UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q






(MARK
ONE)





þ
            
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended: June 30, 2008




OR





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


Commission
File Number: 000-26460





SPATIALIZER
AUDIO LABORATORIES, INC.


(Exact
name of Registrant as specified in its charter)





DELAWARE
            95-4484725(State
      or other jurisdiction ofincorporation
      or organization)
            (IRS
      EmployerIdentification
      No.)





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


(Address
of principal corporate offices)





TELEPHONE
NUMBER: (408) 453-4180





(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 o


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





TABLE OF
CONTENTS





PART I. FINANCIAL
      INFORMATION
            2Item 1. FINANCIAL
      STATEMENTS
            2Item 2. MANAGEMENT’S DISCUSSION
      & ANALYSIS OF FINANCIAL CONDITION & RESULTS OFOPERATOINS
            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
      32.1


Table of Contents


PART I. FINANCIAL INFORMATION





SPATIALIZER
AUDIO LABORATORIES, INC.


AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEET




June 30,
      2008
            
            
            December 31, 2007(unaudited)ASSETSCurrent
      Assets:Cash
      and Cash Equivalents
            
            $
            95,586
            
            
            $
            582,019Short
      Term Investments
            
            
            
            
            
            
            1,000,000Prepaid
      Expenses and Deposits
            
            
            2,843
            
            
            
            22,989Total
      Current Assets
            
            
            98,429
            
            
            
            1,605,008Total
      Assets
            
            $
            98,429
            
            
            $
            1,605,008LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Note
      Payable
            
            
            —
            
            
            
            9,680Accounts
      Payable
            
            
            1,464
            
            
            
            900Accrued
      Wages and Benefits
            
            
            —
            
            
            
            1,323Accrued
      Professional Fees
            
            
            
            
            
            
            36,000Accrued
      Expenses
            
            
            5,735
            
            
            
            —Total
      Current Liabilities
            
            
            7,199
            
            
            
            47,903Commitments
      and ContingenciesShareholders’
      Equity:Common
      shares, $.01 par value, 300,000,000 shares authorized, 65,000,000 shares
      issued and outstanding at June 30, 2008 and December 31,
    2007.
            
            
            650,000
            
            
            
            650,000Additional
      Paid-In Capital
            
            
            46,634,856
            
            
            
            46,634,856Accumulated
      Deficit
            
            
            (47,193,626
            )
            
            
            (45,727,751
            )Total
      Shareholders’ Equity
            
            
            91,230
            
            
            
            1,557,105$
            98,429
            
            
            $
            1,605,008





See
notes to consolidated financial statements (following).


2
 Table of Contents


SPATIALIZER
AUDIO LABORATORIES, INC.


AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)





For
      the Three Month Period Ended
            
            
            For
      the Six Month Period EndedJune 30,
              2008
            
            
            June 30,
              2007
            
            
            June 30,
              2008
            
            
            June 30,
              2007Revenues
      :Royalty
      Revenues
            
            $
            0
            
            
            $
            360,914
            
            
            $
            0
            
            
            $
            720,599Cost
      of Revenues
            
            
            0
            
            
            
            31,312
            
            
            
            0
            
            
            
            62,805Gross
      Profit
            
            
            0
            
            
            
            329,602
            
            
            
            0
            
            
            
            657,794Operating
      Expenses :General
      and Administrative
            
            
            37,999
            
            
            
            182,735
            
            
            
            108,681
            
            
            
            280,310Research
      and Development
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Sales
      and Marketing
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —37,999
            
            
            
            182,735
            
            
            
            108,681
            
            
            
            280,310Operating
      Income (Loss)
            
            
            (37,999
            )
            
            
            146,867
            
            
            
            (108,681
            )
            
            
            377,484Interest
      and Other Income
            
            
            1,515
            
            
            
            5,212
            
            
            
            12,649
            
            
            
            8,253Interest
      and Other Expense
            
            
            0
            
            
            
            (2,311
            )
            
            
            0
            
            
            
            (2,211
            )1,515
            
            
            
            2,901
            
            
            
            12,649
            
            
            
            5,942Income
      (Loss) Before Income Taxes
            
            
            (36,484
            )
            
            
            149,768
            
            
            
            (96,033)
            
            
            
            383,426Income
      Taxes
            
            
            —
            
            
            
            —
            
            
            
            (4,842)
            
            
            
            —Net
      Income (Loss)
            
            $
            (36,484)
            
            
            $
            149,768
            
            
            $
            (100,875)
            
            
            $
            383,426Basic
      and Diluted Earnings Per Share
            
            $
            (0.00)
            
            
            $
            0.00
            
            
            $
            (0.00)
            
            
            $
            0.01Weighted
      Average Shares Outstanding
            
            
            65,000,000
            
            
            
            61,253,088
            
            
            
            65,000,000
            
            
            
            55,008,236





See notes
to consolidated financial statements


3
 Table of Contents


SPATIALIZER
AUDIO LABORATORIES, INC.


AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)




Six
      Months Ended
              June 30,2008
            
            
            2007Cash
      Flows from Operating Activities:Net
      Income (Loss)
            
            $
            (100,875
            )
            
            $
            233,657Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and Amortization
            
            
            —
            
            
            
            5,840Net
      Change in Assets and Liabilities:Accounts
      Receivable and Employee Advances
            
            
            —
            
            
            
            29,277Prepaid
      Expenses and Deposits
            
            
            20,146
            
            
            
            (16,062
            )Accounts
      Payable
            
            
            564
            
            
            
            (32,136
            )Accrued
      Wages and Benefits
            
            
            (1,323
            )
            
            
            (686
            )Accrued
      Professional Fees
            
            
            (36,000
            )
            
            
            (26,900
            )Accrued
      Commissions
            
            
            —
            
            
            
            (100
            )Accrued
      Expenses
            
            
            5,735
            
            
            
            1,000Deferred
      Revenue
            
            
            —
            
            
            
            313,116Net
      Cash Provided By (Used In) Operating Activities
            
            
            (111,753
            )
            
            
            507,006Cash
      Flows from Investing Activities:Short
      Term Investments
            
            
            1,000,000
            
            
            
            0Net
      Cash Provided By (Used in) Investing Activities
            
            
            1,000,000
            
            
            
            0Cash
      Flows from Financing Activities:Cash
      Distribution
            
            
            (1,365,000
            )Issuance
      (Repayment) of Notes Payable
            
            
            (9,680
            )
            
            
            (9,670
            )Net
      Cash Provided by Financing Activities
            
            
            (1,374,680
            )
            
            
            (9,670
            )Increase
      (Decrease) in Cash and Cash Equivalents
            
            
            (486,433
            )
            
            
            497,336Cash
      and Cash Equivalents, Beginning of Period
            
            
            582,019
            
            
            
            228,940Cash
      and Cash Equivalents, End of Period
            
            $
            95,586
            
            
            $
            726,276Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
            
            $
            —
            
            
            $
            —Income
      Taxes
            
            
            4,842
            
            
            
            418





See
notes to consolidated financial statements (following).


4
 Table of Contents


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 2060 East Avenida de Los Arboles—Suite D190, Thousand Oaks,
California 91362-1376.


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 June 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.





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.




5
 Table of Contents





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 June
30, 2008, substantially all cash and cash equivalents were on deposit at two
financial institutions.





At June
30, 2008, we did not have any accounts receivable. At  June 30, 2007,
one customer, Sharp, accounted for 66% of our 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 theU.S.— The Company did not
generate sales in the year to date period ended June 30, 2008. Sales to foreign
customers were 100% of total sales in the year to date period ended June 30,
2007.





Major Customers — During the
quarter ended June 30, 2008, the Company did not generate revenue. During the
quarter ended June 30, 2007, one customer, Samsung, accounted for 87% of the
Company’s revenue as incurred, which is presented as a separate line on the
statement of operations.





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.





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
6 month period ended June 30, 2008 and 2007, options to purchase 1,750,000
shares of common stock 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.


6
 Table of Contents


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





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





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





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





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





Fair Value of Financial
Instruments — The carrying values of cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued liabilities at
December 31, 2007 and June 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 June 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.


7
 Table of Contents


(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 in Item 5 below and the resulting change of control of the
Company, it is expected that these net operating loss carry-forwards will not be
utilized to offset taxable income generated by the Company after
2000.





(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
            
            
            2,381,666
            
            
            
            2,635,000
            
            
            $
            0.11Options
      granted
            
            
            
            
            
            
            500,000
            
            
            $
            0.10Options
      exercised
            
            
            
            
            
            
            (0
            )
            
            $
            —Options
      forfeited/expired
            
            
            
            
            
            
            (325,000
            )
            
            $
            0.31Options
      outstanding at December 31, 2006
            
            
            2,726,666
            
            
            
            2,810,000
            
            
            $
            0.10Options
      granted
            
            
            
            
            
            
            (0
            )
            
            $
            0.10Options
      exercised
            
            
            
            
            
            
            (0
            )
            
            $
            —Options
      forfeited/expired
            
            
            (976,666
            )
            
            
            (1,060,000
            )
            
            $
            0.10Options
      outstanding at December 31, 2007
            
            
            1,750,000
            
            
            
            1,750,000
            
            
            $
            0.09Options
      granted
            
            
            
            
            
            
            (0
            )
            
            $
            0.10Options
      exercised
            
            
            
            
            
            
            (0
            )
            
            $
            —Options
      forfeited/expired
            
            
            (0
            )
            
            
            (0
            )
            
            $
            0.10Options
      outstanding at June 30, 2008
            
            
            1,750,000
            
            
            
            1,750,000
            
            
            $
            0.09





At June
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.


8
 Table of Contents


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 March
31, 2007 and December 31, 2006, the number of options exercisable and fully
vested was 1,750,000. 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 June 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 June 30, 2008.





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 June 30, 2008, compared to $360,914 for
the quarter ended June 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 $36,484 for the quarter ended June 30, 2008, ($0.00) basic and diluted per
share, compared to a net gain of $149,768, $0.00 per share for the quarter ended
June 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 onJuly 2, 2007.





At June
30, 2008, we had $95,586  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, liquidated $1,000,000 in short term investments
and contributed that $ towards the distribution.  We had working
capital of $91,230 at June 30, 2008, as compared with working capital of
$1,557,100 at December 31, 2007





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.


9
 Table of Contents


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)





•
            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.





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.


10
 Table of Contents


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.





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 underLiquidity and Capital
Resources.


11
 Table of Contents


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 MD&A underLiquidity and Capital
Resources.





Results
of Operations





Revenues





Revenues
decreased to $0 for the quarter ended June 30, 2008, compared to $360,915 for
the quarter ended June 30, 2007, a decrease of 100%. The decreased revenue is
primarily the result of the cessation of business activities during
2007.





Net
Loss





Net Loss
for the three months ended June 30, 2008 was $36,484, compared to net profit of
$149,768 in the comparable period last year.





Operating
Expenses





Operating
expenses in the three months ended June 30, 2008 were $37,999, compared to
operating expenses of $182,735 in the comparable period last year. The decrease
in operating expenses resulted primarily from decreases in general and
administrative expense, sales and marketing expense, and research and
development expense due to the suspension of operations.





General
and Administrative





General
and administrative expenses in the three months ended June 30, 2007 were
$37,999, compared to general and administrative expenses of $182,735 in the
comparable period last year.





Research
and Development





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





Sales
and Marketing





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


12
 Table of Contents


Net
Income (Loss)





Net loss
was $36,484 for the quarter ended June 30, 2008, $(0.00) basic and diluted per
share, compared to net income of $149,768 or $0.00 per share, for the quarter
ended June 30, 2007. The decrease for the current period is primarily the result
of the cessation of operations in 2007.





At June
30, 2008, we had $ 95,586 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 as part of the distribution.  We had working
capital of $91,230 at June 30, 2008, as compared with working capital of
$1,557,100 at December 31, 2007.





Based on
current and projected operating levels, we no longer believe that we can
maintain our liquidity position at a consistent level, on a short-term or
long-term basis. As such, we do not believe our current cash reserves and cash
generated from our existing operations and customer base are sufficient for us
to meet our operating obligations and the anticipated additional research and
development for our audio technology business for at least the next 12
months.





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 intend to
marshal 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





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 Item 5 and the resulting change of control of the Company,
it is expected that these net operating loss carry-forwards will not be utilized
to offset taxable income generated by the Company after 2007
..





Recently
Issued Accounting Pronouncements





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





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 June 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.


13
 Table of Contents


Item 4T.Controlsand Procedures





We
carried out an evaluation of the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and
Exchange Act of 1934. Due to the Company’s present circumstances, there were
only one remaining part-time employee and a contract bookkeeper that were
responsible for maintenance of the accounting records and other aspects of
internal control during the quarter. Thus, segregation of duties was limited,
and there was limited oversight of the remaining employee. While the contract
bookkeeper initiates disbursements, and while the employee signed the checks,
the lack of segregation of duties, forced by the circumstances, must be deemed a
material weakness in internal controls. Nevertheless, based on that evaluation,
the Chairman of the Board, acting as the principal executive and principal
financial officer of the Company, concluded that our disclosure controls and
procedures as of the end of the period covered by this report were effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission’s rules and forms. There were no changes in
our internal control over financial reporting that occurred during the quarter
ended June 30, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





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 July 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. RISK
FACTORS





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 SECURITIESANDUSE 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





ITEM 4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS





None





ITEM 5. SUBSEQUENTEVENTS





As
previously approved by shareholders, The Board of Directors has declared that a
1 for 10 reverse split should be implemented as soon as practicable.
Shareholders will be notified of the record date as soon as all regulatory
notifications have been completed.


14
 Table of Contents


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.





ITEM 6.EXHIBITS





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





32
            Section
      1350 Certification




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: August
13, 2008





SPATIALIZER
      AUDIOLABORATORIES,
      INC.(Registrant)/s/JAYGOTTLIEBJay GottliebChairman
      of the Board and President(Principal
      Executive, Financial and Accounting Officer)





15