UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q/A*










(MARK
      ONE)þ
                Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
the quarterly period ended: September 30, 2008





OR





 ̈
            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  incorporation or
      organization)
            (IRS
      Employer Identification No.)





410
Park Avenue - 15th Floor,
New York, NY 10022


(Address
of principal corporate offices)





TELEPHONE
NUMBER: (212) 231-8359


(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 þ NO  ̈





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
the definitions of “large accelerated filer,” “accelerated filer” 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
                      (Do
      not check if a smaller reporting company)
                    Smaller
      Reporting Company þ






Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):


YES o NO þ





As of
September 30, 2008, there were 65,000,000 shares of the Registrant’s Common
Stock outstanding.




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


1


TABLE OF
CONTENTS





PART I. FINANCIAL INFORMATION
            2Item 1. FINANCIAL
      STATEMENTS (as restated)
            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











This
Amendment to the registrant’s Form 10-Q for the period ended September 30, 2008
is being filed in response to the Staff’s comment letters dated December 11.
2008; February 18, 2009; and March 27, 2009.





2


PART I.
FINANCIAL INFORMATION





SPATIALIZER
AUDIO LABORATORIES, INC.


AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEET





September
      30,
                                            
                                            
                                            December
      31,2008
                                            
                                            
                                            2007(unaudited)ASSETSCurrent
      Assets:Cash
      and Cash Equivalents
                                            
                                            $
                                            87,342
                                            
                                            
                                            $
                                            582,019Short
      Term Investments
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,000,000Prepaid
      Expenses and Deposits
                                            
                                            
                                            2,842
                                            
                                            
                                            
                                            22,989Total
      Current Assets
                                            
                                            
                                            90,184
                                            
                                            
                                            
                                            1,605,008Total
      Assets
                                            
                                            $
                                            90,184
                                            
                                            
                                            $
                                            1,605,008LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Note
      Payable
                                            
                                            
                                            
                                            
                                            
                                            
                                            9,680Accounts
      Payable
                                            
                                            
                                            965
                                            
                                            
                                            
                                            900Accrued
      Wages and Benefits
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,323Accrued
      Professional Fees
                                            
                                            
                                            
                                            
                                            
                                            
                                            36,000Accrued
      Expenses
                                            
                                            
                                            5,735Total
      Current Liabilities
                                            
                                            
                                            6,700
                                            
                                            
                                            
                                            47,903Commitments
      and ContingenciesShareholders’
      Equity:Common
      shares, $.01 par value, 300,000,000 shares authorized, 65,000,000 shares
      issued and outstanding at September 30, 2008 and December 31,
      2007.
                                            
                                            
                                            650,000
                                            
                                            
                                            
                                            650,000Additional
      Paid-In Capital
                                            
                                            
                                            46,634,856
                                            
                                            
                                            
                                            46,634,856Accumulated
      Deficit
                                            
                                            
                                            (47,201,372
                                            )
                                            
                                            
                                            (45,727,751
                                            )Total
      Shareholders’ Equity
                                            
                                            
                                            83,484
                                            
                                            
                                            
                                            1,557,105$
                                            90,184
                                            
                                            
                                            $
                                            1,605,008


See
notes to consolidated financial statements (following).
 3





SPATIALIZER
AUDIO LABORATORIES, INC.


AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(as
restated)


(unaudited)





For
      the Three
                                                                                                Month
      Period Ended
                                                                                              
                                                                                              For
      the Nine
                                                                                                Month
      Period EndedSeptember
      30,
                                                                                              
                                                                                              September
      30,
                                                                                              
                                                                                              September
      30,
                                                                                              
                                                                                              September
      30,2008
                                                                                              
                                                                                              2007
                                                                                              
                                                                                              2008
                                                                                              
                                                                                              2007Operating
      Expenses :General
      and Administrative
                                                                                              
                                                                                              $
                                                                                              7,747
                                                                                              
                                                                                              
                                                                                              $
                                                                                              36,803
                                                                                              
                                                                                              
                                                                                              $
                                                                                              116,428
                                                                                              
                                                                                              
                                                                                              $
                                                                                              172,8507,747
                                                                                              
                                                                                              
                                                                                              
                                                                                              36,803
                                                                                              
                                                                                              
                                                                                              
                                                                                              116,428
                                                                                              
                                                                                              
                                                                                              
                                                                                              172,850Operating
      Income (Loss)
                                                                                              
                                                                                              
                                                                                              (7,747
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (36,803
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (116,428
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (172,850)Interest
      and Other Income
                                                                                              
                                                                                              
                                                                                              0
                                                                                              
                                                                                              
                                                                                              
                                                                                              16,490
                                                                                              
                                                                                              
                                                                                              
                                                                                              12,649
                                                                                              
                                                                                              
                                                                                              
                                                                                              24,743Interest
      and Other Expense
                                                                                              
                                                                                              
                                                                                              0
                                                                                              
                                                                                              
                                                                                              
                                                                                              0
                                                                                              
                                                                                              
                                                                                              
                                                                                              0
                                                                                              
                                                                                              
                                                                                              
                                                                                              (2,311)0
                                                                                              
                                                                                              
                                                                                              
                                                                                              16,490
                                                                                              
                                                                                              
                                                                                              
                                                                                              12,649
                                                                                              
                                                                                              
                                                                                              
                                                                                              22,432Income
      (Loss) from
      Continuing              Operations
      Before Income Taxes
                                                                                              
                                                                                              
                                                                                              (7,747
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (20,313
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (103,779
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (150,418)Income
      Taxes
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              (4,842
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (418)Gain
      (Loss) from
      Continuing                 Operations
                                                                                              
                                                                                              
                                                                                              (7,747)
                                                                                              
                                                                                              
                                                                                              
                                                                                              (20,313
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (108,621)
                                                                                              
                                                                                              
                                                                                              
                                                                                              (150,836)Gain
      (Loss) from
      Discontinued              Operations
      (Note 9)
                                                                                              
                                                                                              
                                                                                              0
                                                                                              
                                                                                              
                                                                                              
                                                                                              492,655
                                                                                              
                                                                                              
                                                                                              
                                                                                              0
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,006,604Net
      Income (Loss)
                                                                                              
                                                                                              $
                                                                                              (7,747
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              472,342
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (108,621
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              855,768Basic
      and Diluted Earnings Per Share
                                                                                              
                                                                                              $
                                                                                              (0.00
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              0.01
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (0.00
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              0.02Weighted
      Average Shares Outstanding
                                                                                              
                                                                                              
                                                                                              65,000,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              65,000,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              65,000,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              58,338,824





See
notes to consolidated financial statements (following).
 4


SPATIALIZER
AUDIO LABORATORIES, INC.


AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)





For
      the Nine
                                                          Month
      Period Ended2008
                                                        
                                                        
                                                        2007Cash
      Flows from Operating Activities:Net
      Income (Loss)
                                                        
                                                        $
                                                        (108,621
                                                        )
                                                        
                                                        $
                                                        855,768Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Gain
      on Sale of Assets
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (515,077
                                                        )Depreciation
      and Amortization
                                                        
                                                        
                                                        —Net
      Change in Assets and Liabilities:Accounts
      Receivable and Employee Advances
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        74,828Prepaid
      Expenses and Deposits
                                                        
                                                        
                                                        20,147
                                                        
                                                        
                                                        
                                                        (13,138
                                                        )Accounts
      Payable
                                                        
                                                        
                                                        65
                                                        
                                                        
                                                        
                                                        (32,136
                                                        )Accrued
      Wages and Benefits
                                                        
                                                        
                                                        (1,323
                                                        )
                                                        
                                                        
                                                        (1,999
                                                        )Accrued
      Professional Fees
                                                        
                                                        
                                                        (30,265
                                                        )
                                                        
                                                        
                                                        (20,900
                                                        )Accrued
      Commissions
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (200
                                                        )Accrued
      ExpensesDeferred
      Revenue
                                                        
                                                        
                                                        —Net
      Cash Provided By (Used In) Operating Activities
                                                        
                                                        
                                                        (119,996
                                                        )
                                                        
                                                        
                                                        347,146Cash
      Flows from Investing Activities:Short
      Term Investments
                                                        
                                                        
                                                        1,000,000
                                                        
                                                        
                                                        
                                                        (1,000,000
                                                        )Net
      Proceeds from Asset Sale
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        649,812Net
      Cash Provided By (Used In) Investing Activities
                                                        
                                                        
                                                        1,000,000
                                                        
                                                        
                                                        
                                                        (350,188
                                                        )Cash
      Flows from Financing Activities:Cash
      Distribution
                                                        
                                                        
                                                        (1,365,000
                                                        )
                                                        
                                                        
                                                        0Issuance
      (Repayment) of Notes Payable
                                                        
                                                        
                                                        (9,680
                                                        )
                                                        
                                                        
                                                        14,531Issuance
      of Common Stock Net of Transaction Costs
                                                        
                                                        
                                                        0
                                                        
                                                        
                                                        
                                                        373,329Net
      Cash Provided By (Used In) Financing Activities
                                                        
                                                        
                                                        (1,374,680
                                                        )
                                                        
                                                        
                                                        387,860Increase
      (Decrease) in Cash and Cash Equivalents
                                                        
                                                        
                                                        (494,676
                                                        )
                                                        
                                                        
                                                        384,818Cash
      and Cash Equivalents, Beginning of Period
                                                        
                                                        
                                                        582,019
                                                        
                                                        
                                                        
                                                        228,940Cash
      and Cash Equivalents, End of Period
                                                        
                                                        $
                                                        87,342
                                                        
                                                        
                                                        $
                                                        613,758Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        $
                                                        2,311Income
      Taxes
                                                        
                                                        
                                                        4,842
                                                        
                                                        
                                                        
                                                        418


See
notes to consolidated financial statements (following).
 5


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.


Spatializer
was 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 Audio
Laboratories, Inc., a publicly held Yukon, Canada corporation, were exchanged
for an equal number of shares of our common stock. Our corporate office is
located at 410 Park Avenue - 15th Floor,
New York, NY 10022.





The
Company’s wholly-owned subsidiary, Desper Products, Inc. (“DPI”), was 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 DPI. DPI is a California corporation
incorporated in June 1986.





On
December 19, 2005, at a regularly scheduled board of directors meeting, the
board of directors of Spatializer discussed its then 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 current 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 such 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, instead reconvening the meeting 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 $162,366.15 with an
additional payment of $259,786 placed into escrow to be released ten days after
the closing of 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 the nine month indemnification period, the Company distributed
substantially all of its remaining cash assets to its stockholders, after
satisfying its liabilities, leaving a small cash residual. In April 2008, the
company made a cash distribution to its shareholders of $1,365,000, or
$.021/share. The Company has no plans to dissolve.





The
foregoing interim financial information is unaudited and was prepared from the
books and records of the Company. The financial information reflects all
adjustments necessary for a fair presentation of the financial condition,
results of operations and cash flows of the Company in conformity with generally
accepted accounting principles. All such adjustments were of a normal recurring
nature for interim financial reporting. Operating results for the three months
ended September 30, 2008 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2008. Accordingly, your attention
is directed to footnote disclosures found in the December 31, 2007 Annual Report
and particularly to Note 2 thereof, which includes a summary of significant
accounting policies.





6


The
foregoing financial information was 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.





(2)
Significant Accounting Policies





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





Revenue Recognition — The
Company recognized royalty revenue upon reporting of such royalties by
licensees. License revenues were recognized when earned, in accordance with the
contractual provisions, typically upon our delivery of contracted services or
delivery and contractual availability of licensed product. Royalty revenues were
recognized upon shipment of products incorporating the related technology by the
original equipment manufacturers (OEMs) and foundries, as reported by quarterly
royalty statements. The Company recognized revenue in accordance with SEC Staff
Accounting Bulletin (SAB) 104. The company’s only source of revenue is a nominal
amount of interest income.





Deferred Revenue - The Company
received royalty fee advances from certain customers in accordance with contract
terms. The Company did not require advances from all customers. Advances were
negotiated on a per contract basis. Cash received in advance of revenue earned
from a contract was recorded as deferred revenue until the related contract
revenue is earned under the Company’s revenue recognition policy. The Company
currently has no source of revenue.


Concentration of Credit Risk —
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash, cash equivalents and trade accounts
receivable. The Company places its temporary cash investments in certificates of
deposit in excess of FDIC insurance limits, principally at CitiBank FSB. At
September 30, 2008,  all cash and cash equivalents were on deposit at
one financial institution.





At
September 30, 2008, we did not have any accounts receivable.
At  September 30, 2007, we did not have any accounts
receivable.





The
Company performed ongoing credit evaluations of its customers and normally did
not require collateral to support accounts receivable. Due to the contractual
nature of sales agreements and historical trends, no allowance for doubtful
accounts had been provided.





The
Company did 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.
— The Company did not generate sales in the year to date period ended
September 30, 2008. Sales to foreign customers were 100% of total sales in the
year to date period ended September 30, 2007.





Major Customers — During the
quarter ended September 30, 2008, the Company did not generate revenue. During
the quarter ended September, 2007, the Company did not generate
revenue.





Property and Equipment —
Property and equipment were stated at cost. Major renewals and improvements are
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 were depreciated over the useful lives of the
asset ranging from 3 years to 5 years under the straight line method. All
property and equipment was written off upon completion of the sale of assets, in
June 2007.





7


Intangible Assets — Intangible
assets consist of patent costs and trademarks which are amortized on a
straight-line basis over the estimated useful lives of the patents which range
from five to twenty years. The weighted average useful life of patents was
approximately 11 years. All of our intangible assets have finite lives as
defined by Statement of Financial Accounting Standard (SFAS) 142. All intangible
assets were written off upon completion of the sale of assets, in June
2007.





Earnings Per Share — 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. For the quarter and
9-month periods ended September 30, 2008 and 2007, options to purchase 1,150,000
and 1,050,000 shares of common stock, respectively, were considered in the
computation of diluted income per share.





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, was recognized as
additional paid-in capital. The statements of operations for periods prior to
the effective date have not been restated.





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 replaced 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 adopted SFAS 157 effective January 1, 2008; the adoption had no material
effects 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.





8


Fair Value of Financial
Instruments — The carrying values of cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued liabilities at
December 31, 2007 and September 30, 2008 approximated fair value due to their
short maturity or nature.





(3)
Notes Payable





The
Company was indebted to the Premium Finance, Inc., an unrelated insurance
premium finance company. The balance was paid off in full in March
2008.





(4)
Shareholders’ Equity





During
the quarters ended September 30, 2008 and 2007, no shares were issued, cancelled
or converted, nor were any options granted or exercised.





(5)
Capitalization





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
ten (10) days after the closing of the transactions contemplated by the Asset
Purchase Agreement, on July 16, 2007.





(6)
Net Operating Loss Carryforwards





At
December 31 2007, we had net operating loss carry-forwards for Federal income
tax purposes of approximately $26,000,000 which were available to offset future
Federal taxable income, if any, through 2013. Approximately $21,700,000 of these
net operating loss carry forwards were subject to an annual limitation of
approximately $1,000,000.As a result of the
events described Management’s Discussion and Analysis of Financial Condition and
Results of Operations 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





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 un-issued common stock up to 10% of total
common shares outstanding at each calendar quarter, 4,876,339 as of March 31,
2007. Stock options were granted under the Plan with an exercise price equal to
the stock’s fair market value at the date of grant. 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-AVERAGEExercisable
                                    
                                    Number
                                    
                                    Exercise
      PriceOptions
      outstanding at December 31, 2005
                                    
                                    
                                    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, 2006
                                    
                                    
                                    1,750,000
                                    
                                    
                                    
                                    1,750,000
                                    
                                    
                                    $
                                    0.
      09Options
      granted
                                    
                                    
                                    
                                    
                                    
                                    
                                    (0
                                    )
                                    
                                    $
                                    —Options
      exercised
                                    
                                    
                                    
                                    
                                    
                                    
                                    (0
                                    )
                                    
                                    $
                                    —Options
      forfeited/expired
                                    
                                    
                                    (600,000
                                    )
                                    
                                    
                                    (600,000
                                    )
                                    
                                    $
                                    0.10Options
      outstanding at December 31, 2007
                                    
                                    
                                    1,150,000
                                    
                                    
                                    
                                    1,150,000
                                    
                                    
                                    $
                                    0.09Options
      granted
                                    
                                    
                                    
                                    
                                    
                                    
                                    (0
                                    )
                                    
                                    $
                                    —Options
      exercised
                                    
                                    
                                    
                                    
                                    
                                    
                                    (0
                                    )
                                    
                                    $
                                    —Options
      forfeited/expired
                                    
                                    
                                    (100,000
                                    )
                                    
                                    
                                    (100,000
                                    )
                                    
                                    $
                                    0.07Options
      outstanding at September 30, 2008
                                    
                                    
                                    1,050,000
                                    
                                    
                                    
                                    1,050,000
                                    
                                    
                                    $
                                    0.08





9


At
September 30, 2008 and 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 assumptions: expected dividend yield of 0%, risk-free
interest rate of 4.5%, expected volatility of 150% and an expected life of 5
years.





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 would have been
increased to the pro forma amounts indicated below:


2005NET
      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 of 0%, risk-free interest rate of 4.5%, expected volatility of
100% and an expected life of 3 years.





At
September 30, 2008 and December 31, 2007, the number of options exercisable and
fully vested was 1,050,000 and 1,150,000, respectively. The weighted-average
exercise price of those options was $0.09; the weighted average remaining
contractual term was 3 years; and the aggregate intrinsic value was zero per
share.





There
were no warrants outstanding at September 30, 2008 or 2007.





(8)
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, although at
the current time we are not party to any legal proceedings.


Operating
Lease Commitments





The
Company is not obligated under any leases as of September 30, 2008.





10


(9)
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
activities related to the disposed assets.  The applicable portion of
such data related to 2007 is summarized below.





For
      the Three
                                                                      Month
      Period Ended
                                                                    
                                                                    For
      the Nine
                                                                      Month
      Period EndedSeptember
      30,
                                                                    
                                                                    September
      30,
                                                                    
                                                                    September
      30,
                                                                    
                                                                    September
      30,2008
                                                                    
                                                                    2007
                                                                    
                                                                    2008
                                                                    
                                                                    2007Revenues
      :Royalty
      Revenues
                                                                    
                                                                    $
                                                                    0
                                                                    
                                                                    
                                                                    $
                                                                    30,107
                                                                    
                                                                    
                                                                    $
                                                                    0
                                                                    
                                                                    
                                                                    $
                                                                    750,706Cost
      of Revenues
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    464
                                                                    
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    63,269Gross
      Profit
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    29,643
                                                                    
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    687,437Operating
      Expenses :General
      and Administrative
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    52,065
                                                                    
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    195,9100
                                                                    
                                                                    
                                                                    
                                                                    52,065
                                                                    
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    195,910Income
      (Loss) from Discontinued Operations Before Gain on Sale of
      Assets
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    (22,422
                                                                    )
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    491,527Gain
      on Sale of Assets
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    515,077
                                                                    
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    515,077Gain
      (Loss) from Discontinued Operations
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    492,655
                                                                    
                                                                    
                                                                    
                                                                    0
                                                                    
                                                                    
                                                                    
                                                                    1,006,604





Item 2.Management’sDiscussion and
Analysis of Financial Condition and Results of
Operations





This
information should be read in conjunction with Management’s Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the
audited consolidated financial statements and the notes thereto included in the
Form 10-K and the unaudited interim consolidated financial statements and notes
thereto included in this report.





This
report contains forward-looking statements, within the meaning of the Private
Securities Reform Act of 1995, which are subject to a variety of risks and
uncertainties. Our actual results, performance or achievements may differ
significantly from the results, performance or achievements expressed or implied
in such forward-looking statements.





Executive
Overview





Revenues
decreased to $0 for the quarter ended September 30, 2008, compared to $30,107
for the quarter ended September 30, 2007, a decrease of 100%. Revenues were
previously comprised of royalties pertaining to the licensing of
Spatializer  audio signal processing algorithms and circuit designs.
Revenues in the current quarter reflect the sale of all operating assets during
2007. Revenues are not expected to continue and a key issue discussed below is
the wind-down of revenue streams in fiscal 2006 and fiscal 2007 due to the
discontinuation of operations.





Net loss
was $7,747 for the quarter ended September 30, 2008, ($0.00) basic and diluted
per share, compared to a net gain of $472,342, $0.01 per share for the quarter
ended September 30, 2007. The net loss for the current period is primarily the
result of the sale of all of the Company’s operating assets during 2007.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.


At
September 30, 2008, we had $87,342  in cash and cash equivalents as
compared to $582,000 at December 31, 2007. The decrease in cash resulted
primarily from the company distributing $1,365,000, or .021 per share, to
shareholders in April 2008.  Additionally, we liquidated $1,000,000 in
short term investments and contributed those funds towards the
distribution.  We had working capital of $83,484 at September 30,
2008, as compared with working capital of $1,557,100 at December 31,
2007





11


We ceased
commercial operations in 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.





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 (see below and
      Item 1A of Part II of this Form
10-Q/A)





•
            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





We
operate in a very difficult business environment. This environment impacts us in
various ways, some of which are discussed below:





•
            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





Certain
other risk factors are set forth in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 on file with the Securities and Exchange
Commission.


12





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, Inc. 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 included a nine month window within
which to file any claims for breaches of our representations and warranties.
Although we believed our representations and warranties to be true and complete,
it was possible that an unforeseen claim may arise that could put financial
demands on the Company.





We had no
source(s) of revenue beginning in the third quarter of 2007. Based on current
and forecasted 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 have marshaled our
assets and satisfied our liabilities and, after the contractual nine month
indemnification period relating to the sale of assets on July 2, 2007, other
than a small cash residual, distributed the remaining cash assets of the Company
($1,365,000) or .021/share.





Upon
distribution of the cash assets, each of Messrs. Mandell and Civelli
resigned from the Board of Directors and the new investor group involved in the
April 25, 2007 stock offering took control of management of the Company on April
28, 2008. 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, 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.





As
previously reported in an April 26, 2007 Form 8-K filing, Registrant entered
into a Common Stock Purchase Agreement dated April 25, 2007 (the “SPA”) with Jay
A. Gottlieb, Greggory A. Schneider and Helaine Kaplan (collectively, the
“Investors”) pursuant to which Registrant sold and the Investors collectively
purchased 16,236,615 shares of common stock of Registrant for an aggregate
purchase price of $422,152.15. Of the total shares sold to the Investors,
Mr. Gottlieb purchased 8,739,115 shares of Registrant’s common stock for an
aggregate purchase price of $227,217.15. Pursuant to the SPA, Registrant agreed,
after the sale of substantially all of its assets to DTS, Inc. and its
subsidiary (the “Asset Sale”), to take such corporate actions as may be
reasonably required to appoint Mr. Gottlieb or other designee of the Investors
to the Board of Directors. The Asset Sale was consummated on July 2, 2007. On
August 13, 2007, the Board of Directors appointed Jay A. Gottlieb as a
director of Registrant.





There are
no family relationships between Mr. Gottlieb and any director or executive
officer of Registrant or any of its subsidiaries. Other than as stated herein,
neither Mr. Gottlieb nor any member of his immediate family has engaged in
any transactions with Registrant of the sort described under Item 404(a) of
Regulation S-K.





As
contemplated under the SPA, Registrant distributed substantially all of its
remaining cash assets to its stockholders on April 22, 2008, after satisfying
its liabilities and leaving a $109,915 cash residual. Effective April 28, 2008,
Henry Mandell and Carlo Civelli resigned from the Board of Directors
of Registrant, the only Director then remaining on the Board being
Mr. Gottlieb. As permitted under Delaware law, specific provisions of
Registrant’s Bylaws and provided for in the SPA, on April 29, 2008,
Mr. Gottlieb appointed Messrs. Greggory Schneider and
Michael Pearce to fill out the terms of Messrs. Mandell and Civelli
until the next election of Directors. Concurrently, the following officerships
were also assigned, effective immediately: Mr. Gottlieb (Chairman of the
Board, Secretary and Treasurer) and Mr. Schneider (Chief Financial
Officer). As a result of the foregoing resignations and appointments, Registrant
experienced a change in control. Such Change of Control was the subject of
Schedule 14-F Information Statement filed with the SEC on May 7, 2008 and sent
shareholders on or about May 16, 2008.





13


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 have identified three
accounting policies that we believe are critical to an understanding of our
financial statements. These are important accounting policies that require
management’s most difficult, subjective judgments.





The first
critical accounting policy relates to revenue recognition. Royalty revenues are
recognized upon shipment of products incorporating the related technology by the
original equipment manufacturers (OEMs) and foundries. These revenues are
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 are received after our required reporting deadlines, sometimes due to
contractual requirements. In such cases, management tries to obtain verbal
reports or informal reports from the Licensee. In the absence of such
information, management may utilize 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 expense 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) are expensed as incurred and included in Research
and Development expenses. Such algorithms are 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. The Company
continually reviews 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 reviews 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 is determined to be unable to recover its carrying
value, then intangible assets, if any, are written down to fair value first,
followed by the other long-lived assets. 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 consist primarily of patents. We
capitalize 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. Management
believes, based on the negotiated purchase price for the sales of its assets,
that the fair value of its assets exceeds the recorded net 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 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.





14


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 current fiscal period. 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 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 underManagement’s Discussion
and Analysis of Financial Condition and Results of Operations.





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





Results
of Operations





Continuing
Operations





Loss
from Continuing Operations





The Loss
from continuing operations for the three months ended September 30, 2008 was
$7,747, compared to a loss of $20,313 in the comparable period last
year.





Operating
Expenses





Operating
expenses for continuing operations in the three months ended September 30, 2008
were $7,747, compared to operating expenses of $36,803 in the comparable period
last year. The decrease in operating expenses resulted from a decrease in
general and administrative expense  due to the suspension of
operations.





Discontinued
Operations





Revenues





Revenues
from discontinued operations decreased to $0 for the quarter ended September 30,
2008, compared to $30,107 for the quarter ended September 30, 2007, a decrease
of 100%. The decreased revenue is the result of the cessation of business
activities during 2007.





15


Operating
Expenses





Operating
expenses for discontinued operations in the three months ended September 30,
2008 were $0, compared to operating expenses of $52,065 in the comparable period
last year. The decrease in operating expenses resulted from a decrease in
general and administrative expense due to the suspension of
operations.





Research
and Development





Research
and Development expenses for discontinued operations in the three months ended
September 30, 2008 were $0, compared to research and development expenses of $0
in the comparable period last year.





Sales
and Marketing





Sales and
Marketing expenses for discontinued operations in the three months ended
September 30, 2008 were $0, compared to sales and marketing expenses of $0 in
the comparable period last year.





Loss
from Discontinued Operations





The loss
from discontinued operations for the three months ended September 30, 2008 was
$0, compared to income of $492,655 in the comparable period last
year.





Net
Income (Loss)





Net loss
was $7,747 for the quarter ended September 30, 2008, $(0.00) basic and diluted
per share, compared to net income of $472,342 or $0.01 per share, for the
quarter ended September 30, 2007. The decrease for the current period is
primarily the result of the cessation of operations in 2007.





At
September 30, 2008, we had $ 87,342 in cash and cash equivalents as compared to
$582,000 at December 31, 2007. The decrease in cash resulted primarily from the
use of cash to sustain ongoing expenses and a $1,365,000 ($.021 per share) cash
distribution that as paid to shareholders in April
2008.  Additionally, we contributed $1,000,000 from the sale of short
term investments as part of the distribution.  We had working capital
of $83,484 at September 30, 2008, as compared with working capital of $1,557,100
at December 31, 2007.





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. (“DPI”), 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 marshaled
our assets and after a contractual nine month indemnification period relating to
the sale of assets on July 2, 2007, we distributed April 22, 2008 the remaining
cash assets of the Company, after satisfying liabilities and leaving a small
cash residual. Upon distribution of the cash assets, each of
Messrs. Mandell and Civelli resigned April 28, 2008, from the Board of
Directors and the new investor group involved in the April 25, 2007 stock
offering took control of management 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





16


Net
Operating Loss Carry forwards





At
December 31, 2007, we had net operating loss carry-forwards for Federal income
tax purposes of approximately $26,000,000 which were available to offset future
Federal taxable income, if any, through 2013. Approximately $21,700,000 of these
net operating loss carry forwards were subject to an annual limitation of
approximately $1,000,000.As a result of the
events described in Management’s Discussion and Analysis of Financial Condition
and Results of Operations 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





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 adopted SFAS 157 effective January 1, 2008; the
adoption had no material effects on its financial position, results of
operations and cash flows.





Item 3.Quantitativeand
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 September 30, 2008. A
hypothetical decrease of 100 basis points in interest 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 4T.Controlsand
Procedures





As of
September 30, 2008, the Company carried out an evaluation, under the supervision
and with the participation of management, including the Company’s Principal
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act
of 1934.  Based on that evaluation, the Company’s Principal Executive
Officer and Principal Financial Officer have concluded that the Company’s
disclosure controls and procedures as of the end of the period covered by this
report were ineffective.





As of
December 31, 2007 and March 31, 2008, the Company had identified a material
weakness in its internal control over financial reporting related to lack of
segregation of duties. As has been reported concurrently in Form 10-Q/A for the
quarter ended June 30, 2008, in order to address this material weakness, 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
fact, 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.  In addition, 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 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, reflects a substantive improvement over that of recent prior
years. Consequently, based upon the Company’s evaluation, under the supervision
and with the participation of management, including the Company’s Principal
Executive Officer and Principal Financial Officer, it has been concluded that
the material weakness in internal control existing as of December 31, 2007 and
March 31, 2008 has been remediated as of September 30, 2008.





17


PART
II. OTHER INFORMATION




ITEM
1. 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 October 30, 2008, 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, given the size of our Company, 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 new legal proceedings could change in the
future.





ITEM 1A.
RISKFACTORS





In
addition to the other information set forth in this Quarterly Report,
stockholders should carefully consider the factors discussed in Item 1A, Risk
Factors, of our Annual Report on Form 10-K for the year ended December 31, 2007,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only
risks facing the Company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or operating results.





ITEM 2.
UNREGISTEREDSALES OF EQUITY SECURITIES
AND USE OF PROCEEDS





There
were no unregistered sales of equity securities or repurchases during the period
covered by this report.





ITEM 3.
DEFAULTSUPON
SENIOR SECURITIES


None





ITEM4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS





None





ITEM 5.
SUBSEQUENT
EVENTS





Effective
Date of previously announced 1 for 10 Reverse Split will be Friday, November 21,
2008, or as soon thereafter as possible under SEC Rule 10b-17.





ITEM6.
EXHIBITS





31
            
            Rule
      13a-14(a)/15d-14(a) Certification32
            
            Section
      1350 Certification





18


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:
May 6, 2009





SPATIALIZER
      AUDIOLABORATORIES,
      INC.(Registrant)/s/ JAY GOTTLIEBJay GottliebChairman
      of the Board, President, Secretary, Treasurer and Principal Executive
      Officer/s/ GREGGORY
  SCHNEIDERGreggory
      SchneiderDirector,
      Chief Financial and Principal Financial Officer






19


Exhibit
31.1





RULE
13a-14(a)/15d-14(a) CERTIFICATION





I,
Jay Gottlieb, certify that:




1.  I have
reviewed this quarterly report on Form 10-Q/A of Spatializer Audio Laboratories,
Inc.(“registrant”) for the period ended September 30, 2008;


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 covered in this report;


4.  The
registrant’s other certifying officer(s) 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(s) 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 GottliebJay GottliebChairman
      of the Board, President, Secretary, Treasurer and Principal Executive
      Officer


20


Exhibit
31.2





RULE
13a-14(a)/15d-14(a) CERTIFICATION





I,
Greggory Schneider, certify that:




1.  I have
reviewed this quarterly report on Form 10-Q/A of Spatializer Audio Laboratories,
Inc.(“registrant”) for the period ended September 30, 2008;


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 covered in this report;


4.  The
registrant’s other certifying officer(s) 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(s) 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):







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
      SchneiderGreggory
      SchneiderDirector,
      Chief Financial and Principal Financial Officer


21


Exhibit
32.1





SECTION
1350 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), the undersigned
officer of Spatializer Audio Laboratories, Inc. (the “Company”) hereby certifies
with respect to the Quarterly Report on Form 10-Q/A of the Company for the
quarter ended September 30, 2008 as filed with the Securities and Exchange
Commission (the “10-Q 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 GottliebJay GottliebChairman
      of the Board, President, Secretary, Treasurer and Principal Executive
      Officer






22


Exhibit
32.2





SECTION
1350 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), the undersigned
officer of Spatializer Audio Laboratories, Inc. (the “Company”) hereby certifies
with respect to the Quarterly Report on Form 10-Q/A of the Company for the
quarter ended September 30, 2008 as filed with the Securities and Exchange
Commission (the “10-Q 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 SchneiderGreggory
      SchneiderDirector,
      Chief Financial and Principal Financial Officer





23