##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended: December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 000-26460
 SPATIALIZER AUDIO LABORATORIES, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    95-4484725(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2060 East Avenida de Los Arboles, # D190, Thousand Oaks, California 91362-1376
 Telephone Number: (408) 453-4180
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
  
 PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A(T). Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 32.1
  2




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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
  
 PART I
 
 Item 1. Business
 Overview
    Background of the Sale of Assets and Dissolution
   3




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This called into question
the ability of the Company to operate as a going concern
     Licensing Activities
    4




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Customers, Revenues and Expenses
    Competition
 ® ® ®
   Research and Development
   Intellectual Property and Proprietary Information
  Employees
  
 Item 1A. Risk Factors
  5




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Unforeseen Claims May Arise Relating to the Sale of Assets to DTS, Inc. Which Could Reduce or
Eliminate Any proposed Cash Distribution to Stockholders
  The Company Has No Means to Generate Revenue
  The Amount of Any Cash Distribution to Stockholders is Undeterminable
  A New Management Group, Involved in the April 25, 2007 Stock Offering Is Anticipated to Take
Control of the Company After the Cash Distribution, No Funding Source or Business Model Has Been
Revealed. Existing Stockholders Likely Will be Diluted
  6




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The Market For Our Stock Is Not Liquid And The Stock Price Is Subject To Volatility
  The Lack of Personnel Has Created a Deficiency in the Segregation of Duties That Has Been Disclosed
as a Material Weakness
  
 Item 1B. Unresolved Staff Comments
  
 Item 2 Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  7




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Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Period:
    
    High (U.S. $)
    
    Low (U.S. $)2006First Quarter
    
    $
    0.04
    
    
    $
    0.02Second Quarter
    
    $
    0.03
    
    
    $
    0.02Third Quarter
    
    $
    0.02
    
    
    $
    0.01Fourth Quarter
    
    $
    0.02
    
    
    $
    0.022007First Quarter
    
    $
    0.02
    
    
    $
    0.03Second Quarter
    
    $
    0.03
    
    
    $
    0.05Third Quarter
    
    $
    0.04
    
    
    $
    0.06Fourth Quarter
    
    $
    0.04
    
    
    $
    0.05
     8




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Item 6. Selected Financial Data
  Fiscal Year EndedDecember 31, 2003
    
    
    December 31, 2004
    
    
    December 31, 2005
    
    
    December 31, 2006
    
    
    December 31, 2007Consolidated Statement of Operations Data:Revenues
    
    $
    1,269
    
    
    $
    1,106
    
    
    $
    1,192
    
    
    $
    333
    
    
    $
    751Cost Of Revenues
    
    
    (122
    )
    
    
    (111
    )
    
    
    (106
    )
    
    
    (1
    )
    
    
    (63
    )Gross Profit
    
    
    1,147
    
    
    
    995
    
    
    
    1,086
    
    
    
    332
    
    
    
    688Total Operating Expenses
    
    
    (1,631
    )
    
    
    (1,146
    )
    
    
    (1,177
    )
    
    
    (686
    )
    
    
    (433
    )Other Income (Expense), Net
    
    
    (6
    )
    
    
    (5
    )
    
    
    8
    
    
    
    6
    
    
    
    38Gain on Sale of Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515Income taxes
    
    
    (5
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (5
    )
    
    
    (1
    )Net Income (Loss)
    
    $
    (495
    )
    
    $
    (157
    )
    
    $
    (82
    )
    
    $
    (353
    )
    
    $
    807Basic Income (Loss) Per Share
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.01Diluted Income (Loss) Per Share
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    0.01Weighted Average Common Shares
    
    
    47,309,171
    
    
    
    46,975,363
    
    
    
    46,990,059
    
    
    
    48,763,383
    
    
    
    59,884,354Consolidated Balance Sheet DataCash and Cash Equivalents
    
    $
    590
    
    
    $
    871
    
    
    $
    551
    
    
    $
    229
    
    
    $
    582Working Capital
    
    
    793
    
    
    
    603
    
    
    
    560
    
    
    
    242
    
    
    
    1557Total Assets
    
    
    1,205
    
    
    
    1,464
    
    
    
    897
    
    
    
    464
    
    
    
    1,605Redeemable Preferred Stock
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    0Advances From Related Parties
    
    
    108
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total Shareholders Equity
    
    $
    955
    
    
    $
    798
    
    
    $
    717
    
    
    $
    377
    
    
    $
    1,577
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Executive Overview
 ®
   9




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Approach to MD&A
  
    
    to provide a narrative explanation of a companys financial statements in plain
English that enables the average investor to see the company through the eyes of
management;
    
    to enhance the overall financial disclosure and provide the context within which
financial information should be analyzed; and
    
    to provide information about the quality of, and potential variability of, a
companys earnings and cash flow, so that investors can ascertain the likelihood and
relationship of past performance being indicative of future performance.
  
    
    An understanding of our operating environment and its risks
    
    An outline of critical accounting policies
    
    A review of our corporate governance structure
    
    A review of the key components of the financial statements and our cash position
and capital resources
    
    A review of the important trends in the financial statements and our cash flow
    
    Disclosure on our internal controls and procedures
 Operating Environment
  
    
    The Company Has No Means to Generate Revenue
    
    The Amount of Any Cash Distribution to Stockholders is Undeterminable
    
    A New Management Group, Involved in the April 25, 2007 Stock Offering Is Anticipated to
Take Control of the Company After the Cash Distribution, No Funding Source or Business Model
Has Been Revealed. Existing Stockholders Likely Will be Diluted
  10




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Critical Accounting Policies
     11




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Key Components of the Financial Statements and Important Trends
  Liquidity and Capital Resources.
  Liquidity and Capital Resources.
 Liquidity and Capital Resources.
 Results of Operations
  12




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For the Year Ended December 31, 2007, Compared to the Year Ended December 31, 2006
 Revenues
 ®
  Gross Profit
  Operating Expenses
  General and Administrative
  Research and Development
  Sales and Marketing
  Net Income (Loss)
  13




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For the Year Ended December 31, 2006, Compared to the Year Ended December 31, 2005
 Revenues
 ®
  Gross Profit
  Operating Expenses
  General and Administrative
  Research and Development
  Sales and Marketing
  Net Income (Loss)
  14




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Liquidity and Capital Resources
       Net Operating Loss Carryforwards
  Recently Issued Accounting Pronouncements
   15




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  16




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Item 8. Financial Statements and Supplementary Data
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors of Spatializer Audio Laboratories, Inc.:
     
 
 17




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors of Spatializer Audio Laboratories, Inc.:
    
 
 18




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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    582,019
    
    
    $
    228,940Short-Term Investments
    
    
    1,000,000
    
    
    
    0Accounts Receivable
    
    
    0
    
    
    
    74,828Prepaid Expenses and Other Current Assets
    
    
    22,989
    
    
    
    25,073Total Current Assets
    
    
    1,605,008
    
    
    
    328,841Property and Equipment, Net
    
    
    0
    
    
    
    3,477Intangible Assets, Net Held for Sale
    
    
    0
    
    
    
    131,258Total Assets
    
    $
    1,605,008
    
    
    $
    463,576LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Notes Payable
    
    
    9,680
    
    
    
    9,670Accounts Payable
    
    
    900
    
    
    
    32,136Accrued Wages and Benefits
    
    
    1,323
    
    
    
    3,169Accrued Professional Fees
    
    
    36,000
    
    
    
    41,900Accrued Commissions
    
    
    0
    
    
    
    200Accrued Expenses
    
    
    0
    
    
    
    0Total Current Liabilities
    
    
    47,903
    
    
    
    87,075Commitments and ContingenciesStockholders Equity (Deficit):Common shares, $0.01 par value;
300,000,000 shares authorized;
65,000,000 shares issued and
outstanding at December 31, 2007
and 48,763,383 issued and outstanding at December 31, 2006, respectively
    
    
    650,000
    
    
    
    487,634Additional Paid-In Capital
    
    
    46,634,856
    
    
    
    46,423,893Accumulated Deficit
    
    
    (45,727,751
    )
    
    
    (46,535,026
    )Total Stockholders Equity
    
    
    1,557,105
    
    
    
    376,501Total Liabilities and Stockholders Equity
    
    $
    1,605,008
    
    
    $
    463,576
  19




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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Royalty Revenues
    
    $
    750,706
    
    
    $
    333,201
    
    
    $
    1,192,447Cost of Revenues
    
    
    63,269
    
    
    
    897
    
    
    
    106,062687,437
    
    
    
    332,304
    
    
    
    1,086,385Operating Expenses:General and Administrative
    
    
    433,667
    
    
    
    526,865
    
    
    
    670,124Research and Development
    
    
    0
    
    
    
    157,739
    
    
    
    354,138Sales and Marketing
    
    
    0
    
    
    
    1,241
    
    
    
    152,473433,667
    
    
    
    685,845
    
    
    
    1,176,735Operating Income (Loss)
    
    
    253,770
    
    
    
    (353,541
    )
    
    
    (90,350
    )Interest Income
    
    
    40,740
    
    
    
    6,730
    
    
    
    13,230Interest Expense
    
    
    (2,311
    )
    
    
    (2,266
    )
    
    
    (5,269
    )Gain On Sale of Assets
    
    
    515,077
    
    
    
    0
    
    
    
    0Other Income (Expense), Net
    
    
    0
    
    
    
    1,251
    
    
    
    0553,506
    
    
    
    5,715
    
    
    
    7,961Income (Loss) Before Income Taxes
    
    
    807,276
    
    
    
    (347,826
    )
    
    
    (82,389
    )Income Taxes
    
    
    0
    
    
    
    (4,800
    )
    
    
    874Net Income (Loss)
    
    $
    807,276
    
    
    $
    (352,626
    )
    
    $
    (81,515
    )Basic and Diluted Income (Loss) per Share:
    
    $
    .01
    
    
    $
    (.01
    )
    
    $
    (.00
    )Weighted-Average Shares Outstanding
    
    
    59,884,354
    
    
    
    48,763,385
    
    
    
    46,990,059
  20




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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash Flows from Operating Activities:Net Loss
    
    $
    807,276
    
    
    $
    (352,626
    )
    
    $
    (81,515
    )Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by Operating
Activities:Gain on Sale of Assets
    
    
    (515,077
    )Depreciation
    
    
    0
    
    
    
    14,926
    
    
    
    16,401Amortization
    
    
    0
    
    
    
    22,303
    
    
    
    31,030Stock and Options Issued for Services
    
    
    
    
    
    
    
    
    
    
    1,000Net Compensation Expense on Vested Options
    
    
    0
    
    
    
    11,725Net Change in Assets and Liabilities:Accounts Receivable
    
    
    74,828
    
    
    
    80,405
    
    
    
    170,479Prepaid Expenses, Deposits and Other Assets
    
    
    2,084
    
    
    
    9,031
    
    
    
    36,836Accounts Payable
    
    
    (31,236
    )
    
    
    17,941
    
    
    
    (57,678
    )Accrued Expenses and Other Liabilities
    
    
    (7,947
    )
    
    
    (109,612
    )
    
    
    18,274Deferred Revenue
    
    
    0
    
    
    
    0
    
    
    
    (391,395
    )Net Cash Provided (Used) by Operating Activities
    
    
    329,928
    
    
    
    (305,907
    )
    
    
    (256,568
    )Cash Flows from Investing Activities:Short Term Investments
    
    
    (1,000,000
    )
    
    
    0
    
    
    
    0Net proceeds from Asset Sale
    
    
    649,812
    
    
    
    0
    
    
    
    0Purchase of Property and Equipment
    
    
    (0
    )
    
    
    (0
    )
    
    
    (5,277
    )Intangible Assets
    
    
    0
    
    
    
    (15,013
    )
    
    
    (2,868
    )Net Cash Used by Investing Activities
    
    
    (350,188
    )
    
    
    (15,013
    )
    
    
    (8,145
    )Cash Flows from Financing Activities:Issuance (Repayment) of Notes Payable
    
    
    10
    
    
    
    (773
    )
    
    
    (55,809
    )Issuance of Common Stock Net of Transaction Costs
    
    
    373,329
    
    
    
    0
    
    
    
    0Net Cash Provided by (Used) by Financing Activities
    
    
    373,339
    
    
    
    (773
    )
    
    
    (55,809
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    353,079
    
    
    
    (321,693
    )
    
    
    (320,522
    )Cash and Cash Equivalents, Beginning of Year
    
    
    228,940
    
    
    
    550,633
    
    
    
    871,155Cash and Cash Equivalents, End of Year
    
    $
    582,019
    
    
    $
    228,940
    
    
    $
    550,633Supplemental Disclosure of Cash Flow Information:Cash Paid During the Year for:Interest
    
    $
    2,311
    
    
    $
    2,266
    
    
    $
    5,269Income Taxes
    
    $
    418
    
    
    $
    4,800
    
    
    $
    0
  21




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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 Common
    
    
    Common SharesShares
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    TotalNumber of
    
    
    Par
    
    
    Paid-In-
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance, December 31, 2004
    
    
    46,975,365
    
    
    $
    469,754
    
    
    $
    46,428,866
    
    
    $
    (46,100,885
    )
    
    $
    797,735Conversion of Series B-1 Pfd to Common Shares
    
    
    1,788,018
    
    
    
    17,880
    
    
    
    (16,698
    )
    
    
    
    
    
    
    1,182Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,515
    )
    
    
    (81,515
    )Balance, December 31, 2005
    
    
    48,763,383
    
    
    $
    487,634
    
    
    $
    46,412,168
    
    
    $
    (46,182,400
    )
    
    $
    717,402Net Compensation Expense on Vested Options
    
    
    
    
    
    
    
    
    
    
    11,725
    
    
    
    
    
    
    
    11,725Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (352,626
    )
    
    
    (352,626
    )Balance, December 31, 2006
    
    
    48,763,383
    
    
    $
    487,634
    
    
    $
    46,423,893
    
    
    $
    (46,535,026
    )
    
    $
    376,501Issuance of Common Stock
    
    
    
    
    
    
    162,366
    
    
    
    210,963
    
    
    
    
    
    
    
    373,329Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    807,276
    
    
    
    807,276Balance, December 31, 2007
    
    
    65,000,000
    
    
    $
    650,000
    
    
    $
    46,634,856
    
    
    $
    (45,727,751
    )
    
    $
    1,557,105
  22




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SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Ability to Continue as a Going Concern, Sale of All or Substantially All of the Assets of
Spatializer Audio Laboratories, Inc. and Desper Products, Inc. and Dissolution of Spatializer
   This called into
question the ability of the Company to operate as a going concern
     (2) Significant Accounting Policies
 Basis of Consolidation 
 23




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Revenue Recognition 
 Concentration of Credit Risk 
    Cash and Cash Equivalents 
 Customers
Outside of the U.S. 
 Major Customers 
 Research and Development Costs 
 Advertising Costs 
 Property and Equipment 
 Intangible Assets 
 Earnings Per Share  Earnings Per Share
 24




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2007Options
    
    
    1,150,000Warrants
    
    
    01,150,000
 Stock Option Plan  Accounting for Stock-Based
Compensation ,as amended
 Share Based Payment
 Impairment of Long-Lived Assets and Assets to be Disposed of Accounting for the Impairment of Long-Lived Assets,
 Segment Reporting Disclosures about Segments of an Enterprise
and Related Information
 Income Taxes
 Recent Accounting Pronouncements
  25




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Use of Estimates
 Fair Value of Financial Instruments
 (3) Property and Equipment
  2007
    
    
    2006Office Computers, Software, Equipment and Furniture
    
    $
    0
    
    
    $
    337,145Test Equipment
    
    
    0
    
    
    
    73,300Tooling Equipment
    
    
    0
    
    
    
    45,539Trade Show Booth and Demonstration Equipment
    
    
    0
    
    
    
    174,548Automobiles
    
    
    0
    
    
    
    7,000Total Property and Equipment
    
    
    0
    
    
    
    637,531Less Accumulated Depreciation and Amortization
    
    
    0
    
    
    
    634,054Property and Equipment, Net
    
    $
    0
    
    
    $
    3,477
 (4) Intangible Assets
  2007
    
    
    2006Capitalized Patent, Trademarks and Technology Costs
    
    $
    0
    
    
    $
    540,708Less Accumulated Amortization
    
    
    0
    
    
    
    409,450Intangible Assets, Net
    
    $
    0
    
    
    $
    131,258
 (5) Notes Payable
  26




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(6) Shareholders Equity
  (7) Stock Options
 No
 Weighted-AverageExercisable
    
    Number
    
    Exercise PriceOptions outstanding at December 31, 2004
    
    
    2,381,666
    
    
    
    2,635,000
    
    
    $
    0.11Options granted
    
    
    
    
    
    
    500,000
    
    
    $
    0.10Options exercised
    
    
    
    
    
    
    (0
    )
    
    $
    Options forfeited/expired
    
    
    
    
    
    
    (325,000
    )
    
    $
    0.31Options outstanding at December 31, 2005
    
    
    2,726,666
    
    
    
    2,810,000
    
    
    $
    0.10Options granted
    
    
    
    
    
    
    (0
    )
    
    $
    0.10Options exercised
    
    
    
    
    
    
    (0
    )
    
    $
    Options forfeited/expired
    
    
    (976,666
    )
    
    
    (1,060,000
    )
    
    $
    0.10Options outstanding at December 31, 2006
    
    
    1,750,000
    
    
    
    1,750,000
    
    
    $
    0.09Options granted
    
    
    
    
    
    
    (0
    )Options exercised
    
    
    
    
    
    
    (0
    )
    
    $
    Options forfeited/expired
    
    
    (600,000
    )
    
    
    (600,000
    )
    
    $
    0.12Options outstanding at December 31, 2007
    
    
    1,150,000
    
    
    
    1,150,000
    
    
    $
    0.08
   NET INCOME (LOSS):As Reported
    
    $
    (81,515
    )Pro Forma
    
    $
    (89,715
    )BASIC AND DILUTED LOSS:As Reported
    
    $
    (0.00
    )Pro Forma
    
    $
    (0.00
    )
 27




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##### Table of Contents



(8) Income Taxes
  2007
    
    
    2006
    
    
    2005State franchise tax
    
    $
    0
    
    
    $
    4,800
    
    
    
    400Federal taxes
    
    
    (0
    )
    
    $
    (0
    )
    
    
    (1,274
    )Total
    
    $
    0
    
    
    $
    4,800
    
    
    
    (874
    )
     (9) Commitments and Contingencies
  Operating Lease Commitments
  No space was leased in 2007.
 28




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##### Table of Contents



(10) Profit Sharing Plan
  (11) Quarterly Financial Data (unaudited)
  Quarter Ended2007
    
    March 31
    
    June 30
    
    September 30
    
    December 31Net Revenues
    
    $
    359,684
    
    
    $
    360,914
    
    
    $
    30,107
    
    
    $
    0Gross Margin
    
    $
    328,191
    
    
    $
    329,602
    
    
    $
    29,643
    
    
    $
    0Net Income (Loss)
    
    $
    233,657
    
    
    $
    149,768
    
    
    $
    472,342
    
    
    $
    (48,491
    )Basic Income (Loss) Per Share
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.00
    )
 Quarter Ended2006
    
    March 31
    
    June 30
    
    September 30
    
    December 31Net Revenues
    
    $
    100,488
    
    
    $
    92,868
    
    
    $
    67,744
    
    
    $
    72,101Gross Margin
    
    $
    90,299
    
    
    $
    83,580
    
    
    $
    60,970
    
    
    $
    97,455Net Income (Loss)
    
    $
    (173,391
    )
    
    $
    (62,989
    )
    
    $
    (61,798
    )
    
    $
    (54,448
    )Basic (Loss) Per Share
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
 29




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##### Table of Contents



Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A(T). Controls and Procedures
   
 Item 9B. Other Information
  
 PART III
 
 Item 10. Director, Executive Officers and Corporate Governance
 Directors and Officers
   30




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##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  Corporate Governance
  
 Item 11. Executive Compensation
 Compensation Discussion and Analysis
   31




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##### Table of Contents



.
   Officer Compensation
  SUMMARY COMPENSATION TABLEAll OtherOptions
    
    
    
    
    
    CompensationName and Principal Position
    
    Year
    
    Salary($)
    
    Awards($)
    
    Bonus
    
    ($)
    
    Total ($)Henry R. Mandell, Chairman and
    
    
    2007
    
    
    $
    95,000
    
    
    
    
    
    
    
    35,000
    (1)
    
    $
    20,000
    (2)
    
    $
    150,000Secretary
    
    
    2006
    
    
    $
    90,000
    
    
    
    
    
    
    
    
    
    
    $
    19,000
    (2)
    
    $
    109,0002005
    
    
    $
    214,200
    
    
    
    8,000
    
    
    
    
    
    
    $
    16,000
    
    
    $
    238,200
 
 (1)
    
    Includes contractual Bonus on sale of assets of 3.5% of selling price ($35,000)(2)
    
    Cost of health insurance premiums   32




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##### Table of Contents



OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDOption AwardsNumber of Securities
    
    
    
    Number of SecuritiesUnderlying
    
    
    
    UnderlyingUnexercised
    
    
    
    Unexercised
    
    Weighted AverageOptions(#)
    
    
    
    Options(#)
    
    Option Exercise
    
    Option ExpirationExercisable
    
    
    
    Unexercisable
    
    Price($)
    
    Date500,000
    
    
    
    
    
    500,000
    
    
    $
    0.10
    
    
    
    2/201050,000
    
    
    
    
    
    50,000
    
    
    $
    0.09
    
    
    
    06/2009350,000
    
    
    
    
    
    350,000
    
    
    $
    0.05
    
    
    
    11/200850,000
    
    
    
    
    
    50,000
    
    
    $
    0.07
    
    
    
    06/2008
  Director Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  AMOUNT ANDNATURE OFBENEFICIAL
    
    PERCENT OFNAME OF BENEFICIAL OWNER
    
    OWNERSHIP
    
    CLASSJay Gottlieb(1)(2)
    
    
    13,605,615
    
    
    
    20.9
    %Greggory A. Schneider(1)(3)
    
    
    6,497,500
    
    
    
    10.0
    %Carlo Civelli(1)(4)
    
    
    5,763,780
    
    
    
    8.6
    %Henry R. Mandell(1)(5)
    
    
    1,662,875
    
    
    
    2.6
    %All directors and executive officers as a group (3 persons)(1)(4)(5)
    
    
    21,032,270
    
    
    
    32.1
    %
 
 (1)
    
    The persons named in the table have sole voting and investment power
with respect to all shares shown to be beneficially owned by them,
subject to community property laws, where applicable, and the
information contained in the footnotes to this table.(2)
    
    Based on the Schedule 13D filed by Mr. Gottlieb with the Securities
and Exchange Commission on April 30, 2007. Mr. Gottliebs address is
27 Misty Brook Lane, New Fairfield, Connecticut 06812.(3)
    
    Based on the Schedule 13D filed by Mr. Schneider with the Securities
and Exchange Commission on April 30, 2007. Mr. Schneiders address is
10445 Wilshire Blvd., #1806, Los Angeles, California 90024. 33




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##### Table of Contents



(4)
    
    Carlo Civelli controls Clarion Finanz AG, a non-reporting investment
company. Holdings of Mr. Civelli and Clarion Finanz AG are combined,
and include all shares of Spatializer held of record or beneficially
by them,
and all additional shares over which he either currently exercises
full or partial control, without duplication through attribution.
Includes 250,000 options to acquire common stock held by Mr. Civelli,
all of which are vested and currently exercisable. Mr. Civellis
address is Gerberstrasse 5 8023, Zurich, Switzerland.(5)
    
    Includes 950,000 options held by Mr. Mandell, all of which are
vested and are exercisable at various prices from $0.05 to $0.30. This
includes options granted on February 21, 2005, and exercisable at
$0.10 per share, relating to the extension of Mr. Mandells employment
agreement in 2005. The options have varying expiration dates of which
the final such expiration date is February 21, 2010.   Equity Compensation Plan InformationNumber of securitiesNumber of securities
    
    
    
    
    
    remaining available forto be issued
    
    Weighted-average
    
    future issuance underupon exercise of
    
    exercise price of
    
    equity compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation plans
approved by security holders
    
    
    1,150,000
    (1)
    
    $
    0.07
    (1)
    
    
    0Equity compensation plans not
approved by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    1,150,000
    
    
    $
    0.07
    
    
    
    0
 34




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##### Table of Contents



(1)
    
    Represents options to acquire the Companys Common Stock under the Companys 1995 Stock Option
Plan and 1996 Incentive Plan approved by the Companys stockholders in 1995 and 1996, respectively.
The 1995 Plan authorizes grants of options to purchase authorized but unissued common stock in an
amount of up to 10% of total common shares outstanding at each calendar quarter or 6,500,000 as at
December 31, 2007. Stock options are granted with an exercise price equal to the stocks fair
market value at the date of grant. Stock options have five-year terms and vest and become fully
exercisable as determined by the committee on date of grant. The 1996 Plan supplements the 1995
Plan by allowing for stock appreciation, incentive shares and similar accruals aggregating not more
than the equivalent of 500,000 shares and the regrant of any Performance Shares that become
available for regrant. See Note 2. Since the Plan expired in 2005, there can be no new issues of
options. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
   
 
 Item 14. Principal Accountant Fees and Services
  December 31,2006
    
    
    2007Audit Fees (1)
    
    $
    35,000
    
    
    $
    20,000Audit Related Fees (3)
    
    
    8,400
    
    
    
    17,500Tax Fees (2)
    

    8,900
    
    

    8,000All Other Fees
    

    8,400
    
    
    
    Total Fees
    
    $
    52,300
    
    
    $
    45,500
 35




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##### Table of Contents



(1)
    
    Audit Fees are fees for professional services rendered for the annual audit, the reviews of
the Companys financial statements included in Form 10-Qs and services normally provided in
connection with statutory and regulatory filings. These fees were paid to Ramirez International Financial and
Accounting Services, Inc.(2)
    
    Tax Fees are fees for professional services rendered for tax compliance, tax planning and tax
advice, paid to Farber Hass Hurley LLP.(3)
    
    Relates to review of Form 10-Qs. .
 
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
    36




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##### Table of Contents



ExhibitNumber
    
    Description2.1
    
    Arrangement Agreement dated as of March 4, 1994 among Spatializer-Yukon, DPI and
Spatializer-Delaware (Incorporated by reference to the Companys Registration Statement
on Form S-1,Registration No 33-90532, effective August 21, 1995.)2.2
    
    Asset Purchase Agreement dated as of September 18, 2006 among the Company, Desper
Products, Inc., DTS, Inc. and DTS-BVI (incorporated by reference to Exhibit 10.9 to the
Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.)3.1
    
    Certificate of Incorporation of Spatializer-Delaware as filed February 28, 1994.
(Incorporated by reference to the Companys Registration Statement on Form S-1,
Registration No. 33-90532,effective August 21, 1995.)3.2
    
    Amended and Restated Bylaws of Spatializer-Delaware. (Incorporated by reference to the
Companys Registration Statement on Form S-1,Registration No. 33-90532, effective
August 21, 1995.)3.3
    
    Certificate of Designation of Series B 10% Redeemable Convertible Preferred Stock of
the Company as filed December 27, 1999 (Incorporated by reference to the Companys
Annual Report on Form10-K, for the period ended December 31, 1999.)3.4
    
    Certificate of Amendment of Certificate of Incorporation of the Company as filed on
February 25, 2000 (Incorporated by reference to the Companys Annual Report on Form
10-K, for the period ended December 31, 1999.)3.5
    
    Certificate of Designation of Series B-1 Redeemable Convertible Preferred Stock as
filed December 20, 2002 (Incorporated by reference to the Companys Annual Report on
Form 10-K, for the period ended December 31, 2002.)3.6
    
    Certificate of Elimination of Series A Preferred Stock as filed December 26, 2002
(Incorporated by reference to the Companys Annual Report on Form 10-K, for the period
ended December 31,2002.)3.7
    
    Certificate of Elimination of Series B Preferred Stock as filed December 26,2002
(Incorporated by reference to the Companys Annual Report on Form 10-K, for the period
ended December 31,2002.)10.1
    
    Spatializer-Delaware Incentive Stock Option Plan (1995 Plan). (Incorporated by
reference to the Companys Registration Statement on Form S-1, Registration No.
33-90532, effective August 21,1995.)10.2
    
    Spatializer-Delaware 1996 Incentive Plan. (Incorporated by reference to the Companys
Proxy Statement dated June 25, 1996 and previously filed with the Commission.)10.3
    
    Form of Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to the
Companys Annual Report on Form 10-K for the period ended December 31, 2005.)10.4
    
    License Agreement dated June 29, 1994 between DPI and MEC. (Incorporated by reference
to the Companys Registration Statement on Form S-1, Registration No. 33-90532,
effective August 21,1995.)10.5
    
    Employment Agreement dated November 12, 2005, between the Company and Henry Mandell, as
amended. (Incorporated by reference to Exhibit 10.5 to the Companys Annual Report on
Form 10-K for the period ended December 31, 2005.)
 37




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##### Table of Contents



ExhibitNumber
    
    Description10.6
    
    Related Party Promissory Note to the Successor Trustee of the Ira A. Desper Marital
Trust dated November 1, 2003. (Incorporated by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-K, for the period ended December 31, 2005.)10.7
    
    Lease for Office and Research Center in San Jose, CA. (incorporated by reference to )10.8
    
    Lease for Executive Office in Westlake Village, CA. (incorporated by reference to)10.9
    
    License Agreement between Spatializer Audio Laboratories, Inc., Desper Products, Inc.
and Samsung Electronics, effective August 22, 2005. (Incorporated by reference to the
Companys Quarterly Report on Form 10-Q for the period ended September 30, 2005.)10.10
    
    Employment Agreement dated January 6, 2006, between the Company and Henry Mandell.
(Incorporated by reference to Exhibit 10.10 to the Companys Annual Report on Form 10-K
for the period ended December 31, 2006.)10.11
    
    Amendment to Employment Agreement between the Company and Henry Mandell21.1
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Auditors23.2
    
    Consent of Farber Hass Hurley McEwen, LLP, Independent Registered Public Accounting Firm31.1
    
    Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Certification
will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended)
 38




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##### Table of Contents



SIGNATURES
   SPATIALIZER AUDIO LABORATORIES, INC.

(Registrant)/s/ Henry R. MandellHenry R. MandellChairman & Secretary  Signature
    
    Title
    
    Date/s/ Carlo Civelli
    
    Director
    
    March 27, 2008Carlo Civelli/s/ Jay Gottlieb
    
    Director
    
    March 27, 2008Jay Gottlieb/s/ Henry R. Mandell

Henry R. Mandell
    
    Director, Chairman and
Secretary (Principal executive officer
and principal financial officer)
    
    March 27, 2008
 39