<PAGE>   1

================================================================================

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

                              ---------------------
                                    FORM 10-Q
                              ---------------------

 (MARK ONE)

        [X]    Quarterly report pursuant to Section 13 or 15(d) of the
               Securities Exchange Act of 1934

                      For the period ended: MARCH 31, 2001

                                       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.)

                       20700 VENTURA BOULEVARD, SUITE 140
                      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 May 8, 2001, there were 47,401,939 shares of the Registrant's Common Stock
outstanding.

================================================================================

<PAGE>   2


                          PART I. FINANCIAL INFORMATION

                          ITEM I. FINANCIAL STATEMENTS

                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                         MARCH 31,         DECEMBER 31,
                                                                           2001                2000
                                                                        ------------       ------------
                                                                         (unaudited)
<S>                                                                     <C>                <C>
Current Assets:
             Cash and Cash Equivalents                                  $  1,432,634       $  1,467,988
             Accounts Receivable, net                                        449,116            506,558
             Prepaid Expenses and Deposits                                    28,254             26,458
                                                                        ------------       ------------
        Total Current Assets                                               1,910,004          2,001,004

        Property and Equipment, net                                           92,887            108,061
        Intangible Assets, net                                               303,585            302,789
        Other Assets                                                          42,372             45,170
                                                                        ------------       ------------
        Total Assets                                                    $  2,348,848       $  2,457,024
                                                                        ============       ============

                                  LIABILITIES AND SHAREHOLDERS' EQUITY

        Current Liabilities:
             Notes Payable                                                       $ -                $ -
             Notes Payable to Related Parties                                337,742            337,742
             Accounts Payable                                                 40,205             51,782
             Accrued Wages and Benefits                                       24,847             61,390
             Accrued Expenses                                                 99,861             99,595
             Net Liabilities of Discontinued Operation                       189,984            255,840
                                                                        ------------       ------------
        Total Current Liabilities                                            692,639            806,349

        Shareholders' Equity:
             Series B, 10% Redeemable Convertible Preferred
              shares, $.01 par value, 1,000,000 shares authorized,
               87,967 and 102,967 shares issued and outstanding at
               March 31, 2001 and December 31, 2000, respectively                880              1,030
             Common shares, $.01 par value, 65,000,000 shares
                authorized, 47,401,939 and 47,087,971 shares
                issued and outstanding at March 31, 2001 and
                December 31, 2000, respectively                              471,194            470,880
             Additional Paid-In Capital                                   46,404,728         46,404,892
             Accumulated Deficit                                         (45,220,593)       (45,226,127)
                                                                        ------------       ------------
        Total Shareholders' Equity                                         1,656,209          1,650,675
                                                                        ------------       ------------
                                                                        $  2,348,848       $  2,457,024
                                                                        ============       ============
</TABLE>


                                       2
<PAGE>   3


                      SPATIALIZER AUDIO LABORATORIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                        FOR THE THREE MONTH PERIOD ENDED
                                        -------------------------------
                                         MARCH 31,           MARCH 31,
                                            2001               2000
                                        ------------       ------------
<S>                                     <C>                <C>
Revenues:
  License Revenues                               $ -                $ -
  Royalty Revenues                           425,000            505,000
  Product Revenues                             1,081                650
                                        ------------       ------------
                                             426,081            505,650

Cost of Revenues                              27,500             32,477
                                        ------------       ------------
Gross Profit                                 398,581            473,173

Operating Expenses:
  General and Administrative                 150,897             72,188
  Research and Development                   137,322            113,194
  Sales and Marketing                        113,703             99,535
                                        ------------       ------------
                                             401,922            284,917
                                        ------------       ------------

Operating Profit                              (3,341)           188,256

Interest and Other Income                     17,857             13,670
Interest and Other Expense                    (8,481)            (8,124)
                                        ------------       ------------
                                               9,376              5,546
                                        ------------       ------------

Income Before Income Taxes                     6,035            193,802

Income Taxes                                    (500)           (23,271)
                                        ------------       ------------

Net Income                              $      5,535       $    170,531
                                        ============       ============

Basic and Diluted Income Per Share      $       0.00       $       0.00
                                        ============       ============
Weighted Average Shares
   Outstanding                            47,203,524         46,375,062
                                        ============       ============
</TABLE>


                                       3
<PAGE>   4



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

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                      -----------------------------
                                                                         2001              2000
                                                                      -----------       -----------
<S>                                                                   <C>               <C>
        Cash Flows from Operating Activities:
             Net Income                                               $     5,534       $   170,532
             Adjustments to reconcile net income to net cash
               provided by (used in) operating activities:
               Depreciation and Amortization                               21,870            20,929
        Net Change in Assets and Liabilities:
             Accounts Receivable and Employee Advances                     57,442           238,902
             Inventory                                                          -                 -
             Prepaid Expenses and Deposits                                 (1,796)            9,164
             Accounts Payable                                             (11,577)          (98,527)
             Changes in Discontinued Operation                            (65,856)          (82,542)
             Accrued Liabilities                                          (33,479)          (66,367)
                                                                      -----------       -----------
        Net Cash Provided By (Used In) Operating Activities               (27,862)          192,091
                                                                      -----------       -----------
        Cash Flows from Investing Activities:
             Purchase/Disp of Property and Equipment                            -               499
             Increase in Capitalized Patent and Technology Costs           (7,492)                -
                                                                      -----------       -----------
        Net Cash Provided By (Used in) Investing Activities                (7,492)              499
                                                                      -----------       -----------
        Cash flows from Financing Activities:
             Issuance of Preferred Shares, Net                                  -                 -
             Issuance of Common Shares, Net                                     -                 -
             Exercise of Options                                                -                 -
             Exercise of Warrants                                               -                 -
             Issuance of Notes Payable                                          -                 -
             Issuance of Related Party Payable                                  -                 -
             Repayment of Notes Payable                                         -                 -
                                                                      -----------       -----------
        Net Cash Provided by Financing Activities                               -                 -
                                                                      -----------       -----------
        Increase (Decrease) in Cash and Cash Equivalents                  (35,354)          192,590

        Cash and Cash Equivalents, Beginning of Period                  1,467,988         1,021,998
                                                                      -----------       -----------

        Cash and Cash Equivalents, End of Period                      $ 1,432,634       $ 1,214,588
                                                                      ===========       ===========

        Supplemental Disclosure of Cash Flow Information:
             Cash paid during the period for:
               Interest                                               $     2,811       $     2,811
               Income Taxes                                                     -             2,400
                                                                      ===========       ===========
</TABLE>



                                       4
<PAGE>   5


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


<TABLE>
<CAPTION>
                               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
                               --------       --------       ----------    --------      -----------    -------------   ----------
<S>                            <C>            <C>            <C>           <C>         <C>              <C>             <C>
Balance, December 31, 2000      102,967       $  1,030       47,087,971    $470,880      $46,404,892    $(45,226,127)   $1,650,675

Issuance of Preferred
  Shares, Net                         -              -                -           -                -                -            -
Options Exercised                     -              -                -           -                -                -            -
Warrants Exercised                    -              -                -           -                -                -            -
Options Issued for
  Services                            -              -                -           -                -                -            -
Conversion of Preferred
  Shares, Net                   (15,000)          (150)         313,968         314             (164)               -            -
Net Income                            -              -                -           -                -            5,534        5,534
                               --------       --------       ----------    --------      -----------    -------------   ----------
Balance, March 31, 2001          87,967       $    880       47,401,939    $471,194      $46,404,728    $(45,220,593)   $1,656,209
                               --------       --------       ----------    --------      -----------    -------------   ----------
</TABLE>


                                       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", "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 scaleable, 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 period ended March 31, 2001 are not
 necessarily indicative of the results that may be expected for the year ended
 December 31, 2001. Accordingly, your attention is directed to footnote
 disclosures found in the December 31, 2000 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.

Research and Development Expenditures
 We expense research and development expenditures as incurred.

(3)     LOSS PER SHARE

On December 31, 1997, the Company retroactively adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128") which replaces the presentation of primary and fully diluted earnings
(loss) per share with a presentation of basic and diluted earnings (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. Diluted
earnings (loss)


                                       6
<PAGE>   7


per share is computed similarly to fully diluted earnings (loss) per share
pursuant to the Accounting Principles Board ("APB") Opinion No. 15. The
following table presents contingently issuable shares, options and warrants to
purchase shares of common stock that were outstanding during the three month
periods ended March 31, 2001 and 2000 which were not included in the computation
of diluted loss per share because the impact would have been antidilutive or
insignificant:


<TABLE>
<CAPTION>
                          2001              2000
                      ------------      ------------
<S>                   <C>               <C>
        Options          2,329,133         2,353,134
        Warrants         2,730,000         2,730,000
                      ------------      ------------
                         5,059,133         5,083,134
                      ============      ============
</TABLE>


(4)     COMPREHENSIVE INCOME

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 income during the three-month periods ended March 31, 2001 and
2000. As a result, comprehensive income is the same as the net income for the
three-month periods ended March 31, 2001 and 2000.

(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 March 31, 2001, 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
three major customers. The following customers comprised greater than 10% of
total revenues during the three months ended March 31, 2001 and 2000:


<TABLE>
<CAPTION>
                               2001        2000
                             ---------  ------------
<S>                          <C>        <C>
            Customer A         36%          40%
            Customer B         33%          25%
            Customer C         17%          10%
</TABLE>



                                       7
<PAGE>   8


(7)     CONTINGENCIES

Legal

        In February 1999, a complaint was filed in the Superior Court of Los
Angeles County, Northwest District, by I.N. Associates, Inc., against the
Company's wholly owned subsidiary, MultiDisc Technologies, Inc. ("MDT"),
alleging breach of contract and fraud, and claiming $499,954 in damages,
attorneys fees, interest and the costs of suit. MDT has answered and denied the
claims. The matter was subject to a mediation preceding in March 2000, and has
been settled. The settlement specifies that I.N. will be entitled to a cashless
exercise of warrants for the 125,000 shares originally issued to them in 1997
and 1998, or a cash payment of $50,000 if the warrants remained unexercised. In
January 2001, the cash payment was made and no further liabilities or
contingencies exist.

        In connection with the downsizing of the Company, a number of employees
were terminated and have filed, on various dates since the downsizing in 1998,
various employment and compensation related claims with the various State labor
authorities, all but two of which claims have either been settled or have been
paid as of the date of this report. In February, 2000, an appeal was heard in
the Superior Court of Orange County, California, relating to a claim filed by a
former employee of MDT for back vacation pay and penalties. In March 2000, both
parties agreed to dismiss the action as part of a settlement, which was not
material to the financial statements for the period ended March 31, 2000. In
July 2000, the Labor Commission of the State of California awarded $122,000 to a
claimant arising from a claim for commissions over a three-year period. We
appealed the order to the Superior Court of California, Santa Clara County,
since, under California law, the Labor Commission order will have no effect on
the court's consideration of the matter. On October 27, 2000, the matter was
settled by mutual release and payment in an amount which was not material to the
financial statements of the Company for the period ended September 30, 2000. Two
former officers and employees of MDT initiated proceedings before the Labor
Commissioner in 2000 seeking amounts allegedly due 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 has 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.

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 its 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


                                       8
<PAGE>   9


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)     SALE OF COMMON STOCK

        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 the April 1998 financing. The placement of common shares was at
no discount to market. We have registered these shares and warrants for resale
under Form S-1, as required by the placement documents.

(10)    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. We are accounting for
the on-going operating and termination expenses of MDT as a discontinued
operation.


                                       9
<PAGE>   10

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

RESULTS OF OPERATIONS

This form 10-Q contains forward-looking statements, within the meaning of the
Private Securities Reform Act of 1995, which are subject to a variety of risks
and uncertainties. Our actual results, performance, or achievements may differ
significantly from the results, performance, or achievements expressed or
implied in such forward-looking statements.

REVENUES

Revenues for the three months ended March 31, 2001 were $426,000, compared to
revenues of $506,000 in the comparable period last year, a decrease of 16%. The
decrease in such revenues resulted primarily from royalties of $75,000 earned in
the first quarter of 2000 for which there were no comparable revenue in the
current period. This multi-year license agreement expired in June 2000 and was
not renewable. Current quarter revenue was also negatively impacted by lower
royalties earned from a PC account compared with the comparable period last year
due to the licensee's decreased sales of PCs. This decrease was partially offset
by increased royalties from Spatializer N-2-2 on higher DVD player and DSP sales
by our licensees.

GROSS PROFIT

Gross profit for the three months ended March 31, 2001 was $399,000 (94% of
revenue) compared to gross profit of $473,000 (94% of revenue) in the comparable
period last year, a decrease of 16%. Gross profit decreased due to the decrease
in revenue.

OPERATING EXPENSES

Operating expenses in the three months ended March 31, 2001 were $402,000 (94%
of revenue) compared to operating expenses of $285,000 (56% of revenue) in the
comparable period last year, an increase of 41%. The increase in operating
expenses for the three months ended March 31, 2001 resulted primarily from
increased corporate and research and development expense.

General and Administrative

General and administrative expenses in the three months ended March 31, 2001
were $151,000 (35% of revenue) compared to general and administrative expenses
of $72,000 (14% of revenue)in the comparable period last year, an increase of
110%. The increase in general and administrative expense resulted from the
initiation of an investor relations program, higher legal and financial
reporting expenses.

Research and Development

Research and development expenses in the three months ended March 31, 2001 were
$137,000 (32% of revenue) compared to research and development expenses of
$113,000 (22% of revenue) in the comparable period last year, an increase of
21%. The increase in such expenses resulted primarily from higher engineering
headcount in the current period as compared with the comparable period last
year.

Sales and Marketing

Sales and marketing expenses in the three months ended March 31, 2001 were
$114,000 (27% of revenue) compared to sales and marketing expenses of $100,000
(20% of revenue) in the comparable period last year, an increase of 14%. The
increase in sales and marketing expense resulted primarily from greater
international travel in the current period and marketing support expense as
compared with the comparable period last year.


NET INCOME

Net Income in the three months ended March 31, 2001 was $6,000 (1% of revenues)
compared to net income of $171,000 (34% of revenues) in the comparable period
last year, a decrease of 96%.


                                       10
<PAGE>   11

The decrease in net income was the result of the decrease in revenues and the
increase in operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2001, we had $1,433,000 in cash and cash equivalents as compared to
$1,468,000 at December 31, 2000. The decrease in cash and cash equivalents is
attributed to cash used in for the reduction in accounts payable and for the
I.N. settlement. We had working capital of $1,217,000 at March 31, 2001 as
compared with working capital of $1,195,000 at December 31, 2000. Our future
cash flow will come primarily from the audio signal processing licensing
business' Foundry and Original Equipment Manufacturers' ("OEM") royalties and
common stock issuances including warrant and option exercises.

We have related party obligations of $225,000, which are convertible into Common
Stock at our or the Lender's option. The obligation matures in June 2001. The
Company owed a total of $338,000 to related parties as of March 31, 2001 and
December 31, 2000.

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
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.

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.

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



                                       11
<PAGE>   12


                           PART II. OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

        In February 1999, a complaint was filed in the Superior Court of Los
Angeles County, Northwest District, by I.N. Associates, Inc., against the
Company's wholly owned subsidiary, MultiDisc Technologies, Inc. ("MDT"),
alleging breach of contract and fraud, and claiming $499,954 in damages,
attorneys fees, interest and the costs of suit. MDT has answered and denied the
claims. The matter was subject to a mediation preceding in March 2000, and has
been settled. The settlement specifies that I.N. will be entitled to a cashless
exercise of warrants for the 125,000 shares originally issued to them in 1997
and 1998, or a cash payment of $50,000 if the warrants remained unexercised. In
January 2001, the cash payment was made and no further liabilities or
contingencies exist.

        In connection with the downsizing of the Company, a number of employees
were terminated and have filed, on various dates since the downsizing in 1998,
various employment and compensation related claims with the various State labor
authorities, all but two of which claims have either been settled or have been
paid as of the date of this report. In February, 2000, an appeal was heard in
the Superior Court of Orange County, California, relating to a claim filed by a
former employee of MDT for back vacation pay and penalties. In March 2000, both
parties agreed to dismiss the action as part of a settlement, which was not
material to the financial statements for the period ended March 31, 2000. In
July 2000, the Labor Commission of the State of California awarded $122,000 to a
claimant arising from a claim for commissions over a three-year period. We
appealed the order to the Superior Court of California, Santa Clara County,
since, under California law, the Labor Commission order will have no effect on
the court's consideration of the matter. On October 27, 2000, the matter was
settled by mutual release and payment in an amount which was not material to the
financial statements of the Company for the period ended September 30, 2000. Two
former officers and employees of MDT initiated proceedings before the Labor
Commissioner in 2000 seeking amounts allegedly due 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 has 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.

No other matters occurred during the period covered by this report, nor were
there any other material developments to previously reported matters during the
period covered by this report.

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


                                       12
<PAGE>   13

ITEM 5.     OTHER INFORMATION

None


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8K

None


                                       13
<PAGE>   14



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: May 11, 2001


                                 SPATIALIZER AUDIO LABORATORIES, INC.
                                 (REGISTRANT)


                                  /s/ HENRY R. MANDELL
                                 -----------------------------------------------
                                 HENRY R. MANDELL
                                 Chairman of the Board, Chief Executive Officer
                                 Chief Financial Officer and Secretary


                                       14