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Spatializer Enters Historically Stronger Second Half With Improved Profitability on A Three and Six Month Basis Compared With the Prior Year

Revenues for the second quarter of fiscal 2001 were $471,000, compared to revenues of $486,000 in the second quarter of fiscal 2001, a decrease of 3%. Revenues for the six months ended June 30, 2002 were $911,000 compared to revenues of $912,000 in the comparable six-month period last year.

The company reported net income for the quarter of $3,000, $0.00 basic and diluted per share, compared with a net loss of $98,000,($0.00) basic and diluted per share, in the comparable period last year. Net income for the six months ended June 30, 2002 was $24,000, $0.00 basic and diluted per share, compared to a net loss of $92,000, ($0.00) basic and diluted per share, in the comparable six month period last year.

Revenues in 2002 were approximately flat on a three and six month basis, as compared to the comparable periods in 2001. This reflects the addition and ramp up from announced new accounts, offset by the loss of a medium sized account in the second half of 2001.

Net income for the three and six month periods are primarily the result of a decrease in operating expenses, primarily for research and development, which were unusually high in the second quarter of 2001. At that time, the Company reported that it had stepped up its engineering effort and its use of outside consultants to move several projects closer to completion. These projects were completed in 2001 and research and development have returned to normalized levels over the past several quarters.

"We're satisfied that we completed the first half of the year, which is traditionally the slowest, in a profitable and cash flow positive position, especially when considered against last year's comparable performance," stated Henry R. Mandell, Chairman and CEO of Spatializer. "As such, and knowing of the impact of last year's royalty reporting transition on our second and third quarter results, we feel that we're entering the traditionally stronger second half of the year in very good shape indeed. We're looking forward to seeing the further roll-out of announced deals as well as the impact of new licensing deals we have been working on."

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 and Sanyo, in PC multimedia systems and peripherals from Apple and Labtec, in silicon from Matsushita, Texas Instruments, Cirrus Logic, New Japan Radio Corporation, Zoran, Motorola, LSI, Genesis, and Acer Laboratories Inc, in software compatible with all leading media and soft DVD players 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 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's 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 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® is a registered trademark of Desper Products Inc. All other trademarks are the property of their respective owners. Copyright (C) 2002 Spatializer Audio Laboratories, Inc.

                       SPATIALIZER AUDIO LABORATORIES, INC.
                                 AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                      ASSETS

                                                   June 30,    December 31,
                                                     2002          2001
                                                 (unaudited)
    Current Assets:
      Cash and Cash Equivalents                   $967,025      $869,478
      Accounts Receivable, net                     457,411       442,555
      Prepaid and Deposits                          50,314       133,251
    Total Current Assets                         1,474,750     1,445,284

    Property and Equipment, net                     96,945        50,586
    Intangible Assets, Net                         233,261       255,726
    Other Assets                                         0         1,510

    Total Assets                                $1,804,956    $1,753,106

                       LIABILITIES AND SHAREHOLDERS' EQUITY

    Current Liabilities:

      Notes Payable to Related Parties             112,500       112,500
      Accounts Payable                              67,274        14,872
      Accrued Wages and Benefits                    71,487        72,969
      Accrued Expenses and Taxes                    42,955        41,197
      Net Liabilities of Discontinued Operation     74,845       100,000
    Total Current Liabilities                      369,061       341,538

    Shareholders' Equity:
      Series B, 10% Redeemable Convertible
       Preferred shares, $.01 par value,
       1,000,000 shares authorized,
       87,967 shares issued and
       outstanding at June 30, 2002 and
       December 31, 2001, respectively                 880           880
      Common shares, $.01 par value,
       50,000,000 shares authorized,
       47,406,939 shares issued and
       outstanding at June 30, 2002 and
       December 31, 2001, respectively             474,070       474,070
      Additional Paid-In Capital                46,402,852    46,402,852
      Accumulated Deficit                      (45,441,907)  (45,466,234)
    Total Shareholders' (Deficit)                1,435,895     1,411,568

    Total Liabilities and
     Shareholder's Equity                       $1,804,956    $1,753,106



                       SPATIALIZER AUDIO LABORATORIES, INC.
                                 AND SUBSIDIARIES

                       CONSOLIDATED STATEMENT OF OPERATIONS

                                   (unaudited)

                             For the Three Month        For the Six Month
                                 Period Ended              Period Ended
                             June 30,     June 30,     June 30,    June 30,
                               2002         2001        2002         2001
    Revenues:

      Royalty and Product
       Revenues               470,631     485,893      911,112     911,974

    Cost of Revenues           39,719      41,090       67,921      68,590
    Gross Profit              430,912     444,803      843,191     843,384

    Operating Expenses:
      General and
       Administrative         182,710     207,355      318,044     358,252
      Research and
       Development            119,437     223,381      243,040     360,703
      Sales and Marketing     125,986     115,283      256,325     228,986
                              428,133     546,019      817,408     947,941

    Operating Profit (Loss)     2,779    (101,216)      25,783    (104,557)

    Interest Income             3,079      11,775        6,568      29,632
    Interest Expense           (2,812)     (8,068)      (5,625)    (16,550)
                                  267       3,707          944      13,082

    Income (Loss) Before
     Income Taxes               3,046     (97,509)      26,727     (91,475)

    Income Taxes                   --          --       (2,400)       (500)

    Net Income (Loss)          $3,046    $(97,509)     $24,327    $(91,975)

    Basic/Diluted Earnings
     Net Income (Loss)
      Per Share                 $0.00      $(0.00)      $0.00       $(0.00)

    Weighted Average
     Shares Outstanding    47,406,939  47,386,521   47,406,939  47,326,691

SOURCE: Spatializer Audio Laboratories, Inc.