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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended: March 31, 2008
 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.
  Delaware
    
    95-4484725(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 2060 East Avenida de Los ArbolesSuite D190, Thousand Oaks, California 91362-1376
 Telephone Number: (408) 453-4180
  Yes þ No o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ  Yes o No þ




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    2Item 1. FINANCIAL STATEMENTS
    
    
    2Item 2. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATOINS
    
    
    9Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
    
    
    13Item 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATION
    
    
    14Item 1. LEGAL PROCEEDINGS
    
    
    14Item 1A. RISK FACTORS
    
    
    14Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
    
    
    14Item 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    14Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    14Item 5. OTHER INFORMATION
    
    
    14Item 6. EXHIBITS
    
    
    15SIGNATURES
    
    
    15EXHIBIT 31.1EXHIBIT 32.1EXHIBIT 31EXHIBIT 32




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PART I. FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
 March 31,
    
    December 31,2008
    
    2007(unaudited)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    1,527,128
    
    
    $
    582,019Short Term Investments
    
    
    
    
    
    
    1,000,000Prepaid Expenses and Deposits
    
    
    7,842
    
    
    
    22,989Total Current Assets
    
    
    1,534,970
    
    
    
    1,605,008Total Assets
    
    $
    1,534,970
    
    
    $
    1,605,008LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Note Payable
    
    
    
    
    
    
    9,680Accounts Payable
    
    
    31,521
    
    
    
    900Accrued Wages and Benefits
    
    
    
    
    
    
    1,323Accrued Professional Fees
    
    
    
    
    
    
    36,000Accrued Expenses
    
    
    10,735
    
    
    
    Total Current Liabilities
    
    
    42,256
    
    
    
    47,903Commitments and ContingenciesShareholders Equity:Common shares, $.01 par
value, 300,000,000 shares
authorized, 65,000,000
shares issued and
outstanding at March 31,
2008 and December 31, 2007.
    
    
    650,000
    
    
    
    650,000Additional Paid-In Capital
    
    
    46,634,856
    
    
    
    46,634,856Accumulated Deficit
    
    
    (45,792,141
    )
    
    
    (45,727,751
    )Total Shareholders Equity
    
    
    1,492,714
    
    
    
    1,557,105$
    1,534,970
    
    
    $
    1,605,008
 See notes to consolidated financial statements (following).
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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 For the Three Month PeriodEndedMarch 31,
    
    
    
    
    
    March 31,2008
    
    
    
    
    
    2007Revenues:Royalty Revenues
    
    $
    0
    
    
    
    
    
    
    $
    359,6840
    
    
    
    
    
    
    
    359,684Cost of Revenues
    
    
    0
    
    
    
    
    
    
    
    31,493Gross Profit
    
    
    0
    
    
    
    
    
    
    
    328,191Operating Expenses:General and Administrative
    
    
    70,682
    
    
    
    
    
    
    
    97,157Research and Development
    
    
    Sales and Marketing
    
    
    70,682
    
    
    
    
    
    
    
    97,157Operating Profit(Loss)
    
    
    (70,682
    )
    
    
    
    
    
    
    231,034Interest and Other Income
    
    
    11,134
    
    
    
    
    
    
    
    3,041Interest and Other Expense
    
    
    
    
    
    
    
    
    
    
    11,134
    
    
    
    
    
    
    
    3,041Income (Loss) Before Income Taxes
    
    
    (59,548
    )
    
    
    
    
    
    
    234,075Income Taxes
    
    
    (4,842
    )
    
    
    
    
    
    
    (418
    )Net Income (Loss)
    
    $
    (64,391
    )
    
    
    
    
    
    $
    233,657Basic and Diluted Earnings Per Share
    
    $
    (0.00
    )
    
    
    
    
    
    $
    0.00Weighted Average Shares Outstanding
    
    
    65,000,000
    
    
    
    
    
    
    
    48,763,383
 See notes to consolidated financial statements (following).
 [Balance of Page Intentionally Left Blank]
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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
 Three Months EndedMarch 31,2008
    
    2007Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    (64,391
    )
    
    $
    233,657Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and Amortization
    
    
    
    
    
    
    5,840Net Change in Assets and Liabilities:Accounts Receivable and Employee Advances
    
    
    
    
    
    
    29,277Prepaid Expenses and Deposits
    
    
    15,147
    
    
    
    (16,062
    )Accounts Payable
    
    
    30,621
    
    
    
    (32,136
    )Accrued Wages and Benefits
    
    
    (1,323
    )
    
    
    (686
    )Accrued Professional Fees
    
    
    (36,000
    )
    
    
    (26,900
    )Accrued Commissions
    
    
    
    
    
    
    (100
    )Accrued Expenses
    
    
    10,735
    
    
    
    1,000Deferred Revenue
    
    
    
    
    
    
    313,116Net Cash Provided By (Used In) Operating Activities
    
    
    (45,211
    )
    
    
    507,006Cash Flows from Investing Activities:Purchase/Disp of Property and Equipment
    
    
    
    
    
    
    Increase in Capitalized Patent and Technology Costs
    
    
    
    
    
    
    Net Cash Provided By (Used in) Investing Activities
    
    
    
    
    
    
    Cash flows from Financing Activities:Issuance (Repayment) of Notes Payable
    
    
    (9,680
    )
    
    
    (9,670
    )Net Cash Provided by Financing Activities
    
    
    (9,680
    )
    
    
    (9,670
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    (54,891
    )
    
    
    497,336Cash and Cash Equivalents, Beginning of Period
    
    
    1,582,019
    
    
    
    228,940Cash and Cash Equivalents, End of Period
    
    $
    1,527,128
    
    
    $
    726,276Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    Income Taxes
    
    
    4842
    
    
    
    418
 See notes to consolidated financial statements (following).
 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 LaboratoAudio Laboratories, Inc. and Desper Products, Inc.
  4




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This called into question
the ability of the Company to operate as a going concern
     (2) Significant Accounting Policies
 Basis of Consolidation 
 Revenue Recognition 
 Deferred Revenue
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Concentration of Credit Risk 
    Cash and Cash Equivalents 
 Customers Outside of the U.S. 
 Major Customers 
 Property and Equipment 
 Intangible Assets 
 Earnings Per Share 
 Stock Option Plan  Accounting for Stock-Based
Compensation, as amended
 Share Based Payment
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Impairment
of Long-Lived Assets and Assets to be Disposed of Accounting for the Impairment of Long-Lived Assets,
 Segment Reporting Disclosures about Segments of an Enterprise
and Related Information
 Income Taxes
 Recent Accounting Pronouncements
  Use of Estimates
 Fair Value of Financial Instruments
 (3) Notes Payable
  (4) Shareholders Equity
  (5) Capitalization
  7




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(6) Net Operating Loss Carryforwards
 As a result of the events described in Item 5
below and the resulting change of control of the Company, it is expected that these net operating
loss carry-forwards will not be utilized to offset taxable income generated by the Company after
2007
 (7) Stock Options
  WEIGHTED-AVERAGEExercisable
    
    Number
    
    Exercise PriceOptions outstanding at December 31, 2005
    
    
    2,381,666
    
    
    
    2,635,000
    
    
    $
    0.11Options granted
    
    
    
    
    
    
    500,000
    
    
    $
    0.10Options exercised
    
    
    
    
    
    
    (0
    )
    
    $
    Options forfeited/expired
    
    
    
    
    
    
    (325,000
    )
    
    $
    0.31Options outstanding at December 31, 2006
    
    
    2,726,666
    
    
    
    2,810,000
    
    
    $
    0.10Options granted
    
    
    
    
    
    
    (0
    )
    
    $
    0.10Options exercised
    
    
    
    
    
    
    (0
    )
    
    $
    Options forfeited/expired
    
    
    (976,666
    )
    
    
    (1,060,000
    )
    
    $
    0.10Options outstanding at December 31, 2007
    
    
    1,750,000
    
    
    
    1,750,000
    
    
    $
    0.09Options granted
    
    
    
    
    
    
    (0
    )
    
    $
    0.10Options exercised
    
    
    
    
    
    
    (0
    )
    
    $
    Options forfeited/expired
    
    
    (0
    )
    
    
    (0
    )
    
    $
    0.10Options outstanding at March 31, 2008
    
    
    1,750,000
    
    
    
    1,750,000
    
    
    $
    0.09
   2005NET INCOME (LOSS):As Reported
    
    $
    (81,515
    )Pro Forma
    
    $
    (89,715
    )BASIC AND DILUTED LOSS:As Reported
    
    $
    (0.00
    )Pro Forma
    
    $
    (0.00
    )
  8




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(8) Commitments and Contingencies
  Operating Lease Commitments
  
 Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
   Executive Overview
 
 There will be no more licensing revenue in the future under our
former business model, as the assets of the Company were sold on July 2, 2007.
   Approach to MD&A
  
    
    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;
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
    
    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.
  
    
    An understanding of our operating environment and its risks (see below and Item 1A of Part II of this
Form 10-Q)
    
    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
 Operating Environment
  
    
    Our Board of Directors determined it was in the Companys and its stockholders interests to
sell the Companys Assets, and such asset sale was consummated on July 2, 2007.
    
    The market for our stock may not remain liquid and the stock price may be subject to volatility
     10




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Critical Accounting Policies
      Key Components of the Financial Statements and Important Trends
   11




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Liquidity and Capital Resources.
  Liquidity and Capital Resources.
 Liquidity and Capital Resources.
 Results of Operations
 Revenues
  Net Loss
  Operating Expenses
  General and Administrative
  Research and Development
  Sales and Marketing
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Net Income (Loss)
       Net Operating Loss Carry forwards
 As a result of the events described in Item 5
and the resulting change of control of the Company, it is expected that these net operating loss
carry-forwards will not be utilized to offset taxable income generated by the Company after 2007
 Recently Issued Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  13




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Item 4T. Controls and Procedures
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. SUBSEQUENT EVENTS
  14




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ITEM 6. EXHIBITS
 31
    
    Rule 13a-14(a)/15d-14(a) Certification32
    
    Section 1350 Certification
 
 SIGNATURES
   SPATIALIZER AUDIO 
LABORATORIES, INC.
(Registrant)/s/ Jay GottliebJay GottliebChairman of the Board and President
(Principal Executive, Financial and Accounting Officer) 15