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Revenues Up 33% Over Comparable Year in 2nd Consecutive Year of Increased Profitability

At December 31, 2000, Spatializer had $1,468,000 in cash and cash equivalents, compared to $1,022,000 at December 31, 1999 -- an increase of 44 percent. The increase in cash and cash equivalents is attributed to cash provided by the exercise of warrants and options. Spatializer's working capital at December 31, 2000 was $1,195,000 compared with a working capital of $395,000 at December 31, 1999, a 203 percent increase.

``Early last year, I outlined four ambitious strategic objectives for our company. I emphasized our commitment to make the necessary investment in people, infrastructure and products, even at the risk of some short-term profit, to firmly set the foundation for sustained and profitable growth,'' says Spatializer Chairman and CEO Henry R. Mandell. ``We successfully developed and executed several initiatives to strengthen our position as the de facto standard for virtual surround sound in the DVD player market and, for the future, in the overall digital audio enhancement market. Concurrent with these initiatives, we grew our revenues over 33 percent in the past year. Unlike many emerging technology companies, we remained nicely profitable, delivering a 17 percent return on net sales.

``It's been a good year for us,'' says Spatializer Chairman/CEO Henry R. Mandell. ``We're beginning to reap the harvest from seeds that we planted as much as two years ago.'' Mandell points out that the licensing process moves very slowly and that the markets for MP3 players, set-top boxes and Internet appliances are still developing. ``We've targeted those opportunities that we felt would benefit the company most,'' Mandell explains. ``That strategy has paid off. For example, our agreement with C-Cube evolved from a relationship begun in 1998. Now we are seeing that initiative pay off as C-Cube customers embrace Spatializer technology.''

Mandell credits the growth in Spatializer N-2-2(TM) running royalties from OEM DVD player sales as the primary factor for Spatializer's increase in fiscal 2000 revenues. Royalties derived from OEM DVD player sales increased 175 percent over the prior fiscal year. Net income increased due to increased revenue and interest expense, offset by increased overhead expenses as compared to the prior year. Mandell notes that Fiscal 1999 overhead expenses reflected minimal baseline funding of operations in the absence of adequate working capital until late December 1999.

``Securing Spatializer N-2-2(TM) as the de facto standard for virtual surround sound was key to our strategy; first in the DVD player and later in a wider array of digital audio applications. In 2001, Spatializer N-2-2 continues to be the dominant brand and de facto standard for virtual surround sound in the DVD player market. Design wins this past year with Hitachi, the launch of NUON(TM)-based DVD players from Toshiba and Samsung and DVD-RW recorders from Samsung, Toshiba and LG, all equipped with Spatializer N-2-2, and the announced inclusion of Spatializer N-2-2 on the breakthrough Ziva-5 digital signal processor from C-Cube should solidify and expand our position in this market that is expected to double to 16 million annual units sold in 2001.

``Essential in replicating our success in the DVD market into portable MP3 players, set-top boxes, Internet appliances, smartphones and PDAs is to establish strong working relationships with the leading DSP foundries serving these markets,'' Mandell asserts. ``While sales and engineering efforts expended in this area do not result in immediate cash flowing deals, this kind of work on the long-term view is essential for future success. We are very active in this area, as our new or expanded relationships with C-Cube, MIPS Technologies, Link-Up Systems, NJRC and Tvia can attest. Even more importantly, we intend for this roster to expand with several additional World-Class DSP leaders in the coming months. No matter which DSP a manufacturer uses, we intend to have a turn-key, easily implemented virtual audio solution available off-the-shelf.''

Mandell earlier emphasized the need to build infrastructure in order to capitalize on the opportunities presented by the digital audio revolution. Nowhere has this been more evident than on the sales and marketing front. ``We made two significant moves that we are confident will take our international sales organization to a higher level,'' says Mandell. ``At the beginning of 2000, our sales and marketing function was in need of serious rebuilding. We brought in Randy Roscoe as vice president, Sales and Marketing to jump-start our sales effort. His aggressive approach has been instrumental to our success this year. Second, we appointed Internix, Japan's leading technical distributor to expand distribution of our audio enhancement technology in Japan. The Internix customer list reads like a 'Who's Who' of Japanese OEMs and as such, they are ideally positioned to leverage their contacts and expertise in that market. Their market presence is many times greater than a company of our size could typically amass on its own.''

Spatializer's CEO also committed last year to reinvigorate the company's R&D effort. In that regard, Spatializer announced a record setting introduction of three new products over the past twelve months. Spatializer DigitalFX(TM) delivers positional and bass enhancement software to a wide array of consumer electronics and PC products, optimized for each particular application. StreamFX(TM) for Linux was introduced to provide audio enhancement for the XXMS Media Player, which is distributed with Red Hat Linux and Corel Linux, among others. Recently, Spatializer announced the release of Spatializer Natural Headphone(TM), which provides outstanding virtual surround sound effects for headphones with greater impact, particularly through inexpensive or low quality headphones.

``Portable and personal audio devices are leading the digital audio revolution and the headphone is the means of delivering the astonishing digital audio experience,'' Mandell asserts. ``It's really amazing to us that the actual audio experience delivered through low-cost, or 'frequency response challenged' headphones, often fall short of the potential audio experience that can be delivered by the power of the DSP. We are confident that our potential licensees will find this to be the right product at the right time, in an attractive package.''

Tactically, Mandell explains that it's essential to always maintain a sharp focus on those few areas that will likely maximize the company's success. ``But, in addition to focus, we must employ patience and persistence, combined with a long-term view of the market as key disciplines for success. I'm impatient ... I'm a tough critic ... and, like our shareholders, I expect results. But by staying focused on our plan, we grew our revenues nicely over the past year and -- more importantly -- successfully executed several initiatives to strengthen our position as the de facto standard for virtual surround sound in the DVD player market,'' Mandell explains. ``We have a top-notch engineering organization in place to execute our research and development and a dedicated sales team to pursue targeted prospects.''

Mandell says, ``We're now positioned to successfully replicate our dominance in the DVD arena within other audio markets. We're launching new initiatives into foreign markets and developing new products for both OEM and consumer applications. We planted the seeds for future growth in fiscal 2000 -- now we look forward to reaping the rewards of those efforts by developing new opportunities over the next twelve months and to reporting our company's progress to our shareholders.''

Mandell says that he's confident that Spatializer has now moved to the next level. ``While we're gratified by our brisk revenue growth and profitable operating results, we will never be satisfied with the status quo. Our staff knows that we are at the forefront of the digital audio revolution, where, the battle for dominance in our market is being fought today, not by short-term profits, but by long -term relationships. The pay-off may be a couple of years off, but the opportunity is here today. So I don't mind setting the bar high. The digital audio revolution is here and Spatializer's technology portfolio and strong relationships with World Class manufacturers strategically positions us to capitalize on this revolution. We plan to grow steadily each year and we plan to dominate every market that we enter.''

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, video and DVD products from global brand leaders including Toshiba, JVC, Panasonic, Hitachi, Samsung, Acer, Sharp, Sanyo, LG, Zenith and Proton, in PC multimedia systems and peripherals from Apple and Labtec, in silicon from Matsushita, New Japan Radio Corporation, ESS, Zoran, Motorola, C-Cube, Tvia, VM Labs, LinkUp and Acer Laboratories Inc, and in software compatible with MP3 players such as WinAmp and embedded with RISC cores from MIPS Technologies. Spatializer stock is traded on the OTC Bulletin Board under the symbol: SPAZ. The company is headquartered in Santa Clara, CA, with marketing offices in Tokyo, Japan. Further information may be obtained from the company's web site, www.spatializer.com, Spatializer's SEC filings, and by contacting the company's Investor Relations Department toll-free at 888-825-0743 or by writing to spaz@mdcgroup.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 the continued need for additional capital, dependence on new technology and intellectual property, dependence on the PC and consumer electronics industries, dependence on product shipments of third-party licensees, competition and pricing pressures, and other risks detailed from time to time in the company's periodic reports filed with the Securities and Exchange Commission.

NOTE: Desper Products Inc. is a wholly owned subsidiary of Spatializer Audio Laboratories Inc. Spatializer Natural Headphone(TM), Spatializer N-2-2(TM), Spatializer StreamFX(TM) for Linux and Spatializer Digital FX(TM) are trademarks and Spatializer® is a registered trademark of Desper Products Inc. All other trademarks are the property of their respective owners.

                     SPATIALIZER AUDIO LABORATORIES, INC.
                               AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS

                                    ASSETS


                                                December 31,   December 31,
                                                    2000           1999

    Current Assets:
     Cash and Cash Equivalents                  $1,467,988      $1,021,998
     Accounts Receivable                           506,558         687,595
     Prepaid Expenses and Deposits                  26,458          22,640
        Total Current Assets                     2,001,004       1,732,233
    Property and Equipment, Net                    108,061         132,803
    Intangible Assets, Net                         302,789         207,793
    Other Assets                                    45,170          45,170
                                                $2,457,024      $2,117,999

                       LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
     Notes Payable                                      $0         $14,149
     Notes Payable to Related Party                337,742         337,742
     Accounts Payable                               51,782         234,118
     Accrued Wages and Benefits                     61,390          53,136
     Accrued Expenses                               99,595         291,117
     Net Liabilities of Discontinued Operation     255,840         419,600
        Total Current Liabilities                  806,349       1,349,862
     Commitments and Contingencies
    Stockholders' Equity (Deficit):
     10% Series B Convertible Redeemable
     Preferred shares, $0.01 par value;
     1,000,000 shares authorized; 102,967
     shares issued and outstanding at
     December 31, 2000 and 1999, respectively        1,030           1,030
    Common shares, $0.01 par value; 50,000,000
     shares authorized; 47,087,971 and
     46,174,970 shares issued and outstanding
     at December 31, 2000 and 1999,
     respectively                                  470,880         461,750
    Additional Paid-In Capital                  46,404,892      45,913,503
    Accumulated Deficit                        (45,226,127)    (45,608,146)
        Total Shareholders' Equity               1,650,675         768,137
                                                $2,457,024      $2,117,999


                     SPATIALIZER AUDIO LABORATORIES, INC.
                               AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                           Year Ended December 31,
                                     2000            1999            1998
    Revenues:
     Product Revenues, Net                                        $39,496
     Licensing Revenues                                           663,522
     Royalty Revenues            $2,201,812      $1,660,371       976,697
                                  2,201,812       1,660,371     1,679,715
      Cost of Revenues              248,217          48,780       134,190
                                  1,953,595       1,611,591     1,545,525
    Operating Expenses:
     General and Administrative     599,291         515,843     1,732,097
     Research and Development       540,269         383,176       755,899
     Sales and Marketing            455,901         257,017     1,001,747
                                  1,595,461       1,156,036     3,489,743
      Operating Income (Loss)       358,134         455,555    (1,944,218)
    Interest Income                  64,857           3,401        27,672
    Interest Expense                (34,112)       (102,468)      (84,723)
    Other Income (Expense), Net       3,140           4,804       (50,955)
                                     33,885         (94,263)     (108,006)
       Income (Loss) from
        Continuing Operations       392,019         361,292    (2,052,224)
       Loss from Discontinued
        Operations                                             (3,701,599)
      Income (Loss) Before
       Income Taxes                 392,019         361,292    (5,753,823)
      Income Taxes                  (10,000)         (6,500)      (38,238)
      Net Income (Loss)            $382,019        $354,792   $(5,792,061)
      Basic and Diluted Income
       (Loss) per Share:
        Continued Operations           $.01            $.01          $(.12)
        Discontinued Operations                                       (.17)
                                       $.01            $.01          $(.29)
        Weighted-Average Shares
         Outstanding             46,736,224      33,805,512    22,180,180

SOURCE: Spatializer Audio Laboratories Inc.