording
the beneficial conversion feature is zero since both sides of the entry are
recorded in additional paid in capital.

In the private placement, the participants were granted certain rights to
participate in the separate financing of approximately $6 million currently
being pursued by the Company to fund the commercial introduction of its
MultiDisc CD/DVD server technology.

Funds generated by these financing activities as well as cash generated from the
Company's existing operations is expected to be sufficient for the Company to
meet its operating obligations and the anticipated additional research,
development, and commercial prototype cost for the MultiDisc business during the
next twelve months. However, if the $6 million MultiDisc funding is not
completed, the Company will require additional capital, and need to identify
other debt, equity or strategic investment sources to complete the research
development and commercial introduction of the MultiDisc CD/DVD server
technology and for marketing costs related to such activities. If the Company is
unsuccessful in completing the MultiDisc funding management will be required to
modify or delay the timing of the additional MultiDisc development and marketing
activities. Currently, the revenues from the audio business are insufficient
to fund the MDT operations and to sustain the corporate operating costs. Thus,
unless there is a substantial increase in the operating results for the
Company's audio division, or financing activities are successful, the Company
will not have the capital resources to pursue its current business plan on a
longer term basis.

 The Company has responded to an inquiry from NASDAQ and confirmed that based on
the April 14, 1998 financing, the Company meets the requirements for its
continued listing on the NASDAQ Small Cap Market. In addition to the private
placement, during the first quarter of 1998 the



                                       12
<PAGE>   13

Company received short term unsecured advances of $650,000 from a related party,
all of which are intended to be repaid with interest at 10% per annum on or
before December 31, 1998.



                                       13
<PAGE>   14

                           PART II. OTHER INFORMATION


ITEM 1.        LEGAL PROCEEDINGS

Reference is made to the Company's Form 10-K for the year ended December 31,
1997 with respect to the Company's litigation with QSound Labs, Inc. No material
developments in such litigation occurred during the three-month period ended
March 31, 1998.


ITEM 2.        CHANGES IN SECURITIES

None


ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the security holders of the Company
either through solicitation of proxies or otherwise in the first quarter of the
fiscal year ending December 31, 1998.


ITEM 5.        OTHER INFORMATION

None


ITEM 6.        EXHIBITS AND REPORTS ON FORM 8K

(a)            21.1     Schedule of Subsidiaries of the Company

(b)            None



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<PAGE>   15
                                   SIGNATURES

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

Dated:  June 25, 1998


                                        SPATIALIZER AUDIO LABORATORIES, INC.
                                        (REGISTRANT)


                                          /s/ STEVEN D. GERSHICK
                                        ----------------------------------------
                                          STEVEN D. GERSHICK
                                          President & Chief Executive Officer


                                          /s/ HENRY R. MANDELL
                                        ----------------------------------------
                                          HENRY R. MANDELL
                                          Senior Vice President, Finance
                                          Chief Financial Officer