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November 09, 2001 06:30

Spatializer Audio Laboratories, Inc. Announces Third Quarter Operating Results
Adjustments to Second Quarter Accruals Due to Late Royalty Reporting And Change in Licensee Royalty Reporting Method Negatively Impacts Third Quarter

Operating Results, Which Would Otherwise Have Reflected a Small Profit

SANTA CLARA, Calif., Nov. 9 /PRNewswire/ -- Spatializer Audio Laboratories, Inc. (OTC Bulletin Board: SPAZ) today announced its financial results for the third quarter ended September 30, 2001.

(Photo: http://www.newscom.com/cgi-bin/prnh/20010525/LAF026LOGO )

Revenues for the third quarter of fiscal 2001 were $303,000, compared to revenues of $630,000 in the third quarter of fiscal 2000, a decrease of 52%. Revenues for the nine-months ended September 30, 2001 were $1,215,000 compared to revenues of $1,666,000 in the comparable nine-month period last year.

The company reported net loss for the quarter of $175,000, $0.00 basic and diluted per share, compared with net income of $104,000, $0.00 basic and diluted per share, in the comparable period last year. Net loss for the nine-months ended September 30, 2001 was $267,000, ($0.01) basic and diluted per share, compared to net income of $386,000, $0.01 basic and diluted per share, in the comparable nine-month period last year.

The decrease in the revenues reported in the third quarter resulted primarily from adjustments to revenues accrued in the prior quarter to reflect actual cash receipts for second quarter operations. The Company`s long standing policy has been to accrue revenue based on estimates derived from historical and current information available when SEC reports are due. In the quarter ended June 30, 2001, reporting changes and delayed reporting impacted these estimates. Effective April 1, 2001, two manufacturers assumed royalty reporting and payment responsibilities previously held by a single DSP foundry. The change in reporting entities and the related change in payment from the previous policy of shipments by the DSP foundry to the manufacturers to the new policy of royalties based on the manufacturer`s shipment of DVD players resulted in an over-accrual of estimated revenues in the second quarter. An adjustment of approximately $200,000 was made in the third quarter.

Revenues for the nine months ended September 30, 2001 were lower because of the aforementioned adjustment and a flat fee license royalty of 250K earned in the first half of 2000 for which there were no comparable royalties in the current year. In addition, royalties on analog integrated circuits have declined from a major account due to a continuing sales decline of audio related special purpose ICs.

The net loss for the three and nine month periods are primarily the result of the decrease in revenue and an increase in operating expenses, primarily for research and development. The Company previously reported in its second quarter that it had accelerated its hiring program to capitalize on a brief supply of engineering talent in the Silicon Valley as a result of industry layoffs. In addition, the Company stepped up its use of outside consultants to move several projects closer to completion. These initiatives were trimmed in the third quarter to more closely synch overhead with current operating levels.

"It`s always disappointing to report a quarterly loss, but when a modest quarterly profit is turned into a loss due to untimely and inadequate information, its even more difficult," stated Henry R. Mandell, Chairman and CEO of Spatializer. "Shareholders sometimes ask why we don`t report earlier and now we unfortunately see why that can be problematic. We have communicated to our licensee the importance of timely information and the obvious ramifications from any delayed information."

Mandell continued, "Nevertheless, we are moving our business ahead in these uncertain times. We reduced our overhead by over 20% compared to the previous quarter. In the third quarter, we announced our first portable digital player deal with Sanyo. This reflects a re-established relationship with the Sanyo organization where there are significant opportunities. We added Sharp DVD and SONICblue to our licensee family. Zoran Corporation designated us as a preferred provider on their Vaddis(R) DSP line, including the new Vaddis V processor. We extended our relationship with Texas Instruments with new platform availability and are collaborating with them in a joint marketing effort. Lastly, we announced Spatializer PCE(TM) that represents the Company`s next-generation audio enhancement technology that both polishes and expands the listener`s audio experience. As a small company, we have accomplished much in the past quarter and I`m proud of our team. I expect a solid and profitable fourth quarter and look forward to success in this competitive environment."

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