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Transitioning Accounts and Licensee Product Schedules Continues to Impact Performance Which is Expected to Continue Through Year End

Revenue decreased to $341,000 in the three months ended September 30, 2003 from $481,000 in the comparable period last year, a decrease of 29%. Revenue in the nine-months ended September 30, 2003 decreased to $925,000 from $1,392,000 in the comparable period last year.

Net loss increased to ($107,000) (-31% of revenues), ($0.00) per share, in the three months ended September 30, 2003 from net income $11,000 (1% of revenues), $0.00 per share in the comparable period last year. Net loss increased to ($393,000) (-42% of revenue), ($0.01)per share, in the nine-months ended September 30, 2003 from net income of $35,000 (3% of revenue), $0.00 per share in the comparable period last year.

The decline in revenue resulted from the expiration of a licensing agreement with a major computer account in January 2003 and the effects of outsourcing by our existing DVD player accounts to manufacturers in China and other manufacturers who decline to pay for such software or with whom the Company does not have licensing arrangements. In addition, replacement revenues from new licensing arrangements were delayed due to licensee rescheduling of certain new product introductions with Spatializer technology due to supply-chain issues, or lost due to cost pressure on manufacturers and disruption to engineering development at customer sites in China by the SARS epidemic earlier in the year.

The increased net loss for the three and nine-month periods are primarily the result of the decrease in revenue. In addition, additional legal and reporting burdens imposed by the Sarbanes-Oxley Act resulted in higher public company related expenses over the prior year.

At September 30, 2003, the Company had $657,000 in cash and cash equivalents as compared to $859,000 at December 31, 2002. The decrease in cash and cash equivalents is attributed to the net loss, partially offset by collections on accounts receivable. The Company had working capital of $869,000 at September 30, 2003 as compared with working capital of $1,125,000 at December 31, 2002.

"We were able to narrow our loss in the third quarter, as compared with our prior quarter as one of our former licensee's business transitioned to a third party supplier which is a Spatializer licensee," stated Henry R. Mandell, Chairman and Chief Executive Officer of Spatializer Audio Laboratories. "Our performance this year continues to be negatively impacted by the effects of the intense pressure on manufacturers to reduce their costs. Often, manufacturers must compete on price alone and desirable features and functionality are eliminated to achieve this objective. This has particularly been the case in the DVD player segment, where we have been traditionally strong."

Mandell continued, "We have been working diligently on broadening our penetration into the personal audio, cell phone and AV Receiver markets where the competitive pressure and market forces are less acute. This diversification is crucial to the future success of our Company. In addition, we have restructured our licensing operation such that I directly interface with our sales organizations in Japan and Korea where we believe we have not been maximizing our share of the market. Further, we will be moving to lower cost offices in Silicon Valley and in general, have simplified our organization and its cost structure so that we can nimbly seize upon commercial opportunities during dynamic change. We expect to realize savings of approximately $400,000 on an annualized basis, beginning in the latter part of the fourth quarter of 2003."

Mandell concluded, "We have a game plan in place that we believe can lead us to renewed profitability in 2004. It will be a tough slog, but this is a tough business for all who compete in it. We will be announcing new licensing deals in the next few months that have been finalized. We expect to penetrate some new and profitable high-volume markets. We have a lean structure, a relevant product line-up and a commercial mindset that we believe uniquely positions us to weather this dynamic environment."

About Spatializer

Spatializer Audio Laboratories Inc. is a leading developer, licensor and marketer of next-generation technologies for the consumer electronics, computing and entertainment industries. The company's advanced audio technology is incorporated into consumer electronics audio and video products from global brand leaders including Toshiba, JVC, Panasonic, Sony, Samsung, Sharp and Sanyo, among others. Spatializer common stock is traded on the OTC Bulletin Board under the symbol: SPAZ. The company is headquartered in Santa Clara, CA, with executive offices in Westlake Village, CA and marketing offices in Tokyo, Japan. Further information may be obtained from the company's web site, www.spatializer.com, Spatializer SEC filings, and by contacting the company's Investor Relations Department at 408-296-0600 or by writing to investor@spatializer.com.

Safe Harbor Act Statement Under the Private Securities Litigation Reform Act of 1995: Certain information in this background news release, including the comments by Mr. Mandell in this press release are forward looking statements that are based on management's belief, as well as assumptions made by, and information currently available to management. While the company believes that its expectations are based upon reasonable assumptions, there can be no assurances that the company's financial goals will be realized. Numerous uncertainties and risk factors may affect the company's actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of the company. These uncertainties and risk factors include, but are not limited to competition and pricing pressures, delays in new product development, dependence on new technology and intellectual property, the continued need for additional capital, dependence on the PC and consumer electronics industries, dependence on product shipments of third-party licensees, and other risks detailed from time to time in the company's periodic reports and other filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

NOTE: Desper Products Inc. is a wholly owned subsidiary of Spatializer Audio Laboratories Inc. Spatializer(R) is a registered trademark are trademarks of Desper Products Inc. All other trademarks are the property of their respective owners. Copyright (C) 2003 Spatializer Audio Laboratories, Inc.

          SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES

                       CONSOLIDATED BALANCE SHEETS

                                                September 30,  December 31,
                                                     2003          2002
                                                 (unaudited)

                               ASSETS

  Current Assets:
    Cash and Cash Equivalents                     $656,991       $858,725
    Accounts Receivable                            326,944        499,023
    Prepaid and Deposits                           106,245         82,920

  Total Current Assets                           1,090,180      1,440,668
  Property and Equipment, net                       45,823         70,842
  Intangible Assets, Net                           189,608        225,859
  Other Assets                                          --          8,471

  Total Assets                                  $1,325,611     $1,745,840

                 LIABILITIES AND SHAREHOLDERS' EQUITY

  Current Liabilities:
    Notes Payable to Related Party                  44,169        112,500
    Accounts Payable                                40,738         39,027
    Accrued Wages and Benefits                      58,358        108,771
    Accrued Expenses and Taxes                      77,567         55,682
      Total Current Liabilities                    220,832        315,980

  Notes Payable to Related Party, Long Term         68,331             --

  Commitments and Contingencies
   Series B-1, Redeemable Convertible Preferred
   shares, $.01 par value, 1,000,000 shares
   authorized, 102,762 shares issued and
   outstanding at September 30, 2003 and
   December 31, 2002.                                1,028          1,028



  Shareholders' Equity:
  Common shares, $.01 par value, 65,000,000 shares
   authorized, 47,406,939 shares issued and
   outstanding at September 30, 2003 and
   December 31, 2002                               474,070        474,070
  Additional Paid-In Capital                    46,402,704     46,402,704
  Accumulated Deficit                          (45,841,354)   (45,447,942)
  Total Shareholders' Equity                     1,035,420      1,428,832
  Total Liabilities and Shareholder's
   Equity                                       $1,325,611     $1,745,840


            SPATIALIZER AUDIO LABORATORIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENT OF OPERATIONS
                                 (unaudited)

                          For the Three Month        For the Nine Month
                              Period Ended              Period Ended
                         Sept. 30,    Sept. 30,     Sept. 30,    Sept. 30,
                            2003         2002          2003        2002

  Revenues:
    Royalty and Product
     Revenues            341,339       480,851      924,619     1,391,963

  Cost of Revenues        35,147        37,977       93,586       105,898

  Gross Profit           306,192       442,874      831,033     1,286,065
  Operating Expenses:
    General and
     Administrative      193,293       211,681      585,830       529,725
    Research and
     Development         122,145        97,532      333,289       340,572
    Sales and Marketing   93,488       122,309      295,180       378,634

                         408,926       431,522    1,214,299     1,248,931

    Operating Profit
     (Loss)             (102,734)       11,352     (383,266)       37,134
    Interest Income        1,444         2,585        5,908         9,152
    Interest Expense      (2,812)       (2,813)     (10,634)       (8,438)

                          (1,368)         (228)      (4,726)          714

    Income (Loss) Before
     Income Taxes       (104,102)       11,124     (387,992)       37,848
    Income Taxes          (2,400)           --       (5,420)       (2,400)

    Net Income
     (Loss)            $(106,502)      $11,124    $(393,412)      $35,448

    Basic/Diluted
     Earnings (Loss)
     Per Share           $(0.00)         $0.00        $(0.01)       $0.00

    Weighted Average
     Shares
     Outstanding      47,406,939    47,406,939   47,406,939    47,406,939

Source: Spatializer Audio Laboratories Inc.