<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                  FORM 10-Q/A
                            ------------------------
 
(MARK ONE)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE PERIOD ENDED: SEPTEMBER 30, 1996
 
                                       OR
 
[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934
 
                        COMMISSION FILE NUMBER: 33-90532
 
                               SPATIALIZER AUDIO
                               LABORATORIES, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                            ------------------------
 
                  DELAWARE                                     95-4484725
       -------------------------------                     ------------------- 
       (STATE OR OTHER JURISDICTION OF                      (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
 
                       20700 VENTURA BOULEVARD, SUITE 134
                     WOODLAND HILLS, CALIFORNIA 91364-2357
                    ----------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                        TELEPHONE NUMBER: (818) 227-3370
              ----------------------------------------------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                            ------------------------
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:  YES [X]  NO [ ]
 
     As of November 8, 1996 there were 19,127,429 shares of the Registrant's
Common Stock outstanding.

     This Amendment to the Registrant's Quarterly Report on Form 10-Q is being
filed to reflect inadvertent typographical errors in the text and changes in
presentation suggested by the Registrant's advisors reviews in connection with a
concurrent filing of a Registration Statement on Form S-3.
 
===============================================================================
<PAGE>   2
 
                         PART I.  FINANCIAL INFORMATION
 
ITEM I. FINANCIAL STATEMENTS
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,     DECEMBER 31,
                                                                      1996              1995
                                                                  -------------     ------------
                                                                   (UNAUDITED)
<S>                                                               <C>               <C>
Current Assets:
  Cash and Cash Equivalents.....................................   $  2,865,230     $  3,113,057
  Accounts Receivable...........................................        651,224          412,010
  Employee Advances (Note 5)....................................         84,839               --
  Inventory.....................................................        341,072          262,131
  Prepaid Expenses and Deposits.................................        282,711           94,068
                                                                   ------------     ------------
          Total Current Assets..................................      4,225,076        3,881,266
Fixed Assets, Net (Note 3)......................................        585,220          294,803
Intangible Assets, Net (Note 4).................................        436,307          243,532
                                                                   ------------     ------------
                                                                   $  5,246,603     $  4,419,601
                                                                   ============     ============
                              LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts Payable..............................................        351,289     $    180,046
  Accrued Liabilities...........................................        180,947          203,530
  Advances from Related Parties (Note 5)........................        112,500          325,061
  Notes Payable.................................................         23,847           13,493
                                                                   ------------     ------------
          Total Current Liabilities.............................        668,583          722,130
Shareholders' Equity:
  Preferred shares, $.01 par value, 1,000,000 shares authorized,
     no shares issued or outstanding............................             --               --
  Common shares, $.01 par value, 50,000,000 shares authorized,
     18,914,929 and 17,457,531 shares issued and outstanding at
     September 30, 1996 and December 31, 1995, respectively.....        189,149          174,575
  Additional Paid-In Capital....................................     18,075,337       13,578,782
  Accumulated Deficit...........................................    (13,685,699)      (10,55,119)
  Foreign Currency Translation Adjustment.......................           (767)            (767)
                                                                   ------------     ------------
          Total Shareholders' Equity............................      4,578,020        3,697,471
                                                                   ------------     ------------
                                                                   $  5,246,603     $  4,419,601
                                                                   ============     ============
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        2
<PAGE>   3
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                        FOR THE THREE MONTHS ENDED       FOR THE NINE MONTHS ENDED
                                               SEPTEMBER 30,                   SEPTEMBER 30,
                                        ---------------------------     ---------------------------
                                           1996            1995            1996            1995
                                        -----------     -----------     -----------     -----------
<S>                                     <C>             <C>             <C>             <C>
Revenues:
  Product Revenues....................  $    72,417     $    17,296     $   265,681     $    59,626
  Licensing Revenues..................      399,760         250,519       1,143,074         776,195
                                        -----------     -----------     -----------     -----------
     Gross Revenues (Note 8)..........      472,177         267,815       1,408,755         835,821
  Cost of Revenues....................       70,113           5,895         153,799          50,691
                                        -----------     -----------     -----------     -----------
     Gross Profit.....................      402,064         261,920       1,254,956         785,130
Operating Expenses:
  General and administrative..........      561,830         642,282       1,632,783       1,591,004
  Research and development............      561,446         172,656       1,073,065         455,028
  Sales and marketing.................      396,885         322,361       1,298,718         908,697
  In-Process Research and Development
     (Note 9).........................           --              --         679,684              --
                                        -----------     -----------     -----------     -----------
          Total Operating Expenses....    1,520,161       1,137,299       4,684,250       2,954,729
Operating Loss........................   (1,118,097)       (875,379)     (3,429,294)     (2,169,599)
Interest Income.......................       38,777          34,707         103,094          69,914
Interest Expense......................       (3,393)         (9,150)        (10,996)        (34,936)
                                        -----------     -----------     -----------     -----------
                                             35,385          25,557          92,099          34,978
Loss Before Income Taxes..............  $(1,082,712)    $  (849,822)    $(3,337,195)    $(2,134,621)
Income Taxes..........................       18,967              --         293,385              --
                                        -----------     -----------     -----------     -----------
Net Loss..............................  $(1,101,679)    $  (849,822)    $(3,630,580)    $(2,134,621)
                                        ===========     ===========     ===========     ===========
Net Loss Per Common Share.............  $     (0.08)    $     (0.08)    $     (0.29)    $     (0.20)
                                        -----------     -----------     -----------     -----------
Weighted Average Common Shares
  Outstanding.........................   13,107,485      10,596,070      12,710,884      10,537,042
                                        ===========     ===========     ===========     ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        3
<PAGE>   4
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                     FOR THE NINE MONTHS ENDED
                                                                           SEPTEMBER 30,
                                                                    ---------------------------
                                                                       1996            1995
                                                                    -----------     -----------
<S>                                                                 <C>             <C>
Cash Flows from Operating Activities:
  Net Loss........................................................  $(3,630,580)    $(2,134,621)
  Depreciation....................................................       91,343          58,581
  In Process R & D (Note 9).......................................      679,684              --
Net Change in Assets and Liabilities:
  Trade Receivables...............................................     (239,213)       (214,091)
  Employee Advances (Note 5)......................................      (84,839)             --
  Prepaid Expenses and Deposits...................................     (188,642)       (105,468)
  Accounts Payable................................................      171,243         181,778
  Accrued Liabilities.............................................      (22,583)         12,155
  Inventory.......................................................      (78,941)         26,638
                                                                    -----------     -----------
Net Cash Used in Operating Activities.............................   (3,302,528)     (2,175,028)
Cash Flows from Financing Activities:
  Issuance of Common Shares.......................................    4,511,129       4,924,100
  Due to Related Parties..........................................     (212,561)       (145,739)
  Issuance (Repayments) of Notes Payable..........................       10,353          (1,291)
                                                                    -----------     -----------
Net Cash Provided by Financing Activities.........................    4,308,921       4,777,070
Cash Flows from Investing Activities:
  Purchase of Fixed Assets........................................     (199,289)        (77,444)
  Intangible Assets, net..........................................        7,225         (71,414)
  MDT Asset Acquisition (Note 9)..................................   (1,062,156)             --
                                                                    -----------     -----------
Net Cash Used in Investing Activities.............................   (1,254,220)       (148,858)
  Foreign Exchange Adjustment.....................................           --              98
Decrease in Cash and Cash Equivalents.............................     (247,827)      2,453,282
Cash and Cash Equivalents, Beginning of Period....................    3,113,057       1,539,768
                                                                    -----------     -----------
Cash and Cash Equivalents, End of Period..........................  $ 2,865,230     $ 3,993,050
                                                                    ===========     ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        4
<PAGE>   5
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                 COMMON SHARES                                 FOREIGN
                                    ----------------------------------------                   CURRENCY        TOTAL
                                    NUMBER OF                  ADDITIONAL      ACCUMULATED    TRANSLATION  SHAREHOLDERS'
                                      SHARES     PAR VALUE   PAID-IN CAPITAL     DEFICIT      ADJUSTMENT      EQUITY
                                    ----------   ---------   ---------------   ------------   ----------   -------------
<S>                                 <C>          <C>         <C>               <C>            <C>          <C>
Balance, December 31, 1995........  17,457,531   $ 174,575     $13,578,782     $(10,055,119)    $ (767)     $ 3,697,471
Options Exercised (Note 6)........     190,033       1,900         225,858               --         --          227,758
Warrants Exercised (Note 6).......     618,500       6,185       1,628,186               --         --        1,634,371
Common Stock Issuances (Note 7)...     648,865       6,489       2,642,511               --         --        2,649,000
  Net Loss........................          --          --              --       (3,630,580)        --       (3,630,580)
                                    ----------    --------     -----------     ------------      -----       ----------
Balance, September 30, 1996.......  18,914,929   $ 189,149     $18,075,337     $(13,685,699)    $ (767)     $ 4,578,020
                                    ==========    ========     ===========     ============      =====       ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        5
<PAGE>   6
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(1) NATURE OF BUSINESS
 
     Spatializer Audio Laboratories, Inc. and subsidiaries (the "Company") is in
the business of technology development, licensing and in bringing proprietary
products to the market. The Company's wholly owned subsidiary Desper Products,
Inc. ("DPI") is in the business of developing proprietary advanced audio signal
processing technologies and products for consumer electronics, entertainment,
and multimedia computing. Also, the Company's wholly owned subsidiary, MultiDisc
Technologies, Inc. ("MDT") is in the business of developing scaleable, modular
compact disc/DVD server technologies for licensing. Currently the development
focus is on technologies associated with a network based compact disc/DVD
server.
 
(2) SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of Presentation
 
     These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States.
 
  Basis of Consolidation
 
     The consolidated financial statements include the accounts of Spatializer
Audio Laboratories, Inc. and its wholly owned subsidiaries, Desper Products,
Inc. and MultiDisc Technologies, Inc. All material inter-company transactions
have been eliminated.
 
  Revenue Recognition
 
     The Company recognizes revenue from product sales upon shipment to the
customer. The Company recognizes revenue from licensing agreements when earned,
in accordance with the contractual arrangements.
 
  Currency
 
     The operations of the Company take place primarily in the United States and
all financial reporting is in U.S. Dollars.
 
  Cash and Cash Equivalents
 
     Cash equivalents are highly liquid investments with original maturities of
three months or less that are readily convertible to cash.
 
  Inventory
 
     Inventory, which is primarily comprised of finished goods, is stated at the
lower of cost (first-in, first-out) or market.
 
  Research and Development Expenditures
 
     The Company expenses research and development expenditures as incurred. In
connection with the MDT asset acquisition by the Company's new subsidiary, MDT,
a one-time expense of $679,684 was charged to In-Process Research and
Development in the period (Note 9).
 
                                        6
<PAGE>   7
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  Fixed Assets
 
     Fixed assets are carried at cost and are depreciated over five to seven
years using accelerated-depreciation methods, which approximates 150% declining
balance. Leasehold improvements are amortized over the shorter of the useful
life or lease term.
 
  Loss per Share
 
     Loss per share has been calculated based on the weighted average number of
common shares outstanding other than the escrowed shares, which are excluded
from the determination of loss per share as the conditions for release have not
yet been attained. Outstanding options and warrants to purchase common stock
have not been included in the calculation of primary loss per share as the
effect of including such securities would be antidilutive.
 
  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.
 
(3) FIXED ASSETS
 
     Fixed assets, at cost, as of September 30, 1996 and December 31, 1995
consisted of the following:
 
<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,     DECEMBER 31,
                                                                 1996              1995
                                                             -------------     ------------
        <S>                                                  <C>               <C>
        Office Computers, Software, Equipment, and
          Furniture........................................     $528,420         $237,287
        Test Equipment.....................................       89,512           60,895
        Tooling Equipment..................................       44,136           25,000
        Trade Show Booth and Demonstration Equipment.......      172,403          144,369
        Leasehold Improvements.............................       29,429           23,916
                                                                --------         --------
                                                                 863,900          491,467
        Less Accumulated Depreciation and Amortization.....      278,680          196,664
                                                                --------         --------
                                                                $585,220         $294,803
                                                                ========         ========
</TABLE>
 
(4) INTANGIBLE ASSETS
 
     Capitalized patent and technology costs, net, totaling $436,307 and
$243,532 at September 30, 1996 and December 31, 1995, respectively, comprise
intangible assets. Intangible assets are amortized, on a straight line basis,
over the lesser of 17 years or their estimated useful life and begin amortizing
in the period the patent is granted.
 
(5) ADVANCES FROM RELATED PARTIES
 
     The Company was indebted to certain related parties for amounts totaling
$112,500 and $325,061 at September 30, 1996 and December 31, 1995, respectively,
which includes accrued interest. Amounts bearing interest are at rates ranging
from a fixed 10% annually to prime (8.75% at December 31, 1995) plus 2% and are
due on demand.
 
                                        7
<PAGE>   8
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     In addition, the Company had employee advances of $84,839 at September 30,
1996 compared to $0 at December 31, 1995. These advances are for two employees
and relate to the MDT asset acquisition and will be repaid over the next nine
months or offset against future bonuses.
 
(6) OPTIONS AND WARRANTS
 
     The Company has issued options to purchase common stock to certain
directors, officers and employees under various stock option plans. The option
and warrant exercise prices represent fair market values at the date of grant.
 
     Transactions in the stock options under these plans are summarized as
follows:
 
<TABLE>
<CAPTION>
        STOCK OPTIONS            SHARES                    OPTION PRICE
------------------------------  ---------   -------------------------------------------
<S>                             <C>         <C>
Options Outstanding at                      Cdn. $1.20 - Cdn. $5.84 (U.S. $.87 - U.S.
  December 31, 1995...........  1,426,432   $4.30) per Share expiring on various dates,
                                            July 1997 to November 2000
Options Issued................    193,333   Cdn. $4.28 - Cdn. $6.55 (U.S. $3.15 - U.S.
                                            $4.82) per Share
Options Exercised.............   (190,033)  Cdn. $1.20 - Cdn. $4.28 (U.S. $.87 - U.S.
                                ---------   $3.15) per Share
Options Outstanding at          1,429,732   Cdn. $1.20 - Cdn. $6.55 (U.S. $.87 - U.S.
  September 30, 1996..........  =========   $4.82) per Share expiring on various dates,
                                            July 1997 to May 2001
</TABLE>
 
     The number of outstanding options exercisable at September 30, 1996 was
938,901.
 
     The following table summarizes the activity relating to warrants and common
shares issuable upon exercise of such warrants:
 
<TABLE>
<CAPTION>
                                WARRANTS                  WARRANT PRICE
                                --------   -------------------------------------------
<S>                             <C>        <C>
Warrants Outstanding at                    Cdn. $3.20 - Cdn. $4.15 (U.S. $2.33 - U.S.
  December 31, 1995...........   780,000   $3.05) per Share expiring on various dates,
                                           August 1996 to June 1997
Warrants Issued...............   155,000   Cdn. $6.46 - Cdn. $6.97 (U.S. $4.75 - U.S.
                                           $5.12) per Share expiring on various dates,
                                           May 1997 to June 1997
Warrants Exercised............  (618,500)  Cdn. $3.20 - Cdn. $4.15 (U.S. $2.33 - U.S.
                                --------   $3.05) per Share
Warrants Outstanding at          316,500   Cdn. $3.30 - Cdn. $6.97 (U.S. $2.40 - U.S.
  September 30, 1996..........  ========   $5.12) per Share expiring on various dates,
                                           November 1996 to June 1997
</TABLE>
 
     The number of outstanding warrants exercisable at September 30, 1996 was
316,500.
 
(7) PRIVATE PLACEMENTS
 
     During the nine-months ended September 30, 1996, shares were issued as
follows:
 
     In May 1996, the Company completed a private placement of 200,000 units at
a price of $4.25 U.S. per unit, each unit comprised of one common share and
one-quarter of one non-transferable share purchase warrant. One warrant entitles
the holder to purchase one additional share at a price of $4.75 U.S. on or
before May 9, 1997. Regulatory approval was received in July 1996 from the
Vancouver Stock Exchange ("VSE").
 
                                        8
<PAGE>   9
 
                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Also in May 1996, the Company completed a private placement of 280,000
units at a price of $4.25 U.S. per unit, each unit comprised of one common share
and one-quarter of one non-transferable share purchase warrant. One warrant
entitles the holder to purchase one additional share at a price of $4.75 U.S. on
or before May 31, 1997. Regulatory approval was received in July 1996 from the
VSE.
 
     In June 1996, the Company completed a private placement of 140,000 units at
a price of $4.35 U.S. per unit, each unit comprised of one common share and
one-quarter of one non-transferable share purchase warrant. One warrant entitles
the holder to purchase one additional share at a price of $5.12 U.S. on or
before June 17, 1997. Regulatory approval was received in August 1996 from the
VSE.
 
     As of September 30, 1996, funds related to private placements totaling
$2,649,000 had been received by the Company and included in cash and cash
equivalents.
 
     In relation to the private placements of the Company's stock during 1996,
finders fees for such placements were paid through the issuance of 28,865 shares
of stock.
 
(8) MAJOR CUSTOMERS
 
     The revenues for the nine-month period ended September 30, 1996 include
revenues from three major customers each of whom represent 30%, 23%, and 16%,
respectively, of total revenues.
 
(9) ASSET ACQUISITION
 
     In June 1996, the Company purchased certain assets from Home Theater
Products International, Inc. ("HTP"), a debtor in possession, for $1,062,156,
including acquisition costs. Of the purchase price, $679,684 was allocated to
In-Process Research & Development ("IPR&D") and expensed at the Closing. IPR&D
is defined as those research and development efforts that, as of the acquisition
date, June 24, 1996, have not yet generated commercializable products and thus
the revenue generating capability of the products is uncertain. At the date of
acquisition there were no existing products acquired. IPR&D represents 64% of
the total acquisition costs. The remaining 36% was allocated as follows:
approximately $200,000 to intangible assets, primarily representing acquired
patent applications and approximately $182,000 to fixed assets, including
computers, office equipment, and furniture.
 
                                        9
<PAGE>   10
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion and analysis relates to the financial condition
and results of operations of Spatializer Audio Laboratories, Inc. and
subsidiaries (the "Company") for the nine-month and three-month periods ended
September 30, 1996, compared with the nine-month and three-month periods ended
September 30, 1995.
 
RESULTS OF OPERATIONS
 
FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996, COMPARED TO
THE SAME PERIODS ENDED SEPTEMBER 30, 1995
 
     REVENUES
 
     The Company reported increased revenues of 69% or $573,000, reaching
$1,409,000 for the nine-month period ended September 30, 1996, compared to
$836,000 for the nine-month period ended September 30, 1995. The Company
reported increased revenues of 76% or $204,000, reaching $472,000 for the
three-month period ended September 30, 1996, compared to $268,000 for the
three-month period ended September 30, 1995. Revenues include sales of
professional recording systems, consumer products, license issuance fees and
royalties pertaining to the analog IC.
 
     The growth in revenues in both periods reflect the Company's transition to
a steady and ongoing licensing revenue stream. In both periods in 1995 the
majority of the Company's licensing revenues were derived from one-time,
up-front license issuance fees. In contrast, a substantial portion of the
licensing revenues for the 1996 periods are derived primarily from running
royalties based on usage and include revenues from three major customers. In the
nine-month period these major customers represent 30%, 23%, and 16%,
respectively. The full impact of the increase in recurring royalties was not
felt in this quarter, as a significant portion of the revenue stream was offset
by advances received in prior periods. As of September 30, 1996, substantially
all of these advance royalties had been earned, resulting in the future
recognition of revenue on a basis concurrent with unit shipments.
 
     During the quarter, the Company implemented a new streamlined "bundled"
royalty agreement with its foundries which is designed to accelerate future
revenues as well as simplify the selling process of the Spatializer(@) chip.
Foundries will continue to pay a royalty as the IC is manufactured, however, the
new agreement makes it easier for foundries to sell the ICs to OEMs by
eliminating the need to negotiate a separate royalty with the OEMs. Eighteen new
licensees were added during the quarter, bringing the total to fifty-three
licensees, the result of a combination of the new "bundled" licensing agreement,
introduction of the Company's Spatializer 3-D Map(TM) positional audio
enhancement software for Windows(@) 95, and a favorable ruling by the court in
the intellectual property litigation with QSound Labs, Inc.
 
     The Company continued to increase product sales through sales of its first
consumer product, the HTMS-2510(TM). Product sales for the nine-month periods
ended September 30, represent approximately 19% of 1996 revenues compared with
only 7% for the same period in 1995.
 
     Gross profit for the nine-month period ended September 30, was
approximately 89% in 1996 as compared with 94% for the same period in 1995, as
the majority of sales are associated with license and royalty revenues. The
reduction in gross profit is due to an increase in product sales over both 1995
periods resulting from the introduction of the HTMS-2510(TM) since the margin on
product sales is much lower than license and royalty revenues which have little
or no direct costs associated with them.
 
     OPERATING EXPENSES
 
     The Operating expenses for the nine-month period ended September 30, 1996
reflect a significant non-recurring item which occurred in June 1996. The
significant item is for $680,000 of In-Process Research & Development ("IPR&D")
related to the allocation of costs incurred as a result of the MultiDisc
Technologies, Inc. ("MDT") subsidiary's asset acquisition as discussed in the
June Form 10-QA filing.
 
                                       10
<PAGE>   11
 
     After adjusting for the one-time item listed above, operating expenses for
the nine-month period ended September 30, 1996, increased by approximately 36%
or $1,050,000, for a total of $4,005,000 compared to $2,955,000 for the same
nine-month period in 1995. The three-month period ended September 30, 1996
increased by approximately 34% or $382,000, for a total of $1,520,000 as
compared with $1,138,000 for the same period in 1995. This increase can be
attributed primarily to the increased efforts of Sales and Marketing including
the launch of an aggressive advertising campaign for the HTMS-2510 , the effects
of a fully staffed operation at the Desper Products, Inc. ("DPI") subsidiary, as
well as the ramping up of operations of the Company's newest subsidiary, MDT.
 
  General and Administrative
 
     General and administrative costs remained relatively flat with a minor
increase of approximately 3% or $42,000, to $1,633,000 for the nine-month period
ended September 30, 1996 as compared with $1,591,000 for the same period in
1995. General and administrative costs decreased by approximately 12% or
$80,000, to $562,000 for the three-month period ended September 30, 1996
compared with $642,000 for the same period in 1995. The changes in both periods
are primarily a result of increased payroll and payroll related costs and
financial reporting costs, offset by savings in travel, external accounting
fees, and consulting and temporary help.
 
          Payroll and Payroll Related -- Payroll and payroll related costs
     increased approximately 25% or $121,000, to $599,000 for the nine-month
     period ended September 30, 1996 as compared with $478,000 for the same
     period in 1995. Payroll and payroll related costs also increased
     approximately 51% or $81,000, to $241,000 for the three-month period ended
     September 30, 1996 as compared with $160,000 for the same period in 1995.
     The increase can be attributed to the increase in staff from nine in 1995
     to fourteen in 1996. The increase in staff count is related to additional
     workloads due to regulatory reporting requirements, the support of pursuing
     new product launches, and the assessment of potential technologies and
     companies for acquisition. The increase is also reflective of a transition
     from temporary staff and consultants to permanent employees.
 
          Financial Reporting Costs -- Financial reporting costs relate to
     regulatory filing requirements of the SEC and NASDAQ as well as duplication
     of such materials for investor relations, financial analysts, and sales and
     marketing purposes. The costs for the Company's first Annual Report and
     Form 10-K along with quarterly Form 10-Q financial reporting increased to
     $94,000 for the nine-month period ended September 30, 1996 as compared with
     $0 for the same period in 1995. The costs for the three-month period ended
     September 30, 1996 compared to the same period in 1995 were flat.
 
          Travel and Travel Related -- Travel and travel related costs decreased
     by approximately 75% or $87,000, to $29,000 for the nine-month period ended
     September 30, 1996 as compared with $116,000 for the same period in 1995.
     Travel and travel related costs also decreased approximately 90% or
     $75,000, to $8,000 for the three-month period ended September 30, 1996 as
     compared with $83,000 for the same period in 1995. The decrease in travel
     and travel related costs are directly associated with travel last year to
     Europe and the Pacific Rim to promote the Company and its stock concurrent
     with the then new listing on NASDAQ.
 
          External Accounting Fees -- External accounting fees decreased
     approximately 31%, or $28,000, for a total of $61,000 for the nine-month
     period ended September 30, 1995, compared to $89,000 for the same
     nine-month period in 1995. Fees also decreased by approximately 68% or
     $32,000, for a total of $15,000 during the three-month period ended
     September 30, 1996 as compared with $47,000 for the same period in 1995.
     Last years costs were higher due to accounting fees associated with the
     filing of the Company's S-1 registration statement and listing in August
     1995 with NASDAQ.
 
          Consulting Fees and Temporary Help -- Consulting fees and temporary
     help decreased by approximately 29%, or $53,000, for a total of $130,000
     for the nine-month period ended September 30, 1996, compared to $183,000
     for the same nine-month period in 1995. For the three-month period ended
     September 30, 1996 there was an approximate decrease of 67% or $62,000, for
     a total of $30,000 as compared with $92,000 for the same period in 1995.
     The reduction in costs relates to the completion of
 
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<PAGE>   12
 
     multiple consulting projects in 1995 including the analysis of technologies
     for potential acquisition and the permanent hire or elimination of
     temporary staff in the 1996 periods. In addition, the three-month period
     ended September 30, 1995 included a third party patent analysis conducted
     in connection with the patent infringement lawsuit which was decided in the
     Company's favor during the September 30, 1996 quarter ended.
 
          General Operating Costs -- General operating costs were flat at
     approximately $720,000 for the nine-month periods ended September 30, 1996
     when compared to the same period in 1995. These costs include rent,
     telephone, office supplies and stationery, postage, depreciation and
     similar costs and also remained flat for the three-month periods ended
     September 30, at approximately $260,000. The lack of an increase in this
     area is the result of internal cost controls and cost savings measures
     taken and include the streamlining of agreements with outside service
     companies to reduce such costs.
 
     RESEARCH AND DEVELOPMENT
 
     The research and development activity grew substantially this quarter with
a full quarter of operations of the Company's new subsidiary, MDT. In addition,
the Company continued efforts to identify, validate, and develop new product
ideas through DPI and introduced both the Spatializer 3-D Map(TM) positional
audio enhancement software for Windows(@) 95 and N22(TM) -- Digital Virtual
Surround(TM) technologies for multi-channel discrete digital audio systems for
DVD/DVD-ROM during the quarter. All research and development activities and
related costs continue to be expensed in the period incurred.
 
     To support these efforts research and development costs increased by
approximately 136% or $618,000, to $1,073,000 for the nine-month period ended
September 30, 1996, compared to $455,000 for the same nine-month period in 1995.
Costs for the three-month period ended September 30, 1996 also increased by
approximately 224% or $388,000, to $561,000 as compared with $173,000 for the
same period in 1995. The primary reason for the increase relates to a full
quarters operations of the Company's newest subsidiary, MDT, along with a
fully-staffed operation at DPI, and general engineering and development costs.
 
          Payroll and Payroll Related -- Payroll and payroll related costs for
     the Research and Development Department increased approximately 79% or
     $301,000, to $682,000 for the nine-month period ended September 30, 1996 as
     compared with $381,000 for the same period in 1995. Payroll and payroll
     related costs also increased approximately 202% or $259,000, to $387,000
     for the three-month period ended September 30, 1996 as compared with
     $128,000 for the same period in 1995. The increase can be attributed to the
     increase in staff from seven in 1995 to fifteen in 1996. These staff counts
     include the six staff members of MDT.
 
          The Company's new subsidiary, MDT, which began operations on June 24,
     1996, represented approximately 33% or $228,000 of the department's payroll
     and payroll related costs for the nine-month period ended September 30,
     1996. In addition, the MDT subsidiary represented approximately 56% or
     $215,000 of the department's payroll and payroll related costs for the
     three-month period ended September 30, 1996.
 
     General Engineering and Development -- Research & engineering costs, other
than payroll and payroll related increased substantially to approximately
$390,000 for the nine-month period ended September 30, 1996 compared to $74,000
for the same period in 1995. The three-month period ended September 30, 1995
also showed substantial growth to approximately $174,000 for the three-month
period ended September 30, 1996 as compared with $44,000 for the same period in
1995. Future periods are expected to continue to increase in the area of
research and development as the Company's new subsidiary, MDT, ramps up
operations to develop its network based compact disc/DVD server technologies.
 
SALES AND MARKETING
 
     Sales and marketing costs increased approximately 43%, or $390,000, for a
total of $1,299,000 for the nine-month period ended September 30, 1996, compared
to $909,000 for the same nine-month period in 1995. During the three-month
period ended September 30, 1996 sales and marketing costs increased
approximately
 
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<PAGE>   13
 
31% or $101,000, for a total of $423,000 as compared with $322,000 during the
same period in 1995. The increase is attributed to payroll and payroll related
costs and advertising costs related to a continued advertising and promotional
campaign directed at the consumer and computer marketplaces.
 
     Payroll and Payroll Related -- Payroll and payroll related costs for the
Sales and Marketing Department increased approximately 97% or $269,000, to
$545,000 for the nine-month period ended September 30, 1996 as compared with
$276,000 for the same period in 1995. Payroll and payroll related costs also
increased approximately 84% or $83,000, to $182,000 for the three-month period
ended September 30, 1996 as compared with $99,000 for the same period in 1995.
The increase in both periods can be attributed to the increase in staff from
five in 1995 to nine in 1996, increases in medical insurance due to new hires
with family coverage, and timing issues with staffing changes.
 
     Advertising -- Advertising which includes publicity, public relations, and
press release costs increased approximately 162%, or $110,000, for a total of
$178,000 for the nine-month period ended September 30, 1996, compared to $68,000
for the same nine-month period in 1995. In addition, costs increased by 79% or
$39,000, to $88,000 for the three-month period ended September 30, 1996 compared
to $49,000 for the same period in 1995. The increase is attributed to supporting
the introduction of the HTMS-2510(TM) into the consumer market place as well as
to continuing to establish brand name recognition.
 
     Other Sales and Marketing Costs -- Other costs including trade shows,
travel and entertainment, outside services and general operating costs remained
relatively flat with an increase of approximately 2% or $9,000, for a total of
$575,000 for the nine-month period ended September 30, 1996, compared to
$566,000 for the same nine-month period in 1995. Costs in these other areas also
remained relatively flat with a decrease of approximately 13% or $22,000, to
$152,000 for the three-month period ended September 30, 1996 compared to
$174,000 for the same period in 1995.
 
INTEREST -- NET
 
     Interest income net increased approximately 163% or $57,000, to $92,000 for
the nine-month period ended September 30, 1996, compared to $35,000 in the same
nine-month period in 1995. Interest income, net, also increased during the
three-month period ended September 30, 1996, by approximately 35% or $9,000, for
a total of $35,000, compared to $26,000 in the same three-month period in 1995.
The results are based on interest received on private placement proceeds coupled
with the elimination of interest expense through the pay off of related party
debt during the first quarter of 1996.
 
NET LOSS
 
     The net loss for the nine-month period ended September 30, 1996, totaled
$3,631,000 ($0.29) per share, compared to a net loss of $2,135,000 or ($0.20)
per share in the same nine-month period in 1995. The net loss for the
three-month period ended September 30, 1996, totaled $1,102,000 ($0.08) per
share, compared to a net loss of $850,000 or ($0.08) per share in the same
three-month period in 1995. The increased net loss includes two one-time
extraordinary items which are $680,000 for In-Process R & D and $249,000 for
income taxes related to the liquidation of Spatializer Audio Laboratories,
Inc. -- Yukon, the Company's predecessor.
 
     After adjusting for the one-time items, the net loss for the nine-month
period ended September 30, 1996 is reduced to $2,702,000 or ($0.21) per share.
The loss is primarily a result of increased Research and Development costs
associated with the Company's newest subsidiary, MDT, and an aggressive
advertising campaign from Sales and Marketing directed at the consumer and
computer market places as well as the effects of compensation and other employee
related costs incurred during the 1996 periods.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At September 30, 1996, the Company had $2,865,000 in cash and cash
equivalents as compared to $3,113,000 at December 31, 1995. The decrease in cash
and cash equivalents can be attributed to cash used for the MDT acquisition of
assets, cash used in operating activities, the purchase of fixed assets and the
retirement of a portion of the related party advances offset by cash received
from common stock issuances,
 
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<PAGE>   14
 
including private placements, warrant and option exercises. The Company had
working capital of $3,556,000 at September 30, 1996 as compared with $3,159,000
at December 31, 1995. Three private placements received regulatory approval from
the Vancouver Stock Exchange during the three- month period ended September 30,
1996.
 
     The Company's future cash flow from operations will come primarily from
Foundry and OEM royalties. At September 30, 1996 the Company had three Foundry
Licensees, forty-one OEM Licensees and nine game developer licensees as compared
with three Foundry Licensees and thirty-two OEM Licensees at June 30, 1996.
 
     The Company continues to have no long-term debt and has no present
commitments or agreements which would require any long-term debt to be incurred.
The Company does, however, owe $112,500 as of September 30, 1996 as compared to
$325,061 to related parties at December 31, 1995. Substantial payments were made
during the first quarter of 1996 to retire Company debt.
 
     Based on current operations, and the addition of MDT whose primary focus is
on research and development of new technologies, management believes that
existing cash balances along with operating revenues will not be sufficient to
satisfy the Company's cash requirements for the next twelve months. Additional
cash will be required for continued development of the MDT technology and for
the introduction of new technologies or products into the market. In addition,
additional cash may be needed for the acquisition of technologies or enterprises
complementary to the Company's business. Additional sources of financing
including debt, equity or strategic investments may be required to fund such
capital expenditures, acquisitions, research and development and marketing costs
related to these activities.
 
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<PAGE>   15
 
                           PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
     Reference is made to the Company's Form 10-K for the year ended December
31, 1995 with respect to the Company's litigation with QSound Labs, Inc.
("QSL"). The developments in the litigation for the nine-month period ended
September 30, 1996 are as follows:
 
     On August 29, 1996 the Court granted the Company's motion for summary
judgment of non-infringement in its entirety. The Court also denied QSL's
cross-motion for summary judgment of infringement in its entirety.
 
     The Court has stayed the litigation temporarily to allow QSL to appeal the
granting of the Company's motion. Under the current schedule, QSL has until
December 16, 1996 to file an appeal.
 
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
 
     (a) None
 
     (b) Exhibit 11.1 Computation of Loss per Common Share
 
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<PAGE>   16
 
                                   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 11, 1996
 
                                          SPATIALIZER AUDIO LABORATORIES, INC.
                                          (REGISTRANT)
 
                                          /s/  STEVEN D. GERSHICK
 
                                          --------------------------------------
                                          STEVEN D. GERSHICK
                                          President & Chief Executive Officer
 
                                          /s/  WENDY MARIE GUERRERO
 
                                          --------------------------------------
                                          WENDY MARIE GUERRERO
                                          Chief Financial Officer
 
                                          /s/  KATHY PARTCH
 
                                          --------------------------------------
                                          KATHY PARTCH
                                          Director of Accounting
 
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