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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-Q


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|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(MARK ONE) |  |                                                                                        
|[ü]        |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|          
|           |  | For the period ended:  September 30, 2002                                              

OR

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

Commission File Number:   33-90532

SPATIALIZER AUDIO LABORATORIES, INC.

(Exact name of registrant as specified in its charter)


|                                |  |                    
|------------------------------- |  | -------------------
|DELAWARE                        |  | 95-4484725         
|(State or other jurisdiction of |  | (IRS Employer      
|incorporation or organization)  |  | Identification No.)

920 HAMPSHIRE ROAD, SUITE A-34
WESTLAKE VILLAGE, CALIFORNIA 91361



(Address of principal executive offices)


900 LAFAYETTE STREET, SUITE 710
SANTA CLARA, CALIFORNIA 95050



(Address of principal corporate offices)


TELEPHONE NUMBER: (408) 296-0600



(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[ü] |  | NO[]

As of November 7, 2002, there were 47,406,939 shares of the Registrants Common
Stock outstanding.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM I. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONSOLIDATED BALANCE SHEETS                   
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS         
|                              |                                                                                               | CONSOLIDATED STATEMENT OF CASH FLOWS          
|                              |                                                                                               | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
|                              |                                                                                               | Notes to Consolidated Financial Statements    
|                              | Item 2. Managements discussion and analysis of financial condition and results of operations
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES                                                                
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8K                                                      
|SIGNATURES                   
|EXHIBIT 99.1                 



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM I. FINANCIAL STATEMENTS

SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |             |   |  | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | --------- | ----------- | ------------- | - | ------------ | ----------- | - |  | 
|                                     |                                                                                                                                                                                      |   |           |             | September 30, |   | December 31,
|                                     |                                                                                                                                                                                      |   |           |             | 2002          |   | 2001        
|                                     |                                                                                                                                                                                      |   |           |             |               |   |             
|                                     |                                                                                                                                                                                      |   |           |             | (unaudited)   |   |              |             |  
|ASSETS                              
|Current Assets:                      |                                                                                                                                                                                      |   |           |             |               |   |              |            
|                                     | Cash and Cash Equivalents                                                                                                                                                            |   | $         | 916,692     |               |   | $            | 869,478     |  
|                                     | Accounts Receivable, net                                                                                                                                                             |   |           | 483,981     |               |   |              | 442,555     |  
|                                     | Prepaid Expenses and Deposits                                                                                                                                                        |   |           | 61,674      |               |   |              | 133,251     |  
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            
|Total Current Assets                 |                                                                                                                                                                                      |   | 1,462,347 |             |               |   | 1,445,284    |            
|                                    
|Property and Equipment, net          |                                                                                                                                                                                      |   | 91,964    |             |               |   | 50,586       |            
|Intangible Assets, net               |                                                                                                                                                                                      |   | 236,983   |             |               |   | 255,726      |            
|Other Assets                         |                                                                                                                                                                                      |   | 2,400     |             |               |   | 1,510        |            
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            
|Total Assets                         |                                                                                                                                                                                      | $ | 1,793,694 |             |               | $ | 1,753,106    |            
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current Liabilities:                 |                                                                                                                                                                                      |   |           |             |               |   |              |            
|                                     | Notes Payable to Related Parties                                                                                                                                                     |   |           | 112,500     |               |   |              | 112,500     |  
|                                     | Accounts Payable                                                                                                                                                                     |   |           | 62,492      |               |   |              | 14,872      |  
|                                     | Accrued Wages and Benefits                                                                                                                                                           |   |           | 62,189      |               |   |              | 72,969      |  
|                                     | Accrued Expenses                                                                                                                                                                     |   |           | 37,830      |               |   |              | 41,197      |  
|                                     | Net Liabilities of Discontinued Operation                                                                                                                                            |   |           | 71,667      |               |   |              | 100,000     |  
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            
|Total
Current Liabilities            |                                                                                                                                                                                      |   | 346,678   |             |               |   | 341,538      |            
|                                    
|Shareholders Equity:                |                                                                                                                                                                                      |   |           |             |               |   |              |            
|                                     | Series B, 10% Redeemable Convertible Preferred shares, $.01 par
value, 1,000,000 shares authorized, 87,967
shares issued and outstanding at September 30, 2002
and December 31, 2001 |   |           | 880         |               |   |              | 880         |  
|                                     | Common shares, $.01 par value, 65,000,000 shares
authorized, 47,406,939 shares
issued and outstanding at September 30, 2002 and
December 31, 2001                                    |   |           | 474,070     |               |   |              | 474,070     |  
|                                     | Additional Paid-In Capital                                                                                                                                                           |   |           | 46,402,852  |               |   |              | 46,402,852  |  
|                                     | Accumulated Deficit                                                                                                                                                                  |   |           | (45,430,786 | )             |   |              | (45,466,234 | )
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            
|Total Shareholders Equity           |                                                                                                                                                                                      |   | 1,447,016 |             |               |   | 1,411,568    |            
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            
|                                     |                                                                                                                                                                                      | $ | 1,793,694 |             |               | $ | 1,753,106    |            
|                                     |                                                                                                                                                                                      |   |           |             |               |   |              |            

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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |           | 
|-------------------------------------- | -------------------------- | - | -------------------------------- | ------- | ------------------------------- | - | ------------- | ------- | ------------- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                       |                            |   | For the Three Month Period Ended |         | For the Nine Month Period Ended
|                                       |                            |   |                                  |         |                                
|                                       |                            |   | September 30,                    |         | September 30,                   |   | September 30, |         | September 30,
|                                       |                            |   | 2002                             |         | 2001                            |   | 2002          |         | 2001         
|                                       |                            |   |                                  |         |                                 |   |               |         |              
|Revenues:                              |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|                                       | Royalty Revenues           |   |                                  | 480,851 |                                 |   |               | 302,665 |               |   |            | 1,391,963 |  |   |            | 1,214,639 | 
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|                                       |                            |   | 480,851                          |         |                                 |   | 302,665       |         |               |   | 1,391,963  |           |  |   | 1,214,639  |          
|Cost of Revenues                       |                            |   | 37,977                           |         |                                 |   | 12,500        |         |               |   | 105,898    |           |  |   | 81,090     |          
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|Gross Profit                           |                            |   | 442,874                          |         |                                 |   | 290,165       |         |               |   | 1,286,065  |           |  |   | 1,133,549  |          
|                                      
|Operating Expenses:                    |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|                                       | General and Administrative |   |                                  | 211,681 |                                 |   |               | 194,770 |               |   |            | 529,725   |  |   |            | 553,022   | 
|                                       | Research and Development   |   |                                  | 97,532  |                                 |   |               | 172,978 |               |   |            | 340,572   |  |   |            | 533,681   | 
|                                       | Sales and Marketing        |   |                                  | 122,309 |                                 |   |               | 101,462 |               |   |            | 378,634   |  |   |            | 330,448   | 
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|                                       |                            |   | 431,522                          |         |                                 |   | 469,210       |         |               |   | 1,248,931  |           |  |   | 1,417,151  |          
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|Operating Profit (Loss)                |                            |   | 11,352                           |         |                                 |   | (179,045      | )       |               |   | 37,134     |           |  |   | (283,602   | )        
|Interest Income                        |                            |   | 2,585                            |         |                                 |   | 7,220         |         |               |   | 9,152      |           |  |   | 36,852     |          
|Interest Expense                       |                            |   | (2,813                           | )       |                                 |   | (2,813        | )       |               |   | (8,438     | )         |  |   | (19,363    | )        
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|                                       |                            |   | (228                             | )       |                                 |   | 4,407         |         |               |   | 714        |           |  |   | 17,489     |          
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|Income (Loss) Before Income Taxes      |                            |   | 11,124                           |         |                                 |   | (174,638      | )       |               |   | 37,848     |           |  |   | (266,113   | )        
|Income Taxes                           |                            |   |                                 |         |                                 |   | (682          | )       |               |   | (2,400     | )         |  |   | (1,182     | )        
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|Net Income (Loss)                      |                            | $ | 11,124                           |         |                                 | $ | (175,320      | )       |               | $ | 35,448     |           |  | $ | (267,295   | )        
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|Basic/Diluted Earnings(Loss) Per Share |                            | $ | 0.00                             |         |                                 | $ | (0.00         | )       |               | $ | 0.00       |           |  | $ | (0.01      | )        
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          
|Weighted Average Shares
Outstanding    |                            |   | 47,406,939                       |         |                                 |   | 47,406,939    |         |               |   | 47,406,939 |           |  |   | 47,387,561 |          
|                                       |                            |   |                                  |         |                                 |   |               |         |               |   |            |           |  |   |            |          

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

|                                                    |                                                                                                    |   |                   |         |      |   |           |          |  
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------- | - | ----------------- | ------- | ---- | - | --------- | -------- | -
|                                                    |                                                                                                    |   | Nine Months Ended
|                                                    |                                                                                                    |   | September 30,    
|                                                    |                                                                                                    |   |                  
|                                                    |                                                                                                    |   | 2002              |         | 2001
|                                                    |                                                                                                    |   |                   |         |     
|Cash Flows from Operating Activities:               |                                                                                                    |   |                   |         |      |   |           |         
|                                                    | Net Income (Loss)                                                                                  |   | $                 | 35,448  |      |   | $         | (267,295 | )
|                                                    | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |   |                   |         |      |   |           |          |  
|                                                    | Depreciation and Amortization                                                                      |   |                   | 68,390  |      |   |           | 66,305   |  
|Net Change in Assets and Liabilities:               |                                                                                                    |   |                   |         |      |   |           |         
|                                                    | Accounts Receivable and Employee Advances                                                          |   |                   | (41,426 | )    |   |           | 17,662   |  
|                                                    | Prepaid Expenses and Deposits                                                                      |   |                   | 70,687  |      |   |           | (36,217  | )
|                                                    | Accounts Payable                                                                                   |   |                   | 47,620  |      |   |           | (33,937  | )
|                                                    | Changes in Discontinued Operation                                                                  |   |                   | (28,333 | )    |   |           | (85,791  | )
|                                                    | Accrued Liabilities                                                                                |   |                   | (14,147 | )    |   |           | (103,330 | )
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Net Cash Provided By (Used In) Operating Activities |                                                                                                    |   | 138,239           |         |      |   | (442,603  | )       
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Cash Flows from Investing Activities:               |                                                                                                    |   |                   |         |      |   |           |         
|                                                    | Purchase/Disp of Property and Equipment                                                            |   |                   | (75,935 | )    |   |           | (7,000   | )
|                                                    | Increase in Capitalized Patent and Technology Costs                                                |   |                   | (15,090 | )    |   |           | (22,762  | )
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Net Cash Provided By (Used in) Investing Activities |                                                                                                    |   | (91,025           | )       |      |   | (29,762   | )       
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Cash flows from Financing Activities:               |                                                                                                    |   |                   |         |      |   |           |         
|                                                    | Issuance of Preferred Shares, Net                                                                  |   |                   |        |      |   |           |         |  
|                                                    | Issuance of Common Shares, Net                                                                     |   |                   |        |      |   |           |         |  
|                                                    | Exercise of Options                                                                                |   |                   |        |      |   |           |         |  
|                                                    | Exercise of Warrants                                                                               |   |                   |        |      |   |           | 1,000    |  
|                                                    | Issuance of Notes Payable                                                                          |   |                   |        |      |   |           |         |  
|                                                    | Issuance of Related Party Payable                                                                  |   |                   |        |      |   |           |         |  
|                                                    | Repayment of Notes Payable                                                                         |   |                   |        |      |   |           | (225,242 | )
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Net Cash Provided by Financing Activities           |                                                                                                    |   |                  |         |      |   | (224,242  | )       
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Increase (Decrease) in Cash and Cash Equivalents    |                                                                                                    |   | 47,214            |         |      |   | (696,607  | )       
|Cash and Cash Equivalents, Beginning of Period      |                                                                                                    |   | 869,478           |         |      |   | 1,467,988 |         
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Cash and Cash Equivalents, End of Period            |                                                                                                    | $ | 916,692           |         |      | $ | 771,381   |         
|                                                    |                                                                                                    |   |                   |         |      |   |           |         
|Supplemental Disclosure of Cash Flow Information:   |                                                                                                    |   |                   |         |      |   |           |         
|                                                    | Cash paid during the period for:                                                                   |   |                   |         |      |   |           |          |  
|                                                    | Interest                                                                                           |   | $                 | 8,433   |      |   | $         | 19,363   |  
|                                                    | Income Taxes                                                                                       |   |                   | 2,400   |      |   |           | 682      |  
|                                                    |                                                                                                    |   |                   |         |      |   |           |         

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

|                                    |  |                           |        |               |  |        |     |           |  |                 |            |         |  |            |         |             |  |               |            |  |  |   |             |   |  |   |           | 
|----------------------------------- |  | ------------------------- | ------ | ------------- |  | ------ | --- | --------- |  | --------------- | ---------- | ------- |  | ---------- | ------- | ----------- |  | ------------- | ---------- |  |  | - | ----------- | - |  | - | --------- | 
|                                    |  | Series B, 10% Convertible |        |               |  |        |     |           |  |                 |            |         |  |            |         |             |  |               |            |  |  |  
|                                    |  | Preferred Shares          |        | Common Shares |  |        |     |           |  |                 |            |         |  |            |         |            
|                                    |  |                           |        |               |  |        |     |           |  |                 |            |         |  | Total     
|                                    |  | Number of                 |        |               |  |        |     | Number of |  |                 |            |         |  | Additional |         | Accumulated |  | Shareholders'
|                                    |  | shares                    |        | Par value     |  | shares |     | Par value |  | paid-in-capital |            | Deficit |  | Equity    
|                                    |  |                           |        |               |  |        |     |           |  |                 |            |         |  |           
|Balance, December 31, 2001          |  |                           | 87,967 |               |  | $      | 880 |           |  |                 | 47,406,969 |         |  | $          | 474,070 |             |  | $             | 46,402,852 |  |  | $ | (45,466,234 | ) |  | $ | 1,411,568 | 
|Issuance of Preferred Shares, Net   |  |                           |       |               |  |        |    |           |  |                 |           |         |  |            |        |             |  |               |           |  |  |   |            |   |  |   |          | 
|Options Exercised                   |  |                           |       |               |  |        |    |           |  |                 |           |         |  |            |        |             |  |               |           |  |  |   |            |   |  |   |          | 
|Warrants Exercised                  |  |                           |       |               |  |        |    |           |  |                 |           |         |  |            |        |             |  |               |           |  |  |   |            |   |  |   |          | 
|Options Issued for Services         |  |                           |       |               |  |        |    |           |  |                 |           |         |  |            |        |             |  |               |           |  |  |   |            |   |  |   |          | 
|Conversion of Preferred Shares, Net |  |                           |       |               |  |        |    |           |  |                 |           |         |  |            |        |             |  |               |           |  |  |   |            |   |  |   |          | 
|Net Income                          |  |                           |       |               |  |        |    |           |  |                 |           |         |  |            |        |             |  |               |           |  |  |   | 35,448      |   |  |   | 35,448    | 
|                                    |  |                           |        |               |  |        |     |           |  |                 |            |         |  |            |         |             |  |               |            |  |  |   |             |   |  |   |           | 
|Balance, September 30, 2002         |  |                           | 87,967 |               |  | $      | 880 |           |  |                 | 47,406,969 |         |  | $          | 474,070 |             |  | $             | 46,402,852 |  |  | $ | (45,430,786 | ) |  | $ | 1,447,016 | 
|                                    |  |                           |        |               |  |        |     |           |  |                 |            |         |  |            |         |             |  |               |            |  |  |   |             |   |  |   |           | 

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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES




Notes to Consolidated Financial Statements

(1) NATURE OF BUSINESS

Spatializer Audio Laboratories, Inc. and subsidiaries (the Company, our and
we) are in the business of developing and licensing technology.

Our wholly owned subsidiary Desper Products, Inc. (DPI) is in the business of
developing proprietary advanced audio signal processing technologies and
products for consumer electronics, entertainment, and multimedia computing.

Our wholly owned subsidiary, MultiDisc Technologies, Inc. (MDT) was in the
business of developing scalable, modular compact disc (CD) and digital
versatile disc (DVD) server technologies associated with a network based CD /
DVD server for internet and intranet applications. Operations of MDT were
discontinued in the fourth quarter of 1998. Our efforts to sell these assets,
though continuing, have not been successful to date.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim consolidated financial statements of the Company are condensed and
do not include some of the information necessary to obtain a complete
understanding of the financial data. Management believes that all adjustments
necessary for a fair presentation of results have been included in the
unaudited consolidated Financial Statements for the interim periods presented.
Operating results for the three-month and nine-month periods ended September
30, 2002 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002. Accordingly, your attention is directed to
footnote disclosures found in the December 31, 2001 Annual Report and
particularly to Note 2 which includes a summary of significant accounting
policies.

Basis of Consolidation

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

Revenue Recognition

We accrue revenues based on licensee royalty reports, management estimates and
reports from third parties. While management endeavors to minimize the use of
estimates, any deviation from estimates utilized are adjusted in the subsequent
quarter. Royalty income reported is based on the shipment of product
incorporating the related technology by the original equipment manufacturer or
foundries.

Intangible Assets

Intangible Assets consist primarily of patents. Cost directly attributable to
patents, consisting primarily of legal and filing fees, are capitalized and
amortized over the remaining life of the patent (which range from 4 to 16
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.

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Intangible assets consist of the following:

|      |         |   |                    |         |              |   |            |         |         |   |         |         |  |  |          |    | 
|----- | ------- | - | ------------------ | ------- | ------------ | - | ---------- | ------- | ------- | - | ------- | ------- |  |  | -------- | -- | 
|      |         |   | September 30, 2002
|      |         |   |                   
|      |         |   |                    |         |              |   |            |         |         |   |         |         |  |  | Weighted
|      |         |   | Gross              |         |              |   |            |         | Net     |   | Average
|      |         |   | Intangible         |         | Accumulated  |   | Intangible |         | Life   
|      |         |   | Assets             |         | Amortization |   | Assets     |         | (Years)
|      |         |   |                    |         |              |   |            |         |        
|      | Patents |   | $                  | 440,036 |              |   | $          | 217,788 |         |   | $       | 222,248 |  |  |          | 12 | 
|      | Other   |   |                    | 40,914  |              |   |            | 26,179  |         |   |         | 14,735  |  |  |          | 5  | 
|      |         |   |                    |         |              |   |            |         |         |   |         |         |  |  |          |   
|Total |         | $ | 480,950            |         |              | $ | 243,967    |         |         | $ | 236,983 |         |  |  |          |   
|      |         |   |                    |         |              |   |            |         |         |   |         |         |  |  |          |   

|      |         |   |                   |         |              |   |            |         |         |   |         |         |  |  |          |    | 
|----- | ------- | - | ----------------- | ------- | ------------ | - | ---------- | ------- | ------- | - | ------- | ------- |  |  | -------- | -- | 
|      |         |   | December 31, 2001
|      |         |   |                  
|      |         |   |                   |         |              |   |            |         |         |   |         |         |  |  | Weighted
|      |         |   | Gross             |         |              |   |            |         | Net     |   | Average
|      |         |   | Intangible        |         | Accumulated  |   | Intangible |         | Life   
|      |         |   | Assets            |         | Amortization |   | Assets     |         | (Years)
|      |         |   |                   |         |              |   |            |         |        
|      | Patents |   | $                 | 424,736 |              |   | $          | 197,953 |         |   | $       | 226,783 |  |  |          | 12 | 
|      | Other   |   |                   | 40,914  |              |   |            | 11,971  |         |   |         | 28,943  |  |  |          | 5  | 
|      |         |   |                   |         |              |   |            |         |         |   |         |         |  |  |          |   
|Total |         | $ | 465,650           |         |              | $ | 209,924    |         |         | $ | 255,726 |         |  |  |          |   
|      |         |   |                   |         |              |   |            |         |         |   |         |         |  |  |          |   

Estimated amortization expense for each of the next five years ended December
31, is as follows:

| |                  |  |   |         | 
| | ---------------- |  | - | ------- | 
| | 2002 (12 months) |  | $ | 45,000  | 
| | 2003             |  |   | 48,000  | 
| | 2004             |  |   | 41,000  | 
| | 2005             |  |   | 23,000  | 
| | 2006             |  |   | 14,000  | 
| |                  |  |   |        
| | Total            |  | $ | 171,000 | 
| |                  |  |   |        

Research and Development Expenditures

We expense research and development expenditures as incurred.

(3) INCOME (LOSS) 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. The following table presents contingently issuable shares, options
and warrants to purchase shares of common stock that were outstanding during
the six month periods ended September 30, 2002 and 2001 which were not included
in the computation of diluted loss per share because the impact would have been
antidilutive or less than $0.01 per share:

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|         |  |      |           |      |  |  |           | 
|-------- |  | ---- | --------- | ---- |  |  | --------- | 
|         |  | 2002 |           | 2001
|         |  |      |           |     
|Options  |  |      | 3,010,000 |      |  |  | 3,122,300 | 
|Warrants |  |      | 2,100,000 |      |  |  | 2,215,000 | 
|         |  |      |           |      |  |  |           | 
|         |  |      | 5,110,000 |      |  |  | 5,337,300 | 
|         |  |      |           |      |  |  |           | 

During the nine months ended September 30, 2002, 1,300,000 options were granted
to officers and board members and 162,299 options had expired.

(4) COMPREHENSIVE INCOME (LOSS)

The Financial Accounting Standards Board issued Statement No. 130, Reporting
Comprehensive Income (SFAS 130), in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. We adopted SFAS No. 130 on January 1, 1998.
Comprehensive income (loss) is the change in equity of a business enterprise
during a period from transactions and all other events and circumstances from
non-owner sources. Other comprehensive income (loss) includes foreign currency
items, minimum pension liability adjustments, and unrealized gains and losses
on certain investments in debt and equity securities. We did not have
components of other comprehensive (loss) income during the six-month periods
ended September 30, 2002 and 2001. As a result, comprehensive (loss) income is
the same as the net income for the nine-month periods ended September 30, 2002
and 2001.

(5) SEGMENT REPORTING

The Financial Accounting Standards Board issued Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information(SFAS No. 131), in
June 1997. SFAS No. 131 establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires enterprises to report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. It replaces the industry
segment concept of SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, with a management approach concept as to basis for identifying
reportable segments. SFAS 131 is effective for financial statements for fiscal
years beginning after December 15, 1997. We adopted SFAS 131 in December 1997.
At June 30, 2002, we have only one operating segment, DPI, the Companys Audio
Signal Processing business.

(6) MAJOR CUSTOMERS

A substantial portion of our licensing and royalty revenues are derived from
four major customers. The following customers comprised greater than 10% of
total revenues during the six months ended September 30, 2002 and 2001:

|           |  |      |    |      |  |  |    |  
|---------- |  | ---- | -- | ---- |  |  | -- | -
|           |  | 2002 |    | 2001
|           |  |      |    |     
|Customer A |  |      | 33 | %    |  |  | 44 | %
|Customer B |  |      | 23 | %    |  |  | 39 | %
|Customer C |  |      | 13 | %    |  |  | 0  | %
|Customer D |  |      | 12 | %    |  |  | 0  | %

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##### Table of Contents



(7) CONTINGENCIES

Legal

In connection with the downsizing of the Company in 1998, a number of
employees were terminated and have filed, on various dates, employment and
compensation related claims with California State labor authorities, all but
two of which claims have been settled. Two former officers and employees of MDT
initiated proceedings before the Labor Commissioner in 2000 seeking amounts
allegedly due (aggregating approximately $800,000) under their employment
agreements, which claims, if resolved in favor of the claimants, could be
material to the financial statements of the Company. The Labor Commissioner has
postponed those proceedings. In that action, the claimants filed a motion to
strike the MDT complaint under the California anti-Slapp legislation. The
Court rejected that motion and the litigation is in the discovery stages.
Separately, MDT initiated litigation in the Superior Court, Orange County
seeking declaratory relief to bar the labor claims, as well as return of
intellectual property and unspecified damages for breaches of the former
officers and employees employment agreements. These employees, however, have
filed for personal bankruptcy and as a result, the claims became inactive. At
December 2001, bankruptcy for one such employee had been dismissed and that
proceeding could be reactivated. Should further action be taken by the
ex-employees in this matter, management does not believe that the final result
would have a material impact on its financial condition.

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

(8) SALE OF PREFERRED STOCK

In the December 1999, $895,000 in short term loan advances from officers,
directors and their affiliates and certain other securities holders, and
accrued interest of $134,647, were restructured into the $1,000,000 in new
Series B Preferred Stock. The Series B Preferred Stock, and any dividends
therefrom not converted into cash, are convertible commencing in 2001 into
restricted Common Stock at a 10% discount, based on the 10 day average closing
bid price prior to the conversion, but subject to a minimum conversion of $.56
per share and a maximum of $1.12 per share. We have a three year option to
redeem any Series B Preferred Stock, not sooner converted, in whole or in part,
in cash.

(9) DISCONTINUED OPERATIONS

In September, 1998, the Board of Directors approved a plan to refocus corporate
activities on our core audio business, Desper Products, Inc. In conjunction to
this strategic refocusing, we permanently suspended operations of MDT and
placed the business and its related patent portfolio up for sale. There have
been no material operating or terminating expenses of MDT since 1998.

(10) NOTES PAYABLE TO RELATED PARTIES

In June, 2001, we repaid Notes Payable to Related Parties of $225,000 plus
accrued interest of approximately $33,000.

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Item 2. Managements discussion and analysis of financial condition and results
of operations

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. In consultation with our Board of Directors
and Audit Committee, we have identified three accounting policies that we
believe are key 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. We
recognize revenue from product sales upon shipment to the customer. License
revenues are recognized when earned, in accordance with the contractual
provisions. Royalty revenues are recognized upon shipment of products
incorporating the related technology by the original equipment manufacturers
(OEMs) and foundries.

The 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) is 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 intangible assets. Our
intangible assets consist primarily of patents. We capitalize all costs
directly attributable to patents, consisting primarily of legal and filing
fees, and amortize such costs over the remaining life of the patent (which
range from 4 to 16 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.

Results of Operations

Revenues

Revenue increased to $481,000 in the three months ended September 30, 2002
from $303,000 in the comparable period last year, an increase of 59%. Revenues
for the nine-months ended September 30, 2002 were $1,392,000 compared to
revenues of $1,215,000 in the comparable nine-month period last year, an
increase of 15%.

The increase in the revenues reported in the third quarter compared to the
comparable period last year resulted primarily from downward revenue
adjustments made in the third quarter of 2001 to conform estimated revenues to
actual revenues. These adjustments resulted from changes in the reporting
procedures from a chip foundry to two of the Companys Asian customers and the
resulting delays in reports from those customers to the Company during the
transition period. No such adjustment was required in the third quarter of
2002. Revenue in 2002 was also impacted by the continued overall softness in
the PC market and the uneven sales throughout the consumer electronics market.
Revenues for the nine months ended September 30, 2002 increased due to the
addition of three new accounts in 2002, as compared to the prior year,
partially offset by the uneven business performance in the PC and consumer
electronics markets noted above.

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Gross Profit

Gross profit increased to $443,000 (92% of revenue) in the three months
ended September 30, 2002 from $290,000 (96% of revenue) in the comparable
period last year, an increase of 53%. Gross profit for the nine-months ended
September 30, 2002 was $1,286,000 (92% of revenue) compared to $1,134,000 (93%
of revenue) in the comparable period last year. The decrease in gross margin
results from a greater mix of foreign revenues, for which we pay a sales
commission, compared to domestic revenues, for which no commission applies.

Operating Expenses

Operating expenses decreased to $432,000 (90% of revenue) in the three
months ended September 30, 2002 from $469,000 (155% of revenue) in the
comparable period last year, a decrease of 8%. Operating expenses in the
nine-months ended September 30, 2002 decreased to $1,249,000 (90% of revenue)
from $1,417,000 (117% of revenue) in the comparable period last year, a
decrease of 12%. The decrease in operating expenses for the three and
nine-months ended September 30, 2002 result primarily from high research and
development expenses in Q2 and Q3 2001, which were unusually high. At that
time, we reported that we had stepped up our engineering effort and our use of
outside consultants to move several projects closer to completion. These
projects were completed in 2001 and research and development have returned to
normalized levels over the past several quarters.

General and Administrative

General and administrative expenses increased to $212,000 (44% of revenue)
in the three months ended September 30, 2002 from $195,000 (64% of revenue) in
the comparable period last year, an increase of 9%. General and administrative
expenses decreased to $530,000 (38% of revenue) in the nine-months ended
September 30, 2002 from $553,000 (46% of revenue) in the comparable period last
year, a decrease of 4%. The increase in such expenses in the three months ended
September 30, 2002 result from legal , accounting and printing costs associated
with preparing Form S-1 during the period. The decrease in general and
administrative expense for the nine month period result from the
discontinuation of use of an outside investor relations consultant in May 2001,
partially offset by costs of the Form S-1 previously discussed.

Research and Development

Research and Development expenses decreased to $98,000 (20% of revenue) in
the three months ended September 30, 2002 from $173,000 (57% of revenue) in the
comparable period last year, a decrease of 43%. Research and Development
expenses decreased to $341,000 (24% of revenue) in the nine-months ended
September 30, 2002 from $534,000 (44% of revenue) in the comparable period last
year, a decrease of 36%. The decrease in research and development in the three
and nine month periods result from the expansion of the audio engineering staff
and increased use of consultants to complete specialized projects during the
second quarter of 2001 and an unfilled position in the third quarter of 2002.

Research and Development activities comprised the Companys continued
efforts to identify, validate, and develop new products at Desper Products Inc.
Specific engineering efforts were directed toward productizing new audio
enhancement technology, including Spatializer PCE and Spatializer Natural
Headphone, porting support of Spatializer N-2-2 Ultra to current and potential
licensees during the quarter, developing products to support licensing
arrangements which have not yet been announced, and developing new
products for future introduction and licensing.

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Sales and Marketing

Sales and marketing expenses increased to $122,000 (25% of revenue) in the
three months ended September 30, 2002 from $101,000 (33% of revenue) in the
comparable period last year, an increase of 21%. Sales and marketing expenses
increased to $379,000 (27% of revenue) in the nine-months ended September 30,
2002 from $330,000 (27% of revenue) in the comparable period last year, an
increase of 15%. The increase is attributed to expanded sales travel and the
hiring of a senior sales and marketing executive during the period ending
September 30, 2002.

Other Income and Expense

Income and other expense consist primarily of interest earned on
short-term investments and interest paid on related party debt. Net other
expense decreased to $228 from net other income of $4,407 in the prior year
comparable period. Net other income in the nine- months ended September 30,
2002 decreased to $714 from $17,489 in the comparable period last year. The
decrease is due to significantly lower short-term interest rates earned on
our cash investments. This was partially offset by the pay-off of $225,000 in
term loans to Related Parties in May, 2001.

Net Income (Loss)

The Company reported net income for the quarter of $11,000, $0.00 basic
and diluted per share, compared with a net loss of $175,000, $0.00 basic and
diluted per share, in the comparable period last year. Net income for the
nine-months ended September 30, 2002 was $36,000, ($0.00) basic and diluted per
share, compared to net loss of $267,000, ($0.01) basic and diluted per share,
in the comparable nine-month period last year. The net income for the three
and nine month periods are primarily the result of the increase in revenue and
economies and reductions realized in operating expenses.

Liquidity and Capital Resources

At September 30, 2002, the Company had $917,000 in cash and cash
equivalents as compared to $869,000 at December 31, 2001. The increase in cash
and cash equivalents is derived from general operating activities. The Company
had working capital of $1,115,000 at September 30, 2002 as compared with a
working capital of $1,103,000 at December 31, 2001. The Companys future cash
flows are expected to come primarily from audio signal processing licensing,
Foundry and Original Equipment Manufacturers (OEM) royalties, debt
issuances, common and/or preferred stock issuances including warrant and option
exercises or through venture and/or strategic investors.

Like other operating enterprises, the events of September 11, 2001 in the
United States brought a degree of uncertainty to our operations and hindered
our ability to plan and meet with our contractual partners outside the United
States in this dynamic environment. The operations of our business, and those
of our competitors, may also be impacted by the continued trend in the
semiconductor industry to offer free, but minimal audio solutions to certain
product classes to maintain and attract market share. This challenges our
ability to convert business opportunities to licensing agreements in those
segments that allow us to maintain or rapidly increase revenue. As a result,
the Company must develop and license its products and software solutions in a
market that treats some audio products, including those of our competitors, on
a commodity basis in those cases where the OEM product is considered a
commodity product. While our software applications deliver what we and most
manufacturers who listen to it believe is a significantly superior audio
experience, the competitive market forces that pressure manufacturers to reduce
their costs may create some resistance to new technology adoption or use. In
addition, certain of our competitors appear to be pursuing a business plan that
disregards commercially reasonable pricing to achieve a larger market
penetration even if the penetration will not provide for viable margins or
returns. The Company has responded by offering additional products targeted to
each price/quality segment of the market and continues to aggressively pursue
new opportunities in emerging product categories and complements to our
existing core business. In addition, our products have been positioned as a
means for manufacturers to save money while delivering an enhanced audio
experience. Nevertheless, these market conditions and competitive forces make
it more challenging for the Company, and its rational commercial competitors,
to enhance their operating results.

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We have a related party obligation of $112,500, which is due upon demand.
We repaid related party obligations of $225,000 plus accrued interest of
approximately $30,000, which were convertible into Common Stock at our or the
Lenders option in June 2001. The Company owed a total of $112,500 to related
parties on December 31, 2001.

In December 1999, we completed a set of financial transactions (the
December Transactions) with certain existing holders of our equity and debt
and with new institutional investors. The December Transactions included the
private placement of 1,884,254 additional shares of our Common Stock ($1.05
million in new capital or $0.56 per share), the issuance of warrants to acquire
2,100,000 shares of Common Stock exercisable for three years at an exercise
price of $.67 per share), the cancellation of 500,000 warrants to acquire
Common Stock issued in that earlier financing, the conversion of $1 million of
short term debt into a new Series B Redeemable Convertible Preferred Stock
(Series B Preferred Stock) and the conversion of $225,000 of secured debt
into secured convertible debt.

In the December Transactions, $895,000 in short term loan advances from
officers, directors and their affiliates and certain other securities holders,
and accrued interest of $134,647, were restructured into the $1,000,000 in new
Series B Preferred Stock. The Series B Preferred Stock, and any dividends there
from not converted into cash, are convertible commencing in 2001 into
restricted Common Stock at a 10% discount, based on the 10 day average closing
bid price prior to the conversion, but subject to a minimum conversion of $.56
per share and a maximum of $1.12 per share. We have a three year option to
redeem any Series B Preferred Stock, not sooner converted, in whole or in part,
in cash.

In the December Transactions, $225,000 of secured debt, including accrued
interest, was converted into secured long term convertible debt. The long term
debt is held by existing institutional investors and is secured by essentially
all of our assets. The debt, and accrued interest, is convertible at our or the
holders options into registered Common Stock at a conversion price equal to
the average 10 day closing bid price prior to conversion but subject to the
same minimum and maximum conversion prices set for the Series B Preferred
Stock.

We have $75,000 in Net Liabilities of Discontinued Operation which
represents primarily accrued legal fees and is estimated to be sufficient to
pay such fees to address outstanding claims. We do not expect the final
liability to be in excess of this balance.

Funds generated by these financing activities as well as cash generated
from our existing operations and customer base is expected to be sufficient for
us to meet our operating obligations and the anticipated additional research
and development for our audio technology business.

The Company will also continue to consider and evaluate capital investment or
business arrangements with financial or strategic participants or investors as
such opportunities become available to the Company on terms that enhance
shareholder value and support the Companys business strategy.

To the extent the Company maintains or exceeds its projected revenues and
is not required to fund significant contingencies, it expects to continue to
retain its current cash reserves and therefore, maintain its liquidity position
at a consistent level both on a short-term and long-term basis. To the extent
that the Company does not achieve current operating levels or is required to
fund contingencies, it will be required to use some of its cash reserves and
this could impact its longer term liquidity. In addition, we wish to achieve
accelerated growth and to take advantage of the dynamic market forces in which
we operate, rather than to be affected by them. To address these objectives,
our Board of Directors has retained Neveric Capital, a San Francisco based
investment banking firm, to identify and evaluate strategic opportunities. We
expect them to explore alternatives to enhance shareholder value and support
the Companys growth and overall strategy.

Risk Factors; Forward-Looking
Statements

This report contains forward-looking statements regarding the Companys future
plans, objectives, and expected performance. These statements are based on
assumptions that the Company believes are reasonable, but are subject to a wide
range of risks and uncertainties, and a number of factors could cause our
actual results to differ materially from those expressed in the forward-looking
statements referred to above. These factors include, among others, the
uncertainties in the semiconductor industry, the trend in electronics to offer
audio products as a commodity product, cost and competitor pressures, the
overall economic downturn and its impact on consumer buying and industrial
innovation and planning and, in turn, on our business.

We qualify any forward-looking statements entirely by these cautionary factors,
and readers are cautioned not to place undue reliance on forward-looking
statements.

The words believe, may, will, could, should, would, anticipate,
estimate, expect, intend, project, objective, seek, strive,
might, seeks, likely result, build, grow, plan, goal, expand,
position, or similar words, or the negatives of these words, or similar
terminology, identify forward-looking statements.

The forward-looking statements contained in this report only speak as of the
date of this report. The Company disclaims any obligation or undertaking to
provide any updates or revisions to any forward-looking statements to reflect
any change in managements expectations or any change in events, conditions or
circumstances on which the forward-looking statements are based.

Item 3. Quantitative and
Qualitative Disclosures About Market Risks

Not applicable.

Item 4. Controls and
Procedures

Within the 90-day period prior to the filing of this report, an evaluation was
carried out by Henry Mandell, the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Companys disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934). Based upon that evaluation, Mr. Mandell concluded that these
disclosure controls and procedures were effective and has set forth in this
Item 4 information with respect to those controls and the reports thereon to
the Board of Directors. No significant changes were made in the Companys
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation.

Appearing immediately following the Signatures section of this Quarterly Report
there is a Certification of the CEO and the CFO. The Certification is
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the
Section 302 Certification). This section of the Quarterly Report which you are
currently reading is the information concerning the Controls Evaluation
referred to in the Section 302 Certification and this information should be
read in conjunction with the Section 302 Certification for a more complete
understanding of the topics presented.

Disclosure controls are the procedures that have
been undertaken with the objective of ensuring that information
required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 (Exchange Act), such as this Quarterly Report,
is recorded and reported within the time periods specified in the
Securities and Exchange Commissions (SEC) rules and forms. The
controls are also designed to ensure that the information is
accumulated from the relevant sources and properly recorded and
reported, all to permit the preparation of our financial statements
in conformity with generally accepted accounting principles.

The companys management does not expect that
our disclosure controls or other internal controls will prevent all
errors or possibly improper activities or improper use of our assets.
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, we are a small public company
with significant resource constraints, and the benefits of controls
must be considered in the context of the economic and personnel costs
of developing and implementing those controls. Because of these
limitations, no evaluation of controls can provide absolute assurance
that all matters that would raise internal and disclosure control
issues have been detected.

As noted above, in accordance with SEC
requirements, since the date of the controls evaluation to the date
of this Quarterly Report, there have been no significant changes in
internal controls or in other factors that could significantly affect
internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.

12



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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

In connection with the downsizing of the Company in 1998, a number of
employees were terminated and have filed, on various dates, employment and
compensation related claims with California State labor authorities, all but
two of which claims have been settled. Two former officers and employees of MDT
initiated proceedings before the Labor Commissioner in 2000 seeking amounts
allegedly due (aggregating approximately $800,000) under their employment
agreements, which claims, if resolved in favor of the claimants, could be
material to the financial statements of the Company. The Labor Commissioner has
postponed those proceedings. In that action, the claimants filed a motion to
strike the MDT complaint under the California anti-Slapp legislation. The
Court rejected that motion and the litigation is in the discovery stages.
Separately, MDT initiated litigation in the Superior Court, Orange County
seeking declaratory relief to bar the labor claims, as well as return of
intellectual property and unspecified damages for breaches of the former
officers and employees employment agreements. These employees, however, have
filed for personal bankruptcy and as a result, the claims became inactive. At
December 2001, bankruptcy for one such employee had been dismissed and that
proceeding could be reactivated. Should further action be taken by the
ex-employees in this matter, management does not believe that the final result
would have a material impact on its financial condition.

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




ITEM 2. CHANGES IN SECURITIES

None




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None




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

None




ITEM 5. OTHER INFORMATION

None




ITEM 6. EXHIBITS AND REPORTS ON FORM 8K

None



|1.   |  | Employment Agreement of Henry Mandell dated November 1999, as amended
effective April 5, 2002 (incorporated by reference to the Companys
Amendment No. 3 To Form S-1 Registration Statement Under The Securities
Act Of 1933, effective October 31, 2002.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|99.1 |  | Certification Of Chief Executive Officer Pursuant To 18 U.S.C. §1350, As
Adopted Pursuant To §906 Of The Sarbanes-Oxley Act Of 2002                                                                                                                       

Reports on Form 8-K  None.

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SIGNATURES

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: November 12, 2002



| | SPATIALIZER AUDIO LABORATORIES, INC.
(Registrant)
| | -------------------------------------------------



| | /s/ HENRY R. MANDELLHENRY R. MANDELLChief Executive Officer
Chief Financial Officer
| | -----------------------------------------------------------------------------------

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CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Henry R. Mandell, the Chief Executive Officer and Chief Financial Officer of
Spatializer Audio Laboratories, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Spatializer Audio
Laboratories, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly
report;

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

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:

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| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

5. I have disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors (or persons
performing the equivalent function):

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 11, 2002

|                                                                                        
|----------------------------------------------------------------------------------------
|/s/ Henry R. MandellHenry R. Mandell
Chief Executive Officer and Chief Financial Officer

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